HARI SHANKAR LAL V. SHAMBHUNATH PRASAD
& ORS [1961] INSC 216 (4 May 1961)
04/05/1961 SUBBARAO, K.
SUBBARAO, K.
SINHA, BHUVNESHWAR P.(CJ) DAYAL, RAGHUBAR
MUDHOLKAR, J.R.
CITATION: 1962 AIR 78 1962 SCR (2) 720
CITATOR INFO :
D 1989 SC2259 (7)
ACT:
Arbitration-Reference-Notice in writing by
part to arbitration to act--Time within which award must be made Arbitration
Act, 1940 (10 of 1940), First Schedule r. 3.
HEADNOTE:
The appellant, the respondents 1 and 2 and
their mother referred their dispute to arbitration by a registered agreement.
Within 10 days thereof the arbitrators entered on the reference. After about a
year the mother of the parties died and the arbitrators did not proceed with
the enquiry. About a year thereafter the appellant gave a notice to the
arbitrators requesting them to proceed with the reference and give their award.
the arbitrators made an award. The appellant filed an application in the Court
praying for filing of the award and making it a rule of the court. The
respondents 1 and 2 as defendants raised objections, one of which was that the
award was not given within the time prescribed by law. The Civil judge rejected
the objections and made a decree. On appeal the High Court found that the award
was made after the limitation period and set aside the decree of the Civil
judge and dismissed the suit.
Appellant's case was that r.3 of First
Schedule to the Arbitration Act provided for alternative periods for arbitrators
to make their award. Under second alternative an award could be made within 4
months from date of notice to arbitrators to act and hence award was within
time.
The question was whether the notice to act if
given subsequent to the arbitrators entering on reference, the period should be
computed from the former date or from the latter date.
Held, Sinha, C. J., Subba Rao and Mudholkar,
JJ.), that r. 3 of the First Schedule to the Arbitration Act, 1940, is
mandatory, the object being to prescribe a time limit in the interest of
expeditious disposal of arbitration proceedings.
It imposes a duty on the arbitrators to make
their award within one or other of the three alternative periods mentioned
therein. The party can only ask the arbitrator to act if he is legally bound to
act under the reference. A notice to act can 721 only be. given when an
arbitrator is not acting i.e. he has refused or neglected to discharge his
duty.
The words "enter on the reference"
occurring in r. 3 of First Schedule are not synonymous with the words 1 to
act".
The words "to act" is more
comprehensive and of a wider import than the words "to enter on the
reference." A notice to act may be given before or after the arbitrators
entered upon the reference.. 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. If a party gives notice to act within 4 months after the arbitrators
entered upon the reference, the arbitrators can make an award within 4 months
from the date of such notice. And in that event, after the expiry of the said 4
months the arbitrators become functus officio unless the period is extended by
court under s. 28 of the Act; such period may also be extended by the court,
though the award has-been factually made, otherwise the document described as
an award would be treated as non est.
Per Raghubar Dayal, J.-The period of 4 months
under r. 3 of First Schedule is to run from the date of arbitrator entering on
the reference or from the date on which arbitrator is called upon to act by
notice in writing from any party. If arbitrator has entered on reference,
period of 4 months begins to run from the date of entering on reference. Any
notice subsequently given calling upon to act will not make the period of 4
months start afresh and such notice is not contemplated by r. 3 and it would be
ineffective. It is not necessary to consider whether the notice served after
expiry of 4 months is a good notice or not. But in view of s. 28 of the Act, so
long as the power vested in the arbitrators to decide the dispute is not
withdrawn, they continue to be competent to act on expectation that period for
making award would be extended by court. Arbitrators enter on a reference as
soon as they accept their appointment and communicate to each other about the
reference. This is earlier than starting the proceedings. Calling upon
arbitrators to act includes asking them to enter on the reference or to do
anything in connection with reference except asking them to do the routine
acts.
In the present case arbitrators made the
award when the arbitrators had no jurisdiction, it having been made after the
expiry of 4 months from their entering on the reference.
