M/S. Amarchand Lalitkumar Vs. Shree
Ambica Jute Mills Ltd.  INSC 191 (3 May 1962)
03/05/1962 DAS, S.K.
CITATION: 1966 AIR 1036 1963 SCR (2) 953
CITATOR INFO :
R 1992 SC 188 (5)
Court--Periodic fluctuation of price, if an emergency--Arbitration Act, 1940
(10 of 1940), ss. 5,34-Working Manual of the East India Jute and Hessian
Exchange, Ch. IX. paras. 7(c), 11.
The appellants as sellers of raw jute entered
into forward contracts with the respondent jute mills to sell such jute to
them. The contracts being transferable specific delivery contracts, were
entered into in the standard printed forms of the East India Jute & Hessian
Exchange Ltd., which was an association recognised under the Forward Contracts
(Regulation) Act, 1912, and thus were subject to the rules and bye-laws made by
the Exchange which provided for arbitration of disputes by the tribunal of
Arbitration of the 954 ,Bengal Chamber of Commerce and Industry or the Indian
Chamber of Commerce in Calcutta. The appellants failed to supply the stipulated
jute within the time mentioned in the guarantee clauses. The respondents
exercised their option under the rules aforesaid, cancelled the contracts and charged
the appellants for the difference in price between the contract rate and the
market rate prevailing on the dates of cancellation and on the appellants
denying their liability applied for arbitration. The appellants thereupon
applied to the High Court under s. 5 of the Arbitration Act, 1940, for revoking
the authority of. the arbitrator. There case in contemplated in Para 11, in Ch.
IX of the Working Manual of the Exchange substance was that there was an
emergency as due to scarcity of raw jute and speculation at the relevant time
and the price of raw jute shot up abnormally, this placed the buyers and
sellers of raw jute in two conflicting camp, and the majority of the
arbitrators in the panel of arbitration of the Bengal Chamber of Commerce and
Industry being connected with the buyers of raw jute, the jute mills, were
disqualified from acting as impartial arbitrators. The High Court held that no
such emergent condition had been proved as would justify revocation of the
authority of an appointed arbitrator.
Held, that the normal periodical fluctuation
in the price of raw jute could not constitute an emergency within the meaning
of para. 11 in Ch. IX of the Manual since such fluctuations have been taken
into consideration by those who entered into forward contracts. Such an
emergency must be one which is abnormal and which none could foresee. It could
not, therefore, be said that in the present case there was such a conflict of
interest between sellers and buyers as would tender the panel of arbitrators
having a practical experience of the normal fluctuations of the market
disqualified to act as impartial arbitrators.
The object of ss. 5 and 34 of the Arbitration
Act was the same, namely, to prevent arbitration, with this difference that an
application under s.5 would lie if proceedings had not yet been commenced in
Court whereas under s. 34 an application lay when they had commenced.
But a Court would not lightly exercise its
discretion to, grant leave to revoke an arbitrator's authority. Before it would
do so it must, be satisfied that a substantial miscarriage be relieved from a
tribunal of their own choice simply because they feared that its decision might
go against them, 955 and the court had to base its decision on one on other of
five grounds, namely, excess or refusal of jurisdiction by arbitrator,
misconduct of arbitrator, disqualification of arbitrator, charges of fraud and
lastly the existence of exceptional circumstances.
In the instant cases there were no
exceptional circumstances to justify the conclusion that the arbitrator was
disqualified by bias due to conflicting class interest.
Balabux Agarwala v. Lachminarain Jute Mfg.
Co. Ltd. (1947) 51 C.W.N. 863, Tolaram Nathmull v. Birla Jute Manufacturing Co.
Ltd. (1948) 2 Cal. 171, Dwarkadas Co. v. Keshardeo Bubna, (1948) 1 Cal. 190 and
Bhuwalka Bros. Ltd. v. Petechand Murlidhar, (1951) 2 Cal. 115, distinguished.
The extension of time given to the buyers by
the contracts beyond a month specified by para, 7(c) in Ch. IX of the Working
Manual for delivering letter of authority did not bring the contracts
materially into conflict with that provision nor could the absence of the
expression "without any difference on both sides", which occurred in
the sold notes, from the bought notes make any difference to the rights of the
CIVIL APPELLATE JURISDICTION: Civil Appeal
No. 640 of 1961.
