Patna High Court
Satya Narayan Agarwall vs Baidyanath Mandal And Ors. on 23 December, 1970
Equivalent citations: AIR1972PAT29, AIR 1972 PATNA 29, ILR (1971) 50 PAT 892 1971 BLJR 434, 1971 BLJR 434
JUDGMENT B.D. Singh, J.
1. These two miscellaneous appeals under Section 39 of the Arbitration Act, 1940 (hereinafter referred to as the Act) have been filed by Satya Narayan Agarwalla, being aggrieved with the order of the Subordinate Judge II, Dhanbad, dated the 8th December, 1969, passed in Miscellaneous Cases Nos. 55 and 113 of 1969, whereby the learned Subordinate Judge, in Miscellaneous Case No. 55, set aside the appointment of M.L. Rathor (respondent No. 7 in M.A. 48) as the sole arbitrator, made by the appellant, and dismissed Miscellaneous Case No. 113, which was filed by the appellant, for making the award given by M. L. Rathor as the decree of the Court.
2. Miscellaneous Appeal No. 48arises out of Misc. Case No. 55 which was filed by the respondents challenging the appointment of Rathor as the sole arbitrator at the instance of the appellant, whereas Miscellaneous Appeal No. 49 arises out of Miscellaneous Case No. 113 which was filed by the appellant for making the award given by Rathor as the decree of the Court. Both the miscellaneous cases were heard together by the Court below who, after examining the evidence on record and hearing the parties, came to the conclusion referred to above. The two miscellaneous appeals have also been heard together in this Court and they will be governed by this common judgment.
3. In order to appreciate the points urged on behalf of the parties in these two appeals, it will be necessary to state some relevant facts. Baidyanath Mandal (respondent No. 1) and the other respondents (Nos. 2 to 8) in both the appeals are owners and proprietors of Mandals Bilbera Colliery situated in village Bilbera. Respondent No. 6 Sudhir Chandra Mandal is a constituted agent of respondents Nos. 1 to 5. On the 8th August, 1967, respondent No. 6 for self and also on behalf of respondents Nos. 1 to 5 executed an agreement of lease in favour of the appellant for letting out sixty hard-coke ovens of the said colliery on certain terms and conditions incorporated in the lease. The appellant was, however, put in possession of the leasehold properties from the 1st August, 1967. The lease was for a period of three years with option of its renewal by either of the parties. One of the terms of the lease was that the appellant would pay a sum of three thousand rupees per month to those respondents in the manner stipulated in the lease. According to the respondents, the appellant did not pay the stipulated sum from the month of July, 1968 to November, 1968 and he also did not pay the price of the coal supplied to him. Therefore, the respondents sent a notice dated the 2nd December, 1968, through their advocate to the appellant demanding payment of the arrear amount and by the said notice also terminated the lease on the expiry of one month from the date of notice according to one of the terms of the lease. On the other hand, the appellant sent a notice dated the 17th December, 1968, through his advocate intimating the respondents that the dispute between the parties would be decided by arbitrators according to one of the terms of the lease, and that the appellant had nominated M.L. Rathor as his arbitrator, and requested the respondents to appoint their arbitrator within the time prescribed under Section 9 of the Act According to the appellant, the respondents received the notice on the 18th December, 1968 whereas according to the respondents they received it on the 19th December, 1968. Since the respondents failed to appoint their arbitrator for fifteen clear days after receipt of the notice, the appellant appointed Rathor on the 3rd January, 1969 as the sole arbitrator as provided under Section 9 (b) of the Act. The respondents, however, posted a letter (Ext. D/1) on the 4th January, 1969, in reply to the letter of the appellant dated the 17th December, 1968, intimating that they had nominated Manilal B. Sanghavi as their arbitrator. On the 9th January, 1969, the appellant sent a reply to that letter alleging therein that he had already appointed Rathor as the sole arbitrator under Section 9 (b) of the Act. Rathor (respondent No. 7 in M.A. 48) also sent a letter dated the 17th January, 1969, intimating the respondents that he had been appointed as the sole arbitrator to determine the dispute between the parties. The said arbitrator also called upon the respondents to submit statement of their case to him within fifteen days from the receipt of his letter. On the 14th January, 1969, the respondents sent a letter to the arbitrator as well as to the appellant and his advocate requesting the arbitrator to grant one month's time, as