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A.R Savkur , (Original Petitioner) v. Amratlal Kalidas, A Firm S, (Original S).
Structured Summary of the Court's Opinion
Factual and Procedural Background
The appellant engaged the respondents (who were stock brokers and members of the Bombay Native Share and Stock Brokers' Association) to effect certain transactions on the stock exchange. In respect of certain transactions the respondents made a claim upon the appellant. After the appellant failed to pay, the respondents referred the matter to arbitration.
The appellant challenged the arbitrators' jurisdiction on the ground that the underlying contract was a forward contract (and not a ready contract) and therefore void, and he contended that the agreement to refer disputes to arbitration was invalid and not binding. Despite this objection, the arbitrators proceeded and published an award dated 21 June 1952.
The award was filed in Court and notice of filing was served on the appellant on 6 October 1952. On 9 January 1953 the appellant filed a petition seeking a declaration that the award of 21 June 1952 was null and void and not binding on him. Mr. Justice Desai dismissed that petition on the ground that it was barred by time, the petition having been made more than 30 days after service of notice of the filing of the award. The present appeal challenges that order of dismissal.
Legal Issues Presented
- Whether an application challenging the validity of an arbitration agreement or an award must be regarded as an application "to set aside an award" for the purposes of limitation, so that Article 158 of the Limitation Act (30 days) applies, or whether such an application can be a declaratory proceeding under Section 33 of the Arbitration Act attracting the residuary Article 181 (three years).
- Whether Section 33 of the Arbitration Act is the procedural provision that governs applications challenging arbitration agreements or awards (and therefore governs the limitation period), or whether Section 30 (dealing with grounds on which an award "shall not be set aside except on" specified grounds) leads to a different characterization and limitation period.
- Whether the phrase "or is otherwise invalid" in Section 30 must be read ejusdem generis with the preceding clauses (so as not to include challenges to the validity of the reference itself), and if so, whether that affects the proper procedure and limitation period for challenging an award on the ground that the reference/arbitration agreement was invalid.
- Whether an award that is said to be a nullity because there was no valid arbitration agreement can be ignored as a nullity without an application to the Court to set it aside when the award has been filed in Court and notice given.
Arguments of the Parties
Appellant's Arguments
- The appellant contended that the underlying contract was a forward contract and therefore void; consequently the arbitration agreement (which depended on that contract) was invalid and the award was a nullity.
- He argued that Section 33 of the Arbitration Act provides for a declaratory application challenging an award or arbitration agreement and that such a declaratory application is not an application to "set aside" an award; therefore the residuary article (Article 181 — three years) of the Limitation Act should apply rather than Article 158 (30 days).
- Relying on a construction of the phrase "or is otherwise invalid" (argued to be ejusdem generis), and on the Privy Council decision in Chhabba Lal v. Kallu Lal, the appellant argued that when there is no valid reference the proper remedy is a declaration that the award is a nullity (and not an application under Section 30 to set aside an award within 30 days).
- The appellant further argued that a decree or award which is a nullity may be ignored and therefore it was unnecessary to apply formally to set aside such an award where the arbitration agreement itself was invalid.
Respondents' Arguments
The opinion does not contain a detailed account of the respondents' specific legal arguments in the same stylistic detail as the appellant's contentions. The court's reasoning reflects the respondents' position that the statutory scheme (Sections 17, 30, 32 and 33) contemplates applications under Section 33 and that Article 158 (30 days) governs the limitation period for such challenges once an award has been filed in Court.
