Kishan Lal v. Ram Swarup — 1965 DIGILAW 149 (ALL)

JUDGMENT D.S. Mathur, J. - This is a revision order dated 19-8-1963 of the District order dated 19. 8. 1963 of the District Judge of Mathura, dismissing the appeal of Kishan Lal, applicant, and another, and thereby confirming the order of the Civil Judge holding that, reference to the arbitration of Sri Lachhaman Prasad Gupta, arbitrator, was invalid and hence the award made by him was without jurisdiction. The award was thus set aside, and as the proceeding had started on an application under Section 20 of the Arbitration Act (to be referred hereinafter as the Act), the application was ordered to stand rejected. 2. The material facts of the case are that on disputes arising between the parties they entered into an agree went to refer their disputes to the arbitration of a number of persons with Chaube Kedar Nath as Sarpanch. When the arbitrators failed to act, two of the signatories of the arbitration agreement, namely, Kishan Lal and Bishan Lal, moved the Court under Section 20 of the Act for the filing of the arbitration agreement and for a reference to arbitration. The arbitration agreement was filed in Court on 27-4-1957, where after reference was made to the arbitrators named in the agreement and when they failed to make an award, the reference was made to Shri Shyam Sunder Kirachiwala as sole arbitrator. He made an award, but the Civil Judge remitted the award for re-consideration and for giving decision on three points. 3. Shri Shyam Sunder Kirachiwala then became untraceable with the result that on 23-12-1958 the then Civil Judge cancelled the reference and fixed 13-2-1959 for final disposal. It was later found that Shri Shyam Sunder Kirachiwala was at Mathura. This was brought to the notice of the Civil Judge and in view of the fact that the order dated 23-12-1958 was clearly without jurisdiction, he vacated that order on 21-2-1959 and remitted the award to the arbitrator for reconsideration. Shri Shyam Sunder Kirachiwala took time at various occasions; but in the end expressed his inability to arbitrate. On 6-7-1959 the Civil Judge passed the following order: "Parties' counsel want time to study law whether a new arbitrator can be appointed under such circumstances. Put up for orders on 8-7-1959." 4. On 8-7-1959 after hearing the parties' counsel, the Civil Judge directed the parties to have another arbitrator appointed within 15 days. On 6-7-1959 the Civil Judge passed the following order: "Parties' counsel want time to study law whether a new arbitrator can be appointed under such circumstances. Put up for orders on 8-7-1959." 4. On 8-7-1959 after hearing the parties' counsel, the Civil Judge directed the parties to have another arbitrator appointed within 15 days. The parties suggested different names and on 31-7-1959 agreed to the appointment of Shri Lachhaman Prasad Gupta as the sole arbitrator. The order passed on that date runs as below:- "Heard parties' counsel. All the parties have agreed before me that Shri Lachhaman Prasad Gupta be appointed arbitrator in this case. I accordingly appoint him as such, lie will get Rs. 100/- as fees which will be borne equally by the parties. Send the papers to him and put on 31-8-1959 when the award should be filed." 5. The parties appeared before Shri Lachhaman Prasad Gupta, and he after concluding arbitration proceeding submitted his award, though after obtaining a few extensions. The award made by Shri Lachhaman Prasad Gupta was favourable to the plaintiffs applicants and, naturally, the defendants filed an objection to have award set aside while the plaintiffs wanted the award to be confirmed. 6. Both the lower courts were of the opinion that after Shri Shyam Sunder Kirachiwala failed to give his decision after reconsideration, no reference could be made to a new arbitrator. It was on this ground that the award made by Shri Lachhaman Prasad Gupta was set aside, and Kishan Lal, plaintiff, is challenging the order on the ground that the subordinate courts had the jurisdiction to pass a decree on the basis of the award of Shri Lachhaman Prasad Gupta and as they have failed to exercise the jurisdiction vested in them, this Court should pass a suitable order. 7. The arbitrators were initially appointed under sub-Sec. (4) of Section 20 of the Act. There was no dispute between the parties with regard to the arbitration agreement executed by them, and consequently the disputes were to be referred to the arbitrators appointed by the parties, whether in the agreement or otherwise, failing which to an arbitrator appointed by the Court. The names of the arbitrators had been given by the parties themselves and hence reference to them was proper. 8. The names of the arbitrators had been given by the parties themselves and hence reference to them was proper. 8. Sub-Sec. (5) of Section 20 lays down that thereafter, meaning thereby 'after reference to the arbitrator', 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. One view of sub-Sec. (5) can be that the provisions of the Act governing the appointment of arbitrators, filling in the vacancies and also reference to a newly appointed arbitrator or arbitrators, shall not apply to arbitration under Chapter III of the Act, i.e. arbitration with the intervention of the Court where there is no suit pending. The other view can be that sub Section (5) shall cover not only the arbitration proceeding but also any other action which the Court may have to take in case the arbitrator to whom the reference is made under Section 20 neglects or refuses to act or is incapable of acting, or dies, or is removed by the Court. For purposes of this revision it is not necessary to express any opinion on this point. 