STATE BANK OF PATIALA v. STATE OF H. P. — 1997 DIGILAW 213 (HP)

JUDGMENT M. Srinivasan, C. J.: The petitioner stood guarantee for due per- formance of an agreement between respondents No. 4 and 5. The agreement was for lifting offish from leading centres of Govind Sagar in the District of Bilaspur, Himachal Pradesh. The petitioner gave a bank guarantee in the sum of rupees five lakhs in favour of respondent No. 4. There appears to have been a failure on the part of the fifth respondent to perform the agreement and the petitioner was called upon to honour the bank guarantee and pay the amount of Rs. three lakhs after deducting a sum of rupees two lakhs already invoked. The petitioner did not choose to respond inspite of several reminders by the 4th respondent Thereafter the matter was referred to arbitration under the provisions of section 72 of the Cooperative Societies Act to the District Cooperative and Supplies Officer (Special). The order appointing the said officer as an arbitrator was passed by the Registrar, Cooperative Societies on 9.1.1984. The arbitrator issued notice after entering on reference on 17.5.1984 and passed the award on 17.9.1984. Before the arbitrator the petitioner did not make any appearance; nor did the principal debtor, the respondent No. 5 herein make appearance before the arbitrator. The award of the arbitrator held that the fifth respondent was liable to pay Rs.8, 88,492.12 with future interest at the rate of 18 percent per annum on the principal amount till final payment. As against the petitioner the award was for Rs.3,91,500/-comprising Rs.300,000/- being the principal, Rs.76,500/- being interest and Rs.15,000/- being expenses. The arbitrator has stated in the award that as the petitioner failed to honour the bank guarantee given on 16.4.1982, it shall pay future interest at the rate of 18 percent per annum till the date of final payment 2. The petitioner filed an appeal under section 93(h) of the Himachal Pradesh Cooperative Societies Act, 1968 (hereinafter referred to as the Act) before the Joint Registrar (Development) Cooperative Societies, Himachal Pradesh. The appellate authority after considering all the contentions urged by the petitioner passed an order on 3.8.1987, dismissing the appeal. It should be mentioned that the principal debtor did not choose to file any appeal or challenge the award of (he arbitrator in any manner. 3. The appellate authority after considering all the contentions urged by the petitioner passed an order on 3.8.1987, dismissing the appeal. It should be mentioned that the principal debtor did not choose to file any appeal or challenge the award of (he arbitrator in any manner. 3. Aggrieved by the appellate order, the petitioner has filed this writ petition to quash the award of the arbitrator as well as the order of the appellate authority. Before us, the learned counsel for the petitioner has raised as many as six contentions. The first contention is that the award was passed after the expiry of a period of four months prescribed by the rules and it is therefore a nullity. Learned counsel submits that the order of the registrar appointing the arbitrator on 9.1.1984 must have been served on the arbitrator on 10.1.1984 and limitation will commence from that date. Reliance is placed upon the order of the Registrar which directs the arbitrator to decided the dispute within a period of four months from the date of issue of the order as required under rule 91 (2) of the Himachal Pradesh Cooperative Societies Rules, 1971 (hereinafter referred to as the Rules). Our attention is also drawn to the judgment of this court in C.S. No. 132 of 1992 dated 4.3.1994. It is contended that the view expressed by this court in that judgment is to the effect that the award passed beyond the period of four months is a nullity. 4. We are unable to accept any of these contentions. Rule 91(2) of the Rules does not prescribe the starting point of the period of four months referred to therein. The rule merely says that the decision or the award shall be reduced to writing, announced to the parties and filed in the office of the Registrar within a period of four months. There is, however, a provisio which says that the said period of four months shall be extended by the Registrar from time to time whether before or after the expiry of the said period of four months. This provisio contemplates extension of time even after the expiry of four months whatever m ay be the starting point. Hence it can be said without any difficulty that the award passed after the expiry of the period of four months is not a nullity. 5. This provisio contemplates extension of time even after the expiry of four months whatever m ay be the starting point. Hence it can be said without any difficulty that the award passed after the expiry of the period of four months is not a nullity. 