V.S DESHPANDE, J.:— What is the nature of a reference to arbitration and of the consent of the parties on which it is based? When can a reference be said to be unilateral? When must it be made under Section 20 of the Arbitration Act? These questions which go to the very root of the working of the arbitration system have arisen for decision in this appeal against the order of Hardy J. refusing to set aside the award against the appellant and in favour of Respondent No. 1.

Appellant P.C Aggarwal carried on forward transactions in stocks and shares through Respondent No. 1 K.N Khosla. a member of the Delhi Stock Exchange Association. Contract notes such as Exhibits R1 to R4 used to be signed by the appellant while entering into these contracts with the Respondent No. 1. These contract notes contained the following arbitration clause :—

“In the event of any claim (whether admitted or not), difference or disputes Arising between you and me/us out of these transactions the matter shall be referred to arbitration in Delhi as provided in the Rules. Bye-laws and Regulations of Delhi Stock Exchange Association. Ltd., Delhi.

This contract constitutes and shall be deemed to constitute as provided overleaf an agreement between you and me/us that all claims (whether admitted or not), differences and disputes in respect of any dealings. Transactions and contracts of a date prior or subsequent to the date of this contract (including any question, whether such dealings, transactions and contracts have been entered into or not) shall be submitted to and decided by arbitration in Delhi as provided in the Rules. Bye-laws and Regulations of the Delhi Stock Exchange Association. Ltd., Delhi.” Respondent No. 1 made a demand on the appellant for the payment of Rs. 29,255:74 on account of these transactions. As the appellant failed to pay the amount, the Respondent No. 1 took steps to have the disputes referred to arbitration in accordance with the Rules. Bye-laws and Regulations of the Association. In making the reference, he followed the procedure, laid down in Bye-laws 247 to 249 and Regulation 15 together with Appendix A containing the prescribed forms. Briefly, the procedure was as follows :—

1. The appellant made an application to the Secretary of the Association in Form No. 1 called the Arbitration Application Form for adjudication of the disputes between him and the appellant by arbitration as provided in the Rules. Bye-laws and Regulations of the Association. The application was accompanied by :—

(i) Notice in Form No. 2 in triplicate appointing the Respondent No. 1 as arbitrator and calling upon the appellant to appoint his arbitrator within seven days of the service of the notice.

(ii) A statement of the case in triplicate together with statements of accounts in triplicate containing the claim or claims made by the Respondent No. 1 against the appellant.

(iii) Rs. 20/- being the institution fee and Rs. 25/- as the arbitration fee. He then enclosed as per list annexed all the documents and papers relating to the reference.

2. On receipt of the notice and statement of claim from Respondent No. 1, the Secretary of the Association forwarded the same to the appellant enclosing for the use of the appellant Form No. 4 (Form of Reply to Arbitration Application) and Form No. 5 (Form of Nomination and Appointment of his arbitrator).

3. On failure of the appellant to appoint his arbitrator within seven days, of the receipt of the notice, the President of the Association appointed Shri P.R Khosla (Respondent No. 2) as arbitrator under Form No. 6.

These arbitrators eventually made the award against the appellant.

2. Meanwhile the appellant denied that there was any arbitration agreement, and filed an application under Section 33 of the Arbitration Act impleading Respondent No. 1 and the Secretary of the Association thereto. The existence and the validity of the arbitration agreement were however upheld and this application was dismissed by the Court. The appellant thereupon participated in the arbitration proceedings under protest. He filed another application under sections 5, 11 and 22 for the revocation of the authority of the arbitrators or for their removal. This application was also dismissed. The appellant then filed objections under Section 30 of the Arbitration Act for the setting aside of the award. On these objections, the following issues were framed :—

1. Can the objector reagitate the question of existence of arbitration agreement in view of the order dated 14-1-1963 passed by this Court? If so, whether the arbitration agreement exists in the present case?

2. Whether the award is liable to be set aside on the grounds mentioned in the objection petition?

3. Whether the arbitrators were not properly appointed?

4. Is the award not properly drawn and properly stamped?

5. Whether the award has been made beyond time? If so, what effect?

6. Relief.

These issues were decided by Hardy, J. as follows:—

Issue No. 1- The arbitration agreement existed between the parties. The legality of the arbitration agreement was not put into issue and could not be, therefore, gone into.

Issue No. 2:— Only grounds set out in clauses (m) to (t) of para 25 of the application under Section 20 of the Arbitration Act were urged before Hardy, J. and were rejected by him. These grounds did not include the objection that the reference to arbitration was bad being unilateral by the Respondent No. 1 and not through Court under Section 20 of the Arbitration Act.

Issues 3 and 4 :— These issues were not pressed before Hardy, J. by the appellant and they were decided against the appellant by the learned judge. Issue No. 5 :— Hardy, J. held that the time for making the award was extended by the directives of the Association under Bye-law 266 and in any event it was a fit case in which the time should be extended by the Court and Hardy, J. accordingly also extended the time.

3. In the memorandum of appeal before us, various grounds were taken but Shri R.L Aggarwal. learned counsel for the appellant in his argument confined himself only to the following three grounds, namely:—

(1) The reference to arbitration was unilaterally made by Respondent No. 1 without the consent of the appellant. The reference without the consent of the appellant could be made only under Section 20 of the Arbitration Act by the Court. As the reference was invlid, the proceedings thereon including the award were also invalid.