9. From the facts already detailed above it is clear that after the arbitrators had neglected to act and did not proceed with arbitration, the Court appointed Shri Shyam Sunder Kirachiwala as the sole arbitrator, who made an award but refused to give his decision when three points were referred to him for reconsideration. Consequently, under sub-Sec. (3) of Section 16 of the Act the award of Shri Shyam Sunder Kirachiwala remitted to him for reconsideration under sub-Sec. (1) thereof became void. It was thereafter that the Court, with the agreement of the parties, referred the disputes for arbitration to Shri Lachhaman Prasad Gupta. In case the Court did not, in view of the use of the word "thereafter" in sub-Sec. (5) of Section 20 of the Act have the power to fill in the vacancy or to make a reference to a new arbitrator after the arbitrator or arbitrators already appointed neglected or refused to act, the Court shall have to drop the proceeding based on the agreement filed earlier. In the circumstances, the appointment of both Shri Shyam Sunder Kirachiwala and Shri Lachhaman Prasad Gupta, if based on the old arbitration agreement, shall be invalid. 10. In the circumstances, the appointment of both Shri Shyam Sunder Kirachiwala and Shri Lachhaman Prasad Gupta, if based on the old arbitration agreement, shall be invalid. 10. Even if the Court had the power to fill in the vacancy and to refer the disputes to a new arbitrator, it could not appoint a new arbitrator unless the appointment was made under a fresh agreement, after Shri Shyam Sunder Kirachiwala refused to reconsider the award which had been remitted to him under Section 16(l) of the Act. Section 8 of the Act governs the appointment of arbitrator or umpire, apparently, before they enter on the arbitration, while Section 12 governs the appointment of an umpire or arbitrator after such, umpire or arbitrator has been removed by the Court under Section 11 of the Act. That shall invariably be after the arbitrators had entered on the reference, but before the making of the award. However, the award becomes void under Section 16(3) of the Act and this is apparently after the award has been made. Sub-Sections (1) and (2) of Section 16 of the Act make it clear that when the award is remitted, it (the award already made) is not set aside: they are only specific issues or points which are remitted to the arbitrator for reconsideration and for submission of his decision to the Court. Legally speaking, therefore, when the arbitrator gives his decision after reconsideration, he does not make a fresh award. The award is one which had not already been made, though his decision forms part of that award and the award and the decision together are the award as made by the' arbitrator. 11. The Court can in suitable circumstances, instead of remitting the award for reconsideration, set aside the award. There is no direct provision in the Act laying down, one way or the other, whether a new arbitrator can be appointed and if necessary, can the reference be made to a new person after the award has been set aside or becomes void under Section 16(3) of the Act ? However, Section 19 of the Act would suggest, and I may say, it lays down by implication, that after the award has become void under Section 16 (3) of the Act or has been set aside, reference can be made to the same arbitrator but not to a new one. However, Section 19 of the Act would suggest, and I may say, it lays down by implication, that after the award has become void under Section 16 (3) of the Act or has been set aside, reference can be made to the same arbitrator but not to a new one. An arbitrator having refused to give his decision on matters remitted to him under Section 16 (1) may later change his mind and in such case, there can be no legal objection to his being called upon to give his decision on the points which had been remitted to him earlier. Where the award is set aside, reference can, without any difficulty, be made to the same arbitrator. 12. Section 19 of the Act provides that where an award has become void under Section 16 (3) 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 difference referred. There are two parts of this section. The first is discretionary while the other mandatory. It is optional with the Court to supersede or not to supersede the reference; but once the reference has been superseded, the Court has to pass an order that the arbitration agreement shall cease to have effect with respect to the difference referred. In other words, no fresh arbitration can take place on the basis of the superseded arbitration agreement. 13. The term "reference" has been defined in section 2 (e) of the Act to mean a reference to arbitration. Be fore there can be reference to arbitration the parties have to agree that all or some of the matters in dispute be referred to arbitration. The agreement so arrived at is an arbitration agreement. Thereafter the Court makes a reference to arbitration and when a reference is made, it must be to one or more arbitrators. Consequently, reference to arbitration is not possible unless the arbitrator or arbitrators have been duly appointed, and the reference is to such persons. Reference, there' fore, includes not only the order of the Court deciding to refer the disputes to arbitration but also the actual reference to the arbitrator c,. arbitrators. 14. Consequently, reference to arbitration is not possible unless the arbitrator or arbitrators have been duly appointed, and the reference is to such persons. Reference, there' fore, includes not only the order of the Court deciding to refer the disputes to arbitration but also the actual reference to the arbitrator c,. arbitrators. 