Citation Codes

Equivalent Citations

citation codes

Case Number

I.A No. 9528 of 1995 and Suit No. 1150 of 1995

Advocates

Dinesh Garg
Ravi Gupta

Judges

Vikramajit Sen, J.

Acts

Sections 14 and 17 of the Arbitration Act
SECTION 33 ARBITRATION ACT 1940
SECTION 2 ARBITRATION ACT
11,65,575.80, Rule

See more information ...

Smart Summary

Judgment Summary — Vikramajit Sen, J.

Factual and Procedural Background

The opinion concerns objections filed by the respondent/Objector seeking to set aside an arbitral award dated 9 March 1995 issued by Shri Mahender Pal Goel, Sole Arbitrator. The Objector contended (a) that there was no subsisting arbitration agreement because the arbitration clause relied upon by the petitioner was printed on the petitioner's bills and the Objector was not a member of the referenced association, and (b) that the award resulted from a unilateral reference because the respondent had not consented to arbitration. Additional objections were raised that the reference was premature (relating to the expiration date of a legal notice), that insufficient opportunity had been afforded to the respondent before the Arbitrator (including allegations of manipulation or non-dating of the first hearing), and that factual defects (limited production of bills, unsigned bills, reliance on books of account) undermined the award. The Court heard these objections, dismissed them with costs, and subsequently made the award dated 9 March 1995 a Rule of Court and directed the decree-sheet to be drawn up accordingly.

Legal Issues Presented

Whether an arbitration clause printed on the seller's bills referring disputes to an association (e.g., Delhi Hindustani Mercantile Association) binds a purchaser who is not a member of that association.
Whether an arbitral reference made by following the rules and regulations of an association (without a separate fresh reference by the purchaser) constitutes a unilateral reference or is validly consensual.
Whether commencement of arbitration prior to the expiry of a notice period in a legal notice renders the reference premature and the award void.
Whether a party was denied sufficient opportunity to contest arbitral proceedings such that the award must be set aside.
Whether factual objections (e.g., limited production of bills, unsigned bills, reliance on books of account) to an award are open to challenge under Section 33 of the Arbitration Act, 1940.
Whether the award dated 9.3.1995 suffers from any apparent illegality such as to warrant remittal or setting aside, and whether it should be made a Rule of Court.

Arguments of the Parties

Respondent / Objector's Arguments

There was no arbitration agreement between the parties because the arbitration clause was only printed on the petitioner's bills and the respondent was not a member of the referenced association.
The award emanated from a unilateral reference since the respondent had not given consent to arbitration (i.e., no separate agreement or written submission to refer the dispute was made by the respondent).
The reference to arbitration was premature because the legal notice required payment within fifteen days; depending on the date of receipt, the respondent argued the period had not expired before arbitration commenced.
Insufficient opportunity was given to the respondent to contest proceedings before the Arbitrator — complaints included late receipt of notice for a hearing and absence of a date on the first hearing order (alleged manipulation of dates/records).
Factual defects: only six bills were produced, claims were based on books of account, and the bills had not been signed by the Objector.

Petitioner / Applicant's Position

The petitioner relied upon a printed arbitration clause on its bills stating disputes would be referred to arbitration by the Delhi Hindustani Mercantile Association (or its nominee) and maintained this clause was binding.
The petitioner sought to have the arbitral award dated 9.3.1995 made a Rule of the Court under Sections 14 and 17 of the Arbitration Act.
The petitioner disputed the factual and procedural contentions of the respondent (including prematurity and denial of opportunity) and supported the validity of the arbitral process and award.

