Union of India Vs. Om Parkash [1976] INSC
95 (2 April 1976)
GUPTA, A.C.
GUPTA, A.C.
SINGH, JASWANT
CITATION: 1976 AIR 1745 1976 SCR (3) 998 1976
SCC (4) 32
CITATOR INFO :
RF 1992 SC1124 (12)
ACT:
Arbitration Act, 1940-Secs. 8, 20,30
32,33-Whether court appointing an arbitrator can further make an order
referring disputes to arbitrator - Award can be set aside on the ground of
invalidity of reference-Whether "otherwise in valid' includes invalid
reference.
HEADNOTE:
The respondent, a contractor, entered into 7
agreements with the Union of India for the construction of a hospital, some
buildings and tube wells. In each one of these agreements there was a clause
providing that any dispute arising between the parties would be referred to an
arbitrator. The designations of the arbitrators were also mentioned in 4
agreements as Director of Farms in two agreements as the officer Commanding,
Lucknow, and in one agreement as the Quartermaster General at Delhi. The
offices by reference to which the arbitrators were mentioned in the agreement
were abolished. The respondent therefore, made 7 applications in the court of
Civil Judge at Meerut under section 8(2) of the Arbitration Act, 1940, praying
for appointment of an arbitrator. The Trial Court appointed Col.
Ranbir Singh to act as an arbitrator in all
the 7 cases and further directed the papers to be sent to him asking him to
give his award within 2 months from that date. With the consent of both the
parties the arbitrator made some progress. However, the Government counsel
submitted before the arbitrator that he should not proceed further since he was
not competent to deal with the questions of law arising for decision.
Thereafter the District Judge Meerut transferred the cases to the Judge of the
Small Causes Court at Meerut presumably on the assumption that the respondent's
application for the appointment of arbitrator were pending.
The learned Judge of Small Causes Court
appointed Director of Farms, General Headquarters. to act as arbitrator in all
the 7 cases and he was further directed to file his award within one month of
the said order. The papers were then sent to Brig. Bhandari assuming that he
was the Director of Farms. Later on, the respondent applied to the court for
review of its order alleging that the office of the Director of Farms was
abolished and, therefore, Brig. Bhandari could not be the officer mentioned in
the order. The respondent did not take part in the arbitration proceedings but
before the respondent could obtain a stay the arbitrator filed his award in the
Court.
The respondent made 7 applications for
setting aside the award before the Small Causes Court, Meerut, which were
rejected. Against that the respondent preferred 7 appeals to the Allahabad High
Court. The High Court allowed the appeals accepting the contention of the
respondents that the Court was functions officio after appointing the
arbitrator under section 8(2) and had no jurisdiction to refer the cases to the
arbitrator. The High Court held that it was for the parties to refer the
disputes to the arbitrator after he was appointed by the court and the
reference by the court being without jurisdiction the awards were invalid. The
High Court also held that when the court made the order of reference there was
no post of Director of Farms and as such, Brig.
Bhandari was not competent to act as an
arbitrator on the basis of the order of the Court.
In these appeals by certificate, the
appellants challenged the findings of the High Court.
Dismissing the appeals, ^
HELD: An agreement to submit differences to
arbitration implies an agreement to refer the differences to the arbitrator.
Section 8 only empowers the 999 Court to appoint an arbitrator where the parties
do not concur in the appointment. Section 20 contains provisions for
arbitration with the intervention of a Court,where there is no suit pending.
This section confers power on the court to order the agreement to be filed and
further to make an order of reference to the arbitrator appointed by the
parties or where the parties cannot agree upon an appointment, to an arbitrator
appointed by the court. On the other hand, section 8 does not contain any
provision empowering the court to make a reference to the arbitrator as one
finds in section 20. Therefore. the Small Causes Court at Meerut had no
jurisdiction after appointing an arbitrator under section 8(2) to proceed
further to make an order referring the disputes to the arbitrator. [1002D-E.
1003C-E]
2. Section 30 of the Act sets out the grounds
for setting aside an award. Section 30(c) provides that an award shall not be
set aside except when it has been improperly procured or is otherwise invalid.
