PETITIONER:
UNION OF INDIA
Vs.
RESPONDENT:
OM PARKASH
DATE OF JUDGMENT02/04/1976
BENCH:
GUPTA, A.C.
BENCH:
GUPTA, A.C.
SINGH, JASWANT
CITATION:
1976 AIR 1745 1976 SCR (3) 998
1976 SCC (4) 32
CITATOR INFO :
RF 1992 SC1124 (12)
ACT:
Arbitration Act, 1940-Secs. 8, 20,30 32,33-Whether
court appointing an arbitrator can further make an order
referring disputes to arbitrator - Award can be set aside on
the ground of invalidity of reference-Whether "otherwise in
valid' includes invalid reference.
HEADNOTE:
The respondent, a contractor, entered into 7 agreements
with the Union of India for the construction of a hospital,
some buildings and tube wells. In each one of these
agreements there was a clause providing that any dispute
arising between the parties would be referred to an
arbitrator. The designations of the arbitrators were also
mentioned in 4 agreements as Director of Farms in two
agreements as the officer Commanding, Lucknow, and in one
agreement as the Quartermaster General at Delhi. The offices
by reference to which the arbitrators were mentioned in the
agreement were abolished. The respondent therefore, made 7
applications in the court of Civil Judge at Meerut under
section 8(2) of the Arbitration Act, 1940, praying for
appointment of an arbitrator. The Trial Court appointed Col.
Ranbir Singh to act as an arbitrator in all the 7 cases and
further directed the papers to be sent to him asking him to
give his award within 2 months from that date. With the
consent of both the parties the arbitrator made some
progress. However, the Government counsel submitted before
the arbitrator that he should not proceed further since he
was not competent to deal with the questions of law arising
for decision. Thereafter the District Judge Meerut
transferred the cases to the Judge of the Small Causes Court
at Meerut presumably on the assumption that the respondent's
application for the appointment of arbitrator were pending.
The learned Judge of Small Causes Court appointed Director
of Farms, General Headquarters. to act as arbitrator in all
the 7 cases and he was further directed to file his award
within one month of the said order. The papers were then
sent to Brig. Bhandari assuming that he was the Director of
Farms. Later on, the respondent applied to the court for
review of its order alleging that the office of the Director
of Farms was abolished and, therefore, Brig. Bhandari could
not be the officer mentioned in the order. The respondent
did not take part in the arbitration proceedings but before
the respondent could obtain a stay the arbitrator filed his
award in the Court.
The respondent made 7 applications for setting aside
the award before the Small Causes Court, Meerut, which were
rejected. Against that the respondent preferred 7 appeals to
the Allahabad High Court. The High Court allowed the appeals
accepting the contention of the respondents that the Court
was functions officio after appointing the arbitrator under
section 8(2) and had no jurisdiction to refer the cases to
the arbitrator. The High Court held that it was for the
parties to refer the disputes to the arbitrator after he was
appointed by the court and the reference by the court being
without jurisdiction the awards were invalid. The High Court
also held that when the court made the order of reference
there was no post of Director of Farms and as such, Brig.
Bhandari was not competent to act as an arbitrator on the
basis of the order of the Court.
In these appeals by certificate, the appellants
challenged the findings of the High Court.
Dismissing the appeals,
^
HELD: An agreement to submit differences to arbitration
implies an agreement to refer the differences to the
arbitrator. Section 8 only empowers the
999
Court to appoint an arbitrator where the parties do not
concur in the appointment. Section 20 contains provisions
for arbitration with the intervention of a Court,where there
is no suit pending. 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. On the
other hand, section 8 does not contain any provision
empowering the court to make a reference to the arbitrator
as one finds in section 20. Therefore. the Small Causes
Court at Meerut had no jurisdiction after appointing an
arbitrator under section 8(2) to proceed further to make an
order referring the disputes to the arbitrator. [1002D-E.
1003C-E]
2. Section 30 of the Act sets out the grounds for
setting aside an award. Section 30(c) provides that an award
shall not be set aside except when it has been improperly
procured or is otherwise invalid. The decision of the Privy
Council in the case of Chhabbe Lal v. Kallu Lal and others
holding that an objection to the validity of a reference to
the arbitration did not come within the provisions of Dara
15 of the second schedule to the Code of Civil Procedure
which provided that no award was to be set aside except on
the specific grounds mentioned therein or the award being
otherwise invalid cannot apply to the present case because
in the second schedule to the Code of Civil Procedure which
was repealed by Arbitration Act of 1940. there was no
provision like section 32 or 33 of the Act. Section 32 bars
the institution of suits concerning arbitration agreements
or awards and provides that no arbitration agreement or
award shall be set aside. amended. modified or in any way
affected otherwise than as provided in the Act. Section 33
provides that a party to an arbitration agreement seeking to
challenge the agreement or the award must do so by making an
application to the court. When the second schedule to the
Civil Procedure Code was in force an award made on an
invalid reference could he set aside by filing a suit which
was then the appropriate proceeding but now the appropriate
proceeding is the filing of an application to the court as
has been made in the present case. The words 'or is
otherwise invalid' in clause (c) in section 30 are wide
enough to cover all forms of invalidity including invalidity
of the reference. [1003E, H,1004A-F]
JUDGMENT:
ClVIL APPELLATE JURISDICTION : Civil Appeal Nos. 1284
to 1290 of 1968.