5. In the absence of any specific provision in the rules with regard to the starting point of the period of limitation, if it can be considered to be a period of limitation. The general rule provided in the first Schedule of the Arbitration Act will apply. Section 3 of the Arbitration Act reads that an arbitration agreement, unless a different intention is expressed therein, shall be deemed to include the provisions set out in the First Schedule in so far as they arc applicable to the reference. In the First Schedule clause 3 provides that the arbitrators shall make their award within four months after entering on the reference or after having been called upon to act by notice in writing from any party to the arbitration agreement or within such extended time as the Court may allow. Thus the period of four months as contemplated in the first part of clause 3 will commence from the date of entering on the reference by the arbitrator. In this case, it is pointed out that the arbitrator issued a notice to the parties on 17.5.1984 and that was the date on which he entered on the reference. He passed the award within four months from that date. The appellate authority has expressed that opinion after referring to the above fact and while exercising jurisdiction under Article 226 of the Constitution, we are of the opinion that the view expressed by the appellate authority does not suffer from any error apparent on the face of the record which would warrant interference by this court under Article 226 of the Constitution. We must remember that this is not an appellate forum and we are acting in exercise of the jurisdiction under Article 226 of the Constitution. 6. The decision of this Court in Civil Suit No. 132 of 1992 on which reliance is placed by the learned counsel does not help the petitioner at all. We must remember that this is not an appellate forum and we are acting in exercise of the jurisdiction under Article 226 of the Constitution. 6. The decision of this Court in Civil Suit No. 132 of 1992 on which reliance is placed by the learned counsel does not help the petitioner at all. Issue No. 1 is whether the arbitrator has misconducted himself or the proceedings, as alleged and issue No. 2 is whether the award has been made beyond the period allowed for making the award, and if so, its effect. Issues No. 1 and 2 arc taken together by the learned Judge and a common discussion has been held by the learned Judge. Ultimately the learned Judge has held that the action of the arbitrator in making the award after the period of four months tantamount to legal misconduct and the same was vitiated. A perusal of the judgment shows that as a matter of fact there was an order by the court extending the period for making the award but that order was passed later. Unfortunately, the learned Judge had not given effect to that order and proceeded on the footing that it would not help the arbitrator to pass the award beyond a period of four months even though it was really ratified in the strict sense by the, order by extension passed later. In our opinion, the view expressed by the learned Judge is not in accordance with law. In any event, it does not help the petitioner herein in this case. 7. Learned counsel has drawn our attention to the judgment of the Supreme Court in Hari Shanker Lal V/s Shambhu Nath and other, AIR 1962 S.C. 78. The court had to consider the provisions contained in clause 3 of the First Schedule. The court pointed out that on a proper interpretation of rule 3 the legal position can be formulated thus: (a) A notice to act may be given before or after the arbitrator entered upon the reference. (b) If notice to act is given before they entered upon the reference, the four months would be computed from the date they entered upon the reference. (b) If notice to act is given before they entered upon the reference, the four months would be computed from the date they entered upon the reference. (c) If a party gives notice to act within four months after the arbitrators entered upon the reference, the arbitrators can make an award within four months from the date of such notice, and (d) In that event, after the expiry of the said four months the arbitrators become functus officio, unless the period is extended by the court under Section 28 of the Act; such period may also be extended by the court, though the award has been factually made. The decision of the Supreme Court does not in any way help the petitioner in the present case on the facts of this case. It may also be pointed out by us that the judgment of this court in the Civil Suit runs counter to the judgment of the Supreme Court in the aforesaid case and is there for not good law. Hence the first contention that the award is a nullity because it was made after the expiry of a period of four months, is rejected. 8. The second contention is that the matter does not fall within the scope of section 72 of the Act and it could not have been referred to arbitration at all. Learned counsel contents that section 72(1) refers to the matters which can be referred to arbitrator. It is better to extract the entirety of section 72(1) and (2). "72. 