B. S. Co-op. Bank v. Phosphate Company — 1974 DIGILAW 72 (PAT)

Judgment S.K.JHA, J. 1. This appeal is directed against the judgment and order, dated the 30th November, 1968 passed by the court below setting aside an award on the grounds mentioned in Sec.30 of the Indian Arbitration Act, 1940 (hereinafter to be referred to as the Act) made by the Joint Registrar of Co-operative Societies, Bihar, who was said to have been appointed an arbitrator by the parties, the award having been made on the 28th of July, 1962. 2. The short facts relevant for the disposal of this appeal are these : The appellant is the Bihar State Cooperative Bank Limited and the respondent No. 1 a Limited Company named the Phosphate Company Limited. The respondent company had supplied super phosphate under informal orders from the appellant bank during the period from the 1st of August, 1956 to the 31st of January, 1957. Prior to the period beginning from the 1st of August, 1956 there was already a contract duly entered into between the parties for the supply of super phosphate at the rate of Rs. 220 per ton F.O.R. destination. No formal contract was entered into between the parties with regard to the period in question namely, the 1st of August, 1956 to the 31st of January, 1957. All the same, the appellant bank went on placing orders and the respondent company went on supplying on some sort of understanding. With regard to the quantities despatched by the respondent company against orders of the appellant bank during the aforesaid period the appellant made payment at the old rate of Rs. 220 per ton; whereas the respondent company made claim allegedly on the basis of oral agreement between the parties for payment at the rate of Rs. 260 per ton; the resultant difference was Rs. 40 per ton of super phosphate despatched during the period in question. The bone of contention between the parties was this difference at the rate of Rs. 40 a ton, since the respondent company had already received payment at the rate of Rs. 220 per ton. Admittedly no formal agreement was entered into between the parties at any time for the supplies during the period in question. The bone of contention between the parties was this difference at the rate of Rs. 40 a ton, since the respondent company had already received payment at the rate of Rs. 220 per ton. Admittedly no formal agreement was entered into between the parties at any time for the supplies during the period in question. All the same, the respondent company, in pursuance of clause 13 of a draft agreement sent by it to the appellant bank, which does not seem to have been agreed upon by the appellant, by a petition dated the 24th of February, 1960 referred the dispute for arbitration to the Joint Registrar, Co-operative Societies, Bihar. It may be incidentally mentioned that for the period subsequent to the 31st January, 1957 a fresh contract was duly entered into between the parties covering the period of supplies during the first of February, 1957 to the 30th June, 1957 at the rate of Rs. 260 per ton. 3. The arbitrator by an order, dated the 13th of August, 1969 issued notice to the appellant after perusing the petition filed by the respondent company. After going through the documentary evidence produced before the arbitrator and after finally hearing both the parties concerned he made his award on the 20th July, 1962 rejecting the respondent companys claim of Rs. 59,200 with interest thereon to the tune of Rs. 8,752 on the ground that it was not established that there was any agreement or understanding between the parties for, payment at the rate of Rs. 260 per ton for the period covering 1st of August, 1956 to the 31st of January, 1967. The arbitrator thus, rejected the claim put forward by respondent No. 1. On the 5th of September, 1962 a petition was filed under Sections 14 (2) and 33 of the Act by the respondent company in the court of the 1st Subordinate Judge, Patna for issuing a notice to the Joint Registrar, Co-operative Societies, Bihar to file the award together with depositions and documents in his possession in respect of the arbitration proceedings and further prayed that after the award and papers were filed in court by the arbitrator both the parties be served with notices of the filing of the award. The award having been called by the court the respondent company received the notice on the 25th of April, 1963 from the learned Subordinate Judge to show cause within thirty days, why the same be not made a rule of the Court. Within that period the respondent company filed an application for setting aside the award which was registered as Title Suit No. 48 of 1964/68. The case was finally heard by the learned Additional Subordinate Judge, who by his impugned order set aside the award on three grounds : (1) that the arbitrator had not made his award within four months after entering upon the reference or after having been called upon to act by notice as prescribed by Rule 3 of Schedule 1 to the Act; (2) that the arbitrator had legally misconducted himself by not having taken any oral evidence in the case and (3) that prima facie, the claim was barred by limitation on the date when the petition for arbitration was filed by the respondent company. 