S. S. M. Soundappan v. S. S. M. Balakrishnan — 1992 DIGILAW 256 (MAD)

Judgment :- 1. These Civil Revision Petitions have been preferred against the common order of First Additional District Judge, Salem, in O.P. Nos. 136 to 139, 141 to 143, 140 and 144 to 146 of 1991 respectively, preferred under S. 8 read with First Schedule to the Arbitration Act, 1940 (hereinafter referred to as ‘the Act’) by the first respondent in C.R.P. Nos. 953, 955, 956, 957, 959 and 962 of 1992, respondents 1 to 3 in C.R.P. Nos. 954 and 958 of 1992 and respondents 1 and 2 in C.R.P. Nos. 960, 961 and 963 of 1992 . The petitioners and the contesting respondents carried on business in partnership in as many as 11 firms under different names and styles pursuant to deeds of partnership entered into between the parties. The partnerships were at will. Disputes arose between the partners in respect of the partnership businesses carried on under the different names and styles and notice of dissolution had also been given. Under the terms of the partnership deed, it was provided that the disputes between the partners should be resolved through arbitration and pursuant to this, the contesting respondents nominated Thiru B. Sadasivam as arbitrator. The petitioners, on their part, nominated Thiru A. Balasubramaniam as their arbitrator with reference to the disputes that arose in respect of five firms and one Thiru G. Sarangan as arbitrator in respect of disputes that arose in the six other firms. The resolution of the disputes between the partners was thus submitted to an even number of arbitrators. The arbitrators entered upon the reference on 24-3-1990 with reference to six firms and on 3.4.1990 with reference to the other five firms, but they did not appoint an umpire within one month from the latest date of their respective appointments as provided under Rule 2 of the First Schedule to the Act. The arbitrators entered upon the reference on 24-3-1990 with reference to six firms and on 3.4.1990 with reference to the other five firms, but they did not appoint an umpire within one month from the latest date of their respective appointments as provided under Rule 2 of the First Schedule to the Act. The contesting respondents, therefore, claimed that by virtue of the non-appointment of an Umpire the arbitrators had no authority to appoint an Umpire, as the period within which such appointment should be made had expired and that though it was brought to the notice of the arbitrators about the necessity for the appointment of an Umpire they had failed and neglected to do so and that obliged the contesting respondents to approach the Court under S. 8 of the Act praying for the appointment by the Court of a fit and proper person as Umpire in the matter of the disputes referred to the arbitrators. In the counter filed by one of the arbitrators. Thiru B. Sadasivam, appointed by the contesting respondents, while accepting that he had been appointed as an arbitrator to resolve the disputes that had arisen between the partners in the firms referred to earlier, he put forward the plea that the other arbitrators and himself entered upon the reference on 3-4-1990 and that though they had four sittings thereafter and also gave some directions to the contesting respondents, they were not able to appoint an Umpire under the provisions of the Act and it was impracticable to appoint an Umpire. It was also stated that the arbitrators were unable to agree about the appointment of an Umpire and that called for the appointment of the Umpire by the Court in the interest of expeditious conclusion of the arbitration proceedings. Thiru A. Balasubramaniam, the arbitrator appointed by the petitioners, in his counter, took the stand that though an Umpire had to be appointed within one month from the date of entering upon the reference, they were not asked by the parties to appoint an Umpire and that the procedure provided for under S. 8 of the Act had also not been followed. The claim of the contesting respondents that the arbitrators were asked to appoint an Umpire but that they neglected to do so, was disputed and it was further stated that there was no need for the appointment of an Umpire, as the arbitrators had already proceeded with the arbitration for four hearings and had also passed an interim award. However, it was also stated that if an Umpire had to be appointed, that may be done by the consent of the parties. In the Counter filed on behalf of the petitioners, while accepting that two arbitrators had been appointed and that they had to appoint an Umpire within one month under R. 2, of the First Schedule to the Act, they stated that that had not been done and the period of one month specified under R. 2 of the First Schedule to the Act had also expired and that the arbitrators could not now appoint an Umpire. It was also stated that it was not at any time brought to the notice of the arbitrators that an Umpire had to be appointed. A further plea was also raised that between the arbitrators there was no divergence of opinion on any matter and there was no necessity whatever for fee appointment of an umpire. Referring to S. 8(1)(c) of the Act, the petitioners maintained that the jurisdiction of the Court to appoint an Umpire would arise only after service of notice on the other party or the arbitrator, as the case may be, to concur in the appointment of an Umpire and in the absence of the fulfilment of the requirements under S. 8(1)(c) of the Act, resort to S. 8(2) of the Act, according to the petitioners, could not be had at all. Stating that the appointment of an Umpire is necessary, if divergent opinions are expressed by the arbitrators on any issue, the petitioners referred to the provisions under Ss. 8(1)(c) and 8(2) of the Act and stated that without conforming to the procedure prescribed thereunder, the Court could not be approached for the appointment of an Umpire and that the Court had also no jurisdiction to appoint an Umpire as prayed for by the contesting respondents. 