14. When the terms "reference means reference to the arbitration of one or more arbitrators, supersession of the reference shall naturally imply vacation of all the order subsequent to the arbitration agreement. In other words, if the Coin decides to supersede the reference, it is not open to it to make the reference to another arbitrator, and it the reference is not superseded, the matter can be referred again to the arbitrator or arbitrators previously appointed. Further, on the super session of the reference the arbitration agreement on the basis of whit" the reference was made, ceases to be effective. A similar view was expressed in Union of India v. S.S. Samal and Ali Mohammad, A.I.R. 1961 Orissa 88. 15. In the instant case after the award became void, reference was not made to Shri Shyam Sunder Kirachiwala. The Court instead made the reference to a new arbitrator. In the eye of law, therefore, the Court had superseded the reference and the result there of was that the arbitration agreement for the filing of which the application under Section 20 of the Act had been made became ineffective. The Court had, therefore, no option except to drop the proceeding based on the old arbitration agreement. 16. But if there was fresh arbitration agreement in the presence of the Court, on the adoption of a liberal view action could be taken on such an agreement. Section 20 of the Act contemplates an arbitration agreement outside the Court before the institution of any suit; and in case of such an arbitration agreement, the parties can themselves refer the disputes to arbitration without the intervention of the Court. However, if all the parties do not join in making the reference it is necessary for the party insisting for arbitration to make an application under Section 20 of the Act for the filing of the arbitration agreement. However, if all the parties do not join in making the reference it is necessary for the party insisting for arbitration to make an application under Section 20 of the Act for the filing of the arbitration agreement. Once the Court is satisfied that there was an arbitration agreement, it is ordered to be filed and thereafter an arbitrator or arbitrators are appointed, who enter on the arbitration and make an award which can be challenged before the Court and if not set aside, it is made a rule of the Court. 17. Where an arbitration agreement is arrived at before the Court, not in a pending suit but in a pending proceeding under Section 20 of the Act, the Court is aware of the arbitration agreement and the making of a fresh application under Section 20 of the Act becomes a superfluity. The Court will not act on an arbitration agreement arrived at in open Court unless both were willing parties and desired arbitration. The application under Section 20 is meant to adjudicate upon disputes as to the validity of the arbitration agreement and when an arbitration agreement arrived at in the presence of the Court is valid and cannot and does not appear to be invalid, there can be no necessity of affording an opportunity to the parties to show cause why the arbitration agreement be not filed, that is, not acted upon. 18. Even if the making of an application in writing under Section 20(2) of the Act is a condition precedent to the exercise of jurisdiction under Section 20, the award made by the arbitrator on the basis of the fresh arbitration agreement shall not by itself be invalid and without jurisdiction, Three modes of arbitration of disputes are provided in the Act: arbitration without intervention of a Court (Chapter II of the Act), arbitration with intervention of a Court where there is no suit pending (Chapter III), and arbitration in pending suits (Chapter IV). Chapter IV of the Act contemplates a suit the matter in difference wherein can be referred to arbitration. No such matter is in issue in a proceeding under Section 20 of the Act. Consequently, the registration of the application under Section 20 as a suit shall not convert it into a suit as contemplated by Chapter IV of the Act. Chapter IV of the Act contemplates a suit the matter in difference wherein can be referred to arbitration. No such matter is in issue in a proceeding under Section 20 of the Act. Consequently, the registration of the application under Section 20 as a suit shall not convert it into a suit as contemplated by Chapter IV of the Act. When Chapters III and IV are inapplicable, arbitration shall be deemed to be under Chapter II. Further, Shri Lachhaman Prasad Gupta made the award after the parties had entered into an arbitration agreement and had submitted to his jurisdiction. Such an award could be filed by the arbitrator under Section 14 of the Act, and confirmed or set aside on an objection made by a party to the award. In the instant case, the defendants did make an objection to the award with a prayer that it be set aside, while the plaintiffs wanted the award to be made a rule of the Court. The award and also the objection thereto could thus be entertained by the Courts of law. 19. The fact that the arbitration agreement was entered into in the presence of the Court shall not make any difference. Even if it be assumed that the present arbitration is not governed by Chapters II to IV of the Act, the provisions of Chapter V shall still be applicable considering that Section 26 of the Act has been worded generally and makes the provisions of Chapter V applicable to all arbitrations. The phrase "all arbitrations" shall include an arbitration not falling under Chapter II to IV of the Act. But if Chapter II to IV cover all kinds of arbitrations, the present arbitration shall be under Chapter II of the Act even though the arbitration agreement was entered into in the presence of the Court. 