8. The second contention is that the matter does not fall within the scope of section 72 of the Act and it could not have been referred to arbitration at all. Learned counsel contents that section 72(1) refers to the matters which can be referred to arbitrator. It is better to extract the entirety of section 72(1) and (2). "72. Dispute which may be referred to arbitration (1) Notwithstanding anything contained in any law for the time being in force, if any dispute touching the constitution, management, or the business of a cooperative society arises- (a) among members, past members, and persons claiming through members, past members, and deceased members or , (b) between a member, past member, or person claiming through a member, past member or deceased member and the society, its committee or any officer, agent or employee of the society or liquidator, past or present; or (c) between the society, or its committee and any past committee, any officer, agent or employee, or any past officer, past agent or past employee or the nominee, heirs or legal representatives of any deceased officer, deceased agent, or deceased employee of the society; (d) between the society and any other cooperative society, between a society and liquidator of another society or between the liquidator of one society and the liquidator of another society; or between the liquidator of one society and the liquidator of another society; or (e) a surety of a member, past member or a deceased member or a person other than a member who has been granted a loan by the society under section 58 whether such surety is or is not a member of the society; such dispute shall be referred to the Registrar for decision and not court shall have jurisdiction to entertain any suit or other proceedings in respect of such dispute. (2). (2). For the purpose of sub-section (1), the following shall be deemed to be disputes touching the constitution, management, or the business of a cooperative society, namely:- (a) a claim by the society for any debt or dem and due to it from a member or any employee, or the nominee, heir or legal representatives of a deceased member or an employee, whether such debt or demand be admitted or not; (b) a claim by a surety against the principal debtor where the society has recovered from a surety any amount in report of any debt or demand due to it from the Principal debtor as a result of default of the principal debtor, whether such debt or demand is admitted or not; (c) any dispute arising in connection with the election of any officer or the society. 9. It is contended that while clauses (a), (b), (c) and (d) in section 72(1) begin with the words among or between clause (e) does not contain any such word. According to the learned counsel the parties between whom the dispute which is covered by clause (e) and having not been set up out in that clause, the matter cannot be referred to the arbitrator under section 72. In other words, learned counsel contends that unless that clause of the section says that the dispute between a surety of a member on die one hand and the society on the other is covered by that section, the dispute cannot be referred to the arbitrator. We are unable to accept this contention. A plain reading of the section shows that the intention of the legislature is to make a dispute between the persons referred to in all the clauses on the one hand and the society on the other as well as the other persons mentioned in the said clauses, the subject matter of arbitration. This interpretation is quite apparent and the petitioner cannot take advantage of the omission of any particular word, such as among of between. This principle is too well settled by now. In Principles of Statutory Interpretation, by Guru Prasanna Singh, Sixth Edition 1996, page 47, the learned author has referred to the following dictum of Lord Denning, L.J. in Seaford Court Estates Ltd. Vs. Asher, (1949) 2 All E.R.155 ; "When a defect appears a judge cannot simply fold his hands and blame the draftsman. In Principles of Statutory Interpretation, by Guru Prasanna Singh, Sixth Edition 1996, page 47, the learned author has referred to the following dictum of Lord Denning, L.J. in Seaford Court Estates Ltd. Vs. Asher, (1949) 2 All E.R.155 ; "When a defect appears a judge cannot simply fold his hands and blame the draftsman. He must set to work on the constructive task of finding the intention of Parliament and then he must supplement the written words so as to give force and life to the intention of the legislature. A judge should ask himself the question how, if the makers of the Act had themselves come across this rusk in the texture of it, they would have straightened it out? He must then do as they would have done. A Judge must not alter the material of which the Act is woven, but he can and should iron out the creases." The author has also referred to another case, namely, Magor & St. Mellons Rural District Council Vs. Newport Corporation, (1950) 2 All E.R. 1226, where the Lord Justice reiterated the same proposition in a different form as follows: "We sit here to find out the intention of Parliament and of ministers and carry it out, and we do this better by filling in the gaps and making sense of the enactment than by opening it up to destructive analysis". 