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Ghasilal Todi Vs. Biswanath Kerwal and ors. - Court Judgment

LegalCrystal Citation
SubjectArbitration
CourtKolkata High Court
Decided On
Case NumberAward case No. 86 of 1963
Judge
Reported inAIR1964Cal466
ActsArbitration Act, 1940 - Sections 9 and 10(1)
AppellantGhasilal Todi
RespondentBiswanath Kerwal and ors.
Appellant AdvocateMonotosh Mukherjee, Adv.
Respondent AdvocateAjit Sarkar, Adv.
DispositionApplication dismissed
Cases ReferredLakhmir Singh v. Union of India
Excerpt:
- .....a judgment in terms of the award. the high court in appeal set aside the order holding that the award was time barred. the supreme court upheld the decision, of the high court. the supreme court held that when the arbitrator had entered upon the reference, time should be computed from the date when he entered upon the reference. subsequent application by one of the parties to hurry the matter and to conclude the arbitration proceeding was irrelevant. it was pointed out by the supreme court that if such would be the case, parties, simply by writing a letter to the arbitrator to expedite the arbitration proceeding, could go on indefinitely extending the time to file the award. the judgment of the high court was thereupon affirmed. it is a direct authority for the proposition that in a.....
Judgment:
ORDER

P.C. Mallick, J.

1. This is an application challenging the validity of an arbitration proceeding and the award made thereunder. It is prayed that the award made on May 23, 1962 in the said arbitration proceeding be set aside. It is prayed in the alternative that the appointment of Madanlal Dalmia as sole arbitrator be set aside. There is a third alternative prayer for remitting the award for reconsideration.

2. Shortly the facts relevant for the purpose of this application may now be stated. The petitioners are owners of a rice mill situate at Beliatore in the district of Bankura. On November 16, 1960, they entered into a partnership, agreement with the respondent for carrying on the said business. The respondent under the agreement was required to advance money both by way of capital and loan to the partnership. It is not necessary to set out and consider the other terms of the partnership except Clause 29 which is the arbitration clause. Disputes arose between the parties --each charging the other of having committed breach of the partnership agreement. Thereupon the respondent by his solicitor invoked the arbitration clause, appointed Madanlal Dalmia as the respondent's arbitrator and called upon the petitioners to appoint their arbitrator in terms of the arbitration clause in the agreement. This is evidenced by the letter dated May 17, 1961, addressed by Messrs, L- P. Agarwalla and Co., on behalf of the respondent to Satipati Banerjee, pleader of the petitioners. In reply Sri Satipati Banerjce informed the respondent's solicitors to keep the matter pending inasmuch as his clients and the agent in charge dealing with the matter were out of station and in their absence the writer was not in a position to give his clients' view in the matter. I apprehend that the tactics adopted by the petitioners were the usual dilatory tactics without realising the serious consequences. No arbitrator having been appointed by the petitioners, the respondents appointed Madanlal Dalmia as the sole arbitrator under Section 9 of the Arbitration Act and requested him to enter upon the reference. This happened on or about July 24, 1961. On November 29, 1961, long after the expiry of the period, the petitioners' pleader informed the respondent's solicitor that they have appointed Ram Avatar Dhaniwalla to act as their arbitrator. The solicitor was requested to inform Madanlal Dalmia of this appointment so that the arbitration might proceed. In reply the solicitor informed Banerjee on January 8, 1962 that the petitioners were not entitled to appoint an arbitrator after such a long period and, moreover, the said Madanlal had already been requested to act as the sole arbitrator. The petitioners oven then did not come to Court for setting aside the appointment of Madanlal Dalmia as the sole arbitrator. Useless correspondence was carried on by and on behalf of the petitioners relating to the arbitration proceeding. On or about March 17, 1962, Madanlal Dalmia entered on the reference and gave notice of holding a meeting on March 31, 1962, at his residence. As the petitioners were not present, the meeting was adjourned, and the arbitrator gave notice on Aprit 2, 1962 that a meeting will be held on April 18, 1962. The parties were informed that if any party failed to attend, the arbitrator would proceed ex parte. On April 3, 1962, the petitioners' pleader wrote to the arbitrator asking him not to proceed in the matter as his clients were taking steps in the proper Court for condoning the delay. On April 18, 1962, the arbitrator sent a copy of the respondent's statement to the petitioners with a request to file theirs by April 26, 1962 and also gave notice that a meeting has been fixed (or May 1, 1962. On April 25, 1962, S. C. Palit, solicitor, purporting to act for the petitioners wrote a long letter to Madanlal. In his said letter it is contended that his clients never received certain letters and he asked for copies. He asked for five weeks time to be ready. The letter concludes with the following observation :