2. 8(1)(c) and 8(2) of the Act and stated that without conforming to the procedure prescribed thereunder, the Court could not be approached for the appointment of an Umpire and that the Court had also no jurisdiction to appoint an Umpire as prayed for by the contesting respondents. 2. Initially, the petitions filed by the contesting respondents were dealt with by the learned Subordinate Judge, Sankari, by a common order dated 22-3-1991 in and by which it was held that as the arbitrators had failed to appoint an Umpire within one month from the latest date of their respective appointments, they could not any longer exercise the power to appoint an Umpire and, therefore, there was no question of issue of notice to the arbitrators or seeking their concurrence. It was also further held that as the parties did not have the power to appoint an Umpire and the arbitrators had also lost their power of appointment, the contesting respondents were entitled to approach the Court under S. 8(2) of the Act praying for the appointment of a fit and proper person as Umpire. Ultimately, the Court took the view that an Umpire had to be appointed by the Court and the petitioners and the contesting respondents were called upon to suggest the name of an experienced retired District Judge or a senior lawyer for appointment as Umpire and the matter was directed to be called on 1.4.1991 for ordering the appointment of an Umpire. By then, the petitions had come up before the learned First Additional District Judge, Salem, for the appointment of an Umpire and by an order dated 25-11-1991, the learned First Additional District Judge, Salem proceeded to appoint a retired District Judge as Umpire. It is the correctness of the orders so passed that is questioned by the petitioners in these Civil Revision Petitions. 3. Mr. B.T. Seshadri, learned counsel for the petitioners, strenuously contended that the requirements of S. 8(1)(c) of the Act had first to be fulfilled by the contesting respondents before resorting to Court for relief under S. 8(2) of the Act and that not having been done, the petitions praying for reliefs under S. 8(2) of the Act were not maintainable. Mr. B.T. Seshadri, learned counsel for the petitioners, strenuously contended that the requirements of S. 8(1)(c) of the Act had first to be fulfilled by the contesting respondents before resorting to Court for relief under S. 8(2) of the Act and that not having been done, the petitions praying for reliefs under S. 8(2) of the Act were not maintainable. According to learned counsel, no notice at all was given by the contesting respondents to the arbitrators to concur in the appointment or in supplying the vacancy in the office of the Umpire and, therefore, there was no occasion whatever for invoking the assistance of the Court under S. 8(2) of the Act owing to a failure on the part of the arbitrators to make the appointment of an Umpire within 15 days after the service of notice. Strong reliance in this connection was also placed upon the decisions reported in Union of India v. M.N. Varma 1958 II MLJ 16 and Chowdhry & Gulzar Singh v. Frick India Ltd. AIR 1979 Delhi 97. On the other hand, Mr. T. Raghavan, appearing for the contesting respondents, while accepting that under the terms of the contract of partnership, there is no provision for the parties appointing an Umpire, submitted that this is a case where the parties had no power to appoint an Umpire and the arbitrators appointed had also lost their power of appointment of Umpire by the non-exercise thereof within a period of one month and, therefore, only the Court in the exercise of its powers under S. 8 (2) of the Act can appoint an Umpire. It was also pointed out that if the power of appointment of an Umpire by the arbitrators had become extinct by the non-exercise of the power of appointment in accordance with R. 2 of the First Schedule to the Act, the issue of notice by the party would not have the effect of reviving a power, which had become extinct and that there was also no question of concurrence in the appointment or supplying the vacancy. Learned counsel, therefore, contended that in the circumstances of this case, the Court below was quite right in having entertained the petitions and also exercised its jurisdiction in appointing an Umpire. 4. Before proceeding to consider the rival submissions made, it would be necessary to set out certain facts about which there is no controversy. Learned counsel, therefore, contended that in the circumstances of this case, the Court below was quite right in having entertained the petitions and also exercised its jurisdiction in appointing an Umpire. 