Appeal by special leave from the judgment and
order-dated September 14, 1961, of the Calcutta High Court in Matter No. 44 of
Civil Appeals Nos. 173 to 175 of 1962.
Appeal by special leave from the judgments
and order dated September 14 and 21, 1961, of the Calcutta High Court in
Matters Nos. 149, 258 and 162 of 1961.
M.C. Setalvad, Attorney General of India, B.
Sen and P. K. Boae, for the appellants in C.A. No. 640 of 61.
Sachine Chaudhuri, Ellis Meyer, Subrota K.
Chaudhuri and I.
N. Shroff, for the respondent in C.A. No.
956 N.C. Chatterjee, B. L. Kanodia and B. P.
Mahemari, for the appellants in C.A. No. 173 of 1962.
B.Sen, B. L. Kanodia and B. P. Maheshwari,
for the appellants in C.As. No. 174 and 175 of 1962.
G.S. Pathak, M. G. Poddar and D. N. Mukherjee
for the respondents in C.A. No. 173/62.
P.L. Khaitan, S. N. Andley and Rameshwar
Nath, for the respondents in C A. No. 174/62.
A.O. Bhabra, M. G. Poddar, P. L. Khaitan and
D.N. Mukherjee for the respondents in C. A. No. 175/62.
1962. May .3. The Judgment of the Court was
delivered by S.K. DAS, J.-These four appeals, all with special leave of this
Court, have been heard together because they raise common questions of law' and
fact. This judgment will govern them all.
In the High Court of Calcutta, in or about
February-July, 1961, a series of applications numbering about 170 were filed by
sellers of raw jute. The main relief asked for by those applications was the
revocation of the authority of an arbitrator appointed under certain contracts
Which the applicants had entered into with the respondents in circumstances
which we shall presently state. Except in two or three casts the respondents
were all jute mill companies which purchase raw jute and manufacture finished
goods there from. The main controversy which these applications gave rise to
was dealt with by the High court in its judgment dated September 14. 1961, in
the application entitled Ram Kumar Chhotaria v. Titaghur Jute Factory Co.
Ltd. (Matter No. 20 of 1961 before the High
957 Certain special points arising in some of
the other applications were dealt with in separate' judgments.. The High Court
stated in its judgment in Ram Kumar Chhotaria v. Titaghur. Jute Factory Co.
Ltd. that the only relief, among the many included in the petition, pressed at
the hearing was leave to revoke the authority of the appointed arbitrator under
the provisions of s. 5 of the Arbitration Act, 1940 (Act 10 of 1940) which
provides that "the authority of an appointed arbitrator or umpire shall
not be revocable except with the leave of the Court, unless a contrary
intention is expressed in the arbitration agreement." We shall now state
the circumstances in which the applications were made for leave to revoke the
authority of the appointed arbitrator and in doing so we shall state somewhat
fully the facts alleged in the application of M/s. Amarchand Lalitkumar a firm
registered under the Indian Partnership Act, and carrying on business in
Calcutta, which firm is the appellant before us in Civil Appeal No. 640 of
1961. The facts being similar we shall not repeat them with regard to the other
three appeals, but refer to such special facts or points in those appeals as
have been pressed before us.
On April 22, 1960, M/s. Amarchand Lalitkumar,
whom we shall refer to as the appellant, entered into a contract being contract
No. 1786 with Shree Ambica Jute Mills Ltd., respondent in Civil Appeal No. 640
of 1961, whereby the appellant agreed to sell and the respondent agreed to buy
some 10,000 maunds of Middle and Bottom Jute at a particular price. The
Contract was negotiated by a firm of brokers M/s. A. M. Mair & Co.
(Private) Ltd., and was entered into in the standard printed form prescribed by
the East India Jute & Hessian Exchange Ltd. (hereinafter referred to as the
958 (Exchange) and was subject to the rules and bylaws made by it. The contract
was a 'forward contract being a transferable specific delivery contract in raw
jute, the contract providing by a guarantee clause for "shipment or
despatch during August/September, 1960". By the operation of the
provisions of the Forward Contracts (Regulation) Act 1952 (Act 74 of 1952), and
the notifications made by the' Central Government there under, forward
contracts for the sale or purchase of raw jute in the city of Calcutta which
included the area within the municipal limits of Calcutta, the Port of Calcutta
and the districts of 24 Parganas, Nadia, Howrah and Hooghly, could only be
entered into between members of a recognised association or through or with any
such member. The exchange was such a recognised association. The Act empowered
recognised associations to make bye-laws for the regulation and control of
forward contracts subject to the previous approval of the Central Government.