(2) At the last hearing before the arbitrators, the appellant did not arrive in time and the arbitrators, therefore, closed the case for delivery of the award proceeding ex parte against the appellant. The appellant arrived after about twenty minutes and requested the arbitrators to hear him. But the arbitrators did not do so.

(3) The contracts which were the subject-matter of the claims of the Respondent No. 1 before the arbitrators against the appellant were void as being contrary to Section 15 of the Securities Contracts (Regulation) Act, 1956 and Section 15 (4) of the Forward Contracts (Regulation) Act, 1952.

Ground No. 1 :—

4. This ground was not raised before Hardy. J., and, therefore ordinarily it cannot be used before us in the appeal. Shri Aggarwal, however, says that the ground raises a pure question of law which goes to the root of the case and should therefore, be heard and decided by us. On his own submission, therefore, we cannot go into any question of fact but we will have to proceed on the assumption that the reference was made in accordance with the Bye-laws and the Regulations of the Association. The question of law which then arises may be described as follows :—

“Whether the reference was unilateral and hence illegal even though it was made in accordance with the Bye-laws and Regulations of the Association which were a part of the arbitration agreement between the appellant and the Respondent No. 1?”

The consideration of this question may be divided into the following compartments :—

(A) The nature of a reference to arbitration :

(B) The nature of the consent underlying such a reference and the manner and the time of giving such consent;

(C) When can a reference be said to be unilateral in the sense that it is not based on the consent of both the parties; and (D) When a reference can be made only under Section 20 of the Arbitration Act.

5. (A) The mature of a reference to arbitration :—

Section 2 (a) of the Arbitration Act, 1940 defines an “arbitration agreement” to mean “a written agreement to submit present or future differences to arbitration, whether an arbitrator is named therein or not.” Section 2 (e) of the Act defines a “reference” to mean “a reference to arbitration.” It is necessary to know why the two concepts of “arbitration agreement” and the “reference to arbitration” are separated for the first time in the Arbitration Act, 1940. Following the English Arbitration Act, 1838, the Indian Arbitration Act, 1899 defined a “submission” to mean “a written agreement to submit present or future differences to arbitration, whether an arbitrator is named therein or not.” Both the concepts of an arbitration agreement and a reference to arbitration were thus combined in the concept of a “submission”. The reason why the concept of “submission” of the Act of 1899 was split up into an “arbitration agreement” and a “referende” in the Act of 1940 may be expressed in the words of Russell on Arbitration. Eighteenth edition, page 39 as follows :—

“Definition of “submission” and “arbitration agreement” :—

The term “arbitration agreement” is defined by the Act as meaning :

“A written agreement to submit present or future differences to arbitration, whether an arbitrator is named therein or not.” Thus this term covers both an arbitration clause by which the parties agree that if disputes arise they shall be referred to arbitration, and also an actual submission of a particular dispute or disputes to the authority of a particular arbitrator. These are two very different things, and it is often convenient to distinguish between them calling the first an “agreement to refer” and the second a “submission.” The Act itself where it uses these terms, would seem to use them in the sense indicated above. It must, however, be remembered that the 1889 Act defined “submission” in the same words now used to define “arbitration agreement”, with the result that the word “submission” is given this meaning in many judicial pronouncements and also in the official translation of the Convention on the Execution of Foreign Arbitral Awards. To this extent, the distinction between these various terms has become blurred. The present book, however, does as far as possible use them in the more precise sense indicated above.”

It is to be noted, however, that the definition of “arbitration agreement” in the Act of 1940 is precisely the same as the definition of “submission” in the Act of 1899. How is it then that the definition of “arbitration agreement” in the Act of 1940 is the same despite the insertion of the new definition of “reference” in the Act of 1940? The reason appears to be this: The definition of “arbitration agreement” is comprehensive enough to include two types of arbitration agreements. On the one hand, it includes merely an agreement between the parties that disputes arising between them should be decided by arbitration. This is a bare arbitration agreement. It does not provide for a reference of the dispute to arbitration. It merely provides that disputes would be referred to arbitration. On the other hand, the definition also includes arbitration agreements which combine an agreement that disputes shall be decided by resort to arbitration with a reference of the disputes between the parties to arbitration. It is only when the arbitration agreement is of the former type namely, a bare agreement, that disputes shall be decided by resort to arbitration that an arbitration agreement is used separately from the reference of disputes to arbitration. It is only when an arbitration agreement is of this type that a separate reference to arbitration would have to be made apart from the arbitration agreement and this is why the two things have been separately defined in Sections 2 (a) and 2 (e). But because Section 2 (a) is comprehensive enough to include the latter type of arbitration agreement which combines both the arbitration agreement and the reference that only the “arbitration agreement” is defined to include both the types of agreements while “reference” is not defined at all except to mean that it is a reference to arbitration.

