JUDGMENT
P. Venkatarama Reddi, J.
1. These two C.M.As. (CMAs. 714/88 and 759/86) are directed against the common judgment in O.P. No. 229 of 1986 and O.P. No. 195 of 1986 on the file of Principal Subordinate Judge, Visakhapatnam. O.P. No. 195 of 1986 was filed under Section 14 of the Arbitration Act, 1940 by the Food Corporation of India (respondent herein) to make the award (Ex. A3) passed by the umpire on 6.7.1984 a rule of the court. O.P. No. 229 of 1986 was filed by the appellant herein under Sections 30 and 33 of the Arbitration Act to set aside the award.
2. The appellant entered into a contract with the respondent for transporting bulk wheat from the Port of Sydney (Australia) to the Port of Visakhapatnam and in connection therewith, a charter party agreement was entered on 1.9.1976. A part of the consignment of wheat was damaged. The damaged wheat was sold by the respondent and a sum of Rs. 54,108/- was recovered. The respondent called upon the appellant to make good the loss suffered by them. On the refusal of the appellant, the dispute was referred to the arbitration of two persons nominated by each of the parties as per the terms of the agreement. The relevant arbitration clause reads as follows :
“Clause 53 :
Any dispute arising under the Chapter shall be settled in accordance with the provision of the Arbitration Act, 1940, in India, each party appointing an Arbitrator, and the Arbitrators in the event of disagreement, appointing an Umpire whose decision shall be final and binding upon both the parties hereto, Arbitrators to be commercial men. This clause applies to any event occurring outside Australia.”
The respondent claimed a sum of Rs. 3,63,616/- towards damages and this fact is recited in the award made by the umpire. That includes the cost of the wheat, proportionate freight and insurance charges and survey charges.
3. The Arbitrators could not come to an agreed decision. Hence, in terms of the arbitration clause extracted above, they referred the matter to an umpire by name Mr. R. S. Cooper. The umpire heard the two Arbitrators on 23.6.1984, perused the documents and passed the impugned award by which he decided that the appellant herein was liable to the claimant in terms of the contract of carriage for damages in the sum of Rs. 3,63,616/-. The two supplementary claims for Rs. 5,298/- and Rs. 4,704/- were, however, rejected. The Arbitrators intimated the parties that the umpire has passed the award. The respondent filed an application under Sections 14 and 17 of the Arbitration Act in the court of the Principal Subordinate Judge, Visakhapatnam and prayed for a decree in terms of the award. The appellant in its turn filed an application to set aside the award. As already stated, the court has passed the decree confirming the award while overruling the objections filed by the appellant. Hence these appeals.
4. It may be mentioned that against the order and decree making the award the rule of the court, the appellant ought to have filed a revision as an appeal does not lie. However, on this ground, we are not inclined to reject the appeal in fimine. The appeal has been pending here for seven years. No objection has been raised on behalf of the respondent that an appeal does not lie. By filing an appeal instead of revision, it does not affect the substance of the matter. We consider it just and proper to permit the appeal (CMA 759/86) to be converted into revision more especially when no prejudice whatsoever will be caused to the respondent on this count.
5. Now we proceed to deal with the first and foremost objection put foreward by the learned Counsel for the appellant against the award. It is his case – in fact it is an undisputed Act – that the umpire, after entering on reference, did not give any notice to the parties and the parties were not called upon to appear before him. Instead, the umpire chose to hear the Arbitrators who, as already mentioned, were nominated by the parties. Thus, the proceedings were conducted by the umpire behind the back of the parties. It does not appear from the pleadings nor is there any suggestion from the counsel that the Arbitrators had intimated the parties about the hearing that took place on 23.6.1984.
