Sonelal v. Lalta Prasad — 1953 DIGILAW 41 (MP)

JUDGEMENT : DIXIT, J. This is an appeal under S.39, Arbitration Act 1940 from an order of the Civil Judge First Class, Lashkar directing that an arbitration agreement between the parties be filed. 2. The facts are that on 8-2-1941 the appellant and the respondent entered into a partnership business of manufacture and sale of handloom cloth and durries. The business was carried on for over a year and on 9-4-1952 the parties entered into an agreement to terminate the business and to have their disputes about accounts of the partnership business settled by four arbitrators namely Messrs. Babulalji, Radhelalji, Motilalji and Baburamji. The agreement was in writing. Thereafter the arbitration proceedings commenced on 26-4-1952. The arbitrators did not make any award and two of the arbitrators refused to continue to act as arbitrators. Thereupon on 27-1-1953 the respondent filed an application in the Court of Civil Judge, Lashkar for an order under S.20, Arbitration Act that the arbitration agreement be filed in Court and for a reference of the disputes between the parties to the arbitrators. The appellant was then called upon to show cause why the agreement should not be filed. In reply the appellant took inter alia the plea that S.20, Arbitration Act, 1940 had no applicability to the case and that having regard to the provisions of Sch.1 of the Act the arbitration agreement had become ineffective and unenforceable in law. The learned Civil Judge held that the appellant had not shown sufficient cause against the filing of the agreement and accordingly directed the agreement to be filed. 3. Mr. Naokar learned counsel for the appellant did not press before us the objection taken in the lower Court on behalf of the appellant, namely, that as two of the arbitrators had refused to continue to act as arbitrators the arbitration agreement became ineffective and invalid. He, however, argued that the arbitration agreement in the present case would be deemed to include under S.3, Arbitration Act the provisions of Sch.1 and that as required by para 3 of the Schedule the arbitrators did not make their award within four months after entering on the reference, therefore, the agreement was rendered ineffective and the Court could not order the agreement to be filed. This argument does not appear to me to be tenable. An arbitration agreement stands on the same footing as any other agreement. This argument does not appear to me to be tenable. An arbitration agreement stands on the same footing as any other agreement. It is binding upon the parties unless it is tainted with fraud, coercion, undue influence etc., in which case it can be avoided like any other agreement. Once there is a valid reference to arbitration, the parties cannot resile from it merely because the arbitrators have allowed their time to expire without making any award or that they have neglected or refused to act. The Arbitration Act, 1940 itself provides a machinery for effectively working out and enforcing the arbitration agreement in the contingencies referred to above. Paragraph 4 of Sch.1 says that if the arbitrators have allowed their time to expire without making an award, the umpire shall forthwith enter on the reference in lieu of the arbitrators. The umpire is then required under para 5 to make his award within two months of entering on the reference or within such extended time as the Court may allow. Section 29 of the Act empowers the Court to enlarge the time for making the award. It is thus clear that if the arbitrators do not make the award within the time fixed, then if the reference is to an even number of arbitrators, the umpire must act under para.4 and make his award within two months of entering on the reference or within such time as the Court may allow. If the umpire also fails to make the award within time, then the parties concerned can treat the failure of the umpire to make the award as neglect or refusal to act and proceed under S.8(1)(b) of the Act or they may have the umpire removed under S.11(1) and his substitute appointed under S.12(2)(a). So also if the reference is to a sole arbitrator or to an odd number of arbitrators and the arbitrators do not make the award within the time fixed, then the parties may treat the failure of the arbitrator or arbitrators to make the award as neglect or refusal to act and proceed under S.8(1)(b) or under S.11(1) and under S.12(2)(b) which empowers the Court to order that the arbitration agreement shall cease to have effect with reference to the difference referred. These provisions of the requirements of Sch.1 to the Act or the refusal of any arbitrator to act does not effect the validity of the arbitration agreement. The arbitration agreement does not become abortive or infructuous if the arbitrators have allowed their time to expire without making any award or if they refuse to act. The view that the arbitrator's failure to make his award within four months does not automatically result in the cancellation of the arbitration agreement has also been taken by the Pepsu High Court in-'Shiv Ram v. Ram Rakhamal', AIR 1951 Pepsu 45 (A). The learned Chief Justice of the Pepsu High Court based his view on a reading of Ss.5 and 28, Arbitration Act. I must, however, say that S.5 has no reference to the revocation of an arbitration agreement, which is always irrevocable. Section 5 only makes a provision for the revocation of the authority of an appointed arbitrator or umpire. It provides that the authority of an appointed arbitrator or umpire shall not be revocable except with the leave of the Court, unless a contrary intention is expressed in the arbitration agreement. Thus the authority of an appointed arbitrator is not revoked merely