The decision of the Privy Council in the case of Chhabbe Lal v. Kallu Lal and
others holding that an objection to the validity of a reference to the
arbitration did not come within the provisions of Dara 15 of the second
schedule to the Code of Civil Procedure which provided that no award was to be
set aside except on the specific grounds mentioned therein or the award being
otherwise invalid cannot apply to the present case because in the second
schedule to the Code of Civil Procedure which was repealed by Arbitration Act
of 1940. there was no provision like section 32 or 33 of the Act. Section 32
bars the institution of suits concerning arbitration agreements or awards and
provides that no arbitration agreement or award shall be set aside. amended.
modified or in any way affected otherwise than as provided in the Act. Section
33 provides that a party to an arbitration agreement seeking to challenge the
agreement or the award must do so by making an application to the court. When
the second schedule to the Civil Procedure Code was in force an award made on
an invalid reference could he set aside by filing a suit which was then the
appropriate proceeding but now the appropriate proceeding is the filing of an
application to the court as has been made in the present case. The words 'or is
otherwise invalid' in clause (c) in section 30 are wide enough to cover all
forms of invalidity including invalidity of the reference. [1003E, H,1004A-F]
ClVIL APPELLATE JURISDICTION : Civil Appeal
Nos. 1284 to 1290 of 1968.
Appeals from the Judgment; and Decrees dated
the 30th July 1962 of the Allahabad High Court in F.A.F.O's Nos. 220 to 226 of
1952.
L.N. Sinha, Solicitor General, G. L. Sanghi,
(In CA 1284/68) and Girish Chandra, for the Appellants.
S.L. Bhatia and N. K. Puri, for the
Respondent.
The Judgment of the Court was delivered by
GUPTA, J. These seven appeals by certificate have been preferred by the Union
of India against a common judgment of the Allahabad High Court disposing of
seven appeals under section 39(1)(vi) of the Arbitration Act, 1940. The appeals
turn on the true meaning and scope of sections 8 and 30 of the Act. Section 8
is in these terms:
Power of Court to appoint arbitrator or
umpire "8. (1) In any of the following cases- (a) where an arbitration
agreement provides that the reference shall be to one or more arbitrators to be
appointed by consent of the parties, and all the partes do not, after
differences have arisen" concur in the appointment or appointments; or
1000 (b) if any appointed arbitrator or umpire neglects or re fuses to act, or
is incapable of acting, or dies, and the arbitration agreement does not show
that it was intended that the vacancy should not be supplied, and the parties
or the arbitrators, as the case may be, do not supply the vacancy; or (c) 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 or appointments or in supplying the vacancy.
(2) 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, ap point 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." The question that arises for consideration is whether the court
having appointed an arbitrator under subsection (2) of section 8 can proceed
further to make an order of reference to the arbitrator. According to the respondent
the court becomes functions officio after appointing an arbitrator and has no
jurisdiction to refer the matter to him.
The facts leading to the appeals are these.
During the last world war the respondents a contractor, entered into seven
agreements with the military department of the Government of India for the
construction of a hospital" three other buildings and three tube wells. In
each of these agreements there was a clause providing that any dispute arising
between the parties would be referred to an arbitrator. In four cases the
agreements provided for arbitration by the Director of Farms, General
Headquarters, Simla, in two cases the officer Commanding, Lucknow, was to be
the arbitrator, and in the remaining other case, a Quarter-Master at Delhi was
chosen as the arbitrator.
Disputes having arisen between the parties,
the respondent made seven applications in the court of the First Civil Judge,
Meerut, under section 8(2) of the Act stating that the offices by reference to
which the arbitrators were selected in the agreements had been abolished and it
was therefore necessary to appoint new arbitrators. In the applications the
respondent named several officers praying that one of them be appointed to act
an arbitrator "who shall have like power to act in the reference and to
make an award as if he has been appointed by the consent of the parties".
It will be noticed that the prayer repeats the material portion of sub-section
(2) of section 8. On February 13, 1950 the court appointed Col. Ranbir Singh
whose name was not in the respondent's list, to act as arbitrator in all the
seven cases and further directed the papers to be sent to him, asking him to
give his award within 1001 two months from that date. If the respondent's
contention in these A appeals is correct that after appointing an arbitrator
under section 8(2) the court ceases to have jurisdiction and cannot make an
order of reference, the further directions given in the order of February 13,
1950 were invalid. However, the question did not assume importance at that
stage because both sides agreed to submit the disputes to Col. Ranbir Singh for
arbitration. After the arbitration had made some progress, Col. Ranbir Singh
returned the papers to the court on being asked not to proceed further by the
Government counsel who thought that the arbitrator was not competent to deal
with the questions of law arising for decision. After this the District Judge,
Meerut, transferred the cases to the Judge of the Small Cause Court, Meerut,
presumably on the assumption that the respondent's applications for the
appointment of an arbitrator were pending. If the respondents contention is
right, this was an erroneous assumption, but no objection was raised at the
time and the Judge of the Small Cause Court by his order dated February 13,
1951 appointed Director of Farms, General Headquarters, Simla, to act as
arbitrator in all the seven cases. In that order the court further directed as
follows:
"All these cases should be referred to
him for arbitration. He must file his award within one month of this
order." The papers were then sent to Brigadier H. L. Bhandari who was.
