JUDGMENT
D.P. Wadhwa, J.
(1) This petition is under Sectionals 8 and 28 of the Arbitration Act. 1940 (for short “the Act”).
(2) The principal dispute between, the parties concerns valuation of the shares of certain companies running sugar mills. There are three petitioners and one respondent. First petitioner is the father of the other two petitioners and the respondent. In other words, petitioners No. 2 and 3 and the sole respondent are the sons of the first petitioner. They entered int to an agreement on 4-6-1986, under which they agreed to have the valuation of shares of : (i) Saraya Sugar Mills Ltd.; (ii) Saraya Industries Pvt. Ltd.; and (iii) Malwa Sugar Mills Co. Ltd. worked out by valuers appointed with the consent of their shares in similarity also agreed to have the valuation of their shares in partnership firm known as “Roadways India”. Till this was done, they mutually agreed to transfer shares of the aforesaid. companies and the partnership firm to each other whereby petitioners were divested of their shareholdings in Saraya Sugar Mills Ltd. and the respondent of his shareholdings in the other two companies and the partnership firm. Certain other conditions were stipulated in the agreement, which are not quite relevant for my purpose. Tills agreement provided as under : “HOWEVER,final adjustment, shall be duly made in accordance with the decision regarding valuation aforesaid by the Arbitrators appointed by both parties or the Umpire. as the case may be.”
(3) The parties appointed Mr.J.P. Mukherji of M/s. J.P.Mukherji & Associates Pvt. Ltd.. Poon for the purpose of valuation of Saraya Sugar Mills Ltd. Malwa Sugar Mills Company Ltd. and Saraya Industries Pvt. Ltd. “for the purpose of the family arrangement and settlement”. The valuer so appointed gave his valuation reports on 8-10-1986 and 22-11-1986. If appears that the parties did not accept the valuation so given and the petitioners in terms of the agreement appointed Mr. J.R.Khanna as their arbitrator. The respondent appointed Mr. J.R. Bhalla as his arbitrator. By letter dated 19-11 -1986 after both the arbitrators had entered into reference asked for further information. On 29-10-1987, however, the arbitrators informed the parties by their letter addressed to them that they were enclosing therewith their respective award, and stated that in spite of their best intentions and considerable discussion between them, they had a difference, of opinion and they were, therefore giving separate awards. In the said letter the arbitrators also stated that their respective awards were being sent “in respect. of the terms of reference dated 3-11-1986 referred, to us”.
(4) Under Section 3 of the Act, unless there is a different intention expressed in the arbitration agreement, the provisions set out in the First Schedule of the Act would be deemed to be included in the arbitration agreement in so far as these are applicable to the reference. Under Clause 2 of the First Schedule, 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. Under Clause 3, the arbitrators are required to make their award within four months after entering on the reference or within such extended time as the Court may allow. Then clauses 4 and 5 are as under :- “4. If the arbitrators have allowed their time to expire without making an award or have delivered to any party to the arbitration agreement or to the umpire a notice in writing stating that they cannot agree, the umpire shall forthwith enter on the reference in lieu of the arbitrators.” “5. The umpire shall make his award within two months of entering on the reference or within such extended time as the Court may allow.”
(5) Under clause (c) of sub-section (1) of Section 8 of the Act, if any case 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 of an umpire. Sub-section (2) of Section 8 is as under :- “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, appoint 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.”
(6) Under Section 28 of the Act. 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. Under sub section (2) of Section 28, however, time for making the award van be enlarged with the consent of all the parties to the agreement by i.e arbitrators or umpire.
(7) This petition was filed on 20-12-1988 after about one year and two months of the arbitrators telling the parties that they were unable to agree. The arbitrators also did not appoint an umpire as required under Clause 2 of the First Schedule. The petitioners have stated that various names were suggested for the appointment of an umpire but the arbitrators could not reach any agreement. The arbitrators continued with the arbitration proceedings in the expectation that they would be able to give an agreed award. Eventually, the petitioners state, the name of Mr. D. D. Puri of Sarawat Sugar Mills was agreed upon but Mr. Puri declined to accept the appointment. The respondent, however, denied there averments and there is nothing on record for me to hold that. Mr. D. D. Puri at any stage was appointed as an umpire.