The Exchange made such bye-laws relating to the transferable specific delivery
contracts in raw jute which bye-laws will be found in Chapter IX of the Working
Manual issued by the Exchange. Terms and conditions of transferable specific
delivery contracts in raw jute as prescribed by the said byelaws provided for
arbitration of all claims and disputes arising out of or in relation to such
contracts by the Tribunal of Arbitration, of the Bengal Chamber of Commerce and
Industry or the Indian Chamber of Commerce in Calcutta in accordance with the
rules framed by the said Chambers. In some appeals before us the contracts
provided for arbitration by the Bengal Chamber of Commerce and Industry and
some by the Indian Chamber of Commerce in Calcutta. The rules of the two
Chambers for constituting Tribunals of Arbitration are similar and such
difference as is material for our purpose will be adverted to later in this
judgment. Paragraph 11 in Ch. IX of the 959 Working Manual of the Exchange made
certain provisions for unavoidable delay in the supply of goods by the sellers
of jute. In order to appreciate the main controversy between the parties it is
necessary to quote the relevant, portion of that paragraph.
"11. (a) In the case of jute and in the
event of seller being prevented or delayed in carrying out their obligations
under the contract by the occurrence of fire, strikes, riots, political or
communal disturbances, hartals and or civil 'Commotions, breakdown of public
transport services, suspension of bookings, they shall give immediate
intimation thereof to buyers. The sellers' and buyers' rights shall thereupon
be as follows :
(i)On the sellers 'Producing satisfactory
evidence of the prevention or delay, they shall be granted an extension of time
for delivering not exceeding thirty days from due date of all penalties.
(ii)If the contract be not implemented within
the extended period referred to in clause (i) above buyers shall thereupon be
entitled to exercise any one of the following option (1) of cancelling the
contract, (2) of buying against sellers in the open market on the day on which
the option is declared and charging them any difference, (3)of cancelling the
'contract and charging sellers the difference between contract and the market
price on the day on which the option is declared 960 Sellers shall notify
buyers that the goods will or will not be shipped within such extended period
referred to in clause (i) and in the case of sellers intimating that they will
be unable to ship within the extended time buyer shall exercise their option
under clause (ii) on the fifth working day of receiving such notice and notify,
In' the absence of any such notice from
sellers it shall be deemed that the goods have not been shipped and buyers
shall exercise their aforesaid option on the fifth working day after expiration
of the extended date and notify sellers.
........................" The case of
the appellant was that at the relevant time certain emergent conditions srose
in the raw jute trade and industry, which prevented the appellant from
supplying the raw jute stipulated for in the contract within the time mentioned
in the guarntee clause. By a letter dated October 10, 1960, the respondent
exercised its option under para. 1 1 quoted earlier, cancelled the contract and
charged the appellant for the difference in price between the contract rate'
and the market rate prevailing on the date of cancellation. The appellant
denied that it bad any liability to pay the difference. Thereupon the
respondent applied for arbitration by the Tribunal of Arbitration constituted
in accordance with the rules of the Bengal Chamber of Commerce and Industry.