4. Before proceeding to consider the rival submissions made, it would be necessary to set out certain facts about which there is no controversy. That the submission of the partnership disputes to arbitration was to two arbitrators, i.e., an even number of arbitrators and that there was no provision for the appointment of an Umpire by the parties in the deeds of partnership, are not in dispute. Under S. 3 of the Act in the absence of the expression of a different intention, an arbitration agreement shall be deemed to include the provisions set out in the First Schedule to the Act in so far as they are applicable to the reference. It is not the case of the either party that a different intention had been expressed in the deeds of partnership so as to exclude the provisions set out in the First Schedule to the Act. Under R. 2 of the First Schedule to the Act, if the reference is to an even number of arbitrators, the arbitrators shall appoint an Umpire not later than one month from the latest date of their respective appointments. There is no dispute now that the latest dates of the appointment of the arbitrators were 24.3.1990 for six firms and 3-4-1990 for the other five firms. The arbitrators had, it is not in dispute, not appointed an Umpire within one month from the latest date of their respective appointments. It is in the background of the aforesaid factual position and failure on the part of the arbitrators to appoint an Umpire, the question, whether, without resorting to the procedure indicated under S. 8(1)(c) of the Act, the contesting respondents were in order in seeking the relief of appointment of an Umpire through Court under S. 8(2) of the Act, has to be considered. 5. Under S. 8(1)(c) of the Act, where the arbitrators are required to appoint an Umpire and do not appoint him, any party may serve the other parties or the arbitrators, as the case may be, with a written notice to concur in the appointment or appointments or in supplying the vacancy. 5. Under S. 8(1)(c) of the Act, where the arbitrators are required to appoint an Umpire and do not appoint him, any party may serve the other parties or the arbitrators, as the case may be, with a written notice to concur in the appointment or appointments or in supplying the vacancy. Admittedly, on the failure of the arbitrators to appoint an umpire, the parties had a right to serve the others or the arbitrators, as the case may be, a written notice as contemplated under S. 8(1)(c) of the Act to concur in the appointment or appointments or in supplying the vacancy. When it is not in dispute that the arbitrators had not exercised their power of appointment, it cannot be assumed that their power had become extinct by non-exercise of such power not later than one month from the latest date of their respective appointments. The very provision under S. 8(1)(c) of the Act for service of notice on the other parties or the arbitrators, as the case may be, to concur in the appointment or appo intents, would indicate that even in a case where the arbitrators do not appoint an Umpire within the time provided, liberty is given to the parties to serve the other parties or the arbitrators to concur in the appointment of appointments. The use of the expression, to concur in the appointment” shows that the arbitrators should act together and agree and assent to the appointment of an Umpire. Such concurrence of the arbitrators in the appointment of an Umpire would also extend to the case of supplying the vacancy. Ordinarily, the word ‘vacancy’ would connote ‘emptiness’ or ‘gap’ and such a situation may arise on a failure even at the inception to appoint an Umpire or owing to the subsequent non-availability of an Umpire, earlier appointed by the arbitrators. On the facts of this case, it is seen that the failure of the arbitrators to appoint an Umpire even initially had left a vacancy from the inception and such a vacancy could also be supplied by the arbitrators under S. 8(1)(c) of the Act by service of notice by the concerned parties on the other parties or the arbitrators, as the case may be. Thus, it is seen that the parties in this case had, under S. 8(1)(c) of the Act, the right to serve the other parties or the arbitrators, as the case may be, with a written notice to agree to the appointment of an Umpire or to fill up that vacancy, which had subsisted even from the very beginning and had also continued. The very provision under S. 8(1)(c) of the Act for service of notice by the interested parties on the other parties and also the arbitrators to concur in the appointment or in supplying the vacancy when the arbitrators had not appointed an Umpire and for the Court to appoint an Umpire acting under S. 8(2) of the Act on a failure to so appoint within 15 days of service of notice, would indicate that the power to appoint an Umpire is not lost by the non-exercise thereof by the arbitrators within the prescribed time under R. 2 of the First Schedule to the Act. If it was the intention that the arbitrators did not, after the expiry of one month, have such power, no useful purpose would be served by giving the party the liberty to serve a notice on the other party and the arbitrators to agree the appointment of an Umpire or to fill up the vacancy, which, as in this case, had existed right from the beginning. It is possible to conceive of a case where the arbitrators initially had not exercised their power to appoint an Umpire within the prescribed time, but, on receipt of a notice from the interested parties, they may concur in the appointment of the Umpire or fill up the vacancy within 15 days after the service of such a notice, in which case, the need to resort to Court under S. 8(2) of the Act should be obviated and the appointment of an Umpire would not also in any manner be rendered invalid. It is, therefore, not possible to accept the contention of learned counsel for the contesting respondents that the power of the arbitrators to appoint an Umpire had become extinct and could not be revived by notice. It is, therefore, not possible to accept the contention of learned counsel for the contesting respondents that the power of the arbitrators to appoint an Umpire had become extinct and could not be revived by notice. Admittedly, in this case, the contesting