CIVIL APPELLATE JURISDICTION Civil Appeal No.
219 of 1958.
722 Appeal from the judgment and decree dated
January 5, 1954 of the Allahabad High Court, in First Appeal from Order No. 353
of 1953.
S. K. Kapur and Ganpat Rai, for the
appellants A. N. Goyal, for respondents Nos. 1-2.
1961. May 4. The Judgments of the Court were
delivered by SUBBA RAO, J.--This appeal by certificate raises a question of
construction of r. 3 of the First Schedule to the Arbitration Act, 1940 (10 of
1940) (hereinafter referred to as the Act).
The facts material to the question raised may
be briefly stated. The appellant and respondents 1 and 2 are brothers.
On August 17, 1948, the appellant and
respondents 1 and 2 and their mother by a registered deed of agreement referred
their dispute regarding the partition of two houses in the city of Banaras to
two arbitrators, respondents 3 and 4.
Within 10 days of the reference, the said
arbitrators gave notice to the parties and began to take evidence i.e., they
entered on the reference. On July 25, 1949, Rajwanti, the mother of the
appellant and respondents 1 and 2 died, and the arbitrators did not proceed
with the inquiry. On August 31, 1950, i.e., more than one year after the death
of Rajwanti, the appellant gave a notice to the arbitrators requesting them to
proceed with the reference and give the award at an early data. On October 1,
1950, i.e., within 4 months from the date of the notice, the arbitrators made
an award and it was duly registered. On January 23, 1951, the appellant filed
an application under ss. 14(2) and 17 of the Act in the Court of the Civil
Judge, Banaras, praying that the said, award be filed and be made a rule of the
court.
The said application was registered as a suit
; the appellant was placed in the position of plaintiff and the respondents in
that of defendants. The respondents raised various objections to the said
application ; one of the objections, with which only we are now concerned 723
was that the, award was not given within the time fixed by law. The learned
Civil Judge rejected the objections and made a decree in terms of the award. On
appeal, the High Court came to the conclusion that the award was made after the
expiry of the period of limitation, and on that finding set aside the decree of
the learned Civil Judge and dismissed the suit with costs. Hence this appeal.
Learned counsel for the appellant contends
that r. 3 of the First Schedule to the Act provides for alternative periods
within which arbitrators have to make their award, that under the second
alternative an award could be made within 4 months from the date of notice
issued by a party calling upon the arbitrators to act, and that, as in the
present case the notice to act was given by the appellant to the arbitrators on
August 31, 1950, the award made by them on October 3, 1950, was within the time
prescribed.
The answer to the question raised turns upon
the true meaning of the provisions of r. 3 of the First Schedule to the Act. It
will be convenient at the outset to read the relevant provisions of the Act.
Section 3 of the Act reads "An
arbitration agreement, unless a different intention is expressed therein, shall
be deemed to include the provisions set out in First Schedule in so far as they
are applicable to the reference." Rule 3 of the First Schedule to the Act
is 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 724 arbitration
agreement or within such extended time as the Court may allow." Section 28
says:
"(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." Section 3 of the Act makes the period prescribed in the First
Schedule for making an award a term of the arbitration agreement. Rule 3 of the
First Schedule to the Act is couched in a mandatory form and it imposes a duty
on the arbitrators to make their award within one or other of the three
alternative periods mentioned therein. The first construction suggested by
learned counsel for respondents is that the words ""entering on the
reference" in the first clause of the rule and the words "to
act" in the second clause thereof are synonymous and they mean the same
thing.
