Arbitration Act , 1940

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Law Commission Report

Arbitration Act , 1940

LAW COMMISSION OF INDIA
SEVENTY: SIXTH REPORT

ON
ARBITRATION ACT, 1940

November, 197 8

D.O. No. F. 2(8) / 77-L.C.
CHAIRMAN
LAW COMMISSION
GOVERNMENT OF INDIA,
NEW DELHI-110001

Dated the 9th November, 1978.

My dear Minister,

I forward herewith the Seventy-Sixth Report of the Law Commission
of India relating to Arbitration Act, 1940.

As mentioned in the ﬁrst paragraph of the Report, the subject was

taken up for consideration by the Law Commission at the instance of the
Government.

I place on record my appreciation of the valuable assistance received
from Shri P. M. Bakshi, Member Secretary of the Commission in the pre-
paration of the Report.

With kind regards,

Yours sincerely,
Sd.

(H. R. KHANNA)

Hon'ble Shri Shanti Bhushan,
Minister of Law, Justice & Company Affairs,
New Delhi-110001

MGIPCBE--S1---7 M of LJ&CA /ND/78-5-2-80-----2,000 Bks.

Chapter
I

Appendix

CONTEN'l'S
Subjects
Introductory.

Deﬁnitions.

Arbitration without i-ntervention of a Court
Powers of the arbitrator.

Proceedings in the Court on an award.
Arbitration with intervention of the Court
Arbitration in suits.

Provisions applicable to an arbitrator.
Appeals : section 39.

Miscellaneous.

Procedural Provisions

Power of the Court.

Summary of recommendations.

APPENDIX

better dated 27th July, 1977 from the Secretary, Depart-
ment of Legal Affairs.

CHAPTER 1

INTRODUCTORY

1.1. This Report deals with revision of the Arbitration Act, 1940, form- Reasons for

ing an important part of adjective law.
reference from the Government of India requesting it to undertake revision
of the Act'. Besides this, a number of subjects dealing with adjective law
have already been dealt with by the Law Commission,----subjects covering
civil and criminal procedure, evidence and limitation. To complete revision
of the major portion of the adjective law, the Commission has reviewed in
this Report the entire Act.

1.2. The law of arbitration is integrally connected with the question
how far parties should choose their own forum rather than that consituted
by the law. It is not uiicommon for parties to choose a tribunal that is
intended to resolve disputes between them. The tribunal might be stipulated
in the contract itself or in a collateral agreement, or the tribunal might
be agreed upon after the contract has been made and a dispute has arisen.
It is the concern of the law of arbitration to decide how far such agreements
should operate, and to what extent they should be supplemented by pro-
visions designed to meet points on which the agreement may be silent.

1.3. Practical experience of the working of the Act has shown that
though, by and large, the scheme of the Act is sound, some provisions have
in actual working caused difficulties and have resulted in delay and needless
expense. Although we have come across criticism of the Act in one or
two judicial pronouncements," we do not think that the Act suffers from
any radical defect or that on that score it should be thrown out lock, stock
and barrel.

1.4. The Commission on a study of the various materials and case law
on the subject is of the view that there is need to improve certain provisions
of the Act that cause delay or hardship to the parties, or unnecessarily
introduced clogs which hinder, the smooth course of the proceedings. Al-
though we had an initial inclination to re-number some of the sections3
because of our feeling that the subjects dealt with in those sections could
be more appropriately dealt with at a different place, we realised the impor-
tance of adhering to the present numbering. A change in the numbering
would have caused inconvenience to lawyers and businessmen who have
become familiar with it and would, to a certain extent, have caused con-
fusion.

In the formulation of a law on arbitration two conﬂicting considerations
present themselves; on the one hand due weight has to be given to the
arrangement made by the parties themselves relating to the personnel and
machinery for the settlement of their dispute; on the other hand, unfair or
impracticable arrangements have to be modiﬁed in the interests of justice.

The desirability of maintaining a certain amount of uniformity of
interpretation of the law has also to be borne in mind. In making our re-
commendations on the subject, we have been mindful of these considerations.

Before we proceed to make our recommendations on each section, we
would like to deal in brief with the history of arbitration in general and
history of the statutory law in India on the subject in particular.

I, D. O. No. F. 8(_l5)/76-~--L.C., dated 27th July, 1977 of the Secretary, Department
of Legal Affairs addressed to the Member-Secretary, Law Commission (see
Appcrdix).

2. e.g. Suha & Co. v lslmr Singh, A.I.R. 1956 Cal. 321, 341.

3. e.g. section 30, which was proposed to be transferred 'earlier, in the group sec
tions 15-17.

The Commission has received a éfllgggg "9 'h°

Ct.

Essence of _the
law of arbitration.

Delay and
expense.

Approach

Roman law.

Common law

policy against
ouster of juris-
diction.

1.5. In the Western world, arbitration has been known for centuries.
An ancient authority on arbitration stated':

"It is commendable at the outset of a trial to inquire of the
litigants whether they desire adjudication according to law or settle-
ment by arbitration. If they prefer arbitration, their will is granted.
A court that always resorts to arbitration is praiseworthy, concerning
such a court. it is said, 'Execute the justice of peace in your gates'
(zech. 8:16_)."

"What is the kind of justice that carries peace with it? Undoubted-
ly, it is arbitration: So too, with David, it is said, "And David executed
justice and charity unto all his people" (II Sam, 8:15). What is the
kind of justice which carries charity with it? Undoubtedly, it is
arbitration, i.e.. compromise (thus), even if the judge has already heard
the arguments of the litigants and knows in whose favour the verdict
will be, it is commendable to effect an arbitration . . . . . . . . . .. The (moral)
power of arbitration is greater than that of adjudication."

In the Western world, some form of aribtration has been in existence for
a long period: but two rival trends have clamoured for supremacy in this
ﬁeld in the course of history----the supremacy of the Courts and the supre-
macy of private tribunals. In Roman law, there was no struggle to esta-
blish the jurisdiction of the ordinary courts as against rival tribunals. Ac-
cordingly, contracts for the submission of disputes to the decision of persons
were recognised, and there were rules as to their effect and enforcement.
This was further developed in the civil law, and in Continental Codes
of Civil Procedure."

Arbitration, called "compromise tcompromissum)", was a mode of
terminating controversies much favoured in the civil law."

Amongst the Greeks, international arbitration was a recognised prac-
tice. It is mentioned as such by Herodotus and Thucydides." The Roman
Senate, and later the Roman emperor, arbitrated between subject peoples.

In the city-states in Greece back in the sixth, ﬁfth and fourth cen-
turies B.C., disputes were settled by arbitration. The nature of the disputes
included "boundary delimitation, ownership of colonies, ownership of parti-
cular pieces of territory, assessment of damages suﬂered through a hostile
invasion, (and) in recovery of money owned by one state to another, and
in all sorts of religious matters.'

1.6. This approach of the ancient world and Roman law; may be
contrasted with the common law. At common law, there was said to be a
policy against agreements ousting the courts jurisdiction. In the beginning'
it was necessary to establish the jurisdiction of the courts of politically orga-
nised society to replace the instituions of kin-organised society, self-help
and the help of one's kinsmen, self-redress, and private war. In the Middle
Ages, there was a contest for jurisdiction between the courts of the king
and the courts of the Church. In England, after the Conquest, the King's
courts acquired jurisdiction at the expense of the old. customary and feudal
local tribunals. The common law grew up in the King's courts in and after
the thirteenth century. Not unnaturally, the common law courts looked
jealously at agreements to submit private disputes to extra--judicial deter-
mination instead of to the appointed tribunals of politically organised
society.' A doctrine that a contract to arbitrate on existing dispute or such

I. The Book of Judges~--Code of Maimonides (I 949), 66, quoted in Tiewul and Tsegah.
"Arbitration and settlement of commercial disputes" (July I975) 24 I.C.L.Q. 93,
394.

Pound. Jurisprudence (1959). Vol. 5, page 360.

('Q

3. Story, Equity Jurisprudence, 2nd Edn.. Page 100i, cited in C'/zumlubassuppa
Ba.s'Iin,eayn_va, A.l.R. 1927 Born. 565, 567.

4. International Encyclopaedia of Social Sciences, Vol. 1, page 50.

S. Wehringer. Arbitration : Precepts and Principles (I969), page 5.

6. Pound, Jurisprudence (I959), Vol. 5, pages 357, 358.

7. Pound, Jurisprudence (1959), Vol. 5, page 358.

disputes as might thereafter arise, either generally or under a particular
transaction, was void as against public policy, was taken to be well settled.

But the exigencies of business brought about an increasing demand for
commercial arbitration. In 1856, the House of Lords limited the common-
law bars on arbitration agreements, by distinguishing an arbitration clause
which made a condition precedent in a contract, so that there could be no
claim to enforce judicially until after performance of the condition, from
a contrast to submit an existing claim to arbitration.'

1.7. Though arbitration was recognised by the common law in England.
from the very nature of an arbitration, some degree of control by the
King's courts has been inevitable from Stuart times onwards. The growth
of British overseas trade, and the expansion of the Empire from the time of the
Treaty of Paris (1763), enlarged greatly the work of merchants and traders.
Consequently, matters in dispute between such persons became increasingly
frequent, and of major importance in the mercantile affairs of the realm.
At ﬁrst, these disputes were, in practice, decided under the common law, and
related originally to chattels personal, or torts to the person. In more
recent times, disputes were referred to arbitration in questions on real pro-
perty, and more frequently, qliestions in the law of contract."

Thus, from the passing of the Arbitration Act 1897, the legislature in
England became aware of the necessity of provisions which would aid
the common law. A number of enactments were added to the Statute Book,
culminating in the Common Law Procedure Act, 1854. The advent of
railways, tramways and other mechanical means of transport led to an
enormous increase of cases held in arbitrations in the second half of the
nineteenth century, and as a result, Parliament passed the Arbitration Act
of 1889. This statute has been the bedrock of statutory arbitration ever
since, and codiﬁed the general law as it then stood?

The English Act of 1889 was mainly declaratory of previous legisla-
tion, or of commercial and conveyancing practice. Many substantial changes
in the previous law were made by the Arbitration Act, 1934. On September
1, 1950, there came into force the Arbitration Act, 1950, which purports to
consolidate without amendment all the earlier Acts on Arbitration. We
shall have occasion to refer to its various provisions when we discuss the
corresponding provisions of our law.

1.8. In the United States, arbitration beganrin 1887 when the Chamber
of Commerce of the State of New York set up the ﬁrst privately administered
tribunal of businessmen and became the ﬁrst administrator of aibitrations.'
Arbitration in the U.S.A. generally followed the pattern of the English
common law until 1920, when New York adopted the ﬁrst modern arbitra-
tion statute. Previously, agreements to refer to arbitration disputes that
might arise in the future could be revoked at any time prior to an actual
settlement.' Such agreements were held unenforceable, although not illegal, on
the theory that they would deprive the courts of jurisdiction." Following the
adoption of the New York statute, the federal government (in 1925) and 15
states enacted similar statutes relating to arbitration. The federal Act does

. not prescribe the rule of decision for all cases in the federal courts, but is

conﬁned to subjects within federal legislative control, namely, maritime
transactions and those involving interstate commerce. In other cases that
may be litigated in the federal courts,---e.g., in suits between citizens of
different states,----the law of the state in which the federal court sits either
provides the controlling law on arbitration or points to the law of the
appropriate state.'

Scott v Avery, (1856) S H.L.C. 811.

Gill, Law of Arbitration (1975), page I.

Gill, Law of Arbitration (1975), page 2.

Wehringer, Arbitration : Precepts and Principles (1969), page 5.
. Encycl. Britannica, Vol. 2, page 214.

Encycl. Britannica, Vol. 2, page 214.

.".°"-"."E"?"."

History of con-
trol by courts.

U.S.A.

Institutional
arbitration in
the U.S.A.

History in India
--~Regulation.

Yajnavalkya
and Narada

A Uniform 'Arbitration Law was adopted by the National Conference'
(l)g5lhe Commissioners on Uniform State Laws in 1955, and amended in
6.

9 -

In the early 1960s, all states in the U.S.A. (with the exception of Okla-
homa and South Dakota) had some statutory provisions for arbitration."
Not all, however, provided for enforcing an agreement to arbitrate future
disputes; many followed the rule that none but existing controversies could
be made the subject of an agreement for arbitration. In contrast, the Uniform
Arbitration Act recognises agreements regarding both existing and future
disputes.

1.9. Although individuals frequently agree, either by contract or after
a dispute has arisen, that a dispute will be arbitrated by some speciﬁc
procedures, the majority of arbitrations in the U.S.A. are held under the
auspices of organisations that have procedures for arbitration as an explicit
part of their trading rules, bylaws or constitutions.

Such "institutional arbitration" has a long history in the U.S.A. The
New York Chamber of Commerce had arbitration facilities from the year
1761 to 1920, and the New York Stock Exchange provided for arbitration
of member's disputes in its l8l7 constitution. Trade associations frequently
provide the machinery for settling disputes among members, and occasion-

ally such facilities are available to non--members as well. In some instances,

an association has joined several others to provide joint arbitration mach-
inery. Additional facilities for handling disputes by arbitration were made
available through the auspices of the American Arbitration Association, a
non-proﬁt making organisation that maintained a panel of arbitrators and
provided administrative services for judging both labour and commercial

' disputes.

1.10. India has a long tradition of arbitration. The settlement of differ-
ences by tribunals chosen by the parties themselves. whose decision is to
be accepted as ﬁnal and conclusive between themselves,--which is the basic
idea of arbitration.--was well known to Hindus in ancient India. There
were in fact, different grades of arbitrators with provisions for appeals in
certain cases from the award of a lower grade of arbitrators to arbitrators
of the higher grade. The practice seems to have been in vogue immediately
before the advent of the British. Sircarf refers to an interesting article on
the subject' published in 1828.

Apart from the courts statutorily established by the king, where the
king or the chief justice appointed by him presided, other tribunals were
recognised in the ancient smritis (legal texts) and digests."

l.ll. Yajnavalkya" refers to three types of popular courts (Puga, Sreni,
Kula), and Narada7 states that law-suits may be decided by village councils
(Kulani), corporations (sreni). assemblies (puga in Yag., gana in Nan)"

It is remarkable that, having recognised the relevance and validity
of arbitration proceedings before judges not statutorily appointed who were
almost in the position of arbitrators, appeals were provided against the deci-
sions of these arbitration courts to the courts of judges appointed by the

. Wchringcr. Arbitration : Precepts and Principles (1969), page 5.

2. Encycl. Britt'-.nniCa, Vol. 2, page 214.

3. Sircar on Law of Arbitration in British India (l 942), page 5.

4. Transactions of the Royal Asiatic Society (1828). Vol. 2.

5. Dr. RB. Gajendragatlkar. Address to the Fifth International Arbitration Congress.
Proceedings of the Fifth International Arbitration Congress (7-10 Jan. I975,
New Delhi), pages BI-3 to BI-4.

6. Yajnavalkya ll. 30.

7. Jolly, S.B.E. 33 (Narada), page 6.

8. Kane, History of Dharamsastra (I946), Vol. 3, page 280, cited by Dr. P.B. Ganjend-

ragadkar in his address to the Fifth International Arbitration Congress, Proceed-
ings of the Fifth International Arbitration Congress (7-10 January, 1975), pages
BI-3 to BI-4.

King and ultimately to the King himself. As Dr. Kane observes,' the three
courts mentioned by Yajnavalkya and Narada were practically arbitration
tribunals like the modern panchayats. Thus. it is clear that ancient Hindu
Jurisprudence recognised two methods by which disputes between citizens
could be decided; one was by judicial process in the courts established by
the King, and the other by the different categories of arbitration institutions,

_ |.]2. We have it on the authority of a well-known writer on historical Villages in
jurisprudence," that the villagers had a judicial system of their own, which India-

was familiar and respected by them; the Various traders and guilds has a
similar system.

The puga courts were comprised of persons dwelling in the same place,
irrespective of their caste or employment, and were competent to decide
cases in which the local public were interested."

The .S'rem's (guilds) were associations of persons engaged in similar pur-
suits, of which the merchant's guilds were the most important. They were
competent to decide matters relating to their special calling for traders.'

Social matters concerning the members of a particular community
could be investigated and decided at the level of the kulasf'

The three arbitration courts (Kula, Sreni and Puga or Gana), were
private tribunals, in the sense that they were not constituted by a royal

authority and they resembled arbitrators to that extent." According to Sir
Henry Maine:

"In those parts of India, in which village community was most
perfect, the authority, exercised elsewhere by the headman, was lodged
with what was called the village council or the panchayat.

It was always considered a representative body and whatever was its
real number, it always bore the name which recalled its constitution of
ﬁve persons or 'Panchayat'. Traces of this method of setling disputes can
still be found in certain communities in the country."7

1.13. The great Hindu jurist, Priyanath Sen, thinks that "the three D." P- N- 5°"'S
arbitration courts could only decide disputes which came within their special '"°w'
province, being disputes relating to matters which, from their very nature,
fell within their special knowledge, for instance, disputes regarding trade
and other local concerns. These local courts had a sort of delegated autho-
rity 'within their limited spheres, but their decisions were subject to appeal
in the following order; a case having been decided by a family, an appeal
lay to the corporation, by a corporation to the community, and by a com-
munity to the olﬁcers appointed by the King, or in other words, to the court
properly constituted to try all disputes; According to Narada, a decision

arrived at by the king's court from which the king is absent is appealable
to the king himself."

1. Kane, History of Dharmasastra (1946), Vol. 3, page 230.

Lee. Historical Jurisprudence, page 141, cited by M.K.Sharan. Court Procedure
in Ancient India (I978), pages 24, 25.

M.K. Sharan. Court Procedure in Ancient India (1978). Page 26.
M. K. Sharan, Courts Procedure in Ancient India, (l9'l8', page 26.
M.K. Sharan, Court Procedure in Ancient India (1978), page 27.

S.Varadachariar. The Hindu Judicial System (Radha Kumud Mookharjce Endow'
ment Lectures). (I945). page 98.

7. Maine. Ancient Village Communities, quoted in Indian Council of Arbitration,
"Law of Arbitration in India" issued by the Indian Council of Arbitration (August
1972). pages 1-2.

8. Dr. Priyanath Sen's Tagore Law Lectures, 1909 on "The General Principles of
Hindu Jurisprudence", page 363, cited by Dr. P.B. Gajendragadkar in his address
to the Fifth International Arbitration Congress, Proceedings of the Fifth Interna-
tional Arbitration Congress (7-10-January, 1975), pages BI-3 to BI-4.
2----7 M of LJ & CAyND/78

.°'S":"'?'

British period----
The Regulations.

Regulations in
Bengal and
Madras.

Bombay Regula-
tions.

Act of 1859
and later Acts.

1.14. In the British period. the initial Bengal Regulations did not try
to abolish the system of panchayats.' The Bengal Regulations of 1772.
1780 and 1781 were designed to encourage arbitration.' We ﬁnd in a Bengal
Regulation of 1781 an interesting provision recommending .arbitration, and
also another interesting provision to the effect' that no award of any arbi-
trator or arbitrators shall be set aside, except upon full proof, made by the
oath of two credible witnesses, that the arbitrators had been guilty of gross
corruption or partiality, in the cause in which they had made their award.

The Regulations made by Lord Cornwallis in 1787 included a provi-
sion for arbitration with the consent of parties, but, there were no provi-
sions for the consequences of the award not being made in time, nor for the
situation, when arbitrators differed in their opinions.'

1.15. Much more comprehensive was the set of provisions in Bengal
Regulation 16 of 1793, which, inter alia,' provided for the reference by the
court to arbitration with the consent of the parties in suits for accounts,
partnership debts, breach of contract, where the valuation exceeded 200
sicca rupees and the like. Procedural provisions this time were very elabo-
rate, and, after the extension of this Regulation by subsequent Regulation
in 1803 to Banaras and to the ceded Provinces, the territorial application
of the Bengal Regulation of 1793 covered a pretty large portion of so much
of Northern and Eastern India as had, by the time, come under the British
Rule. Regulation 6 of 1813 extended the Regulation of 1793 to disputes
relating to land.

In the meantime, Madras Regulation 4 of 1816 gave certain powers
for calling in Panchayats for settling disputes; Madras Regulation 5 of 1816
was intended to encourage awards by village panchayats and provided mach-
inery for working out the scheme. The scheme contemplated awards by vill-
age panchayats with compulsory service for a villager on a panchayat and
was administered through the village Munsiﬂ°,--later by the District Munsif.

1.16. In Bombay, the famous Regulation 4 of 1827 and Regulation 7
of 1827 provided for arbitration.

Bombay Regulation 7 of 1827 (repealed by Act 1 of 1861) in its pre-
amble expressly provided for arbitration through the intervention of the
court." Section 1 of the Regulation gave express power to resort to arbitra-
tion notwithstanding a pending suit. Section 9, clause 1 of the Regulation
provided that awards (when ﬁled under the Regulation) have the force of
decreases. Section 9, clause 2, of the Regulation provided that "arbitra-
tion awards or other adjustments not so ﬁled shall not be entitled to any
other consideration in a court other than as evidence, or agreements, to be
adduced or proceeded on by ordinary course of law."2

1.17. (a) This position continued in substance till 1859, when Act 8 of
1859 which codiﬁed the procedure of Civil Courts (except those established
by Royal Charter) provided for arbitration. Arbitration in the course of a
suit was dealt with in sections 312 to 325 of that Act.

(b) In 1862, when the Supreme Courts and the courts of Sudder
Diwany Adalat in the Presidency towns were abolished, the Act was extend-
ed to courts in the Presidency towns.

(c) Act 8 of 1859 was followed by later Codes relating to Civil Pro-
cedure, viz., Act 10 of 1877 and Act 14 of 1882, but no notable change
relating to the law of Arbitration was introduced by these two later codes
of Civil Procedure. The two Codes were conﬁned to arbitration in the
course of a suit.

1. Sircar, Law of Arbitration in British India (1942), page 6. p
2. Chanabassappa V. Baslingayyaya, A.l.R. I927 Bom. 565, 568.

1.18. The next step was the Indian Arbitration Act, 1899. The Act
did not apply to disputes which were the subject--matter of suits} The
Act applied" in cases where, if the subject-matter submitted to arbitration
were the subject of a suit, the suit could, whether with leave or otherwise,
be instituted in a. Presidency town, By section 23 of the Act, a similar pro-
vision was made for Rangoon. The Local Government was given power
by the provisions of section 2 to extend the -Act to other areas, but this
power was never exercised.

l.l9. The Indian Act of I89') thus dealt with arbitration by agree-
ment without the intervention of the court, and was limited to Presidency
towns and to such other areas to which it may be applied by local Gover -
ment notiﬁcation." The Second Schedule to the Code of Civil Procedure,
1908, extended to all places to which the Act of 1899 did not extend, and
contained (i) provisions for arbitration in respect of the subject-matter of
suits', and (ii) provisions whereunder parties to a dispute might ﬁle their
arbitration agreements before the court, which would then refer the matter
to arbitration,' and (iii) provisions for arbitration without the intervention
of court." The main provisions on arbitration in the Code of Civil Pro-
cedure, 1908, were section 89 and the Second Schedule.

1.20. Before the Code of I908, the provisions relating to arbitration
were, as already stated,' contained in the Civil Procedure Code, 1882, sec-
tions 506 to 526. The Special Committee" which was presided over by Sir
Erle Richards recorded in 1907 its opinion that in due course the provi-
sions regarding arbitration should ﬁnd a place in a new and comprehensive
Arbitration Act; but since there were ditﬁculties in doing so at that time,
they decided to leave the arbitration provisions in the Code, placing them,
however, in a Schedule in the hope that they would be transferred to a
comprehensive Act.

1.21. It was in this background that the Code of 1908 was enacted.

Act of I89

Act of 1899
and Code of
1908.

Code of I908
Genesis.

Code of 1908.

1.22. In the twenties of the present century, the Civil Justice Committee Civil Justice

was appointed to report on the machinery of Civil Justice.
of the Committee contains, inter alia, suggestions for _modiﬁcation of the
law of arbitration. Some time passed before action could be taken on the
recommendations of the Civil Justice Committee. This was primarily
due to the fact that the Government proposed to wait till the expected
new English Act was placed on the Statute book after consideration of
the Mackinnon Committee on the law of arbitration. That Committee
made its report in 1927. which was iollowed by the English Act of 1934,
and thereafter the way was Cleared for action in India. In 1938, the
Government of India appointed Shri Ratan Mohan Chatterjee, Attorney-
at-Law, as a special officer, for revision oi the Law of arbitration, and the
revised Act was passed in 1940.

1.23. Thus, before the passing of the arbitration Act of 1940, the
law on the subject of arbitration in India was contained in two separate
enactments--~the Indian Arbitration Act, 1899 and the Second Schedule to
the Code of Civil Procedure, 1908. The two have been consolidated in
the Act of 1940.

1.24. The framers of the Act, while re-enacting the provisions of the
Act of 1899, or of the Code of Civil Procedure, 1908, relevant to arbitration,
took the opportunity of drawing upon the (English) Arbitration Act of

Amar C/mm! V Bcmwuri Lall, I.L.R. 49 Cal. 608.

Section 2. Indian Arbitration Act (10 of 1899).

Section 2, Act of I899. para l~l8, supra.

Second Schedule, Code of 1908, para 1-16.

Second Schedule, Code of 1908, paras 17-I9.

Second Schedule, Code of 1908, paras 20-21.

Para I -I7, supra. '

Quoted in Civil Justice Committee (1924-25) Report, page 208, Chapter 13, para-
graph 1.

°°~'5\E"PE"'."'."

The Report C0 mrnittee.

Position imme-
diately before
1 940.

Act of 1940.

Schema.

Basic concept-
Arbitration
agreement.

Working of the
agreement.

Award and
its ﬁlling and
conﬁrmation.

Arbitration with
intervention of
court or in suit.

General
provisions.

1934. The Act of 1940 is an Act to consolidate and amend the law
relating to arbitration. It is, therefore, primarily intended to be a complete
code of the law.

1.25. The scheme of the Act is, to deal first with arbitration without
intervention of a Court (Chapter 11) then to deal with arbitration with
intervention of a court where there is no' suit pending (Chapter III), and
then to cover arbitration in suits (Chapter IV). Provisions which are
common to all the three kinds of arbitration constitute the remaining por-
tion of the Act (Chapters V to VII and the Schedules).

1.26. The basic concept at the root of arbitration under the Act is
an "arbitration agreement". As deﬁned in section 2(a), it means a "written
agreement to submit present or future differences to arbitration, whether
an arbitrator is named therein or not". Such an agreement is thus the
foundation of every proceeding under the Act, and where there is no such
agreement, or no differences between the parties, an arbitration cannot
arise.

1.27. An arbitration agreement is primarily an agreement and, there-
fore, to be construed as any other agreement. But, by virtue of section 3,
certain provisions are deemed to be included in the agreement (if the agree-
ment is silent on these points). These provisions are of a practical and
detailed nature, intended to ensure the smooth working of the agreement.
Further, sometimes the machinery for appointment of an arbitrator, as
provided by the agreement, may not be complete, and the law, therefore,
steps in by making suitable provisions to ensure that the agreement does
not fail by reason of a lacuna on this subject (sections 4 to 10). Again,
in order that the arbitration may not fail by reason of want of diligence or
misconduct on the part of the arbitrators or umpire, the Act gives certain
powers to the court for removal and appointment of arbitrators etc. (See-
tions II and 12). And, to facilitate the effective discharge by the arbitrators
of their functions, the Act confers certain powers on them (section 13).

1.28. When the arbitrators or umpire have made their award, it is
ﬁled in court (section 14)', and the action to be taken by the court (thereon
is dealt with in detail in a group of sections (sections 16 to 19 and 30),
which may be said' to constitute perhaps the most important part of the
Act. Under the scheme of the Act, an award itself cannot be enforced;
the parties must obtain the stamp of approval of the court, by securing
a judgment in terms thereof. The court may pass such judgment, or
rnodify the award, or remit the award, or set aside the award, on the
grounds stated in the respective sections.

1.29. These provisions' primarily apply to arbitration without inter-
vention of the court. Section 20 then deals with arbitration with such inter-
vention where there is no suit pending; and (after making certain detailed
provisions as to the form and manner of making the application to the
court for ﬁling the agreement and as to an order of reference to the arbi-
trator appointed by the parties etc.) the section provides that the arbitra-
tion shall proceed in accordance with the other provisions of the Act, so
far as they can be made applicable.

Where a suit is actually pending in a court, all the parties interested
may agree to refer any matter in dispute to arbitration under section 21.

'Detailed provisions as to the appointment of the arbitrator and the order

of reference in such a case are contained in sections 22 to 24. Under
section 25, the provisions of the other Chapters shall, so far as they may
be made applicable, apply to such arbitrations also.

1.30. General provisions applicable to all arbitrations then follow
(sections 26 to 38). These also include a group of sections (sections 31
to 33) which unmistakeably indicate the intention of the framers of the
Act that awards should not possess any sanctity by themselves, that they

1. Section 30, is however, a general section.

must be approved by the court by obtaining a judgment in terms thereof,
and that the validity, effect or existence of the award of arbitration agree-
ment between the parties to the agreement or persons claiming under them
must be decided in the court in which the award has been ﬁled for obtain-
ing such judgment. It is only that court which is seized of all questions
connected with the conduct of arbitration proceedings or otherwise arising
out of such proceedings. In other words, both the forum and the manner
of asserting or denying the benefits of arbitration are emphatically sought
to be regulated by these sections. The Legislature thus "intended to make
only one court as the venue for all matters connected with arbitration
agreement or award and also to make applications (not suits) as the
vehicle to approach the court"?

1.31. This, in brief. is the scheme of the Act of 1940. In respect
of arbitration agreements entered into outside India and foreign awards,
there is a special law, the Arbitration (Protocol and Convention) Act, 1937.2
It mainly relates to matters considered as commercial under the law in force
in India." The operation of the Act is based on reciprocal arrangements.'
The Act mainly concerns itself with the procedure for ﬁling foreign awards
and their enforcement, and the conditions of such enforcement.'

Detailed matters in respect of proceedings under the Act are left to be
governed by the rules of the High Court."

In 196], a special Act for the enforcement of certain foreign awards
was passed.'

