PETITIONER: HARI KRISHAN WATTAL Vs. RESPONDENT: VAIKUNTH NATH PANDYA DATE OF JUDGMENT18/07/1973 BENCH: PALEKAR, D.G. BENCH: PALEKAR, D.G. ALAGIRISWAMI, A. CITATION: 1973 AIR 2479 1974 SCR (1) 259 1973 SCC (2) 510 CITATOR INFO : F 1985 SC 920 (11) ACT: Arbitration Act (10 of 1940) s. 28 and cl. (3) of Schedule- Scope of. HEADNOTE: Disputes having arisen between the appellant and the respondent, they were referred to arbitration in accordance with the agreement entered into between the parties. The arbitrator gave his award. The appellant applied for filing of the award into Court and for making it a rule of Court. The validity of the award was challenged by the respondent, and the trial Court and the High Court set it aside on the grounds (1) that the award was made after the prescribed period and (2) that theagreement for arbitration was defective on account of vagueness and uncertainty. Allowing the appeal to this Court and remanding the matter to the High Court for disposal. HELD : (1) Under cl. (3) of the Schedule to the Arbitration Act, 1940,the arbitrator is expected to make his award within four months of his entering on the reference or on his being called upon to act or within such extended time as the Court may allow. Reading the clause with s. 28 of the Act the power to enlarge the time for making the award is vested, in the Court and not in the arbitrator. Section 28(2), however, indicates an exception. namely when the parties agree to such enlargement after the arbitrator enters on the arbitration. But the section does not require that the parties should stipulate in the arbitration agreement itself, for such enlargement of time by a, subsequent agreement. Even in a case where there is no such stipulation in the original agreement the arbitrator is entitled to enlarge the time if after entering on the reference the parties to the arbitration consent to such enlargement.[261G-H; 262A-D] In the present case the enlargement of time for making the award wason the request and mutual consent of the parties during arbitration, and therefore, the award made within the extended time must be deemed to be valid. [263A-C] (2) A perusal of the agreement in the background of the disputes that had arisen shows that the agreement was neither vague nor uncertain. In fact,the parties never complained before the arbitrator of any such vagueness or uncertainty. [263C; 264B] JUDGMENT:
CIVIL APPELLATE JURISDICTION : Civil Appeal No. 1433 of
1967.
Appeal by special leave from the judgment and order dated
December 7, 1966 of the Allahabad High Court in F.A.F.O. 31
of 1963.
B. D. Sharma, for the appellant.
Hardayal Hardy. Madhav Prasad and M. V. Goswamy, for res-
pondents 1 (a) to 1 (e).
The Judgment of the Court was delivered by
PALEKAR, J.-This is an appeal by special leave from an order
of the High Court at Allahabad dated December 7, 1966, by
which the Court, in agreement with the trial court,
superseded a Reference to Arbitration.
260
Hari Krishna Wattal and Vaikunth Nath Pandya carried on
business in partnership under the name and style of ‘Wattal
& Co.’. Differences having arisen between them, a reference
was made to the Arbitrator in accordance with the agreement
under the partnership deed. The Arbitrator, Shri Bagchi,
Advocate, gave an award and Hari Krishna Wattal applied
under section 14 of the Arbitration Act for filing of the
award and for making it a rule, of the Court. Objections
were filed by Vaikunth Nath Pandya. The award was
challenged on several grounds. The Court of the first
instance held inter-alia that the award dated February 27,
1959 was invalid on the ground, firstly, that the award had
been passed after the prescribed period for making the award
and secondly that the reference agreement was defective on
account of vagueness and uncertainty. Hari Krishna Wattal
filed an appeal in the High Court. The learned Single Judge
who heard the appeal agreed with the trial-court on the two
above grounds and superseded the reference.
It is contended by Mr. Sharma that both the Courts were in
error in holding that the award was invalid on the aforesaid
grounds.