Appeals from the Judgment; and Decrees dated the 30th
July 1962 of the Allahabad High Court in F.A.F.O’s Nos. 220
to 226 of 1952.
L.N. Sinha, Solicitor General, G. L. Sanghi, (In CA
1284/68) and Girish Chandra, for the Appellants.
S.L. Bhatia and N. K. Puri, for the Respondent.
The Judgment of the Court was delivered by
GUPTA, J. These seven appeals by certificate have been
preferred by the Union of India against a common judgment of
the Allahabad High Court disposing of seven appeals under
section 39(1)(vi) of the Arbitration Act, 1940. The appeals
turn on the true meaning and scope of sections 8 and 30 of
the Act. Section 8 is in these terms:
Power of Court to appoint arbitrator or umpire
“8. (1) In any of the following cases-
(a) where an arbitration agreement provides that
the reference shall be to one or more
arbitrators to be appointed by consent of the
parties, and all the partes do not, after
differences have arisen” concur in the
appointment or appointments; or
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(b) if any appointed arbitrator or umpire
neglects or re fuses to act, or is incapable
of acting, or dies, and the arbitration
agreement does not show that it was intended
that the vacancy should not be supplied, and
the parties or the arbitrators, as the case
may be, do not supply the vacancy; or
(c) where the parties or 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.
(2) If the appointment is not made within fifteen
clear 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, ap point an arbitrator or
arbitrators or umpire, as the case may be, who shall
have like power 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 that arises for consideration is whether the
court having appointed an arbitrator under subsection (2) of
section 8 can proceed further to make an order of reference
to the arbitrator. According to the respondent the court
becomes functions officio after appointing an arbitrator and
has no jurisdiction to refer the matter to him.
The facts leading to the appeals are these. During the
last world war the respondents a contractor, entered into
seven agreements with the military department of the
Government of India for the construction of a hospital”
three other buildings and three tube wells. In each of these
agreements there was a clause providing that any dispute
arising between the parties would be referred to an
arbitrator. In four cases the agreements provided for
arbitration by the Director of Farms, General Headquarters,
Simla, in two cases the officer Commanding, Lucknow, was to
be the arbitrator, and in the remaining other case, a
Quarter-Master at Delhi was chosen as the arbitrator.
Disputes having arisen between the parties, the respondent
made seven applications in the court of the First Civil
Judge, Meerut, under section 8(2) of the Act stating that
the offices by reference to which the arbitrators were
selected in the agreements had been abolished and it was
therefore necessary to appoint new arbitrators. In the
applications the respondent named several officers praying
that one of them be appointed to act an arbitrator “who
shall have like power to act in the reference and to make an
award as if he has been appointed by the consent of the
parties”. It will be noticed that the prayer repeats the
material portion of sub-section (2) of section 8. On
February 13, 1950 the court appointed Col. Ranbir Singh
whose name was not in the respondent’s list, to act as
arbitrator in all the seven cases and further directed the
papers to be sent to him, asking him to give his award
within
1001
two months from that date. If the respondent’s contention in
these A appeals is correct that after appointing an
arbitrator under section 8(2) the court ceases to have
jurisdiction and cannot make an order of reference, the
further directions given in the order of February 13, 1950
were invalid. However, the question did not assume
importance at that stage because both sides agreed to submit
the disputes to Col. Ranbir Singh for arbitration. After the
arbitration had made some progress, Col. Ranbir Singh
returned the papers to the court on being asked not to
proceed further by the Government counsel who thought that
the arbitrator was not competent to deal with the questions
of law arising for decision. After this the District Judge,
Meerut, transferred the cases to the Judge of the Small
Cause Court, Meerut, presumably on the assumption that the
respondent’s applications for the appointment of an
arbitrator were pending. If the respondents contention is
right, this was an erroneous assumption, but no objection
was raised at the time and the Judge of the Small Cause
Court by his order dated February 13, 1951 appointed
Director of Farms, General Headquarters, Simla, to act as
arbitrator in all the seven cases. In that order the court
further directed as follows:
“All these cases should be referred to him for
arbitration. He must file his award within one month of
this order.”
The papers were then sent to Brigadier H. L. Bhandari who
was. said to be the officer concerned. The respondent
applied to the court on March 8, 1951 for review of the
order alleging that the office of the Director of Farms,
General Headquarters, Simla, had been abolished and as such
Brig. H. L. Bhandari could not be the officer mentioned in
the order. The respondent did not take part in the
proceedings be fore Brig. Bhandari, but before he moved the
court on May 4, 1951 for stay of the proceedings before the
arbitrator, the latter had made his awards which were filed
in court on that very day. The review application was
ultimately dismissed on May 12, 1951.