they were intending to move the Court to set aside the appointment of Rathor as the sole arbitrator. The respondents also requested the arbitrator to stay the arbitration proceedings. On the 25th January, 1969, the respondents filed an application in the court below in Miscellaneous Case No. 55 for setting aside the appointment of Rathor as the sole arbitrator and for staying the proceedings in the arbitration matter. The court below, however, did not stay the arbitration proceedings. Consequently, on the 12th March, 1969 the award was made by Rathor on the 21st March, 1969, the appellant filed an application in the Court for direction to the arbitrator to file the award. On the 24th April, 1969, the said arbitrator filed the award in Court. On the 29th July, 1969, the respondents filed a rejoinder in Miscellaneous Case No. 113 alleging, inter alia, that since the appointment of the sole arbitrator was not valid, his award should not be made decree of the Court. Both the Miscellaneous Cases Nos. 55 and 113 were heard. Both parties led evidence and the Court below by the impugned order, as mentioned above, set aside the appointment of Rathor as the sole arbitrator in Miscellaneous Case No. 55 and dismissed Miscellaneous Case No. 113, holding that no decree can be passed on the basis of the award given by Rathor. Hence these two appeals by the appellant.
4. Mr. Ram Nandan Sahay Sinha, learned counsel appearing on behalf of the appellant has assailed the findings of the court below and urged that it committed an error in superseding the arbitrator and in not making his award as a decree of the Court. On the other hand Mr. Radhey Shyam Charterjee appearing on behalf of the respondents Nos. 1 to 6 in both the appeals supported the impugned order.
5. On the various contentions advanced by the learned counsel of the parties three main questions arise for consideration in both the appeals taken together; namely, (i) whether the appointment of Rathor as a sole arbitrator was valid; (ii) whether the award given by him ought to have been made a decree of the court; and (iii) whether in the circumstances of the case the setting aside of the entire arbitration proceeding was justified? Answer to question No. (ii) depends upon answer to question No. (i). If Rathor's appointment was as a sole arbitrator not valid, the award given by him cannot be sustained as the very foundation of the award would vanish. In that view of the matter, it will be convenient to decide first as to whether the appointment of Rathor as the sole arbitrator was valid or not. Section 9 of the Act reads as:--
"Where an arbitration agreement provides that a reference shall be to two arbitrators, one to be appointed by each party, then, unless a different intention is expressed in the agreement,--
(a) if either of the appointed arbitrators neglects or refuses to act, or is incapable of acting, or dies, the party who appointed him may appoint a new arbitrator in his place;
(b) If one party fails to appoint an arbitrator, either originally or by way of substitution as aforesaid, for fifteen clear days after the service by the other party of a notice in writing to make the appointment, such other party having appointed his arbitrator before giving the notice, the party who has appointed an arbitrator may appoint that arbitrator to act as sole arbitrator in the reference, and his award shall be binding on both parties as if he had been appointed by consent:
Provided that the Court may set aside any appointment as sole arbitrator made under Clause (b) and either, on sufficient, cause being shown, allow further time to the defaulting party to appoint an arbitrator or pass such other order as it thinks fit.
Explanation:-- The fact that an arbitrator or umpire, after a request by either party to enter on ' and proceed with the reference, does not within one month comply with the request may constitute a neglect or refusal to act within the meaning of Section 8 and this section."
It may be pertinent to notice that the power to a party to appoint a sole arbitrator has been conferred by Section 9 (b) and the pre-requisite condition for exercise of that power is that the other party fails to appoint an arbitrator for fifteen clear days after the service of a notice in writing to make the appointment. The appointment of a sole arbitrator before that time is bad, and an award by him is invalid. In other words, the appointment of an arbitrator as the sole arbitrator within fifteen days of the service of notice on the other party, is illegal. Therefore, in the instant case, it has to be seen whether the appointment of Rathor as the sole arbitrator was made by the appellant on the failure of the respondents to appoint their arbitrator for fifteen clear days after the service of notice on them.