20. To sum up, the award of Shri Lachhaman Prasad Gupta shall not be a nullity, without jurisdiction, provided that there was a fresh arbitration agreement between the parties to refer their disputes to his arbitration. 21. We now come to the facts of the instant case. It was on 6-7-1959 that Shri Shyam Sunder Kirachiwala expressed his inability to arbitrate. Parties' counsel then wanted time to study the law whether a new arbitrator could be appointed under such circumstances. 21. We now come to the facts of the instant case. It was on 6-7-1959 that Shri Shyam Sunder Kirachiwala expressed his inability to arbitrate. Parties' counsel then wanted time to study the law whether a new arbitrator could be appointed under such circumstances. After hearing the parties on 8-7-1959 the Court directed them to have another arbitrator appointed within 15 days. On the next date (23-7-1959) the plaintiffs namely Kishan Lal and Bishan Lal suggested the names of five persons and the defendants were given one week's time to file an objection. The defendants then suggested the names of four different persons. 22. The matter came up for consideration of the Court on 31-7-1959 when after hearing the parties' counsel it passed an order based on the agreement between the parties. All the parties thus agreed before the Court that Shri Lachhaman Prasad Gupta be appointed the sole arbitrator in this case and he was accordingly appointed as such. The parties had made a common statement with regard to the appointment of arbitrator, that is, reference to an arbitrator. This statement is naturally silent as to whether all or some of the disputes were to be referred to arbitration; but keeping in mind the earlier arbitration agreement and also the conduct of the parties it must be held that all the disputes earlier referred to arbitration were referred to the arbitration of Shri Lachhaman Prasad Gupta. 23. By virtue of the definition of the term "arbitration agreement" as contained in Section 2(a) of the Act arbitration agreement must be in writing; but the act nowhere lays down the form of an 'arbitration agreement.' Consequently, such an I agreement can be in any form. The order passed by the Court on 31-7-1959 bears the signatures of the Advocates for the parties and consequently it can be deemed to be an agreement between the parties, the agreement being for reference to an Arbitrator and hence an arbitration agreement. 24. A similar question came up for consideration before the Supreme Court in Union of India v. A.L. Rallia Ram A.I.R. 1963 S. C. 1685 where it was held that: "In order to constitute an 'arbitration agreement' within the meaning of Section 2(a) of the Arbitration Act, there must be a valid agreement to submit present or future disputes to arbitration and the agreement must be in writing and must be. accepted by the parties." 25. It was further held that "it is, however, not a condition of an effective arbitration agreement that it must be incorporated in a formal agreement executed by both the parties there to, nor is required to be signed by the parties." In the instant case also there is no formal arbitration agreement but there is the order in writing of the court containing the agreement of all the parties to refer their disputes to arbitration. Even if this order had not been signed by the parties or their counsel it could be treated as an arbitration agreement. As already mentioned above, the order was, in fact signed by the advocates for the parties. 26. The Vakalatnamas filed by the respective parties do not have the same contents. The Vakalatnama filed by the plaintiffs gives an authority to the counsel to compromise the suit or proceeding. On the other hand, the other Vakalatnama oil the record gives authority to the counsel to refer the disputes to arbitration and to compromise the suit or proceeding. One of the meanings of compromise is 'arbitration' and, consequently, the power to compromise includes the power to refer disputes to arbitration. Further, if an agent is authorised to compromise the disputes, that authority can be deemed to include the power to refer the disputes to arbitration. To this extent, I am in respectful agreement with the view expressed in Jiwibai v. Ram Kunwar Sriniwas Murarka Agarwala, AIR 1947 Nagpur 17 . 27. To sum up, the order passed on 31-7-1959 bearing the signatures of the counsel for the parties amounts to a fresh arbitration agreement whereby the parties consented to refer their disputes to arbitration of Shri Lachhaman Prasad Gupta. This agreement could entitle the court to make a reference to Shri Lachhaman Prasad Gupta. In any case, action in accordance with the law could be taken on the award when filed by him. Both the lower courts thus took an erroneous view of the law when they held that the award was without jurisdiction and hence invalid. 28. None of the courts have expressed an opinion on the merits of the objection. It shall, therefore, be proper to remand the objection to the trial court (Civil Judge) for hearing on merits. 29. Both the lower courts thus took an erroneous view of the law when they held that the award was without jurisdiction and hence invalid. 28. None of the courts have expressed an opinion on the merits of the objection. It shall, therefore, be proper to remand the objection to the trial court (Civil Judge) for hearing on merits. 29. The revision is hereby allowed and the orders of both the lower courts holding the reference to Shri Lachhaman Prasad Gupta to be invalid are set aside. The objection to the award shall now be registered at its original number and disposed of in accordance with the law. Costs on parties.