The respondent made seven applications urging several
grounds for setting aside the awards, but the Judge of the
small Cause Court, Meerut, overruled all objections and
conferred the awards, and a decree in terms of the award in
each case was passed on May 26, 1952. Against that order the
respondent preferred seven appeals to the Allahabad High
Court. The High Court allowed the appeals accepting the
contention that the court was functus officio after
appointing the arbitrator under section 8(2) and had no
jurisdiction to refer the cases to the arbitrator. The High
Court was of the view that it was for the parties to refer
their disputes to the arbitrator after he was appointed by
the court, and the reference by the court being without
jurisdiction the awards were invalid. The High Court further
held that when the court below made the order of reference
there was no post of Director of Farms, General
Headquarters, Simla, in existence and, as such, Brig.
Bhandari was not competent to act as arbitrator on the basis
of the order dated February 13, 1951. The Union of Indra
questions the correctness of the High Court’s decision in
these appeals.
1002
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 it
was intended that the vacancy should not be 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 arbitrators “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 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 a court where there is no
suit pending, dealt with in chapter 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 of unless any occasion arises requiring the court to
remove the arbitrator under section 11. An agreement to
submit differences to arbitration implies an agreement to
refer the differences to the arbitrator. Section 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:
Application to file in Court arbitration agreement.
“20(l) 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 plain tiff or plaintiffs and the
remainder as defendant or defendants, if the
application has been presented by an the parties, or,
if otherwise, between the applicant as plaintiff and
the other parties as defendants.
1003
(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. Sub-section (1) of
section 20 makes it plain that the provisions of the section
can be availed of only if no providing 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 subsection (4) of section 20.
Thus it seems clear that the court in the instant cases had
no jurisdiction, after appointing an arbitrator under
section 8(2), to proceed further to make an order referring
the disputes to the arbitrator.
The question which now arises is whether the awards
could be set aside as invalid because the reference was
incompetent. Section 30 of the Act which sets out the
grounds for setting aside an award is in these terms:-
Grounds for setting aside award.
“30. An award shall not be set aside except on one
or more of the following grounds, namely:
(a) that an arbitrator or umpire has misconducted
him self or the proceedings;
(b) that an award has been made after his issue
of an order by the Court superseding the
arbitration or after arbitration proceedings
have become invalid under section 35;
(c) that an award has been improperly procured or
is otherwise invalid.”
According to the respondent an award obtained on an invalid
reference is also invalid and is covered by clause (c) of
section 30. It was argued on behalf of the appellant, on the
authority of the Privy Council in Chhabbe Lal v. Kallu Lal
and others(1), that the
1004
words “otherwise invalid” in section 30(c) did not cover a
case where the award was challenged on the ground of some
invalidity attaching to anything outside the award itself.
In Chhabbe Lal’s case the Privy Council held that an
objection to the validity of a reference to arbitration did
not come within the provisions of paragraph 15 of the 2nd
schedule to the Code of Civil Procedure, 1908, which
provided that no award was to be set aside except on the sp
civic grounds mentioned therein, or the award “being
otherwise invalid”. This view which affirms that of Iqbal
Ahmed J. in his dissenting judgment in a Full Bench decision
of the Allahabad High Court, Mt. Mariam v. Mt. Amisa(l) was
taken in relation to an award on a reference made in a suit.
Their Lordships observed:
“…. all the powers conferred on the court in
relation to an award on a reference made in a suit
presuppose a valid reference on which an award has been
made which may be open to question. If there is no
valid reference, the purported award is a nullity, and
can be challenged in any appropriate proceeding.”
There was no provision in the 2nd schedule to the Choice of
Civil Procedure, which was repealed by the Arbitration Act,
1940, like section 32 or section 33 of the Act. Section 32
bars the institution of suits concerning arbitration
agreements or awards and provides that no arbitration
agreement or award shall bet set aside,, amended, . modified
or in anyway affected otherwise than as provided in this
Act; section 33 says that a party to an arbitration
agreement seeking to challenge the agreement or the award
must do so by making an application to the court. When the
2nd schedule to the Code of Civil Procedure was in force, an
award made on an invalid reference could be set aside only
by filing a suit which was then the “appropriate
proceeding”, but now the proceeding appropriate for the same
purpose is an application to the court as the respondent in
these cases has done. Also, these are cases of arbitration
without the intervention of court, and the obsenation from
the judgment in Chhabe Lal’s case, quoted above, that a
reference in a suit should be presumed to be a valid
reference, does not apply to these cases. The words “or is
otherwise invalid” in clause (c) of section 30 are wide
enough to cover all forms of invalidity including invalidity
of the reference. We do not find any reason why the general
and unqualified language of clause (c) should not include an
award on an invalid reference which is a nullity. The cases
cited at the Bar show that all the High Courts with only one
or two exceptions have taken this view. We hold therefore
that the awards challenged in these appeals are nullities
and have been rightly set aside by the High Court. In the
view we have taken that is not necessary to consider the
other question, whether Brig. Bhandari who made the awards
was the officer answering the description on Director of
Farms, General Headquarters, Simla, to whom the court had
referred the disputes. In the result the appeals fail and
are dismissed with costs. One set of hearing fee.
P.H.P. Appeals dismissed.
1005