6. It may be noticed from Condition No. 4 of the First Schedule to the Arbitration Act that the umpire enters on the reference “in lieu of the Arbitrators”. Condition No. 6 also indicates that the Act does not contemplate any distinction with regard to the conduct of proceedings by the Arbitrator or the umpire. It is an undeniable fact that on reference of the matter to the umpire, the Arbitrators become functus officio. The umpire taken upon himself the exclusive authority of determining the dispute. He takes the place of Arbitrator, as the expression “in lieu of the Arbitrators” conveys. Unless there is an agreement to the contrary defining or demarcating the powers of the umpire, he is expected to discharge the same functions as Arbitrator with all the attendant powers, duties and obligations. Either going by the very nature of functions entrusted to the umpire or by the provisions of the First Schedule, it is crystal clear that there is no continuation of the proceedings before the umpire. The process of arbitration starts de novo before him as he takes the role of the primary and exclusive authority to decide. It necessarily implies therefrom that the umpire is bound to observe the rules ensuring fair-play and justice and improvise the procedure in conformity with the principles of natural justice just as the Arbitrators are bound to do. In other words, There is no qualitative difference between the Arbitrators and the umpire with regard to the methodology and modalities to be adopted for reaching a just and fair and decision. It is trite to say that an Arbitrator is bound to observe the principles of natural justice and conform to the fundamentals of judicial procedure. It is his duty to afford a reasonable opportunity to the parties concerned. It is true that the principles of natural justice vary according to the requirements of the case and whether in a particular case, it is incumbent on the part of the Arbitrators or umpire to record the evidence and to hold an oral enquiry is a matter which may depend on the nature and complexion of the case. But, the least that an Arbitrator or umpire is expected to do is to put the parties on notice and efford them an opportunity of hearing. Of course, if in the course of hearing, the parties do not ask for oral evidence to be recorded or other procedures to be observed, the Arbitrator or umpire may perhaps be justified in giving the award on hearing the respective view points. But, judged by any standard, in the instant case, the basics of fair-play and justice were not kept in view by the umpire. The very fact that the umpire chose to hear the Arbitrators would be indicative of the fact that the umpire evidently wanted some clarification or the umpire would have thought that by such hearing, he would be able to appreciate the rival contentions in a better perspective. If so, there is absolutely no reason why the parties or their counsel should not have been heard. The very fact that there was difference of opinion amongst the Arbitrators was itself a relevant consideration to afford hearing to the parties. In this context, it must be remembered that the Arbitrator does not represent the interests of a particular party by whom he is nominated. The Arbitrator is not even a conciliator. He is in the position of a quasi-judge. The hearing given to Arbitrators is not a substitute for the hearing of parties. The umpire had, therefore, been labouring under a serious misconception in dispensing with the presence of the parties, and content with hearing the two Arbitrators. We have no hesitation in holding that the decision reached by the umpire is vitiated in law as it amounts to misconducting the proceedings within the meaning of Section 30(a) of the Arbitration Act.
7. The lower court has commented that no application was made by the parties before the umpire either to take evidence or to give hearing and therefore, the conduct on the part of the appellant would amount to ‘waiver’ of its right to participate in the proceedings. We are unable to appreciate this reasoning. First of all, there is no finding to the effect that the parties were aware of the proceedings that were held on 23.6.1984. Assuming that they were aware of the same, they might have been expecting a notice from the umpire. Even before a notice for appearance was received from the umpire, it is too much to expect that they should take the lead in advance and request the umpire to afford an opportunity of adducing evidence or to give personal hearing. Apart from that, when the umpire acted in disregard of the fundamental duty bestowed on him to observe the basic principles of natural justice, such omission cannot be cured or validated by inaction on the part of the parties. There is nothing like a conscious abandonment of a known legal right so as to amount to waiver. The court below had, therefore, misdirected itself and erred in upholding the award.
8. A reference to the well-known treatises on the subject of arbitration and the decided cases fortify our view-point. In Russell’s Law of Arbitration (20th Edition), the following passages occur at page 236 :
“An umpire is a person appointed to take over the reference from Arbitrators who are unable to agree amongst themselves. In general, he is in the same position as a sole Arbitrator ……”
“The powers and duties of an umpire when he is called upon to act, are in general of the same as those of the Arbitrators.”
In Halsbury’s Law of England, Fourth Edition, it is stated in para 591 :
“The umpire, if and when required to make an award, is substituted for and has the same powers with regard to the conduct of the arbitration as had, the Arbitrator. The umpire may also receive assistance from the Arbitrators acting in a non-judicial capacity.”
It is also pointed out in the succeeding para :
“The Arbitrator or umpire should observe so far as may be practicable, the rules which prevail at the trial of an action in court, ‘but he may deviate from those rules provided that in so doing he does not disregard the substance of justice’.”
9. In Industrial Cases v. Ganesh Flour Mills , the award made by an umpire was set aside on the ground that the umpire should not have proceeded to give his own award as soon as the other two Arbitrators differed, without giving an opportunity to the parties to say anything further. That was a case in which the umpire was named even before the arbitration proceedings commenced and the umpire was sitting along with the other two Arbitrators in the course of proceedings. The learned Judge of the Allahabad High Court (S. K. Verma, J.) pointed out that the words ‘entering on the reference’ occurring in Clause (2) of the First Schedule to the Arbitration Act does not mean, ‘proceed to give an award’.
