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1985 DIGILAW 130 (ORI)

LAKSHMI NARAYAN PADHI v. BHASKAR PANDA

1985-03-27

B.N.MISRA

body1985
JUDGMENT : B.N. Misra, J. - This is an appeal u/s 39(1)(vi) of the Arbitration Act, 1940 (hereinafter referred to as 'the Act'). The Appellant and Respondent commenced their partnership business on 1.1.1971 and the deed of partnership was executed on 15.3.1971. Differences having arisen between them, on 15.12.1971 the Appellant filed a petition u/s 20 of the Act which was registered as T.S. No. 187 of 1971. The suit was held to be not maintainable and dismissed on 10.7.1974. Misc. Appeal No. 138 of 1974 filed against, the order of dismissal was allowed by this Court 011 8.12.1975 and the suit was remanded to the learned lower court for fresh disposal. On 22-6-1976 the learned lower court passed a preliminary decree and inter alia directed the Respondent to file the original deed of partnership agreement dated 15-3-1971 for making a reference to an arbitrator. By order dated 9.11.1977 the learned lower court appointed an arbitrator and made a reference to him u/s 20 of the Act. The Arbitrator filed his award in court on 29.10.1979. The Respondent filed objection against the award on 29.6.1981 which was registered as Misc. Case No. 14/81. By order dated 17-12-1982 the proceeding was registered as T.S. No. 576 of 1982. Finally, on 6.1.1983 the learned Subordinate Judge set aside the award and dismissed the suit. This order dated 6.1.1983 is the subject matter or this appeal. 2. In this case the reference to arbitration was u/s 20 of the Act after the arbitration agreement had been filed in court. Courts dealing with arbitration applications should never lose sight of the distinction between Sections (sic) and 20 of the Act. The former section deals with arbitration without intervention of a court and the latter with arbitration with intervention of a court where there is no suit pending. In this context reference may be made to the following two important decisions of the Supreme Court. In The Union of India (UOI) Vs. Shri Om Prakash it was held: The validity of the order of reference depends upon the scope of Section 8 which deals with the power of the court to appoint an arbitrator or umpire. In this context reference may be made to the following two important decisions of the Supreme Court. In The Union of India (UOI) Vs. Shri Om Prakash it was held: The validity of the order of reference depends upon the scope of Section 8 which deals with the power of the court to appoint an arbitrator or umpire. Sub-section (1) of Section 8, so far as it is relevant for the present purpose, provides that if any appointed arbitrator is incapable of acting and the arbitration agreement does not show that is was intended that the vacancy should not M supplied, any party to the agreement may serve the other parties with a written notice to concur in supplying the vacancy. Sub-section (2) of Section 8 lays down that if no appointment is made within 15 days after the service of the said notice, the court may, on the application of the party who gave the notice and after giving the other parties an opportunity of being heard, appoint an arbitrator or abrifrators "who shall have like powers to act in the reference and to make an award as if he or they had been appointed by consent of all parties." The question is whether, having made the appointment, the court acting under Sub-section (2) can also make an order of reference to the arbitrator. The Act contemplates three kinds of arbitration: (i) arbitration without intervention of a court, dealt with in chapter II of the Act which includes Section 3 to Section 19, (ii) arbitration with intervention of So court where there is no suit pending, dealt with in chap. III which consists of only one section, viz. Section 20; and (iii) arbitration in suits, which is covered by chapter IV. It is clear from the provisions of chapter II that after the appointment of arbitrator, the proceedings are to be outside court, and up to the stage of filing the award intervention of court is not contemplated unless any occasion arises requiring the court to remove the arbitrator u/s 11. An agreement to submit differences to arbitration implies an agreement to refer the differences to the arbitrator. Section 8 only empowers the court to appoint an-arbitrator where the parties do not concur in the appointment. Section 20 occurring in chapter III contains provisions for arbitration with the intervention of a court where there is no suit pending. An agreement to submit differences to arbitration implies an agreement to refer the differences to the arbitrator. Section 8 only empowers the court to appoint an-arbitrator where the parties do not concur in the appointment. Section 20 occurring in chapter III contains provisions for arbitration with the intervention of a court where there is no suit pending. Section 20 reads: 20. Application to file in Court arbitration agreement (1) Where any persons have entered into an arbitration agreement before the institution of any suit with respect to the subject-matter of the agreement or any part of it, and where a difference has arisen to which the agreement applies, they or any of them, instead of proceeding under Chapter II, may apply to a Court having jurisdiction in the matter to which the agreement relates, that the agreement be filed in Court. (2) The application shall be in writing and shall be numbered and registered as a suit between one or more of the parties interested or claiming to be interested as Plaintiff or Plaintiffs and the remainder as Defendant or Defendants, if the application has been presented by all the parties, or, if otherwise, between the applicant as Plaintiff and the other parties as Defendants. (3) On such application being made, the court shall direct notice thereof to be given to all parties to the agreement other than the applicants, requiring them to show cause within the time