6. According to the respondents, the notice dated the 17th December, 1968 (Ext. 1/a) given by the appellant was served on the respondents on the 19th December, 1968, whereas according to the appellant it was served on the respondents on the 18th December, 1968. A.W. 1 Punit Bihari Mandal, who was examined as a witness on behalf of the respondents in Miscellaneous Case No. 55, stated that the said notice was received by him on the 19th December, 1968 in an envelope, and he signed the acknowledgement on the same date. He also stated that he used to receive letters on behalf of Mandals Bilbera Colliery. He further stated that the stamp on the envelope (Ext. 4/b) was also dated the 19th December, 1968. We have also perused it. The date on the stamp is not clear; from that it cannot be said whether it was received on the 18th or the 19th. On behalf of the appellant three acknowledgement receipts (Exts. B, B/1 and B/2) were produced to establish his case of service of notice on respondents Nos. 1 to 6. The appellant, however, did not file the acknowledgement showing receipt of notice by Sudhir Chandra Mandal (respondent No. 6) and Shaktipada Mandal (respondent No. 5). Respondent No. 6 being the constituted agent of the other respondents, it was necessary for the appellant to have filed the acknowledgement showing receipt of notice by him, but he did not do so. Neither he examined any witness on his behalf, nor he placed anything on record to show that the said acknowledgment was lost from his custody. Therefore, the evidence of A. W. 1 regarding the date of receipt of the notice (Ext. 1/a) is ex parte. Thus, adverse inference has got to be drawn against the appellant due to non-production of acknowledgment receipt of respondent No. 6. In that view of the matter, in my opinion, the Court below has rightly held that the notice (Ext. 1/a) dated the 17th December, 1968 was served on the respondents on the 19th December, 1968. In Rambharoselal Gohoi v. State of Madhya Pradesh, AIR 1955 Nag 35, Sinha, C.T. and Hidayatullah, J. (as they then were), while dealing with the provisions contained in Sections 21 and 18A of the C. P. and Berar Municipalities Act (2 of 1922), had the occasion of interpreting the words "clear days". Their Lordships (at page 37) held:
"The rule of law is that when words such as so many 'clear days' or so many days 'at least' are used, the two terminal days must be excluded. This rule is summarised by Maxwell on the Interpretation of Statutes, 10th Edn., at page 351, in these words:
"Again, when so many 'clear days', or so many days 'at least', are given to do an act or 'not less than' so many days are to intervene, both the terminal days are excluded from the computation.....".
Under Section 9 (b) of the Act the expression used is "fifteen clear days". Therefore, 19th December, 1968, which was the date of receipt of notice, and 3rd January, 1969, the date of appointment, being two terminal days, have got to be excluded in order to provide "fifteen clear days" to attract the provision of Section 9 (b) of the Act. In the instant case, the appellant sent a notice (Ext. C/3), dated the 3rd January, 1969, to Rathor appointing him as the sole arbitrator. The said appointment was, therefore, not in accordance with law. He could have appointed him only on the 4th January, 1969.
7. Learned counsel for the appellant, however, contended that even assuming that the appellant had appointed Rathor within fifteen days of the service of notice, the appointment became effective only when Rathor received the communication of his appointment on the 4th of January, 1969.