1.32. Apart from the Arbitration Act, 1940, there are provisions re-

garding arbitration in other Central enactments in force in India, listed
below:"

1. The Religious Endowments Act. Section 16 Reference to arbitration.
1863. (20 of I863)
Section 17 Reference under section
312 ofthe Code of Civil
Procedure, I85').
2. ThclndianTrusts Act, I382 -'_?of Section 43(c). Two or more trustees if

1882) they think ﬁt may coin-

promise, compound.
abandon. submit to ur-
bi/rulion or otherwise
settle any debt. account
claim etc. relating to
the trust.

3. The Presidency Towns Insolvency

Section 6t*(h)
Act. 1909.

The official assignee may
refer any dispute to ar-
bitration.

4. The Indian Electricity Act, l9l()
(9 of 1910).

Section 52 Any matter directed to be
determined by arbitration
under this Act unless
otherwise provided. shall
be determined by persons
'nominated by the State
Government and sub-
ject to provisions of the
Arbitration Act. l94().

1. Nalhu Lal v. Bahari La]. A.I.R. I952 Nag. 65. 67 (Hidayatulla and Kaushalendra
Rao JJ.)

The Act is still extant. See M/s. Frmzceso v. M,/s. Gomk/zarmza, A.l.R. 1960 Bom.
91.

Section 2 of the 1937 Act.

section 2(b) of the 1937 Act.

Sections 2 to 8 of the 1937 Act.

Section 10 of the 1937 Act. g
The Foreign Awards (Recognition and Enforcement) Act (45 of 1961).
The list is not intended to be exhaustive.

004-OsUI:"E*'

Acts of I937
and 1961.

Other provisions
in Central enact-
mcnts.

5. The Co-operative Societies Act,

10.

19.

l9l2 (2 of 1912).

.The Aircraft Act, 1934

amended in I972)-

. The Damodar Valley C01'P0I'8'

tion Act, I948 (I4 of I948).

. The Electricity(Suppty) Act. I943

(54 of I948)

. The Viswa Bharati Act, 1951 (29

ofl95l).

The River Boards Act, I955 (49

of I956).

. The Defence of India Act, I97l.

. The Defence of India Act, 1971-

. The Defence of India Act. I97].
. The Emergency Risks (Underta-

ings) Insurance Act. 1971-

. The Delhi Road Transport Laws

(Amendment) Act. 1971-

. The Aircraft (Am€-ndmem) Act-

I972

. The Delhi Co-operative Societies

Act, 1972.

, The Delhi Co-operative SoCi€ti€S

Act, 1972.

The Antiquities and Art Trea-

sures Act, 1972.

Section 43(2 (I)

Section 9B

Section 9D

Section 49.

Section 76

Section 38

Section 22

Section 24

Section 31

Section 32

Section 1 1

Section 5

Sections 9B, 9C and 9D
ofthe principal_Act of
I934 as inserted in 1972.

Section 60

Section 61

Section 20

The State Government
may make rules to pro-
vide for any dispute to
be referred to the Regis-
trar, or if he so directs,
to arbitration and the
procedure for arbitra-
tion.

Where no agreement as
to compensation can be
reached, an arbitrator
may be appointed by the
Central Government,
who after hearing the
dispute, makes an award.

Arbitrator to have certain
powers of civil courts.

Disputes between the Cor-
]')OI'atI0l1 and the Govern-
ment under the Act are
to be referred to an ar-
bitrator. to be appoint-
ed by the Chief Justice
of India. T.-xc decision
of the arbitrator is to be
final.

All questions arising bet-
ween the State Govern-
ment or the Board and
a licensee or other per-
son shall be determined
byarbitration. The pro-
visions ofthe Arbitration
Act l940are to apply.

Every dispute arising out
ofa contract between the
University and any of
its olﬁcers or teachers is
to be referred to a Tri-
bunal ofArbitration. and
the decision of the Tri-
bunalis ﬁnal.

Section 22 provides that
the Arbitration Act, 1940
shall not apply to arbit-
rations under the Act.

Payment of compensation
for immovable property.

Compensation for acqui-
sition of requisitioned
property.

Power to make rules.

Determination of premi-
ums unpaid.

Payment of value of assets
and liabilities.

Payment of compensa-
tion. Arbitration to
have powers of civil
courts.

Disputes which may be
referred to arbitration.

Reference of disputes to
to arbitration.

Payment of compensation
for antiquities and art
treasures compulsorily ac-
quired under Section 19.

20- (al The North-Eztslcrll HillUni- Section 31 Procedure of avr>ea1,an,d
Vcrslty Act. 197}. arbitration in d1sctp1i~
nary cases against stu-
dents.
(b) 'The North Eastern HillUni- Section 30 Conditions of service of
versrty Act, 1973. employees.
2L (8) The Universityofl-{yderabad Section 30 Conditions of service of
Act. 1974. employees.
(b) UniversityofHyderabad Act, Section 31 Disciplinary cases against
I974. students.

22. The Betwa RiverBoard Act, 1976 Section 18 Disputes b=lWe€n the
Board and the State Go-
vcrnment.

23. The Delhi Agricultural Produce Section 31 Displ-IP95 regarding cons-

Marketing(Rcgu1ation)Act, 1976. truction of rules etc. to

be decided by the Con-
troller of Weights and

Measures.
24. Delhi Agricultural Produce Mar- Section 37 Provision for settlement
keting (Regulation) Act, 1976. of disputes.

1.33. It may be mentioned that provisions for arbitration are con- Local Acts.
tained in some local Acts also, e.g., the Co-operative Societies Acts of
several states, or in bye-laws framed under local Acts, e.g., bye-laws made
by the East India Cotton Association under the Bombay Cotton Contracts
Act.'-"'

In this connection, it is relevant to quote sections 46 and 47, wlzich
are relevant in as much as they make the Act applicable to statutory arbi-
trations under other laws.

"46. The provisions of this Act except sub-section (1) of section Application of

6 and sections 7, 12, 36 and 37, shall apply to every arbitration under f'f,'.t'°t.';'3""'°'Y
any other enactment for the time being in force, as if the arbitration '" Ha' "'
were pursuant to an arbitration agreement and as if that other enact-

ment were an arbitration agreement, except in so far as this Act is incon-

sistent with that other enactment or with any rules made thereunder.

47. Subject to the provisions of section 46, and save in so far as is A01 I0 apply _
otherwise provided by any law for the time being in force, the provi- '° 3" ""'b'"a"°""
sions of this_Act shall apply to all arbitrations and to all proceedings
thereunder:

Provided that an arbitration award otherwise obtained may with the
consent of all the parties interested be taken into consideration as a
compromise or adjustment of a suit by any court before which the
suit is pending."

1.34. Before proceeding to discuss various sections of the Act, we Impacts of
would like to state that the impact of legislation on the prompt, effective f"'?"'g""°"'5
and just disposal of arbitration proceedings is limited. Efforts should, no "me '
doubt, be made to improve the procedure for the resolution of disputes,
but, in the ultimate analysis, there is much truth in the saying that "an
arbitration is as good as an arbitrator".

1.35. After this general discussion, we now proceed to consider the
changes needed in the provisions of the Act.

1. See Serichand Rm' V. Panno, A. I. R. 1943 Born. 197.
2. See Narrda Kishore V. Ballev etc. Society, A. I. R. 1943 Cal. 255.

Section 2(a)----
Arbitration
:3 greement.

Validity of oral
agreement-case
law 'on the old
Act.

Doubt as to
position under
section 47.

History -of
section 47

CHAPTER 2

DEFINITIONS _

2.1. Section 2 contains certain deﬁnitions. We begin with the deﬁni-
tion of "arbitration agreement" contained in section 2(a). The deﬁnition
reads-

"2(a). 'arbitration agreement' means a written agreement to submit
present or future differences to arbitration whether an arbitrator is
named therein or not."'

The deﬁnition itself is simple and clear enough; but certain points
of detail need to be discussed.

2.2. The ﬁrst question that arises is this. If parties do not enter into a
written agreement and there IS an oral agreement of arbitration, is such
parole submission legally valid, and what is its effect? The position in
this respect under the old Act was not very certain. One view was? that
in such case there can be no valid submission, no valid award, no valid

agreement, while the other view was' that even an oral submission is
valid.'-5. ' ' A

The case law in the latter category construed the deﬁnition of 'sub-
mission' in the 1899 Act (which deﬁned a submission as a 'submission in
writing') narrowly, as not excluding an oral submission, on the ground that
the Act did not contain any express provision that a submission other
than in Writing is invalid. According to these cases, an award passed on an
oral agreement would be enforceable by suit.

2.3. It is not, however, clear whether this position survives in India
after-the enactment of section 47 of the Arbitration Act, 1940. Under that
section, subject to certain exceptions, the provisions of the Act shall apply
to "all arbitrations" and to all proceedings thereunder. This shows a
clear intention to make the Act exhaustive.' If so, oral agreements' do not
fall within the scheme of the Act. If the contrary is the position, and
if oral agreements are still regarded as permissible, the situation would not
be very satisfactory. In the ﬁrst place, such agreements would not be
governed by the Act, and a parallel law for the operation of such agree-
ments and for the enforcement of awards passed thereon would co-exist
with the Act. Secondly, such a parallel law cannot draw upon the various
provisions of the Act (like the ﬁlling of vacancies, powers of arbitrators,
powers of courts and so on), which are intended to ﬁll up gaps left by
the parties. There will, therefore, arise many uncertainties. In the third
place, such a construction might defeat the object of the Act of 'consolidat-
ing' the law relating to 'arbitration'.

2.4. It may be stated that section 47, as drafted in the original Bill.
rendered unenforceable an arbitration award obtained otherwise than under
the Act. The Select Committee re-drafted it as it stands now, observing,
"This clause has been re-drafted in order to remove the dangers of the

1. Compare section 32, English Act of l950.

2. Buklian Bai v. Adamji. I.L.R. 33 Bom. 69 (Beaman J.) (case under 1899 Act.)
3. MarlzIIrada.r v. Madazzloi, l.L.R. S8 Bom. 369; A.I.R. I934 Born. 79 (case under

l899 Act.)

4. Ramcmmr Sah v. Langm' Singh, A.I.R. l93l Pat. 92 (case under which Act, not
Clear).

5. Pmmamma v. K0/runmm. A.I.R. 56 Mad. 85; A.I.R. l932 Mad. 754 (case under
1899 Act).

6. Villml Dru' v. SIIrI'IIm/I, I.L.R.(l948) All. I0.

provision that an arbitration award obtained otherwise than in accordance
with the provisions of the Bill should be unenforceable for (my purpose. The
effect which this section. as re-drafted, is designed to produce is that arbi-
trations shall not be conducted in any way repugnant to the Act and
that any arbitration award may, with the consent of the parties, be used
for the purposes of rule 3 of Order 23 of the Code of Civil Procedure."

The case law discussed above shows that the position cannot be
regarded as beyond doubt? A clariﬁcation seems to be required. The
object of the Act would be defeated if awards made in pursuance of oral
arbitration agreements are regarded as enforceable?

2.5. The object of requiring a matter to be in writing is, in general, Object of re-
to prevent the parties from contradicting each other as to what was agreed °I"1.".°m¢'" 0f
and understood. As has been observed, the object in requiring "writing" ::'s';'"0gn_:gld"'
in section 4(b) of the Indian Act of 1899 was to "provide clear and unmis- submission
takable evidence of the. submission to which the parties agreed".' Consis-
tently with this object, oral agreement to refer differences to arbitration
should not now be recognised. Award on such agreements can be operative
if accepted by the parties as an agreement. But that is not the same thing
as recognising their validity as awards.

Dealing with the point discussed above, Viswanatha Sastri I. referred
to the case law which had held that an award obtained on a parole sub-
mission was enforceable by suit, though not by the special procedure under

the Second Schedule. He offered his own coments in these wordsﬁa

"The question is whether the Arbitration Act of 1940 has superseded
the law as laid down in these cases. The answer is not free from
difficulty in View of the uncertain nature of the statutory provision".

After discussing the various statutory provisions, he held the Act of 1940
to be exhaustive, and "an award passed on oral submission can neither

be ﬁled and made a rule of court under the Act, nor enforced apart from
the Act."

2.6. In our view, it is necessary to save the operation of the award Rccommcndation
to a Iiniited extent. and we are recommending the insertion of a suitable to amend
proviso to section 47 to deal with the matter." 5""°" 47-

2.7. At this stage. it may be convenient to deal with another question section 2(3) and
which arises out of that part of section 2(a) which requires a "written rules of Associa-
agreement". Very often. rules framed by mercantile associations contain U0", °"J.°""L'3
provisions for arbitration. Members of the Association are required to :1'::,'1',::':" y
sign an application form agreeing to abide by its Rules.

Now, the question arises whether the signature on such application
constitutes "a written agreement to submit" the differences to arbitration.
On one view, when both the plaintiff and the defendant are members of
the association and have signed the application form, it would amount to
a written agreement to submit differences to arbitration.'-".

According to another view,

"Application for membership and the acceptance thereof gave rise
to a contract between the applicant and the company. There is no
contract between members inter se by such application."

1. ND. R: sit. .-'\i'biii.*timi ACT, (W77). page 8-19. quoting the Report of the Select

Comnﬁztct'.
2. Sci: also the F\t.:'-;'i':is. cut-:.<:, para 2<~5. infra.
3. P."l'.'l I 3 vi/f*.I'{I.
4. Joint Bar)! Co. v. K1/rr',=0,/rt/. l.L.R. 53 Cal. 65; A.[.R. !926 Cal. 938, 940, right hand
{Page ..
5. Be?/1' Grrur/w' I'. .lr.-1;/1/Grriirder. A.I.R. l95l Mad. 683. para 2.
6. Sec reconiineiidatitin as to section 47, Chapter 10, irfru.
7. Afr)/((1/1 Lu! V. Br'.s'.s'us¢1r Lat', A.l.R. l947 Rom. 268, 270 (Bhagwati J.)
8. Cord/tun Dus v. Nufwar Lal, A.i.R. l9S2 Born. 349, 354 (Shah J.)
9. Hamilma.' v. I(/ms/11' Ram. l.L.R. (1949), 1 Cal. I99, 230, 23] (Das J.)

3-7 M ofLJ at CA/ND/'I8

Recommendation
to insert an
Explanation
below section
2(a).

Section 2(a)
and arbitration
at the option
of party.

Section 2(a)---
Signatures not
necessary.

Whether fresh
consent required.

2.8. In our opinion, it would be advisable to clarify the position in
View of the conﬂict discussed above. Practical considerations require the
adoption of the first view.' Of course, the initial agreement must, in any
case, be in writing, and not oral." In the light of what we have stated
above," we recommend the insertion of the following Explanation below
section 2(a):-----

"Explanation I.--Where the members of any association agree in writ-
ing to abide by the rules or by-laws of the association, and those rules
or by-laws Contain a provision whereunder present or future diﬁerences
between the members inter se or between or member and the associat-
tion are required to be submitted to arbitration, they shall be deemed
to have entered into a written agreement with each other within the
meaning of this clause."

2.9. The question has arisen whether an agreement whereunder arbi-
tration is to be resorted to at the option of a party would be valid. There
are observations'-" to the eifect that such a provision would not constitute
a valid submission. but there are also decisions to the contrary.'-7 In
England, such an agreement seems to have been regarded as a valid sub-
mission." The matter is, in our opinion, of such a nature as can be left
to the courts rather than made the subject of express legislative provision.

2.10. As to signature, the Arbitration Act does not require that the
arbitration agreement must be signed by the parties. Only a writing is
required. It may be that one of the reasons why signature is not insisted
upon is that the arbitration clause may be found in commercial documents,
such as "bought and sold" notes.' or in the articles of private company,"-"
some of which are not signed by the parties who agree to be bound by
arbitration.

2.11. There is yet another question. relating to section 2(a). The deﬁ-
nition of "arbitration agreement" in this clause may be said to comprise
two branches:

(i) an agrement to submit present differences to arbitration, and
(ii) an agreement to submit future diiferences to arbitration

Thus, it covers both (i) an actual submission of a particular dispute
which has already arisen to the authority of a particular arbitrator, and
(ii) a arbitration clause by which the parties agree that if disputes of the
speciﬁed nature arise, those disputes shall be referred to arbitration. In
both the cases, the arbitration is consensual, being based on an agreement
between the parties. Nevertheless, some controversy has arisen on the
question whether it is enough that there should be an arbitration clause
to refer future differences to arbitration, or whether, after the differences
have arisen, there must again be consent to the actual reference---described
in the deﬁnition by the word "submit"--in the absence of which consent
the arbitration would not be legally valid. The fundamental question to be
considered is this. Where, after the arbitration agreement as defined in
section 2(a) has been entered into, a dispute arises between the parties, is

Para 2_.7, supra.
(Firm) Narain Das v. Bhagwan Das, A.I.R. 1951 All 860.
See para 2.7, supra.

Burjor v. Ellerman City Lines Ltd. I.L.R. 49 Bom. 854; A.I.R. 1925 Bom. 449.
Mart'tima Italiana Steamship Co. v. Burfar I.L.R. 54 Born. 278, A.I.R. 1930, Born.
185.

6. Brfrléiabafl Chandra v.Bisheshwar Lal I.L.R. (1937) 1 Cal. 606; A.I.R. 1938 Cal. 100-
7. Kedar Nath v. Kesho Ram Cotton Mills Ltd., I.L.R. (1950) 1 Cal. 553.

V' F'°'!°t"'

Woodail v. Pearl Insurance Co. (1919) 1 K.B. 593, (1918-19) All E.R.p. 544.
. Ram Narain v. Lila Dhar (1906) I.L.R. 33 Cal. 1237.
10. Hickman v. Kent (1915) 1 Ch. 881.

11. A collection of some of the rules of association will be found in Paruck, Arbitra-
tion Act (1955), page 429 et seq.

it necessary to obtain the consent of parties again to the reference to
arbitration, or is it legally permissible to rely only on the arbitration
agreement? Where the arbitration agreement combines an agreement for
resort to arbitration with a reference of the dispute to arbitration by that very
agreement, no particular difﬁculty arises. But where there is merely an
agreement that the disputes arising between the parties shall be decided by
arbitration~--what may be called a "bare arbitration agreement"--is it neces-
sary that when a dispute actually arises, the consent of the various parties to
the reference should be again obtained? There exists a conﬂict of judicial
opinion on the subject.

In T hawardas Pherlm1uI's case,' it was observed by the Supreme Court
as follows:--

"A reference requires the assent of 'both' sides. If one side is not
prepared to submit a given matter to arbitration when there is an
agreement between them that it should be referred, then recourse must
be had to the Court under section 20 of the Act and the recalcitrant
party can then be compelled to submit the matter under sub-section (4).

"In the absence of either agreement by 'both' sides about the terms
of reference or an order of the court under section 20(4) compelling a
reference, arbitrator is not vested with the necessary exclusive jurisdic-
tion".
Controversy has arisen because High Courts have differed as to the
precise effect of these observations.

2.12. According to one view," consent of the parties to the actual

reference cannot be given in advance.

2.13. According to another view," consent to the actual reference can
be given in advance.

2.14. Even in the same High Court, opinion has ﬂuctuated'-"' on the
same subject.

2.15. At this stage, mention may also be made of the fact that the
Foreign Awards (Recognition and Enforcement) Act, 1961 (45 of 1961)
section 3, relating to stay of proceedings in respect of matters to be referred
to arbitration, makes a distinction between a 'submission' made in pursuance
of an agreement and the initial 'agreement'. The Supreme Court has
pointed this out in a decision dealing with that Act."

2.16. In contrast with the Act of 1961 which, as mentioned above'
makes a dichotomy between farbitration agreement" and "submission", the
Act of 1940 makes no such dichotomy.

1, Thawardas Pherumal v. Union oflndia, A.I.R. 1955 S.C. 468, 474,_475; (1255) 2
S. C. R. 48, 58.

2. Union oflndia v. Hari Kishan Joshi, A.I.R. 1972 P & H 207, 208. Dara 5-6- (D. K.
Mahajan J. ) following Punjab Province v.. Lakshmi Das, A. I. R. 1944 Lab. 140.

3. M/s. Vallabh Pitte v. Narsinghdas, A.l.R. 1963 Born. 157, 161, paragraph 11 (Patel
& Palekar JJ.)

4. (a) 0m Parkash v. Union of India, A.I.R. 1963 All 242, para 6 (B.Dayal & S.N.
Katju JJ.)
(b) Jagannath v. P.C. & I. Corporation, A.I.R. 1973 All 49, 51, para 5-6 (Gyanend-
ra Kumar J .)
(c) Mangal Prasad v. Laxman Prasad, A.1.R. 1964 All. 108 (F.B.)
5, (a) Mls. Security & Finance Ltd. v. Bachirar Singh A.I.R. 1973 Delhi 140 (Ansari J)
(11 May, 1972).
(b) Madhubala Private Ltd. Naaz Cinema, A.I.R. 1972 Delhi 263 (Jagjit Singh &
Safeer JJ.)
(c) p.C, Aggrrrwal v. Banwari Lal Kotiya, I.L.R. (1972) 1 Delhi 279, 284 (F.B.) (10
November, 1971). .
(d) P.C. Aggarwal v. K.N. Khosla, A.l.R. 1975 Delhi 54, 60, para 9 (Tatachari and
Deshpande JJ) (22 May, 1974)-
6. V0 Tractor export v. Tarapore Co. A.1.R. 1971 S.C. 1, Para 21»
7, para 2-15, Supra. '

Conﬂict ot
decisions.

Foreign Award
Act, 1961.

Contrast bet-
ween 1961 Act
and 1940 Act.

Later Supreme
Court Judgment.

Position in _
other countries.

The judicial decisions on the Act of 1940 which seem to take the
View that a reference to arbitration could be made only through section
20 unless both the parties join in the reference, are traceable to the observa-
tions of the Supreme Court in T/2(4'lt'((I'daS Pheruma-I v. Union of India,'
already quoted."

2.17. In this connection a subsequent decision of the Supreme Court'
is of interest. In that case, the Supreme Court was called upon to con-
strue, inter--a'lia, the following proviso in the Surcharge Order:---

"Provided further that no War Costs Surcharge shall be effective
upon the charges for the supply of energy under any contract entered
into after the lst May, 1942, unless such contract provides for the
same charges for energy as have been contained in similar previous
contracts for similar supply by the licensee or sanction-holder concerned
(as 10 which,*' in the event of dispute by any party interested, the deci-
sion of the provincial Government shall be ﬁnal) or unless and to
such extent as such application may be expressly ordered by the provin-
cial Government". ~

The Supreme Court held-

"The second proviso to clause 5 of the Surcharge Order does not
require that the dispute has to be referred by both the parties? Such a dis-
pute can be referred by one of the parties as is clear from the language of
the proviso which says 'in the event of dispute by any party interested'
the decision of the provincial government shall be final."

It further observed :

"Then Mr. Pathak said that under the Surcharge Order itself the
dispute had to be referred by both the parties and not by only one of
them. This contention is, however, untenable in view of the clear language
of the proviso which says: "In the event of dispute by any party interested"
the decision of the Provincial Government shall be ﬁnal.

2.18. So much as regards the case law on the Indian Acts. There
are compelling reasons of logic why a fresh consent should not be required
at the time of actual submission of the dispute. Before making our recom-
mendation on the subject, however, it may be desirable to have a brief
comparative discussion. It would appear that some time ago" an enquiry
was made by the Indian Council of Arbitration, New Delhi from several
foreign experts as to the true position in their countries in regard to the
question whether, after an arbitration clause in a contract provides for
the settlement of future disputes arising under the contract by arbitration
either by an arbitral institution or by an arbitrator appointed ad hoc, it is
necessary that the consent of both the parties to the contract should be
obtained at the time of referring the dispute (after it has arisen) to the
named institution or arbitrator.

The following was the precise question formulated for opinionza

"Whether under the arbitration legislation in your country, where
there is an arbitration clause in a contract between the parties providing
"for settlement of future disputes arising under the contract by arbi-
tration either by an arbitral institution or by an arbitrator appointed
ad hoc, the consent of both the parties to the contract is necessary
at the time of referring the dispute after it has arisen to the named
institution or arbitrator. In other words, could the aggrieved party
]. T/zuwzlrtlrls P/l€I'1lIII{l/ v. Union of I/I4/iu, U955.) 2 S.C.R. 48, 58, A.[.R. 1955 S.C.
468, 474-475.

2. See para 2' l l, .\'!{[))'(l.

3. B/zusawal Borough Mzmieipa/1'I_v v. Amalgamated Electricity Co. Ltd. (1964) 5 S.C.R,
905, 906, A.l.R. I966 S.C. l654.

4. Emphasis added.
5. Emphasis added.

6. No. l4(37)/72-Legislative II, Vol. 1, Serial No. 2, Annexure (File of the Legislative
Department). '

make a unilateral reference to the dispute to arbitration after the dis-
pute has arisen irrespe.ctive of the consent of the other party to the
contract at that time?"

2.19. The opinions received by the Indian Council of Arbitration in
reply to the query mention above,' from the various countries---U K.,
U.S.A. France, West Germany, the Netherlands, German Democratic Repu-
blic and P0land--were all in substance, to the effect that once such clause

Position in other
countries accord-
ing to replies
received by the
Indian Council

exists in the contract, further consent is not necessary at the time -':-f the Of Arbitration-

reference and a unilateral reference is possible. In other words, an arbi-
tration agreement with a clause of the nature referred to above is suﬂicient,
and the parties can be compelled to submit the dispute to the arbitrators
(arbitral institution Or ad hog arbitrator). The existence of a valid arbi-
tration clause in the contract suffices for the plaintiff to institute the
arbitration proceedings.

The following is a reproduction of the replies received by the Indian
Council of Arbitration to its query referred to above.

FRANCE:

Reply negative. When in a business contract an arbitration clause
has been inserted at the time of the signature, the clause remains in full
value as long as the contract develops its effects. regardless of the fact
that at the time the dispute has arisen, the parties disagree. They are
compelled to submit the dispute to the arbitrators (arbitral institution or
ad hoc arbitrators).

(Mr. Jean Robert, Paris)
GERMAN DEMOCRATIC REPUBLIC:

The pre-requisite for the competence of the arbitration court or arbit-
rators is an agreement among the parties, either by way of a separate
contract or a clause as part of a contract. There are no rules on the time
at which such a contract is to be concluded nor any formal requirements.
Consequently an aggrieved Party may make a unilateral reference of the
dispute to the arbitrators. This reference must be juridically qualiﬁed as
an offer to the other party to conclude a contract 011 the competence of
the arbitration court or arbitrators. The other party is free to accept the
offer explicitly or tacitly by implying a certain intention. Such a conduct
implying a certain intention is assumed when a meritorious attitude towards
the petition (statement of defence) is expressed, but the other party may
also decline the otter, so that no contract ensues and consequently no
competence for the arbitration court or the arbitrators.

(Professor Strotibach, Berlin).

JAPAN:

For the purpose of invoking arbitration procedure, the arbitration agree-
ment (clause compromissoire) is suﬂicient. There is no need in Japan
that submission (compromise) is drawn up, once a dispute has arisen,
upon the basis of that arbitration agreement which was incorporated in
e.g., the contract of sale, whether the arbitral clause IS prescribed within
the contract, or in the anticipation of eventual disputes. That is different
(in) kind from the French clause compromissoire.

(Professor T. Kitagawa, Japan).

NETHERLANDS:

Fortunately, we don't have the system that, when the dispute has arisen,
again an 'acte de compromis' would be required and a new consent of
the parties would be necessary to submit the dispute to arbitrators. The
answer to your question therefore is plainly yes.

(Professor Pieter Sanders, Netherlands)
1. Para 2.18, supra. '

Amendment
needed.

Recommendation
to amend
Section 2(a)

Section 2-
other clauses.

Section 2-
Frustration of
the contract.

POLAND .

In the case of an arbitration clause in a contract, a subsequent "acte
de mission" of the dispute to arbitration after the dispute has arisen is
superﬂuous. The existence of a valid arbitration clause in a contract is
sufﬁcient for the plaintiff to institute the arbitration proceedings.

(Mr. J. Jakubowski, Warszawa)

UK.
If there is an arbitration clause providing for settlement of future

disputes there is no need for consent of both parties at the time of referring
the dispute. A unilateral reference is possible.

(Mr. Niel Pearson, Manchester)

U.S.A.
No consent is necessary at all.
(Professor Martin Domke, New York).

WEST GERMANY:

J. see the problem like Article V of the European Convention of 1961.
This disposition corresponds of our municipal legislation and practice.

(Professor A. Bulow, Bonn).

2.20 One would have thought that in India also, on a simple analysis
of the deﬁnition of arbitration agreement,' the answer can be said to be
fairly clear and that the deﬁnition does not leave any serious room for
argument that in the case of an agreement providing for the submission
to the arbitration of future difference, consent should be again sought when
the differences actually arise.

2.21. However, an amendment of the law is necessary, since there is
a certain amount of conﬁict on the subject, as is revealed by case law." We
therefore, recommend the insertion of an Explanation below section 2(a),
on the following lines":--

Explanation 2--Where a-n arbitration agreement provides for the sub-
mission» of future difference to arbitration, and a difference subse-
quently arises which it is proposed to refer to arbitration thereunder
it shall n0t be neCe5'SClry that fresh consent of both the parties or all
the parties'. as the case may be, to the reference should be obtained at
the time of referring the dispute to such arbitration.

2.22 This disposes of section 2(a), Section 2(b) provides that "award"
means an arbitration award, and needs no comments,

the
sub-

Section 2, clause (C), deﬁnes a 'court'. There is a deﬁnition of
expression 'legal representative' in clause (d), the deﬁnition being
stantially the same as in the Code of Civil Procedure, 1908.

Finally, clause (e) provides that "reference" means a reference to

arbitration.

These clauses need no change.

2.23. Before proceeding to deal with the next section, we would like
to deal with certain matters of a general nature. First is the question
of frustration.

1. Section (2a).
2. Para 2.12 to 2.18 supra.
3. For Explanation 1, see para 2.10 supra.

When a contract containing an arbitration clause is alleged to have
been frustrated by reason of change of circumstances or otherwise terminated,
two questions may arise; ﬁrst whether the contract has become frustrated.
and secondly, whether the question of frustration or termination itself can
be adjudicated upon by the arbitrator.