'If in spite of the facts stated and requests made in this letter you proceed to hold the meeting or proceed with the alleged reference which my client submits is not in any event now in force or binding on my client, my client will not be bound by such proceedings or by any award that may be made by you without giving my client an opportunity to properly represent his case, and/or objections.'

A copy of this letter was sent to the respondent. On April 30, 1962, the respondent's solicitor re-plied to the letter stating all the facts and contending that the facts stated in the letter under reply were false and frivolous. The letter concludes with the following observation:

'Our request to the arbitrator on behalf of our client is not to adjourn the arbitration proceedings for five weeks. Our client will insist upon the arbitrator to proceed with the arbitration proceedings.'

It appears, however, that the arbitrator adjourned the meeting till May 10, and intimated the parties accordingly. He requested the petitioners to file statement, if any, before that date. By his letter elated May 9, 1962, Sri Palit asked for a further fortnight's time to file his Counter State of Facts. It was contended that the time granted was too short. Thereupon the arbitrator adjourned the meeting to May 23, 1962. After intimating that this adjournment was last and final, the letter concludes with the following observation:

'If either of the parties fail to appear and/or to produce relevant papers, documents and witnesses, I will proceed ex parte'.

The day before Sri Palit asked for a further fortnight's time. In this letter Sri Palit intimated that his clients do not consent to the meeting being held at the arbitrator's residence. The letter concludes with the usual threat that if arbitration proceedings are taken, his clients will not be bound by the same. On May 23, a meeting was held, the petitioners were absent, and the arbitrator proceeded ex parte and made his award. This award is being challenged in this proceeding.

3. The arbitration clause in the contract reads as follows:

'That in case of any dispute arising out of this agreement or during the continuance of this partnership business between the parties the same will be decided by arbitration, each party will nominate one person and the persons so nominated will elect a third person as Chairman and the decision of the majority will be binding on the parties. The venue of the arbitration would be at the business office or at any convenient place as may be agreed upon.'

4. It is contended by Mr. Mukherjee appearing for the petitioners that under the arbitration clause it was not open to the respondent to appoint Madanlal Dalmia as the sole arbitrator under Section 9 of the Arbitration Act and, as such, the award by Madanlal as the sole arbitrator is a bad award. The clause makes it clear that the reference is to a board of three arbitrators and the award must be an award of the majority, that is, by two arbitrators. In answer to this argument it is contended by Mr. Sarkar that the clause is covered by Section 10(1) of the Act which reads as follows;

Section 10(1). 'Where an arbitration agreement provides that a reference shall be to three arbitrators, one to be appointed by each party and the third by the two appointed arbitrators, the agreement shall have effect as if it provided for the appointment of an umpire, and not for the appointment of a third arbitrator, by the two arbitrators appointed by the parties.'