4. I propose to deal with each of the three points decided by the court below seriatim and thereafter I shall refer to a point which was, though incidentally but vehemently, urged at the Bar. So far as the first point decided by the court below is concerned namely, that the award in question was void as it was made in contravention of the provisions of Rule 3 of Schedule I of the Act the decision on the facts and in the circumstances of the case cannot be said to be good in law. As already stated the arbitrator entered upon the reference on the 13th of August, 1960 at the instance of and on the application of the respondent company. Notices having been issued by the arbitrator both the parties duly entered appearance before him and the hearing continued till the 22nd of March, 1961,on which date the arguments were finally closed and it was there after that the arbitrator having taken time to consider finally made his award by an order, dated 21st of July, 1962. Mr. J. C. Sinha, learned counsel for the respondent, company submitted that since the arbitrator entered upon the reference on the 13th of August, 1960 and the award was not made within a period of four months from that date the award was void. Mr. J. C. Sinha, learned counsel for the respondent, company submitted that since the arbitrator entered upon the reference on the 13th of August, 1960 and the award was not made within a period of four months from that date the award was void. Reliance was placed upon a decision of the Supreme Court in Hari Shankar Lal V/s. Shambhu Nath, AIR 1962 SC 78 . This case was also relied upon by the learned Additional Subordinate Judge for coming to the conclusion that an award made beyond the period of four months from the date the arbitrator entered upon the reference was void. It will be seen from the dates mentioned above that the period of four months from the 13th of August, 1960 expired on the 13th of December, 1960. But the parties did participate in the arbitration proceedings actively and the matter was, as already stated above finally heard and the hearing concluded on the 22nd of March,1961. There was no agreement formally between the parties for referring the matter to arbitration nor was there any time stipulated, as evidently it could not be, in any agreement. As such the principle governing this case would be that laid down by a Full Bench of this Court in Bokaro and Ramgur Ltd. V/s. Dr. Prasun Kumar Banerjee, AIR 1968 Pat 150 . In that case it was held that where both the parties were conscious that the proceeding before the arbitrator could not be finished and the award made within the period of 4 months after the arbitrator had entered on the reference and either party, which was entitled to put a stop to the arbitrator proceeding to the matter on the expiry of 4 months after he entered on the reference did not so put a stop in order to object to the continuation of the proceeding before the Arbitrator, in such circumstances, the taking of part in the proceeding before the Arbitrator after the expiry of 4 months was not acquiescing in any illegal act or transaction. Both the parties having taken a willing part in the deliberations before the Arbitrator after the expiry of four months without any objection, protest or the like either party was estopped from challenging the validity of the award on the ground of its having been made after the expiry of that period. Both the parties having taken a willing part in the deliberations before the Arbitrator after the expiry of four months without any objection, protest or the like either party was estopped from challenging the validity of the award on the ground of its having been made after the expiry of that period. In such a case the parties must be held to have waived their right to put a stop to the proceeding going on even after the expiry of that period. Indeed, each of the parties must be held to have acquiesced in the arbitration proceeding. It is also now well settled that under the Act an award made beyond the period of 4 months is neither invalid nor void merely on that account. If either of the parties raises an objection or continues to participate beyond the period of 4 months under protest, then only can the Arbitrator be held to be functus officio. The facts of the judgment of the Supreme Court in the case of Harishankar Lal (supra) were fully considered by the Full Bench of this Court, I would accordingly hold that the award of the Arbitrator in the present case cannot be held to be either void or invalid on the ground that the Arbitrator had become functus officio on the expiry of a period of 4 months from the date of his entering upon the reference. The respondent company must be held to have acquiesced in the proceeding before the Arbitrator tod it shall be estopped from raising a plea or attack regarding the validity of the award on this ground. 5. This then brings us to the next question namely, whether the court below was right in holding that the action of the Arbitrator in not taking any oral evidence on behalf of the parties amounted to a legal misconduct. The learned Additional Subordinate Judge, placing reliance upon the case of Ram Chand V/s. Buta Ram, AIR 1931 Lah 65 (1) held that if the nature of the dispute before the Arbitrator be such, as it evidently was in the instant case, that it would not be possible for him to give an award without examining witnesses and without calling upon the parties to adduce oral evidence, then the Arbitrator not calling upon the parties in this regard must be held to be guilty of legal misconduct. I am afraid the court below has not correctly appreciated the ratio of the case decided by the Lahore High Court. The facts of that case were that the Arbitrator after having examined the books of the parties in their presence, discovered that one important item of a large amount looked suspicious on the face of it. But instead of