Panna Lal Khomani v. State Of Bihar — 1983 DIGILAW 249 (PAT)

Judgment 1. This appeal is directed against the judgment and order dated 3rd June, 1981 passed by the Subordinate Judge, Buxar, in Miscellaneous Case 16 of 1970. By the impugned order, the learned subordinate Judge has refused to make the award of an arbitrator, namely, Shri Kanhaiya Singh, a retired Judge of this Court, a rule of the court on the sole ground that the reference made by the court to the arbitrator was wholly without jurisdiction as the case fell within the provisions of S.8, Arbitration Act, 1940 (hereinafter to be referred to as the Act) and the moment the arbitrator was nominated, the court became functus officio. No other objection was taken by the respondents with regard to the merits of the award although two objections were sought to be raised with respect to the quantum of damages awardable in law to the appellant. Before us, however, the appellant gave up these objections in relation to the quantum of the damages awarded by the arbitrator. Therefore, the only question that remains to be determined in this case is as to whether the reference was made under S.20 (4) of the Act or under S.8 thereof. 2. The relevant facts for the disposal of this appeal are admitted and are not very complex. The appellant filed an application under Ss.8 and 20 of the Act in the court of the Subordinate Judge, 2nd court, Arrah, for calling for the original agreements from respondent 1, the State of Bihar, and for filing them in the court and further to appoint an arbitrator and refer the dispute to him for arbitration regarding the quantum of dues to be received by the appellant from respondent 1, the State of Bihar. This case was registered as Miscellaneous Case 16 of 1970. The firm of the appellant was employed by respondent 1 as a stockist for storage of foodgrains for two places, namely, Buxar and Dumraon on the terms and conditions embodied in the written agreements acuted between the State of Bihar, respondent 1, on the one hand, and the firm of the appellant on the other from time to time (annually) since December, 1956 up to May, 1967. The written agreements contained an arbitration clause which provided that in case of any dispute the matter shall be referred to the sole arbitration of the Commissioner of Patna Division or to a person nominated by the Commissioner and the decision of the arbitrator shall be final and binding upon the parties. It is worthwhile to mention here that the system of engaging stockists for storage of foodgrains on behalf of the State Government was abolished after May, 1967. To resume the narrative, in pursuance of the aforesaid arbitration clause the appellant sent a notice dated 15th January, 1970 to the Commissioner, Patna Division, respondent 2, under registered post, to complete the arbitration or have it completed within four months, failing which the appellant shall be compelled to seek redress in a civil court of competent jurisdiction. The aforesaid notice dated 15-1-1970, was duly served on respondent 2 and the acknowledgment thereof was received by the appellant. There was complete inaction on the part of the Commissioner, respondent 2, and he kept silent all the while till 8th of June, 1970. The appellant accordingly filed the instant miscellaneous case on 9th June, 1970 with a prayer to call for the original agreements from respondent 1 for filing there in the court and to appoint an arbitrator and refer the dispute to him for arbitration regarding the quantum of dues receivable by the appellant from respondent 1. 3. The State, respondent 1, filed a written statement on 28-9-1970 in which it was accepted that the firm of the appellant was appointed as stockist of foodgrains for Buxar and Dumraon since 11-12-56 on the terms and conditions embodied in the various agreements executed between the parties from year to year, but it ceased to be stockist from 1st May, 1967, because the Government abolished the post of private stockist of Government foodgrains. It was, however, asserted that Ss.8 and 20 of the Act had no application to the case of the appellant. On 17-7-71 the appellant filed a petition for direction to the respondents to produce the agreements executed from year to year by the parties, the notice dated 5th June, 1969 under S.80 Civil P. C. and the notice dated 15-1-70 given to the Commissioner, respondent 2, to nominate an arbitrator so as to complete the arbitration as provided in the arbitration clause of the agreement. The respondents were directed to file the said papers including the agreements and ultimately the same were filed by the respondents of 8-1-72. A question was, at one point of time, raised on behalf of the respondents that there was no provision for arbitration in some of the agreements, which was, however, negatived by the learned Subordinate Judge by his order dated 27-6-74, in para 3 whereof it was held that - "Thus, admittedly, there was an arbitration clause in the agreement executed by the parties and according to the arbitration clause, the differences arising between the parties were to be referred to the Commissioner, Patna Division, for arbitration or for nominating any other person to act as arbitrator." 