Table of Precedents Cited

Precedent	Rule or Principle Cited For	Application by the Court
Tikkanlal Sewaram v. Jiwandas Desraj, 1980 Rajdhani Law Reporter 681	Held that where an arbitration clause is contained on the bills of sale referring disputes to Delhi Hindustani Mercantile Association or its nominee, the reference to arbitration was proper.	The Court cited this decision as supporting the proposition that arbitration clauses printed on bills referring to the association are binding and proper in the circumstances of the present case.
P.C Agarwal v. K.N Khosla, AIR 1975 Delhi 64	Authority relied upon to validate arbitration clauses incorporated by reference to association rules.	Used as precedent (via Tikkanlal Sewaram reliance) to support binding effect of the arbitration clause printed on bills.
Luda Ram Ved Prakash v. Maharani of India, AIR 1989 Delhi 169	Addressed similar arguments regarding incorporation of association rules and arbitration clauses on bills.	Referred to as a like decision confirming the principle that printed clauses tying the contract to association rules can bind non-members who accept the bill terms.
Chaudhary Hukam Chand & Sons v. Sugar Silk and Sarees, 22 (1982) DLT 196	Single Bench authority on arbitration clauses appearing in bills/contracts.	Cited among Single Bench judgments supporting that arbitration clauses printed on transaction documents can bind parties even if not signed by the purchaser.
Chhajjumal Samer Chand v. Firm Sohan Lal Kanhaiya Lal, ILR (1971) 2 Delhi 416	Single Bench precedent on the enforceability of arbitration clauses appearing in trade documents.	Placed alongside other Single Bench decisions to show consistent view in earlier judgments that such clauses may be binding.
Krishan Chander Ramesh Chander and Brothers v. Sohan Lal, (1983) 23 Delhi LT (SN) 9	Single Bench authority supporting binding effect of arbitration clauses on bills.	Referred to in support of the proposition that arbitration clauses in bills can give rise to an arbitration agreement.
Sohan Lal v. Krishan Chander Rameshchander, (1983) 24 Delhi LT 305 (Division Bench)	Held that where goods are sold subject to rules and regulations of Delhi Hindustan Mercantile Association, the arbitration clause in those rules is binding even though purchaser is not a member and bills are unsigned.	The Court relied on the Division Bench ratio to reject the submission that unsigned bills or non-membership defeated the arbitration agreement; this authority was treated as particularly persuasive.
P.C Aggarwal v. K.B Khosla, AIR 1975 Delhi 54	Division Bench holding that where parties contract under the rules of an exchange/association that provide machinery for arbitration, appointment of an arbitrator and reference according to those rules is not a unilateral reference; consent to reference may be given in advance by written agreement.	The Court applied this authority to dismiss the contention that the reference here was unilateral, concluding that reference made in accordance with association rules was not unilateral.
Tikkan Lal Sewa Ram v. Seth Jiwan Das Des Raj, (1980) 18 DLT 248	Followed the ratio that arbitration references made pursuant to association rules (printed on beejhaks/bills) are not unilateral.	Cited as following P.C Aggarwal and supporting the present conclusion that no separate fresh reference was required where parties agreed to be bound by association rules.
Madan Mohan Rajgarhia v. Mahendra R. Shah, 1995 (32) DRJ 517	Held that arbitration clause printed on bill applies to a non-member; relied on Krishan Chander and Banwari Lal Kotiya decisions.	Used to reinforce the proposition that a non-member purchaser who accepts the printed clause is covered by the arbitration clause; the present Court cited this as further supporting authority.
Krishan Chander Ramesh Chander and Bros. v. Sohan Lal, AIR 1982 Delhi 122	Authority cited in support of the binding effect of arbitration clauses appearing in transaction documents.	Referenced by the Court (including as relied upon in Madan Mohan Rajgarhia) to demonstrate consistent judicial approach.
Banwari Lal Kotiya v. P.C Aggarwal, (1985) 3 SCC 255 : AIR 1985 SC 1003	Supreme Court authority cited in support of the applicability of exchange/association rules and arbitration clauses.	Referred to in the chain of authorities relied upon by a Single Judge (Madan Mohan Rajgarhia) and noted by the Court as part of the supportive jurisprudence.
Union Of India v. A.L Rallia Ram, AIR 1963 SC 1685	One of a series of Supreme Court authorities addressing the limits on judicial reappraisal of arbitral factual findings.	Referred to by the Court for the proposition that challenges to factual findings of an arbitrator are not ordinarily permissible under Section 33 of the Arbitration Act, 1940.
Coimbatore District Podu Thozillar Sangam v. Balasubramania Foundry, (1987) 3 SCC 723 : AIR 1987 SC 2045	Supreme Court authority on finality of arbitral findings and the narrow scope of interference under statutory provision.	Relied upon to support the Court's view that objections to factual findings are barred by Section 33 and cannot be re-litigated in this Court.
Sudarsan Trading Co. v. Government of Kerala, (1989) 2 SCC 38	Supreme Court authority concerning limits of judicial interference with arbitral awards.	Used among other authorities to show that factual disputes resolved by an arbitrator are not generally open to challenge under Section 33.
Hind Builders v. Union Of India, (1990) 3 SCC 338 : AIR 1990 SC 1340	Supreme Court precedent on the ambit of judicial review of arbitral awards and the finality of arbitral findings.	Referred to in support of the principle that this Court is not a Court of Appeal on the arbitrator's factual conclusions.
Jawahar Lal Wadhwa v. Haripada Chakroberty, (1989) 1 SCC 76	Authority included among Supreme Court decisions addressing challenges to arbitral awards.	Placed in the list of precedents to reinforce the limited scope of interference under Section 33.
Hindustan Construction Co. Ltd. v. Governor of Orissa, (1995) 3 SCC 8 : AIR 1995 SC 2189	Supreme Court decision cited regarding reviewability of arbitral findings.	Relied upon to show consistent Supreme Court jurisprudence that factual determinations by arbitrators are generally not susceptible to challenge under the statutory provision.
Trustees of the Port of Madras v. Engineering Constructions Corporation Ltd., (1995) 5 SCC 531	Supreme Court authority on the finality of arbitral awards and the limited scope for setting aside.	Included among the authorities supporting the Court's refusal to re-open factual findings of the arbitrator.
Army Welfare Housing Organisation v. Gautam Construction & Fisheries Ltd., 1998 (5) Scale 296	Decision cited in the chain of authorities on the non-interference with arbitral factual conclusions.	Referred to as part of the jurisprudential basis for declining to entertain factual challenges under Section 33.