Table of Precedents Cited
| Precedent | Rule or Principle Cited For | Application by the Court |
|---|---|---|
| Chhabba Lal v. Kallu Lal (Privy Council) | The Privy Council accepted a construction that the expression "an award being otherwise invalid" (in the Second Schedule to the Civil Procedure Code) should be read ejusdem generis, and it stated that if there is no valid reference the purported award is a nullity and can be challenged in an appropriate proceeding (e.g., a suit). | The appellant relied upon this decision to argue that a declaration that an award is a nullity is the appropriate remedy. The Court distinguished the Privy Council decision: (a) there was no provision in the Second Schedule corresponding to Section 33 of the Arbitration Act; (b) the Arbitration Act is a self-contained code (Section 32 bars suits in respect of arbitration agreements or awards); and (c) judicial history prior to the Arbitration Act supported a broader meaning of "otherwise invalid." The Court therefore did not accept that Chhabba Lal compelled the result urged by the appellant. |
| Ebrahim Kassim Cochinwalla v. Pannalal Johurmull (Calcutta High Court, Mr. Justice Sinha) | That judgment considered a compound application partly to set aside an award (held time-barred beyond 30 days) and partly for a declaration that the award was invalid for want of a valid reference; the learned judge held the declaratory part to be within time and proceeded to decide it on merits. | The appellant relied upon this judgment as directly in point. The Court rejected that approach as unsatisfactory: it held that the learned judge had not sufficiently considered Sections 17 and 39 and the anomalies that would follow if that approach were accepted. The present Court declined to follow the Calcutta High Court decision on this point. |
Court's Reasoning and Analysis
The Court began with the text of Section 33 of the Arbitration Act, which provides that "Any party to an arbitration agreement or any person claiming under him desiring to challenge the existence or validity of an arbitration agreement or an award or to have the effect of either determined shall apply to the Court and the Court shall decide the question on affidavits" (with power to hear other evidence if the Court deems it just and expedient).
The appellant's primary contention was that an application under Section 33 for a declaration that an award is invalid is not an application to "set aside" an award and therefore attracts the residuary limitation period (Article 181 — three years), whereas an application under Section 30 to set aside an award attracted Article 158 (30 days). The Court analysed the statutory scheme to test that contention.
Key steps in the Court's analysis:
- Section 30 enumerates the grounds on which "an award shall not be set aside except on one or more of the following grounds" and thus prescribes the grounds on which the Court may set aside an award. Section 30 is cast in negative terms and prescribes the limits of the Court's power to set aside an award.
- Section 33, by contrast, is procedural and prescribes how a party challenging an arbitration agreement or an award must apply to the Court; it is the section to be used when a party "desires to challenge the existence or validity of an arbitration agreement or an award."
- The Court reasoned that a successful challenge to an award necessarily results in the award being set aside; a challenge cannot merely stop at a declaratory statement while leaving the filed award intact. Accordingly, when a party challenges an award, the practical result (if successful) is the setting aside of the award, and the procedure to be followed is Section 33.
- Section 17 was pivotal to the Court's construction: Section 17 makes it incumbent on the Court to pronounce judgment according to the award and to pass a decree upon that judgment, but it also contemplates two exceptions — where the Court sees cause to set aside the award, or where the Court must wait until the time for making an application to set aside the award has expired (or any such application has been refused). The Court concluded that this scheme presupposes a single, prompt procedure for challenging the award so that the party in whose favour the award was made can normally obtain a decree if no timely application is made to set aside the award.
- The Court rejected the notion that there could be two parallel routes with different limitation periods (one route under Section 30 attracting Article 158 and another route under Section 33 attracting Article 181), noting the anomalous consequences that would follow: for example, a decree could be entered under Section 17 once Article 158 elapsed, yet an adversely affected party might still be able to bring a Section 33 application within three years to upset that decree.
- The Court also emphasised that Section 32 bars suits "in respect of the existence, effect or validity of an arbitration agreement or award" and mandates that proceedings must be taken as provided in the Arbitration Act itself — reinforcing that the Act is a self-contained code on arbitration procedure and that challenges must follow its provisions, notably Section 33.
