Skip to content


India Hosiery Works Vs. Bharat Woollen Mills Ltd. - Court Judgment

LegalCrystal Citation
SubjectArbitration
CourtKolkata High Court
Decided On
Case NumberSpecial Suit No. 1 of 1952 and A.F.O.O. No. 67 of 1952
Judge
Reported inAIR1953Cal488,57CWN500
ActsArbitration Act, 1940 - Sections 1, 8, 8(1), 20(1) and 20(3)
AppellantIndia Hosiery Works
RespondentBharat Woollen Mills Ltd.
Appellant AdvocateP.C. Mullick, Adv.
Respondent AdvocateA.K. Sen, Adv.
DispositionAppeal dismissed
Excerpt:
- .....of three arbitrators, one to be appointed by each party and the third to be appointed by the two appointed arbitrators. there remained only section 8 which contemplated agreements providing for 'one or more arbitrators to be appointed by consent of the parties.' the agreement, therefore, had to provide for the consent of parties as the mode by which the arbitrator or arbitrators were to be appointed, but where it contained no such provision, as in the present case, it was incomplete and not valid. on general principles too, such an agreement was void for uncertainty, because one did not know by whom or in what mode the arbitrator or arbitrators were to be appointed. the objection, it was contended, was not that no arbitrator had been named in the agreement, as the learned trial judge.....
Judgment:

Chakravartti, C.J.

1. This appeal involves a short point under the Arbitration Act, 1940, arising out of the following facts.

2. On 25-8-1951, a contract was entered into between the appellant, The India Plosiery Works, and the respondent, Bharat Woollen Mills Ltd., by which the respondent agreed to- sell and the appellant agreed to buy 10,000 lbs. of woollen yarn at a certain price, the goods to be delivered by a certain date. The contract contained the following arbitration clause:

'All disputes whatsoever arising in or out of or in connection with the said contract or arising in any way whatsoever in connection with any other contract for the supply of goods by the Company to the Buyers shall be referred to arbitration at Calcutta. Thedecision of its Tribunal of Arbitration shall be final and binding on both parties, either of whom may make the same a Rule of Court.'

3. On 28-3-1952, the respondent filed an application on the Original Side of this Court for an order under Section 20, Arbitration Act, that the arbitration agreement be filed in Court, for appointment of an arbitrator and for a reference oi' the dispute which had arisen out of the contract to the arbitrator so appointed. It was alleged in the application that the appellant had wrongfully failed and neglected to take delivery of the contracted goods whereupon the respondent had sold them on notice to the appellant and Buffered damages to the extent of Rs. 35,000/-and that upon a deduction of Rs. 20,000/- which the appellant had paid as advance, the respondent was entitled to recover a sum of Rs. 15,000/. It was alleged further that the appellant was wrongfully denying the respondent's claim and asserting that it had rightly cancelled the contract and had refused to concur in the appointment of one Hiralaljee whom the respondent had nominated in terms of the arbitration agreement to act as the sole arbitrator & was in fact denying the respondent's right to appoint any arbitrator at all,

4. By the affidavit--in-opposition filed on its behalf, the appellant repudiated the respondent's claim for damages and took the further plea that the arbitration agreement was 'vague, indefinite, void and unenforceable in law' and inasmuch as it did not provide for appointment of an arbitrator or arbitrators by consent of parties, the appellant could not, and had not to, concur in any appointment made by the respondent.

5. The application came to be heard by Bachawat J. Before him it was argued that the arbitration agreement was void for uncertainty and the uncertainty alleged was that no arbitrator had been named in the agreement and the mode of the appointment of an arbitrator or arbitrators had also not been specified. The learned Judge held that in view of the definition of arbitration agreement, as contained in Section 2(a) of the Act, it was not necessary that any arbitrator should be named and since Section 20 of the Act expressly authorised the Court to make an order of reference to the arbitrator appointed by the parties or, in the absence of agreement between them, to an arbitrator appointed by the Court, such an appointment could be made in the case, inasmuch as the arbitration clause did not name any arbitrator and the parties were also not agreed. In that view, he directed the agreement to be filed and made an order of reference to one Ganeshlal Nahata. To the choice of that particular arbitrator, neither party objected.