4. The matter went on lingering for a long time and after hearing the parties on 27-6-74 and on consideration of the entire matter, the court below allowed the Assistant Government Pleader representing the State Government, respondent 1, to ascertain the willingness or otherwise of the Commissioner, Patna Division respondent 2, as to whether he was willing to arbitrate or nominate any other person to act as arbitrator and to inform the court about the same. On 19-7-74 the respondents filed a petition for time to file certain papers. The court directed the appellant to file the agreement referred to by the parties as the same were required for passing a final order. The appellant accordingly filed the agreements on 23-7-74. By an order dated 8-8-74 the court below observed that the Commissioner, respondent 2, was not willing to act as an arbitrator in accordance with the terms of the arbitration clause which amounted to his refusal to act as an arbitrator. The court below, however, ordered that notices be issued to the Collector of Bhojpur and the Commissioner of Patna Division for giving the name of their nominee to act as an arbitrator to settle the dispute between the parties within a fortnight of the receipt of the notice. On 1-10-74 the respondents filed a petition stating therein that Shri Dilip Narain Singh, Additional Collector, Arrah, had been nominated as an arbitrator by the Commissioner, respondent 2. The appellant filed an objection thereto. The court below, however, rejected the objection of the appellant and directed that a letter be sent to Shri Dilip Narain Singh, Additional Collector, to proceed with the arbitration proceeding and submit his award. The appellant filed an objection thereto. The court below, however, rejected the objection of the appellant and directed that a letter be sent to Shri Dilip Narain Singh, Additional Collector, to proceed with the arbitration proceeding and submit his award. Even the Additional Collector, who had been nominated by the Commissioner, respondent 2, failed to arbitrate in the matter till 8th July, 1975, on which date the appellant filed an application for a direction to the Commissioner, respondent 2, either to act as sole arbitrator in the matter or to appoint one of the three retired High Court Judges as a nominee to arbitrate, who were all named in the petition, on the ground that the Additional Collector had failed to arbitrate in the matter although 9 months had elapsed since the nomination. The learned subordinate Judge, by his order 8-7-75, then requested the Commissioner, respondent 2, either to arbitrate in the matter himself or to appoint one of the three retired High Court Judges named in the petition or any other person as his nominee. Shorn of all details on 14-7-75 a letter was received from the Commissioner nominating the retired Mr. Justice Kanhaiya Singh as sole arbitrator to arbitrate in the matter. This arbitrator ultimately submitted his award. 5. After the submission of his award, as already stated earlier, the only ground of objection that was raised on behalf of the respondents was that the reference of the matter in dispute to the arbitrator was not within the competence of the court as the nomination of the arbitrator was under S.8 of the Act and the court, after nominating an arbitrator, became functus officio and could not have made any reference in the matter. The argument was sought to be developed by contending that since the order of reference was made after the court was functus officio, the whole reference was without jurisdiction and the award be treated as a nullity. This view has found favour with the learned Subordinate Judge who has refused to make the award a rule of the court on the sole ground that it was wholly without jurisdiction as the reference was purported to have been made under S.8 of the Act and not under S.20 (4) thereof. 6. We are afraid the reasoning of the learned Subordinate Judge is not at all tenable. 6. We are afraid the reasoning of the learned Subordinate Judge is not at all tenable. As already stated earlier, the appellant had already sent a notice to the Commissioner, before coming to the court, either to arbitrate in the matter or to appoint his nominee. The Commissioner, respondent 2, having remained silent for a long time, the court below rightly came to the conclusion that he had declined or refused to arbitrate in the matter. Not only that, it was at the repeated insistence of the court that he was asked either to arbitrate himself or to appoint a nominee of his, and after persistent requests having been made on indulgence having been granted from time to time by the court in favour of the respondents, the Additional Collector was nominated to arbitrate in the matter by the Commissioner, respondent 2. The Additional Collector was asked to submit his award within the time allowed till 25-11-74. All