6. (B) The nature of the consent end the manner and the time of giving such consent:—

In a bare arbitration agreement the consent of the parties is restricted to the fact that disputes between them would have to be decided by resort to arbitration. But when arbitration agreement includes also reference to arbitration, the consent of the parties would cover not only the fact that the disputes will have to be referred to arbitration but also the fact that they are referred to arbitrators for decision. The disputes may be of two types :— (a) present disputes, and (b) future disputes. When the disputes have already arisen, then there is no difficulty in understanding that the consent of the parties that the disputes should be decided by resort to arbitration would automatically include a reference of those disputes to arbitration. At first sight it would appear that the consent of the parties underiying a reference can exist only regarding past and present disputes and that it cannot exist regarding future disputes. But this view, though plausible, is opposed to the conception of a submission or a comprehensive arbitration agreement comprising both the agreement to refer to arbitration and also the reference on which the system of arbitration in England and India has been based right from its inception till now. It is because the consent of the parties to the reference (as distinguished from a mere agreement to refer disputes to arbitration) can be given in advance in a written agreement or submission or a written comprehensive arbitration agreement in advance before the arising of the future disputes that the nature of reference has become consensual in the law of arbitration. Had the law been that there can be no agreement between the parties as to the actual reference of disputes to arbitration unless the disputes have actually arisen, there would have been a sharp difference between an arbitration agreement including a reference regarding the pact and the present disputes and a mere arbitration agreement not including the reference regarding future disputes. But the definitions of “submission” and “arbitration agreement” in the Acts of 1899 and 1940 would show that no such differentiation between the existing and the future disputes has been made in making reference to arbitration. It follows, therefore, that the consent of the parties can be given in advance in referring future disputes to arbitration.

7. (C) When can a reference be said to be unilateral.-

If therefore, the consent of the parties to the deference of the future disputes to arbitration can be given in advance before the disputes have arisen, does this consent enure for the benefit of both the parties when the disputes actually arise? Or whether a fresh consent has again to be given to the reference after the disputes haw actually arisen? As already stated above, no difference between the existing and the future disputes has been made in the law of arbitration in India at all as far as the reference of these disputes to arbitration is concerned. It would follow, therefore, that the advance consent given by the parties to the reference of future disputes to arbitration can be acted upon when the disputes actually arise. Human nature being what it is, it would be unrealistic to expect that even after the disputes have arisen both the parties will again agree to make a reference of the disputes to arbitration For, after the disputes have arisen, one party would be a claimant and the other would be a respondent. It is the claimant alone who is interested in referring the disputes to arbitration and getting a decision thereof with a view to realise his claim from the opposite party. But the non-claimant would be tempted to delay the reference of the dispute to arbitration and its decision with a view to avoid payment of the claim. It is trite knowledge that “life of the law is experience and not logic.” The Legislature could not have. Therefore, made a doctrinaire approach to the subject of arbitration and required a fresh consent of the parties to reference even though an advance consent has already been given to the reference before the disputes arose. It is because the Legislature knew that a second consent of both the parties would not be forthcoming or would be very difficult to obtain that the Legislature did not insist on such a consent. It is clear, therefore, that the previous consent of the parties to the reference of the disputes to arbitration binds them throughout and no fresh consent is necessary after the disputes have arisen. Therefore, when, in a case like the present one. both the parties have consented that the reference to arbitration should be made in a particular manner and has given their consent in advance, the actual reference to arbitration according to the procedure agreed by both the parties in the comprehensive arbitration agreement has to be regarded as a bilateral reference inasmuch as it is based on the agreement of parties which includes not only the bare arbitration agreement but also the reference of future disputes to aribtration. Such a reference cannot, therefore be said to be unilateral.

A truly unilateral reference would arise when the agreement between the parties is restricted to the simple fact that disputes between the parties would be decided by arbitration but the agreement does not include the reference of disputes to arbitration. To decide, therefore, whether the reference in a particular case is based on the previous consent of the parties or whether it is a unilateral reference by one of the parties, the agreement between the parties would have to be construed. It is only if it does not include the reference that the question of unilateral reference would arise.

8. (D) When a reference can be made only under Section 20 of the Arbitration Act :—

There is a widespread belief that Section 20 has been enacted in the Act of 1940 to ensure that every reference to arbitration made by one of the parties to the arbitration agreement in which the other party does not join is a unilateral refecence and has to be made through the Court under Section 20 of the Arbitration Act. 1940. Such opinion is opposed to the provisions of the Arbitration Act, 1940 itself. The Act deals with three different kinds of arbitration separately. Chapter II is “Arbitration without intervention of a Court”. Chapter III is “Arbitration with intervention of a Court where there is no suit pending” and Chapter IV is “Arbitration in suits”. Section 20 (1) falling in Chapter III itself states as follows :—

“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.”

A proper construction of Section 20 (1) would be as follows :— If the arbitration agreement between the parties includes the reference of future disputes to arbitration, then the parties or one of the parties would have an option to proceed either under the provisions of Chapter II or under the provisions of Chapter III in proceeding with the reference. On the other hand, if the arbitration agreement does not include the reference of the disputes to arbitration, the parties together would have to make such a reference or one of the parties can do under Section 20 of the Act. Naturally, when the arbitration agreement does not include a reference of the disputes to arbitration and yet one of the parties persists in proceeding with the reference without resorting to Section 20. such a reference would be unilateral and would therefore be illegal. For it would not be protected either by the agreement between the parties or by Section 20 of the Act. This view would appear to have been accepted by the Full Bench of this Court in P.C Aggarwal… v. Banwari Lal Kotiya…, ILR (1972) I Del 279 at p. 284. where the following observation occurs :—

“If disputes arise in the future, a reference has to be made to arbitration within the meaning of Section 2 (e) of the Arbitration Act and at this stage there should be a consult of both the parties. If the consent exists it would not be necessary to proceed under Chapter III by making an application under Section 20 of the Arbitration Act and the parties or one of the parties can proceed under Chapter II of the said Act.”