In the instant case the third arbitrator i.e., the Chairman is in law deemed to be the umpire. He will have the same power and function as that of an umpire. Law does not empower the parties to direct the third arbitrator appointed in the manner indicated in Section 10(1) to act as other than an umpire. He will have powers and functions as that of an umpire. In that View of the matter, if the arbitration clause provides for the appointment of a third arbitrator by the two arbitrators appointed by the parties, he, in law, is incompetent to sit along with the two others as a member of the board of arbitrators and decide the disputes by a majority. He is the umpire, in law, and comes in the picture only when the two arbitrators do not agree. The provision in the contract that the majority will decide and that their decision is to be final is contrary to the provisions of Section 10(1) which is a mandaory provision and not merely directory. It follows that the instant agreement will have the same effect as that of an arbitration agreement which provides for the appointment of two arbitrators -- one by each --and the two arbitrators to appoint an umpire. The other provisions in the agreement must be rejected as being contrary to statute. This being the effect of the instant agreement, Section 9 is attracted when one of the parties fail to appoint in arbitrator or the arbitrator appointed by one of the parties neglects or refuses to act or is incapable of acting or dies. In the instant case the petitioners failed to appoint an arbitrator though called upon to appoint one in writing within the statutory period. Thereupon the respondent appointed Madanlal Dalmia the arbitrator appointed by him to act as the sole arbitrator. Madanlal therefore was competent to make a lawful and binding award. In support of this argument a decision of Megew J. (sitting in the Queen's Bench Division) in the case of Merinos and Franges Ltd. v. Dulien Steel Products Inc. of Washington reported in (1961) 2 Lloyd's Rep 392 has been cited. It dealt with Sections 9 and 7 of the English Act which are pari materia with Sections 10 and 9 of our Act. This decision has been cited and relied on by Russel in his book 17th Edition page 209. The reason given is substantially what is stated above. With respect I agree with the above decision and hold that having regard to Section 10(1) of the Act the effect of the instant arbitration agreement is that the 'Chairman' to be appointed by the arbitrators is the umpire and that the clause providing that the decision of majority shall prevail, should be ignored. I further hold that on failure of the petitioners to appoint an arbitrator when called upon to do so, the respondent was entitled to invoke Section 9 of the Act and appoint Madanlal Dalmia the arbitrator appointed by him as the sole arbitrator. The award of Madanlal Dalmia is therefore not liable to be set aside on the ground taken by Mr. Mukherjee as stated above.

5. It is next contended that inasmuch as the arbitration proceeding took place at the residence of the arbitrator contrary to the agreement the proceeding is vitiated. The agreement provides that the proceeding to take place at the business office or at any convenient place as may be agreed upon. The petitioners did not object to the venue at any time prior to the last letter of their solicitor. This conduct indicates that they, agreed to the arbitration being held at the Arbitrator's residence impliedly though not expressly. Tho objection taken along with a number of other frivolous objections in the last letter was not a bona fide objection. If I could persuade myself to hold on the facts of the instant case that the grievance was genuine and had the proceedings taken place at the business place, the petitioners would have taken part in the arbitration proceeding I would have attached weight to this argument. Along with a number frivolous objections the objection was taken. By reason of the arbitration proceedings taking place at the Arbitrator's residence no inconvenience has been caused to the petitioners nor has there been failure of justice because of the proceedings having taken place at the Arbitrator's residence. The award in my judgment is not liable to be set aside on this ground either.

6. A point is taken in the petition that the Atbitrator has failed to make his award within time. On July 24, 1961 Madanlal Dalmia was appointed sole arbitrator and on the same date he was called upon to enter upon the reference. Madanlal Dalmia however entered on the reference on March 17, 1962 when he gave notice to the parties that he would hold the first meeting on 31st March 1962. The Arbitrator, therefore, entered on the reference after about 8 months, to be exact a week less, from the date he was requested to act. He made the award on May 23, 1962. Paragraph 3 of tho First Schedule to the Act provides: --

'The arbitrators shall make their award within four months after entering on the reference or after having been called upon to act by notice in writing from any party to the arbitration agreement or within such extended time as the Court may allow.'