- Addressing the contention based on the Privy Council decision (Chhabba Lal) and the ejusdem generis interpretation of "otherwise invalid," the Court distinguished that decision on statutory and historical grounds (no provision corresponding to Section 33 in the Second Schedule; extensive antecedent judicial authority favoring a broader construction; the Privy Council decision came later and may not have been known to the Legislature).
- Even if one accepted the ejusdem generis view, the Court held that this would not resolve the limitation question: whether the ground of challenge is one listed in Section 30 or is that the arbitration agreement was invalid, the procedural route to be followed is Section 33 and the practical effect of a successful challenge is to set aside the award; consequently the timetable and operation of Section 17 apply.
- The Court considered and rejected the Calcutta High Court decision (Ebrahim Kassim) which had allowed a declaratory portion of a compound application to be entertained beyond 30 days; the Court found that decision failed to confront Sections 17 and 39 and the consequential anomalies, and it declined to follow it.
Holding and Implications
Holding:
APPEAL DISMISSED WITH COSTS.
Direct consequences and orders given in the opinion:
- The Court upheld the conclusion of the learned Judge below (Mr. Justice Desai) that the appellant's petition was time-barred under the statutory scheme and therefore the petition was properly dismissed.
- The respondents' undertaking was discharged.
- Liberty was granted to the respondents' attorneys to withdraw the sum of Rs. 500 deposited in Court.
Implications:
- The Court construed the Arbitration Act as a self-contained code. Applications challenging the existence or validity of an arbitration agreement or of an award are to be brought under Section 33 and in the context of the scheme of Section 17. The practical effect is that challenges to an award filed in Court are subject to the procedural landscape in which Article 158 (30 days) operates so that a party in whose favour the award is made can normally obtain a decree unless a timely application to set aside the award is made.
- The decision rejects the approach that a party may avoid the 30-day limitation by seeking only a declaratory remedy under Section 33 or otherwise, when an award has been filed and notice served; in short, an award on the Court file cannot be treated as a nullity to be ignored without proceeding under the Act to have it set aside.
- The opinion expressly declines to follow the Calcutta High Court decision cited by the appellant on this point, and it distinguishes the Privy Council decision relied on by the appellant for reasons given in the analysis above.
- As to broader precedential effects, the decision applies the Arbitration Act's single procedural code for challenges and confirms the interplay between Sections 17, 30, 32 and 33 in determining the procedure and timing for attacking awards. The opinion does not state that it establishes any rule beyond its statutory interpretation and application to the facts of this appeal.
Attorneys for appellant: Dinkarrau & Co. — Attorneys for respondents: M.N. Mankar & Co., Tyabji, Dayabhai & Co.
Disposition in the opinion: "Appeal dismissed." (P.M.P.)
Chagla, C.J:—
A very interesting question under the Arbitration Act arises in this appeal. The appellant engaged the respondents to effect certain transactions on the stock exchange. The respondents are brokers and members of the Bombay Native Share and Stock Brokers' Association. In respect of certain transactions the respondents made a claim upon the appellant. The appellant having failed to pay, at the instance of the respondents the matter was referred to arbitration. The appellant challenged the right of the arbitrators to go into matters which were in dispute between him and the respondents, and his contention was that the contract being a forward contract and not a ready contract for purchase and sale of shares the contract was void, and therefore the agreement to refer the disputes to arbitration was also invalid and not binding. Notwithstanding the objection of the appellant, the arbitrators proceeded with the arbitration and made and published their award on June 21, 1952. The award was then filed in Court and the notice of the filing of the award was served on the appellant on October 6, 1952. The appellant then filed a petition on January 9, 1953, for a declaration that the award dated June 21, 1952, was null and void and was not binding on the appellant. Mr. Justice Desai held that the petition having been made more than 30 days after the notice of the filing of the award having been served on the appellant it was beyond time and therefore dismissed the petition. It is from that order that this appeal is preferred.