This would make the second alternative
unnecessary in many cases, for if the words ",to act" means "to
enter on the reference" there is no need for fixing two separate periods;
for, on that construction, notice would
always precede the act of entering on the reference and, therefore, the first
alternative would serve the purpose. On that construction, the only purpose it
serves is that a party may force the pace by calling upon the arbitrators, who
are delaying. to enter on the reference, to act expeditiously. if the
Legislature intended to give such a limited scope to the said rule, it would
not have used two different sets of words in the two alternative clauses and
different starting points for computing the period of four months; The word
"act" is certainly more comprehensive than the words "enter on
the reference." The distinction between the said two sets of words has
been brought out with clarity in Baring Gould v. Sharpington Combined Pick 725
and Shovel Syndicate(1). There, 'on January 11, 1898, one of the parties served
on the arbitrators a notice in writing addressed to both the arbitrators
requiring them to appoint an umpire ; on February 15, 1898, the arbitrators
appointed an umpire ; the arbitrators did not make any award but on April 30,
1898, the umpire made his award; it was contended that by the notice requiring
the arbitrators to appoint an umpire, they had not been called on to act"
within the meaning of Schedule 1 (c), to the Arbitration Act, 1889, and
consequently the three months within which the arbitrators were required by
that clause to make their award had not expired, and the jurisdiction of the
umpire had not arisen and his award was ,invalid. In that context it became
necessary to decide what the words " called on to act" mean and
whether they were synonymous with the words "called on to enter on the
reference." Lindley, M.R., adverting to that contention observed at p.
"'The three months are to run first
"after' entering on the reference" ; and then in the alternative,
after "haying been called on to act.............. If they are "called
on to act' as arbitrators, it must mean that they are called on to do an act as
arbitrators. It appears to me that these arbitrators were 'called on to act' by
the notice to appoint an umpire ; and there was very good reason for making the
period of three months run from that time. If the arbitrators do not ,enter on
the reference', and they are called on to act', it is an intimation to them
that they are called on to do the work. I can not agre e with Stirling J. that
"called on to act' means 'called upon to enter on the reference'.
Being called on to do anything as an
arbitrator is being called on to act.. That the appointing of an umpire is an
act done by the arbitrators as arbitrators is obvious.
To, (1) (1899) 2 Ch. D. 80.
726 do that which they could only do in the
character of arbitrators' is, in my judgment clearly within the words, and I think
it is within the sense of the expression used in clause (c)." No doubt in
the above case, unlike in the )resent case, the arbitrators were called on to
act before they entered on the reference ; but that cannot make any difference
in the application of the principle, namely that "'to act" is not the
same as " to enter on the reference", and that the former is of a
wider import than the latter. The Allahabad High Court, in Sardar Mal Hardat
Rai v. Sheo Bakhsh Rai Sri Narain(1), had to consider the scope of r. 3 of the
First Schedule to the Act in a different context. There, on January 14, 1919, a
dispute had been referred to arbitrators ; the award was made on August 23,
1919 ; it was contended that the award had not been made within three months
after the arbitrators entered on the reference, nor was it made Within three
months after having been called upon to act by notice in writing by one of the
parties to the submission.
Piggery and Walsh, JJ., held that the two
clauses were alternative in the sense that when no reference was entered upon
at all then the time ran from the notice calling upon the arbitrators to act.,*
and that if they had entered on the reference, they had three months from that
moment for making their award. In that case, the notice to act was given before
the arbitrators entered upon the reference, and as the award was made within
the prescribed time from the date of entering upon the reference, though beyond
the prescribed time from the notice asking the arbitrators to act, they held
that the award was within time on the basis of the second alternative. In
neither of the two cases the question that now falls to be considered had
directly arisen, namely, whether, if the notice to act was given subsequent to
the arbitrators entering on the reference, the period (1) (1922) I.L.R. 44 All.
432.
727 should be computed from the former date
or from the latter date. That question arises in this case.
The said discussion leads us to the
conclusion that though entering on the reference is an act of the arbitrators,
that is not exhaustive of the content of the word "act" in the second
alternative.
