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Arbn Hindusthan Steel Vs. Appejay Pr. Ltd. - Court Judgment

LegalCrystal Citation
SubjectArbitration
CourtKolkata High Court
Decided On
Case NumberAward No. 179 of 1965
Judge
Reported inAIR1967Cal291
ActsArbitration Act, 1940 - Sections 5, 12(2) and 28 - Schedule - Rule 3
AppellantArbn Hindusthan Steel
RespondentAppejay Pr. Ltd.
Advocates:D.K. Sen, Adv.
DispositionApplication dismissed
Cases ReferredJuggilal Kamlapat v. General Fibre Dealers
Excerpt:
- .....of april, 1960 for the sale and purchase of steel ingots for export. this agreement included an arbitration clause, the material words of which are as follows :-- 'should any dispute or disagreement arise in relation to the matter of payment, allowance or loss, or the interpretation of any one or more of the clauses of this contract (except as to any matter the decision of which is specially provided for by these conditions) which dispute or disagreement cannot he satisfactorily by mutual conference, (sic) then the matter shall be referred to the award of an arbitrator to be nominated by the seller and an arbitrator to be nominated by the buyer or in case..... supply under this contract shall be continued by the seller and delivery taken by thebuyer under the terms of this agreement.....
Judgment:
ORDER

S. Datta, J.

1. This is an application for re-moval of the arbitrators, revoking the authority of the arbitrators and for declaration that the arbitration agreement dated April 8, 1960 has ceased to have any effect with respect to the differences referred to the said arbitrators, and for other reliefs.

2. This application, in my opinion, can be disposed on one point of law on the basis of a few undisputed facts without going into the elaborate arguments advanced before me.

3. The respondent and Union of India entered into an agreement on the 8th day of April, 1960 for the sale and purchase of steel ingots for export. This agreement included an arbitration clause, the material words of which are as follows :--

'Should any dispute or disagreement arise in relation to the matter of payment, allowance or loss, or the interpretation of any one or more of the clauses of this contract (except as to any matter the decision of which is specially provided for by these conditions) which dispute or disagreement cannot he satisfactorily by mutual conference, (sic) then the matter shall be referred to the award of an arbitrator to be nominated by the seller and an arbitrator to be nominated by the buyer or in case.....

Supply under this contract shall be continued by the seller and delivery taken by thebuyer under the terms of this agreement during the arbitration proceedings unless the matter is such that the supply cannot possibly becontinued or delivery taken until the decision ofthe arbitrators is obtained.'

4. There were disputes and differences between the parties regarding the matters mentioned in the said agreement on or about September 10, 1963. The respondent appointed Mr. Holways, Barrister-at-Law as its arbitrator under the said arbitration clause. On or about September 21, 1963 the petitioner appointed Mr. S.K. Mukherji, Barrister-at-Law as its arbitrator under the said arbitration clause. On or about December 12. 1963 the arbitrators entered into the reference. They held their first sitting on or about December 20, 1963. They gave directions in the matter. The respondent filed a statement of claim before the arbitrators. The petitioner also made counter claim against the respondent before the arbitrators. In these circumstances on or about June 12, 1964 the respondent filed a suit against Union of India in respect of matters which were considered earlier to be within the ambit of the arbitration clause notwithstanding the pendency of the said arbitration proceedings Before the said arbitrators. Thereafter on or about December 4, 1964 the, respondent served a notice on the arbitrators under Section 34 of the Arbitration Act. The respondent did not make any application under Section 34 in the suit. The respondent filed its written statement. The suit is now proceeding and the petitioner is now unwilling to have the matter settled by arbitration and prefers that disputes and differences should be settled in the suit.

5. In these circumstances the questions for consideration are whether the arbitrator can be removed or his authority can be revoked or the Court can declare that the said arbitration agreement dated April 8, 1960 shall cease to have any effect with respect to the differences referred to the said arbitration.

6. It will be noticed from what has been stated above that the time to file an award expired on the 12th day of April, 1964, that is to say, after the expiry of four months after the date of entering on the reference on December 12. 1963. In view of the provisions of Section 28 of the Arbitration Act read with Clause 3 of Schedule I of the Arbitration Act tbe arbitrators have become functus officio on the expiry of the 12th day of April, 1964. This view receives support from Louis Dreyfus and Co. v. Arunachala Ayya, 33 Bom LR 1536: (AIR 193) PC 289). This matter, however, has been clinched beyond doubt by the majority view of the Supreme Court in the case of Hari Shankarlal v. Shambhunath, : [1962]2SCR720 . In this connexion reference may be made to the observations of the majority view of the Supreme Court in which they have observed, inter alia, as follows :--

'And in that event, after the expiry of the said four months the arbitrators become functus officio unless the period is extended by Court under Section 28 of the Act; such period may also be extended by Court though the award has been factually made.'

Their Lordships again observed as follows :--

'So till the time is extended the award cannot be made though when extended the words 'factually made' may be treated as award made within the time so extended. To put it differently if the time was not extended by Court the document described as award would be treated as non est.'

7. In the face of these observations it is difficult for me to accept the contention advanced by Mr. D.K. Sen appearing on behalf of the respondent that the observation of Reghubardayal, J. to the following effect 'the competency of the arbitrator to act in pursuance of the reference arises out of the reference and is not dependant on the period during which they ought to make the case' is only an elucidation of the rule laid down by the majority of their Lordships. In this case there was no application for extension of time after the expiry of four months, and there is still no application for extension of time before me. Hence, in my opinion, there can be no question of revoking the authority of an arbitrator when in law the arbitrators do not exist and/or cannot function. Hence the prayers for removal and revocation of the authority on these grounds are misconceived and accordingly the consequential prayers that the said arbitration agreement shall cease to have effect with respect to the differences referred to the said arbitrators.