respondents had not issued any notice to the arbitrators or even to the petitioners for the purpose of concurring in the appointment or appointments or in supplying the vacancy and there has thus been no opportunity whatever to the arbitrators or even the parties to concur in the appointment or appointments or in supplying the vacancy. Only on failure to make an appointment within 15 days after the service of a notice as contemplated under S. 8(1)(c) of the Act, the Court, at the instance of the party, who gave the notice and after giving the other parties an opportunity of being heard, may appoint an Umpire and on such appointment, he shall proceed to act in the reference and make an award, as if he had been appointed by the consent of all parties. Thus, resort to S. 8(2) of the Act for relief is made conditional upon the fulfilment of the requirements of S. 8(1)(c) of the Act regarding notice and the non-appointment, despite service of notice within 15 clear days. Without fulfilling the requirements of Ss. 8(1)(c) and 8(2) of the Act resort to court seeking its assistance in the matter of appointment of an umpire cannot be had. 6. The decisions relied on by learned counsel for the petitioners may now be noticed. In Union of India v. M.N. Varma 1958 II MLJ 16 = 71 L.W. 141, the award on the basis of which a decree was passed, was challenged on the ground that the appointment of the Umpire was in contravention of S. 8(2) of the Act. In that case, the clause in the arbitration agreement provided that any difference between the arbitrators should be referred to an Umpire and the arbitrators appointed an Umpire to decide the points at which they were at variance but the umpire was obliged to relinquish his office and another person was appointed, subject to his securing permission from the Government of Bombay and the appointment was also made at the request of both the parties, whose counsel had also accepted and acquiesced in the appointment of the Umpire made. The main ground of challenge to the award given by the Umpire was that in the place of the Umpire originally appointed and who later on relinquished his office, the appointment of the successor was made in contravention of S. 8(2) of the Act and that would render the award invalid, as the appointment itself was in excess of the powers of the arbitrators. In considering this contention in the light of Ss. 8(1)(c) and 8(2) of the Act, the Division Bench pointed out that S. 8(1)(c) of the Act postulates a factual failure on the part of the arbitrators to appoint an Umpire before either of the parties could serve the notice on the arbitrators and the notice provided for under S. 8(1)(c) of the Act at the instance of the party to the arbitrators is to concur in the appointment of an Umpire or in supplying the vacancy and that S. 8(2) of the Act comes into play only after the service of the said notice issued by a party under S. 8(1)(c) of the Act. It was also further pointed out that the party whose notice under S. 8(1) (c) of the Act is ignored is enabled by S. 8(2) of the Act to apply to the Court for the appointment of an Umpire, as the scheme underlying S. 8 of the Act is that the default of a party to the reference or even the default of an arbitrator should not normally result in the arbitration agreement itself becoming abortive. Referring to Ss. 8(1)(c) and 8(2) of the Act, the Bench pointed out that if the requirements of S. 8(2) are satisfied and an application is made to the Court to appoint an Umpire, thereafter, the court is seized of the matter and the arbitrators could not be permitted to appoint an Umpire and that in that case, the arbitrators acted promptly on receipt of letters. From the aforesaid decision, it is clear that before invoking S. 8(2) of the Act, a notice as contemplated under S. 8(1)(c) of the Act should be given and only on failure to appoint an Umpire within 15 days after the service of such notice, the Court could be moved under S. 8(2) of the Act. From the aforesaid decision, it is clear that before invoking S. 8(2) of the Act, a notice as contemplated under S. 8(1)(c) of the Act should be given and only on failure to appoint an Umpire within 15 days after the service of such notice, the Court could be moved under S. 8(2) of the Act. Though learned counsel for the contesting respondents attempted to distinguish this decision on the ground that it related to the filling up of a vacancy, it is difficult to accept a distinction based on that ground, for, it is seen that the decision had gone into the scope and conditions for the applicability of Ss. 8(1)(c) and 8(2) of the Act. The other decision relied on by learned counsel for the petitioners reported in Chowdhry & Gulzar Singh v. Frick India Ltd. AIR 1979 Delhi 97 points out that a failure of the arbitrators to appoint an Umpire is a breach curable by the procedure prescribed by S. 8 of the Act. However, it requires to be pointed out that it is so curable under S. 8(2) of the Act only on the fulfilment of the requirements laid down under Ss. 8(1)(c) and 8(2) of the Act and not otherwise. Thus, on a careful consideration of the facts and circumstances of the case as well as the relevant provisions of the Act, the Court below fell into an error in entertaining the petitions filed by the contesting respondents without their fulfilling the requirements of Ss. 8(1)(c) and 8(2) of the Act and in proceeding to appoint an Umpire Consequently, the Civil Revision Petitions are allowed and the common order of the Court below is set aside and O.P. Nos. 136 to 146 of 1991 will all stand dismissed. There will be, however, no order as to costs.