10. No doubt, the House of Lords have not approved of the dictum of Lord Justice Denning, but the Supreme Court has quoted the above passages with approval in more than one judgments. In a recent judgment in Directorate of Enforcement Vs. Deepak Mahajan, AIR 1994 S.C. 1775. The court had extracted the above passages and said: "Though the above observations of Lord Denning were disapproved in appeal by the House of Lords in 1951(1) All England Law Reports 839 (HL), Sarkar, J. Speaking for the Constitution Bench in M, Pentiah V. Muddala Veeramallape 1961 (2) SCR 295 : (AIR 1961 SC 1107 ) adopted that reasoning of Lord Denning. Subsequently also, Beg, C.J. in Bangalore Water Supply Vs. Subsequently also, Beg, C.J. in Bangalore Water Supply Vs. A. Rajaopa, AIR 1978 SC 548 approved the observations of Lord stating thus (at P.552 of AIR 1978): "Perhaps with the passage of time, what may be described as the extension of a method resembling the "armchair rule" in the construction of wills, Judges, can more frankly step into the shoes of the legislature where an enactment leaves its own intentions in much too nebulous or uncertain a state. (Emphasis supplied)" 11. In the same judgment the court also said: "True, normally Courts should be slow to pronounce the legislature to have been mistaken in its constantly manifested opinion upon a matter resting wholly within its will and take its plain ordinary grammatical meaning of the words of the enactment as affording the best guide, but to winch up the legislative intent, it is permissible for Courts to take into account of the ostensible purpose and object and the real legislative intent. Otherwise, a bare mechanical interpretation of the words and application of the legislative intent devoid of concept of purpose and object will render the legislature inane. In cases of this kind, the question is not what the words in the relevant provision mean but whether there are certain grounds for inferring that the legislature intended to exclude jurisdiction of the courts from authorising the detention of an arrestee whose arrest was effected on the ground that there is reason to believe that the said person has been guilty of an offence punishable under the provisions of FERA or the Customs Act which kind of offences seriously create a dent on the economy of the nation and lead to hazardous consequences. Authorising, a few of which we have referred to above, show that in given circumstances, it is permissible for Courts to have functional approaches and look into the legislative intention and sometimes may be even necessary to go behind the words and enactment and take other factors into consideration to give effect to the legislative intention and to the purpose and spirit of the enactment so that no absurdity or practical inconvenience may result and the legislative exercise and its scope and object may not become futile." In view of the said principles laid down by the Supreme Court categorically, we have no hesitation to hold that the petitioner being a surety of a member of the Cooperative Society, the dispute between it on the one hand and the Society on the other will be covered by section 72(1)(e). 12. As pointed out by the learned Advocate General, it is worthwhile to consider both sections 72(1) (e) 72 (2) (a) and (b) together. If these three clauses are read together it will be quite evident that the dispute between the Society on the one hand and the Principal debtor and the surety on the other will fall squarely within the scope of section 72 of the Act. Thus we have no hesitation to hold that the matter can be the subject matter of arbitration within the scope of that section. 13. Learned counsel then contended that the fifth respondent, who is a principal debtor, is not a member of the society and there is no record to show that it is a member of the society. According to the learned counsel, the petitioner cannot be described as a surety of a member in the absence of any record to prove that the fifth respondent is a member of the society. This objection has not been taken at any earlier stage by the petitioner before the authorities concerned. However, we have material to hold that the fifth respondent is a member of die society. This objection has not been taken at any earlier stage by the petitioner before the authorities concerned. However, we have material to hold that the fifth respondent is a member of die society. It is seen from the agreement between the fourth and fifth respondents which is produced before us as annexure R-2/1 that clause 13 of the agreement is mandatory in its terms and it requires the contractor to be enrolled as nominal member of the Federation as required under section 18 of the Act Clause 17 provides that if any dispute between the parties arose, that be referred to arbitration under section 72 of die Act. It is not in dispute that the agreement was performed and the contract went through as between the parties. Hence the court can naturally presume that clause 13 of the agreement was implemented and the fifth respondent became a member of the society. The presumption under section 114 of the Indian Evidence Act will also apply in this case that the official acts are performed in the proper manner. It is for the petitioner to raise the dispute before the concerned authority and prove that the fifth respondent is not a member of the society and, therefore, the petitioner is not a surety of the member as contemplated by section 72(1) (e) of the Act. Consequently, this contention of the petitioner also fails. 