7. Before I consider the argument on this point of limitation I should like to note that when the application was first heard, the point of limitation was not argued by the counsel for either side. On January 3, when I was delivering judgment I felt that the award was made beyond time and, as such, no judgment could be passed on the said award. Mr. Sarkar thereupon submitted that the point not having been raised by Mr. Mukherjee, he did not apply his mind, nor did he address me on the point. He contended that he might be given an opportunity to consider the point and make his submission. I felt the propriety of his prayer and I adjourned delivering judgment and gave liberty to the parties to address me on the point of limitation. The point has since been argued by learned counsel. The award-holder in the meantime was advised, to make a formal application for extension of time under Section 28 of the Arbitration Act in case it is held that the award had been made beyond time.

8. Mr. Sarkar submitted, firstly, that the letter dated July 24, 1961, a copy of which is annexed to the affidavit-in-opposition, does not amount to a notice calling upon the arbitrator to act in the reference. The letter dated July 24, 1961 reads as follows:

'Sri Satipati Banerjee 24th July 1961.

Pleader , Asansol,

Dist. Burdwan.

Dear Sir,

Sub. Messrs. Narayani Rice Mills, Beliatore, Dist. Bankura.

Our clt: Sri Chasilal Todi.

Your clts: Sri Sankarlal Kerwal and ors.

We refer to our letter No. 1/1342/61 dated 17.5.61 and your reply dated 7-6-61. Neither you nor your clients have uptil now intimated the name of their arbitrator.

In the aforesaid circumstances Sri Madan Lal Dalmia at No. 9/1A, Madan Chatterjee Lane, Calcutta has become the sole arbitrator to arbitrate the disputes between your clients and our client.

We are forwarding a copy of this letter to Sri Madan Lal Dalmia with a request to enter upon the reference and to proceed with the arbitration proceedings.

Yours faithfully, Sd. I. P. Agarwalla and Co.'

Mr. Sarkar's submission is that it is nothing more than a notice a party is required to give to appoint his own arbitrator as the sole arbitrator in terms of Section 9 of the Indian Arbitration Act. It is true that the letter was written in order to enable the respondent to appoint his own arbitrator as the sole arbitrator in terms of Section 9 of the Indian Arbitration Act. I would have accepted the argument if the concluding paragraph was not there in the letter. The concluding paragraph of the letter expressly requests the' arbitrator to enter upon the reference. This is not required to be done under Section 9 of the Act. It is a notice on the arbitrator to act in the reference within the meaning of Schedule I of paragraph 3 of the Act. Mr. Sarkar wants me to note that the letter has not been addressed to the arbitrator, but it has been addressed to the lawyer of the petitioner. It is true that the letter is addressed to the lawyer of the petitioner. But it is equally true that a copy of this letter was sent to the arbitrator. In my judgment, the object of writing the concluding paragraph was to request the arbitrator to take lip the reference. I hold that by the letter dated July 24, 1961, the respondent called upon the arbitrator to act. The question, therefore, to be determined in this case is whether the period of limitation as provided in paragraph 3 of the first Schedule would start from July 24, 1961 when he was called upon to act by a notice in writing or from March 17, 1962 when he actually entered on the reference. If time is to be commuted from the date on which the arbitrator entered on the reference, it must be held that the award was made within time. On the other hand if time is to be computed from July 24, 1961 i. e., the date on which the arbitrator was called upon by the respondent to act, the award is clearly time barred. In support of his contention that time would begin to run from March 17, 1962, Mr. Sarkar relies on a decision of the Supreme Court in the case of Harishankarlal v. Shambhunath, reported in : [1962]2SCR720 . The subject matter of the arbitration in the cited case was a reference to arbitration by the two sons along with their mother for partition of ejmali property. The agreement was dated August 27, 1948. Within ten days from that date i. e., September 6, 1948, the arbitrator entered upon the reference. Long after, on July 25, 1949, the mother died and nothing having been done by the arbitrator to conclude the arbitration proceeding for this long period, one of the parties called upon the arbitrator to act in the reference by a letter dated August 31, 1950. Within four months thereafter i. e. on October 1, 1950, the award was made and duly registered. The award was challenged on the ground that the award was made more than 4 months after the date of entering on the reference. The other contention was that the award was made within 4 months from the date the arbitrator was called upon to act and hence the award was within time. The trial court held that the award was within time and passed a judgment in terms of the award. The High Court in appeal set aside the order holding that the award was time barred. The Supreme Court upheld the decision, of the High Court. The Supreme Court held that when the arbitrator had entered upon the reference, time should be computed from the date when he entered upon the reference. Subsequent application by one of the parties to hurry the matter and to conclude the arbitration proceeding was irrelevant. It was pointed out by the Supreme Court that if such would be the case, parties, simply by writing a letter to the arbitrator to expedite the arbitration proceeding, could go on indefinitely extending the time to file the award. The judgment of the High Court was thereupon affirmed. It is a direct authority for the proposition that in a case where the arbitrator has entered upon the reference, time begins to run from the date when the arbitrator enters upon the reference. But in the background of the facts it was not necessary for the Supreme Court to decide that if the arbitrator enters upon the leference long after 4 months from the date of being called upon to act by notice in writing the arbitrator still had the authority to take tip the submission and make the award without any extension of time. In my judgment the observations of Subba Rao J., in the cited case when read in the background of facts, cannot be relied on in support of Mr. Sankar's argument. Raghubar Dayal, J. the other learned Judge made clear the point decided by the Supreme Court. I do not read the judgment of Supreme Court as laying down the proposition that even though 4 months have expired after the arbitrator was called upon to act in writing by notice as required by para 3 of the First Schedule the arbitrator still retains jurisdiction to enter upon the reference at any time thereafter and make a valid award provided the awardis made within 4 months from the date of entering upon the reference. On a plain reading ofthe statute, I am inclined to think that in a casewhere the arbitrator has not entered upon the reference and is called upon by a party to act, timefor making the award will have to be computedfrom the date he is so called upon to act. If, however, within the period of four months of beingcalled upon to act the arbitrator enters upon thereference, Subba Rao, J. is apt to think thatlimitation begins to run not from the previous datebut from the date on which the arbitrator entersupon the reference. The cited case is clearly distinguishable from the instant case and cannot becited as an authority in the instant case. It wouldfollow, therefore, that the award in the instantease has been made out of time.