Turning to the Arbitration Act, what is relied upon is s. 33 and that section provides:
“Any party to an arbitration agreement or any person claiming under him desiring to challenge the existence or validity of an arbitration agreement or an award or to have the effect of either determined shall apply to the Court and the Court shall decide the question on affidavits:
“Provided that where the Court deems it just and expedient, it may set down the application for hearing on other evidence also, and it may pass such orders for discovery and particulars as it may do in a suit.”
The contention is that art. 158 of the Limitation Act deals with an application to set aside an award and the application of the appellant was not to set aside an award but for a declaration that the award was invalid under s. 33, and therefore the proper article which applied was not art. 158 but the residuary art. 181. In other words, according to the appellant the period of limitation was not 30 days, but three years. It is rather significant to note that apart from s. 33 the Arbitration Act does not provide for the making of any application to set aside an award. The only other relevant section is s. 30 which does not deal with an application to set aside an award but which deals with the grounds on which an award can be set aside. It is couched in the negative form and it provides that
“an award shall not be set aside except on one or more of the following grounds.”
Therefore it precludes the Court from setting aside an award except on the grounds specifically mentioned in that section. In our opinion it is clear that whereas s. 30 deals with the grounds on which an award can be set aside, s. 33 is the procedural section which lays down the procedure to be followed in making an application either for the purpose of setting aside an award or for the purpose of setting aside an arbitration agreement. It is futile to attach importance to the fact that s. 33 does not in terms refer to an application to set aside an award, but when a party makes an application challenging an award the result of the challenge if successful must be the setting aside of that award. The challenge cannot stop short of asking the Court to set aside an award, nor can the Court merely give a declaration to the effect that the award is invalid and not proceed to set aside the award. In this connection it is very material to look at s. 17. That section makes it incumbent upon the Court to pronounce judgment according to the award and it also lays down that on such a judgment being pronounced a decree shall fallow, and s. 17 indicates what are the circumstances under which it would not be incumbent upon the Court to pronounce judgment as required by s. 17. The one circumstance is where the Court sees no cause to set aside the award, and the other circumstance is that the Court must wait until the time for making an application to set aside an award has expired or such application having been made such application has been refused. Therefore the scheme of s. 17 is that after an award has been filed an opportunity is given to the party challenging or disputing the award to file an application to set aside the award and the application has got to be filed within the period of limitation. If no application is filed, the party in whose favour the award is made is entitled to a decree upon the award, or if the application is filed and has been dismissed on merits, then also the party in whose favour the award is made is entitled to a decree. It is only when an application to set aside an award having been made in time and the application having succeeded that the party in whose favour the award is made is not entitled to a decree in terms of the award under s. 17.
Now, if the contention of the appellant were sound, it would come to this that there would be two periods of limitation for two different applications, one under s. 30 and the other under s. 33. According to Mr. Mistree for the appellant, if an application to set aside an award were made under s. 30, the article in the Limitation Act which would apply is art. 158 and the period of limitation would be 30 days. If, on the other hand, the application for a declaration that the award is invalid without asking to set aside the award was made then that application would be an application under s. 33 and the period of limitation would be three years under art. 181. But strangely enough, if that was the scheme of the Act and if the Legislature contemplated two different applications with two different periods of limitation under ss. 30 and 33, s. 17 does not refer to any application under s. 33 at all. Therefore the curious result will be that the obligation upon the Court is only to wait till the period of limitation under art. 158 has expired and then it becomes incumbent upon the Court to proceed to pass a judgment upon the award, with the consequence that although a judgment upon the award has been passed under s. 17, the period of limitation to make an application to set aside the award having passed, it would still be open to the party adversely affected by the award to make an application under s. 33 and that application he could make right up to three years. In our opinion such a contention would not only be contrary to the scheme of the Act but it would result in anomalies which the Legislature could never possibly have contemplated. Therefore the only proper interpretation to give to s. 17 is that it contemplates all applications to set aside an award and all applications to set aside an award filed under s. 33 and not under s. 30. Section 30 does not deal with applications to set aside an award at all. It deals with what the powers of the Court are when an application is made to set aside an award. But when we want to decide what is the right of a party to apply to set aside an award and what procedure he should follow, then we have got to turn to s. 33.