calling the parties and asking them to explain the suspicious entry he called a third person to seek his opinion. The Arbitrator in that case never took any care to confront the parties to the proceeding with that suspicious looking entry nor did be give any opportunity to them to offer any explanation with regard to that item by oral evidence. In such circumstances it was held that the conduct of the Arbitrator amounted to a judicial misconduct. If indeed the decision of the learned Single Judge of the Lahore High Court in the case of Ramchand be constructed to main that in every case, where oral evidence is necessary and the paries have not sought for any opportunity to adduce oral evidence nor has any party tendered a withness to be examind, the Arbitrator is bound to compel the parties to produce such evidence, then the decision cannot be held to good law for it is well settled that in order to make the witness must be distinctly tendered to put the Arbitrator.It is not enough to put an abstract proportion to an Arbitrator, and upon this answer, to decline to give evidence or prefer a claim. The party, in order to avail of any such ground of attack must tender a specific case and specific evidence. Reliance in this connection may be palced on a Bench decision of the Calcutta High Court in Manindra nath Mandal V/s. Mahananda Roy, (1912) 15 Cal LJ 360. As a matter of fact a Bench decision of this Court in Ram Bahadur Jha V/s. Sree Kant Jha, AIR 1943 Pat 285 has held that the fact that the Arbitrator decided the question referred to him without taking evidence does not amount to any misconduct where the reference to the arbitration did not require the Arbitrators to take evidence. As a matter of fact a Bench decision of this Court in Ram Bahadur Jha V/s. Sree Kant Jha, AIR 1943 Pat 285 has held that the fact that the Arbitrator decided the question referred to him without taking evidence does not amount to any misconduct where the reference to the arbitration did not require the Arbitrators to take evidence. In the present case it was admitted by the parties that no witness ever tendered for examination before the Arbitrator and as already stated above, there was no agreement incorporating the term of any reference to the Arbitrators, so that there could evidently therefore, be no provision in the reference for the taking of any evidence or for keeping any minutes of the proceeding. The finding of the court below, therefore, with regarded to the legal misconduct of the Arbitrator on this ground must also be set aside. 6. The third point which has more or less half heatedly been dealt with by the court below, and in my view rightly so, is the question of limitation. It was at the stage of argument before the learned Additional Subordinate Judge that it was argued on behalf of the appellant bank that since the claim before the Arbitratior was itself barred by limitation the awared should not set aside on the merits. As a matter of fact the question of limitation was not raised by the appellant bank before the Arbitrator. The award when finally made by the Arbitrator, was not subject to an attack by the respondant company on the ground that the claim itself was barred by limitation, and which, indeed, the respondent company could not arise as a ground of attack for that would have been a self defeating plea, since it was the company who had made a claim before the Arbitrator. The point of the claim being barred by limitation available to the appellant bank to be raised before the court below while it was supporting the award made by the Arbitrator. In such circumstances, no material worth the name was brought on the records of the proceeding either finding with regared to the award being vitiated on the ground of the claim itself having been barred on the date when it was made by the respondent company. In such circumstances, no material worth the name was brought on the records of the proceeding either finding with regared to the award being vitiated on the ground of the claim itself having been barred on the date when it was made by the respondent company. It was in this view of the matter that the court below recorded a rather halting finding that the award was also liable to be set aside since, prima facie, it could be said that the claim may have been barred. It was again in those circumstances, that the Court below in order to countenance the contention put forward by the appellant bank that it observed that "an awared in respect of a time barred claim, if at all it was time barred, cannot be permitted to survive." In my view, the submission made by Mr. J. C. Sinha on behalf of the respondent company that it was not open to the Court below to go into the question of limitation since it was never raised previous to the stage of the final argument before the court below, is correct. Since limitation had not been pleaded by the respondent company as a ground of attack under Sec.30 of the Act, it was not at all necessary for the court below to have gone into this question at the instance of the appellant bank, who was not at liberty to attack the award on any ground whatsoever. I would, accordingly, held that the below with regard to the award being vitiated on on account of limitation cannot be 7. Another point of some significance which was urged at the bar at the hearing of this appeal was this : The court below while discussing the matter under issue No. 3 observed : "The learned counsel for the defendant Bank submitted that the impugned award is not one under the Arbitration Act because there was