Our view is also supported by the legislative history of Section 20. The original proposal which was given effect to later by way of enacting Section 20 was initially made by Mr. R.S Backhouse of the Karachi Chamber of Commerce to the Civil Justice Committee 1924-25. In Chapter XIII. pages 201-221, paragraph 10 of the Report of the Civil Justice Committee it is stated that Mr. Backhouse suggested that “provision should be made in the indian arbitration act to the seme effect as is made by paragraph 17 of the Schedule to the Code of Civil Procedure, 1908 - namely, that the party claiming arbitration may apply to the court and the court after giving notice to the several parties concerned may make an order of reference if the agreement to refer appears to be valid”. It is well known that the Chambers of Commerce are concerned with the resolving of numerous commercial disputes and they are keenly interested that such disputes should be resolved as quickly as possible. They were in favour of commercial arbitration of these disputes. It is also well known that such commercial arbitration takes place according to the rules of these Chambers of Commerce without the intervention of the Court. It would be clear, therefore, that when Mr. Backhouse suggested the addition of a provision on the lines of paragraph 17 of the Schedule to the Code of Civil Procedure, he could have meant it only as a supplementary provision. He could not have meant that in each or every case the reference to arbitration must be through the Court. For, that would have destroyed all the commercial arbitration which takes place quickly under the bye-laws and regulations of the commercial associations. In paragraph 15 of Chapter XIII of the Report of the Civil Justice Committee, therefore, the Committee recommended as follows :—

“We see no reason why a provision on the lines of paragraph 17 of the Second Schedule should not be made applicable to arbitrations under the indian arbitration act provided always that this provision is purely facultative (permissive or optional), end is not in any way intended to require persons claiming arbitration to apply to the Court in the first place to enforce the agreement to refer”.

The Committee was, therefore, clear that the existing enforceability of the agreements to refer outside Courts should not he affected by the proposed legislation a nd that the provision which later became Section 20 should be optional and not compulsory in such a case. In the Statement of Objects and Reasons accompanying the Bill which later became the Arbitration Act of 1940. it is stated as follows :—

“The existing law, the amended English law and the recommendations of the Civil Justice Committee have been scrutinized together, and the present Bill which seeks to consolidate and standardise the law relating to arbitration throughout British India, in its detail extracts from the sources referred to those principles of law which, it is considered, are most equitable to British India”.

This shows that Section 20 was enacted to he an optional provision which is to be invoked only when one of the parties has to proceed with the reference without having previously secured the agreement of the other party to the reference and where only the bare arbitration agreement exists between them.

9. How do we account for the judicial decisions which seem to take the view that reference to arbitration could be made only through Section 20 unless both the parties join in the reference? The origin of this view is traceable to the following observation of the Supreme Court in Seth Thawardas Pherumal v. Union Of India, (1955) 2 SCR 48 at p. 58 : (AIR 1955 SC 468 at pp. 474-475) :—

(1) In the case of Thawardas itself the arbitration provision was invoked by the Government while the reference was proceeded with by the contractor alone. The Government and the contractor did not join in making a reference to arbitration. On the contrary, the reference was initiated by the contractor basing himself on the consent of the parties to the reference contained in the original arbitration agreement.

(2) The Supreme Court did not hold that the award was bad because the initial reference to the arbitration was itself bad being unilateral.

(3) On the contrary, the Supreme Court held that the award was bad because it disclosed an error of law apparent on the face of the record.

(4) The Court further expressed the view that the arbitrator would have been entitled to commit such an error of law apparent on the face of the record and the award would still have been binding between the parties if a specific question of law had been referred by the parties for the decision of the arbitrator. Such a specific question of law could not be expected to be referred to arbitration in the original arbitration agreement containing the reference inasmuch as the question would not be known to the parties unless and until the dispute actually arises. Such a question can be formulated only after the dispute arises. Since the question was not contained in the original reference. It has to be referred to arbitration by both the parties. It is in this context that the Supreme Court considered tile necessity of the making of such a reference by both the parties. Even if the general observation of the Supreme Court in construed to apply to all references and is not restricted to the reference of a specific question of law. Still the said observation cannot mean that no reference to arbitration can be made except through Section 20 unless it is jointly made by the parties.

10. We are fortified in this view by a subsequent decision of the Supreme Court in Bhusawal Borough Municipality v. Amalgamated Electricity Co. Ltd., (1964) 5 SCR 905 : (AIR 1966 SC 1654). We quote from the head-note at page 906 :—

“The second proviso to clause 5 of the Surcharge Order does not require that the dispute has to be referred by both the parties. Such a dispute can be referred by one of the parties as is clear from the language of the proviso which says “in the event of dispute by any party interested” the decision of the provincial Government shall be final.”

