Patna High Court
Brahmadeo Choudhary vs National Insurance Co. Ltd. on 27 July, 1981
Equivalent citations: AIR1983PAT3, AIR 1983 PATNA 3, (1982) PAT LJR 436 1982 BBCJ 133, 1982 BBCJ 133
JUDGMENT
1. This is an appeal under Section 39 Sub-section (1) (f) of the Arbitration Act (hereinafter referred to as the Act) by the opposite party against a proceeding which arose out of an application filed under Section 33 of the Act by the respondent-Insurance Company in the following circumstances:--
The Insurance Company had issued a comprehensive insurance policy with respect to a truck No. BRV 731 owned by the appellant sometime in the year 1971 containing an arbitration clause. Sometime thereafter, the truck met with am accident which led the appellant to make a claim, for compensation against the respondent-company for a sum of Rs. 40,000/-. As the Company put of the matter for a considerable time, the appellant made an application under Section 20 of the Act in the court of the Subordinate Judge, Ranchi, which was registered as Misc. Case No. 6 of 1972. The stand of the Insurance Company in that proceeding was that the Insurance policy containing the arbitration clause was obtained by the appellant on suppression of material facts and, therefore, there was no occasion for making any reference to the arbitrator in respect of the claim made under the insurance policy. The court below however, overruled the Company's objection by its order dated the 5th May, 1973 and referred the matter for arbitration,
2. Hardly the arbitrators had entered upon the reference, the Company filed an application on 18th April, 1974 in the court below under Section 33 of the Act for withdrawing the matter from the arbitrators and to deal with the same in the court and for a declaration that the entire agreement was void. The ground taken by the Company for challenging the validity of the agreement of the insurance policy was that a fraud was practised by the appellant. The learned Special Subordinate Judge, by the impugned order, accepted the case of the company and accordingly held that the arbitrators had got no jurisdiction. The finding of the learned Subordinate Judge in this regard are as follows :--
(i) "The opposite party has obtained comprehensive insurance policy and certificate from the insurance company by suppressing material facts which amounts to fraud.
(ii) The insurance policy and the certificate were obtained by the opposite party from the company on practising fraud and as such, the same are void, ab initio.
(iii) The arbitration clause of the said policy which if one of the terms thereon has also perished along with it and the dispute relating to the validity of the contract is in this case for the court and not for the arbitrators to decide, and
(iv) The proceeding before the arbitrators is wholly without jurisdiction and the said defect has not occurred by the appearance of the parties in those proceedings.
3. It is against this order that the appellant has filed the present appeal.
4. When the appeal was taken up for hearing, Mr. S. K. Chattopadhya, learned counsel appearing for the respondent company raised a preliminary objection that the appeal is not maintainable inasmuch as no appeal lies under Section 39 of the Act against such an order. Counsel for the appellant, on the other hand, tried to combat this argument and contended that Clause (i) of Sub-section (1) of Section 39 which prescribes for an appeal against an order "superseding an arbitration" would apply inasmuch as the action of the court below would amount to superseding the arbitration proceeding in pursuance of its order dated the 5th May, 1973.
5. On examining the provisions and scheme of the Arbitration Act however, we find that the Act talks of supersession at two places :
"Section 19 (1). 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 agreement shall cease to have effect with respect to the differences referred".
The other situation is considered in Section 25 and that is in cases where a vacancy occurs in the office of the arbitrator(s) the proviso to this Section says :--
(ii) "that the court may, in any of the circumstances mentioned in Sections 8, 10, 11 & 12, instead of filling up the vacancies or making the appointments, make an order superseding the arbitration and proceed with the suit and where the Court makes an order superseding the arbitration proceed with the suit."
6. It is obvious that the supersession under Section 19 of the Act; where a reference is made without the intervention of the court or through the intervention of the court under Section 25 results in withdrawal of the matter from the jurisdiction of the arbitrators and brings the dispute before the court for its decision. The argument advanced on behalf of the respondent, therefore, is that supersession as contemplated under Sub-section (1) of Section 39 of the Act means only supersession mentioned under Section 19 or 25 of the Act and nothing else. It is no doubt true, that only Sections 19 and 25 of the Act speak of superseding arbitration but there are two other provisions in the Act, the facts of which also may amount to supersession of arbitration. One is the proviso to Section 9, according to which the court may set aside any appointment as sole abitrator made under Clause (b). According to the scheme of Section 9 a party may appoint a new arbitrator or in certain cases a sole arbitrator, as indicated in the section itself. The other situation may order that the arbitration agreement shall cease to have effect with respect to the difference referred.