9. As indicated before, Mr. Sarkar realised the possibility of this decision and in order to get round it be has made a substantive petition under Section 28 for extending the time for filing the award. In the facts of this case, I am inclined to thick that a case for extension has been made out. It is a fact that the delay in taking up the reference and making the award is attributable, to a very great extent, if not wholly, to the petitioner. Further, I am bound to note that the petitioner never took the ground that the time having expired, the arbitrator was no longer entitled to function as such. On the contrary, he himself applied to the arbitrator for extension of time to enable him to file his statement. This was on the footing that the arbitration agreement still subsisted and the arbitrator was competent in law to make the award. These facts must be kept in view. Mr. Sarkar contended that by his conduct the petitioner is debarred from contending now that the arbitrator was no longer competent to function. It is not necessary for me So consider whether by his conduct the petitioner is debarred from taking up the point now. But I do consider that this point has got relevance in considering whether extension of time should be granted or not. Mr. Mukherjee, learned Counsel appearing for the petitioner relied on the decision in the case of Lakhmir Singh v. Union of India, reported in : AIR1957Pat633 . In that case, as in the present case, the award was made out of time. No application was made for extension of time till at the conclusion of the argument. In spite of 'that, the trial Judge extended the time and passed judgment in terms of the award. When the matter came up in appeal before the Patna. High Court, the Division Bench did not say that, the Court had no power to extend the time. It was stated in the judgment in clear terms that the court had power. On the facts of this case, however, the High Court took the view that time ought not to have been granted. This decision cannot be relied on as laying down a proposition that if an application is not made at an early stage, the court is bound to refuse extension. I am satisfied that a fit case has been made out for extension of time and I make an order accordingly. That being so, there is no difficulty for me to uphold the award.

10. In the result, the application to set aside the award is dismissed. Order is made for extension as prayed for in the Notice of Motion taken out on February 21, 1964. Having regard to the facts of the case, the parties will bear their own costs.


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