The Registrar of the Chamber wrote to the appellant that the arbitration case
(No. 10 of 1961) would be heard by the Tribunal on a certain date. The date was
then extended and before the Arbitration Tribunal could decide the matter the
applications in the High Court were made for revoking the authority of the
The facts and circumstances which according
the appellant situated the emergency were 961 stated in para 11 of the petition
and the substance of the allegations was that owing to the two causes of
scarcity of raw jute and speculation, the prices of raw jute shot up abnormally
giving rise to an emergent condition in the jute trade and industry and
especially in respect of trading in future contracts in raw jute. The
appellant's case was that by reason of that emergency the buyers and sellers of
raw jute were placed in two conflicting camps and the vast majority of the
arbitrators in the panel of arbitration comprising the Tribunal of Arbitration
of the Bengal Chamber of Commerce and Industry were either directly or
indirectly connected with one or other of the jute mills which were all buyers
of raw jute. In paras. 21, 22 and 23 of its petition the appellant stated that
when the parties entered into the contract they never contemplated that there
would happen such an exceptional situation as arose in the jute trade during
the relevant period of September-October, 1960 ; that the arbitrators of the
Tribunal of Arbitration of the Bengal Chamber of Commerce and Industry were
disqualified from acting as arbitrators inasmuch as they were all connected
with the buyers and there was every probability that they would be biased in
favour of the buyers; therefore, the appellant reasonably apprehended that it
would not be possible for the arbitrators to act as impartial or disinterested
judges. In para 33 the appellant stated :
"The interest of the sellers of raw jute
are in conflict with the interest of the buyers of raw jute. In the events that
have happened the sellers of raw jute have formed themselves into a group and
the buyers of raw jute have formed another group. The Indian Jute Mills
Association is dominated by the buyers. The Indian Jute Pi) ills Association
dominates the said Chamber and its Arbitrator. The Indian Jute Mills
Association is committed 962 to the view that the said contracts have not been
frustrated. The said Association has also formed an opinion in respect of the
disputes between the buyers and the sellers of raw jute." These were the
allegations on which the appellant prayed that the authority of the appointed
arbitrator should be revoked under s. 5 of the Arbitration Act, 1940. .
The application was opposed by the respondent
which denied the allegations made by the appellant both as to the facts and
circumstances which were said to constitute the emergency and as to the alleged
reasonable apprehension of bias in the appointed Arbitration Tribunal.
We have stated earlier that in the High Court
to main controversy between the parties centered round the question, (1) if
there was such an emergent condition in the jute trade and industry at the
relevant time as divided the sellers and buyers of raw jute into two opposing
camps, and (2) if the existence of such opposing camps, provided such opposing
camps were proved to exist, would justify the revocation of the authority of
the appointed arbitrator.
The learned Judge who heard the applications
dealt first with the legal position in England and India, in the matter of
revocation of the authority of an appointed arbitrator.
Having dealt with the legal position, he Went
into the facts of the case and held that no such emergent condition has been
proved as would justify the revocation of the authority of an appointed
arbitration. He expressed his final conclusion in these words:
"In my opinion, the allegations about
the buyers and sellers in raw jute being thrown into conflicting camps by the
operation of emergent circumstances or above 963 reasonable apprehension of
bias in the minds of the sellers that they will not get justice from the persons
whose names appear on the list of the panel of arbitrators of the Bengal
Chamber of Commerce and Industry are unsubstantial." He accordingly
dismissed the applications with costs.
We consider that as a matter of logical
sequence, we should deal with the question of fact first whether there was any
such emergent condition in the jute trade aid industry at the relevant time as
divided the sellers and buyers of raw jute into two conflicting camps so as to
give rise to a reasonable apprehension in the minds of the sellers that they
will not get a just decision from the appointed arbitrator. It, is only when we
answer the question of fact in favour of the appellants that a consideration of
the legal position would be necessary.
What are the circumstances on which the
appellants rely in support of their allegation of an emergent condition in the
jute trade dividing the buyers and sellers of raw conflicting camps ? It is
pointed out that on October 18, 1960, the Exchange issued a press note in which
it was stated inter alia that owing to emergent conditions prevailing in the
jute trade, the Director of the Exchange had imposed from time to time various
control measures in respect of trading in future contracts in raw jute and had
taken up a review of the trading position in transferable specific delivery
contracts. On October 31, 1960, a notice by the Exchange directed that trading
in transferable specific delivery contracts in raw jute shall be registered
with the Exchange. In their petitions for leave to revoke the authority of the
arbitrator, the appellants also referred to reports made by reporters of 964
certain newspapers as also news items published therein. We do not think that
these newspapers reports establish anything beyond. what the reporters heard
from people whose identity is not disclosed, and they are not admissible in
evidence to establish either that an emergency had arisen or the nature
thereof. At best they show that there were reports in the market of a
short-fall in jute production, a shortage of supply of raw jute from Pakistan,
sealing of some of the looms in the raills, and a reduction in working hours.