But this wide construction, without
limitation would defeat the purpose of r.3. The object of the rule is to
prescribe a time limit in the interest of expeditious disposal of arbitration
proceedings. If Linder the second alternative notice to act can be given at.
any time, it would enable one of the parties to enlarge the period of time
prescribed indefinitely: not only the time limit prescribed would become
meaningless but one of the parties could also, without the consent of the
other, resuscitate a dead or stale reference. This could not have been the
intention of the Legislature and, therefore, a reasonable construction should
be placed upon the provision. Such a limitation on the right of a party to
reopen an abandoned reference is implicit in the words "to act". A
party can ask the arbitrator to act if he is legally bound to act under the
reference. If after the expiry of four months from the date of entering on the
reference an arbitrator can no longer act, a notice given thereafter cannot ask
him to act.
Realizing this difficulty, learned counsel
for the respondents suggests that an arbitrator can act even after four months,
though the award cannot be filed without getting an extension of time from the
court. But the relevant provisions do not support this contention.
The third alternative in r. 3 shows that an
award can be made within the extended time allowed by the Court. Section 28 of
the Act enables the court to extend the time for the making of the award;
extension of time may be given even after 728 the award has been factually
made. So till the time is extended an award cannot be made, though, when
extended, the award factually made may be treated as an award made within the
time so extended. To put it differently, if time was not extended by court, the
document described as an award would be treated as non est. In this view, the
second alternative in r. 3 can be invoked only in a case where a notice to act
has been given to the arbitrators either before the arbitrators entered on the
reference or after they have entered on the reference but before the period of
four months from that date has run out.
It is said that this construction also may
start off a chain of notices which may lead to the same result sought to be
avoided by it. The argument is that if one of the parties gives a notice to
act, it gives the arbitrators 4 months from that date to act and if before the
expiry of the 4 months from that date of notice another notice is given, they
will get another lease of life and so on indefinitely.
Though there is some plausibility in the
criticism, it is answered by our confining the right to give notice by a party
to the period of four months from the date the arbitrators entered upon the
reference. Nor the apprehension that a party may go on giving number of notices
to act within the said 4 months from the date of the arbitrators entering upon
the reference, each notice giving a fresh period of. 4 months, has any basis. A
notice to act can only be given when an arbitrator is not acting i.e., he has
refused or neglected to discharge his duty. Therefore, every notice cannot give
a fresh period unless in fact the arbitrators refused or neglected to act
before such notice is given. The legal position may be formulated thus : (a) a
notice to act may be given before or after the arbitrators entered upon the
reference, (b) if notice to act is given before they entered upon the
reference, the four months would be computed, from 729 the date they entered
upon the reference, (c) if a party gives notice to act within 4 months after
the arbitrators entered upon the reference, the arbitrators can make an award
within 4 months from the date of such notice, and (d) in that event, after the
expiry of the said 4 months the arbitrators become functus officio, unless the
period is extended by court under s. 28 of the act ; such period may also be
extended by the court, though the award has been factually made.
In the present case, the notice was given
long after the expiry of four months from the date when the arbitrators entered
on the reference and, therefore, they could no longer act pursuant to the
notice calling upon them to act.
The proper course should have been to apply
to the court for extension of time under s. 28 of the Act. We, therefore, agree
with the conclusion arrived at by the High Court, though on different grounds.
In the result, the appeal fails and is
dismissed with costs.
RAGHUBAR DAYAL, J.-I agree with the order
proposed, but for different reasons, which I now state.
The period of four months under r. 3 of the
First Schedule to the Arbitration Act is to run from the date of the
arbitrators entering on the reference or from the date on which they have been
called upon to act by notice in writing from any party to the arbitration
agreement. If the arbitrators, have entered upon the reference, the period of
four months begins to run from the date they entered on the reference. Any notice
subsequently given to them calling upon them to act will not make the period of
,Our months start afresh from the date of the service of the notice.
Such a notice would be ineffective for the
purposes of determining the 730 period of four months within which the
arbitrators had to make the award. In fact, there would be no valid occasion
for giving such a notice subsequent to the arbitrators entering on the
reference. Parties cannot prompt them for conducting their enquiry or taking
steps in connection with the enquiry. Even if they do, in case the arbitrators
were lethargic,, such a notice is not contemplated by r. 3 of the First
Schedule.