Ex. 13 is the agreement to refer the disputes between the,
parties. The agreement is dated 5-2-1958 and the award, as
already stated, was made much beyond four months from the
date of the reference. Prima-facie it will be invalid unless
the time for enlargement for making the award was legally
extended. It is contended for the appellant that the time
had been legally extended by the mutual written consent of
the parties and hence the award was not liable to be set
aside. It will appear from the record that the time was
extended not less than six times. The first extension was
from 31-5-1958 to 31-7-1958 and the last extension was from
29-1-1959 to 28-2-1959. None of these six extensions’ was
for the benefit of the appellant. Five extensions were
given for the convenience of the respondents and one for the
convenience of the Arbitrator. On each occasion, however,
the appellant and the respondents had mutument agreed to the
extension in writing. The agreement for enlargement of time
was generally in the following terms
“IT IS THEREFORE AGREED BETWEEN THE PARTIES AS BELOW
(1) That Shri A. K. Wattal, constituted
attorney for Shri H. K. Wattal and Shri
Vaikunth Nath Pandya agree to give further
time to the Arbitrator to give his award on
any date till the 31st of July, 1958.
(2) That the said parties further agree that
they would accept such award, if given on or
before 31st of July 1958, as a valid award,
and would not raise any objection on the score
of its having been delivered beyond four
months of the reference to arbitration.”
It is not disputed that if such mutual agreement between the
parties to the arbitration was capable of legally effecting
the enlargement of
261
time for making the award then the award could not be
challenged on the particular ground that it had been
delivered beyond four months of the reference.
Section 3 of the Arbitration Act, 1940, provides
“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 are
applicable to the reference.
The First Schedule has 8 clauses describing
the implied conditions of an arbitration
agreement. Clause 3 reads as follows :
“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.”
The power of the Court to extend time
contained in section 28, which is as follows :
“28. Power to Court only to enlarge time for
making award. (1) The Court may, if it thinks
fit, whether the time for making the award has
expired or not and whether the award has been
made or not, enlarge from time to time the
time for making the award.
(2) Any provision in an arbitration
agreement whereby the arbitrators or umpire
may, except with the consent of all the
parties to the agreement, enlarge the time for
making the award, shall be void and of no
effect.”
The High Court was of the opinion that there are only two
methods for enlarging the time. The first method is
securing an order from the Court and the second method is to
stipulate in the arbitration agreement for extension of time
by a subsequent agreement. The High Court held that the
general plan of section 28 suggested that the Legislature
did not contemplate any third method for extension of time.
Since, in the present case, the arbitration agreement itself
did not stipulate for extension of time by a subsequent
agreement and there was no order of a Court extending the
time the award was invalid.
The question depends upon the true construction of section
28. There is no doubt that the Arbitrator is expected to
make Ms award within four months of his entering on the
reference or on his being called upon to act or within such
extended time as the Court may allow. Reading clause 3 of
the Schedule along with section 28 one finds that the power
to enlarge the time is vested in the Court and not in the
Arbitrator. Clause 3 and section 28(1) exclude by necessary
implication the power of the Arbitrator to enlarge the time.
This is emphasised by section 28(2) which provides that even
when such a provision giving the Arbitrator power to enlarge
the time is contained in the agreement, that provision shall
be void and of no effect. The
262
headnote of section 28 brings out the force of this position
in law by providing that the power is of the Court only to
enlarge time for making the award.
Sub-section 2 of section 28, however, indicates one
exception to the above rule that the Arbitrator cannot
enlarge the time, and that is when the parties agree, to
such an enlargement. The occasion for the Arbitrator to
enlarge the time occurs only after he is called upon to
proceed with the arbitration or he enters upon the
reference. Hence, it is clear that if the, parties agree to
the enlargement of time after the Arbitrator has entered on
the reference, the Arbitrator has the power to enlarge it in
accordance with the mutual agreement or consent of the
parties. That such a consent must be a Post-reference
consent, is also clear from section 28(2) which renders null
and void a provision in the original agreement to that
effect. In a sense where a provision is made in the
original agreement that the Arbitrator may enlarge the time,
such a provision always implies mutual consent for
enlargement but such mutual consent initially expressed in
the original agreement does not save the provision from
being void. It is, therefore, clear that the Arbitrator
gets the jurisdiction to enlarge the time for making the
award only in a case where after entering on the arbitration
the, parties to the arbitration agreement consent to such
enlargement of time.