The affidavits filed on behalf of the appellants do not, however, establish
that there had been any failure of the jute crop in Bengal, Bihar and Assam or
that jute had become unavailable at its normal sources or that such a crisis
had arisen as would divide the buyers and sellers into conflicting camps. It is
Worthy of note that like any other trade in goods in a short market, the jute trade,
especially the trade in future contracts, is very sensitive and readily
responds to any stimulus, including forces which affect supply and demand even
temporarily. Such responses can even be said to be the normal feature of the
jute trade like any other trade in commodities. As there was no evidence of the
rise and fall in prices of raw jute during the relevant period except from what
we could gather from the differences in price between the contract rate and the
market rate claimed by. the respondents, we allowed the parties to produce
before us the rates quoted by authorised brokers for various kinds of jute from
April 1960 to August These figures show that the market in raw jute almost
always fluctuates; sometimes there is steady rise'; sometimes a fall; sometimes
there is a steep rise or a steep fall. Take for example, the period between
August 1960 to January 1961the period of delivery in most of the cases-in one
of the varieties of jute viz. Assam Bottom Jute.
965 August 1960 there was a steady rise from
Rs.35/to about Rs.40/per maund. In September 1960 the rise continued and
reached to about Rs. 43/-. It continued also in October and reached about Rs.
54/-. Towards the middle of November there was a fall. In January 1961 there
was again a rise which continued till March. In April there was again a fail
which continued till July 1961. We have taken only one example, but these ups
and downs in price levels are noticeable in other varieties of jute also, such
as, Pakistan-N. C. Cuttings etc. A person trading in future contracts must take
these ups and downs into consideration when entering into contracts, and we
fail to appreciate how these ups and downs can constitute an emergent condition
which will divide the buyers and sellers into two conflicting camps. The
question whether the seller was entitled to an extension of time in the
circumstances then prevailing would undoubtedly arise for determination by the
appointed arbitrator, who having practical experience of the fluctuations which
the trade normally undergoes would be in a position to judge the validity of
such a claim. But it is difficult to appreciate how this periodical rise or
fall in prices can be called an emergency which made the contracts impossible
of performance or divided' the buyers and sellers into two conflicting camps at
the relevant time.
Much was made of the fact that the Indian
Jute Mills Association was a very influential body of jute mill owners,
affiliated with the Bengal Chamber of Commerce and Industry.
It was alleged that they were sister bodies
having their offices at the came place and that they carried out a common
policy in matters of trade. It was pointed out that the majority of arbitrators
in the panel of arbitration of the Behgal Chamber of Commerce and Industry were
either directly or in. directly connected with one or other of the jute 966
mills. The relevant rules of Bengal Chamber of Commerce and Industry, it was
pointed out, provided that "the Tribunal shall consist of such members or
assistants to members and of such other persons who were from time to time on
the panel of special Advisory Board to the Indian Jute Mills Association, as
may from time to time be selected by the Registrar". In this respect there
is a difference in the rules made by the Indian Chamber of Commerce, Calcutta.
Those rules provide for an unrestricted
selection and say that in making an appointment and nomination, the Registrar
shall select, as far as possible, persons or a person having practical
knowledge of the subject matter of the contract or contracts in question and
the Registrar shall not appoint any person who for any reason within his
knowledge would not be a proper person to act as Arbitrator etc. in the particulor
matter. The appellant in Civil Appeal No. 640 brought to our notice the
circumstance that his solicitor wrote to the Registrar of the Bengal .Chamber
of Commerce and Industry for the names of the arbitrators and was told in reply
that it was not the practice of the Tribunal to disclose the names of the arbitrators;
but a classification of arbitrators of some of the cases was furnished and this
showed that one of the arbitrators would be a mill representative and the other
a jute broker or baler.
We have taken all these circumstances into
our consideration and we are unable to agree with the appellants that they made
out a case of a reasonable apprehension of bias on the basis alleged, namely,
that of a clash of interests between buyers and sellers on the ground of a rise
in prices. The High Court has rightly pointed out that it is not quite correct
to say that the persons who made the applications were only sellers of raw jute
and not buyers their turn' they are people who carry 967 on business in
Calcutta and some of them probably have buying agencies in the mofussil. They
must be buying jute from others and selling them to shippers, balers, and jute
mills. The jute mills usually buy raw jute and turn out manufactured products there
from, which they sell. Balers and shippers buy raw jute and sell the same after
pressing and baling. At one end of the chain there are jute growers who are
only sellers while others are both buyers and sellers of jute or jute goods.