2.24. It would appear' that even where by frustration the principal .

contract is alleged to have come to an end, the contract could still be in
existence for certain purposes, such as the resolution of disputes arising
under or in connection with it. The question whether the contract becomes
impossible of performance and was discharged under the doctrine of frus-
tration would still have to be decided under the arbitration clause, which
operates in respect of such purposes.

2.25. Recent Indian decisions on the subject present a contrast to the P3'? C°""°"
earlier Privy Council ruling in Hirji Mulji' case? A later case decided by '
the House of Lords,3--Heymain v. Darwins Ltd., also holds that widely
drawn arbitration clause could embrace a dispute as to whether a party is
discharged from future performance by frustration.

2.26. Later English cases'-"' take a similar wider view. English Cases
of5é953 and
19 .

2.27. It would appear that English cases would deﬁnitely construe

the jurisdiction of the arbitrator in a much wider sense than the Privy

Council did. Since the matter might depend upon the wording of the arbi-

tration clause, an express provision in the Act would not be appropriate.

228 G . . . . . . Section 2-

. . enerally, on the whole question of ]UI'lSdlC1JOI1 of the arbitra- Quesmn of
tors in such cases, the exhaustive discussion by S.R. Das J., in the under- substitution of
mentioned case" may be seen. asrecmcnt

2.29. Sometimes, a party refers the matters to the Judge himself as §:;ii'&'i'n§'J;ud"

arbitiator.7~"' There are several Indian rulings dealing with the subject.''-" as am-t,-am,_

The following are other rullings and authorities on the subject.''-"

1. (a) Damodar Valley Corporation v. K.K.Kar, A.I.R. 1974 S.C. 158.
(b) NaihatiJure Mills v. Khyab Ram. A.I.R. 1968 S.C.525, 528.

Hirji Mulji' v. Cheongyue Steemshi'p;Co., (1926) AC. 97 (P.C.).
Heyman, v. Darwins Ltd., (1942) AC. 356; 19421 All.E.R.337 (H.L.).

Kruse v. Quesrier & Co., ([953) 1 All E.R. 954 (Unexecuted contract) (Pilcher J.)

Government of Gibralrer v. [Kermey,: (1956) 3 W.L.R. 466; (1956) 3 All E.R. 22
(Sellers J.)

Rungta Sans v. J.T. Republike, A. LR. 1959 Cal. 423,

7. As to parole submission to the Judge, see Russell on Arbitration ( 1970) page 47;
and Harrison v. Wright, (1845) 13 M & W 86.

8. Under section 6(b) of the Country Courts Act, .1959, a Judge cannot act "as an
arbitrator for remuneration. Russell on Arbitration (1970) page 85.

9. Russell on Arbitration (1970), page 84.
10. See discussion in Sankaranurayana v. Rama Swamiah, A.I.R. 1923 Mad. 444.

11. Arati'Paul V. Registrar, A.I.R. 1965, Cal. 3 on appeal A.I.R. 1969;S.C'.. 1133.
12. Dalal v. Jamadar,fA. I. R. 1945 Born. 478 (Divatia 1.)

13. M/s KapoorNi'lokl1eri Co-operative Daily Farm Society Ltd. v. Union of yIndia~
A.I.R. 1973 SC. 1238.

14. Baij Narhv. Dlzam' Ram, I.L.R. 51 All. 903, A.I.R. 1929 All. 747 (Mukeri'ee&
Niamatulla JJ.)
15. Sircar, Law of Arbitration in British India (1942), Page 329-

16. Baikuntha Natl: Goswami v. Seers Nath Goswami, (1911) I.L.R. 38 Cal. 421.

1'7. Bengal Silk Mills Co. v. Aishe Aref, A.I.R. 1947 Cal. 106, 109, Decidedpn 27-2-1946
(Gentle and Gi-mond JJ.) on appeal from A.I.R 1949 Cal. (350, decidcd on 17th
January, l945;(S.R. Das 1.)

F7' E":"'E-"'."

English law.

revision in
Administration
of Justice Act,
l970 (Commer-
cial Court).

230. The law in England before l970, as stated by Russell, in his
edition of 1963, was as follows':

"The subject-matter of an action may be referred to a Judge as
arbitrator. The Judge in such a case will, if such is the intention of
the parties, be merely an arbitrator and will have no special powers
by virtue of the fact that he is a Judge and his award will not be
subject to appeal".

2.31. The position has now been laid down in statute. Under the
Administration of Justice Act, 1970, a Judge of the commercial court
may,'"' if, in all the circumstances he thinks ﬁt, accept appointment as sole
arbitrator or as umpire or by virtue of an arbitration agreement within the
meaning of the Arbitration Act, 1950, where the dispute appears to him
to be of a commercial character. Consent of the Lord Chief Justice is
required. The fees payable for the services of a judge as arbitrator or
umpire are to be taken in the High Court. The Third Schedule to the
Act of 1970 con.tains provisions modifying or replacing provisions of the
Arbitration Act, 1950, in relation to arbitration by judges. In particular,
any jurisdiction which is exercisable by the High Court in relation to arbi-
trators and umpires shall. in relation to a judge of the commercial court
appointed as arbitrator or umpire, be exercisable, instead, by the court of
appeal.

The commercial Court is created under section 3 of the Administration
of Justice Act, 1970, as a part of the Queen's Bench Division of the
High Court to try such causes and matters as may, in accordance with
the rules of court. he entered in the Commercial list. Broadly speaking,
"commercial causes" are actions arising out of the ordinary transactions
of merchants and traders.

2.32. We have carefully considered the English scheme which," it should
be noted, is confined to the commercial court. We are not, however, con-
vinced that the English scheme would be suitable to India.

As no recent Indian cases have raised this problem, we do not consider
an amendment of the Act to be necessary.

1. Russell on Arbisratio11(l963). page H7, for the old law.
2. Section 4 ;nr.l Tjiird Schedule, Administration of Justice Act, 1970 (Chapter 31).

3. Paira 2. 30 and 2. 3i, supra.

CHAPTER 3

ARBITRATION WITHOUT INTERVENTION
OF A COURT

3.1. Section 3 provides that an arbitration agreement. unless a dilferent Section 3.
intention is expressed therein, shall be deemed to include the provisions
set out in the First Schedule in so far as they are applicable to the
reference.

The section needs no change.

3.2. Under section 4. the parties to an arbitration agreement may Section 4,
agree that any reference under the arbitration agreement shall be to an
arbitrator or arbitrators to be appointed by a person designated in the
agreement either by name or as a holder for the time being of any oﬂice
or appointment. There is no express provision in the English Act for such
an appointment, but it appears that the law applicable in England is the
same.-

3.3. When arbitrators are to be appointed by an association, some Associations,

interesting questions may arise. Where the parties agree to a reference
to arbitrators to be appointed by a Chamber of Commerce, the contention
may be raised that the appointment must be made by an assembly of all
the members of the Chamber. This contention has been rejected." In
such an arbitration agreement, the rules of the Association concerned are
imported into the contract and bind the parties.

3.4. Another important question is, who may be an arbitrator. It Foreign Court
may be noted that the dispute may even be referred to a foreign court may be an
as the arbitrator? 3'b""3'°"-

3.5. The points discussed above do not necessitate any change in
section 4.

3.6. Section 5 provides that the authority of an appointed arbitrator gcmgon 5_

or umpire shall not be revocable except with the leave of the court,
unless a contrary intention is expressed in the arbitration agreement. While
on this section, it is relevant to refer to the question whether the authority
of the arbitrators comes to an end on the making of the award. The View
taken is that' if the award had been set aside, it means that there is no
award, and the authority of the arbitrator does not come to an end.' In
fact, as has been pointed out by Sircar," there may be cases where the
arbitrator can make successive awards.'

3.7. The grounds on which leave to revoke the authority of an appointed Section 5-
arbitrator or umpire may be granted are not speciﬁed in section 5. They Discfﬂiﬁll

were put under ﬁve heads in a judgment of the Supreme Court':-- 'e';';ci';d'3°

(1) Excess or refusal of jurisdiction by the arbitrator.

]. Sircar, Law of Arbitration in British India (1942), page 89.

Ganges Mamrfacmring C'o.,v. Indraclumdra, (1906) I.L.R. 33 Cal. ll69.
Austrian Lloyd Steeamslzip Ca. V. Gresham Life Ins., 0903) 1 Kings Bench 249.
Sircar, Law of Arbitration in British India (1942), page 98.

Rikhab v. Trivedi& Co.. I.L.R. 51 All. 874.

Sircar, Law of Arbitration in British India (1942). pages 98, 241, 242 and 281.
See section 27.

Mfr Amarchund V. Ambica Jute Mill, A.I.R. I966 S.C. 1036, 1042, para 13 (S.K. Das,
J).

'?°:~'.°'S".'"'."'."

21
4-7 M ofLJ CAIND/78

Section 5--

_ Effect of

revocation of
authonty-Re-
commendations.

Section 6(1)--
Recommendation
to rectify
grammatical
inaccuracy.

Section 6(2)--

Recommendation.

Section 6(2)-

Recommendation.

(2) Misconduct of the arbitrator.
(3) Disqualiﬁcation of the arbitrator.
(4) Fraud.

(5) Exceptional cases.

3.8. It remains now to refer to the position as to the effect of revoca-
tion of authority under section 5. Does such revocation put an end to
the reference?' If not, can fresh arbitrators be appointed in respect of
the same matter? In our view, revocation does not put an end to the
reference, and fresh arbitrators can be appointed in respect of the same
matter? Reference may also be made to a judgment of the Supreme Court"
holding that where the award is set aside, but the reference was not super-
seded by the court, fresh appointment could be made.

All that section 5 deals with, is the authority of the particular arbitrator
or umpire, and not the arbitration agreement as such.

Supersession* is governed by section 12(2)(b) which leaves the matter
to the discretion of the court. The revocation of the authority of an
appointed arbitrator or umpire does not in itself amount to a supersession
of the reference.

We do not consider an amendment on the point to be necessary.

3.9. Sub-section (1) of section 6 in terms provides that an arbitration
agreement shall not be discharged by the death of the party thereto,
either as respects the deceased, or (as respects) any other party, but shall,
in that event. be enforceable by or against the legal representative of the
deceased? A grammatical inaccuracy in the sub-section requires to be recti-
ﬁed by revising the present phrase as "either as respects the deceased or
as respects any other party". We recommend accordingly.

3.10. Sub--section (2) of section 6 provides that the authority of arbi-
trator shall not be revoked by the death of any party by whom he was
appointed.

A vital question relates to the words "by death of any party by whom
he was appointed". The present phraseology would give the impression
that death of a party to the agreement is a matter on which the legislature
has to say nothing if that party is not one by whom the arbitrator was
appointed. At common law, the position was that the authority of an
arbitrator or umpire was terminated by the death of a party to the agree-
ment." This position needs to be modiﬁed for practical reasons.

3.11. In order to improve the language of the section on these points,
we recommend that section 6(2) should be revised as follows :---

"The authority of an arbitrator shall not be terminated by the death
of any party to the agrcemem."

1. Para 3.48 to 3.50, infra.

2. Compare Arbu Hindustan Steel v. Appejay Pvt. Lrd., A.1.R. 1967 Cal. 291, 293, para
10 (S. Datta J.)

3. Juggila1KamIapat v. General Fire Dealers, A.I.R. 1962 SC. 1123, I127, I128, pala
10; (1962) Supp. 2 S.C.R. 10].

As to supersession of the arbitration agreement, see section 12(2) (b).
Compare section 2(1), English Act of 1950. '

Sircar (1942), page 100.

Para 3-10, supra.

.~1.<=~v'-.e

3.1lA. Sub-section (3) of section 6 provides that nothing in the section
shall affect the operation of any law by vitue of which any "right of action"
is extinguished by the death of a person.' The application of this sub-
section obviously requires a knowledge of the rules of law relating to
the survival of causes of actionka matter primarily dealt with in the
Succession Act.'-3 Comparable to section 6(3) is Order 22, Rule 1 of
the Code of Civil Procedure, 1908, under which death does not in itself
affect the life of a suit if the "right to sue" survives. No changes are
required in this sub-section.

3.12. The effect of insolvency on arbitration is dealt with in section 7.
Sub-section (1) provides that where it is provided by a term in a contract
to which an insolvent is a party that any difference arising thereof or in
connection therewith, shall be referred to arbitration, the said term shall,
if the Receiver adopts the contract, be enforceable by or against him (the
Receiver) so far as it relates to any such differences.

The common law rule was that insolvency did not itself cause a re-
vocation of the submission nor did it give the trustee in bankruptcy' an
authority' to revoke it. But insolvency was a ground to be taken into
consideration for granting leave to the other party for revocation of the
submission?

3.13. Under sub-section (1) of section 7," the matter depends on the
adoption by the Receiver of the substantive agreement. The subject of adop-
tion of agreement by the Receiver properly pertains to insolvency law.'

Where the Receiver has not adopted the contract, the question how far
effect should be given to the arbitration clause is, in substance, left by sub-
section (2) of section 7 to the discretion of the court having jurisdiction
in the insolvency proceedings. Any other party aggrieved or the Receiver is
enabled by that sub--section to make an application for the purpose to the
insolvency court. Of course, where the matter to which the arbitration
agreement applies is required to be determined in connection with, or for
the purposes of, the insolvency proceedings, then only this procedure is
permissible.

Finally, sub-section (3) of section 7 provides that the expression
"Receiver" includes an official assignee. Need for such a deﬁnition arises by
reason of the fact that the Presidency Towns Insolvency Act, 1909, uses
the expression "official assignee" and not the expression "receiver" used
in the Provincial Insolvency Act, l920.

No changes are required in the section.

3.14. Section 8(l)(a) empowers a party to serve a notice on another
party etc. to concur in the appointment of an arbitrator etc., where the arbi-
tration agreement provides that the reference shalf be to one or more
arbitrators to be appointed by consent of the parties, and the parties do not,
after differences have arisen, concur in the appointment or appointments.

The section differs from the English Act in two respects; ﬁrst, the
English section" is conﬁned to the appointment of a single arbitrator while
the Indian Act provides for one or more arbitrators. Secondly, the English

See Dulra V. Khedu, (I911) [.L.R. 33 All. 645.

Section 306, Indian Succession Act, 1925.

Compare sections 2 and 3, Arbitration Act, f9S0 (Eng.)

. Andrews v. Palmer, (I821) 4B & L 250; Sircar. Law of Arbitration in British India

(I942), page 103.
MRf.Y/I V. Wood, (l 829) 9B & C 659.

Compare section 3, Arbitration Act, 1950 (Eng.),
ruptcy Act, 1914,

7. Sections 62 and 64, Presidency Towns Insolvency Act (Act 3 of 1909).
8. Section 10, English Act of 1950.

l
2.
3.
4

.°'E"

read with section 54(4), Bank-

Section 6(3).

Section 7-
Provisions in
case of insol-
vency.

Position under
section 7.

Section 8(f)(a)
--Comparison
with English
Act.

Difference bet-
ween English
and Indian Act

---Genesis.

Appointment
by consent.

Section 8(l)(a)
and three
arbitrators.

Section 8( 1 )(b).

Act is not conﬁned to cases where the arbitrator is to be appointed by
consent of the parties, while the Indian section is so coﬁned.

3.15. It may not be out of place to explain how differences between
the two Acts arose. As regards the the first point,' section 8(1) of the
Indian Act of 1899 was, by its terms, conﬁned to the case of a single
arbitrator. Since clause (a) was so conﬁned, consequentially clause (b),
applicable to a case of the arbitrator declining to proceed further, would
also be so conﬁned. There was, however, a conﬂict of decisions on the
point, one view being that in a case of submission of dispute to three arbi-
tractors all of whom had, after acting, declined to proceed further, the
Court could not appoint new arbitrators, while the contrary view was
taken in some cases."

The 1940 Act has now clariﬁed the position.' In the notes on clauses
to the Bill of 1939, the matter has been dealt with under clause 8 by
stating that it reproduces, with some verbal changes, section 8 of the 1899
Act.

3.16. It may be noted, that the court has no power to make an appoint-
ment in cases not falling within the section.

3.17. As regards the second point (appointment by consent), it may be
noted, that it regarded as "inherent in every arbitration agreement'? that
the appointment of the arbitrator or arbitrators must be by consent of all
parties (unless there is any provision to the contrary).

3.18. An arbitration agreement may contemplate three arbitrators. The
situation is dealt with in several sections of the Act.

(a) If the three arbitrators are to be appointed by c0n.s'c'nt of the parties.
section 8(l)(a) applies.

(b) If one arbitrator is to be appointed by each party and the third
by the two appointed arbitrators, then section 10(1) comes into
play, whereunder the agreement shall have eifect as if it provided
for an umpire.

(c) Lastly, where a agreement provides for a reference to three arbi-
trators in any other manner, then, under section 10(2) the award
of the majority prevails (unless the agreement provides to the
contrary).

These provisions are somewhat different from, and wider than, section
7 and section 9 _of the English Act, which do not separately deal with the
case of three arbitrators to be appointed by consent.

3.19. This takes us to the next clause of section 8(1). Under section
8(l)(b), if any appointed arbitrator or umpire etc. neglects or refuses to
act or is incapable of acting or dies, and the agreement does not show
that the vacancy is not to be supplied, and the parties etc. do not supply
the vacancy, then a notice may be served by any party on the other party
for concurring in supplying the vacancy. This provision differs from
section lO(b) of the English Act of 1950 in certain respects. First, the
word used in the indian Act is 'any', because in that Act, section 10(a) is
conﬁned to a single arbitrator in this context. Further. the Indian Act
speciﬁcally covers the case of 'neglect'. This is not dealt with in section
l0(b) of the English Act.

Para 3- l4. supra.
Kui/ziammal v. Sarmzgapam. A.I.R. I931 Mad. 170.
Ramjiv. Han' A.l.R. I939 Sind 81 (case law discusscd)l

Notes on Clauses, published under notiﬁcation dated 22-7-1939; Government of
India Gazette, Part V. 22-7-1939. page 129 er seq.

.4-'-:-~

S. Indigz Hosiery Works v. Bharar Woollen Mills, A.I.R. 1953 Cal. 488 (Chakravart
CJ. .

_ The case of an umpire refusing to act in similar situations is dealt
Wlll] in the English Act in section lO(_d).

3.20. Where the arbitration agreement names a particular arbitrator Section suxb)
and the named arbitrator refuses to act or dies, etc., can another arbitrator 3"g.t"3tm°d
be substituted in accordance with the provisions of section 8? 2" 'Ta '"5

3.21. Sometimes doubts have been expressed as to whether section 8(l)(b) Judicial deci-

at all applies to a case where a named arbitrator, obviously chosen for the Slum Under 866-
possession of qualiﬁcations special to him, has become unavailable or refuses gggcg :5ﬂ;':ra_
to act. It would appear that however individual the choice may be, if the tors.
agreement contains sufficient indication that the parties, nevertheless, intended

that in default of their original nominee they would be prepared to ﬁll up

the vacancy by choosing the other arbitrator, then the section would apply,

and a new appointment may be made either by the parties or by the

court, as the case may be.'

3.22. Cases under paragraphs 17 to 19 of the Second Schedule of the Cases under
Code of Civil Procedure, 1908 (to which section 20 now corresponds) may 5°°°"d 5°h°dU1=~
be mentioned. If a nmned arbitrator died or refused to act, the situation
would be one covered by the words "if there is no such provision and the
parties cannot agree" under paragraph 17(4)? But a contrary view had
been taken by some High Courts?-'.

W3'
There was thus a conﬂict of V1CWS.5-9

3.23. It would appear from the trend of comparatively recent deci- R°°°"'°3S€5
sions," that in the absence of a positive intention to the contrary, courts :§bti%a'::;"°d
would be inclined to allow the vacancy to be ﬁlled up in accordance '
with the procedure provided by section 8, even in the case of a named arbi-

trator. This view is preferable from the practical point of view also.

3.24. Whether or not the section would apply in a particualr case '"'°'P'F'3'i°"
must be determined by the test laid down in the section itself, namely, of "mo" 8")'-b)'
that the arbitration agreement must not show that it was intended that the
vacancy should not be supplied."

3.25. We do not think that the position discussed above discloses any N0 Change-
need for amendment.

3.26. Section 8(l)(c)' deals with the case where the parties or the arbi- 5°°"°" 8(1)")-
trators are required to appoint an Umpire and do not appoint him.

3.27. This clause needs no change.

3.28. Section 8(2) deals with the power of the Court to fill up the Section 8(2).
vacancy after notice under section 8(1). It is linked with section 8(1), and
does not need independent discussion.

1. Compare Karam Chrmdv. M/s Sant Ram Tara Clea/1d,A.l.R. I958 Punjab 418, 419,
para 4 (Gurnam Singh J.)

2. Fazal I/lain' v. Prag Nara!'/r, I.L.R. 44 All. 523; A.I.R. I922 All. 133 (Walsh and
R3'V€S JJ.)

3. Raiam'KanI v. Panclianan, A.I.R. 1937 Cal. 388.

. Vishwas v. Bhalchandra, A.1 .R. 1931 Born. 529(2).

5. Satyamrrayarr Murthi V'. Venkataramarm Murlhi. A.I.R. 1948 Mad. 312 (Full
Bench).

6. The case law has been reviewed in Narayanappa v. Ranzchandrappa, I.L.R. 54 Mad.
469;/1.I.R. 1913 Mad. 28.

7. Governor-General v. Associated Livestock Farm, A.I.R. 1948 Cal. 230, 232 (S.R.
Das J.)

8. Ladha Sing}: v. JyotiPrasad, I.L.R. (1935) 2 Cal, 181 ;A.1.R. 1940 Cal. 105.

9. Tara Prasad V. Baij Nath. I-L-R- 19 Pal-921

10. For example, Bharat Construction Co. Ltd. v. Union aflndia. A.I.R. 1954 Cal. 606,
611, paragraph 18.

ll. Bharat Construction Co. Ltd. v. Union of India A.I.R. 1954 Cal. 606, 6E1. para-
graph 18. .

Section 8A
iNew)--Death
of arbitrator
appointed by
court or inca-
pacity etc.

Neglect by or
death of arbitra-
tor or umpire
appointed by
court.

Section 9.

Section 10(1)
and difference
between arbitra-
tors as to choice
of umpire.

Section 10(2).

Section 10(3).

Section 11.

3.29. When the court appoints an arbitrator under section 8, and the
arbitrator dies, there is no provision in the Act for the appointment of
another arbitrator by the court in his place. This has been described' as a
lacuna in the Act. Neither section 8(l)(b) nor section 9 nor section 12
would cover such a situation, and the court has no inherent power to ap-
point an arbitrator." In our opinion, the position would improve if a clari-
ﬁcation is made on the subject. The cases of incapacity, neglect and refusal
to act should also be covered. We, therefore, recommend the insertion of a
new section as fo1lows:--

"8A. Where the court has a' power to appoint an arbitrator or umpire
under any provision of this Act or of any arbitration agreement, and
title carbtltratorr or umpire so appointed by the court neglects 'or are-
fuses to act, or is incapable of acting or dies, the court may supply
the vacancy."

3.30. Section 9 deals with the case where the agreement provides for
two arbitrators, one to be appointed by each party, and makes certain pro-
visions regarding the appointment of a new arbitrator or sole arbitrator
in case of a vacancy or failure to appoint respectively. This section does
not apply where a different intention is expressed in tne agreement. How
a different intention can be expressed, may be ascertained by referring
to reported cases."

The section needs no change.

3.31. Section 10 contains provisions as to cases where the agreement
contemplates three or more arbitrators. Under sub--section (1), where the
agreement provides that the reference shall be to three arbitrators, one to be
appointed by each party and the third by the two appointed arbitrators,
then, it shall have effect as if it provided for appointment of an umpire. If
the arbitrators fail to appoint an umpire, any party may avail himself
of the procedure allowed by section 8(l)(c) for ﬁlling up the vacancy. But
if the two arbitrators differ as to the person to be appointed as the third
arbitrator, the question may arise whether the court can appoint the third
arbitrator in exercise of the power conferred by section 8tl)(c,:. Apparently,
the matter is left uncovered, on the principle that the umpire will be accept-
able to the parties only if both the arbitrators concur in the appointment.

3.32. Sub-section (2) of section 10 deals with an agreement providing
for three arbitrators, to be appointed in any other manner.

3.33. Sub-section (3) of section 10 deals with the case of more than
three arbitrators. There is no such provision in the English Act. But
the provision is needed in India, as there have been a few cases"-3 where
matters have been referred to the arbitration of more than three persons."

3.34. Certain considerations of public policy do arise in the ﬁeld of arbi-
tration. Even where a particular award has been made pursuant to the
agreed procedure, the question may yet arise whether as a matter of public
policy. the award should be enforceable. An award entitles the beneﬁciary
to call on the power of the State to enforce it, and it is the function of the
court to see that this power is not abused. Similar principles apply where
the stage of award has not yet been reached, but one of the parties has

1. Hindustan Flashlight Manufacturing C 0. Ltd. v. Great American Insurance Co. Ltd.
A.l.R. 1963 Cal. I49, l5l , para 2 (PC. Mallick J.)

See also Blzarat ('onrlruetion Co. Ltd. v. Union of India, A.l.R. 1954 Cal. 606.

Shaw Wallace& Co. v. Subbien& Sans. I.L.R. 44 Mad. 406; A.l.R. I921 Mad. 58.
Sasoon& Ca. V. Ram Duff. 49 LA. 366; A.l.R. I922 P.C. 374 (P.C.) I.L.R. 50 Cal.l.

A/nar Nath v. Uggar Sai/1, A.l.R. 1949 All. 399.

Raghubir v. Kuleswar. l.L.R. 23 Pat. 719; A.l.R. 1945 Pat. 140.
Y.L. Paul V. G.C. Joseph. A.I.R. l 948 Mad. 5l 2.

Sri Charan v. Maklmn Lal , A.I.R. l9] 9 Cal. 42.

See also discussion relating to section 8, supra.

'°°°\'.°":" PE" !"

I-

a grievance that the arbitrator is guilty of a particular default. If the
grievance is genuine. the law ought not to lend its aid to the continuance
of the arbitration proceedings bclorc the particular arbitrator, because that
would, in substance. mean that the power of the State is being resorted
to where, as a matter of public policy, it ought not to be utilised. This,
speaking broadly, is the rationale underlying the provision in section 11,
under which the court can remove the arbitrator in certain circumstances.
The expression used-the expression ot'importance~is "misconduct"; this
expression has various shades of meaning, which, of course, need not be
dealt with in this introductory paragraph. The ultimate end of the statu-
tory provision in section 11,--as indeed, of all provisions of the Act,--~is
to secure justice.

3.35. By section 11, the court is empowered to remove an arbitrator
or umpire in certain circumstances. Under subsection (1), the court may,
on the application of any party to a reference, remove an arbitrator or
umpire who fails to use all reasonable despatch in entering on or proceed-
ing with the reference and making an award. Jurisdiction under this
sub-section--in contrast with the next sub--section----is exercisable only on
the application of any party to a reference. We do not think that this position
requires to be changed.

It is often stated that arbitrators unduly prolong the proceedings so
that the primary object of the law in providing for arbitration----the quick
disposal of cases by a person chosen by the parties--~is frustrated. There
may be truth in this complaint, but it appears to us that the solution lies
in the increased use of section 11(1) by a party to the reference who is aggri-
eved by such delay. No doubt, the relief under sub-section (1) is discre-
tionary, but still it cannot be said that the law is, in substance, defective
in this regard. Therefore. sub-section (1) relating to this situation may
be left undisturbed.

3.36. We shall deal later' with the position regarding time-limits for
giving awards. Our recommendations in that regard are intended to
expedite the disposal of arbitrations.

3.37. More comprehensive and fundamental is the power of the court
under sub-section (2) to remove an arbitrator or umpire for misconduct.
It is well-established that the scope of "misconduct" in this sub-section
extends far beyond what a layman would regard as immoral? By its very
nature. the expression "misconduct" as employed in this context cannot be
deﬁned. Apart from breach of express provisions of the arbitration
agreement or the Arbitration Act, and apart from the all--embracing cate-
gory of denial of natural justice, there will be other cases where misconduct
is constituted for the purposes of this sub--section. Authorities as to the
scope and meaning of the express "misconduct" are numerous. But it is
hardly of any use to refer to them, since each case depends on its own facts,
and no more concrete propositions than have been laid down in the existing
sub-section can be deduced from them.

3.38. According to section 11(3), where an arbitrator or umpire is
removed under this section, he shall not be entitled to receive any remune-
ration in respect of his services. This sub-section does not need any
change.

3.39. Sub-section (4) of section 1] provides that for the purposes of
this section the expression "proceeding with the reference" includes, in a
case where reference to the umpire becomes necessary, giving notice of that
fact to the parties and to the umpire. This sub-section is intended to
explain, in a limited area, the meaning of the expression "proceeding with
the reference" as used in sub-section (1).

1.
2.

See discussion as to First Schedule, paragraphs 3 and 5 (Chapter 11), infra.
Halsbury, 4th Edition (1973); V01. 2, para 622.

Section 1l~--
Powcr of the
Court of remove
arbitrators.
umpires in cer-
tain circumstances.

Time limits.

Section 11(2).

Section 11(3)

Section 11(4)
and the aspect
of notice.

Section 12.

Section lZ(l)--
Controversy as
to case of single
arbitrator.

Recommendation
to amend
section 12(1).

Section 12(2).

Section 12(3).

3.40. Section 12, dealing with the powers of the court in cases where
an arbitrator is removed or his authority is revoked, divides itself into
two portions: sub-section (I) deals with the case where an umpire who has
not entered on the reference is removed or "one or more arbitrators (not
being all the arbitrators)" are removed: while sub--section (2) concerns it-
self with the case where the authority of an arbitrator or arbitrators or
umpire is revokrd. or an umpire who has entered on the reference, is re-
moved or a S0.'(' arbitrator or all the arbitrators are removed. In the former
case. the court can ﬁll up the vancancy. In the latter case, it can either
ﬁll up the vacancy or order that the arbitration agreement shall cease to
have effect with respect to the dispute referred to. The section is subject
to certain modiﬁcations in the case of arbitrations in suits (section 25)" and is
not applicable to statutory arbitrations (section 46).

3.41. In sub-section (1) of section 12, the portion consisting of the
words "one or more arbitrators (not being all the arbitrators)" creates
overlapping with subsection (2) in regard to a sole arbitrator. Such a case
should fall exclusively under sub-section (2). The problem does not arise
under the English Act,' which uses the phrase "an arbitrator (not being
a soleparbitrator) or two or more arbitrators (not being all the arbitrators)".