said to be the officer concerned. The respondent applied to the court on March
8, 1951 for review of the order alleging that the office of the Director of
Farms, General Headquarters, Simla, had been abolished and as such Brig. H. L.
Bhandari could not be the officer mentioned in the order. The respondent did
not take part in the proceedings before Brig. Bhandari, but before he moved the
court on May 4, 1951 for stay of the proceedings before the arbitrator, the
latter had made his awards which were filed in court on that very day. The
review application was ultimately dismissed on May 12, 1951.
The respondent made seven applications urging
several grounds for setting aside the awards, but the Judge of the small Cause
Court, Meerut, overruled all objections and conferred the awards, and a decree
in terms of the award in each case was passed on May 26, 1952. Against that
order the respondent preferred seven appeals to the Allahabad High Court. The
High Court allowed the appeals accepting the contention that the court was
functus officio after appointing the arbitrator under section 8(2) and had no
jurisdiction to refer the cases to the arbitrator. The High Court was of the
view that it was for the parties to refer their disputes to the arbitrator
after he was appointed by the court, and the reference by the court being
without jurisdiction the awards were invalid. The High Court further held that
when the court below made the order of reference there was no post of Director
of Farms, General Headquarters, Simla, in existence and, as such, Brig.
Bhandari was not competent to act as
arbitrator on the basis of the order dated February 13, 1951. The Union of
Indra questions the correctness of the High Court's decision in these appeals.
1002 The validity of the order of reference
depends upon the scope of section 8 which deals with the power of the court to
appoint an arbitrator or umpire. Sub-section (1) of section 8, so far as it is
relevant for the present purpose, provides that if any appointed arbitrator is
incapable of acting, and the arbitration agreement does not show that it was
intended that the vacancy should not be supplied, any party to the agreement
may serve the other parties with a written notice to concur in supplying the
vacancy. Sub- section (2) of section 8 lays down that if no appointment is made
within 15 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 "who shall have like powers to act in the reference and to
make an award as if he or they had been appointed by consent of all parties '.
The question is whether, having made the appointment, the court acting
sub-section (2) can also make an order of reference to the arbitrator. The Act
contemplates three kinds of arbitration: (i) arbitration without intervention
of a court, dealt with in chapter II of the Act which includes section 3 to
section 19; (ii) arbitration with intervention of a court where there is no
suit pending, dealt with in chapter III which consists of only one section,
viz. section 20; and (iii) arbitration in suits which is covered by chapter IV.
It is clear from the provisions of chapter II that after the appointment of
arbitrator, the proceedings are to be outside court, and up to the stage of
filing the award intervention of court is not of unless any occasion arises
requiring the court to remove the arbitrator under section 11. An agreement to
submit differences to arbitration implies an agreement to refer the differences
to the arbitrator. Section only empowers the court to appoint an arbitrator
where the parties do not concur in the appointment. Section 20 occurring in
chapter III. contains provisions for arbitration with the intervention of a
court where there is no suit pending. Section 20 reads:
Application to file in Court arbitration
agreement.
"20(l) Where any persons have entered
into an arbitration agreement before the institution of any suit with respect
to the subject-matter of the agreement or any part of it, and where a
difference has arisen to which the agreement applies they or any of them, instead
of proceeding under Chapter II, may apply to a Court having jurisdiction in the
matter to which the agreement relates, that the agreement be filed in court.
(2) The application shall be in writing and
shall be numbered and registered as a suit between one or more of the parties
interested or claiming to be interested as plain tiff or plaintiffs and the
remainder as defendant or defendants, if the application has been presented by
an the parties, or, if otherwise, between the applicant as plaintiff and the
other parties as defendants.
1003 (3) on such application being made, the
Court shall direct notice thereof to be given to all parties to the agreement
other than the applicants, requiring them to show cause within the time
specified in the notice why the agreement should not be filed.