The second proviso referred to in the head-note was as follows :—

“Provided further that no War Costs Surcharge shall be effective upon the charges for the supply of energy under any contract entered into after the 1st May 1942, unless such contract provides for the same charges for energy as have been contained in similar previous contracts for similar supply by the licensee or sanction-holder concerned has to which in the event of dispute by any party interested, the decision of the provincial Government shall be final) or unless and to such extent as such application may be expressly ordered by the Provincial Government.” At page 910, their Lordships observed as follows :—

“Then Mr. Pathak said that under the Surcharge Order itself the dispute had to be referred by both the parties and not by only one of them. This contention is, however, untenable in view of the clear language of the proviso which says: “In the event of dispute by any party interested” the decision of the Provincial Government shall be final.”

11. Our view is also supported by the other provisions of the arbitration act itself. Firstly according to Section 3. an arbitration agreement, “unless a different intention is expressed therein” shall be deemed to include the provision set out in the First Schedule to the Act. One implied condition of arbitration agreement under paragraph 3 of the First Schedule is as follows :—

“The arbitrators shall make their award within four months after entering on the reference or after having been called upon to act by notice in writing from any party to the arbitration agreement or within such extended time as the Court may allow.”

As was pointed out by Desai. C.J speaking for the majority of the Full Bench in Mangel Prasad v. Lachhman Prasad, AIR 1964 All 108 (FB). in paragraph 6 :—

“A party or the parties could itself or themselves, without intervention of the Court call upon the arbitrator by notice in writing to make an award, vide. clause 3 of the First Schedule. But the remedy given by Section 20 (1) is an alternative to that provided by Chapter II. which means that Chapter II also applies to a case in which a difference arises after the agreement has been entered into. It cannot be disputed that the Act governs an arbitration agreement preceding a difference and also an arbitration agreement following a difference and if Chapter II does not exclusively deal with a difference preceding an agreement it can not be said that S. 20 (1) exclusively deals with a difference arising after an agreement.”

A contrary view was taken in AIR 1963 All 242. paragraph 6, where a Division Bench observed as follows :—

“From (paragraph 3 of the First Schedule) it was sought to be inferred that one party alone could refer the dispute to and ask the arbitrator to take up the matter. We are unable to agree with this contention. This paragraph merely refers to a stage when the matter has already been referred to an arbitrator and he neglects his duty of starting work. Then one of the parties may give notice that he should proceed with the arbitration. This Paragraph has nothing to do with reference being made by one party alone.”

Between these two conflicting decisions. We are inclined to agree with the Full Bench in preference to the Division Bench for the following reasons :—

(1) Paragraph 3 of the First Schedule refers to the point of time at which the arbitrators have already been appointed. The practical meaning of “reference to arbitration” is the appointment of the arbitrators. Once the arbitrators are appointed they are bound to enter on the reference or are liable to be called upon to act by a notice in writing by any party to the arbitration within the meaning of paragraph 3 of the First Schedule. Judicial opinion is unanimous in so construing Section 2 (e) of the Arbitration Act. In Ratnchand v. Gobind Ram. 56 Ind. Cas. 150 at p. 152 : (AIR 1920 Sind 124 at p. 125). it was observed that “A reference is made by a particular arbitrator being appointed under the agreement to refer. An agreement to refer and a reference are only distinguishable as separate transactions, where there is an agreement to refer in which no arbitrators are named and subsequently a reference is made to an arbitrator in pursuance of the agreement. In the present case there was an agreement to refer and a reference in one and the same document. i. e., a submission to named arbitrators. The agreement in the case before us also combines the agreement to refer and the reference. In James Finlay v. Guardayal Pahlajraj. 76 Ind Cas. 660. : (AIR 1924 Sind 91) it was held that where there is a submission in the terms of the Arbitration Act, and in pursuance of it either party appoints his arbitrator, the reference to arbitration is complete and it is not necessary to follow it up with a formal reference to arbitrators named. In Baranagore Jute Factory Co. v. Hulaschand AIR 1958 Cal 490. paragraph 13 it was held that “reference” means the actual submission of a particuar dispute under the arbitration agreement to the arbitrator contemplated therein. Paragraph 3 of the First Schedule, therefore, contemplates the reference of a dispute to arbitration by a party or parties without the intervention of the Court. In so far as the observation of the Division Bench of the Allahabad High Court implies that a deference under S. 20 (4) of the Arbitration Act had to be necessarily made before paragraph 3 of the First Schedule became applicable. Such an implication is not warranted. Paragraph 3 of the First Schedule therefore, supports the argument that a reference by a party or parties is competent without taking recourse to Section 10 (4).

(2) If a reference is made through the Court, the power to extend the time for making the award is given to the Court under Section 23 of the Act. It is only when reference is made without the intervention of the Court that paragraph 3 of the First Schedule becomes applicable and the time for making the award is presumed to be four months. Section 28 generally empowers the Court to extend time for making of an award. But the law is well settled that in a reference made without the intervention of the Court, it is open to the arbitration agreement itself to fix a time within which an award should be made or to contain provisions for extension of time. Since the parties have provided for the time and the extension thereof, resort to Section 28 would became unnecessary.