The question, however, is whether it was necessary to
stipulate in the arbitration agreement itself for the
enlargement of time by a subsequent agreement. in our
opinion, sub-section 2 of section 28 does not say that such
a stipulation should be in the arbitration agreement itself.
It only tells us in which specific case of mutual consent a
provision for enlargement of the time for making the award,
if inserted in the agreement, will have the provision from
being null and void. It does not purport to lay down that
such a specific case of mutual consent should, in order to
become effective, be part of the original agreement between
the parties.
The above interpretation is in consonance with the
fundamental principles of arbitration. The arbitrator gets
his jurisdiction to make a binding award on an agreement
between the parties to refer a dispute to him. The
agreement between the parties is the foundation of the
jurisdiction of the Arbitrator. Like any contract by mutual
consent of the parties, the terms of the contract can be
modified. Even in a case where the Arbitrator enters on the
reference on an invalid agreement it is open to the parties
to enter into a fresh agreement to refer the dispute to the
Arbitrator while it is pending adjudication and in such an
event the proceedings before the Arbitrator can be upheld as
referable to that agreement and the award will not be open
to attack as without jurisdiction. See : Beverly Jule Mills
Co. Ltd. v. Raymon & Com. (India) Privdte Ltd.(1) Such being
the power of mutual consent of the parties in the sphere of
arbitration one does not see why by mutual agreement the
parties cannot enlarge the time for making the award when
the Arbitrator has entered on the reference and is
proceeding with the arbitration.
(1) [1963] 3 S. C. R. 209, 226.
263
In our view, therefore, section 28(2) does not provide that
the Arbitration agreement alone should stipulate that the
Arbitrator may extend the time on a subsequent agreement
between the parties. Even in a case where there is no such
stipulation in the original agreement, the Arbitrator is
entitled to enlarge the time if after entering on the
reference the parties to the arbitration consent to such
enlargement. In the present case, the enlargement of time
for making the award was on the request and mutual consent
of the parties during arbitration and, therefore, the award
made within the extended time must be deemed to be valid.
The second ground on which the reference was superseded was
that the arbitration agreement was defective on account of
vagueness and uncertainty. We have carefully gone through
the arbitration agreement Ext. 13 dated 5-2-1958 and we
think that the High Court was in error in thinking that the
agreement was vague and uncertain. It will be seen that the
agreement is between Hari Krishna Wattal on the one hand and
Shri Vaikunth Nath Pandya on the other. The long preamble
shows that they were doing business in the name of Wattal &
Co. and disputes had arisen between them with regard to
certain amounts which were put to the debit of Vaikunth Nath
Pandya and his sons which Wattal insisted must be paid to
him. But Vaikunth Nath Pandya was challenging the
correctness of the entries in the accounts about the
business of Wattal & Co. It may be stated here that Vaikunth
Nath Pandya had two sons. One son named Rishi Nath Pandya
was the Manager of Kailash Carpet Co. a proprietary concern
of Hari Krishna Wattal. There were accounts in the name of
Rishi Nath both in Kailash Carpet Co. and Wattal & Co. The
second son Ravinder Nath was doing business as Ravindra
Bros. He had a cash credit account with Wattal & Co. It
appears that some dispute, was raised with regard to the
correctness of the accounts in the names of the two sons in
the books of Wattal & Co. but if the ‘accounts were held to
be correct there was no dispute that the father Vaikunth
Nath Pandya had agreed to accept the liabilities on behalf
of the sons. So, the agreement of reference contained these
four clauses :
1. That the said Arbitrator shall determine
what amounts if any, are due to the first
party (Wattal) from the’ second party (Pandya)
and his sons including Ravindra Brothers, and
how the same should be paid by the second
party (Pandya).