(4) Where no sufficient cause is shown, the
Court shall order the agreement to be filed, and shall make an order of
reference to the arbitrator appointed by the parties, whether in the agreement
or otherwise, or, where the parties cannot agree upon an arbitrator, to an
arbitrator appointed by the Court.
(5) Thereafter the arbitration shall proceed
in accordance with, and shall be governed by, the other provisions of this Act,
so far as they can be made applicable." This section confers power on the
court to order the agreement to be filed and, further, to make an order of
reference to the arbitrator appointed by the parties, or, where the parties
cannot agree upon an appointment, to an arbitrator appointed by the court.
Sub-section (1) of section 20 makes it plain that the provisions of the section
can be availed of only if no providing under chapter II has been initiated.
Section 8 does not contain any provision empowering the court to make an order
of reference to the arbitrator as one finds in subsection (4) of section 20.
Thus it seems clear that the court in the
instant cases had no jurisdiction, after appointing an arbitrator under section
8(2), to proceed further to make an order referring the disputes to the arbitrator.
The question which now arises is whether the
awards could be set aside as invalid because the reference was incompetent.
Section 30 of the Act which sets out the grounds for setting aside an award is
in these terms:- Grounds for setting aside award.
"30. An award shall not be set aside
except on one or more of the following grounds, namely:
(a) that an arbitrator or umpire has mis-conducted
himself or the proceedings;
(b) that an award has been made after his
issue of an order by the Court superseding the arbitration or after arbitration
proceedings have become invalid under section 35;
(c) that an award has been improperly
procured or is otherwise invalid." According to the respondent an award
obtained on an invalid reference is also invalid and is covered by clause (c)
of section 30. It was argued on behalf of the appellant, on the authority of
the Privy Council in Chhabbe Lal v. Kallu Lal and others(1), that the 1004
words "otherwise invalid" in section 30(c) did not cover a case where
the award was challenged on the ground of some invalidity attaching to anything
outside the award itself.
In Chhabbe Lal's case the Privy Council held
that an objection to the validity of a reference to arbitration did not come
within the provisions of paragraph 15 of the 2nd schedule to the Code of Civil
Procedure, 1908, which provided that no award was to be set aside except on the
sp civic grounds mentioned therein, or the award "being otherwise
invalid". This view which affirms that of Iqbal Ahmed J. in his dissenting
judgment in a Full Bench decision of the Allahabad High Court, Mt. Mariam v.
Mt. Amisa(l) was taken in relation to an award on a reference made in a suit.
Their Lordships observed:
".... all the powers conferred on the
court in relation to an award on a reference made in a suit presuppose a valid
reference on which an award has been made which may be open to question. If
there is no valid reference, the purported award is a nullity, and can be
challenged in any appropriate proceeding." There was no provision in the
2nd schedule to the Choice of Civil Procedure, which was repealed by the Arbitration
Act, 1940, like section 32 or section 33 of the Act. Section 32 bars the
institution of suits concerning arbitration agreements or awards and provides
that no arbitration agreement or award shall bet set aside,, amended, .
modified or in anyway affected otherwise than as provided in this Act; section
33 says that a party to an arbitration agreement seeking to challenge the
agreement or the award must do so by making an application to the court. When
the 2nd schedule to the Code of Civil Procedure was in force, an award made on
an invalid reference could be set aside only by filing a suit which was then
the "appropriate proceeding", but now the proceeding appropriate for
the same purpose is an application to the court as the respondent in these
cases has done. Also, these are cases of arbitration without the intervention
of court, and the obsenation from the judgment in Chhabe Lal's case, quoted
above, that a reference in a suit should be presumed to be a valid reference,
does not apply to these cases. The words "or is otherwise invalid" in
clause (c) of section 30 are wide enough to cover all forms of invalidity
including invalidity of the reference. We do not find any reason why the
general and unqualified language of clause (c) should not include an award on
an invalid reference which is a nullity. The cases cited at the Bar show that
all the High Court’s with only one or two exceptions have taken this view. We
hold therefore that the awards challenged in these appeals are nullities and
have been rightly set aside by the High Court. In the view we have taken that
is not necessary to consider the other question, whether Brig. Bhandari who
made the awards was the officer answering the description on Director of Farms,
General Headquarters, Simla, to whom the court had referred the disputes. In
the result the appeals fail and are dismissed with costs. One set of hearing
fee.
P.H.P. Appeals dismissed.
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