3.42. The case where a sole arbitrator is removed by the court is not
intended to fall within sub-Section (l)--it falls within sub-section (2). On

this point, subsection (2) is more speciﬁc, since, it speciﬁcally mentions_

"sole arbitrator". Symmetry between the two sub-sections, as far as possi-
ble, would, in our opinion, be desirable.

Accordingly, our recommendation is
revised as under : --

that section 12(1) should be

"(1) Where the court removes an umpire who has not entered on the
reference or one or more arbitrators (not being a sole arbitrator and not
being all the arbitrators), the court may, on the application of any
party to the arbitration agreement, appoint persons to ﬁll the vacancy."

3.43. Under section 12(2), where the authority of an arbitrator or
arbitrators or an umpire is revoked by leave of the court or where the
court removes an umpire who has entered on the reference or a sole arbit-
rator or all the arbitrators, the court may , on the application of any party
to the arbitration agreement, either--

(a) appoint a person to act as sole arbitrator in the place of the person
or persons displaced, or

(b) order that the arbitration agreement shall cease to have effect with
respect to the ditference referred.

No changes are required in this sub-section.

3.44. Section l2( 3) provides that a person appointed under this section
as an arbitrator or umpire shall have the like power to act in the reference
to make an award as if he had been appointed in accordance with the
arbitration agreement.

It needs no comments.

1. Section 25(1). Arbitration Act, 1950 (Eng.)

CHAPTER 4

POWERS OF THE ARBITRATOR
SECTIONS 13-14

4.1. The powers of the arbitrator or umpire are dealt with in section 13, section 13(3)
which applies unless a different intention is expressed in the agreement. --P0_W_=I't0
Clause ta) confers on the arbitrator power to administer oath to the parties "'d""'"5'°' °"h-
and witnesses.

4.2. Section 4 of the Oaths Act. 1969 requires oaths or affirmations to section 13(3,)_

be made by all witnesses. that is to say, all persons lawfully examined or
required to give evidence, inter alia. by or before any person, having by
law or consent of parties authority to examine such persons or to receive
evidence. Section 6 of the Oaths Act read with the Schedule prescribed
certain forms of oaths. It would follow that oaths have to be in the pres-
cribed manner before the arbitrator. since he is, by consent of parties, au-
thorised to receive evidence.

4.3. The ordinary rule is that arbitrators must give due notice before POWCY I0

- l_L proceed
proceeding ex parte. CK pam_
. _ Recommcndaﬁon
The power to proceed ex parte is recognised in England by case to I_nscrt
law."-" The same is the position in India. 5°°"°" 13(33)-

In our opinion, it would be desirable to put the matter on a statutory
footing, so as to make the Act comprehensive. We, therefore, recommend
the insertion in section 13 of a new clause as follows:

"Section l3(aa)'

proceed ex--par!e against any party who, without sufficient cause
and after due notice, fails to attend' personally or through agent".

4.4. Under section l3(b), the arbitrators or umpire have a power to Séction 13(15)-
state a special case for the opinion of the court on any question of law in-
volved, or state an award, wholly or in part, in the form of special case
for the opinion of the court. Being an important provision, this requires
some discussion.

4.5. This clause contemplates two kinds of "special cases". The arbit- S°°"0" 13(5)
rators may state a Spe.eia"l case on any question of law involved, or they :'f'dSl;::'i'a1k'c';'1:s
may statethe award (wholly or in part) in the form of a special case. In ' '
the former -case, the arbitration does not come to an end, but is merely sus-
pended until the court pronounces its 'opinion'. This opinion forms part
of the award, under section 14(3). In the latter case, i.e., where the 'award'
is stated for the opinion of the court, the award is ﬁnal.7

4.6. In view of the provision now made for interim award (section 27
of the Indian Act. and section 14 of the English Act of 1950), the distinc-
tion is somewhat blurred. If care is taken by the arbitrators (while making
their award or otherwise recording their decision) to make it clear whether
they are (i) making an interim award, or (ii) making a ﬁnal award, but
stating a special case in respect of a question of law, or (iii) without intending

Louis Dreyfus & Co. v. Pursholrum. I.I_.R. 47 Ca1.29.

Dipri Bikash Sen v. India Automobiles, 82 C.W.N. 838 (July 3, I978).

Prem C/rand v. For! G/ouster, A.I.R. 1959 Cal. 620.

JuggiLaI V. General Fire & Dealers, A.l.R. 1955, Cal. 354.

R ussell (I970). pages 22. 23, citing Wood V. Leake, (l 806) 12 Ves. 412.

Cf. Rule 5, Uniform Arbitration Act; Wehringer, Arbitration, Principles and Per-
cepts (1961). pages 80.

7. The distinction is maintained in section 21 ofthe English Act ofl950.

.°\'.":"'."!"'."'

5-7 M0fLI & CA/NDI78

Section 1305)
and discretion of
arbitrator.

English law.

Section 13(b)----
Statement of case

English case
as to ''special
case".

Recommendation
of Civil Justice
Committee.

to conclude the proceedings, stating a special case in the course of the refe-
rence, no practical difficulties would arise. It is only when the exact pro-
vision under which they are acting is not indicated, that some uncertainty
may arise.

4.7. Under section 13(b), it is discretionary for the arbitrator to state a
special case for the opinion of the court on any question of law involved,
or to state the award in the form of a special case on such questions for the
opinion of the court.

4.8. The corresponding provision in the English Act of 1950 is diffe-
rent, because section 21(1) of that Act provides that an arbitrator or umpire
may, and shall, if so directed by the High Court, state such question of law
etc.' This difference between the two Acts has been noticed more than once
in judicial decisions."-'

4.9. So far as is material, section 21 of the English Act of 1950 pro-
vides as follows :----

"An arbitrator or umpire may, and shall, if so directed by the High
Court, state----~(a) any question of law arising in the course of the refe-
rence; or (b) any award or any part of an award, in the form of a
special case for the decision of the High Court."

4.10. The well-known decision of the Court of Appeal----Czarinak0w v.
Roth Schmidt & Co5.--contains classic passages on the importance of main-
taining the "special case machinery" as part of the English legal system.
Even though arbitrators in modern times are more often lawyers than in the
past, the utility of this provision empowering the courts to require the arbit-
rator to state the case for the opinion of the court has been-re-asserted in
later English cases.' In one of his judgments' Lord Denning M.R. dealt
with the matter at great length. He laid. down that three requirements had
to be fulﬁlled; first, there had to be a mi] and substantial point of law
suitable for decision by the court, as distinct from a point dependent on the
special expertise of the arbitrator or umpire; secondly, the point had to be
clear-cut andcapable of being accurately stated as a point of law; it must
not be merely a matter of fact disguised; and thirdly, the point must be
necessary for the proper determination of the case. In other words, it must
not be a mere side issue. On the other hand, the fact that the question
was not of general application or was a question of construction or was a
question relating to implication or inference from proved facts did not bar a
reference.

In connection with an insurance policy the High Court of Australia
has held that a question of construction could be a question of law.'

4.11. The question whether arbitrators should be compellable to state a
case was considered by the Civil Justice Committee," which observed:

f'We are also against the suggestion that the arbitrators should be
_ , compellable by the court to state a case, as this would, in India, he
sure to lead to wide and gross abuse."

I . See para 4 - 9. supra.

Union oflndia v. Din Dayal. A.1.R. 1952 Punjab 368, 37], para 10 (Kapur J.).
. AdamjiLukmzmji v. Loki: Dreyfus & A.I.R. 1925 Sind 82, 85 (Lobo A.J.C.).

. Bombay Fire Insurance Co. v. Ahmed Bhai, l'.L.R. 34 Born. 1 (Davar J.).

Czarinakow v. Rot/: Sr/zmidt &. Co.. (1920) 2 KB. 478; (1922) All England Re-
port Reprint 45 (C.A.).

6. Halfdan Greig v. Sterling Corporation, (1973) 2 All ER. 1073, 1080.
7.

en-><~!°

New South Wales Rutfle Mining Co. Proprietary Ltd. V. Hard Ford Fire Ins. Co.,
(1972) 46 Australian Law Journal Reports 391.

Civil Justice Committee (1924-25) Report, page 216, para 17; ND. Basu,Arbitration
Act (1977), page 951.

Perhaps, the danger anticipated by the Civil Justice Committee may
not be unreal. The matter should, therefore, be left as it is.

4.12. Under section l3(c), the arbitrator can make an award conditional Section 13(b).
or in the alternative. Under section 13(d), the arbitrator may correct in an ("L (d) 3' (5)-
award any clerical mistake or error arising from any accidental slip or
omission.

Under section l3(e), the arbitrator or umpire may administer to any
party to the -arbitration such interrogatories as may, in the opinion of the
arbitrators or umpire, be necessary.

These clauses need no change.

4.13. The Arbitration Act is silent as to the power of the arbitrator Section 1}A--
to award interest on a sum of money awarded by the arbitrator. There is, 1:°V{:€'t7a'°"m'v°r
in the Act, a section'--section 29--dealmg with the power of the Court. But ea 1 P e

. . . . f th rbitrator
this section cannot be availed of by the arbitrator. $0 atfarad imel-est

4.14. In England, the ﬁrst Arbitration Act of 1889 did not contain any Histqry of the
provision for interest on awards? In the (English) Arbitration Act, 1934, law 1" E"31a"d-
section 11 was incorporated, providing for payment of interest on awards
"as from the date of the award". The present provision on the subject is
section 20 of the Arbitration Act, 1950, to which we shall refer later".

4.15. For the ﬁrst time, a provision as to interest on awards was made History of the
by enacting section 29 in the Arbitration Act, 1940. In the original Bill' law in India-
clause 30, which dealt with interest on awards, had been drafted on the
lines similar to section ll of the English Act of 1934, that is to say it
provided for interest on awards as from the date of the award. Section 11
of the English Act of 1934 read as follows:

"ll. A sum directed to be paid by an award shall, unless the award
otherwise directs, carry interest, as from the date of the award and at
the same rate as judgement debt."

But when the Bill was referred to the Select Committee, the Select Com-
mittee suggested a deliberate change and a departure from the English law.

The recommendation of the Select Committee on this aspect of the
matter runs as follows :--

"Clause 29 (clause 30 in me Bill as introduced).

Instead of ﬁxing by the Act the rate of interest which an award
shall bear and enacting that interest shall run from the date of the
award, we have provided in accordance with the analogous provision in
the Code of Civil Procedure that the court may ﬁx the rate of interest,
but we have made the date from which the interest shall run the date
0; the decree."

The recommendation of the Select Committee was accepted. Accord-
ingly, section 29, as enacted, operates only from the date of the decree.

4.16. So much as regards the history of the provision. It is to be noted Four stages
that there are four separate chronological stages to be considered in con- T¢'°V3ﬂ' 10

nection with the award of interest, as follows:-- 'i1[:e:'e'sV:f'd °f

(i) the period before the institution of the proceedings;

1. Section 29.

2_ Clumdris V. Isbrandt Sen Moller Co., (1959) 2 All ER. 6l8 .'C.A.). Also see Timber
S/,,'_,;pmg Co. S.A. v_. London Overseas Freiglzters L_id., (1971) 2 W.L.R. 1360 ;(H.L.)
holding that the arbitrator cannot alter the rate of interest prescribed for judgement
debts.

3_ Seepa1'a4'25, infra.

4, L.A. Bill No. 34 of I939.

32.

Law applicable
to each stage.

First
period.

Second period.

Third period---
High Court
decision.

iii) the period between the institution of the proceedings and the date
of the award;

(iii) the period between the date of the award and the date of the decree;
and

(iv) the period after the date of the decree.

4.17. The ﬁrst period is governed by the substantive law. including, in
particular, the Interest Act, 1839. The second period is governed by sec-
tion 34 of the Code of Civil Procedure, 1908: and where the matter has been
referred to arbitration, the general understanding' is that the arbitrator,
being a private tribunal substituted for the court under the authority of law,
can exercise this power of the court also, at least where the reference in-
cludes a claim for interest.

The third period)' was the subject--matter of some controversy, but the
matter has now been settled by the Supreme Court.

The fourth period is expressly covered by section 29 of the Arbitration
Act.

We propose to discuss in detail the case law relevant to each period.

4.18. The ﬁrst period, as already stated," is governed by the substantive
law, including the Interest Act, 1839. The arbitrators' power to determine
the substantive question in dispute must include this power also. Of course,
section 29 of the Arbitration Act carries with it the negative import' that it
shall not be permissible for the court to award interest on the principal sum
adjudged by an award for any period prior to the date of the passing of the
decree. But the arbitrator's power is as stated above.

4.19. As to the second period (period of pendency of the arbitration
proceeding), there are several decisions of the High Courts. recognising such
a power.5

Some doubt was created as to the power to award interest for this period
by certain observations of Bose J. in a decision of the Supreme Court." In
that decision, after holding that the conditions for the award of interest
under the Interest Act, 1839 were not satisﬁed in that case, the Supreme
Court also repelled the argument under section 34, Code of Civil Procedure,
1908, on the ground that the arbitrator is not a 'court' within the meaning
of that Code. In a later case.' however, the Supreme Court itself expressed
a doubt whether these observations were intended to lay down a broad pro-
position that. in no ('((-5(', the arbitrator can award interest. Power to award
interest on a sum certain is. in fact, a part of the power to decide dillerencesg
between the parties.

4.20. As to the third period.~~interest between the award and the
decree--the principal question that has arisen is this. Can the arbitrator
award interest for the period after the date of the award and before the date
of the decree of the Court? It may be noted that this period is not governed
by section 29 of the Arbitration Act. nor by seslion 34 of the Code of Civil
Procedure, 1908. For this reason some uncertainty prevailed on the subject,
until the position was settled by a decision of the Supreme Court, to the
referred to in due course."

1. Para 4-19, infra.
2. Para 4-20. infra.
3. Para 4- I7, supra.
4. l.E!'l'k(;Il)ft'a & Co. v. Urtion oflntiicr. A.l.R. i967 Bom. 350, 35! para 6. 7. 9 iTu1zapur-
ar . .
. See Union oflndia v. Bimgo SreeI1~'urm'mre P1-'f.Lf[l.. A.i.R. 1963 Cal. 70, 74, para 14
(reviews case law).
6. Thawardas V. Union oflrrdta. ([955) 2 S.C.R. 48; A.I.R. I953 S.C. 468.
7. Nat-hiappa v. Subramamtm, A.l.R. 1960 S.C. 307, 320.
8. Union of India V. Salween Timber & C'onstrucrt'cm Co. (Ind (lrtdia) and another, A.R.I.

1964 Cal. 240, 241, para 6.
Para 4.32. infra.

'~O

4.2OA. Amongst the High Courts. there arose a conflict as regards the
power to award interest for the period after the award. According to one
view} power to award interest for this period (date of award to date of
decree) can be derived from the arbitration agreement. It has been pointed
out that such a power was recognisetl before the passing of the Arbitration
Act, 1940 and arbitrators continue to retain the power after the passing
of that Act, there being nm-Leg in section 29 which takes away 'this power.
It was also pointed out that me observations of the Supreme Court as to
the power to award iIllt:':€'-.1 made in the case-' reported in l955 were limited
to the question of interest on uiliiL]'tlld21iCCi damages, and the court did not
hold that the arbitrator had no power or award interest on a debt for the
period from the award to the date of the decree.

4.2l. It may be mentioned that power of the arbitrators to award inte-
rest on the principal sum awarded from the date of the award to the date
of the decree was recognised before the Act."

4.22. However, in a Punjab case,' a different view was taken.

4.23. The Supreme Court judgement" in Union of Imiia V. Bungo Steel
Furm'I.vzre5 recognised the power of the arbitrator' to award interest for this
stage. The Court rejected the argument of the appellant that the arbitrator
had no authority to award interest from the dart» of the award, (dated Septem-
ber 2, 1959) to the dam of the decree (granted by Mallick J., i.e. August 2,
1960)

In support of this argument, counsel had relied upon the following ob-
servations of Bose J. in '1'/rawurdus Phenmtj V'. Union of India:'

"It was suggested that at least interest from the date of 'suit' could
be awarded on the analogy of section 34 of the Civil Procedure Code,
1908. But section 34 does not apply because an arbitrator is not a
'court' within the meaning of the Code nor does the Code apply to
arbitrators, and, but for section 34, even a court would not have the
power to give interest alter the suit. This was, therefore, also rightly
struck out from the award."

Commenting on this passage, the Supreme Court observed:~

"This passage supports the argument of the appellant that interest
cannot be awarded by the arbitrator after the date of the award, but in
later ewes it /rm been harmed 0:11 bv thi» court_that the observations
of Bose J. in 'I955; 2 S.C.R. 48 (A.l.R. l955 S.C. 468), supra were not
intended to lay down such a broad and unqualitied proposition. See
Nachiappa Chcniur V. Subramaniarn ('he1tz'ur" and Sutinder Singh.''

1955 as

The Supreme Court also distinguished the earlier case of

follows 2 --

"In iThaw(tra'a.s (1955) 2 S.C.R. 48; A.I.R. 1955 S.C. 468, supra,
the material facts were that the Arbitrator had awarded interest on un-
liquidated damages for a period before the r'cfcrc'n:'c to arbitration and

'1. (ti) Unitm of India V. Bungo Steel Ftmzilzu-e Pvt. 1.1.1.. :* .i.R. I963 Ctl. 73. 74., Dat'4t~
grapir |2--l4 {R.S. Bauliwztt and K.N. Laik II).

(b) C'/ridambtzram V. Subrrm1miimn, A.{.R. '.953 Mr).-'. 49.7..

2. T/tawardas V. Uniorr of lrzzlizr H955) 2 S.C.R. 48: A.I.R. i955 S.C. 468, para 4-23,
infra.

3. Bhowani Das Ram Govinrl V. Harsukh Das Ba! Kishan Dus, A.l.R. 1924 Cal. 534.

4. State ofPrm/'ab V. Surinder Narlz. A.I.R. I960 Punj. 623, 625.

5. Ullitl/l oflndia V. Bmzgo Steel Furrrilure Pvt. Lrd.. A.l.R. 1967 S.C. I032.

6. Union oflndia V. Bzmgo Steel Furrrilurc Pvt. Lrd.. A.I.R. £967 S.C. 1032.

7. T/zawardas Plzerumai V. Union of India. (I955) 2 S.CS.C.R. 48. 65; A.[.R. 1955 S.C.
468. 478.

8. Nachiappa Chettiar V. Subramaniam Chettiar, (1960) 2 S.C.R. 209, 238, A.I.R. 1960
S.C. 207, 220.

9. Satfnder Singh V. Umrao Singh, (1961) 3 S.C.R. 676; A.l.R. 1961 S.C. 908, 916.

Position
under the Act.
Punjab view.

Supreme Court
judgment of 1967.

Present position.

English law-
section 20 of
the Act, 1950.

Difference
between
English and
Indian law.

Fourth period.

Position.
summed up.

Recommendation

to insert new
section.

also for a period subsequent to the "reference. The High Court set
aside the award regarding interest on the grvund that claim for interest
was not referred to".

4.24. It can therefore be stated that the judgement of the Supreme Court
supports the view that the arbitrator can award interest for the period from
the date of award to the date of decree.

4.25. In England, section 20 of the Arbitration Act of 1950 provides
that'-"--"a sum directed to be paid by an award shall, unless the award
otherwise directs, carry interest as from the date of the award and at the
same rate as judgment debt". Further, section 44 of the Administration of
Justice Act, 1970, enables the rate of interest on judgment-debts to be raised
from 4 per cent provided by the Judgments Act, 1838 (Chapter 110) by an
order of the Lord Chancellor in the form of a statutory instrument.

4.26. The difference between the English and Indian provisions lies
primarily in this, that there is no power in an arbitrator in India to direct
payment of interest for the post-decree period. This was laid down in two
Calcutta cases". In the general scheme of Indian law, it could not be
otherwise, since, under section 29, the court takes charge of the matter as
from the stage of the decree.

4.27. The fourth period (period after the decree) falls within section 29
and raises no problems as to the arbitrator's powers.

4.28. To revert to the present section, the case law discussed above
justifies a statement that the present position in India is as follows:----

(a) Period before the institution of legal proceedings is governed by
the substantive law of intrestf including the Interest Act. 1839. It
may be assumed that the reference of money claim to arbitration
includes a reference as to interest on the money claim.

(b) (i) Where a claim for interest during the pendency of the arbitration
is speciﬁcally referred to the arbitrator, he can award such interest
just as a court could do so under section 34 of the Code of Civil
Procedure, 7908."

(ii) Where a claim for interest during such pendency is not speci-
ﬁcally referred to the arbitrator, the arbitrator has no power to
award interest.' Nor does the court have this power, since section
29 operates only from the date of the decree.

(c) As to the period after the date of the award and before the decree,
the arbitrator has such a power, if the question of interest for this
period has been referred to arbitration.3

(d) The period after the date of the decree is governed by section 29,
empowering the Court to award interest.

4.29. So much as regards the present law. It appears to us that in the
cases (b) and (c) mentioned above." the arbirators should, ipso facto, have
a power to award interest unless the agreement provides to the contrary,

Section 20. Arbitration Act, 1950.
See also section 44, Administration of Justice Act, 1970.

Pratima Swamp V. Diwan Chand. A.I.R. 1963 Cal. 583, 586.
Union oflndia V. Bun-go Steel Furniture Pvt. Ltd., A.I.R. 1963 Cal. 70.

Para 4- I6. supra.

/ILR. Malzaian V. HM/(a.a/rand iliilir Ltd., (1967) l S.C.J. 472-474 (Case of interest
pemlenre lite) and also para 4-18 supra.

Seth Thawar Das Plzerumal v. Union oflmliu, A.I.R. 1955 S.C. 468; (1955) 2 S.C.R.
48. 64.

:4 9\':" :'''.''E'''''

8. Para 4-20 supra.
9. Para 4-28

and there should be a speciﬁc provision on the subject. In the case (a)
mentioned above'. they should have this power it' the terms of the reference so
warrant. As to the rate of interest, we would introduce certain guidelines,
which will be apparent from the draft that we give below?

4.30. In the light of the above discussion} we recommend that in order Recommendation

to deal with the power of the arbitrator or umpire to ward interest for the *0 insert new

ﬁrst three periods mentioned above, the following new section should be
inserted in the Act:--

"BA. ('1) Where and in so far as the award is for the payment of
money, the arbitrators or umpire may. if the terms of the reference so
warrant, award interest on the principal sum adjudged, from the date
on which such sum has become due to the date of entering an the refe-
rence. at such rate not exceeding the rate agreed and, in the absence of
agreement, at such rate not exceeding twelve per cent per armum. as
the arbitrators or umpire may consider proper.

"E.vcplanation.--~Nothing in this sub-section shall' empower the arbi-
trators or umpire to award interest for which no claim is made by a
170")'-

l3A. (2) Where and in so for as the award is for the payment of
money, the arbitrators or umpire may, unless a diﬁerent intention is
expressed in the arbitration agreement, award interest on the principal
sum adjudged from the date of entering an the reference to the date of
the award, at such rate nott exceeding the rate agreed and, in the absence
of agreement, at such rate not exceeding twelve per cent annum, as
the arbitrators or umpire may consider proper.

"l3A. (3) Where and in so far as the award is for the payment of
money, the arbitrators or umpire tnﬂy. unless a different intention" is
expressed in the arbitration agreement, award interest on the prin-
cipal sum adjudged from the date of "the award to the date on which
the judgement is pronounced by the court according to the award. at
such rate not exceeding the ram agreed and. in the absence of agree-
ment, at such rate not exceeding twelve per cent per annum, as the
arbitrators or umpire may consider proper."

4.31. Section 14(1) provides that when the arbitrators or umpire have
made their award, they shall sign it and shall give notice in writing to the
parties of the making and signing thereof and of the amount of fees and
charges payable in respect of the arbitration and award.

Section 14(2) deals with the ﬁling of the award in court. The arbitra-
tors or umpire shall, on the request of any party to the arbitration agree-
ment or any person claiming under them or, if so directed by the court and
upon payment of the fees and charges due in respect of the arbitration and
award of the costs and charges of ﬁling the award, cause the award or
signed copy of it together with any depositions and documents which may
have been taken and proved before them to be ﬁled in the court and the
court shall thereupon give notice to the parties of the ﬁling of the award.

Section 14(3) provides that when the arbitrators and umpire state a
special case under section 13, clause (b), the court, after giving notice to
the parties and hearing them, shall pronounce its opinion thereon and such
opinion shall be added to and shall form part of the award.

A few points of detail may now be adverted to.

4.32. Section 14(1) speaks of an award being made by "arbitrators"
or by an "umpire". Sometimes. rules of commercial associations provide
for an appeal to a Committee from the decision of the umpire appointed
in accordance with such rules.

It would appear that the award of the appellate committee could be
ﬁled in court.'

Para 4'2R. supra.
Para 4-30, infra.
Para 4-29, supra.

Hecra Lal& Co. v. Joalcim & Co., I.L.R. 55 Cal. 180; A.I.R. 1927 Cal. 677; 31 CW .N.
730 (C.C. Ghosh and Buckland JJ.) (reviews English cases}.

:"E*'!"'."'

section as
section 13A.

Power to
award
interest.

Section 14.

Appeal.

Section 14(1)
and giving
of notice.

Section 14(1)
and registered
awards.

Fees.

Section 14(2)-
The requirement
of ﬁling.

4.33. In several English cases, where the arbitration proceedings in-
volved a further consideration of the award of an arbitrator by the Ap-
peal Committee of the particular commercial association, the Court held
that the ﬁnal award contemplated by the parties was that of the Appel-
late authority. The validity of such a provision in the rules of an association

seems to have been assumed in India.'--

4.34. The position seems to be this. lf. from the substance of the con- tract. i-t is clear that parties contemplate a fresh set of arbitrators to be the ﬁnal deciding authority, then such a Committee is to be regarded as a body of arbitrators or an umpire."

We shall revert to this point later.' 4.35. There are two kinds of notices contemplated by section 14. Sec- tion l4(l) provides, that after signatures on -the award, the arbitrators shall give notice in writing to the parties of the making and signing thereof and of the amount of fee etc. Sub~section (2) provides that after the award is ﬁled, the court shall give notice to the parties of ﬁling of the award. These provisions do not require any change.

4.36. A question has arisen how far an award relating to immovable property requires registration before it can be ﬁled before the court.' But the question need not be considered under section 14, since non-registration of an award does not come in the way of ﬁling of an award; it only prohi- bits its being taken in evidence, as held by the Supreme Court"-7.

4.37. More important is the question of fees. Ordinarily, the fees of the arbitrator or umpire must be ﬁxed by an agreement between the parties and the arbitrator or ismp-ire. There is, it has been held,' nothing illegal in the arbitrator or umpire demanding fees before the award, provided the amount demanded is reasonable and not extravagant, and is demanded from both parties equitably within the knowledge of both the parties.

Difficulties, however, arise where there is no agreement as to the amount or no agreement as to the time of payment of the fees.

In order to settle the position in this regard, we consider it desirable"

to add certain provisions to section 38. The salient features of the proposed provisions are--

(i) In the absence of agreement, any party or arbitrator or umpire may apply to the Court (after entering on reference) to fix the fees.

It shall also be open to any party, arbitrator or umpire to apply for variation of the fees so ﬁxed, by showing proper cause.

(ii) where the fees have been ﬁxed by agreement or by an order of the court, the court may compel the party or parties concerned to deposit fees.

4.38. Section 14(2) requires the arbitrator or umpire to cause the award or signed copy of it to be "filed in court', if certain conditions are satisﬁed. The arbitrators need not personally file the award, and it is suﬂicient if they Cam's the award to be ﬁled." Sending by post is, therefore, enough. The arbitrators can ﬁle the award," or they may be directed by the Court to ﬁle it."

Suraj IVIHH V. Clzand Mull, A.l.R. I927 Cal. 601.

Fazrrl/1//_v V. K/zimji. A.l.R. l93-4 Bom. 476.

Sircar, Law of Arbitration in British India (I942), page 191.

See discussion as to First Schedule.

Mulla. Registration Act (I963) page 95.

Chmnpa Lal V. Samm!/tpai, /\.I.R. 1960 S.C. 629. 63| (Kapur J.). For earlier cases. see Anam Lal v. Keslrar Dea, A.I.R. 1949 Cal. 549. Teja Sing/z V. Union nflnrlia. A.l.R. I955 All. 666.

Section 38 to be amended. See para 8-59 infra.

Kumblta Mawji V. Domimbn aflndia, A.I.R. I953 S.C. 313.

. Narayan V. Dewaji, A.I.R. [945 Nag. ll?-

. See section 14 (2), the words "if so directed by the court".

5:59wxmw+w~r 37 4.39. Under section 14(2), an award has to be ﬁled by the arbitrator Section 14(2) or by the umpire. The case where the arbitrator or umpire dies without gggtﬁgf °f ﬁling an award or without authorising any person to ﬁle it, is not covered a,biu.a,°,_ by the section. This was described as a "lacuna" in the Act in a Calcutta Proposed case.' In that case, the court acted under its inherent jurisdiction under section 14(2A). section 151, Code of Civil Procedure, 1908, and made an order for ﬁling the award within a month, from the date of judgment against the res-pon- dent.

4.40. It was not disputed in that case that the umpire had made an award; he, however, did not ﬁle the award or authorise anyone to do so, and instead made it over to the respondent.

The appellant took out a notice of motion under section 14(2), but before the date for the notice of motion arrived. the umpire died. Hence the difﬁculty that arose.

4.41. It may be noted that this problem does not arise in England, as English iaw. there is no section in the English Act dealing with ﬁling of the award by the arbitrator. The reason is, that under that Act, the award is enforceable as a judgment? by leave of the High Court or any Judge thereof.

4.42. It appears to us that in the scheme of the Act, this question Rccommcndauon must be dealt with by a speciﬁc provision. The want of a speciﬁc provision as to section 14 »--which is a lacuna"---may sometimes create avoidable problems. The same "; '3°"'l: °*}5°t; applies to cases other -than death, such as the arbitrator not being traceable ;',bl-,f.::°,°o, ° or neglect on his part to ﬁle the award. To make the section comprehensive without min; on the subject, it is desirable to amend it in a suitable manner. The gist of the_aWard and our recommendation will be apparent from the following draft of the sub- 5!{"'I't'." __ sections which, according to us, should be inserted in section l4:-- §'u'l':s'e';'t'ions (2A) and (2B) "Section l4(2A) to be inserted.