This latter category of persons must be taking note of the trends in the market
in entering into their contracts and unless there was an emergency of the kind
which nobody could foresee, it is impossible to say that there was such a clash
of interests between buyers and sellers that the appointed arbitrator having
practical experience of normal fluctuations of the market would not be able to
judge with fairness and impartiality the claim of the sellers that they were
entitled to an extension of time or other relief. The high Court further
pointed that though there were 170 applications, the number of applicants was
only 42 and some only of the. jute mills in West Bengal were involved. The High
Court then said:
"If one takes into consideration the
number of jute mills situate in the district-of 24 Parganas, Howrah, Hooghly
and Nadia and considers further that there are thousands of persons who are
engaged in the trade of raw jute it is significant that only a few dozen of
them have come to this Court in between the period February, 1961, to the end
of June, 1961. It appears to me that the difficulty, real or assumed, is
confined to a very small number of persons, not brought about by any emergent
conditions at all as alleged. There can be no denying the fact that the outturn
of jute has been smaller 968 thaw expected and that jute mills have had to
reduce their working hours. Such a shortage in jute cannot be said to have
brought about an upheaval in the trade throwing buyers and sellers into sharply
divided conflicting camps." We are in agreement with the view thus
expressed by the High Court.
As to the arbitrators to be appointed by the
Indian Chamber of Commerce, Calcutta, and in some of the appeals before us the
arbitrators have to be so appointed, there can hardly be any ground for a
reasonable apprehension. The names of the arbitrators are not known nor even
The rules contemplate that the Registrar
shall not appoint any person as arbitrator who for any reason within his
knowledge would not be a proper person to act as arbitrator.
What grounds can there be of a reasonable
apprehension in such cases? We have held that there are no conflicting camps of
buyers and sellers and even if there are such camps, the Registrar can select
persons who have practical experience of the subject matter of the contract and
not other wise improper persons to act as arbitrators. The difference between
an 'application under a. 5 of the Arbitration Act and one under a. 34 is a
difference as to the point of time when the application is made. If proceedings
are commenced in Court, application is made under s. 34; if. Proceedings have
not commenced in Court the application is made under s. 5. The object of both
the section is the same, namely, to prevent arbitration. But different
considerations would arise on an application to set aside an award on the
ground that the arbitrator was biased. It is true that on an application under
s. 5 it is not necessary to show that. the arbitra or is in fact biased and it
is enough to show that 969 there is a reasonable ground for apprehension that
the arbitrator will be biased. But the reasonable ground must be established to
the satisfaction of the Court to which an application for leave to revoke' the
authority of an appointed arbitrator is made. No such reasonable ground is made
out in the present appeals.
We now turn to the legal position which seems
to us to be quite clear. Before the Court exercises its discretion to give
leave to revoke an arbitrator's authority, it should be satisfied that a substantial
miscarriage of justice will take place in the event of its refusal. In
considering the exercise by the Court of the power of revocation it must not be
forgotten that arbitration is a particular method for the settlement of
disputes. Parties not Wishing 'the law's delays' know, or ought to know, that
in referring a dispute to arbitration they take arbitrator for better or worse,
and that his decision is final both as to fact and law. In many cases the
parties prefer arbitration for these'reasons. In exercising its discretion
cautiously and sparingly, the Court has no doubt these circumstances in view,
and considers that the parties should not be relieved from a tribunal they have
chosen because they fear that the arbitrator's decision way go against them.
(See Russel on Arbitration, 16th edition, page 54). The grounds on which leave
to revoke may be given have been put under five heads :1 .Excess or refusal of
jurisdiction by arbitrator.