8. In my opinion, this contention of the learned counsel cannot be accepted. So far appellant is concerned, he had already appointed Rathor as sole arbitrator on the 3rd January, 1969. In order to circumscribe the provision of Section 9 (b) the appellant cannot be permitted now to say that the appointment of Rathor was effective only on the 4th January, 1969, when Rathor got the information of his appointment. If the contention of learned counsel is to be accented it would amount to allowing the appellant taking advantage of his own wrong. Besides, there is nothing in Section 9 (b) to indicate that a notice is necessary to be given to the arbitrator in order to effectuate his appointment as a sole arbitrator. Moreover, the proviso to Section 9 (b) gives wide discretion to allow further time to the defaulting party in the appropriate cases. In Kamani Engineering Corporation Ltd. v. Madhya Pradesh Electricity Board, Jabalpur, AIR 1964 Madh Pra 268, while dealing with the provisions contained in Section 9 (b) proviso, Krishnan, J. (at page 271) observed that another point to note was that the proviso is worded as if it involved no idea of limitation as such. On the other hand, something like that principle was indirectly involved, because an order under the proviso really enabled the defaulting party to remedy his failure to make the appointment within 15 days which the Legislature had allowed him for appointing his arbitrator after the receipt of the notice. Looking from that end, therefore, the proviso really enabled the Court to condone the delay. That way there was a broad analogy between the proviso and Section 5 of the Limitation Act under which a Court is competent to condone limitation properly so-called. His Lordship further observed that the essence of arbitration was confidence of each of the parties. In fact, an arbitrator derived his authority from this confidence and any step calculating to reduce it was against the spirit of arbitration. Section 9 (b) was an exceptional provision and was in effect a penalty on the defaulting party for his failure to make the appointment on getting notice and caution from the other side. If by obstruction, evasion or gross negligence he deserved that, he must be visited with the penalty. But all the same, it was a serious matter. This was why very wide discretion has been given to the Court to set aside the appointment. The moment the defaulting party satisfied the court that he had not been obstructive or evasive and had acted with due diligence, the appointment of sole arbitrator should be set aside. Thus, the Court has ample power to set aside the appointment of Rathor as the sole arbitrator. In my opinion, on the facts and in the circumstances of the case, and in view of the above discussions, the appointment of Rathor as the sole arbitrator, made on the 3rd January, 1969, cannot be sustained. Therefore, if his appointment as the sole arbitrator was invalid, the award also which he gave cannot be held to be legally valid.
9. Learned counsel, however, urged that since in this case the arbitration proceeding was not stayed, Rathor had made the award, which could have been challenged by the respondents only under the provisions contained in Section 30 of the Act within thirty days as provided under Article 158 of the Limitation Act, 1908, corresponding to Article 119 (b) of the Limitation Act, 1963. Therefore, according to learned counsel, the court below has erred in not accepting the award given by Rathor and in not making it a decree of the court. As I have held above, since the very appointment of Rathor was invalid, the contention of learned counsel has no substance, and the award of Rathor in the capacity of a sole arbitrator cannot be maintained.
10. Section S3 of the Act in such cases empowers the Court to set aside the award. Section 33 provides as follows:
"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 determined shall apply to the court and the Court shall decide the question on affidavits:
Provided that where the court deems it just and expedient, it may set down the application for hearing on other evidence also, and it may pass such orders for discovery and particulars as it may do in a suit."
In Deep Narain Singh v. Mt. Dhaneshwari, AIR 1960 Pat 201, Ramaswami, C.J. and Kanhaiya Singh, J., while dealing with the provisions contained in Section 17 of the Arbitration Act was an objection under Section 30 (sic). An application under Section 30 was not maintainable on the ground that there was no valid reference at all, and, consequently, the arbitrators had no jurisdiction to make the award. The validity of a reference does not come within the scope of that section. When the objection does not fall under Section 30, Article 158 of the Limitation Act (1908) had no application. The award was illegal and invalid on the ground of invalidity of the reference and could be treated and dealt with as one coining under Section 53, and as such it could be entertained, as no period of limitation was prescribed for the making of an application under that section. In that view of the matter, in my opinion, the Court below has rightly dismissed Miscellaneous Case No. 113, which was filed by the appellant for making the award given by Rathor a rule of the Court. Thus, there is no merit in Miscellaneous Appeal No. 49, which has arisen out of Miscellaneous Case No. 113, and it has got to be dismissed.
