Union Of India v. Gorakh Mohan Das

Pathak, J.:— This is a revision application by the Union of India against an order of the learned Civil Judge, Varanasi, allowing an application under Sec. 8 of the Indian Arbitration Act.

2. The application was made by the respondent, Gorakh Mohandas, praying that an arbitrator be appointed to hear and decide certain matters in dispute between the parties. In the application, the respondent represented that he was proprietor of the National Trading Company, Allahabad, that as such proprietor he had entered into a contract with the Union of India and the Northern Railway for the supply of stone ballast, that one of me conditions of the contract stipulated that payment would be made regularly in respect of supplies effected every month and that there was also a condition providing for arbitration in case of a dispute between the parties. It was alleged that although he had made supplies during January and February 1961 and had submitted his bill accordingly, payment had not been made to him for one reason or another. It was said that a dispute had arisen between the parties in respect of the dues payable on account of the supplies made and also in respect, of damages suffered on account of the failure to make payment. A notice dated July 12, 1961 was served upon the General Manager, Northern Railway, demanding payment on account of the supplies made and damages suffered, and requiring him, in case he did not pay and disputed the claim, to appoint an arbitrator for the settlement of the dispute in accordance I with clause 64 of the General Conditions of contract. Upon service of this notice it was said the Railway administration paid the amount due on account of the supplies effected but did not pay the damages claimed, nor did it appoint any arbitrator to decide the dispute. The application was opposed by the Union of India, inter alia, on the ground that payment due on account of supplies received had been duly made, that there was no liability for damages and, therefore, no dispute could be said to have arisen. It was also pleaded that the application was not maintainable.

3. The learned Civil Judge found that a dispute had arisen between the parties which required Reference to arbitration, that the notice, requesting appointment of an arbitrator was legal and valid, and that the request of the respondent for the appointment of an arbitrator not having been attended to he was entitled to apply for the appointment of an arbitrator.

4. In disposing of the application, the learned Civil Judge passed the following order:—

“The application is allowed with costs. Sri Sri Narain Singh, Vakil is appointed arbitrator to go into the disputes between the parties as disclosed in the application. He will examine whether or not the opposite parties have committed any breach of contract and if so, whether the applicant is entitled to damages, if any, and its exact amount. He will probe into any other relevant matter necessary for adjudicating upon the disputes between the parties—the subject matter of this application. He will file his award within three months. The applicant shall pay him Rs. 500 as fees provisionally. Orders for more fees will be passed later, if and when considered necessary.”

5. It is this order which has been challenged by the present revision application.

6. When this case came up for hearing before our brother Manchanda, one of the contentions raised by the applicant was that without an application under Sec. 20 of the Arbitration Act the learned Civil Judge had no jurisdiction to refer the dispute to arbitration. Upon hearing the parties, our learned brother came to the opinion that there was a conflict between the decision of this Court in Om Prakash… v. Union Of India…. 1962 A.L.J 1006., and in Balika Devi v. Kedar Nath Puri A.I.R 1956 All. 377. and has, therefore, referred this case to a larger Bench.

7. Sec. 8 of the Arbitration Act provides, so far as is material to this case, that 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 parties do not, after differences have arisen, concur in the appointment, then if the appointment is not made within fifteen clear days after service of a notice by one party calling upon the others to concur in such appointment, the Court is empowered upon an application of the party giving the notice to appoint an arbitrator.

8. Sec. 20 of the Act entitles a party to an arbitration agreement to apply to a Court for the filing of the agreement in Court, and the Court is required, in the absence of sufficient cause shown by the other parties, to order the agreement to be filed and to “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.”

9. The province of the two provisions is quite distinct-one confers power upon the Court to appoint an arbitrator where the parties do not concur in the appointment of an arbitrator the other entitles a party to apply for the filing of the arbitration agreement in Court and empowers the Court to make an order of reference to the arbitrator appointed by the parties, and in the absence of such appointment, to the arbitrator appointed by it. In the former case, after the Court has appointed an arbitrator it is the parties who refer the dispute to him. In the latter case, it is the Court which refers the dispute. In Thawar Das Pherumal v. Union of India A.I.R 1955 S.C 468., it was observed:—

“A reference requires the assent of ‘both’ sides. If one side is not prepared to submit a given matter to arbitration when there is an agreement between them that it should be referred, then recourse must be had to the Court under Sec. 20 of the Act and the recalcitrant party can then be compelled to submit the matter under sub-Sec. (4). In the absence of either, agreement by ‘both’ sides about the terms of reference, or an order of the Court under Sec. 20(4) compelling a reference, the arbitrator is not vested with the necessary exclusive jurisdiction.”