(8) Before filing this petition, the petitioners also did not give any notice to concur in the appointment of an umpire.
(9) The petitioner have now prayed for extension of time for the arbitration by a period of one month from the date of the order and for directing the arbitrators to appoint an umpire and their failing to do so, an umpire to be appointed by the Court.
(10) On the facts narrated above, there is, no dispute. The respondent has, however, opposed this petition on various grounds. These are : (1) a joint petition under Sections 8 and 28 of the Act is not maintainable; (2) petition under Section 28 of the Act is also not maintainable for the reason that the time can be extended only for making of an award by the arbitrators and in the present case the arbitrators had already made their awards though beyond the period limited by the statute. The petitioners could not ask for extension of time on time bash; of awards and proceedings which were invalid as these were in violation of the provisions of the Act pad the Rules of natural justice; (3) there is no proper explanation for approaching this Court at such a belated stage, after a period of over a year when the arbitrators intimated by their letter dated 29-10-1087 that they could not agree and also sent two separate award : (5) the arbitrators committed illegality in. proceeding with the arbitration without appointing an Umpire within the period prescribed and the whole proceedings are, therefore, vitiated.
(11) As noted above before filing this petition, the petitioners did not give any written notice either to the respondent or to the arbitrators to concur in the appointment of an Umpire. Under Clause 4 of the First Schedule, the Umpire was to enter into reference in lieu of the arbitrators where either the arbitrators had allowed their time to expire without making an award, or had delivered to any party to the arbitration agreement or to the Umpire a notice in writing stating that they could not agree. In the present case the arbitrators by their letter dated 29-10-1987 informed the parties that they had difference of opinion, which meant in fact that they could not agree. Nevertheless, they gave separate awards. But giving a separate awards by the two arbitrators when they did not agree is meaningless under the provisions of the Act. No notice can be taken of such separate awards. The objections of the respondent, therefore, that these two awards were given beyond the statutory period and that the Court should not extend the time for making of these awards under Section 28 of the Act has also no meaning. This is not even (he prayer of the petitioners Here the principal disputes are that the arbitrators have not appointed umpire within the period prescribed under Cause 2 of the First Schedule of the Act and further that before filing this petition, the petitioners did not give any notice either to the respondent or to the arbitrators to concur in the appointment of the umpire.
(12) In Keshavsinh Dwarkadas Kapadia v. M/s. Indian Engineering Co., , one of the questions raised was that the arbitrators before proceeding with the reference did not obtain the consent of the umpire to his appointment as umpire and, therefore, there was no appointment of umpire. The Supreme Court sai.d that it was important to notice the distinction between the appointment and acceptance of office. It said that the only requirement was for the arbitrators to concur in appointing an umpire. If the empire declined the office, the appointment: was ineffectual. The arbitrators in ?uch a case could make another appointment, of an umpire if the arbitration agreement permitted them to do so or the Court could appoint an umpire, in lieu of appointed umpire, who refused to act, so the Supreme Court held.
(13) The position here is that the arbitrators did not appoint an umpire at all. Will that vitiate the whole proceedings ? Mr. Shankardas referred to a Bench decision of the Bombay High Court in M/s. Modern Builders v. Hukmatra N. Vadirani, In this case the arbitrators made their award but did not appoint an umpire as required under Clause 2 of the First Schedule of the Act. It was contended that clause 2 was mandatory and that failure of the arbitrators to appoint an umpire as required by that clause rendered their award invalid. The Court negatived this submission and held that Clause 2 was directory and not mandatory. It further held that reading Clause 2 in the context of Clauses 4 and 5 and Section 8 non-compliance with Clause 2 was not intended to have the consequence of nullifying the proceedings before the arbitrators It further held that the time limited of one month satisfied under clause 2 was also no intended to be mandatory.