In Oriental F. & G. Insurance Co. Ltd. v. Murlidhar Gopikissen Pvt. Ltd. , the arbitration clause in the policy of insurance itself provided for an umpire being appointed by the Arbitrators before entering upon the reference. It further provided that the umpire shall sit with the Arbitrators and preside at their meetings. In the face of such clause, the Division Bench of Calcutta High Court held :
“By the arbitration clause in the instant case, parties intended and arranged that the umpire would sit with the Arbitrators and hear the evidence and submissions of the parties once for all. The parties had full opportunity to place their respective cases before the umpire. He also fully heard the evidence adduced by the parties and the submissions made on their behalf. Therefore, in the above view of the matter and in view of the intention of the parties as expressed by the arbitration clause as stated herein before, no prejudice has been caused to the parties in the absence of any further hearing of the case before the umpire. The cases relied upon by the appellant are distinguishable. In those cases, the arbitration agreement did not provide that the umpire would preside over the meetings of the Arbitrators. Hence in our view the umpire did not misconduct the proceedings which had the effect of vitiating his award.”
There are two vintage decisions which are still referred to and followed – one is the decision of Sind High Court in Dhansingh v. Ramchand (AIR 1924 Sind 27). There also as in the present case, the umpire made his award without informing both the parties of his appointment, but he fixed a date for hearing. He then passed an award which was challenged. The award was held to be invalid in the absence of opportunity of hearing to the parties. It was pointed out that the duties of an umpire were identical with those of an Arbitrator and therefore the parties were entitled to hearing before an umpire no less than before the Arbitrator. In Karam Chand v. M. T. Jasodhan (AIR 1927 Lahore 347), it was held that it amounted to legal misconduct on the part of the umpire to decide the case without giving notice to the parties or hearing their comments on evidence.
A Division Bench of this court in Nagabushanam v. Simhadri Apparao (1966 (2) An. W.R. 284), speaking through Kumarayya, J. (as he then was) had this to say on the role and duties of the Arbitrator :
“The Arbitrators in their function which is quasi-judicial must act in a judicial manner and their enquiry should not be slipshod, but full and complete. They should not simply make appearances of conducting enquiry but should follow the fundamental rules which govern judicial procedure. All this can be satisfactorily done only if they give due notices, maintain proper records and notes. Of course, it may not be necessary for them to strictly comply with the rules of procedure and evidence as the Indian Evidence Act does not in terms apply to their proceedings; but in no event can they dispense with the substance of justice which is sacrosanct. It is necessary that they conduct themselves in such a manner as will subserve the interests of justice. Any departure from the fundamental rules of procedure and established canons of justice is sure to vitiate their award and the discretion of the court conferred by the statute to set aside the award will be duly exercised as it not controlled by an agreement between the parties to the contrary whether express or otherwise.”
In Tritha Lal v. Bhusai Mysore Dasi ((1949) FCR 395), it was observed by the Federal Court :
“The Arbitrator ordinarily has to follow the rule of natural justice and generally enquiry before him is assimilated as near as may be to the proceedings or trial in a court.”
The following observation of Justice Wadia of the Bombay High Court in Pratap Singh v. Krishna Prasad & Co. (AIR 1932 Bom 68), were cited with approval in the aforementioned case :
“It is a well-known principle of the law of arbitration that an inquiry before the Arbitrator should be assimilated as near as possible to proceeding in a trial in a court of law, and that therefore a party to the arbitration must not only have notice of the time and place of the meeting but he should be allowed reasonable opportunity if he wants to be heard. If there is no sufficient notice, there cannot be a proper hearing nor a valid award, it being a well-recognised rule of natural justice that a man’s legal rights cannot be determined without giving him an opportunity of being heard.”
As observed earlier, the umpire to whom the matter was referred to by the Arbitrators was not at all conscious of his duty to observe the basic tenets of natural justice as highlighted in the aforementioned decisions and he acted in breach thereof. However bona fide his action may be, it tantamounts to legal misconduct on the part of the umpire.
10. We, therefore allow the appeal/revision and set aside the award and judgment of the lower court making it a rule of the court. We make no order as to costs.
11. Appeal allowed.