If, because of the death of the arbitrator or for any other reason, the award is in the possession of a person other than the arbitrators or umpire, as the case may be, any party to the arbitration agreement may apply to the court for directing the said person to file the award along with the deposition: and documents referred to in subsection (2) if also in the possession of the said person."

"Section I4(2B) The Court shall, on an application being made under subsection (21%), after giving notice to the said person and to the parties, cause the award together with the depositions and documents to be filed in court and shall thereafter proceed to deal with the award in accordance with the provisions of this Act,"

4.42A. Before leaving -section 14, it is necessary to deal with one sug- Suggestion gestion that has been made to the effect that an arbitrator must be required to require to give reasons for the award. This suggestion was made by the Public Ac- arbitrator to counts Committee (1977-78), Sixth Lok Sabha, Ninth Report, dealing with §"[°ﬂ"°"'5°"'l_d the Forest Department, Andaman. The suggestion has been brought to our 0' e an ' notice by the Ministry of Law.' The Committee, after expressing its unhap- piness over the manner in which certain arbitration cases which formed the subject-matter of the Report had been pursued, and after noting the delay that took place in the disposal of cases, made the following observations:--

"In this distressing story, Government has repeatedly suffered loss. In the first arbitration case, Government's claim for royalty on shortfall I. Panchanan Dev v. Union of India, A.I.R. 1959 Cal. 84, 87, para 14 (Chakravarty CJ. and SC. Lahiri J.)

2. Section 26, English Act of 1950.

3. Para 4'39 supra.

4. Public Accounts Committee, Ninth Report, Sixth Lok Sabha (September, 1977), (P.A.C. No. 548,) page 201, paragraph 3-272.

6-? M ol'LJ 6: CAlNDl78 38 Suggestion not accepted.

Relevant considerations-

Burden on the arbitrator.

Laymen as arbitrators.

of extraction was not upheld. As the arbitrator's award gave no rea-

sons, Government could not even ﬁnd out why their claim was rejected. It will be strange if Government really ﬁnd itself so helpless in such cases. The Committee would like Government to make up its mind and amend the law in such a man- ner that it would be obligatory on the arbitrator to give reasons for his award. Meanwhile, it should be ascertained whether in an award which sets ou-t no reasons the aggrieved party have no remedy whatever."

4.43. We have also been informed that the Public Accounts Committee (1975-76), in its 210th Report, has observed as 'follows:----

"Incidentally, the Committee also find that under the Arbitration Act, the Arbitrator is not bound to give any reason for the award. The result is that often it becomes difficult to challenge such non-speaking awards on any particular ground. The Committee are of the view that it should be made obligatory on arbitrators to give detailed reasons for their awards so that they may, if necessary. stand the test of objective judi- cial scrutiny. The Committee desire that this aspect should be examined and the necessary provision brought soon on the statute book."

4.44. We have given careful consideration to the suggestion that the arbitrator should be required to give reasons. And we appreciate the em- barrassment that must be caused to the Government by such awards in _the cases referred to by the Public Accounts Committee in its Report referred to above. We are also not unmindful of the fact that the public interest might sometimes sulter by awards which are not supported by reasons. But we regret that we are unable to persuade ourselves to accept the suggestion for amending the law. Our reasons for this conclusion will be set out pre- sently. These reasons are, in our view, weighty enough to override other considerations.

4.45. There are, it seems to us, -several considerations that are rele- vant in determining the question whether an arbitrator should be required by law to give reasons for the award.

The scheme of the Arbitration Act is to provide a domestic forum for speedy and substantial justice, untrammelled by legal technicalities, by getting the dispute resolved by a person in whom the parties have full faith and conﬁdence. The award given by such a person under the scheme of the Act can be assailed only on very limited ground like those men- tioned in section 30 of the Act. The result is that most of the awards at present are made rule of the court despite objections to their validity by the party against whom those awards operate. To have a provision making it obligatory for the arbitrator to give reason-s for the award would be asking for the introduction of an inﬁrmity in the award which in most cases is likely to prove fatal. Many honest awards would thus be set aside.

Once the arbitrators are compelled to give reasons in support of the award, the inevitable elfect of that would be that the validity of most of the awards would be challenged on the ground that the reasons, or at least some of them, are bad and not germane to the controversy. Sometimes, if four reasons are given in support of the award and one of the reasons is shown to be not correct or not germane, the award would be challenged on the ground that it is diﬂicult to predicate as to how far the bad reason which is not germane has inﬂuenced the decision of the arbitrator. Many awards would not survive court scrutiny in such circumstances.

4.46. It is also noteworthy that in a large number of cases the arbitra- tors would be laymen. Although their ﬁnal award may be an honest and conscientious adjudication of the controversy and dispute, they may not be able to insert reasons in the award as may satisfy the legal requirements and the scrutiny of the court. The arbitrators having been chosen by the parties, it would, in our opinion, be not correct to put extra burden on

1. Public Accounts Committee (1975-76), 210th Report, page'l~36, para 517.

them of also giving reasons which are strictly rational and germane in the eye of law in support of their award. Once the parties have voluntarily chosen the arbitrators, presumably because they have faith in their impar- tiality, the law should not insist upon the recording of reasons by them in their award.

4.47. The previous experience, in fact, points out that it is awards in- corporating reasons which have generally been quashed in court. The awards not giving reasons have survived the attack on their validity, unless the arbitrator is otherwise shown to have misconducted himself or his award suffers from some other technical defect.

Once we have the compulsion for the incorporation of reasons in the award given by the arbitrators. validity of most of the awards, in our opi- nion, would not be able to survive in court. As such, the object of the Ar- bitration Act would be substantially defeated.

4.48. Once Parliament provides that reasons shall be given, that must clearly be read as meaning that proper, adequate, reasons must be given; the reasons that are set out, whether they are right or wrong, must be rea- sons which not only will be intelligible, but also can reasonably be said to deal with the substantial points that have been raised. If the award in any way fails to comply with the statutory provisions, then it would be a ground for saying that the award was bad on the face of it, as Parliament has re- quired that reasons shall be incorporated.' It is well established that where the arbitrator gives reasons for a con- clusion of law, courts can go into those reasons."-3.

4.49. It is sometimes stated that since an arbitrator is bound to apply the law, there should be some means of ensuring that he applied the law correctly. However, it is also to be remembered that parties resort to an arbitration voluntarily and select or agree to a particular arbitrator, because, inter alia,--

(i) they have faith in him, and

(ii) the proceedings will be more speedy and free from technicalities than in the courts.

The object of achieving speed and informality is likely to be largely frustrated if a statutory provision makes it compulsory to give reasons for the award. The general rule is that the parties cannot object to the decision given by their own judge, except in case of misconduct and the like.' This general principle should not be departed from unless weighty reasons exist for such departure.

No doubt, it is desirable that the award should be correct in law. But the fundamental question is, how far should the ﬁnality of the award yield to the desirability of legal correctness, and what procedural requirements should be insisted upon to ensure that the award is sound in law? In this connec- tion, reference may be made to the observations of Barwick CI. (of the High Court of Australia), made in 19725. He observed that "ﬁnality in ar- bitration in the award of the lay arbitrator is more signiﬁcant than legal propriety in all his processes in reaching that award."

1. Of. Re Poyser & Mills Arbitration, (1964) 2 Q.B. 467; (1963) 1 All E.R. 612, 616 (Megaw J.)

2. Champsey Bhars& Co., v. J.B. S/u'nm'ng& Weaving Co. Lta'., A.I.R. 1923 P.C. 66.

3. S. Dult v. University ofDelhiA.[.R. 1958 S.C. 1050.

4. Government of Kelantan V. Duﬂ Development Co. Ltd., (1923) A.C. 395; Russell (1970), pages 359, 360.

5. Tuta Products Pvt. Ltd., v. Hutchesan Bros. Pvt. Ltd., _ (1972) 127 C. L R 253, 258:

(1972) Australian Law Journal Reports 119 (Australia). -

Likelihood of awards being challenged.

Nature of' reasons.

Voluntary character and the cosidera-

tion of speed.

No change-

The importance which the law attaches to the ﬁnality of arbitration goes against the suggestion now put forth for giving reasons for an award. A requirement that the reasons for an award should be given would open too wide a door for challenging the award, even if the grounds for setting aside are, by statute, restricted in other respects.

4.50. For these reasons, we are not inclined to recommend a provision requiring the arbitrator to give reasons for the award.

CHAPTER 5 PrOC€Edf}J_.','S in the Court on an Award (Sections 15-19) 5.1. After an arbitrator has made his award, one of the parties must Sections 15 to obtain a judgment in terms of the award. Indian law, as; enacted in the 17 and 3""

Arbitration Act, does not allow a party to enforce the award as such. This S°h°m°' position, therefore, necessarily raises the question--What are the possible alternatives open to the court when its aid is sought for the purpose of making a decree in terms of the award? The law on the subiect is scattered in several sections. Their inter-relationship would be better understood if they are viewed as constituting a set of alternatives available to the court on an application made for the purpose mentioned above.

In the scheme of the Act, the court may--

(a) pass judgment in terms of the award (section 17), or

(b) modify or correct the award (section 15), or

(c) remit the award on any matter referred to arbitration for recon-

sideration by the arbitrator or umpire (section 16), or

(d) set aside the award (section 30).

In short, the court may totally accept the award, or totally reject it, or take the intermediate course of modifying it or remitting it with the implication that the arbitrator may modify it. Whether these alternatives are mutually exclusive is not a matter which needs to be considered at this stage.

5.2. Coming to the power to modify an award--~which is ﬁrst dealt Secli0n15.

with,--section 15 confers that power in three situations. The first is where it appears to the court that a part of an award is upon a matter not referred to arbitration, and such part can be separated from the other part and does not affect the decision on the matter referred. The second is where the award is imperfect in form or contains any obvious error which can be amended without affecting such decision. The third applies where the award contains a clerical mistake or an error arising from an accidental slip or omission.

The ﬁrst situation hardly needs any comment, because the authority of an arbitrator cannot go beyond the matters referred to arbitration.

The second situation is equally unobjectionable, since the power to modify or correct the award is, in this case, linked up with an imperfection of form or an obvious error, and can be exercised without affecting the decision on the matter referred. The situation where an award contains an obvious error is illustrated by a series of cases where the award was erroneously passed against the President of India, while it should have been passed against the Union of India.' The third situation becomes necessary by reason of the fact that the award, because of clerical mistake or accidental slip or omission, does not reﬂect the true intention of the arbitrator.

The common link underlying the three situations is the legislative po- licy of giving effect to the substance of the arbitration and the award I. (a)9Um'on of India V. Salween Timber Construction 07., A.l.R. I963 Cal. 307. 309, para .

(b) Union of India v. Himatringka Timber Co., A.I.R.1964 Cal. 91, 92, 93 para 5 to 8.

41 42

History and position in England.

No change.

Section 16 and grounds for remitting the award.

Scope of section 16.

History.

(1899 Act and Code of Civil Procedure).

5.3. It may be noted that section 15 corresponds to the Code of Civil Procedure, 1908, Second Schedule, para 12. There was no such provision in the Indian Act of 1899. Nor is there any such provision in the English Act. Under the English Act, the court has no power to alter or amend an award.' It may be noted, that even in India, no such provision was con- tained in the Code of 1882 in relation to arbitration: without intervention of the court (Section 525 of the 1882 Code), and, therefore, the court had no power to amend the award or remit it. It could either ﬁle the award or reject the application? In the absence of such a provision, the court had either to set aside the award or to remit it? Hence the need for a provision conferring power to modify the award.

5.4. The present provision is a salutary one and_ we have no change to recommend in section 15.

5.5. The grounds on which an award or any matter referred to arbi- tration can be remitted to the arbitrator or umpire for re-consideration are enumerated in section 16(1), clauses (a), (b) and (C). In the corresponding section 22 of the English Act of 1950, there is no such limitation, and the High Court or a Judge thereof is authorised to remit the matters referred, or any of them, "In all cases of reference to arbitration"! Though, in Eng- land, the power to remit is generally exercised on certain recognised gro- unds, those grounds are merely guides to the exercise of discretion, and are not exhaustive? The usual grounds for remission in England are:--

(i) where the award is bad on the face of it;"

(ii) where there has been an admitted mistake and the arbitrator him-

self asks that the matter may be remitted?

(iii) where there has been misconduct on the part of the arbitrator?

(iv) where additional evidence has been discovered after the making of the award."-''' But these are not exhaustive."

5.6. In our Act, under section 16(1), the court may from time to time remit the award or any matter referred to arbitration to the arbitrators or umpire for reconsideration upon such terms as it thinks ﬁt. The sub-section applies in three situations. We shall come to the precise terms of the three situations in which the section applies in due course, but it may be useful to point out that the common thread linking the three situations is incom- pleteness in point of quantity, intelligibility and legality.

5.7. It may be noted that in the Indian Arbitration Act of 1899, there was no limitation of the grounds for remission." Section 13(1) of that Act was as follows:----

"The Court may, from time to time, remit the award to the reconside- ration of the arbitrators or an umpire."

._ Russell on Arbitration (1970), page 314, citing Hail v. Alderson, (1825), 2 Bing 476 and Moore V. Buklin, (1837) 7 L.J.Q.B. 20.

See Mohammad Afzal v. Abdul Hamid, A.I.R. 1925 Lah. 570.

Shyam Lal v. Purshotam Das, I.L.R. 42 All. 277 (Case under the old Code). Section 22, Arbitration Act, 1950.

Russell on Arbitration (1970), page 395 and illustrations at pages 396-398. Russell (1 970), page 357.

Russell (1970), page 370.

Russell (1970), page 376.

Russell (1970), page 392.

Montogomery Jones & Co. v. Liebenthal, (1898) 78 Law Times 406.

For examples of other grounds, see Russell (1970), page 344.

See also chart in para 5. 12, infra.

...._.._.

t~.z--O.*".°°.".°":":"'E".N 5.8. Such a limitation was. however, contained in the Second Schedule to the Code of Civil Procedure, 1908. paragraph 14 (now repealed)-. Under that paragraph, the court could remit the award or any matter referred to arbitration--

Civil Procedure Code was narrow as is the present section, while in the Arbitration Act, 1899} the provision was wide as in the English Act." The "(a) where the award has left undetermined any of the matters refer- red to arbitration, or where it determines any matter not referred to arbitration, unless such matter can be separated without affect- ing the determination of the matters referred;

(b) where the award is so indeﬁnite as to be incapable of execution;

5.9. It would thus appear, that the provision as to remission in the Present section narrower than English law.

notes to clause 16 to the Bill of 1939 merely state that clause 16 deals with the court's powers to remit an award for re-consideration, and sub- clause (1) repeats (without change) paragraph 14 of the Second Schedule to the Code, and the remaining sub-clauses reproduce the substance of the ﬁrst sentence of paragraph 15(1) of the Code.

The notes do not contain any discussion as to why the wider provision in the Indian Arbitration Act of 1899 was not adopted. The difference between the Act of 1899 and the Code of Civil Procedure. 1908, has been judicially noted." Under the wider provision in the Indian Arbitration Act, 1899, courts generally exercised their discretion on the same grounds as in England.' remit an award on any ground not mentioned in the section."-" A remission ordered in the absence of the speciﬁed would be invalid.' the subject should be altered by removing or modifying the restrictions as to remission. There may be cases where the situation does not fall under section 16. and yet remission of the award would be desirable."

Remission on other grounds not permissible.

5.10. As the section stands now. it is not possible for the courts to 5.11. It is an important question for consideration whether the law on Question of amendment considered Change in Again» the law.

where legislation has been enacted subsequent to the making of the award and changed the law, the award may require re-consideration on that score.

Such a situation arose in one case before the Patna High Court.' After an award was made with regard to the partition of certain properties, a notiﬁcation was issued under_section 3 of the Bihar Land Reforms Act, vesting the "milkiat interest" in the State of Bihar. The Court held. that the award was not a nullity because of such vesting, and that the proper course would be to refer the matter back to the arbitration under section 16 for making a fresh partition of the properties which are left to the members after the vesting of the said interest.

Thus, if "Daniel" is referred to in the award as "Davi ", then on that 5.12. Again, there may be cases where there is a mistake in the award. cases of mistake.

ground the award can be remitted. (Of course. there are other provisions also regarding mistal<e)."' Iﬁ P )°9°.'~'S3\E"."3"5"-T' Para 5-8, supra. , Section 22, Arbitration Act, 1950 ("Eng.).

Aboabaker v. Congress Reception Committee, A.I.R. 1937 Born. 410, 416.

See U.M. Choudhary & CO. V. Jivan Krishna, I.L.R. 49 Cal. 646; A.I.R. 1922 Cal. 447. Sree Minakshee Mills Ltd. v. Patel Brothers, A.I.R. 1944 P.C. 76.

Vengu Ayyar v. Yegyam Ayyar, A.I-.R. 1951 Mad. 414.

Shea Karan V. Kanhaya, A.I.R. 1935 Lab. 113.

See cases cited in Russell on Arbitration (1970), page 392.

Shalingrgm Sfngh v. Shea San" Prasad, A.I.R. 1963 Pat. 168 (Ramaswami C.J. and Unt- walia J. .

See section 13(d) and 15(0), Indian Act, and section 17, English Act. ' 43 44 Recommendation to amplify section 16.

_ Then. there ma tuting the substanti the arbitrators.

There may be many other cases Most of these cases would not fall u section 16(l)(c)----"whcre an objection to I rent upon the face of it"

clear that remission can, at The present provision follo Second Schedule, paragrap of 1899. The notes on cl 1940 merely state that th No other reasons are given nder s y be cases where a speciﬁc statutory provision consti- ve law applicable to the case has been overlooked by where remission would be appropriate.

ection 16. unless the language of he legality of the award is appa-

----is stretched beyond its legitimate limits. It is present, be ordered only on the speciﬁed grounds.' ws the narrower one in the Civil Procedure Code, h 14, instead of the wider one in section 13, Act auses relating to the Bill which led to the Act of e clause follows the Second Schedule, clause 14. as already stated."

The following chart will show the relevant provisions:----

(English) Arbitration Act 1889 Section 10 (I) In all cases of ref-

erence to arbitration the Court ora Judge may from time to time remit the matters re-

ferred, or any of them, to the reconsideration of the arbitrator or umpire.

(2) Wherean award is remitted, the arbitra-

tors or umpire shall.

unless the order other-

wise directs, make their award within three months after the date of the order.

Indian Arbitration Act, 1899 Section I 3 (1) The Court may, from time to time, remit the award to the re consideration of the arbitrators, or umpire.

(2) Where an award is remitted under sub-section (I), the arbitrators or um-

pire shall, unless the court otherwise dir-

ects, make a fresh award within three months after the date of the order remitting the award.

C.P. Code, 198, Second Schedule Paragraph 14 The court may remit the award or any matter referred to arbitration to the reconsideration of the same arbitrator or umpire, upon such terms as it thinks fit--

(a) Wherethe award has left undetermined any of the matters referred to arbitration, or whe-

re it determines any matter not referred to arbitration, un- less such matter can be separated with-

out affecting the determination of the matters referred ;

(b) Where the award is so indeﬁnite as to be incapable of exe-

cution;

ion to the legatity of the award is app-

arent on the face of it. Paragraph 15(1) An award remitted under paragraph 14 becomes void on the failure of the arbit-

rator or umpire to re-consider it. But noaward shall beset aside except on one of the following gr-

ounds, namely:--

etc.

(b)! (Indian) Arbitration Act, I 940 Section 16"

The court may from time to time remit the award or any matter referred to arbitration to the arbitrators or umpire for reconsideration upon such terms as it thinks ﬁt!

(a). {same as I (a), (b), (C) in the preced-

W ing column (i.e. LC.P. Code).

(2) Where an award is remitted under sub-

section (1), the Court shall fix the time within which the arbitrator or um-

pire shall submit his decision to the Court :

Provided that any time so ﬁxed may be extended by subse-

quent order of the Court.

(c) (3) An award remit-

ted under sub-sec-

tion (1) shall become void on the failure of the arbitrator or umpire to reconsi-

der it and submit his decision within the time ﬁxed.

5.13. In our opinion, it is advisable to substitute in section 16 a more ample provision.

Necessary amendment is recommended.'

1. See Sircar, Law of Arbitration in British India (1942), page 20] .

2. Para 5 - 9, supra.

3. See para. 5-19, infra.

5.14. The reconsideration under section 16 may be of the whole award, Section 1,6(1'r-- or it may be of a particular question only. If the whole award is remitted, ::n':if:.';';"1 the effective award is the second one; but if only some of the matters are " ' remitted, it becomes somewhat difficult to decide how far the first award remains effective. The question was discussed in a Calcutta case. The view was taken that unless the court gave a direction under section 16(1) to the effect that the award of the arbitrator should be limited to the mat- ters remitted to him, the arbitrator can, in his second award, conﬁrm or repeat what he had said in the ﬁrst award.

5.15. This is, of course, a question of form, and not of much impor- Obscun-ty as to tance. But what happens to the ﬁrst award in the meantime? The position the position of on the subject is rather obscure. The view taken in England is that the the first award- award is apparently suspended.'-' It is stated, however, in Halsbury,' that the ﬁrst award remains valid and enforceable, but in the Calcutta case,' this proposition was regarded as 'too broad'. Since, in India, the award has to be made rule of the Court, the obscurity of the position is not likely to lead to any practical difficulties. No change is, therefore, recommended on this point. 1 5.16. In England," the question whether, after an arbitrator dies, the Rcmission to award can be remitted to a new arbitrator, has arisen. The view there new taken seems to be, that if, by the agreement to refer, the court has power arbitrator. to appoint an arbitrator in place of the one who had died, and the arbi- trator dies after making an award, the award may be remitted to a new arbitrator appointed by the court in accordance with the provisions in the agreement, but not otherwise. The problem does not seem to have arisen in India. In the Code of Civil Procedure, 1908, Second Schedule, para- graph 14, the words used were "same arbitrator", but the word "same" does not occur in the 1940 Act, and did not occur in the 1899 Act." The matter may be left as it is, as such a situation may not be frequent.

5.17. We may now revert to the need for widening the scope of sec- Section 16 tion 16--a matter which we have already discussed.' / It is to be noted that ,5¢°P° f0' at present when an award which is defective in matters of substance is '"""°"°'"°"t' received by a court, then the only alternatives open to the court are to remit the award or to set it aside. Power to set aside the award (in contrast with the power of remission).." is a drastic one, because the court may' then supersede the reference, and direct that the agreement ceases to have effect with respect to the difference refered. Such a drastic action may not always be in conformity with the intentions of the parties. It may lead to unneces- sary litigation and, in some cases, to injustice. If this approach is correct, the power to remit should be worded widely rather than narrowly. In fact, this power in the earlier Act---Indian Arbitration Act, 1899, section 13- was very wide, because section 13(1) of that Act provided that "the court may, from time to time, remit the award to the reconsideration of the arbi- trators or an umpire". There was no further limitation as to the grounds of remission. In the English Act also, the power is expressed as a power "to remit the matters referred or any of them" without any restriction as to grounds.

In illustration of the utility of a wide power of remission, it may be useful to refer to the situation of such "misconduct" on the part of the arbitrator as does not irresistibly lead to the conclusion that there has been any act involving moral turpitude. In fact, under the Act of 1899, judicial Brahma Sarup v. Diwan Charla', A.I.R. 1963 Cal. 583, 586.

Johnson v.La!ham, (l851)20 L.J.Q.B. 236, 238 (Earl J.) (Observations). Halsbury, 3rd Edition , Vol.2, page 57, para 122.

Brahma Sarup v. Biwzm Chand. A.I.R. 1963 Cal. 583.

See Russell on Arbitration (1963), page 306.

See Sircar (1952), page 207.

Para 5- 10 to 5-13, supra.

Para 5-6, supra . Section 19.

7-7 M ofLJ & CA/ND/78 '°°°."?'5":"."'!"i"

Position in England.

Recommendation as to section 16.

Section 30.

Section 17.

decisions accepted the proposition that where there has been misconduct on the part of the arbitrator, the court could remit the matter for re-consi- deration} 5.18. In England, the Courts have refused to limit the power of re- mission to the speciﬁed grounds." It may be stated5 in broad terms that where the award or any part thereof if grossly wrong, the award may be remitted. As was observed in an Australian case,'--"Arbitrat0rs are not selected to act despotically or illegally if that can be reasonably preven- ted".

A well-known English cases may be referred to in the context of tech- nical misconduct. In that case, an arbitrator with whom a letter book was left, read letters other than those put in evidence and his award was mate- rially inﬂuenced thereby. The award was remitted on that ground. If such a situation arose in India under section 16, the power of remission would not be exercisable and the only course left open would be to set aside the award.

It would, then, appear that there is everything to be said for a wide jurisdiction in regard to remission of the award. This would not strictly be an innovation, because the Act of 1899 did provide for a wide jurisdic- tion in this regard. Moreover, it would be consistent with justice and con- venience. At the same time, care has to be taken that scope is not created for unnecessary interference by the court.

5.19. In the light of the above discussion,' we recommend that in sec- tion 16(1), the following clause should be added at the end7:----

"(d) where for any other reason the court considers that in the interests of justice it should, instead of setting aside the award, order such remission."

5.20. At this stage, we should refer to section 30 which confers on the court power to set aside an award. Section 30 represents a stage between the submission by the arbitrator of the award under section 14 and the pro- nouncement of judgment in terms of the award under section 17. Modiﬁca- tion of an award and its remission are dealt with in sections 15 and 16, already. dealt with.

5.21. We now proceed to section 17. Under section 17, where the court sees no cause to remit the award or any of the matters referred to arbitration for reconsideration or to set aside the award, the court shall, after the time for making an application to set aside the award has expired, or such application having been made, after refusing it, proceed to pro- nounce judgment according to the award and upon the judgment so pro- nounced a decree shall follow and no appeal shall lie from such decree except on the ground that it is in excess of, or not otherwise in accodance with, the award.

That part of section 17 which bars an appeal except on the speciﬁed grounds has led to a conﬂict of decisions which can be best understood in the light of the historical evolution of the law.

5.22. The scheme of section 17, which provides that no appeal shall lie from a decree in accordance with the judgment based upon an award

1. U.M'. Choudhury & Co.v.Jt'van Krishna Ghose & Son,(1922)l.L.R. 49 ('al. 646.

2. Margulies Brothers Ltd. v. Dafins Tlzomaides &Co. Ltd. (1958) 1, W.L.R. 983 400. 401.

3. Russell (1970), pages 377, 378.

4. Carr V. WodamgafShr'ra, (1924) 34 C.L.R. 234.

5. Davenport v. Vickery, (1861) 9 W.R. 70] ; Sircar, Law of Arbitration in British lrtdia (1942), page 20,

6. Paras-10to5-l3andS-17,5-18.

7. In present clause (c) of section 16 (1), the word "or" should be added at the end, as a consequential change.

except on the ground that the decree is in excess of, or not otherwise in accordance with, the award is that the parties having themselves chosen the arbitrator, the award given by such an arbitrator should constitute ﬁnal adjudication of the dispute and it should not be open to the court of appeal to substitute its own opinion for that of the arbitrator, in the same way as a trial court could not do so. The right of appeal is consequently conﬁned only to that part of the decree which is stated to be in excess of, or not in accordance with, the award.

5.23. There is a conﬁict of views on the point as to whether, where a court passes a decree in terms of the award, an appeal would be maintain- able on the ground that there was no valid reference to arbitration. It is not possible to reconcile the two conﬂicting views held in the matter. One view is that the appeal is maintainable.' The other View is that the appeal is not maintainable."-5 To set this controversy at rest, we are recommending amendment in section 30 of the Act. As a result of that amendment, an appeal would be maintainable under section 39(l)(vi) against an order which also disposes of the objection that the award is invalid because there was no valid refe- rence to arbitration. Such objection, according to the amendment suggested by us', would fall within the ambit of section 30.

5.24. This takes us to section 18, which deals with power of the court to pass certain interim orders. The section needs no change.

5.25. Under section 19, where an award has become void under sub- section (3) of section 16 or has been set aside, the court may, by order, supersede the reference and shall thereupon order that the arbitration agree- ment shall cease to have effect with respect to the difference referred. The section needs no change.

1. Durga Clmran v. Gnaga Dliar, A.I.R. 1931 Cal. 109.

2. Golnur Bibi V. Sheikh Abdus Samad, A.I.R. I931 Cal. 211.

3. (a) Mohammad v. Valli, A.I.R. 1924 Bom, 324 (Pratt and Fawcett, JJ.).

(b) Ban/za Sahib V. Abdul Gunny, A.I.R. 1914 Mad. 675.

4. The case law on the subject is collected in U. Sein Win v. Central Plumbring Ca., A.I.R. 1935 Rang, 94 and in Golnur Bibi v. Sheikg Abdus Samad, A.I.R. 1931 Cal. 2] l.

5. See discussion in Saha & Co. v. lshar Singh, A.I.R. 1956 Cal. 321, page 323, para 24 (Chakravax ti C.J.). page 33, para 43 (S.R. Das Gupts J.), page 342, para 86 (P.B. Muk- harji, J.) and page 347, pura 130 (Bachawat, J.).

6. Para 8-12, infra.

Conﬂict of views and its solution.

Section 18.

Section 19.

Section 20.

Section 20(2) Recommendation.

Section 20(3) and 20(4) and section 20(5). .

CHAPTER 6 ARBITRATION WITH INTERVENTION OF THE COURT 6.1. Where no suit is pending, arbitration with intervention of the court can still be resorted to under section 20. Sub-section (1) provides that where any persons have entered into an arbitration agreement before the institution of any suit with respect to the subject matter of the agreement, or any part of it, and where a difference has arisen with respect to which the agreement applies, they or any of them, instead of proceeding under Chapter Il, may apply to a court having jurisdiction in the matter to which the agreement relates, that the agreement be ﬁled in court.

6.2. Sub-section (2) of section 20 requires that the application shall be in writing and shall be numbered and registered as a suit between one or more of the parties interested or claiming to be interested as plaintiff or plaintiffs and the remainder as defendant or defendants, if the application has been presented by all the parties, or, if, otherwise, between the applicant as plaintiff and other parties as defendants.