12. Secondly, the Act itself makes a dear distinction between a reference without the intervention of a Court and a reference with the intervention of a Court Chapter II of the Act deals with the former and Chapter in with the latter. Section 9 (b) of the Act forms part of Chapter II and deals with reference (that is, appointment of an arbitrator or arbitrators) Without the intervention of the Court and is as follows :—

“9. Where an arbitration agreement provides that a reference shall be to two arbitrators. One to be appointed by each party then, unless a different intention is expressed in the agreement :—

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(b) if one party fails to appoint an arbitrator, either originally or by way of substitution as aforesaid for fifteen clear days after the service by the other party of a notice in writing to make the appointment. Such other party having appointed his arbitrator before giving the notice, the party who has appointed an arbitrator may appoint that arbitrator to act as sole arbitrator in the reference, and his award shall be binding on both parties as if he had been appointed by consent :

Provided that the Court may set aside any appointment as sole arbitrator made under clause (b) and either on sufficient cause being shown, allow further time to the defaulting party to appoint an arbitrator or pass such other order as it thinks fit.”

The facts of the present case are analogous to the facts contemplated in Section 9 (b). The significant features of Section 9 (b) are as follows :—

(1) Reference by only one party is regarded as legal. The right of the opposite party is to be invited to co-operate. But he does not have the right to insist that the reference must be made through Court under Section 20 (4).

(2) The party first appointing the arbitrator is given the right to appoint his arbitrator as the sole arbitrator in the reference if the opposite party fails to appoint his own arbitrator. But this is subject to the expression “unless a different intention is expressed in the agreement”. This means that the arbitration agreement can provide for some other method of reference (that is appointment of an arbitrator) which may be different from the one specified in Sec. 9 (b) but would still be without the intervention of a Court.

13. The method contemplated in the present case is in point. The arbitration agreement provides that the second arbitrator will be appointed by the President of the Association on the failure of the appellant to do so. This has been attacked by Shri Aggarwal as being a unilateral reference contrary to the decisions of the Supreme Court in Thawardas (1955) 2 SCR 48 : (AIR 1955 SC 468) and of the Full Bench in P.C Agaarwal F.A.O. No. 39-D of 1962, D/- 18-7-1972 (Delhi). In our view, this is not the meaning of “a unilateral reference”. In E.D Sassoon and Co. v. Ramdutt Ramkissen Das. AIR 1922 PC 374. also the Rules and Bye-laws of the Association provided that the remaining arbitrator may be appointed by the Association. Unfortunately, he had been appointed under Section 9 (b) of the Arbitration Act. 1899 by a party to the arbitration agreement. The Privy Council held that the provision in the arbitration agreement prevailed over Section 9 (b) in view of the expression “unless a different intention is expressed in the agreement” appearing in Section 9. This decision of the Privy Council establishes the law that the appointment of the arbitrator on behalf of the party in default like the appellant herein can be made by the Association on behalf of the appellant and such a procedure does not amount to a unilateral reference.

14. Section 20 (1) itself expressly gives an option to the party desiring to make a reference to the arbitration to proceed either under Chapter II or under Chapter III. On the facts of the present case, as we have seen above. Respondent No. 1 could have proceeded under Section 9 (b). But the specific provision in the arbitration agreement incorporating the Bye-laws and the Regulations of the Association prevail over Section 9 (b). By virtue of Section 20 (1). Therefore, they also prevail over Chapter III of the Arbitration Act.

15. Is there any limitation on the time at which the consent to the reference can be given by the parties and the manner in which the reference is to proceed as contemplated by the parties to the arbitration agreement? Neither the Act nor any of the decisions speaks of any such restriction. The provisions of the arbitration act referred to above show that full latitude is given to the parties to provide for the time at which the consent to the reference may be given and the manner in which the reference may be made. Unless and until the provisions in the arbitration agreement as to the time of the consent and the manner of the reference are found contrary to any provisions of the arbitration act. they must be given effect to. This position was clearly understood in the Privy Council decision referred to above. For the provisions of the arbitration agreement permitting the appointment of an arbitrator on behalf of the party in default by the Association were squarely challenged as ultra vines on the ground that they conflicted with Section 9 (b) of the Arbitration Act. 1899 which was in pari materia with Section 9 (b) of the Arbitration Act 1940. That contention was rejected by the Privy Council because Section 9 itself contemplated the manner of reference to be different from that set out in Section 9 (b) if the arbitration agreement so provided. In the present case, the appellant has nowhere challenged the provisions of the Bye-laws and the Regulations of the Association forming part of the arbitration agreement as being either ultra vires or illegal for any other reason. Nor has the appellant shown any reason whatever as to why effect should not be given to the provisions of the arbitration agreement. As observed in Russell on Arbitration, pages 1 and 2 :—

“The parties to an arbitration may in large degree themselves determine the procedure to be followed end the powers the arbitrator is to have as well as the constitution of the arbitral tribunal. The Act lays down a code governing these matters, but many of its provisions may be excluded by agreement between the parties.”