11. Mr. Ram Nandan Sinha pursuing Miscellaneous Appeal No. 48 contended that the Court below had, at any rate, erred in setting aside altogether the appointment of Rathor as the arbitrator and thereby setting aside the entire arbitration proceeding. He submitted that the appellant had selected him as an arbitrator and the other party could easily nominate their arbitrator according to the provisions contained in Section 9 of the Act. Rut the respondents have nominated Shri Manilal Sanghvi not within 15 days from the service of notice (Ext. 1/a) and the court below accordingly held that the nomination of Shri Sanghvi was bad and not in accordance with the provision of Section 9. In my opinion, the Court below has erred in setting aside the entire arbitration proceedings on the facts and circumstances of the case under proviso to Section 9 (b). A delay of one day made by the respondents in nominating Shri Sanghvi ought to be condoned. Mr. Chatterjee, learned counsel for the respondents, however, urged that the Court below has rightly set aside the entire arbitration proceedings, and during the course of hearing he filed an application under Section 5 of the Act on behalf of the respondents praying that the reference to the arbitration may be recalled. On the basis of the said application he submitted that Rathor, who was appointed as a sole arbitrator on behall of the appellant under Section 9 (b) since he had already given award and thereby he has expressed his opinion and it would be difficult to place reliance on him. Besides after giving award learned counsel contended that he had become functus officio. He should not be permitted to participate further in the arbitration proceeding. In order to find support to his contention of bias, he relied on a judgment in the case of Bhuwalka Bros. Ltd. v. Fatehchand Murlidhar, AIR 1932 Cal 294, where Bannerjee, J. was considering the provision contained under Section 5 of the Act and where his Lordship observed that, "It is the most fundamental principle of justice that a Judge or a Tribunal should not decide a dispute if there is a probability that he would be biassed in the case. The Court will not refuse an application to revoke a submission or to stay an arbitration on the ground that a party knew or ought to have known that the arbitrator by reason of his relation towards any party to the agreement or his connection with the subject-matter referred, might not be capable of impartiality. In applications under Section 5 or Section 34 all that is necessary is to show that there is a probability of bias or a reasonable prospect of bias or there is a reasonable apprehension of bias. Whether in fact the arbitrator was so biassed is immaterial. In my opinion, his Lordship has not laid down a general principle of law. It depends upon facts in a particular case. It may be noticed that his Lordship has also observed that no hard and fast rule can be laid down as to the circumstances in which the court should exercise its discretion in granting leave to revoke the authority of an arbitrator. The discretion is to be exercised after appreciation and consideration of all the facts which are material for the purpose of enabling a Judge to exercise a judicial discretion and after application of the right principles remembering that the parties have for better or worse agreed to make the arbitrator the final Judge in their dispute. In the case of Amarchand Lalit Kumar v. Shree Ambica Jute Mills, AIR 1966 SC 1036 which was also referred, their Lordships while dealing with the Section 5 of the Act, observed that before the Court exercised its discretion to give leave to revoke arbitrator's authority, it should be satisfied that a substantial miscarriage of justice will take place in the event of its refusal. In considering the exercise by the Court of the power of revocation it must not be forgotten that arbitration is a particular method for the settlement of disputes. Parties not wishing the law's delays know, or ought to know, that in referring a dispute to arbitration, they take arbitrator for better or worse, and that his decision would be final both as to fact and law. In many cases the parties prefer arbitration for these reasons. In exercising its discretion cautiously and sparingly, the Court has no doubt these circumstances in view, and considers that the parties should not be relieved from a tribunal they have chosen because they fear that the arbitrator's decision may go against them. It may further be noticed that their Lordships in those two cases, referred to above, were not considering the case of nomination of arbitrators by the parties under Section 9 of the Act which provides that a reference shall be by two arbitrators one to be appointed by each party. Clause (a) of the said section provides that if either of the appointed arbitrators reflects or refuses to act, or is in-capable of acting, or dies, the party who appointed him may appoint a new arbitrator in his plies. Therefore, according to the said provision both the appellant as well as the respondent have right to choose their own arbitrator. I have already held by dealing with Miscellaneous Appeal No. 49 of 1970 that appointment of Rathor as a sole arbitrator under Clause (b) of Section 9 was invalid. Although Rathor's appointment as a sole arbitrator is set aside still the appellant may have confidence in Rathor and may retain him as his nominee under Section 9, Clause (a) referred to above. Besides in this case no question of bias arises. The award which Rathor had given on his appointment as a sole arbitrator under Section 9 (b) was ex parte and that has already been set aside. The respondents have right to appoint their own nominee under Section 9 read with Clause (a) and both together will now give the award and if there will be any difference between them, there is also a provision of appointment of an umpire. Learned counsel pointed out on the basis of his application under Section 5 that the respondents have lost faith in Manilal Sanghvi whom they had previously made their arbitrator. In that circumstance, in my opinion, ends of justice will be met if respondents are allowed to appoint a new arbitrator in place of Manilal Sanghvi under Section 9 (a) of the Act if they have now no confidence in him. The court below ought to have condoned the delay and the irregularities committed by the parties in nominating their respective nominees under proviso to Section 9 (b) of the Act, and it ought not to have quashed the entire arbitration proceedings. Only the appointment of Rathor as the sole arbitrator and the award given by him ought to have been set aside where-as the nomination of the arbitrators by the respective parties ought to have been retained and the arbitration ought to have been allowed to proceed afresh from that stage.