(14) Another decision which was referred to is that of Union of India v. Mangaldas N. Varma, Air 1958′ Madras 296(3). “This decision is on the question of notice under Section 8(1)(c) and then coming into operation of the provisions of Section 8(2) of the Act. In this case, the arbitrators were unable to give the award within four months of entering into reference. An application was filed in Court for extension of time and time was extended to a particular date 10-5-1952 for the arbitrators to give their award. The arbitrators failed to agree and on 24-4-1952 appointed one Mr. Nadir as Umpire to decide the questions at issue between the parties. Mr. Nadir entered into reference but then relinquished his office as Umpire as he had to go abroad. The parties thereafter wrote two letters dated 19-6-1952 and 20.-6-1952 to the arbitrators to appoint a new Umpire. The arbitrators then appointed Mr. C. G. Modi. Judge of the Court of Small Causes, Bombay, as the Umpire. No one questioned the validity of the appointment of Mr. Modi as Umpire. One of the questions raised was that the appointment of Mr. Modi as umpire by the arbitrators was invalid and, therefore, the umpire had no jurisdiction at all to proceed with the arbitration. It was stated that since the arbitrators did not appoint an umpire within 15 days. they were divested of any such power to appoint the umpire. The Court held that it was not a case where the arbitrators, who were required to appoint an Umpire. did not appoint one within the meaning of Section 8(1)(c) of the Act and that sub-section postulates at least a factual failure on the part of the arbitrators to appoint an umpire before either of the parties could serve notice on the arbitrators and that Section 8(2) came into play only after the service of the notice under Section 8(l)(c). The Court held that the notices dated 19-6-1952 and 26-6-1952 were not such notices and in fact there was no occasion for any such notice, as it was not a case where there was failure on the part of the arbitrators to appoint an ump re. On the assumption that the two notices aforesaid could be viewed as notices under Section 8(1)(c) of the Act, the Court was of the opinion that Section 8(2) was only an enabling section. This section nearly enable the party to apply to the court for the appointment of an umpire if his notice has been ignored by the arbitrators. The Court held as under :- “The scheme underlying Section 8 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. Consent, of course is of the very essence of the arbitration. Reading Section 8(1)(c) and Section 8(2) together, it seems to us that. even where the arbitrators were requested by the parties to appoint an Umpire, if the request was complied with an umpire was appointed, arid that appointment was accepted by the parties, the validity of the appointment cannot be challenged on the ground that that appointment was made more than 15 days after the parties had asked the arbitrators to appoint an Umpire. If the requirements of Section 8(2) are satisfied, and an application is made to the court to appoint an Umpire, thereafter, of course, when the court is seized of the matter, the arbitrators could not be permitted to appoint an Umpire.”
(15) In order to invoke the provisions of Section 8 of the Act for the Court to exercise jurisdiction to appoint an Umpire. it is necessary, firstly, that the arbitrators do not appoint an Umpire within one month from the latest date of their respective appointments; secondly, notice in writing has been given by any party to the other to concur in the appointment; and thirdly such appointment is not made within 15 clear days after the service of the notice. But the provisions of the appointment within 30 days is not mandatory and so the first condition can be read to mean that the arbitrators do not appoint the Umpire, which otherwise, they are so required to do. Cause of action to file the petition under Section 8(2) will arise after the expiry of 15 days of the service of nouce. Such a petition can be filed within three years of the right to apply accrues. This would be under the residuary Article 137 of the Schedule to the Limitation Act 1963. This situation may appear to be rather anomalous. Arbitration is positively an expeditious way of disposal of the disputes and time under Article 119 of the Limitation Act is 30 days for filing of the award or even for setting it aside, the time beginning to run in both the cases from the respective dates of service of notice of making of the award of filing of the same in Court. Thus for the petition under Section 8(2) of the Act that limitation should be three years is not very right. But that is the law. Even for making of the award, period prescribed is four months for the arbitrators and two months for the Umpire. Of course, time can be extended as mentioned in Section 28 of the Act.