16. If the provisions of the arbitration agreement have to be given effect to we do not see how the reference made in accordance with the Bye-laws and the Regulations could be said to be invalid. Section 20 does not say that it is the only provision under which the reference must be made unless it is a joint reference by both the parties after the dispute had arisen. Human nature being what it is, the Legislature could not have contemplated that both the parties should give a fresh consent to the making of the reference after the dispute had arisen. As observed by us above, such a consent would be necessary only if it had not been already given. If the consent has been already given in the arbitration agreement. Then merely because it was given before the arising of the dispute would not make it insufficient. For the consent expressly contemplates what is to happen after the disputes arise. It contemplates also that one of the parties may refuse to co-operate in the making of the reference. It therefore, gives the other party a right to make the reference by appointing his own arbitrator and on the failure of the recalcitrant party to appoint his own arbitrator gives the power to the President of the Association to appoint the arbitrator on behalf of the party in default. These provisions are contained in the Bye-laws and the Regulations of the Association which is a commercial association. Expedition is the essence of commercial transactions. Numerous commercial associations in the States of Bombay, Calcutta. Delhi and Madras have got their own Bye-laws and Regulations governing references to commercial arbitrations. Hundreds and thousands of transactions among the members of these associations and also among the members and non-members are dealt with by arbitrations under these standardised provisions. In the vast majority of cases under these Bye-laws and Regulations. No one thinks of approaching the Court under Section 20 for the making of reference. Advantage is taken of the option given by Section 20 (1) itself to the parties of proceeding either under Chapter II or Chapter III of the Act. Advantage is also taken of the option given by Section 9 to the parties of proceeding either under Section 9 (b) or under the special terms of the agreement. Such established commercial practice would be completely thrown out of gear if an extreme view is taken that a party in default can nullify the provisions in the Bye-laws and Regulations of these Associations by refusing to abide by them even though he has agreed to them in the arbitration agreement. We do not find any provision of law for taking the view that the consent given in the arbitration agreement as to the manner of making the reference must be repeated after the dispute has arisen. On the other hand, we take the view that once the consent exists and the consent is specific as to how the reference is to be made, it has to be given effect to. No fresh consent is necessary at the time of making the reference because both the parties have expressly agreed that the reference may be made by one of the parties if the other party refuses to co-operate and the President of the Association has to nominate the arbitrator on behalf of the party in default.

17. In Jagannath Kapoor v. Premier Credit and Instalment. Corporation (P) Ltd., AIR 1973 All 49, a learned Single Judge expressed the view that a unilateral reference, though not prohibited by anything in the Arbitration Act. was contrary to the consensus of the case-law. We have discussed the case-law above and found that it could not support a facile generalisation that every reference in which both the parties do not join after the arising of the dispute and give a second consent to the reference in addition to the previous one embodied in the arbitration agreement becomes a unilateral reference. We note, however, that even the learned Single Judge in Jagannath's case. referred to above, conceded in paragraph 15. after the Supreme Court decision in Bhusawal Borough Municipality case (1964) 5 SCR 905 : (AIR 1966 SC 1654) was brought to his notice that-

“In fact, their Lordships of the Supreme Court had come to the conclusion that the second proviso to clause 5 had specifically authorised any one of the parties interested to approach the Provincial Government for decision. Thus there being a clear provision to the contrary in the proviso itself. The case was to be governed by the language of the relevant clause and not by the general rule relating to arbitration proceedings.”

We further find that a Division Bench of this Court has expressed the same view as we have done here in Smart's Private Ltd v. Mrs. Satyawati, Suit No. 15 of 1967 (Delhi) - application under Sections 14 and 17 of the Arbitration Act. 1940 - decided on 8-12-1970.

18. If therefore, the Bye-laws and Regulations incorporated in the arbitration agreement in the present case expressly make a provision to the contrary, the so-called general rule against the unilateral reference would not apply to the facts of the present case. Further support to the view that the consent of the parties to the reference of future disputes to arbitration can be given in advance so as to make it unnecessary that the parties should again agree to the reference after the disputes have arisen comes from Section 5 of the Act which is as follows :—

“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.”

What is the meaning of the expression “authority of an appointed arbitrator”? In Prafulla Chandra v. Panchanan. AIR 1946 Cal 427. Chakravartti. J. in the course of a concurring judgment observed as follows at page 433 :—

“At first sight it might seem that this provision applies only to the authority of a particular arbitrator or arbitrators and has no application to the reference itself. But the real scope of the section will appear if the meaning of the word “authority” is closely examined. In the corresponding provision in the English Arbitration Act of 1889. Section 1, the word used is “submission” and in criticising that section Brown L.J pointed out in (1890) 25 QBD 545. that the word “submission” had been used with some inexactitude because the agreement to refer which the term “submission” might seem to denote, was always irrevocable and it was only necessary to provide for the irrevocability of “the authority of the arbitrator”. The agreement to refer is one thing, the actual submission, whether by act of the parties or by an order of the Court, that is to say, the reference, is another and the latter is nothing but the consignment of the case to particular arbitrators and the authority conferred on them. The Indian Legislature seems to have met the criticism of Brown L.J by accepting the exact language suggested by him and when the section speaks of the authority of the arbitrator it means the reference.”