the same he was unable, for reasons best known to him, to submit his award for a period of about 9 months when the court had no option but to send a list of three retired High Court Judges to the Commissioner, respondent 2, to have any one of them nominated or any other person as his nominee. This clearly cannot be said to be a nomination by the Commissioner. The best that can be said on behalf of the respondents is that it was at the request of the court that either any one of the three retired High Court Judges or any other person be nominated to be appointed as arbitrator. This act did not amount to a nomination by the Commissioner. The appointment of the arbitrator, on the facts and in the circumstances of the case, must be held to be an appointment by the court under Sub-s. (4) of S.20 of the Act which was initiated by filing an application by the appellant for directing the respondents to file the arbitration agreements. By no stretch of imagination can it be said that it was a nomination by the Commissioner outside the intervention of the court. By no stretch of imagination can it be said that it was a nomination by the Commissioner outside the intervention of the court. All that can be said is that while acting under S.20 (4) of the Act, the court below had taken into account the feasibility of having an arbitrator appointed according to the terms of the contract, which was a matter germane to be considered. In the case of Union of India V/s. Prafulla Kumar Sanyal, AIR 1979 SC 1457 while the court was dealing with the provisions of S.20 (4) of the Act, it was seized with the connotation of the expression the court shall make an order of reference to the arbitrator appointed by the parties, and it was held that the court is not required to appoint an arbitrator who has not been actually appointed but for whose appointment adequate provisions have been made and feasibility of appointing an arbitrator according to the terms of the contract should be considered. As we have already held, it was a reference not under S.8 (2) of the Act but a reference to an arbitrator under S.20 (4) of the Act. The award could, therefore, be not held to be a nullity. The appointment of the arbitrator was a valid one; the reference to arbitration by the court was legal and in accordance with the terms of S.20 (4) of the Act. We see no illegality, on the points as canvassed at the Bar, in the award being made a rule of the court. Learned counsel for the respondents placed reliance of 3 decisions, namely, The Union of India V/s. Om Prakash, AIR 1976 SC 1745 , State of Rajasthan V/s. Sharma and Co., AIR 1981 Raj 1 and Excalcer V/s. State of West Bengal, AIR 1980 Cal 86 . The ratio of all these cases is that if nothing is done pursuant to a notice being sent by a party aggrieved to the arbitrator under the arbitration agreement to enter upon arbitration or to appoint his nominee and then if the party comes to the court for a direction to the other side to file the arbitration agreement and to appoint an arbitrator and refer the matters in dispute to arbitration, the matter will fall within the four, corners of S.20 (4) of the Act. But if a nomination is made pursuant to the notice sent by the party aggrieved or if the court on such an application asks the sole arbitrator either to arbitrate or to nominate his nominee under the terms of the agreement and the arbitrator readily does so, such cases may well be said to fall within the provisions of S.8. But on the facts and in the circumstances of the present case, the Commissioner had refused to arbitrate and so did his nominee neglect to do. It was only in these circumstances that three names of the retired High Court Judges were suggested by the appellant and the court requested the Commissioner to nominate any one of the three retired High Court Judges or to nominate any other person to act as arbitrator. The court merely sought the advice of the Commissioner in this respect and nothing more. 7. So far as the question of adjustment of Rs. 9,000 and odd as given in the award as against the appellant is concerned, Mr. Balabhadra Prasad Singh, learned counsel for the appellant, gave up that point. Mr. Singh did not press the point with regard to the deduction made by the arbitrator on account of the alleged shortage. He, however, insisted that taking even the most lenient view in favour of the respondents, the appellant should be held to be entitled to interest at the rate of 6 per cent per annum from the date of the award till its realisation. We think the submission is well founded. 8. We accordingly make the award a rule of the court with the reservation that the appellant shall not be entitled to Rs. 9,000.00 and odd, the claim for which has not been pressed, and further direct that the appellant shall be entitled to, and the respondents shall be liable to pay to the appellant, interest at the rate of six per cent per annum from the date of the award till the date of realisation of the amount awarded. This appeal is accordingly allowed with costs.