no arbitration agreement between the parties for obtaining that award. It is true and was conceded too by the other side that there was no arbitration agreement as defined in Sec.2(a) of the Arbitration Act." Learned counsel for both the parties joined issue, curiously enough, to urge that in view of the finding that there was no arbitration agreement it must be held that the award made was without jurisdiction. It is true and was conceded too by the other side that there was no arbitration agreement as defined in Sec.2(a) of the Arbitration Act." Learned counsel for both the parties joined issue, curiously enough, to urge that in view of the finding that there was no arbitration agreement it must be held that the award made was without jurisdiction. As I have observed earlier also, in the peculiar circumstances of this case both the parties have been advancing self defeating arguments at various stages of this suit. I fail to see how the respondent company can be permitted to raise the question of non-existence of an arbitration agreement as a ground of attack against the award since it was at the instance of the company that the Arbitrator stood seized of the matter. Again I fail to understand as to how the appellant bank can be permitted to raise such a plea when the Bank was all out to support the validity and legality of the award finally made by the Arbitrator. It is quite true as an abstract proposition of law to use the language of their Lordships of the Supreme Court in Damodar Valley Corporation V/s. K. K. Kar, (1974) 1 SCC 141 : ( AIR 1974 SC 158 ) that if an arbitration clause is non est or where the dispute between the parties is that the contract itself does not subsist, as the very jurisdiction of the Arbitrator is dependent upon the existence of the arbitration clause, under which he is appointed the parties have no right to invoke a clause which was either non-existent in fact or has perished with the contract. It is quite true that if there is no foundation of jurisdiction for the Arbitrator to act, the entire proceeding before him would be rescinded as without jurisdiction. Nonetheless, in spite of such an abstract of legal proposition it must also be held that a distinct and self sufficient machinery has been provided in the Act; (i) for the purpose of declaring that an arbitration agreement was non-existent and therefore, non est in fact, or that it was absolutely illegal and invalid and therefore, non est in law; and (ii) for the purpose of setting aside the award on one or more grounds. It is true that the applications contemplated by Sec.33 of the Act embrace the application of both the natures enumerated above. An application under Sec.33 may be either for a declaration that there was no agreement to refer any matter to the Arbitrator or for setting aside an award on any of the grounds mentioned in Sec.30. There is divergence of judicial opinion on this point. In the case of Saha and Co. V/s. Ishar Singh Kripal Singh and Co., AIR 1956 Cal 321 (FB) a five Judges Full Bench of the Calcutta High Court by a majority of three to two held that the non-existence or invalidity of the reference can be a ground in an application for setting aside an award, based on such invalid or nonexistent reference including the case of an award in an arbitration without the intervention of the Court. Two of the learned Judges constituting the Full Bench, Das Gupta and Bachawat, JJ., dissented from the majority view, holding that an attack on the validity of an award on any of the grounds mentioned in Sec.30 would not cover a case where the existence or validity of the reference itself was challenged. A Bench decision of this Court in the case of Basant Lal V/s. Surendra Prasad, AIR 1957 Pat 417 agreed with the dissenting view in the Calcutta Full Bench case and held that Sec.30 speaks only of invalidity in making the award and the grounds set forth in Sec.30 clearly indicate that the non-existence or invalidity of an arbitration agreement or reference are neither contemplated by nor included in the words "or is otherwise invalid" in Sec.30 (c). These are not the grounds within the meaning of Sec.30, on which an award can be set aside, even if the award is based on an invalid or non-existent agreement or reference without the intervention of the court. Apart from the fact that on general principles relating to construction of statutes I respectfully agree with the view of the learned dissenting Judges of the Calcutta Full Bench case and the Bench decision of this Court, I think we are also bound by the Bench decision of our own Court. Apart from the fact that on general principles relating to construction of statutes I respectfully agree with the view of the learned dissenting Judges of the Calcutta Full Bench case and the Bench decision of this Court, I think we are also bound by the Bench decision of our own Court. As no application was ever made to the court below by any party for a declaration under Sec.33 of the Act regarding the non-existence or invalidity of the arbitration agreement or reference, it cannot be raised as a ground of attack for the setting aside of the award itself on any of the grounds contemplated by Sec.30 of the Act. 8 For the reasons stated above, I think this appeal is bound to succeed. The reasons given by the court below for setting aside the award have already been rejected. I would accordingly allow this appeal and set aside the order passed by the court below. But in the circumstances of this case parties will bear their own costs throughout. S.N.P.SINGH, J. 9 I agree.