It appears that the language of this sub-section is slightly involved, though, of course, the intention is quite clear. In the latter half of the sub-section there are really two situations intended to be dealt with and it would be conducive to clarity if the two situations are dealt with separately.

Accordingly, we recommend that sub-section (2) of section 20 should be revised as under:

"(2) The application shall be in writing and shall be numbered and registered--- '

(a) if the application has been presented by all the parties, as a suit between one or more of the parties interested or claiming to be interested as plaintiff or plaintiffs and the rest of them as defendant or defendants, or "(b) if the application has not been presented by all the parties, as a suit between the applicant as plaintiff and the other parties as de-

fendants."

6.3. Under sub-section (3) of section 20, the court shall direct notice of the application to be given to all parties to the agreement other than the applicants, requiring them to show cause within the time speciﬁed in the notice why the agreement should not be ﬁled.

Sub-section (4) of section 20 provides that where no suﬂicient cause is shown, the court shall order the agreement to be ﬁled, and shall make an order of reference to the arbitrator appointed by the parties, whether under the agreement or otherwise, or, where the parties cannot agree upon an arbitrator, to an arbitrator appointed by the court.

Where the agreement names the arbitrator, and the named arbitrator refuses to act, the question may arise whether the court can appoint ano-- ther arbitrator. This question is discussed separately.' Finally, sub-section (5) provides that thereafter the arbitration shall proceed in accordance with and shall be governed by the other provisions of the Act so far as they can be made applicable.

These sub-sections need no change.

1. See discussion relating to section 8(1) (b), supra.

CHAPTER 7 ARBITRATION IN SUITS i (SECTION 21-25) 7.1. Arbitration in suits forms the subject-matter of ﬁve sections con- tained in Chapter IV of the Act. Under section 21, where, in any suit, all the parties interested agree that any matter in difference between them in the suit shall be referred to arbitration, they may at any time before judgment is pronounced, apply in writing to the court for an order of refe- rence. The situation where only some of the parties apply is dealt with later under section 24.

Difﬁculties sometimes arise where, without obtaining a formal order of the court under this section, parties, for the settlement of their mutual differences, appoint an arbitrator who makes an award. This question really falls within section 47, and will be discussed thereunder.' 7.2. Previously, there was some controversy as to the question whether an appellate court could refer a matter under dispute to arbitration for deci- sion. That has been settled by a decision of the Supreme Court," which answers the question in the affirmative, and holds that "court" includes an appellate court, and "suit" includes an appeal. We think that this proposition should be codiﬁed and recommend that in sections 21 and 24 and in the» heading of the Chapter, wherever the word "suit" occurs, the words "or appeal" be added.

7.3 We, therefore, recommend that section 21 should be revised as under:----

"21. Where in any suit or appeal pending in any court, all the parties interested agree that any matter in difference between them in the suit or appeal! shall be referred to arbitration, they may, at any time before judgment is pronounced, apply in writing to that Court for an order of reference."

7.4. Section 22 provides that the arbitrator (in an arbitration in a suit) shall beappointed in such manner as may be agreed upon between the parties. It follows, therefore, that the initial appointment must be by agreement, though, as regards the ﬁlling up of the vacancies arising subsequently, the provisions of sections 8, 10, 11 and 12 apply by virtue of section 25, subject to the proviso to section 25. ' No further comments are required on this section.

7.5. Sub-section (1) of section 23 provides that the court shall, by order, refer to the arbitrator the matter in difference which he is required to determine and shall in the order specify such time as it thinks reasonable for the making of the award.

Under sub--section (2), where a matter is referred to arbitration, the court shall not, save in the manner and to the extent provided in this Act, deal with such matter in the suit. This is really the crucial provision in this Chapter, because it is by virtue of this sub-section that the result is esta- blished that once the parties agree to refer a pending dispute to arbitration, the jurisdiction of the court is barred except as expressly provided. in the Act.

No changes are needed in this section.

1. See discussion relating to section 47, Chapter 10.

2. Nachiappa v. Subramaniam, A.I.R. 1960 S.C. 307, 317 para 36.

Section 21.

Section 21 and Appellate Court.

Recommendation as to section 21.

Section 22.

Section 23.

Section 24 ' Recommendation to amend.

Section 25.

v 7.6. The situation where some only of the parties to the suit apply to have the matters in difference between them referred to arbitration under section 21, is dealt with in section 24.

To put the matter in broad terms, the criterion adopted is that of separability. In the ﬁrst place, the section provides that the court may, if it thinks ﬁt, so refer such matters to arbitration provided that the same can be separated from the rest of the subject matter of the suit, in the manner provided in section 21; but the suit shall continue so far as it relates to the parties who have not joined in the said. application and to matters not contained in the said reference as if no such application had been made, and an award made in pursuance of such a reference shall be binding only on the parties who have joined in the application.

The only change required in section 24 is the addition of the word "appeal".' After such addition, the section will read as under : ----

Revised section 24 "24. Where some only of the parties to a suit or appeal apply to have the matters in difference between them referred to arbitration in ac- cordance with, and in the manner provided by, section 21, the Court may, if it thinks ﬁt, so refer such matters to arbitration (provided that the same can be separated from the rest of the subjectmatter of the suit or appeal) in the manner provided in that section, but the suit ' or appeal shall continue so far as it relates to the parties who have not jointed in the said application and to matters not contained in the said reference as if no such application had been made, and an award made in pursuance of such a reference shall be binding only on the parties who have joined in the application."

7.7. Section 25 provides that the provisions of the other chapters shall, so far as they can be made applicable, apply to arbitrations under this chapter. Under the proviso to the section, the court may, in any of the circumstances mentioned in sections 8, 10, ti and 12, instead of ﬁlling up the vacancy or making the appointments, make an order superseding the arbitration and proceed with the suit and when the court makes an order superseding the arbitration under section 19, it shall proceed with the suit.

The language of this section appears to be clear enough. It is, there- fore, surprising that attempts were made in the past to argue that section 14 would not apply to arbitrations in ordinary suits?-3 None of the attempts succeeded.

We have no changes to recommend in the section.

1. See discussion as to section 21, supra

2. Ram Blzarosey v. Pearey Lal, A.I.R. 1957 All. 265, para 4. _

3. Ramkrishnamma v. Lakshmibavamma, A.I.R. 1958 AP. 497, 50] , para 5.

CHAPTER 8 PROVISIONS APPLICABLE TO ALL ARBITRATIONS 8.1. With section 26 begins a group of provisions which are common to all arbitrations. That section provides that save as otherwise provided in this Act, the provisions of this Chapter (sections 26 to 38) shall apply to all arbitrations. The section needs no change.

8.2. Section 27(1) provides that unless a different intention appears_ in the arbitration agreement, the arbitrators or umpire may, if they think ﬁt, make an interim award, and sub-section (2) of the same section pro- vides that references in the other provisions to an award include an interim award.

No changes of substance are required in this section.' But it may be useful to elaborate several aspects of interim awards. Interim awards, as understood in English case-law on the corresponding provision' of the Arbi- tration Act, 1950, have a wide scope. The award may be a direction anaIo- gus to an interlocutory injunction which it to be operative during the pendency of the arbitration proceedings? or the award may direct payment which is to be adjusted in part satisfaction of a large claim--the larger claim being left to be quantiﬁed by the ﬁnal award.' Then, there is a third example of interim award, a determination of some matter in a suit, leaving other matters in issue to be determined by a later ward. An example is furnished by an English case,' in which there was a claim for damages for breach of two contractors, and the interim award determined the claim in regard to the first contract only. The arbi-

trator in that case was empowered to make one or more awards at his discretion.

8.3. Section 28 deals with extension of the time for making the award. As the section stands at present, there is no restriction as to the period of extension. In our view, it is necessary that indeﬁnite extension of the time for making the award should be guarded against. It is desir- able to provide that no extension should be granted so as to allow the making of the award more than one year after the arbitrator's or umpire's entering on the reference, unless the court, for special and adequate reasons to be recorded in writing, is satisﬁed that such extension is necessary.

Accordingly, we recommend the insertion of the following proviso below section 28:

"Provided that no extension shall be granted So as to allow the making of the award' more than one year after entering an the reference, unless the court, for special and adequate reasons to be recorded in writing, is satisﬁed that such extension is necessary."

8.4. Under section 29, "where and in so far as an award is for the payment of money the court may, in the decree, order interest, from the date of the decree at such rate as the court deems reasonable to be paid on the principal sum as adjudged by the award and conﬁrmed by the decree."

The section needs no change.

Compara section 14, Arbitration Act, 1960 (English). Wringrsan v. Bywater, (1838) 150 English Reports 11 14. Woodrow V. Trawler (Wliiresh and Cririsb y) Ltd., (1930) KB. 176.

Wrightson v. Bywarer, (1838) 150 English Reports 1114, Halsbury, 4th Edition, Vol.2, 2, page 609 footno 6.

-P-P"!".'"

Section 26.

Section 27.

Section 28 Amendment recommended.

Section 29.

Section 30.

Section 30(c).

Position under the Code of 1908.

Conﬂict under I940 Act.

We have already discussed the question of the arbitrators' power to award interest.' 8.5. We now proceed to a consideration of section 30, which reads-

"30. An award shall not be set aside except on one or more of the following grounds, namely:--

(a) that an arbitrator or umpire has misconducted himself or the proceedings;

(b) that an award has been made after the issue of an order by the court superseding the arbitration or after arbitration proceedings have become invalid under section 35;

(c) that an award has been improperly procured or is otherwise invalid."

Clauses (a) and (b) need no comments.

8.6. The question whether, in section 30(c), the words "that an award... is otherwise invalid" are to be read ejusdem generis with what precedes them, or whether they cover all grounds of invalidity of awards has come up before the courts. The nature of the controversy cannot be fully under- stood without a brief study of the history of the provision.

These words did not occur in the Act of 1899, section 14. Nor they did occur in the Code of Civil Procedure of 1882, section 521. They were added for the first time in the Code of Civil Procedure, 1908, Second Sche- dule, paragraph 15. The Privy Council had held" in 1902 that the legislature intended to give ﬁnality to awards and to decrees passed in accordance therewith. Since, under the Code of 1882, an award could. be set aside only on the grounds mentioned in section 521 of that Code, the grievance arose that as its validity could not be contested on any other ground, it became ﬁnal? The addition of these words in the Code of 1908 was thus intended to widen the scope of interference by the courts.

8.7. But the question arose whether the words "otherwise invalid" in the Code of 1908 were or were not to be construed ejusdcm generis with the words occurring in the preceding portion of paragraph 15 of the second Schedule to the Code.

On this point, there has been a conﬂict of judicial view.'-"V The undermentioned cases took the wide view,'-9 while a few decisions took the narrower view' with reference to the Code of 1908.

8.8. There has been a conﬂict of judicial view on the scope of the words "is otherwise invalid" in section 30 of the Arbitration Act, 1940 also.

See section 13 A, supra

2. ?1I)tuc[:a;n Khan v. Muhammed Hasan, (1902) 20 Indian Appeals 51 ; I.L.R. 29 Cal. 167

3. See discussion in Lutawan Kubar V. Lachiva, A.l.'R. 1914 All. 447, 449 (Banerjee J.)

4. See review ofcaselawin Dooly Chzmdv. Mamuji,A.l.R. 191 7Cal 481 (reviews cases).

5. Durga Charm: v. Ganga Dhar, A.I.R. 1931 Cal. 108

6. Golnur Bibi v. Abdus Samad, A.I.R. I931 Cal 211.

7. Mahomad v. Valli, AJR. 1924 Born 324.

8. Suryamzrayana v. Sarabhaiah, 21 Madras law Journal 263, 278; Paruck, Arbitration Act, 1955, page 241.

9. Mariam v. Amino, I.L.R. (1937) All. 371, A.I.R. 1937 All. 65, 59, 74 (Majority of the Full Bench).

10. See case law reviewed in Kishan Clmnd v. Takhit Ram, A.I.R. 1939 Sind 241 (F.B.) (reviews case law) 53 One view which has been taken is that these words should receive a narrow construction and be taken ejusdem generis with the words occurring in the preceding portion of the section.'-' 8.9 The other view is that these words are to be construed widely'-'"1 and not to be taken ejusdem generis with the preceding words in the section.

In a case arising under paragraph 15 of the Second Schedule to the Code of Civil Procedure, 1908, before the enactment of Arbitration Act of 1940, the Allahabad High Court7 by majority held that the above words should not be construed ejusdem generis with the preceding words. Iqbal Ahmed J. in his dissenting judgment, however, took the view that these words should be construed ejiisdem generis with the preceding words.

8.10. The Privy Council in a subsequent case" approved of the view Privy Council ' of Iqbal Ahmed J . Iqbal Ahmed J., in arriving at the conclusion that the View and the words "otherwise invalid" should be construed ejusdem generis with the of preceding words, high--lighted the fact that the words "otherwise invalid" the 1940 Act were not contained in a separate clause. The Arbitration Act of 1940 to some extent departed from the scheme of paragraph 15 of the Second Schedule to the Code of Civil Procedure, by putting the words "or is otherwise invalid" along with the words "that an award has been impro- perly pronounced" in a separate clause. A View can consequently be taken" that the reasoning which weighed with Iqbal Ahmed I. does not hold good in the face of the provisions of section 30 of the Arbitration Act, 1940, wherein the words in question have been put in a separate clause.

8.11. The importance of the question as to whether the words "iSI|'l'q)01'tanCe of otherwise invalid" should be construed ejusdem generis has arisen in those the Question- cases wherein the validity of the award has been challenged on the ground that there was no valid reference to arbitration. The consequences which ﬂowed from taking one view or the other were crucial, as they impinged upon the right of appeal against an order dealing with the objections to an award on the ground that there was no valid reference to arbitration. One view was that such objections fell only within the ambit of section 33 and not that of section 30 and therefore there was no right of appeal under section 39 of the Arbitration Act. The other view was that such objections also fell under section 30, being covered by the expression "is otherwise invalid" and, as such, an appeal against such an order would be maintainable under section 39(1)(vi} of the Act.

8.12. To resolve this controversy and to put the matter beyond any Recommendation pale of uncertainty, we are suggesting the insertion of an Explanation to as to Seetmn 30- section 30. The Explanation would read:

"Expianation.----The expression 'or is otherwise invalid' includes the ground that there was no valid arbitration agreement or no valid reference to arbitration."

8.13. At this stage, we would like to deal with the question how far Section 30A an arbitrator can be compelled to give evidence. While there is, in general 'P"°P°5°d)"

. . . , . . . * b' t t no legal bar to summoning an arbitrator as a witness." it is also a dictum ff,' b'§"'cf,',§,,§','i,.d to disclose the

1. Basanfalv. Surendra Parasad, A.I.R. 1957 Pat, 41 7, 421, para 25, 37 and 45. 23333.5 f" ""

2. Mangal Sirigh v. Nawab Singh, A.I.R. 1962 All, 219

3. Prem Sagar V. Security and Finance Lrd.. A.l.R. 1968 Delhi, 21, 24 para 4-5 (F.B.)

4. See case law reviewed in Salia & Co. v. Ishar Singh. A.l.R. 1956 Cal 32] (F.B.)

5. A.R. Savkur v. Amrfml Kalidas, A.l.R. 1954 Born 293.

6. Saha & Co. v. Ishar Singlr Kris-pal Singli & Co., A.I.R. 1956 Cal 321.

7. Mariam V. Amina, A.l.R. 1937 All. 65, 74 (F.B.)

3. Chhabalalv. Kalu Mal, A.I.R. 1946 RC. 72.

9. Compara Om pmkash v. Union of India, A.I.R. 1963 All. 242

10. Amir Begum v. Badruddin, I.L.R. 36 All. 336 (P.C.) . 8-7 M of'LJ & CA]NDI78 Recommendation to insert section 30A.

Sections 31, 32 and 33--Sche'me.

laid down by high authority that evidence admitted as relevant on a charge of dishonesty or partiality is not to be used for a different purpose, namely, to scrutinise the decision of the arbitrator on matters which are within his jurisdiction and on which his decision is final.' 8.14. We ﬁnd that the matter has been discussed in a recent judgment of the Supreme Court.' were it has been pointed out that on broad prin- ciple and public policy, it is highly obnoxious to summon an arbitrator to give evidence in vindication of his award. The following observations made in the judgment are pertinent:--~ "If arbitrators are summoned mindlessly whenever applications for setting aside the award are inquired -._into, there will be few to under- take the job. The same principle holds good even if the prayer is for modiﬁcation or for remission of the award. The short point is that the Court must realise that its process should be used sparingly and after careful deliberation, if the arbitrator should be brought into the witness box. in no case can he be summoned merely to ShO'W how he arrived at the c0'.rzcIu.s1'0ns he did.' In the present case, we have been told that the arbitrator had gone wrong in his calculation and this had to be extracted from his mouth by being examined or cross-exa- mined. We do not think that every Munsif and every judge, every Commissioner and every arbitrator has to undergo a cross-examination before his judgment or award can be upheld by the appellate Court. How vicious such an approach would be is apparent on the slightest reﬂection."

The principle emphasised by the Supreme Court is that an arbitrator cannot be compelled to disclose the reasons of his award.

8.15. We have set out our reasons ealier' why it should not be obli- gatory for an arbitrator to give reasons in support oi his award. If an arbitrator cannot, under the scheme of the Act, be compelled to give reasons in support of his award. there appears to be no justification for compelling him to disclose them by calling him as a witness in Court.

We are, therfore, of the view that it would be convenient if legisla- tive effect is given to this principle which, of course, applies to umpires also. Accordingly. we recommend the insertion of a new section»-section 30A~--as follows in the Arbitration Act:----

"3OA. No arbitrator or umpire shall be compelled, whether in a proceeding before a C ourt or otherwise, to answer any question relat- ing to the reasons of his award."

8.16. This takes us to the next group oﬁ sections--sections 31 to 33. These sections are parts of an integrated scheme designed to expedite the disposal of objections to arbitration agreements or awards. The provisions inserted are both positive and negative. They are positive, in the sense that a party desiring to challenge the existence or validity of an arbitra- tion agreement or award or to have its effect determined must apply to the court, which will decide the question on afﬁdavitsf Further, all questions regarding the validity, effect or existence of the award or agreement shall be decided by the court in which the award has been or may be ﬁled". Appli- cations regarding the conduct of arbitration proceedings or otherwise arising out of such proceedings should also be made to such court.'

1. Buccluch v. Merropolirtm Board, (1972) Law Reports 5 House of Lords 418.

2. Union of India v. Orient Engineering and Commercial Co. Ltd, (1 97 8.) 2 Supreme Court Journal 83 (Issue dated l5th July, l978).

Emphasis added.

Chapter 4, supra.

Section 33.

Section 31(2), earlier half.

Section 3} (3), earlier half.

t4.°"S":""."' The provisions are negative, in the sense that oniy the court in which the award has been or may be filed, can decide such questions and appli- cations.' And, further, even if the competent courts are more than one, once an application in any reference has been made in a competent court, that court alone has jurisdiction over the arbitration proceedings and over all subsequent applications arising out of that reference and the arbitra- tion proccdings.'-' Lastly, no suit shall lie on any ground whatsoever for a decision upon the existence or validity of an arbitration agreement or award, nor shall any arbitration agreement or award be set aside, amended, modi- fied or in any way affected, otherwise than as provided in the Act.' These provisions were inserted for the first time in 1940. Speaking brieﬂy, the main impact of these provisions is in (i) the prohibition of a suit, (ii) the bringing of all questions relating to awards and arbitration agreement in one court, thereby avoiding conﬂicting adjudications,' and (iii) the provision of a speedy remedy to a party objecting to a reference or award, under section 33.

8.17. These sections were inserted as a result of the recommendations civji Justice made by the Civil J usticc C ommittee." The Civil Justice Committee pointed Committee- out, that under the Arbitration Act of 1899, if a question arose as to the validity of the submission or jurisdiction of the arbitrators or as to regula- rity of the proceedings, the party objecting had various courses open. He could obtain an injunction to prevent the arbitration proceedings from taking place or from being brought into a conclusion. He could wait. until the award was made, and apply to the court to have it set aside or declared to be void. lf he desired to defeat the reference, he could ﬁle a suit for a declaration of some sort, about the matter in dispute, the object being that by thus 'bringing the matter in difference before the court of law, the arbitration would become fruitless or would at least result in delay. Again, he could wait until the award was put in execution, and then launch a suit asking for an injunction to restrain its execution, or could seek a declaration that the submission was obtained by fraud or that the arbitrator had misconducted himself and that the award was not binding upﬂn /zim.

8.18. It was in vie.wol'these delaying tactics thatthe Civillustice Com- mittee felt, that what seemed to be most required~--"ln the case of every arbitration one court and one only should be the forum in which all questions re'ating to the validity of the award should be ﬁnally determined".

Further, after noting that suits were filed or could be filed at more than one place in relation to the arbitration proceedings, the Committee considered it necessary to require all persons, who desired to challenge awards made by arbitrators in Presidency Towns and other commercial centres, to bring their proceedings in the court of the town. The agreement could contain a clause about the place where the proceedings could be taken. When the arbitration had been held or was being held under such a clause, the law should, in the opinion of the Committee, require all ques- tions to be determined by the court of the town, whether the factum and validity of the arbitration be challenged or not. The Committee also wanted a total prohibition of the practice of granting injunctions to res- train arbitration proceedings. Finally, the Committee felt that an amend- ment of the law would be beneficial to the trade unless a summary method for disposing of objections to awards was provided, and a provision effec- tive to prevent interference of any other court was made.

8.19. In short, the object of the legislature in introducing sections 31, Object of 32 and 33 was thus to entrust the decision of the relevant disputes to the 5°°"°"531'"33 Section 31(2), latter half; and section 37(3), latter half. Section 31(4).

Section 32.

See para 8-20 and 8-23, infra.

Civil Justice Committee (1924-25) Report, pages 210 to 216, paragraphs 5, 6. 13 and 18. ND. Basu, Arbitration Act (1977), pages 948 to 950.

VI :"-':".*°.*' 56:

Section 31.

Section 31(1) and jurisdiction over a part of subject matter.

Section 31(4) and meaning of "in any reference".

speciﬁed court, and to require the parties to bring that dispute in the form of a petition, as has been explained by the Supreme Court.' With these introductory observations, we proceed to an examination of each section in this group.

8.20. Section 31(1) provides that subject to the provisions of the Act, an award may be ﬁled in any court having jurisdiction in the matter to which the reference relates. The principal object of the section is to avoid conﬂict" between different forums in respect of arbitration proceedings after the award," by deﬁning the jurisdiction of the court.'.

Sub-section (2) of section 31 is equally mandatory: notwithstanding anything contained in any other law for the time being in force and save as otherwise provided in this Act, all questions regarding the validity, effect or existence of an award or an arbitration agreement between the parties to the agreement or persons claiming under them shall be decided by the court in which the award under the agreement has been, or may be ﬁled, and by no other court. While sub-section (1) is primarily intended to define which is a competent court, sub-section (2) is intended to exclude the jurisdiction of the other courts.

Under section 31(3), all applications regarding the conduct of arbitra- tion proceedings or otherwise arising out of such proceedings, shall be made to the court where the award has been, or may be, ﬁled and to no other court. This sub-section assumes that applications regarding the con- duct ot arbitration proceedings can be made; such applications, it may be noted, arise under several provisions of the Arbitration Act.

Section 31(4) is intended to deal with those situations where even after compliance with three sub-sections of the section, there may be two or more courts wherein proceedings under those sub-sections may be taken. It lays down that notwithstanding anything contained elsewhere in this Act or in any other law for the time being in force, where "in any reference"

any application under this Act has been made in a court competent to en- tertain it, that court alone shall have jurisdiction over the arbitration pro- ceedings and all subsequent applications arising out of that reference and the arbitration proceedings shall be made in that court, and in no other court.

The ex ression "in an reference", has been construed as meanin "in . . ,, 3 the matter of a reference to arbitration .' 8.21. The expression "court" in section 31(1) must be read with the deﬁnition. The deﬁnition of "court" in section 2(c), so far as is material, states that "court" means a civil court "having jurisdiction to decide the questions forming the subject-matter of the reference if the same had been the subject-matter of a suit".

8.22. The expression "in any reference" in section 31(4) is signiﬁcant. Both sections 31 and 34 were enacted "to avoid conﬂict and scramble";" but the nature of the conﬂict and scramble intended to be avoided is different in the two sections. Section 34 avoids conﬂict between the private tribunal and the public tribunal. By the grant of stay under section 34, conﬂict is avoid- cxi. The conflict avoided by section 31 is, on the other hand, the conﬂict between different courts in respect of arbitration proceedings, held pursuant to the reference. Only one court will control such proceedings, and that is why it is provided that the court in which the ﬁrst application is made "in the reference", shall have control over the subject-matter.

Jawahar La] Barman v. Union oflndia, A.I.R. 1962 S.C. 378.

HarbansSi'ngI1 v. Union oflndia, A.l.R. 1962 Cal. 659, 66], para 4. See also para 8-23, infra.

Bengallute Mills v. Jewraj Hiralal, A.I.R. 1944 Cal. 304, 305.

Harbans Singh v. Union of India, A.I.'R. 1961 Cal. 659. Harbans Singh v. Union of India, A.I.R. 1961 Cal, 659, 66], para 4.

at?' 99*!" t"

8.23. The theory of the Act is that in the case of every arbitration one Correct position.

court, and only one, should be the forum in which all questions relating to the validity of the award should be ﬁnally determined.

8.24. While conﬂicting judicial proceedings are solved by sections 31 and 34, the ﬁnality of arbitration agreements and awards is secured by section 32, which may be described as the pivotal section in the Act. It begins with the words "Notwithstanding any law for the time being in force" and provides that no suit shall lie on any ground whatsoever for a decision upon the existence, eﬁect or validity of an arbitration agreement or award nor shall an arbitration agreement or award be enforced, set aside, amended, modiﬁed or in any way affected otherwise than as provided in the Act. This section must be read with the next section~section 33--under which the existence or validity of an arbitration agreement or award can be challenged or the effect of either determined by the court on an application.

It may incidentally be mentioned that in section 32, the prohibition against enforcing an arbitration agreement or award was expressly inserted by the Amendment Act of 1963' in view of the conﬂict of decisions on the subject."

8.25. The principle of section 32 is sound enough. But certain questions of detail have arisen, which we shall deal with presently. Where a substan- tive agreement contains an arbitration clause, and the validity of the substantive agreement itself is attacked, the question may arise whether the suit is barred under section 32. In certain cases, section 33 may, of course. be invoked and the procedure of application utilised. Thus, according to one view} sections 32 and 33 do not apply to suit for a declaration that there never was a contract or that the contract was void,' and that such a suit was maintainable, notwithstanding the ban in section 32.

According to another view," the case falls under section 33. because We do not express any opinion as to which view is correct, neither View necessitates any amendment.

8.26. The bar imposed by section 32 on a "suit on an award" naturally raises the question how far a defence on the basis of an award IS barred. Whether a party can set up an award by way of defence, when the award has not been ﬁled, is a question which has arisen in the courts. There seems to be a conﬂict of decisions on the point." One View is that the prohibition in section 32 is conﬁned merely to a suit by which a decision upon the exis- tence etc. of the agreement or award is sought, and does not extend7 to a defence based on a private award.

A contrary view is that section 32 is wide enough to bar such a defence?-"

Section 32.

Section 32 and validity of substantive agreements.

Section 32 and use of award as a defence.

8.27. The conﬂict of decisions on the subject was noted by the Supreme Judgment of Court also in one of its judgments." But the Court did not think it necessary to express a considered opinion on that disputed question. It merely ob- served, that the defendant in that case was not relying on the award as such. but on the fact that after the award the parties had, by mutual agree- ment, settled the dispute and a division of property had been effected.

1. Amendment Act 47 of 1963 .

2. Dharma Ganda v. Ganapari Ganda, A.l.R. 1964 Orissa 21, 24 Paras l6 and 18 (reviews case law).

3. State ofBombay v. Adamjee, l.L.R. ( l 952) 2 Cal. 49 ; A. I .R. 1951 Cal .147.

4. See also Banwari Lal v. Board ofTrustee.r, Hindu College, Delhi, A.l.R. 1948 E.P. 165, I74, paras 33&34 (commenting on Deokinandan v. Basantlal, A.l.R. 1941 Cal 52).

5. Municipal Boardv. Eastern U.P. Electric Supply Co. Lta'., A.l.R. 1958 All. 506 .

6. The case law is discussed in detail in Sritzivasa Rao v. Narasim/ta Rao, A.l.R. i963 A.P. 193, I97, para l2, and Mohamed Yusufv. Mo/1amedHussain,A.I.R. 1964 Mad. 1(F.B.).

7. Kedar Nath v. Ambika, A.l.R. 1974 All. 37. 8 . Lachman v. Makar, A .l.R. 1954 Fat. 27.

9. Seonarainlalv. Prabhu Chartd, A.l.R. 1958 Pat. 252, 258.

10. Panamdass Suganram v. Hanikyam Pil/ai, A.l.R. 1960 A.P. 59 (F.B.) . ll . Mohamad Yusufv. MohamedHus.rain, A.l.R. 1964 Mad. 6, 7, Para 18, 20. 12 . Kashinathsa v. Narsingasa, A.I.R. 1961 S.C. 1077, 1083, para 22.

Supreme Court.

Recommendation to prohibit defence.

Section 32 and challenge on award in defence Recommendation as to section 32.

Section 33.

However, the Supreme Court observed:

"It may be sulﬁcient to observe that where an award made in arbitration out of court is accepted by the parties and it is acted upon voluntarily and a suit is thereafter sought to be ﬁled by one of the parties ignoring the arts done in pursuance of the acceptance of the award, the defence that the suit is not maintainable is not founded on the plea that there is an award which bars the suit but that the parties have by mutual agreenient settled the dispute, and that the agreement and the subsequent tctmgs of the parties are binding?"

8.28. The question then arises whether a provision should be inserted and, it so, in what form. Cases where an award has been followed by oven acts of the parties, may not present much difficulty in view of the observa- tions of the Supreme Court;'' but the position regarding other cases is un- certain. In our opinion, it is desirable to clarify the position. We recom- mend necessary amendment3 by providing that an award shall not be plead- ed as a defence, except in certain speciﬁed cases.