10. It appears that the power of the Court to make a reference to arbitration is contained in Sec. 20. There is nothing in Sec. 8 from which such power can be spelled out. We have examined the decisions of this Court to which reference has been made in the referring order. With great respect, it seems to us that there is no conflict between the two decisions. In Balika Devi's case an application was made under Sec. 8 requesting the Court to appoint an arbitrator for the settlement of the dispute between the parties, and the Court accordingly appointed an arbitrator. Upon a revision application challenging the order, reference was made by learned counsel to the observations of the Supreme Court quoted above and it was held that the observations had no relevancy to the case in which since the applicants had refused to concur in the appointment of an arbitrator the aggrieved party had the option either to move the Court under Sec. 8 or under Sec. 20. The Court observed:—

“There is nothing in Sec. 20 to compel Kedar Nath Puri not to take recourse to Sec. 8 of the Act. It was Kedar Nath Puri's concern whether to apply under Sec. 8 or under Sec. 20 and his application under Sec. 8 cannot in our opinion be rejected merely on the ground that Sec. 20 was perhaps more appropriate.

11. If a relief can be given under Sec. 8, it will be available to him. We are, therefore, satisfied that Sec. 20 Arbitration Act does not stand in the way of Kedar Nath Puri maintaining an application under Sec. 8 Arbitration Act.”

12. In Om Prakash… v. Union Of India…. the question was whether upon an application under Sec. 8 it was open to the Court to refer the dispute to arbitration. The application in that case contained no prayer requesting the Court to refer the matter to an arbitrator. Upon a consideration of the provisions of Sec. 8, the Court observed that the effect of the appointment of the arbitrator by the Court was that—

“he was considered to be an arbitrator appointed by the parties themselves. It was then for the parties to refer their disputes to the arbitrator. Reference in such a case must be out of Court and must be by both the parties together. Reference out of Court cannot be by one party alone …. Unless an application under Sec. 20 was made to the Court for referring the matter to arbitration, the Court could not pass any orders making the reference through Court……”

13. The question here was quite different from that in Balika Devi's case. The learned Judge had not only appointed the arbitrator but also made an order referring the dispute to him and directing him to file his award within a specified period. It was held he could not do so in the absence of an application under Sec. 20.

14. In the case before us, it is apparent from the terms of the order made by the learned Civil Judge I that he did not merely appoint Sri Sri Narain Singh as arbitrator. He also referred the dispute to him. That he could not do without an application under Sec. 20. To that, extent, his order is without jurisdiction. He was entitled to appoint an arbitrator, but not to make an order referring the dispute to him.

15. But before we can hold that the learned Civil Judge was competent even to appoint an arbitrator it is necessary to notice the argument of learned counsel that the application itself was not maintainable. This plea was not taken before the learned Civil Judge but as it concerns his jurisdiction to pass the impugned order we have allowed it to be raised before us. Learned counsel contends that the application under Sec. 8 was not maintain able as that provision can be invoked only when the arbitration agreement provides for the appointment of an arbitrator by consent of the parties. In the present case, it is said, the arbitration agreement provides differently. We consider that there is force in this contention. Sub-Cl. (3)(a) of Cl. 64 of the General Conditions of Contract provides:—

“Matters in question, dispute or difference to be arbitrated upon shall be referred for decision to:—

(i) … … …

(ii) Two Arbitrators, who shall be Gazetted Railway Officers of equal status to be appointed in the manner laid down in Cl. (3)(b) for all claims of Rs. 50,000 and above, and for all claims irrespective of the amount or value of such claims if the issues involved are of complicated nature. The General Manager shall be the sole judge to decide whether the issued are of a complicated nature or not. In the event of the two Arbitrates being divided in their opinions the matter under dispute will be referred to an Umpire to be appointed in the manner laid down in Cl. 3(b) for his decision.”