2. Misconduct of arbitrator.
3. Disqualification of arbitrator.
4. Charges of Fraud.
5. Exceptional cases.
970 We have held that there were no such
exceptional circumstances in these cases as would justify us to come to the
conclusion that the appointed arbitrator would be disqualified as a result of
bias by reason of a conflicting class interest. In view of this finding it is
unnecessary to examine the decisions, English or Indian, as respects the
principle that an interest of which the parties were fully aware at the date of
the arbitrators appointment will not in general disqualify him, nor will the
fact that he stands in a particular relationship to the parties or to the
matters in dispute, if it can be said that the parties selected him with
knowledge that this was or must be so. Nor are we concerned with the exception
to which the aforesaid rule is subject in relation to arbitrators appointed to
determine future disputes, and the statutory changes made in English law
There are, however, four decisions of the
Calcutta High Court which bear an apparent resemblance to the cases under our
consideration and to those decisions we must now turn.
In Balabux Agarwala v. Lachminarain Jute
Manufacturing Co. Ltd(1) the question was of a certain suits on applications
under s. 34 of the Arbitration Act and one of the grounds taken was that
persons interested in or connected with various jute mill companies were
members of the Bengal Chamber of Commerce and were on the panel from which arbitrators
were chosen; and a reference was made to a circular letter which showed that
the arbitrators or the firms they represented were all buyers and as such
interested in seeing that the points in issue were decided against the others.
After scrutinising the allegations made in support of this ground, the Court
"For all know the tremendous rise in
prices which, it is said, will prompt the (1) (1947)51C.W.N.863,875.
971 arbitrators who are buyers to decide
against the plaintiffs who are sellers so as to make huge profit for
themselves, may well have induced the plaintiffs to make these allegations
against the arbitrators or their firms so as to get out of their submission and
to take their chance of winning the suit in Court and getting the benefit of
that rise in prices. In my opinion the allegations in the affidavits are not
such as I may act upon them. The Bengal Chamber of Commerce has gained a
reputation for the excellence of their arbitration proceedings and I shall
require much more specific averments of facts properly verified showing that in
any particular case justice will be denied by the Bengal Chamber of Commerce to
any party." These observations do not help the appellants of the present
oases. Rather they show that the Court must be fully satisfied before it
exercises its discretion under s. 5. to revoke the authority of an appointed
The same learned Judge came to a contrary
conclusion in Tolaram Nathmull v. Birla Jute Manufacturing Co. Ltd.(1), That
was also a case of stay under s. 34, and one of the questions raised was
whether there was sufficient reason why the matter should not be referred to
arbitration. One of the points to be decided in that connexion was whether
'mesta' was jute within the meaning of the Jute (Price Control) Order and if
the Jute Mills Association had issued a circular, while the arbitration was
pending, stating, or deciding that 'mesta' was not included in that Order. It
was held that at a meeting of the representatives of five associations the view
was expressed that 'mesta' did not come within the Order. In those
circumstances the learned Judge said (1) (1948) 2 Cal. 171,196.
972 "In the light of these principles,
the question I have to consider is whether, in the events that have happened,
it will be fair to drive the plaintiff-firm to a tribunal both the members of
which are members of associations which have expressed some definite views on
the question in controversy. There is, to my mind, considerable justification
for the apprehension expressed by the plaintiff-firm of probable bias of the
arbitrators. I do not question the honesty and integrity of the two
arbitrators, but, in the circumstances appearing in the evidence before me, it
will be unfair alike to them and to plaintiff-firm to put them in a position of
conflict with their own associations. On the whole I have come to the
conclusion that this is a case *here circumstances exist which are calculated
to bias the mind,% of the arbitrators and where the plaintiff-firm may
legitimately ask the Court to release it from its bargain to go to
The decision rested on the facts established
in that case and cannot help the appellants to prove their case, on the present
In fairness to learned Counsel for the
respondents we must say that he submitted before us that the decision in
Tolaram Nathmull v. Birla Jute Manufacturing Co. Ltd. (1) went much beyond what
was accepted as the correct legal position in English decisions referred to by
the learned Judge; but that is an aspect of the matters which we consider it
unnecessary to decide. We hold that the facts which must be established to call
in aid that decision have not been established in these cases. In Dwarkadas Co.
v. Keshardeo Bubna (2) the same learned Judge explained the position succinctly
by holding (see headnote, pars, 4)(1) (1948) 2 Cal. 171, 196.
(2) (1948) 1 Cal. 190.