8.29. The question whether the validity of an award can be attacked in ciefcnee is one which has been discussed in several cases. It has been held that its validity cannot be so challenged.' 8.30. After giving the matter our careful consideration, we recommend that section 32 should be re--numbered as sub-section (1) thereof, and, after sub-section (1) as so renumbered, the following subsections should be inserted:

(To be added in section 32)"

"(2) An tzwurd shall not be pleaded in defence to any suit, on the ground that the award has determitted any matter In issue in the suit: but nothing in this bub-section sha[l--

(LU aﬂect any deiree passed under section 17, or

(b) prejudice any rigltt of a person to apply for a stay of the suit 0n the gromtd that there has been made an award which deter- mtnes the matter in issue and that he proposes to obtain a judg- ment under Section 17 in terms of the award.

"(3) Nothing in sub-.sectt'0n (2) shall preclude any person from plead-

ing any award in defence----

(a) where the award has been accepted by the parties, so as to cons- titute an agreement, or

(b) where the award has been acted upon, so as to constitute estoppel."

8.3]. Section 33 constitutes a qualiﬁcation of section 32. The general rule in section 32 is that an arbitration agreement or award cannot be challen- ged by a suit and it cannot, in any way, be affected otherwise than as provided in the Act. The procedure for contesting the agreement or award in certain circumstances is laid down in section 33. In its main paragraph, that section provides that any party to an arbitration agreement or any person claiming under him desiring to challenge the existence or validity of an arbitration agreement or an award or to have the effect of either deter- mined shall apply to the court and the court shall decide the question on aﬂidavits. There is. however, a proviso whereunder, where the court deems it just and expedient, it may set down the application tor hearing on other evidence also, and it may pass such orders for discovery and particulars as it may do in a suit.

See also Srtttsh Kumur V'. Surittder Kumar, A.I.R. 1970 S.C. 833, 837, para 8.

Para 8-27, supra.

See draft, para 8-30, infra.

Harda Mmticipality v. H. Electric Supply Co. A.I.R. 1964 M.P. 101, I04, para 7, 8,9.

Para 8.26 to 8.28, supra.

2/~.*=&~.*°t' 8.32. The words "any party to an arbitration agreement", have raised some coiitrovcrsy as to 'whether they include a person who is alleged to be a party to the agreement, but who denies its existence. It has been held' that these words include a person who is alleged to be a party to the agreement?

In a Supreme Court case," it had been held that a party afﬁrming the existence of a contract was entitled to ﬁle an application under the Act.

8.33. The various possible alternative courses which a party may adopt when the factual existence of an agreement is denied, have been elaborated in a Bombay case} 8.34. There is, however, a conﬂict of decisions on this point. ing to one view, the word "existence" in section 33 connotes legal existence and not factual existence, and section 33 is available only to a party to an arbitration agreement and would apply only when the party admitted the factual existence of the arbitration agreement, but challenged its legality?-"

A contrary view has, however]-3 been expressed in another decision of the same High Court.

The Madras High Court has taken the view" that the expression "any party" in section 33 must include a person who is put forward as being a party to an arbitration agreement, but who does not admit its existence.

To set the controversy at rest and to clarify the position, we recom- mend that in section 33, the words "including one alleged to be a parry"

should be added after the words "Any party".

8.35. To preserve a right to arbitration, it is essential that no step should be taken in the suit before an application is made to stay it. Based on this principle, section 34 confers on the court a power to stay legal proceedings where there is an arbitration agreement. There are certain procedural requisites in this regard and stay is to be granted only if the court is satisﬁ- ed, as to the following two essential ingredients--"' "(i) that there is no sufficient reason why the matter should not be referred in accordance with the agreement, and

(ii) that the applicant was, at the time when the proceedings were commenced, and still remains. ready and willing to do all things necessary to the proper conduct of the arbitration."

8.36. The ﬁrst requirement obviously confers on the court a discretion not to grant stay if there is sufficient reason why the matter should not be referred to arbitration. The second requirement is based on the principle that the applicant who invokes the arbitration clause and claims stay of judicial proceedings on that account must show his readiness and willing- ness at all material times for the proper conduct of the arbitration proceed- mgs.

l. M/S Val/abh Pine V. Narsinﬁdas, A.I.R. l963 Bom. l57. 161, I62.

2. For previous Bombay cases, see----

(i) Bhagwan v. Arma, A.l.R. 1945 Bom. 494;

(ii) Umadat V. Chandra, A.I.R. 1947 Bom 94.

3. Jawaharlal Barman v. Union ofIndia, A.l.R. l962 S.C. 378. M/s Vallabh Pine v. Narsinghdas, A.l.R. 1963 Bom 157.

5. Maniklal v. Shiv Jute Bailing Co. Ltd., 52 C.W.N. 389 (Das J.) referred to in A.l.R. 1951 Cal, 147,148, para 16.

6. Baijnath V. Ch/mm La], 52 C.W.N. 397 (Clough J.). referrcd to in A.l.R. 195] Cal 147, I48, para 16.

7. Chatturbhuj v. Bhiam Chand Charia and Sons, 53 C.W.N. 410 (Sinha J.), referred to in A.I.R. 1961 Cal. 147, 148, para 16.

8. The point was discussed in Bajrang v. Agarwal, A.l.R. 1950 Cal. 267, 268, paras ll-12 (ChatterjiJ.). The point decided there was that a party aﬁirming the award could not apply.

9. Muthu Kuity v. Varee Kutty, A.I.R. 1950 Mad. 64.

The numerals indicating the two requirements do not appear in the text of the section but have been added by us for facility of discussion.

in section 33,5€°li0n 33 and denial of far:-tnal existence of agreement by alleged party.

Various alternatives.

Accord- C0['IﬂlCt Of decision as to the scope of expression "existence"

and recommen-

dation to amend section 33.

Section 34.

Expression "Judicial authority".

Section 34 and foreign awards.

The expression "step in the proceedings".

Recommendation to amend section 34.

Amendment as to suits brought under summary procedure.

Section 35 Effect of legal proceedings on arbitration.

8.37. The expression "judicial authority" was substituted (in section 19 of the Indian Arbitration Act of 1899) by Act 2| of 1933. because, before that amendment, there was a conﬁict of decisions as to whether the expres- sion "court" which was used in that section included a Court of Small Causes. Since the expression now used is a "judicial authority", a Court of Small Causes can stay the suit under this section. if the suit is pending in that Court.' 8.38. The section applies to foreign awards also. as has been held by the Supreme Court?

8.39. The expression "steps in the proceedings" in section 34 has led to considerable controversy as would appear from the case law.' The expression has been construed as including even a step in an interlocutory proceeding.' Even an application for adjournment to ﬁle the written state- ment has been regarded as a step in the proceeding.'-6 An oral application for extension of the time to ﬁle an affidavit in an interlocutory application for injunction has been held to amount to taking a step in the proceeding? It would thus appear that while the general principle" that the step in proceeding should display an unequivocal inten- tion to proceed with the suit is well established, its application in actual practice leads to difficulties.

This position causes hardship, and unnecessarily deprives a party of taking advantage of the arbitration clause.

8.40. We recommend that to avoid such diﬂiculties, the words "or taking other steps in the proceedings" should be deleted from section 34. The result will be that an application can be made by the defendant under the section before ﬁlling the written statement. This would not, however, take away the discretion of the court so that if the defendant is guilty of delay, the court can in its discretion, take note thereof.

8.41. To make the provisions of section 34 applicable to suits brought under Order 37 of the Code of Civil Procedure, 1908 (summary procedure), we recommend that the words "or in a suit instituted under Order XXXVI] of the First Schedule to the Code of Civil Procedure, 1908 before ﬁling an application for leave to defend under sub-rule (5) of rule 3 of that Order"

should be substituted in place of the words to be deleted."

8.42. Section 35 provides that a reference or award shall not become invalid by reason only of the commencement of legal proceedings upon the subject-matter of the reference; but after such legal proceedings have been commenced between all the parties to the reference and a notice given to the arbitrators or umpire, all further proceedings in a pending reference shall (unless stay of the suit is granted under section 34) be invalid.

Previous to the enactment of this section, the law was in an unsatis- factory condition. In the English case of Doleman," it was held, that an award made in an arbitration proceeding after an action was brought (in respect of the difference to which the arbitration clause applies) was bad,

1. Basant Cotton Mills v. Dhingra Bros., I.L.R. (1950) 1 Cal. 546; A.l.R. Cal 1949 684.

2. Maehael Golodelz v. Serajuddin, A.I.R. 1963 S.C. 1044 .

3. Dam' Chand Sons and Company v. F.G. Industries Ltd., A.I.R. 1962 Cal 541 (reviews history and case law).

Amrit Raj V. Dolichia Firmanshiah, A.1.R. 1966 Cal 315. Rad/mkrislma v. State afJammu & Kashmir, A.l.R. 1964 J & K 75. Um'on oflndia V. Girish Chandra, A.I.R. 1953 All. 149.

Delux Film Distributors Ltd. v. Sukumar, A.I.R. 1960 Cal 2('6. Nur-ud-din V. Abu Ahmed, A.I.R. 1951 Born 357.

Subal Chandra v. Mohamed Ibrahim, A.l.R. 1943 Cal. 484.

Para 8-40, supra.

Doleman v. Ossett Corporation,( 1912) 3 K.B. 257.

_.._.

"'.".'-°.°°.'1?'E" 5' 61 where the defendant had not applied for stay. This decision had been followed by most High Courts in India?-' 8.43. The Civil Justice Committee noticed the difficulty caused by this 'C{Fl3,l'"'t Of, decision, particularly in cases where the arbitration was going on at a place C:)",:,n1Ji't':":°' far distant from the court in which the suit was instituted. It recommended ' that the mere ﬁling of a suit should not interrupt the arbitration proceedings. Accordingly, in the Bill of 1939, the necessary clause was drafted. The Select Committee made certain changes in the Bill, and the law now under section 35 is that it is only after notice is given that the arbitration proceedings become invalid."

8.44. In order that section 35 may apply, three conditions are requir- Section 35, ed to be fulﬁlled, namelyz; A' gifgfegltléy the

(i) Notice must be given of the institution of the proceedings to the Words "Whole arbitrators or umpire. 'r'nfag::":..S';1['l§°'

(ii) The legal proceedings must be upon the whole of the subject-matter an Dam" ' of the reference.

(iii) The proceedings must be between all the parties to the reference.

Some difﬁculty has been pointed out7 as likely to be caused by the sec- tion. We may, however, state that no reported decision has come to our notice adverting to any difficulty in the actual operation of the section. In our opinion, the section incorporates a wholesome principle, and needs no modiﬁcation.

8.45. Section 36 deals with the power of the Court where the arbitration section 35, agreement is ordered not to apply to a particular difference, to order that a provision making an award a condition precedent to an action shall not apply to such difference. The section needs no change.

- 8.46. Section 37(1) provides that all the provisions of the Indian Limita- section 37(1) md tion Act, 1908 shall apply to arbitrations as they apply to proceedings in section 37(2) _ court. In view of the passing of the new Limitation Act, 1963, necessary R°°°mm;nda"°11 change wil halve to be made in this subsection." We have no comments ;:cfj'$"37(l) on section 37(2). ' 8.47. In section 37. in sub-section (3), reference to the Limitation Act, Section 37(3) and 1963, should be substituted. section 37(4) _ Recommendation

- _ to amend We have no comments on section 37(4). section 37(3).

8.48. Section 37(5) reads: Section 37(5) "(5) Where the Court orders that an award be set aside or orders. L""'m'°"' after the commencement of an arbitration, that the arbitration agree- ment shall cease to have eﬂect with respect to the difference referred, the period between the commencement of the arbitration and the date of the order of the Court shall be excluded in computing the time pres- cribed by the Indian Limitation Act, 1908, for the commencement of the proceedings (including arbitration) with respect to the difference referred."

Ram Prasadv.M'oI1m1I.ai, l.L.R.47Cai. 752: A.I.R. 192! Cal 770 Appavu v. Seeni, l.I..R. 41 Mad. 115 ; A.I.R. l9l8 Mad 719 Jowahar Singh v. Flemming Shaw, A.I.R. 1937 Lah. 851 Jar' Narain V. .-'Varain Drmr. l.L.R. 3 Lah. 296; A.I.R. 1922 Lab 369.

Civil Justice Committee Report U924-25}, page 2l3, para 9 and page 217, para 19; N.D. Basu (I977). pages 950, 951 I. For the old law, see In re All India Groundnut S ymlicate, A.I.R. 1945 Born. 497, 502' 503 (Blagden 1.).

2. Sircar, Law of Arbitration in British India (1942), page 332. l . See infra.

9-7 M or L] at CAJND/78 E<":"'f"!"'i"' 62 General principle as to limitation.

Scope as to infructuous arbitration effect on suits.

Effect on fresh arbitration.

Whether arbitration a civil proceeding case law on section 14.

Comment in Bombay case.

The relevance of this sub-section to the law of limitation is obvious. for reasons which will become evident later,' it is desirable to deal with this aspect at some length.

8.49. Ordinarily, limitation runs from the earliest time at which a suit could be brought. and once time has started running. its running is con- tinuous. Arbitration would not, for example, stop it from running un- less statute provides to the contrary. To this principle, section 37(5) con- stitutes such an exception.

8.50. The difficulty, however, arises from the narrow scope of section 37(5). Section 37(5) allows relaxation of limitation only where the award is set aside or the court orders that the arbitration agreement shall "cease to have effect with respect to the difference referred." Other cases of infruc- tuous arbitration procedings3 are not covered by it. A fresh cause of action would not also arise on the termination of arbitration proceedings. Hence, where an arbitration becomes infructuous by reason of circumstances not mentioned in section 37(5), there is no extension of limitation for a suit on the same cause of action.

8.51. Another important question that arises is whether the beneﬁt of relaxation of limitation is available for arbitration in such cases. Section 14 of the Limitation Act, 1963 (previously section 14 of the Indian Limitation Act, 1908), so far as is relevant, provides,' that in computing the period of limitation prescribed for any suit, the time during which the plain-tilf has been prosecuting with due diligence another civil proceeding in a court against the defendant shall be excluded where the proceeding relates to the same cause of action and is prosecuted in good faith in a court which, from defect of jurisdiction or other causes of a like nature, is unable to entertain it.

8.52. Now, the question to be considered is, whether an arbitration is a 'civil proceeding' in a 'court' within the meaning of section 14, Limita- tion Act.

In some cases, it was held'-" that section 14 applies to the proceedings previously taken before the arbitrator, as a contrary view would operate very harshly on a litigant who has been guilty of no laches and has been prosecuting his case with due diligence and in good faith before the arbitra- tor. The court also considered the deﬁnition of 'court' as given in the Evidence Act.

8.53. The decisions, however, relate to the period before the Arbitra- tion Act of 1940 was enacted. After the enactment of section 37(1) and sec- tion 37(5) of the Arbitration Act, 1940, no further question, it has been held7, arises as to application of the principles of the Limitation Act merely by analogy to procedings before arbitrators. The court observed:

"It may seem rather curious, and it may also in certain cases result in hard ship as to' why the Legislature should not have excluded all time taken up in good faith before an arbitrator just as the time taken up in prosecuting a suit or an appeal in good faith is excluded. But ob- viously Ihe Legislature did not intend that parties should waste time in infructuous proceedings before arbitrators."

l. Para 8-49 to 8-57, infra.

2. As to orders of the court directing that the agreement shall "cease to'have effect", see section 12(2)(b) and section 19.

For example of other infructuous arbitration proceedings, see para 8~S6, infra.

4. This point was not dealt with in the 3rd Report of the Law Commission (Limitation Act) while discussing section 14 at pages 18 to 20, paragraphs 41 to 43.

Firm Behari Lal v. Punjab Sugar Mills, A.I.R. 1943 All. 162.

Fczrehcharzd v. Wasudeo, I.L.R. (1947) Nag. 477; A.I.R. 1948 Nag. 334.

Purshottamdus v. Impex (India) Ltd., AIR. 1954 Born. 309, 311, para 7 (Chagla CJ. and Dixit J.).

8. Emphasis added.

>70?' 8.54. The notes on clauses to the Bill which led to the Act of 1940 merely state that clause 37 makes provisions as to limitation in arbitration matters and follows closely section 16 of the (English) Arbitration Act, 1934. Section 16(7) of the English Act of 1934 gave power to the court to order that the period between the commencement of the arbitration and the date of the order of the court shall be excluded etc. (where the court ordered that the award be set aside or that the arbitration agreement should cease to have effect etc.).

The present section 27(5) of the (English) Limitation Act, 1939, is, in substance, the same as section 16(7) of the Arbitration Act of 1934. The Select Committee reporting on the Bill omitted the words that left the power to the court, as it felt that a mere order of the court would not affect the law of limitation. There is, however, no discussion as to why the ana- logy of section 14, Limitation Act was not fully adopted.

8.55. In a Privy Council case' decided under the old Act, the analogy of section 14 was applied in determining the question whether time taken in one arbitration proceeding could be excluded for the purpose of an- other arbitration proceeding. But, as has been pointed out by the Bombay High Courtf the Legislature, having the decision of the Privy Council before it, instead of leaving it to the Court to apply the provisions of the Limitation Act by analogy, expressly by a statutory enactment applied the provisions of section 37(1) and also dealt with the exclusion of time taken up in arbitration by section 37(5). Therefore, it is no longer open to the court to rely on section 14 as applicable, by analogy, to arbitration pro- ceedings.

8.56. If this is the present position, we venture to suggest that it is not very satisfactory. There may be cases where an arbitration becomes in-

-fructuous by reason of an order not mentioned in section 37(5). For exam- ple, an application challenging the validity of the agreement may be made under section 31(2) read with section 33, and the application may succeed. Whether this would be a case of the court "ordering that the arbitration agreement shall cease to have elfect" is doubtful, as those words are appro- priate only for section 12(2)(b) or section 19. Conversely, the application may fail, but some time is taken up in its prosecution.

In such cases, while a party is engaged bona fide in another proceed- mg, we cannot expect him to have an eye at the same time on an ordinary court also and ﬁle a suit. Such a course would lead to a half-hearted parti- cipation in the other application, and defeat the very object of the law of arbitration. Mere cases where a party remains supine and does not go on diligently with the arbitration may not deserve sympathy. But serious hardship is likely to be caused in cases of the nature illustrated above. It would, therefore, be advisable to insert an express exemption, in addition to that given by section 37(5). We are recommending the insertion of two new sub-sections in section 37, for the purpose?

8.57. In sub-section (5) of section 37, a reference to the Limitation Act, 1963, should be substituted in place of the present reference to the old Act.

8.58. In the light of the above discussion, the following amendments commended in section 371-

(a) in sub-section (1), for the words and ﬁgures "The Indian Limita- tion Act, 1908", the words and ﬁgures "The Limitation Act, l963"

should be substituted;

(b) in sub-section (3), for the words and ﬁgures "The Indian Limita-

tion Act, 1908", the words and ﬁgures "The Limitation Act, l963"

should be substituted;

1 Ramdutt v. E.D. Dasson & co., 56 I.A. 128; A.I.R. 1929 P.C. 103.

2. Purshottamdas v. Impex (India) Ltd., A.I.R. 1954 Bom. 309, 311, para 5 -6.

See para 8-58, infra, suggested section 37(6) and 37(7).

In

-4 11:' 63 No. guidance £lV2lllabl6 in otes on clauses.

Case law.

Present position not satisfactory.

insertion of new sub-sections (6) and (7) recommended.

Section 37(5).

Recommendation as to section 37.

(C) in sub-section (5), for the words and figures "The Indian Limitation Act, 1908", the words and ﬁgures "T/ze Limitation Act, 1963"

should be substituted;

(d) after sub-section (5), the following sub-sections should be inserted:' "Section 37(6) :

Where in a proceeding under section 33 the Court decides that no ar- bitration agreement exist between the parties and that such an arbitration agreement is invalid, the time during which the application under that Section remained pending, shall be excluded in computing the period of limitation prescribed by the Limitation Act, 1963, for the commence-

ment of ti proceea'ing relating to a nza-tter which was alleged to be the Section 38 subject-matter of the arbitration at;-reett1etzt."

"Section 37(7) :

Where irt a proceeding under section 33 the Court decides that an arbitration agreement exists between the Parties and that such an arbi- tration agreement is valid, the time during which the application under that section remained pending, shall be excluded in computing the period of limitation' prescribed by the Limitation Act, 1963, for the commence- ment of a proceeding for arbitration in pursuance of such arbitration agreement."

8.59. For reasons already stated} the scope of section 38 should be R°°°mm°"'1**'i°"- extended to an earlier stage, so as to prevent disputes as to the rate of fees of the arbitrator. Following new sub-sections in section 38 should be add- ed:--

"38(4) If in any case an arbitrator or umpire refuses to proceed with the arbitration except on payment of the fees demanded by him, the court may, on an application in this behalf, order that the arbitra- t0r or umpire shall proceed with the arbitration on payment into court by the applicant of the fees demanded', and shall, after such inquiry, if any, as it thinks fit, further order that out of the money so paid into court there shall, at the time specified in sub-Section (6), be paid to the arbitrator or umpire by way of fees such sum as the court may consider reasonable and that the balance of the money, if any, shall be refunded to the applicant.

"38(5) An application under sub-section (4) may be made by any party'. to the reference unless the fees demanded have been ﬁxed by written agreement between him and the arbitrator or umpire, and the arbitrator or umpire shall be entitled to appear and be heard on any such application.

"38(6) Payment to the arbitrator or umpire of the sum speciﬁed in sub-section (4) shall be made at such time as may be speciﬁed in the arbitration agreement, or failing such speciﬁcation, as may be decided by the court:

"Provided that pending completion of the arbitration, the court may direct interim payment of fees' to the arbitrator or umpire.

"38(7) Where the court has, under sub-section (.4), determined the amount of fees, it may, for reasons to be recorded and after giving the arbitrator or the umpire and the parties an opportunity of being heard, revise such determination on completion of the arbitration.

"38(8) If the arbitrator or umpire refuses to accept the determina-

tion of the Court under sub-section (4), the court may supersede the ar-

bitration agreement."

1. Para 8-56, supra.

2. See discussion as to section 14, paragraph 4-37, supra.

3. As to the expression "interim", compare section 27(2).

CHAPTER 9 APPEAL : SECTION 39 9.1. Section 39 allows an appeal against certain orders passed under the Section 39- Act.

The orders are enumerated in sub-section (1), in these terms:

"39(l) An appeal shall lie from the following orders passed under this Act (and from no others) to the Court authorised by law to hear appeals from original decrees of the court passing the order':-

An order----

(i) superseding an arbitration;

(ii) on an award stated in the form of a special case;

(iii) modifying or correcting an award;

(iv) ﬁling or refusing to ﬁle an arbitration agreement;

(v) staying or refusing to stay legal proceedings where there is an arbitration agreement;

"(vi) setting aside or refusing to set aside an award;

Provided that the provisions of this section shall not apply to any order passed by a Small Cause Court."

Sub-section (2) provides that second appeal shall not lie from an order passed under this section, but nothing in this section shall affect or take away any right to appeal to the Supreme Court.

9.2. The list of orders given in the section appears to be fairly ade- No change quate. We have considered the question whether an appeal should be allow- required in ed from an order refusing to modify or correct an award. At present, while WHO" 39(1)-

an order modifying an award is appealable, an order refusing to modify is not. However, after careful consideration, we do not suggest a change in this regard as we think that the present position is sound in principle.

9.3. We have no further comments on this section. No change.

Scope of the Chapter.

Section 40.

Section 41.

Section 42.

Recommendation as to section 42, clause (a).

CHAPTER 10 MISCELLANEO US SECTIONS 40-48 10.1. We now proceed to a consideration of the remaining sections of the Act containing certain miscellaneous provisions.

10.2. Section 40 provides that a 'court of small causes shall have no jurisdiction over any arbitration proceedings or over any application aris- ing thereout. save on application made under section 21. This section does not require any change.

10.3 The subject of procedure and powers of the court is dealt with in section 4l. Subject to the provisions of the Act and rules made there- under,' the provisions of the Code of Civil Procedure, 1908, shall apply to all proceedings before the court, and to all appeals under the Act. This is provided in clause (a): Clause (b) provides that subject to the provisions of the Act and all rules made thereunder, the court shall have, for the pur- pose of, and in relation to arbitration proceedings, the same power of mak- ing orders in respect of any of the matters set out in the second schedule as it has for the purpose of, and in relation to, any proceedings before the court. Under the proviso, however, this clause shall not be taken to prejudice any power which may be vested in an arbitrator or umpire for making or- ders with respect to any of such matters.

It has been represented to the Law Commission' that the power of the court under section 41 in the matter of grant of injunction in cases where the amount claimed by the Government to be due to it under a contract with a private party is still under adjudication, may be modiﬁed with a View to safeguarding the government interests. We have given the matter our consi- deration and are of the view that no amendment of the law in this respect is called for, and no exception need be carved out in section 41 for cases aris- ing out of contracts to which the Government is a party. The question of issue or non-issue of injunction depends upon the facts of each case and it is for the courts concerned to decide the matter in the light of those facts, keeping in view the general principles for the grant of injunctions which are fairly well-settled. The fact that the government is aggrieved by a particular order is no ground for amendment of the law. The existing provisions, in our opinion, are adequate to empower the courts to safeguard the interests of all parties, including the government, in appropriate cases.

The section therefore needs no change.

10.4. Several provisions of the Act require the giving of a notice; the procedure for giving a notice is laid down in section 42, which provides that any notice required by the Act to be served otherwise than through the court by a party to an arbitration agreement or by an arbitrator or umpire shall be served in the manner provided in the arbitration agreement, or if there is no such provision either by delivering it to the person on whom it is to be served, or by sending it by post in a letter addressed to that person or his usual or last known place of abode or business in India and register- ed under Chapter VI of the Indian Post Oﬂice Act, 1898, section 9(b), sec- tion 11(4) and section 14(1).

10.5. No changes of substance appear to be needed in section 42, but it may be useful to provide in clause (a) that the notice could be delivered to the agent of the person to be served who is empowered to accept service. The reasons for making this amendment hardly need be elaborated. In order to avoid abuse, we would conﬁne the amendment to the Government. local authorities and corporations.

1. For the power to make rules, see section 44.

2. Papers forwarded by the Ministry of Law, Department of Legal Affairs.

Accordingly, we recommend that in section 42(a), the words "in the case 0] a Government, local ant/mrity or corporation, to u per-\(m duly empower- ed to accept service on its behalf, or" should be added at the end.

10.6. Section 43 confers powers on the court to issue processes for ap- pearance before the arbitrator or umpire. The power is co--extensive with the corresponding power of the court in suits tried before it. There are con- sequential provisions in regard to persons who fail to attend, and there is a deﬁnition of the expression "processes". No amendment is required in the section.

10.7. Section 44 provides that the High Court may make rules consis- tent with the Act as to the various matters enumerated in the section. The section needs no change.

10.8. Section 45 provides that the provisions of the Act shall be bind- ing on the Government.

It needs no change.

10.9. Section 46 provides for the application of the Arbitration Act to what may be conveniently called 'statutory arbitrations' (see the marginal note to the section). With certain exceptions. the provisions of the Act are declared to apply to every arbitration under any other enactment for the time being in force, as if the arbitration were pursuant to an arbitration ag- reement and (as) if that other enactment were an arbitration agreement, ex- cept in so far as this Act is inconsistent with that other enactment or with any rules made thereunder.

10.10. Certain sections of that Act have, however, been excluded from the operation of section 46. These are--section 6(1), section 7, section 12, section 36 and section 37.

10.11. The operation of section 46 is illustrated by judicial decisions dealing with questions that have arisen in regard to arbitrations under the Co-operative Societies Act, before the Supreme Court.' It is also illustrated by cases under that Act before the High Courts, in proceedings in the Punjab"

and the erstwhile State of Bombay." It may be of interest to note that the sec- tion would apply to arbitrations under an Act relating to Universities.' Of course, the Arbitration Act will apply to a statutory arbitration only in so far as the statute does not contain a provision on the particular subject' which is inconsistent with the Act.

10.12. Section 47 provides that, subject to the provisions of section 46, and save in so far as is otherwise provided by any law for the time being in force, the provisions of this Act shall apply to all arbitration and to all proceedings thereunder. The proviso enacts that an arbitration award other- wise obtained may, with the consent of all the parties interested, be taken into consideration as a compromise or adjustment of a suit by any Court before which the suit is pending.

10.13. In our discussion relating to section 2(a)', we have already re- commended an amendment regarding awards obtained without following the procedure laid down in the Act. The recommendation should be carried out by substituting the following proviso for the present proviso to section 47:

"Provided that where an award otherwise obtained has been agreed to by the parties concerned. nothing in this section shall be construed as preven- ting any party from relying upon it in a suit or other legal proceeding (whether instituted by him or not) as an agreement or as compromise or adjustment of the dispute." ' M/s. D. Gohindram V. M/s Shamji & Co., A.I.R. 1961 S.C. l285, 1293, paras 24-25. Harnam Singh v. Man Singh, A.I.R. 161 Punjab 133.

Savitra Khandu v. A.S. & P. Co-operative Society Ltd., A.I.R. 1957 Bom. 178. Brij Mohan v. Lucknow University, AlI.R. 1961 All. 331, 332, 333 para 4.

See discussion regarding section 2(a), supra (awards obtained on oral arbitration agree ment).

Y':"E".""."

Sect ion 43.

Section 44.

Section 45.

Section 46 Statutory arbitrations.

Exceptions in section 46.

Section 46 operation of.

Section 47._ Recommendation as to section 47.

Section 47, Arbitration Act and Order 23, Rule 3.

Section 48.

10.14. The question whether an award made by an arbitrator (other- wise than on a formal reference by the court) can be recorded as a 'compro- mise' under Order 23, Rule 3, Code of Civil Procedure, I908, has been dis- cussed in several cases'-'', and there appears to have arisen controversy on the subject in the past. The controversy owed its origin to the application of section 89 of the Code of Civil Procedure. 1908; that section has since been repealed. The matter now seems to have been settled by the proviso to section 47 of the Arbitration Act, 1940. The old cases before 1940 are not, therefore, of much importance now. The view subsequently taken is that such award can be accepted as a compromise only if, subsequent to its making'-"', the parties agree to abide by it.

10.15. Section 48 contains a saving for pending references, and does not need any comment.

Dular Koeri v. Payag Koeri, A.I.R. 1942 All. 145, 147 (F.B.) (reviews case-law).