12. Mr. Chatterjee, learned counsel for the respondents, however, contended that the appellate Court has no power to give direction under Section 9 of the Act. According to him, the Court mentioned therein, refers only to the trial Court. He drew our attention to Section 2, Clause (c) of the Act which lays down:--
"'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, but docs not, except for the purpose of arbitration proceedings under Section 21, include a Small Cause Court."
In my opinion, this contention of learned counsel cannot be accepted. Reference may be made to the case of Thakur Prasad v. Baleshwar Ahir, AIR 1954 Pat 106 where Ramaswami and Jamuar, JJ. (as they then were), while dealing with Sections 2 (c) and 21 of the Act their Lordships observed "Court" in Section 2 (c) includes appellate Court, and they held that the order of reference under S. 21 can be passed by appellate Court also. The word "suit" in S. 21 does not exclude appeal. Similar view was taken in the case of Subramannaya Bhatta v. Devadas Nayak, AIR 1955 Mad 693 where Ramaswami, J. while considering the provision contained under Sections 2 (c) and 21 of the Act, his Lordship held that "The definition of "Court" in Section 2 (c), Arbitration Act includes an appellate Court and so under Section 21 an appellate Court can refer disputes between litigants for the decision of arbitration. The word 'Suit' in that section presents no difficulty, because an appeal has always been held to be a continuation of the suit. The provisions as to arbitration originally embodied in Schedule 2, Civil P.C. were repealed and re-enacted into a separate Code by Arbitration Act 10 of 1940, still by reason of Section 8, General Clauses Act and provisions of Section 107 (2), Civil P.C., would still empower an appellate Court to refer the disputes to arbitration. His Lordship for the above proposition relied on AIR 1951 Pat 106 as well as AIR 1955 All 353 (FB).
13. Mr. Chatterjee then contested the impugned order. He drew our attention to Section 39 of the Act which gives a list of the order against which appeal may lie. That section provides that an appeal shall lie from those orders as given therein and from no others. The first in the list of an order is superseding an arbitration. In my view, the impugned order amounts to supersession of an arbitration. Therefore, the appeal was maintainable. Even if I was to hold that the appeal was not maintainable, this Court has ample power to entertain the application under revisional jurisdiction. Thus, there is no point in this contention of the learned counsel either.
14. For the reasons stated above, the order of the court below to the extent that it has set aside the entire arbitration proceedings, is modified and the respondents are directed to appoint their own arbitrator whomsoever they like within one month from the date of the judgment of this Court and to proceed with the arbitration proceeding along with arbitrator already nominated by the appellant and thereafter the arbitration proceeding shall proceed in accordance with law. In default the appellant will have a right to appoint his own nominee as a sole arbitrator, who will conduct the arbitration proceeding afresh.
15. In the result, the impugned order is modified to the extent noted above and Miscellaneous Appeal No. 48 of 1970 is allowed in part whereas the order of the Court below refusing to make award given by Rathor a rule of the Court is upheld and Miscellaneous Appeal No. 49 of 1970 is dismissed. In the circumstances, how ever, there will be no order as to costs of this Court.
B.N. Jha, J.
16. I agree.