Sub-Cl. 3(b) requires:—

“For the purpose of appointing ‘two arbitrators’ as referred to in sub-Cl. (a)(ii) above, the Railway will send a panel of more than three names of officers of the appropriate status of different departments of the Railway to the Contractors, who will be asked to suggest a panel of three names out of the list so sent by the Railway. The General Manager will appoint one arbitrator out of this panel as the contractor's nominee, and then appoint a second arbitrator of equal status as the Railway's nominee either from the panel or from outside the panel, ensuring that one of the two arbitrators so nominated is invariably from the Accounts Department. Before entering into reference, the two Arbitrators shall nominate an Umpire to whom the case will be referred in the event of any difference between the two Arbitrators.”

16. From these provisions of the contract it would appear that arbitration of the present dispute, which springs from a claim for the sum of Rs. 67,979 calls for the appointment of two arbitrators, one to be selected as the contractor's nominee out of a panel of three names to be suggested by the contractor, and the other to be appointed as the Railway's nominee. The contract does not contemplate ??? appointment of the two arbitrates by consent of the parties. The ??? nominee, it is true, will be appointed by the Railway from the panel suggested by the contractor, and, in one sense; may be said to have been appointed by consent of both parties. But in the appointment of the Railway's nominee the contractor has no voice, at all. Consequently, we are of opinion that the provisions of Sec. 8 do not apply.

17. In Ram Chandra R.N.R.R & O. Mills v. H.O Mills A.I.R 1958 Cal. 620., the Calcutta High Court considered a similar question where the arbitration clause provided for the reference of disputes to two arbitrators, one nominated by the buyers and the other by sellers and it held that there was “no question of one or more arbitrators being appointed by consent of the parties,” and that, therefore, Sec. 8 could not be invoked.

18. We are accordingly of the view that the present application under Sec. 8 made by the respondent was misconceived.

19. It now remains to notice the remaining contentions advanced on behalf of the applicant.

20. It is urged that the finding of the court below that a dispute has arisen is erroneous. The question whether there is a dispute or not is a question of fact and, in our judgment, it cannot be agitated in the present revision application. See Balika Devi v. Kedarnath Puri.

21. The next contention on behalf of the applicant is that a notice under Sec. 80, C.P.C was necessary before the respondent could file the application under Sec. 8 for the appointment of an arbitrator. This plea was not taken before the learned Civil Judge, In any event, the proceedings upon an application under Sec. 8 are not proceedings in a suit. In Ruby General Ins. Co. v. Bharat Bank A.I.R 1950 East Pun. 352., considering the question whether a proceeding under Sec. 20 was a suit, Kapur, J. held that it was not, and referred in this behalf to Secretary of State v. Kundan Singh A.I.R 1932 Lah. 374.. If a proceeding under Sec. 20, which is initiated by an application required by the statute to be numbered and registered as a suit, is not a suit, there is less room for contending that a proceeding under Sec. 8 is a proceeding in a suit. The contention that even if the notice dated July 12, 1961 be treated as a notice under Sec. 80 it was an invalid notice inasmuch as a period of two months had not expired before the filing of the application, and the further contention that it had not been addressed to the appropriate authority, do not, therefore, call for consideration.

22. It is then urged that the notice dated July 12, 1961 was issued by the National Trading Company whereas the application under Sec. 8 was filed by Gorakh Mohandas, and therefore, the application was not maintainable. It is not possible to accept this contention

23. We have perused the relevant documents on the record, and we find that Gorakh Mohandas, proprietor of National Trading Company, filed the application under Sec. 8 and that the notice in question was also served on his behalf.

24. Having regard to our finding that the application under Sec. 8 is not maintainable, we must hold that the learned Civil Judge had no jurisdiction at all to make the order that he did, and that, therefore, this revision application must succeed. The revision application is accordingly allowed, the order of the learned Civil Judge is set aside and the application of the respondent under Sec. 8 of the Indian Arbitration Act is dismissed. Inasmuch as this revision application succeeds upon a point not raised before the court below, we direct that the parties shall bear their own costs.

25. Revision allowed.