2. That the arbitrator shall allow the
second party to check and examine the accounts
of Wattal and Co. not only from 1-5-55 but
also for any such earlier period as the
arbitrator thinks fit.
3. That the Arbitrator shall be entitled to
hear and determine the other grievances of the
parties, if any.
4. That the Arbitrator shall determine the
amount payable by one party to the other after
taking into consideration the sums due to or
due by the second party or his sons including
Ravindra Brothers from or to the first party
respectively.”
L373Sup CI/74
264
We have failed to understand what was vague and uncertain
about the agreement. It appears from the record that the
Arbitrator had called upon Wattal to formulate his claims
and then replies on behalf of Pandya were duly filed.
Accounts were inspected from time to time by Pandya, full
opportunity being given to him to do so as per the reference
agreement itself. Arguments were also filed in writing by
both the sides. It does not appear that any complaint was
made on behalf of the parties before the Arbitrator about
anything vague or uncertain in the agreement. Once it is
remembered that the arbitration was with reference to the
business of Wattal & Co. of which the parties were the
partners, it is clear that the four clauses referred to
above must be read against the background that all of them
are in the context of the business of Wattal & Co. The mere
fact that the Arbitrator had looked into accounts of Kailash
Carpet & Co. in order to verify any entries made in the
books of the business of Wattal & Co. would not mean that
some how the accounts of Kailash Carpet Co. would be
interpolated into the books of Wattal & Co. The learned
Judge agrees that if one looks at the preamble of the agree-
ment, that gave the impression that the Arbitrator had to
decide merely the disputes relating to the business of
Wattal & Co. We must say with respect that this impression
is the correct impression. We do not see how clauses 1 and
4 enlarged the scope of arbitration proceedings. There were
entries in the books of Wattal & Co. relating to the two
sons of Pandya. The father had undertaken by the agreement
to accept the true liabilities of his sons as disclosed in
the books of the business of Wattal & Co. That was a
perfectly legal liability the father was entitled to
undertake on behalf of his sons. The Arbitrator had to deal
with the disputes between the two parties in relation to
business of Wattal & Co. And, if for deciding the matter he
required verification of the entries in the books of
accounts, we do not see why the Arbitrator should not
examine any other accounts, even the accounts of Kailash
Carpet Co. Nor can we find any sufficient objection to
clause 3 of the- agreement referred to above. That clause
says that the Arbitrator shall be entitled to hear and
determine the other grievances of the parties, if any. It
may be that the wording of the clause is rather loose, but
once you remember that there are disputes with regard to the
business of Wattal & CO. that clause must be understood in
that context. The ‘grievances’ mean nothing more than
disputes. Two specific disputes were mentioned in clauses 1
and 2, clause 3 made provision for any other dispute which
may legitimately arise on an examination of the accounts of
the business. In other words, all disputes between the
parties relating to the debits and the credits in the
accounts of the business of Wattal & Co. were the subject-
matter of the arbitration. We do not agree with the learned
Judge that it was possible to bring in any dispute of the
parties within the scope of the arbitration proceedings. We
do not, therefore, think that the agreement was bad on
account of vagueness or uncertainty.’
The two grounds on which the High Court superseded the
reference had not been substantiated. The award cannot be
challenged either on the ground that it was made after the
prescribed period or
265
that the agreement for arbitration was defective on account
of vagueness and uncertainty. Since the other points
arising in the appeal before the High Court had not been
dealt with, the case will have to go back to the High Court
to be disposed of in accordance with law after hearing the
parties on points not agitated before the High Court. The
appellant shall get his costs from the respondents in this
appeal.
V.P.S.
2 66