973 "The fact that members of a
committee of an association of commercial men dealing in a particular commodity
are themselves the arbitrators and ate also buyers and sellers of that
commodity will not ordinary dispute between a particular buyer and a particular
seller. But extraordinary circumstance may .nevertheless arise, as in the case
of a commercial crisis, when the members of the association may be sharply
divided into two opposing groups, as buyers in general and sellers in general
as may make it improper for the committee, which may be packed with an
overwhelming majority of buyers or sellers, as the case may be, to adjudicate
upon a dispute between a buyer and a seller." The pre-requisite condition
for the application of the principle which be laid down is not fulfilled in the
The last decision is Bhuwalka Brothers Ltd.
v. Fatechand Murlidhar (1). That was a case which .proceeded on different
grounds, viz. (1) frustration and (2) applicability of an Ordinance to the
contract under consideration. On those two grounds, the learned Judge thought
that he should give leave to the petitioner to revoke the authority of the
appointed arbitrator. We say nothing as to the correctness of the decision, but
merely point out that the facts of the cases under our consideration are
We have, therefore, come to the conclusion
that on the main point of controversy between the parties, the High Court came
to a correct finding on facts and there are no grounds for interference.
It remains now to consider two special points
taken on behalf of the appellants' in Civil Appeals (1) (1951) 2 Cal. 115.
974 Nos. 174 and'175. The points taken were :
(1) that the contracts were not in accordance with law, and (2) that the
parties were not ad idem with regard to one of the clauses thereof. Both these
points have been dealt with by the learned Judge of the High Court in his
judgment dated September 21, 1961, in great detail and as we are in agreement
with him it is not necessary to deal with these two points in detail. On point
number (1) the argument before us was based on para. 7(c) of the byelaws in Ch.
IX of the Working Manual. That paragraph, so far as it is relevant here, reads
"7(c) In the case of Pakistan Jute,
buyers to deliver to sellers, or sellers' nominee, letter of authority to
import the Pakistan Jute or open confirmed, irrevocable Letter of Credit in
terms of paragraph 8(b)(ii) within 14 working days from the commencement of the
delivery period of the contract failing which there shall be free extension for
delivery equal to the period of delay occurring after the 14 working days but
where stipulated quantities monthly are sold the free extension shall only be
in respect of the delivery for the first month. If buyers do not deliver letter
of authority or open confirmed irrevocable Letter of Credit within one month
from. the commencement of the delivery period of the contract, the sellers
shall be entitled to exercise any One of the following options on the next
working day .following the expiry of the said month:--(i) Cancelling the
(ii) Cancelling the contract and charging
buyers the difference (if any) between the contract price and the market price
975 on the date of cancellation of the contract.
The clause in the bought note said :
"The buyers to give letter of authority
to the sellers and the sellers to open letter of credit. If the buyers fail to
furnish the license up to December 1960 the contract will be deemed-as
cancelled." The corresponding clause in the sold note said "The
buyers to give letter of authority to the sellers and the sellers to open
letter of credit. If the buyers fail to furnish the license up to December 1960
the contract will be deemed as cancelled without any difference on the both
sides." The argument was that the clauses in the bought and sold notes
were not in conformity with para. 7(c) and therefore the contracts were not in
conformity with law. We do not see any material conflict between para. 7(c) of
the bye-laws and the clauses in the. bought and sold note. Instead of one month
given to the buyers for delivery of letter of.
authority in para 7(c) the time given in the
contracts was up to December 1960. We do not think that this extension of time
brought the contracts into any material conflict with the provisions of para. 7
(c). As to the second point the argument was that the expression "without
any difference on both sides" occurred in the sold notes not in the bought
notes, and therefore, the parties were not ad idem with regard to this clause.
The learned Judge rightly pointed out that the expression :,without any
difference on both sides" made no real difference. Clearly the parties
contemplated that in case the buyer failed to furnish the license to import
Pakistan Jute within the period 976 mentioned, the contract would be deemed to
be cancelled which meant that the contract was to be treated as non est for all
purposes. If the contract was deemed to be cancelled, it must mean that the
right and obligations of the parties came to an end simultaneously. It was not
really necessary to insert the words "without any difference on both
sides" in the bought notes and such addition in the sold notes did not
make any difference to the rights of the parties.
For the reasons given above we hold that
there is no merit in any of the appeals. The appeals are accordingly dismissed
with costs ; one hearing fee.