(16) The argument, therefore, that the petition under Section 2 of the Act has been filed after a great deal of delay is of no consequence so long it has been filed within limitation. It is not disputed that the present petition has in fact been filed within the period of limitation. Before filing this petition, however, no notice by the petitioners had been served on the respondent or on the arbitrators. The argument can, therefore, be taken in such a case that petition should itself be treated as a notice. But this cannot be permitted. Notice is sine qua non for the Court to exercise jurisdiction when appointment is not made within 15 days of the service of the notice and only then right to apply to Court accrues. Any such construction, as suggested, that the petition itself being treated as a notice would defeat the provisions of the statute. In this view of the matter, there was certainly no cause of action at the time when the present petition was filed. Then during the pendency of the petition the petitioners did serve a notice dated 18-8-1990 on the arbitrators to concur in the appointment of an Umpire. But this notice remains uncomplied. Thus of rejecting the petition as premature and requiring the petitioners to file petition all over again will be a futile exercise and will not be of benefit to either of the parties. It is not that the arbitration agreement between the parties has been abandoned or has been set at naught. It is very much alive. There is nothing to suggest that the parties have given a go by to the arbitration agreement. It is not that any award has been set aside by the Court for the Court to order supersession of the reference and to order that the arbitration agreement shall cease to have effect with respect to the differences referred (Section 19). The idea is to do substantial justice between the parties rather that not suit the petitioners on technicalities so long as the provisions of law are not infringed. I will, therefore, treat the notice dated 18-8-1990 as validily given by the petitioners. I will hold the present petition maintainable on the failure of the arbitrators to appoint an Umpire within 15 clear days of the service of notice on them requiring them to concur in such an appointment.
(17) I am in agreement with the views taken by the Bombay High Court in M/s. Modern Builders (supra) that Clause 2 of the First Schedule of the Act is only directory where it says that arbitrators are to appoint an Umpire within a period of 30 days and of the Madras High Court in Mangaldas N. Verma (supra) that the arbitrators can validly appoint an Umpire even after the expiry of 15 days of the service of notice, so long the matter for that purpose has not come to the Court.
(18) Provisions of Section 28 of the Act cannot be invoked in the present proceedings because it is not a case where the time for making the award has expired or where the award has been given after the prescribed period, either by the arbitrators or the Umpire. Here the arbitrators did not appoint an Umpire and there was, therefore, no question of an Umpire entering on the reference after the arbitrators allowed their time to expire without making an award or giving a notice either the Umpire or to the parties that they could not agree. Section 28 of the Act no doubt would apply to an award given by an Umpire as well but that stage never arose, as there was no Umpire and no reference to him Provisions of Section 28 arc thus inapplicable.
(19) The disputes here are between the lather and his two sons on one side and his third son on the other. Disputes are also limited and in fact relate to valuation of shares. The parties even acted on the agreement dated 4-6-19S6, which contains an arbitration clause. It is better for all the parties that arbitration agreement is given effect to and disputes are resolved by arbitration than leaving the things in fluid state. In the facts and circumstances of the present case, I am of the opinion that it is a fit case where Court should exercise its jurisdiction in appointing an Umpire. Still better if the parties themselves suggest an agreed name of a person to be appointed an Umpire, the arbitrators themselves having failed to do so. The Court has only to appoint an Umpire and to do no further than that. In Union of India v. Om Prakash, , (4) the Supreme, Court held that in cases of arbitration without the intervention of the Court, the Court has no jurisdiction after appointing an arbitrator under Section 8(2) of the Act to proceed-further to make an order referring the dispute to the arbitrator. Same will be the case of the Umpire. 15 days time is granted to the parties to suggest the name of the Umpire, failing which the Court will appoint the Umpire.
(20) When this petition was fiele, the Court on an interlocutory application (IA 9418/88) restrained the respondent from alienating or disposing of any assets of Saraya Sugar ‘Mills ‘Ltd. , Gorakhpur,U.P. except in the normal course of business of the company. This interim order has continued. This older will remain in force for a period of one month from from the date of service of notice of the making of the award by the Umpire.
(21) The petition is allowed. There will be no order as to costs.