Mr. Mistree has argued that if the Arbitration agreement is invalid then the award is a nullity and it is not necessary to set aside the award. Therefore as far as s. 33 is concerned, it will be sufficient for the party merely to ask for a declaration that the award is a nullity. If that contention were to be accepted then it would not even be necessary for a party to apply under s. 33 for a declaration that an award is a nullity. It is well settled that a decree which is a nullity may be ignored and it is not necessary to have such a decree set aside. But what the Arbitration Act contemplates is that if an award is on the file of the Court, unless steps are taken to have that award set aside a certain definite result must follow and that definite result is the result indicated by the Legislature in s. 17. Therefore it is not open to a party to assume to that an award which has been filed and in respect of which a notice has been served upon him is a nullity. He must go to Court and get it set aside, and the Legislature in s. 30 has stated the grounds on which the party can succeed in setting aside an award. Again, it is important to turn to s. 30 which is the section giving the right of appeal. The right of appeal is given against an order setting aside or refusing to set aside an award. Therefore, if the appellant's contention were to be accepted, there would be no right of appeal from an order made by a Judge under s. 33 refusing to declare that an award was invalid or declaring an award to be invalid on the ground that the arbitration agreement which resulted in the award was itself invalid. Again, it is impossible to assume that the Legislature gave a right of appeal when an application was made to set aside an award on the grounds mentioned in s. 30, but it did not give a right of appeal if an application was made to have it declared that the award was invalid, although the consequences as far as the party in whose favour the award was made would be equally serious.
It is then urged that under s. 30 the only grounds on which an award can be set aside are the grounds mentioned in cls. (a), (b) and (c), and it is stated that the expression in cl. (c) “or is otherwise invalid” is ejusdem generis and it does not extend the jurisdiction of the Court to set aside an award on grounds other than those mentioned in cls. (a), (b) and (c) of s. 30. It is therefore pointed out that if an award is challenged on the ground that an arbitration agreement which led up to the award was invalid, that award cannot be set aside under s. 30 but can only be declared to be invalid under s. 33. For this purpose reliance is placed on a decision of the Privy Council in Chhabba Lal v. Kallu Lal(3). In that case the Privy Council was considering the provisions with regard to arbitration in the Second Schedule to the Civil Procedure Code and it was construing paragraph 15 which also used the expression “an award being otherwise invalid”, and the Privy Council accepted the dissenting judgment of Mr. Justice Iqbal Ahmad who took the view that the expression must be construed ejusdem generis, and Sir John Beaumont delivering the judgment of the Court stated:
“In their opinion all the powers conferred upon 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.”
Therefore, what is urged is that here also the appropriate proceeding contemplated is a proceeding under s. 33 by which an award is being challenged on the ground that the reference made to arbitration was not a valid reference. Now, in the first place, there was no provision of the law in the second schedule to the Civil Procedure Code corresponding to s. 33, and s. 33 deals with all proceedings which have got to be taken when an arbitration agreement or an award is being challenged, and s. 32 bars all suits in respect of the existence, effect or validity of an arbitration agreement or award, and it also provides that no arbitration agreement or award be set aside, amended, modified, or in any way affected otherwise than as provided in this Act. Therefore, whereas the Privy Council could contemplate a suit for the purpose of a declaration that a particular award was a nullity, as far as the Arbitration Act is concerned all proceedings with regard to arbitration, arbitration agreements, and awards can only be taken as laid down in the Arbitration Act itself. The Arbitration Act now constitutes a self-contained Code with regard to the law of arbitration. That is the first ground on which the decision, of the Privy Council can be distinguished. The other ground is, as in our opinion rightly pointed out by the learned Judge below, that one must look to the history of judicial decisions antecedent to the passing of the Arbitration Act (Act X of 1940), and a review of judicial decision clearly shows that the High Courts of Bombay, Allahabad, Madras, Lahore, Patna, Rangoon, and the Chief Courts of Lucknow and Sind, all took the view that the expression otherwise invalid” in paragraph 15 was not to be construed ejusdem generis. The only discordant note was struck by the Calcutta High Court. It would only be right to assume that the Legislature had knowledge of the view taken by the High Courts as to the true meaning of this expression as occurring in paragraph 15 of the second schedule to the Code. Therefore, with that knowledge, if the Legislature in enacting s. 30 used the same expression, we would be entitled to assume that the Legislature gave to that expression the connotation which had been accepted by a large volume of judicial opinion. The decision of the Privy Council came much later; it came in 1946. The position might have been different if the Legislature had the decision of the Privy Council before it.