by the fact that he has failed to give his award within four months after entering on the reference. The precise point with which we are concerned, is, however, not the revocation of the authority of the arbitrator but the effect of the revocation of the authority on the arbitration agreement. The material section on this point is not S.5 but S.12(2) which says that when the authority of an arbitrator or an umpire is revoked by leave of the Court then the Court may either appoint a person to act as sole arbitrator in the place of the persons displaced, or order that the arbitration agreement shall cease to have effect. It is thus clear that even when the authority of an appointed arbitrator is revoked with the leave of the Court, the revocation has not the effect of cancelling an arbitration agreement. It is only when there is something in the arbitration agreement itself giving to the parties not only the right to revoke the authority of an appointed arbitrator in. It is only when there is something in the arbitration agreement itself giving to the parties not only the right to revoke the authority of an appointed arbitrator in. the event of his failure to make an award within the specified time but also the right to revoke the arbitration agreement for that reason, that the revocation of the authority of the arbitrator would make arbitration agreement infructuous. The arbitration agreement in the present case does not express such an intention. Learned counsel for the appellant placed reliance on a decision of the Lahore High Court in - Abdul Hakim Khan v. Chairman, Lahore Improvement Trust', AIR 1950 Lah 32 (B), in support of his contention that if the arbitrator fails to make an award within the time laid down in para.3 of Sch.1, the arbitration agreement ceases to be in force. In that case it was held that if a Court acting under S.20(4) refers the dispute to the arbitrator named in the agreement, but fails to fix the time for making the award then the arbitrator has to make his award within the time fixed by para.3 of Soh.1, unless it is extended by the Court and that as the provision in para.3 is mandatory, its contravention involves avoidance of the award under S.30, Cl. (c). It is plain that the Lahore decision is not in point here. Here, we are not dealing with the question of the avoidance of an award. The Lahore decision does not hold that if the award is not made within four months after entering on the reference, then the arbitration agreement itself becomes inoperative. On the other hand it laid down that where an award is set aside by the Court under S.30 (c), the Court may under S.19 supersede the reference and thus avoid the arbitration agreement; but if the Court while making an order under S.19 does not expressly supersede the reference and direct that the arbitration agreement shall cease to have effect, the arbitration agreement would remain in full force according to its tenor. The Lahore case is thus not of any assistance to the appellant. 4. For the above reasons I uphold the order of the lower Court directing that the arbitration agreement be filed. The Lahore case is thus not of any assistance to the appellant. 4. For the above reasons I uphold the order of the lower Court directing that the arbitration agreement be filed. If some of the arbitrators have refused to act it is open to the Court to appoint an arbitrator or arbitrators after the provisions of S.8 have been complied with. Accordingly this appeal is dismissed with costs. A. H. KHAN, J.:- 5 to 7. (After stating the facts of the case his Lordship proceeded): The main contention of the learned counsel for the appellant is that because the arbitration agreement did not specify the time within which the award shall be made by the arbitrators, the provisions given in Sch.1 of the Act would apply according to S.3 of the Act, and that S.3 of Sch.1 provides that the arbitrators shall make their award within four months. It is urged that as the arbitrators appointed by the parties failed to give the award within four months, the arbitration agreement has ceased to have any effect and the Court cannot order that it should be filed. 8. No doubt S.3 of the Schedule referred to above, makes it imperative that in the absence of any terms in the agreement, the award shall be made within four months, but the fallacy in the argument of the learned counsel for the appellant lies in the fact, that S.3 of the schedule does not say that if the arbitrators fail to give the award within four months, the arbitration agreement will come to an end and the arbitrators will cease to have any authority. On referring to S.5 of the Act, we find that once an arbitrator is appointed, his authority can be revoked either by any term in the arbitration agreement (we find no such authority in the agreement before us) or by the authority of the Court. The appellant never applied to the Court for the revocation of the authority of the arbitrators and in the circumstances, the contention fails. 9. The learned counsel for the appellant has referred us to AIR 1950 Lah 32 (B). But it contains no discussion of the point before us and is so much wide of the mark, that I am surprised that the learned counsel for the appellant thought it fit to cite it. 9. The learned counsel for the appellant has referred us to AIR 1950 Lah 32 (B). But it contains no discussion of the point before us and is so much wide of the mark, that I am surprised that the learned counsel for the appellant thought it fit to cite it. The learned counsel for the respondent has cited AIR 1951 Pepsu 45 (A), in which a similar view, as taken by us, has been expressed and we feel fortified by it. 10. For reasons stated above, the appeal is dismissed with costs. Appeal dismissed.