6. Before us, it was contended on behalf of the appellant that the arbitration agreement had been wrongly held to be valid. It was pointed out that Section 20(1) of the Act contemplated agreements in respect of which a party could proceed either under that section, or under Chap. II, as the section itself stated, and on that basis it was contended that no agreement could be recognised and acted upon under Section 20(1), unless it satisfied the requirements of Chap. II, that is to say, unless it was an agreement under which a party could apply to the Court for the appointment of an arbitrator under one or other of the sections of that chapter. The Act had not in view, it was further contended, any agreement which the detailed provisions of Chap. II, did not cover. The only relevant sections of that chapter were Sections 8, 9 and 10, but ofthem, the last two sections had no application to the case, as Section 9 was concerned with agreements providing for the appointment of two arbitrators, one to be appointed by each party and Section 10 with agreements, providing for the appointment of three arbitrators, one to be appointed by each party and the third to be appointed by the two appointed arbitrators. There remained only Section 8 which contemplated agreements providing for 'one or more arbitrators to be appointed by consent of the parties.' The agreement, therefore, had to provide for the consent of parties as the mode by which the arbitrator or arbitrators were to be appointed, but where it contained no such provision, as in the present case, it was incomplete and not valid. On general principles too, such an agreement was void for uncertainty, because one did not know by whom or in what mode the arbitrator or arbitrators were to be appointed. The objection, it was contended, was not that no arbitrator had been named in the agreement, as the learned trial Judge had wrongly assumed, but that no mode of appointment had been provided for.

7. In my opinion, the contention of the appellant is not correct. As was rightly pointed out on its behalf, Section 20(1) contemplates agreements to which the provisions of Chap. II would also apply. Section 3 of that chapter makes the provisions of the First Schedule applicable to an arbitration agreement, unless a different intention is expressed therein and Rule 1 of that Schedule lays down that unless otherwise expressly provided, the reference shall be to a sole arbitrator. There is nothing in the agreement in the present case to exclude the First Schedule and since all that it says is that the disputes shall be referred to 'arbitration at Calcutta', the effect of Rule 1 is to make it an agreement for reference to a single arbitrator. The next question is how that single arbitrator is to be chosen. The learned Advocate for the appellant contended that where the mode was not indicated in the agreement, it could nowhere be found and it was for that reason that agreements of this kind were bound to fail. He re-inforced his argument by saying that if the language of Rule 1 of the First Schedule had been 'if no other mode of reference is provided', as in the Schedule to the Act of 1899, the Court could make an. appointment in the absence of agreement between, the parties, as stated in Russell on Arbitration, 14th Edition, p. 99 with reference to a similar provision in the English Act; but since the language of the present Rule was 'unless otherwise expressly provided', it was to be presumed that the Legislature had made the change with, some intention and the intention, according to the learned Advocate, clearly was that the Court, was no longer to supply an omission in the agreement as to the mode of appointing an arbitrator. The argument does not appear to me to be tenable. In my opinion, it is clear that even under the present Act, an arbitration agreement, neither specifying the number of arbitrators, nor specifying the mode of appointment, is perfectly effective and valid and the incidents of such an agreement are that it is to take effect as an agreement for reference to a sole arbitrator, to be appointed by consent of the parties or, where the parties do not concur in making an appointment, to be appointed by the Court, except where the operation of Rule 1 of the First Schedule is excluded.