But even assuming that the true interpretation of the expression “otherwise invalid” is as contended for by the appellant and as was held by the Privy Council, we fail to see how that view helps the appellant on the question of limitation. Assuming that under s. 30 the power of the Court to set aside an award is limited to the grounds mentioned in that section and the expression “otherwise invalid” is ejusdem generis, then the power of the Court to declare an award invalid on the ground that the arbitration agreement was invalid would arise under s. 33. But even so the question would still have to be decided whether under s. 30 or s. 33 the application that has to be made is an application to set aside an award or not. We are not now concerned with the grounds on which the Court can set aside an award and whether the grounds fall under s. 30 or 33. What we are concerned with is whether the Arbitration Act contemplates only an application to set aside an award to which art. 158 applies, or whether the Arbitration Act contemplates two different types of applications, one to set aside an award and the other to have a declaration that the award is invalid. In our opinion, for the reasons already stated, the only application contemplated by the Arbitration Act is an application under s. 33, and whether the award is challenged on the grounds mentioned in s. 30 or on the grounds mentioned in s. 33, the application has got to be made under s. 33, it has to be decided under s. 33 and the award has got to be set aside, never mind how the challenge is made to the award, and once the application has been made to set aside an award under s. 33, s. 17 comes into operation and the Court is bound to pass a judgment in terms of the award if that application to set aside the award is refused or if the application to set aside the award is not made within the time mentioned in art. 158 of the Limitation Act.
Mr. Mistree has relied upon a judgment of the Calcutta High Court in support of his contention and that indeed is the only judgment which is really directly in point. It is therefore unnecessary to consider other judgments which do not deal with the point we are considering. That is a judgment of Mr. Justice Sinha in Ebrahim Kassim Cochinwalla v. Pannalal Johurmull,(4). In that case a double-barrelled application was made which the learned Judge had to consider. The application was partly to set aside the award and partly it was for a declaration that the award was invalid. The learned Judge held that the application to set aside the award was barred by limitation having been made beyond 30 days, but he went on to hold that the application in so far as it asked for a declaration that the award was invalid as there was no yalid reference was within time and he proceeded to decide it on merits. With very great respect to the learned Judge, he has failed to consider either s. 17 or s. 39 or the difficulties and anomalies which would result if the view which has found favour with him were to be accepted. We are sure that if the learned Judge had considered these two ss. 17 and 39 which we have considered, he would not have come to the conclusion which he did. With respect, therefore, we are unable to accept the view taken by the learned Judge.
In our opinion, therefore, the learned Judge below was right in the conclusion he came to. The result is that the appeal fails and must be dismissed with costs.
Undertaking given by the respondents discharged.
Liberty to the respondents' attorneys to withdraw the sum of Rs. 500 deposited in Court.
Attorneys for appellant: Dinkarrau & Co.
Attorneys for respondents: M.N Mankar & Co., Tyabji, Dayabhai & Co.
Appeal dismissed.
P.M.P
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