This also may amount to an order superseding the arbitration. There are some cases where a view has been taken that even an order which says that the agreement will cease to have effect would be an order superseding the arbitration and, therefore, appealable under Clause (i) of Sub-section (1) of Section 39. One of such cases is of our own High Court in Satya Narayan Agrawal v. Baidhanath Mandal, (AIR 1972 Pat 29).
7. Mr. N. K. Prasad. learned counsel appearing for the appellant, fried to wriggle out from this situation by advancing an argument that the effect of the impugned order, in fact, amounts to superseding the reference pending before the arbitrators inasmuch as the arbitrators lost their authority to proceed with the reference on account of the impugned order. The argument of Mr. prasad may appear on the face of it to be ingenious but it is fallacious. Unt-walia J., as he then was, in the case of Chandra Narain Chaudhary v. Godavari Choudharam (AIR 1972 Pat 340), while considering the question as to whether the order of the Court recalling the reference from the arbitrators made under Section 23 of the Act was appealable or not, observed that under the Act the expression "superseding an arbitration" in Clause (i) of Sub-section (1) of Section 39 of the Act has got to be assigned the meaning with reference to the power of the Court to supersede the arbitration under Section 19 of the Act. Mr. Prasad, on the other hand, tried to take support from this decision, that inasmuch as, an order passed under Section 20 of the Act under which an order of reference was passed in this case was appealable, the subsequent order under challenge, which has the effect of recalling the reference also must be held to be appealable.
We must observe that the argument of Mr. Prasad is an argument of despair and laboured one. The analogy of the reported decision will have no application to this case inasmuch as the proceeding under Section 20 of the Act had already come to an end long before, and the subsequent proceeding started by the respondent was a different proceeding altogether. Therefore, it cannot be said that the order passed on the application of the respondent under Section 33 can still be deemed to be an order passed in exercise of the powers under Section 20 of the Act. The effect or consequence of an order can never be relevant to determine the forum for its challenge. The application as such, by the respondent was filed under Section 33 of the Act directly making out a case within the four corners of the scheme of Section 33 clearly challenging the validity of the arbitration agreement on the ground that the agreement itself was vitiated on account of fraud and it is in this enquiry that it was so held by the court below and the findings mentioned above were recorded. It may be true that the consequence of the order passed under Section 33 of the Act in favour of the appellant who desires to challenge the validity of the existence of the agreement render the reference completely withdrawn from the decision of the arbitrators. Mr. Prasad failed to differentiate between the cases where a decision as rendered under Section 33 of the Act declaring the arbitration agreement itself as invalid, and the cases falling under Clause (i) of Sub-section, (i) of Section 39 of the Act, where the court passes an order superseding the arbitration.
In a case not falling under the mischief of Section 33 the arbitration agreement may remain valid but its enforcibility is superseded by an order of the court passed either under Section 19 or 25 of the Act or any other provision which we have noticed just above. The basic and fundamental difference, therefore, between an order passed under Section 33 and the above provisions, Section 19 and 25 of the Act, is that an order passed under Section 33 of the Act makes the arbitration agreement itself non-existent. The fact that an order passed under Section 33 is not appealable, ,was not seriously contested before us and suffice it may in this regard to refer to a Bench decision of this Court in the case of Basant Lal v. Surendra Prasad (AIR 1957 Pat 417) where it was clearly laid down that no appeal lies against an order passed on an application under Section 33 of the Act.
8. Mr. Prasad then contended that in any view of the matter, he may be permitted to argue this appeal as revision as was done in the case of Abdul Karim v. Mst. Maniram (AIR 1954 Pat 6). We, accordingly allowed his prayer. On this count he made two arguments. Firstly that the respondent should have taken this point on the earlier occasion and that he having failed to take the objection on the first occasion i. e., when the proceeding under Section 20 of the Act was taken, it was barred by the principle of constructive res judicata and that the court below has misdirected itself in coming to the conclusion that the insurance policy was vitiated on account of suppression of facts.
9. We are afraid, neither of the points have got any substance. So far as the first point is concerned, the trial court has itself held that the application was not hit by the principles of constructive res judicata. The second point obviously embraces appreciation of question of facts and hearing the matter as the revisional jurisdiction, it is not open to us to examine all those facts and circumstances which the trial court found in regard to the practising of fraud.
10. We would, accordingly, hold that the preliminary objection taken by Mr. Chattopadhya, counsel for the respondent must succeed and the revision must fail. We accordingly, dismiss the appeal. But, in the facts and circumstances of the case, the parties shall bear their own costs.