14. The third contention of the petitioner is that the award is a non-speaking award and it does not contain any reason whatever. There is no merit whatever in this contention. A perusal of the award clearly shows that it is based upon the reasoning and it is not a non-speaking award as contended by the learned counsel. Reliance is placed on the judgment of this court in Parkash Singh Vs. State of Himachal Pradesh and others, AIR 1987 H.P. 54. As we have found on the facts that the-award contains reasons, it is unnecessary for us to refer in detail to the said judgment or deal with the same. In fact, the award refers to the account books and the relevant record and other documents placed before the arbitrator in support of the claim made by the Federation. Hence we hold that this contention is unsustainable. 15. In fact, the award refers to the account books and the relevant record and other documents placed before the arbitrator in support of the claim made by the Federation. Hence we hold that this contention is unsustainable. 15. The fourth contention is that the guarantee given by the petitioner was limited to five lakhs and the award has directed to pay interest and expenses. According to the learned counsel, the petitioner is not liable to pay cither the interest or the expenses as directed by the arbitrator. There is no substance in this contention. Learned counsel for the respondents has drawn our attention to the notices repeatedly issued to the petitioner by the fourth respondent calling upon the petitioner to honour the bank guarantee The first such notice is dated 4.4.1983 which was followed by letters dated 8.4.1981, 11.4.1983, 16.4.1983 and 15.6.1983. Ultimately the fourth respondent wrote a letter to the Deputy Managing Director, Reserve Bank of India, on 3.1.1984 pointing out that the petitioner herein has not honoured the bank guarantee and requesting action to be taken. In fact the arbitrator has pointed out this aspect of the matter in the award and observed that the petitioner has failed to honour the bank guarantee given on 15.4.1983 and, therefore, it is liable to pay interest at the rate of 18 per cent per annum till the date of final payment. This reasoning it also found in the order of the appellate authority. We are entirely in agreement with the reasoning of the arbitrator and the appellate authority. Hence this contention is rejected. 16. The fifth contention of the learned counsel for the petitioner is that no opportunity was given to the petitioner to contest the matter before the arbitrator. It is also submitted that the arbitrator had issued notices which were served through publication and it was contrary to the mode of service of summons prescribed in rule 141 of the Rules. There is no substance in this contention for the simple reason that the petitioner was served with summons in the first instance and the petitioner did not choose to appear, but instead sent a telegram seeking adjournment. This factum of receiving summons has been admitted by the petitioner in the grounds of appeal filed before the appellate authority. There is no substance in this contention for the simple reason that the petitioner was served with summons in the first instance and the petitioner did not choose to appear, but instead sent a telegram seeking adjournment. This factum of receiving summons has been admitted by the petitioner in the grounds of appeal filed before the appellate authority. In ground No. 3 in the said appeal, it is stated that the summons for appearance before the arbitrator were received by the petitioner about a week before the due date and due to exigencies of work the petitioner was not in a position to complete the formalities in such a short time and accordingly a request was made for adjournment. Reliance is placed by the learned counsel on the statement contained in the arbitration award where in it is stated that reasonable opportunity was given to the parties for placing before the arbitrator the other facts to decide the reference and the appearance of the parties was forced through publication in the news paper. Learned counsel contends that because the arbitrator resorted to the publication, the proceedings were vitiated as it was contrary to rule 141 of the Rules. We are unable to accept this contention. Once it is seen that the summons were received in due course, it was the duty of the petitioner to make arrangements to appear before the arbitrator and to place all the relevant record. It is not the contention of the petitioner that such opportunity was not given to it by the arbitrator in spite of his appearance. This contention has been dealt with in detail by the appellate authority also and it has been found that the petitioner had ample opportunity to represent his case before the arbitrator. 17. The last contention is that the costs imposed by the arbitrator are excessive and the petitioner should not be made liable of sach costs. Rule 90 of the Rules enables the arbitrator to order the expenses of determining a dispute or the cost of either party to be borne by such party or parties to the dispute, as he may think fit. It is in exercise of that power that the arbitrator has fixed the costs. No ground was raised in the appeal filed by the petitioner. Nor did he contest the matter of grant of costs. It is in exercise of that power that the arbitrator has fixed the costs. No ground was raised in the appeal filed by the petitioner. Nor did he contest the matter of grant of costs. It is not open to the petitioner to raise this contention for the first lime in this writ petition before us. 18. In the result, all the contentions raised by the petitioner fail and this writ petition is dismissed. No costs.