A case may possibly arise when an arbitrator,
by his conduct, indicates that he refuses to act and that it becomes necessary
for a party to give notice to the other arbitrator to appoint another person
arbitrator in his place. The appointment of arbitrators, would be complete
after the fresh arbitrator has been appointed. The proceedings taken previously
would have come to an end as infructuous. The period of four months, therefore,
would start in accordance with the provisions of r. 3 of the First Schedule and
not from the date on which any party had called upon the remaining arbitrators
to appoint an arbitrator in the place of one who had refused to act. Sections 8
and 9 of the Arbitration Act provide for the appointment of an arbitrator by
the Court in place of such defaulting arbitrator.
The view that the fresh period of limitation
will begin to start from the date of the notice if it be served within the
period of four months which had begun to run from the date on which the
arbitrators entered on the reference, would mean that any of the parties will
be able to extend the period by just giving a notice, to the arbitrators within
the original period of four months. Such an effect of a unilateral notice could
Dot have been intended by the Legislature. If one can extend the time-the
original period of four months-by giving a notice within that period, there is
no reason why another fresh period of four months should not start by the
giving of a second notice to the arbitrators to act, 731 before the expiry of
the period extended by the first notice. If this be possible, the period for
making the award can be extended without any limit by any of the parties.
This is what must have been in the mind of
Lindley, M. R., in Baring Gould's Case (1) when he said:
"The arbitrators have three months
within which to make their award, and the umpire has another month after the expiration
of those three months. Every one agrees, although the enactment does not
expressly say so, that the time from which the three months are to be reckoned
is the first of the two periods mentioned, and not the last. If it were the
last, the proceedings might be very unreasonably postponed." The enactment
under consideration there, is to be found quoted at the bottom of page 86 and,
but for the period of three months instead of four months, is in identical
terms with those of r. 3 of the First Schedule.
In the present case, the arbitrators did
enter on the reference by the end of August, 1948, and therefore the award made
on October 3, 1950 was made beyond the period of four months of the
arbitrators' entering on the reference,, and was therefore made when the
arbitrators had no jurisdiction to make it.
In this view, it is not necessary to consider
whether the notice to act, served after the period of four months had expired,
is a good notice or not or whether the arbitrators are competent to act in
expectation of getting the time extended by the Court or not. I am, however,
inclined to the view that in view of the provisions of s. 28, it is not
possible to say that the arbitrators are not competent to act after the expiry
of the period of four months from the date of their entering oh the reference.
The provisions of this section contemplate the arbitrators (1) (1899) 2 Ch. D.
80,91.
732 having made the award beyond the period
of limitation without having previously obtained the order of the Court extending
the time of making the award. This implies that the arbitrators would have
carried on their proceedings and would have made the award subsequent to the
expiry of the period during which they should have made the award. The
competency of the arbitrators to act in pursuance of the reference arises out
of the reference made by the parties and is not dependent on the period during
which they ought to make the award. So long as the power vested in them to
decide the dispute between the parties is not withdrawn, they continue to be
competent to act on the reference in expectation that the period for making the
award would be extended by the Court.
I also do not consider it necessary to decide
in this case as to when arbitrators can be said to enter on the reference or
what is meant by their being called upon to act' by notice under r. 3 of the'
First Schedule. I simply note that I agree with the view expressed in
Iossifoglu v. Coumantaros (2) that arbitrators enter upon a reference as soon
as they have accepted their appointment and have communicated with each other
about the reference. This is a stage earlier than their starting the
proceedings in the presence of the parties or under some peremptory order
compelling them to conclude the hearing ex parte. 'Calling upon the arbitrators
to act' does include asking the arbitrators to enter on the reference but may
also include asking them to do anything in connection with the reference except
asking them to do the routine acts connected with the enquiry.
Appeal dismissed.
(2) 1941) 1 K.B. 396.
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