8. It is true that there is a difference in language between Rule 1 of the First Schedule,as it stood in the Act of 1899 & as it stands now, but I do not see how that difference warrants the conclusion suggested on behalf of the appellant. The object of the Rule is only to supply the number of arbitrators where no number is specified in the agreement and if the language of the exception has been changed from 'if no other mode of reference is provided' to 'unless otherwise expressly provided', the change must have been made because the old language was clearly inappropriate. Mode of reference has nothing to do with whether there is to be one arbitrator ormore. In any event, if it was possible under theold Act, or is possible under the corresponding provision in the English Act, for the Court to appoint an arbitrator even in the case of the agreementmerely providing for reference to arbitration, the reason is not that Rule 1 of the Schedule contained, or the Schedule in the English Act contains, a reference to the absence of any provision for the 'mode of reference' in the arbitration clause. It is not as if the old Rule provided or the English rule provides that where the mode is not provided for in the agreement, the Court can supply the mode and appoint an arbitrator in the absence of concurrence among the parties. 'The real reason, which is equally valid under the present Act, is clear. Consent of the parties is the very essence of arbitration. Where the agreement provides for more than one arbitrator find they are not each to be appointed by all parties, it is necessary to provide expressly which of them will be appointed by whom, as in thecase of the agreements contemplated by Section s 9 & 10. But where different arbitrators are not to be appointed by different parties and the intention is that all of them must concur in the appointment of the sole arbitrator or each of the arbitrators where there are more than one, it is not necessary to make any express provision in the argument that the appointment or appointments are to be made 'by consent of the parties'. Without such consent, no arbitrator can be appointed or can act in such a case.

Where, therefore, the agreement does not assign the right of appointment distributively to different parties in respect of different arbitrators, it is inherent in the agreement that the appointment of the arbitrator or of each of the several arbitrators must be' by the consent of all parbies. There may be an express provision to such effect, but even in the absence of any express provision, such a provision must be taken to be necessarily implied. It is for that reason that where the agreement does not specify the number of arbitrators, nor specifies the mode of appointment, the Court first takes the agreement as providing for reference to a single arbitrator by reason of the provisions of Rule 1 of Schedule I, then takes the mode of appointment intended necessarily to be appointed by consent of the parties and, next, if it finds that the parties cannot concur in the appointment of an arbitra-tor, it appoints one itself. It takes and can take the agreement to be an effective agreement, because the mode of appointment by consent of theparties is implied in it and it is not required to supply the mode of appointment and does notrequire any provision enabling it to do so. I am therefore of opinion that the change of language in Rule 1 of the First Schedule has no bearing on the validity of an arbitration agreement whichdoes not specify either the number of arbitratorsor the mode of appointing them, nor has it any bearing on the Court's power of giving effect to such an agreement. I arn further of opinion that where the intention is that the arbitrator or eachof them shall be appointed by all the parties, it is not necessary that the agreement should say so expressly and that Section 8(l)(a) of the Act, where it speaks of an agreement which 'provides that the reference shall be to one or more arbitrators to be appointed by consent of the parties', should be read as 'provides expressly or by necessary implication'. An agreement which merely provides for reference to arbitration is not, therefore, invalid or ineffective for the reason that it does not expressly provide for the appointment of the arbitrator or arbitrators, to be made by consent of the parties.

9. I am also inclined to agree with Mr. Sen, who appeared on behalf of the respondent, that it is not possible to conceive of an agreement which will come under Rule 1 of the First Schedule and yet be an agreement for appointment of arbitrators otherwise than by consent of all the parties. The Rule contemplates an agreement which is silent as to the number of arbitrators. If the agreement attempts to say that the appointment will be otherwise than by consent of all the parties, it cannot possibly do so without making some reference to the number. It will have to say that the arbitrator or arbitrators will be appointed by one or some of the parties or by a third party and as soon as it does so, it will go outside the Rule. If it speaks of the appointment of 'the arbitrator', there will be no scope for the application of the Rule, because a single arbitrator will be indicated by the agreement Itself. If it speaks of the appointment of 'arbitrators', then also will the Rule be excluded, because it will be 'otherwise expressly provided' that there will not be a sole arbitrator. The only type of agreement which can come under the Rule is, therefore, an agreement which speaks expressly of 'arbitration by consent of the parties', in which case there is no reference to the number of arbitrators or an agreement which says nothing about the mode of appointment in which consent of all the parties will be a necessarily implied condition. It thus follows that where the Rule applies, it can no longer be said that the agreement does not provide for appointment of the arbitrator by consent of the pafties and is for that reason invalid.