8. It may be incidentally noticed that a notice under Section 35 makes no difference to the position for it was served on the arbitrators long after they had become functus officio by reason of the expiry of four months in terms of Clause 3 of Schedule I of the Arbitration Act.

9. It may again be observed that in this case as the matters now stand the claims of the plaintiff will be determined by the result of thesuit. Once the decisions on the claims are embodied in a decree in the suit it is difficult to see how the arbitration agreement can be made available or an application for reference to arbitration can be proceeded and how an award can be passed on the same subject-matter. It is now necessary to turn shortly to the arguments advanced before me. The prayer for revoking the authority of the arbitrators may now be considered on the footing that the time to file the award, had not expired or that it made no difference to the position when the suit was filed and the notice under Section 35 was served. The prayer is somewhat defective. Section 5 does not enable the Court to revoke the authority but enables the Court to give leave to revoke the authority. But that, in my opinion, would not have stood in the way of giving relief if I were of a different opinion, Be that as it may, on the assumption made the outstanding facts are these: The respondent invoked the arbitration clause, filed its claim, allowed the applicant to file its counter-claims, proceeded with the arbitration proceedings and then suddenly turned volte face and filed a suit not only in respect of matters in which they developed a belated doubt as to the applicability of the arbitration clause but also in respect of matters which even according to them attracted the arbitration clause. The applicant (sic) did not rest here. They cave a notice to the arbitrators under Section 35 so that their object was to go through the suit and thereafter if they failed partially or otherwise to go through the arbitration proceedings afterwards. Hence they desire to have the best of the two worlds. In my opinion, this is a sufficient reason for giving an order for leave to revoke the authority for it defeats the primary objects of an arbitration proceedings, viz., expedition and cheapness. This will have the effect of lingering the litigation between the parties as also imposing double expenses on the parties in the event that fee applicant fails wholly or partly in the suit. In case, as it was urged before me, that the claims are so intertwined that they cannot be separated though some of them fall within the arbitration clause and some do not, then the position would be even more patent for there would be elaborate proceedings from the beginning to end in the suit as well as in the arbitration proceedings, if the applicants are allowed to have their way. This would amount, in my opinion, to an injustice to the respondent and a miscarriage of justice. In my opinion, delay in making an application for leave to revoke the authority of the arbitration cannot be a decisive factor but is a relevant consideration. Again, in my opinion, a substantial miscarriage of justice in the limited sense as urged on behalf of the respondent is not a condition precedent for directing leave to revoke the authority. In my opinion, it is difficult to anticipate all eventualities ask formulate definate ground for exercising jurisdiction under Section 5. It is evident that the Legislature found it difficult to enumerate the ground or they left it in a fluid condition so that the Court's jurisdiction may be exercised in a proper and just cases. Hence, in my opinion, the principle laid down in the case of Bhuwalka Brothers Ltd. v. Fatehchand Murlidhar, : AIR1952Cal294 cannot be exhaustive in all cases. In case the facts were as assumed by me I would have been inclined to give relief under Clause (b) of Section 12 or prayer 3 of the petition.

10. In this connection it was urged by Mr. Sen on behalf of the applicant that the revocation of authority not only denudes the arbitrators of their authority but also puts an end to the reference so that the fresh arbitrators may not be appointed in respect of the same disputes and differences. In this connection reliance was placed on the decision of Prafulla Chandra v. Panchanon, 50 Cal WN 287 at p. 294: (AIR 1946 Cal 427 at p. 433) where His Lordship Chakravartti C. J., as he then was observed inter alia 'when the section speaks of the authority of the arbitrators it means the reference.' Sub-clause (a) of Clause (2) of Section 12 militates against it. In the case of Juggilal Kamlapat v. General Fibre Dealers, : AIR1962SC1123 the Supreme Court has expressed a contrary view. Hence, the observation in Prafulla Chandra, 50 Cal WN 287: (AIR 1946 Cal 427) is no longer good law.

11. The allegation relied upon for removal of the arbitrators after setting out the facts already stated hereinbefore is summarised in paragraph 8 of the petition which is as follows :--

'In the premises the said arbitrators have not (sic) become functus officio and are not proceeding with the said reference since the said December 4, 1964.'

In my opinion, notwithstanding the wide import given to the words 'is incapable of acting' in Section 8 it is not wide enough to embrace a case where he is incapable by reason of the fact that he has become functus officio due to the expiry of the time fixed by Rule 3 of Schedule I and/or by reason of the service of a notice under Section 35 of the Act. In these circumstances, in my opinion, the arbitrators followed the right course by refraining from proceeding with the arbitration because they had become functus officio after the expiry of four months. Assuming they had not become functus officio then any decision given by them was bound to be invalid under Section 35. In my opinion, it cannot be said in these circumstances that the arbitrators had failed to use reasonable despatch in proceeding with the reference and in making an award when the arbitration proceeding has been brought to an end by flux of time and by reason of a notice under Section 35, Section 11 makes provision for removal of an arbitrator in certain circumstances. Section 12(1) comes into play when the Court has removed an arbitrator under Section 11 and where an application is made to the Court to fill up the vacancy. Likewise Clause 2 of Section 12 is attracted when inter alia there has been a removal under Section 11 and an application is made by a party to the Court to fill up the vacancy. There is, in my opinion, no independent power to remove an arbitrator under Clause 2 of Section 12. The cases relied upon, in my opinion, do not support the contention of Mr. D.K. Sen, appearing for the applicant. In my opinion, no relief under Clause (b) of Section 12 or Clause (c) can be given in view of Sections 11 and 12 or the Arbitration Act. Hence, in the result the application is dismissed and the respondent willhave only half the costs.


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