19. In Juggilal Kamlapat v. General Fibre Dealers Ltd. (1962) Supp 2 SCR 101 : (AIR 1962 SC 1123). the respondent alone referred the disputes between the parties to the arbitration of the Bengal Chamber of Commerce. The award having been set aside, the respondent begged to refer the matter to the arbitration de novo. The appellant appeared before the Tribunal of the Bengal Chamber of Commerce and contended that it had no jurisdiction to make an award on a second reference in the same dispute. The Supreme Court held that after the award was set aside the reference continued to exist in view of Section 19 of the Act and could be proceeded with again inasmuch as it has not been superseded by the Court. At page 108 (of SCR Supp) : (at p. 1126 of AIR) the Supreme Court observed as follows :—

“Section 19 provides inter alia that where an award has been set aside, the court may by order supersede the reference and shall thereupon order that the arbitration agreement shall cease to have effect with respect to the difference referred. The section therefore leaves it to the discretion of the court when it decides to set aside an award, whether to supersede the reference or not. It may not supersede the reference at all in which case though the award may be set aside the reference will continue. But if it supersedes the reference it has also in consequence to order that the arbitration agreement on the basis of which the reference was made would cease to have effect with respect to the difference referred. It is only therefore when the court orders supersession of the reference that the consequence follows that the arbitration agreement ceases to have effect with respect to the subject-matter of the reference. The intention of the legislature in making this change in the consequences to follow the setting aside of an award is clear inasmuch as the provision recognises that there may be different kinds of arbitration agreements, some of which might be exhausted by the reference already made and the award following thereon which has been set aside while others may be of a more comprehensive nature and may contemplate continuation of the reference relating to different disputes covered by the arbitration agreement.”

This decision of the Supreme Court also, therefore, supports the view that the original arbitration agreement referring the disputes to arbitration governs the parties unless and until the reference itself is superseded and the arbitration agreement ceases to exist under Section 19 of the Arbitration Act.

In the light of the above discussion, we negative the first contention advanced by Shri Aggarwal.

GROUND NO: 2:—

20. After the appellant had systematically attempted to delay the arbitration proceedings and after several adjournments had been given to him by the arbitrators, the appellant's counsel made an application, praying for further adjournment till August 29, 1964, on the ground that the matter was likely to be settled. It was in these circumstances that the case was taken up on August 29, 1964 at 11-30 A.M when the appellant failed to appear before the arbitrators. The arbitrators expressed the view that Shri P.C Aggarwal had deliberately kept away and accordingly decided to proceed ex parte after waiting for him till 12-10 P.M The case was then adjourned to August 31, 1964, at 4 P.M for making the award. It appears that the counsel for the appellant appeared before the arbitrators at 12-30 P.M on August 29, 1964 and said as follows:—

“I am sorry that I am late. Please be kind enough to start the hearing right now.”

Shri R.L Aggarwal for the appellant argued that the arbitrators did not hear the counsel for Shri P.C Aggarwal in spite of his request and ultimately delivered the award against Shri P.C Aggarwal. The question is whether the arbitrators mis-conducted themselves in refusing to hear the counsel for Shri P.C Aggarwal at 12.30 P.M on August 29, 1964. Shri R.L Aggarwal relies on the decision of the Calcutta High Court in Juggilal Kamlapat v. General Fibre Dealers, Ltd., AIR 1955 Cal 354, which lays down that if a party to an arbitration agreement fails to appear at one of the sittings, the arbitrator cannot or, at least, ought not to proceed ex parte against him at that sitting. If, on the other hand, it appears that the defaulting party had absented himself with a view to preventing justice or defeating the object of the reference, the arbitrator should issue a notice that he intends at specified time and place to proceed with the reference and that if the party concerned does not attend, he will proceed in his absence. If it appears from the circumstances of the case that a particular party is determined not to appear before the arbitrators in any event, as when he has openly repudiated either the reference itself or the particular arbitrators and has shown no desire to recant, the arbitrators are not required to issue a notice of an intention to proceed ex parte against such a recusant person. In the light of these observations it may be said that the conduct of the appellant before the arbitrators was defiant as well as dilatory. He had openly denied the existence of the arbitration agreement itself. He had applied under Section 33 of the Arbitration Act and failed. Then he applied for the revocation of the authority of the arbitrators and again failed. Hardy, J. has noted the obstructive attitude adopted by the appellant before the arbitrators. He held that the arbitrators were justified in coming to the conclusion that the appellant had deliberately kept away from the proceedings and they had, therefore, no other option but to proceed ex parte and to decline to vacate the ex parte order made against him. The arbitration proceedings had been going on since about the middle of 1961. The arbitrators could not allow them to be delayed further.

Hardy, J., has given all the details of the dilatory tactics adopted by the appellant before the arbitrators. In view of them we see no reason to disagree with the reasoned conclusion of the learned Single Judge that the arbitrators were justified in proceeding ex parte against the appellant. We, therefore, reject this contention also.

GROUND NO. 3:—

21. Hardy, J., had the following to say about this contention:—

“All that he has submitted is that the transactions being between principal to principal were void under Section 15 of the Securities Contracts (Regulation) Act. As already stated, the arbitration record does not show any such objection having been raised by the applicant with reference to any particular transaction; only a general objection appears to have been raised to that effect which obviously did not find favour with the arbitrators. In any case since the award is not a speaking award it is not possible for this Court to probe into the mental processes underlying the award made by the arbitrators.” For the same reason we are unable to deal with such an objection and reject the same.

22. No other contention was urged by the learned Counsel in arguing the appeal before us.

23. The appeal is, therefore, dismissed with costs.

Appeal dismissed.