10. In the course of his argument, Mr. Sen referred to the decision in -- 'Eyre and Leicester Corporation', In re (1892) 1 Q. B. 136 (A). I do not think that case is of any real assistance. There, the contract provided for reference to 'the arbitrator or umpire' to be appointed 'in accordance with Clause 39 of the specification'. It is thus clear that the appointment of only one person was intended and that was what the Courts held in the view that the word 'umpire' had been used to denote the same thing as 'arbitrator'. Clause 39 of the specification simply provided that every dispute would have to be 'referred to arbitration' and if the case has any relevancy at all, it is only as showing that in spite of the agreement saying nothing about the mode of appointment, nobody said that it was bad and the parties as well as the Courts proceeded on the view that the appointment was to be made by consent of the parties and that, in the absence of concurrence between them, the Court could make an appointment. The case has thus only a negative value.

11. I may however, point out how the law is stated in Halsbury's Laws of England, because the provisions of the English Act are in all essential respects the same. In the Hailsham Edition, Vol. 1, the following passage occurs at page 644-45:

The submission itself may name the arbitrator or arbitrators, or it may without naming them direct how they are to be selected or it may simply provide for a reference to arbitration without either naming the arbitrators or directing how they are to be selected.

In the last-mentioned case, if the submission is contained in a written agreement and does not express a contrary intention the following rules apply:

(1) The reference is to a single arbitrator.

(2) If the parties do not concur in the appointment of the arbitrator, any party may serve the other parties with a written notice to appoint an arbitrator; and if the appointment is not made within seven clear days after service of the notice, the Court may, on the application of the party who gave such notice, appoint an arbitrator.

The present case is exactly 'the last-mentioned case' contemplated in the above passage and the respondent; followed precisely the same procedure as indicated there. It served a notice on the appellant, requiring it to concur in the appointment of an arbitrator and on the appellant declining to do so, it applied to the Court.

12. The learned Advocate for the appellant contended that the Arbitration Act was restrictive of the general rights of parties under the Contract Act and, therefore, it ought to be strictly construed and words ought not to be read into Section 8(1)(a) which were not there. I am not impressed by that argument. The Arbitration Act does not in fact purport of its own force to restrict the contractual rights of parties, but only gives effect to restrictions which they may choose to impose on themselves as regards the forum to which their disputes shall be taken. Secondly, to read Section 8(1)(a) as covering an implied provision for consent of the parties is not to import into the section anything foreign to it or to add to it in any manner, but only to take note of its necessary intendment. Thirdly, construction of Section 8(1)(a) became necessary only because of the appellant's own argument that the agreement must satisfy the test of that section. An agreement merely providing for reference to arbitration must in the very nature of things mean arbitration by arbitrators accepted by all the parties and it is not necessary to construe any section in order to extract or justify that meaning.

13. On behalf of the appellant, our attention was also drawn to the decision of S. R. Das Gupta J. in the case of -- 'Bharat Woollen Mills Ltd., v. Kumar Woollen Factory', Award Case No. 226 of 1951, D. 29-1-1952 (B), where the same arbitration clause came up for consideration and the learned Judge held it to be void for uncertainty. There was an appeal before us from that decision as well which we heard immediately after the present appeal, but we had to dismiss it, as no appeal lay. We may, however, consider the decision, on the merits for the purposes of the present appeal. With great respect, I am unable to agree with the learned Judge in the view taken by him. He held that the agreement was bad, because it said nothing as to who was going to be the arbitrator and how he was going to be appointed and that Section 8 would not apply, as the agreement did not say that the arbitrator or arbitrators were to be appointed by consent of the parties. The same arguments were advanced by the appellant in the present case and I have already dealt with them.

14. In the result, I hold that the agreement was a good agreement, amounting to an agreement for reference to a single arbitrator, to be appointed by consent of both the parties. Asthere was no such consent, the Court could appoint an arbitrator under the terms of Section 20(4) of the Act, which it did. The appeal is accordingly dismissed with costs. Certified for the counsel.

Sarkar, J.

15. I agree.


Save Judgments// Add Notes // Store Search Result sets // Organizer Client Files //