specified in the notice why the agreement should not be filed. (4) Where no sufficient cause is shown, the Court shall order the agreement to be filed, and shall make an order of reference to the arbitrator appointed by the parties, whether in the agreement or otherwise, or, where the parties cannot agree upon an arbitrator, to an arbitrator appointed by the Court. (5) Thereafter the arbitration shall proceed in accordance with, and shall be governed by, the other provisions of this Act, so far as they can be made applicable. This section confers power on the court to order the agreement to be filed and, further, to make an order of reference to the arbitrator appointed by the parties, or, where the parties cannot agree upon an appointment, to an arbitrator appointed by the court. This section confers power on the court to order the agreement to be filed and, further, to make an order of reference to the arbitrator appointed by the parties, or, where the parties cannot agree upon an appointment, to an arbitrator appointed by the court. Sub-section (1) of Section 20 makes it plain that the provisions of the section can be availed of only if no proceeding under chapter II has been initiated. Section 8 does not contain any provision empowering the court to make an order of reference to the arbitrator as one finds in Sub-section (4) of Section 20. Thus it seems clear that the court in the instant cases had 110 jurisdiction, after appointing an arbitrator u/s 8(2), to proceed further to make an order referring the disputes to the arbitrator. In Orissa Mining Corporation Ltd. v. Prannath Vishwanath Rawlley 45 (1978) C.L.T. 246 (S.C.), the Supreme Court observed: Section 20(1) of the Arbitration Act, 10 of 1940, provides that where a difference has arisen and where any persons have entered into an arbitration agreement they may apply to the court having jurisdiction in the matter to which the agreement relates, that the agreement be filed in court. Sub-section (4) to Section 20 provides that the court shall order the agreement to be filed, and shall make an other or reference to the arbitrator appointed by the parties. When an agreement is filed in Court and order of reference is made then the claim as a result of the order of reference if limited to a particular relief and the arbitrator cannot enlarge the scope of the reference and entertain fresh claims without a further order of reference from the court.... 3. Thus it is clear that while Section 8 empowers the court only to appoint an arbitrator where the parties do not concur in the appointment, Section 20 empowers the court to order the agreement to be filed and then to make an order of reference to the arbitrator appointed by the parties or by the court where the parties cannot agree upon an arbitrator. It must also be noted that the arbitrator appointed u/s 20 of the Act must limit his enquiry only to the disputes referred to him for arbitration; he has no jurisdiction to enlarge the scope of the reference or to entertain any fresh claim without a further order or reference from the court. In the present case it appears that this important distinction has been completely lost sight of by the learned lower court. 4. The learned lower court has submitted to this Court a true-copy or the reference made by that court to the Arbitrator, vide order No. 157 dated 9.11.1977. On going through the copy it is seen that the order of the court dated 9.11.1977 has been extracted and by Memo No. 13 dated 7-1-1978 the said extract of the order has been forwarded to the Arbitrator "for favour of making award". Such reference by the court to the Arbitrator is clearly invalid in view of the provisions contained in Section 20 of the Act as interpreted by the Supreme Court in the decisions referred to above. Further, Rule 19 of the Arbitration Rules made under the Act contained in Chapter IV of the G.R. & C.O. (Civil), Volume-I enjoins that orders of reference under Sections 20(4) and 23(1) of the Act shall be made in form No. (J) 47. This form is given at page 190 of G.R. & C.O. (Civil), Volume-II. In view of the provisions of Section 20(4) of the Act read with Rule 19 of the Arbitration Rules it was duty of the court to first determine the dispute or disputes between the parties and thereafter refer the same to the arbitrator for arbitration. For the reasons stated above I hold that the reference to the Arbitrator by the learned lower court vide order No. 157 dated 9.11.1977 is invalid. Accordingly, the award which is a nullity is set aside. The case is now remitted to the learned lower court who shall hear the parties, determine the dispute or disputes between them and then refer the same in form No. (J) 47 of G.R. & C.O. (Civil), Volume-II for arbitration. Both sides have agreed that Mr. C. Raghunadham, Chartered Accountant, Friends Colony, Bajrakabati Road, Cuttack shall be the Arbitrator and therefore the learned lower court shall appoint Mr. C. Raghunadham as the Arbitrator. Both sides have agreed that Mr. C. Raghunadham, Chartered Accountant, Friends Colony, Bajrakabati Road, Cuttack shall be the Arbitrator and therefore the learned lower court shall appoint Mr. C. Raghunadham as the Arbitrator. As this is an old matter necessary steps shall be taken so that the suit is disposed of as early as possible. This appeal is accordingly disposed of. Parties will bear their own costs. 5. 8.4.1985 is fixed as the date for appearance of the parties before the learned lower court for the purpose of receiving the directions of that court as to further proceedings in the suit. The L.C.R. be returned immediately along with all connected documents including those received from Shri H. Naik Chartered Accountant, during the pendency of the appeal in this Court. Further, a copy of order No. 25 dated 14-3-1985 of this Court be also forwarded to the learned lower court to ensure that the directions for payment contained in the said order are complied with by the parties without fail.