2. Chanbassappa v. Basalingavva, A.I.R. 1927 Bom. 585 (F.B.) (Award can be regarded as compromise).

3. Jugaldas v. Pur oram, I.L.R. (1955) 1 Cal. 12; A.I.R. 1953 Cal. 690 (reviews case law).

4. Sitaramji v. Ramnath Singh, A.I.R. 1961 Pat. 448.

5. Abdul Rahman v. Mohammad Siddiqui, A.I.R. 1953 Mad. 781 (F.B.) CHAPTER 1 l PROCEDURAL PROVISIONS : THE FIRST SCHEDULE 11.1. Certain provisions of a procedural nature intended to ﬁll up the First Schedule. gaps left advertently or inadvertently by the parties ire contained in the Paragmph "

First Schedule.

The ﬁrst paragraph of the Schedule provides that unless otherwise expressly provided, the reference shall be to a sole arbitrator. The para- graph needs no change.

11.2. Paragraph 2 of the First Schedule provides that if the reference First Schedule, is to an even number of arbitrators, the arbitrators shall appoint an Pamgmph 2- umpire not later than one month from the latest date of their respective appointment.

It needs no change.

11.3. The Arbitration Act does not contain any speciﬁc provision on First Schedule. the question whether an umpire can act on the evidence recorded by the P*"a3'aPh 2*' ' . I ' . '. . . . . . . _' . . (proposgd) arbitrators. "lhe position, in Englisii law, it is well settled, is that the umpire Re_hearmg of has to hear the evidence de novo, if an application is made to him to do so evidence by by either party, notwithstanding that the same evidence has already been the Umpire- adduced before the arbitrators. The result .s« that an ump're can make his award on the evidence taken by the arbitrators on'y if no party objects. It was observed by Littiedale J., agreeing with Denman C.J.," that "the general rule is that an umpire to whom a case is referred by arbitrators must hear the evidence over agairi."

Indian case law on the subject is scanty; but it would appear that, in general, an umpire is bound to re-hear the evidence it either party applies, unless there are special provisions in the arbitration agreement permitting him to do so.-' This is on the principle that the umpire has the rights and duties of an arbitrator. If he has not heard the evidence himself, he is generally bound to re-hear it.

11.4. We are of the opinion that in the interest of expeditious disposal Recommendation of arbitration proceedings, this position requires modiﬁcation to a certain extent. It may be mentioned that under the Code of Civil Procedure,' where a judge is prevented by death, transfer or other cause from con- cluding the trial of a suit, his successor may deal with any evidence or memo- randum taken down or made under the rules contained in the Code as if such evidence or memorandum had been taken down or made by him, and may proceed with the suit from the stage at which his predecessor left it. This statutory provision modiﬁes the rule otherwise applicable" that the successor must hear the whole case afresh. In our opinion, there should be no objection to permitting the umpire to act on the evidence recorded by the arbitrators, leaving it to the discretion of the umpire to take such additional evidence as he may think ﬁt. The same principle should apply to a change in arbitrators or umpire.

In re Jenkins, (1841) 11 L.J.Q.B. 71, 72; 61 Revised Reports 837 (Patterson J.). In re Salked and Slater, (1841) 12 A & E 767; 113 E.R. 1005, 1006, 1007. See also Halsbury, 4th Edition, Vol. 2, page 307, paragraph 591.

Dhannn Singh v. Ram Chand . A.I.R. 1924 S'nd 27, 28, reversing in part E. Miller v. The Firm of Dharma Singh. A.I.R. 1921 Sind 27.

Order 18, rule 15, C)de of Civil Procedure, 1908. R.S. Mahmood v. Syed Ahmed, A.I.R. 1963 A.P. 65.

¢"." :''$''!''.'' .69 10-') M 0fLJ & CAIND/78 ~ '0':

Compare 0.18, r. 15, Code of Civil Proce-

dure, 1908.

First Schedule.

Paragraph 3.

Effect of failure to make award in time.

Importance of paragraph 3.

We recommend insertion of the following new paragraph in the First Schedule, on the subject discussed above:

First Schedule, paragraph 2A "2A. (1) Where an arbitrator or umpire is prevented by any cause from completing the proceedings, his successor may deal with any evi- dence taken down by his predecessor as if such evidence had been taken down by him, and may proceed with the arbitration from the stage at which his predecessor left it.

(2) Where there are more than one arbitrator, and there is a change in the arbitrators, then, notwithstanding such change, the arbi-

tr.:2t0rS may deal with any evidence taken down in the arbitration before such change as if such evidence had been taken down by them. and may proceed with the arbitration from the stage at which it stood immediately before the change.

(3) Where, owing to a difference of opinion between the arbitrators. the matter is referred to an umpire, the proceedings before the arbit- rators shail be taken as proceedings before the umpire.

(4) Nothing in Sub-pamgraphs (1), (2) or (3) shall preclude the arbi- trator or umpire from taking additional evidence, in case he can- siders it necessary to do so."

11.5. Paragraph 3 provides that the arbitrators shall make their award within four months after "entering on the reference" or after having been called upon to act by a notice in writing from any party to the arbitration agreement, or within such extended time as the court may allow. There are thus, three methods of determining the period within which the award must be made. First is the primary period of four months, counted from "Entering on the reference"; the second is the period of four months, but counted from the date on which the arbitrators are called upon to act by a written notice of either party and the third is the extended time allowed by the court. The extended time may be allowed by the court before or after the expiry of the original time.' This paragraph is mandatory' and imposes a duty on the arbitrators to make their award, within me or the other of the three alternative periods. Consent of any party to the arbi- trator preceding with the reference, without an order of extension being obtained from the court, cannot thus have the effect of giving the arbitrator such jurisdiction.' 11.6. A contravention of the time limit prescribed by rule 3 may not only cast doubts on the validity of the award, if made; it has certain other consequences, if the award is not made within the time limit. If the arbi- trators do not make the award within the time limit, and the referencdis to an even number of arbitrators, the umpire can enter on the reference under the First Schedule; paragraph 4. If the reference 1s to a sole arbi- trator or to an odd number of arbitrators, the court can supersede the refe- rence, if the reference was in a suit (section 25), or the parties may treat the case as one of neglect or refusal etc. [Section 8:1)(b)], and have a fresh arbitrator appointed. The parties can also move the court for remov- ing the arbitrators for failure to "use all reasonable dispatch" in the reference [Section 11(1)] and then have a fresh arbitrator appointed (section 12).

11.7. It has been very often found that the time limit in paragraph 3 is exceeded; and this is the most important problem which we have to deal with. Apart from the fact that the pronouncement of an award after the expiry of the time limit raises legal problems, an important matter of which notice has to be taken is that the period of four months has been found to be unrealistic, and is hardly observed in practice. We have before

1. Section 28.

2. Harishankar La! v. Shambhu Lal, (I962) 2 S.C.R. 720; A.I.R. 1962 S.C. 78, 80, paragraph

3. Sawarn Singh V. Municipal Committee, Pathankot, AIR. 1963 Punjab 427, 42Q._ , ,.

us the instance of the Andaman contracts, referred to by the Public Ac- counts Committee. The following is an extract from the report of the Committee':--

"3.27l. The Committee are also unhappy over the manner in which the arbitration cases have been pursued. It is lislressing to see that the proceedings in the ﬁrst Arbitration started as far back as in July, 1961 in the case of the contracts with the North Andaman Licensee and dragged on for over 5 years betore reaching anything like ﬁnality, in spite of the time limit of 4 months provided in law for the comple- tion of arbitration. The other three arbitra 'on cases still reading settle- ment have taken as such as 6 years to 12 years, the Fifth Arbitration case was disposed of after 4 years. The Committee fail to understand the rationale behind the provision in the law of a limit of 4 months for the completion of arbitration when the actual time taken could be as long as 12 years. The Committee would like the Ministry of Law to examine this aspect thoroughly in consultation with other Ministries who actually have to go in for arbitrations or have to face arbitration proceedings in cases of agreements with private firms in crder to amend the law suitably. The Committee repeat that the mere provision in law of something which cannot be enforced in practice hardly carries any meaning. This present case assumes importance because although the agreement was cancelled in February 1968, the disputes which had already arisen appear paradoxically to be capable of being settled only by arbitration."

11.8. At the same time, we have to guard against undue prolongation of arbitration proceedings because of a longer time limit. Already there is a feeling that arbitrations are unduly delayed. It has, for example, been stated by the Secretary, Department of Legal Affairs, as follows2:----

"It is a fact that on quite a few occasions the public Accounts Committee has commented adversely on the working of the Arbitra- tion Act. Their comments include, inter alia, the long delays that take place in the completion of the arbitration proceedings, the number of extensions that are obtained either by consent of the parties and through the intervention of the court and the enormous expenses in- curred by way of "fees payable both to the arbitrators and the counsel. In some cases the arbitration proceedings were pending for a number of years--as long as 8 to 10 years."

11.9. For dealing with the problem created by the present provisions, there are two alternatives that could be considered. The lll'St alternative is total deletion of the time limit. that is to say. there should be no statutory time limit. This is the position, in substance. in England. The second alternative is an increase of the time limit (within reasonable boundaries).

11.10. The ﬁrst alternative would avoid questions as to validity of an award pronounced beyond the prescribed time limit. In support of this alternative, it could be stated that there is no reason why the parties should suffer for the delay caused by action of the arbitrator. No doubt, where the arbitrator does not use reasonable dispatch in the arbitration proceed- ings," the court may, on the application of any party to a reference. remove the arbitrator or umpire who fails to use all reasonable dispatch in entering on and proceeding with the reference in making the award. Further, the court may, when it removes the umpire who has entered on the reference or a sole arbitrator or all the arbitrators, on the application of any party to the arbitration agreement, either appoint a person to act as sole arbi- trator in place of the person or persons displaced, or order that the arbi- tration shall cease to have effect with respect to the difference referred.

l. Public Accounts Committee (Sixth Lok Sabha, Ninth Report) (September 1977), 200-201, para 3.271.

2. D.O. No. F. 8(15).'76--I.C. dated 27th July 1977 from the Secretary, Aﬂairs, Ministry of I_.aw, Justice and_ Company Affairs, to the Commission of India (see Appendix).

3. Section 11(1), read with section I2(2Xb)-

P3893 Department of legal Member-Secretary, v Law 7-ll Two alternatives.

Merits of the _ first alternative.

Merits of the second alternative.

Recommendation to increase the time limit in paragraph 3 to six months.

Reasons for the recommendation as to time limit.

But, this is only a right of the party and if, for some reason, the party does not pursue the remedy allorded by the relevant provisions, then the proceedings might drag on.

At the same time, it can be argued against the ﬁrst alternative that the total deletion ot a time limit might encourage' lethargy and indifference on the part of arbitrators and umpires.

11.11. The second alternative (increase of the time limit) has this merit, namely, that it does not introduce a radical change in the structure of the Act. At the same time. it takes note of the practical diﬂiculties caused by the present unrealistic pl'0VlSl0Il. lt may appear to be a more satis- factory solution. '

-11.12 On a careful consideration of the various aspects of the matter, we recommend that the time limit of four months should be replaced by six months in the First Schedule, paragraph 3. In appropriate cases, the power ot the court to extend the limit could be exercised, as at present. The extension snould not. however. be given beyond one year, except for special and adequate reasons.-

As regards the period within which the award should be given, it may be pointed out that the period should not be too short as to prove unreali- stic; at the same time, it should not be too long as to lead to undue delay or complacency on the part 01 arbitrators.

An unrealistic period----such as the present period of four months- serves no purpose. Some increase therein is required. We are therefore recommending that the period should be six months. subject to extension by the court in accordance with section 28 as proposed to be amended.

11.13. In suggesting substitution of the period of six months instead of the existing period of four months as the time during which arbitra- tion proceedings should normally be completed? we are inﬂuenced by two COilSld€rL'.li0nS'. We feel that the present period of four months is in most cases lll'lfL'.iiV\.'iiL'.. because it is not normally possible in complete arbitra- tion proceedings w thin four months.

to tix a much lom__~cr period, lest it should give rise to an attitude of com- placency on the part or the arbitrators and the parties. The underlying object of all arbitration proceedings is that such proceedings should be completed as speedily and expeditiously as possible.

11.14. At the same time, we are conscious of the fact that there may be quite a large number of cases in which it may not be possible to com- plete the arbitration proceedings within a period of six months. For such cases we have provided for the extension of the time for completing arbi- tration proceedings upto one year by the court under section 28 of the Act. A period of one vear. in our opinion. should normally be the outside limit within which arbitraﬁon proceedings should be completed in most of the cases. The power of the court to grant extension of time in most of the cases would thus be up to a neriod of one year. There may, however, be cases wherein voluminous evidence is required to be recorded. There' may also be some special and adequate reasons which may be brought to the notice of the court, justifying the extension of time beyond a period 0' one year. To have a rigid rule of allowing no extension of time beyond a period of one year would be in such cases cause undue hardship to the parties. For such exceptional cases we are empowering the court to extend the time beyond a period of one year. The underlying object of section 28 of the Act and paragraphs 3 and 5 of the First Schedule is to ensure due expedition and speed in the comp'etion of arbitration proceedings and. at the same time. to ensure that the entire proceedings are not set at naught in those cases wherein because of voluminous evidence or other special and adequate reasons, the proceedings cannot be ﬁnished within the pres- cribed time. .

1. See recommendation as to section 28, para 8-3, supra.

2. Para 11.12 supra. . . ax, At the same time, we do not want-

11.15. The unusual delay in completing arbitration proceedings in some cases referred to by the Public Accounts Committee' can well be taken care of by the changes suggested by' us.

11.16. We must, however, state here that in the ultimate analysis, the Quality ot expeditious disposal of proceedings in arbitration depends not so much P°'5°""°' on legislative provisions as to time limit, as on the quality of the personnel 'mp°m'°t' selected by the parties as arbitrators or umpires. This is a matter which can hardly be dealt with by legislation.

11.17. The next point concerning this paragraph (paragraph 3) re- First Schedule, lates to the words "entering on the reference"--words which have caused ?3'381'3Ph 3- a lost of difficulty in their application?-' r':3:t1'_'e'ti)';§..f'" m' 11.18. The counting of the period of time from "entering on the refe; English 1aw_ rence" was the provision contained in the English Act of 1889. First Sche- dule, paragraph 3(c). But the provision was altered in 1934. The present law5 is contained in section 13 of the Act of 1950.

11.19. Under paragraph 3, the starting point is not necessarily "the case1aw on commencement of the arbitration" mentioned in section 37(3). It is always paragraph 3- a question of fact, on what date the arbitrator or the umpire (as the case may be), actually entered on the reference for the purpose of paragraph 3.

The determination of the date often turns out to be a difﬁcult matter, and one can discern from the case law considerable divergence of views.

11.20. Of the numerous tests adumbrated by the various High Courts Various tests. in this regard, a few may be mentioned.

According to one view," "entering on the reference" means acceptance of oﬂice by the arbitrators and communication with each other.

According to another view'--

"An arbitrator enters upon a reference when, after having accepted the reference, he applies his mind and does something in furtherance and execution of the work of arbitration. The exact date as to when an arbitrator enters on a reference in a particular case, however, has to be determined on the facts and circumstances of the case".

Some other rulings suggest a still different test, e.g. date of entering upon the hearing of a particular claim by the arbitrators."

11.21. The matter, in so far as it relates to the notice referred. to in supreme com»:

paragraph 3 of the First Schedule has been considered in a Supreme Court case as to notice. ruling." However, interpretation of the expression is not dealt with in the Supreme Court judgment.

1. Para 11-7 and 11-8, supra.

See the case law discussed in Ram Sahai v. Harish Chandra, A.I.R. 1963 M .P. 143, 146, 147, paras 13-14.

3. See Bajrang Lal v. Ganesh Commerciai Co., A I.R. 1951 Cal. 78, 82, para 31 to 34 (Harries C.J.).

4. See Dr. B.V. Mehta v. P.P. Joshi, A.I.R. 1956 Born. 146, 147, para 5.

5. For history of Enlgish law, see Bokaro & Ramgur Ltd. v. Prasun Kumar, A.I.R. 1968 Pat. 150, 155, para 13 (F.B.).

6. Bajrang Lal V. Ganesh Commercial C0,, A.I.R. 1951 Cal. 78, 82, 83 and 85, para 34-35 and 52 (Harries C.J. & Chatterjee J.).

.- S'r'::;'!ai Thakur v. Lachhminarain 771akur, A.I.R. 1957 Pat. 395, 397, para 5.

(a) Sardar Mal v. Shea Baksh, A.I.R. 1922 All 106.

(b) Ranganathan v. Krislmayya, A.I.R. 1946 Mad. 504 (per Leach C.J.).

Izi1]ri6S7Igc3nkar La! v. Shambhu Nath, A.I.R. 1962 S.C. 78-82 (conﬁrming A.I.R. 1954 11-7 M ofLJ & CAIND/78 74 g:"ti:_i0i;' in _ 1122. It would be of interest to note one statutory precedent which (Su'°3p]'§,)3fAct .\1rll(CS a dcpaitiirc trtim thc general rule. 1h_c_Elcctricity (Supply) Act, 1948.

1948. ' section 7613A). contains the following provision applicable to arbitrations thereunder:-

"(3A) Where any question or matter is referred to the Authority for arbitration under this section, the Authority shall be deemed to enter on the reference for the purposes of paragraph 3 of the First Schedule to the Arbitration Act, 1940, on the date on which the parties appear before the Authority for the ﬁrst time:

Provided that where the parties or any of them fail to appear before the Authority on the date ﬁxed for the ﬁrst hearing of the case and the Authority decides either on that date or any subsequent date to proceed with the case in the absence of the parties or any of them, as the case may be, the Authority shall be deemed to enter on the reference on the date of such decision."

ﬁtmendiments to 11.23. On a consideration of all aspects of the matter, we have come p§r;Ea:h"'3 to the conclusion that the arbitrators should be deemed to enter on the ' reference on the ﬁrst date ﬁxed by the arbitrators for the appearance of the parties before them for the purposes of the arbitration. This would be a realistic test, since it is only after ﬁxing the date for appearance that con- crete progress can be made in the arbitration. The proposed test would also be a precise and fairly workable test.

Recommendation as 1° paragraph 3' 11.24. Accordingly, we recommend that paragraph 3 should be revised as under: ' "3. The arbitrators shall make their award within six months' after entering on the reference or after having been called upon to act by notice in writing by any party to the arbitration agreement, or within such extended time as the court may allow.

"Explanaitt'on.--For the purposes of this paragraph, the arbitrators shall be deemed "to enter on the reference on the first date ﬁxed by the arbitrators for the appearance of the parties before them for the lmrpnses of the arbitrafi'(m."' Paragraph 4.

11.25. This takes us to paragraph 4 of the First Schedule, which deals with the time at which the umpire should enter on the reference in lieu of the arbitrators. This paragraph needs no change.

Paragraph 5' 11.26. Paragraph 5 provides that the umpire shall make his award within two months of entering on the reference or within such extended time as the court may allow.

Am°"d'"°"'" "' 11.27. We have recommended certain amendments to the First Sche-

b d ' . . . . . .

,.,°g;'2§ fem dule, third paragraph," in regard to the time limits for awards by arbitra- time limits tors. The reasons stated by us tor those amendments apply to the time for UmP1T¢S- limit for awards by umpires also. In the case of umpires, we recommend an increase of the period to four months from the present two months. This will be subject to extension under section 28.

tlgecrcgzaigiegztiittun 11.28. Accordingly, we recommend that the First Schedule, paragraph 5, should be revised as under:--

graph.

"5. The umpire shall make his award within four months after en-

tering on the reference or after having been called upto to act by notice in writing by any party to the arbitration agreement, or within such extended time as the court may allow.

gf-Séfiigrl ?5(3A) "ExpIrma'ti'0n.-~F0r the purposes of this paragraph, the umpire (sgfppﬁf 2g'tEyI948 shall be deemed to enter on the reference on 'the first date fixed by ' ' him for the appecrraiice of the parties before him for the purposes of the arbitration."

1. See para ll-12, supra.

2. See para. 11-23, supra.

3. See para 11-24, .S'lIpI'(I. 75 11.29. Paragraph 6 deals with the examination of parties and produc- Fibs! Schedule. tion ol' documents etc. by the parties. %""g""Ph 6 . ecommendation to restructure.

11.30. This paragraph needs no change of substance. The structure Recommendation should, however, be simpliﬁed, by revising it as under:-- 'O "Vise paragraph 6.

"6. The parties to the reference and all persons claiming under them shall, subject to the provisions of any law for the time being in force.

(a) submit to be examined by the arbitrators or umpire on both or affirmation in relation to the matters in difference,

(b) produce before the arbitrators or umpire all books, deeds, papers, accounts, writings and documents within their possession or power respectively, which may be required or called for, and (C) do all other things which, during the proceedings on the reference, the arbitrators or umpire may require."

ll.3l. Paragraph 7 provides that the award shall be ﬁnal and binding First Schedule on the parties and persons claiming under them respectively. In one special Rkalagraph 7 . situation, the paragraph requires to be qualiﬁed, namely, wher either the ecommendaum' arbitration agreement, or the bye-laws of any association which are ex- pressly on impliedly adopted by the arbitration agreement} provide for an appeal from an arbitrator to a higher arbitrator. In such cases, the inten- tion of the parties is that it is the award made by the appellate authority (as contemplated by the agreement or the bye-laws) whose award is to become the ﬁnal award. It has specifically been held" that a provision for appeal in any bye-law is not ultra vires the provision of the First Schedule, paragraph 7.

11.32. We consider it desirable to make the paragraph subject to a Rewmmendation provision to Cover a situation of the nature mentioned above. We there- :3"x'?;I";;tt.""

fore recommend that the following Explanation should be inserted below bclgwpa:g;1raph7.

paragraph 7 :--

"Explanation. ----'W/I('I'(' either the arbitration agreement, or the bye- /tIlt'A' of any association which are expressly or impliedly adopted by the arbitration agreement, provide for an appeal from the award of an arbi- trator to another person or body, the award made by suelz appellate autliority shall. if the r;p_/veal he filed in accordance with the a:.;reemem or bye-Iaw.r, be the award /or the piir/)o.s'es' of this paragraph."

11.33. Paragraph 8 provides that the costs of the reference and the Paragraph 8. award shall be in the discretion of the arbitrators or umpire. The para- graph needs no change.

I. Heeralal & Co. v. Joakim & Co., A.l.R. 1927 Cal. 647, 649, 251.

2. M.A. & Sons v. Madras 0il& Seeds Exchange Ltd., A.I.R. 1965 Mad. 392, 394, paragraphs 8 to l 1.

CHAPTER 12 POWER OF THE COURT THE SECOND SCHEDULE The second schedule deals with powers of the court on various mis- cellaneous matters, mostly of an 1nter1m character, and we have no comments thereon.

CHAPTER 13 SUMIVIAR Y OF RECOMMENDATIONS The recommendations made in this Report for amendment of the Arbitration Act, 1940, may be brieﬂy summarised as follows;----

(1) In section 2(a), an Explanation should be inserted to the effect that where the members of any association agree to abide by the rules of the association which contain provisions for arbitration, the members shall be deemed to agree with each other for arbitration.' (2) Another Explanation may be added2 to the same clause to the effect that where an arbitration agreement provides for the submission of future differences to arbitration, fresh consent of the parties to the arbitration should not be required when differences actually arise.

(3) Section 6, sub-section (1), should be revised by replacing the present phrase "either as respects the deceased or any other party" with the words "either as respects the deceased or as respects any other 99 3 party .

(4) Section 6(2) should be revised as follows:--

"the authority of an arbitrator shall not be terminated by the death of any party to the agreement.''' (5) A new section--~section 8A--should be inserted to provide for the power of the court to supply the vacancy in case of arbitrator or umpire appointed by the court itself.' (6) Section 12(1) should be verbally amended, as recommended."

(7) In section 13, a new clause should be inserted as follows7:--

"Section I3(aa) proceed ex parte against any party who, without sufficient cause and after due notice, fails to attend personally or through agent."

(8) A new section 13A should be inserted to deal with the powers of the arbitrators or umpire to award interest, as recommended.' (9) In section 14, two new sub-sections--section 14(2A) and 14(2B)--

should be inserted as recommended," to cover cases of death of the arbitrator after making the award but before ﬁling it and similar situations. ' (10) In section 16(1), a new clause ((1) should be added as followes"':----

"(d) where for any other reason the court considers that in the interests of justice it should, instead of setting aside the award, order such remission."

°§°9°."'.°":":"E-°!"T' Para 2-8, supra.

Para 2-21, supra.

Para 3-9, supra.

Para 3-11, supra.

Para 3-29, supra.

Para 3-42, supra.

Para 4-3, supra.

Para 4- 30, supra.

Para 4-42, supra.

. Para 5-19, supra.

4». » 78 (11) Section 20(2) should be revised as recommended,' so that two situations in regard to ﬁling an application are dealt with separately.

(12) Section 21 and the Heading of the Chapter should be revised as recommended} to include appeals within its scope.

(13) Section 24 should be revised as recommended", by the addition of the word "appeal".

(14) In section 28, a proviso should be inserted' forbidding in respect of the time for making the award an extension beyond one year, except for special and adequate reasons to be recorded.

(15) In section 30, an Explanation should be inserted as recommended,"

to provide that the expression "or is otherwise invalid" includes the ground that there was no valid agreement or no valid reference to arbitration.

(16) New section 30A, should be inserted" to provide that no arbitra-

tor or umpire can be compelled to give evidence as to the reasons for his award.

([7) Section 32 should be re-numbered as subsection (1), and there- after sub-scctions (2) and (3) should be inserted as recommended} to pro- vide that an award shall not be pleaded in defence except in certain speci- ﬁed cases.

(18) In section 33, after the words "any party", the word "including one alleged to be a party" should be added."

(19) From section 34, the words "or taking other steps in the proceed- ings" should be deleted."

(20) In section 34, an amendment should be made as to suits brought under Order 37 of the Code of Civil Procedure, by substituting the word recommended!"

(21) In section 37(1), reference to the Limitation Act, 1963 should be substituted."

(22) In section 37, sub-sections (3) and (5), reference to the Limita- tion Act, 1963, should be substituted in place of the old Act." Further, new sub-sections (6) and (7) should be inserted as recommended."

(23) In section 38, new subsections (4), (5), (6), (7) and (8) should be inserted," so as to prevent disputes about the amount of fees of the arbi- trator and as to the time of payment.

(24) Section 42(a) should be amended" to provide for the delivery of notice to duly empowered agent, in certain situations.

(25) In section 47, the proviso should be replaced as recommended,"

to deal with the effect of arbitrations entered into otherwise than under the Act.

Para 6-2, supra.

I. 2- Para 7'3, supra.

3. Para 7 ' 6, supra.

4. Para 8 - 3, supra.

5, Para 5 -23 and 8- 12, supra

6. Para 8'15, supra.

7. Para 8-30, supra.

8. Para 8 - 34, supra.

9. Para 8-40, supra.

10. Para 8 -41, supra.

11. Para 8-47 supra.

12. Para 8-58, supra.

13. Para 8-59, supra. '

14. Para 10-5, supra.

Para 2.6 and 10.13, supra.

-

ll! (26) In the First Schedule. a new paragraph 2A should be added' to deal with the powers of arbitrators or umpire to act on evidence recorded by their predecessors, and also to provide that proceedings held before arbitrators shall be deemed to be proceedings before the umpire.

(27) In the First Schedule. paragraph 3, the period? should be extended to six months and an Explanation be added deﬁning the expression "enter-

ing on reference".

(28) In the First Schedule, paragraph 5, a similar amendment should be made} deﬁning the above expression and the period be increased to four months.

(29) In the First Schedule, paragraph 6 should be recast as recom- mended.' (30) In the First Schedule, paragraph 7 should be amended by adding an Explanation' to deal with cases where rules of an association provide for appeal.

H. R. Khanna ................... . ....... .. Chairman S. N. Shankar ............................ .. Member T. S. Krishnamoorthy lyer ............................ .. Member P. M. Bakshi ............................ .. Member-Secretary New DELHI, Dated the 91/1 November, 1978.

Para ll-4, supra.

Para ll'24, supra.

Para 1] -28, supra.

Para ll-30, supra.

Para I I -32. supra.

$".*°'."'!"."

APPENDI x Copy of the letter rc('cI'i'ed from the Secretary, Deptrrmwm nj Legal A_ﬁ(n'rs'.

P. G. GOKHALE SECRETARY.

D.O. No. F. 8(l$)/76-L.C. GOVERNMENT OF INDIA.

MINISTRY or Lxw, JUSTICE & Co. AFFAIRS, (DEPTT. 01: LEGAL AFFAIRS) Dated 27th July, I977.

My dear Sri Bakshi, It is a fact that on quite a few occasions the public Accounts Committee has commented adversely on the working of the Arbitration Act. Their comments include, inter alia, the long delays that take place in the comple- tion of the arbitration proceedings, the number of extensions that are obtained either by consent of the parties or through the intervention of the court and the enormous expenses incurred by way of fees payable both to the arbitrators and the counsel. In some cases the arbitration proceed- ings were pending for a number of years----as long as 8 to 10 years. The amount spent on the arbitrator and the Counsel by way of fees exceeded the amount of claim that was ultimately awarded in favour of the Gov- ernment. The Government is therefore desirous to have a second look at the provisions of the Arbitration Act with a view to see whether the enormous delays occurring in the arbitration proceedings and the dispro- portionate Costs incurred therein could be avoided. It is also the Govern- ment's intention to see whether any more powers could be conferred on the arbitrators to ensure effective, just and speedy conclusion of the proceedings.

2. In view of the facts stated above the Government has decided to refer this question for examination by the Law Commission on a priority basis. I shall be grateful if the matter is examined in detail by the Law Commission and a report submitted to the Government as early as possible. It appears that the present Commission may not have time to take up the matter and complete it. This may therefore be placed before the new Commission as may be reconstituted with effect from 1-9-77 so that it can be taken up on a top priority basis.

With kind regards.

Yours sincerely, SDl- P. G. GOKHALE Shri P. M. Bakshi, Member-Secretary, Law Commission, New Delhi.

MGIPCBE-Sl--7 M of LJ&CA;'ND/78----9-11-'T9--2,000 Bks.

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Arbitration Act , 1940