Court's Reasoning and Analysis

The Court addressed each principal objection in sequence and explained its reasoning by reference to precedent and the record of arbitral proceedings.

On the contention that no arbitration agreement existed because the clause was printed on bills and the Objector was not a member: the Court observed that the question is no longer res integra in view of multiple Single Bench decisions and divisional authority. It relied on Tikkanlal Sewaram (and the Division Bench in P.C Agarwal / P.C Aggarwal) and the Sohan Lal Division Bench ratio that where goods are sold subject to the rules and regulations of an association containing an arbitration clause, that clause is binding even on purchasers who are not members and even where bills are unsigned. Accordingly, lack of membership or unsigned bills did not negate the existence of an arbitration agreement incorporated by reference to association rules.
On the submission that the reference was unilateral: the Court relied on the Division Bench decision in P.C Aggarwal v. K.B Khosla which held that where the parties contract subject to association rules that provide the machinery for arbitration, appointment of an arbitrator and reference in accordance with those rules is not a unilateral reference. The Court followed that ratio (and subsequent Single Bench decisions that followed it) to conclude that the reference here was not unilateral because it was made in accordance with the association's rules to which the parties had agreed.
On prematurity (timing) of the reference: the Court examined the dates. The petitioner issued a legal notice dated 8.11.1994 calling for payment within fifteen days. The respondent contended it received the notice on 28.11.1994; the petition averred service on 20.11.1994. The Court found (on the pleadings) that the notice period expired on 5.12.1994 and held that, even if the expiry were 13.12.1994, there is no statutory or legal bar to the commencement of arbitration prior to that date. The Court noted that this objection would have had more force if payment had in fact been tendered within the notice period, which was not the case.
On denial of sufficient opportunity before the Arbitrator: the Court reviewed the arbitrator's proceedings and notices. Although the first order lacked a dated first hearing, the Court observed that the Arbitrator is not a trained judge and omission of a date does not vitiate proceedings. The record showed notices issued for multiple hearing dates (15.12.1994, 29.12.1994, 12.1.1995, adjournment to 19.1.1995, summons for 2.2.1995, subsequent hearings on 16.2.1995 and 23.2.1995) and that the respondents were proceeded against ex parte only after absenting themselves on the appointed date. The award was published on 9.3.1995 after these steps. The Court concluded the respondent had ample opportunity and rejected the contention of insufficient opportunity/manipulation.
On factual objections (production of only six bills, bills unsigned, reliance on books of account): the Court treated these as challenges to the arbitrator's factual findings and invoked Section 33 of the Arbitration Act, 1940, and an array of Supreme Court authorities to state that such factual conclusions are not ordinarily open to re-examination by the Court. The Court reiterated that it was not sitting as a Court of Appeal on the arbitrator's findings and therefore would not entertain re-litigation of those factual disputes.
Having examined the award, the Court found no apparent illegality on its face and saw no reason to remit or set it aside.

Holding and Implications

Holding:

Objections dismissed with costs of Rs. 5,000/-. Award dated 9.3.1995 made Rule of Court.

Implications:

The direct effect is that the respondent's objections to the arbitral award were dismissed and the award has been made a Rule of Court; the decree-sheet is to be drawn accordingly.
The Court refused to remit or set aside the award, finding no apparent illegality on the face of the award.
The judgment rests on established precedents concerning (a) the binding effect of arbitration clauses printed on commercial bills referencing association rules even on non-members, (b) the non-unilateral character of references made in accordance with association rules, and (c) the limited scope of judicial interference with arbitral factual findings under Section 33 of the Arbitration Act, 1940. The opinion applies those authorities to the facts and does not purport to lay down any new legal principle beyond the cited jurisprudence.

Order: Objections dismissed with costs; Award made Rule of Court; decree-sheet to be drawn.

Show full summary ...

J.N. Textiles v. Bon Chance

Vikramajit Sen, J.— These are objections filed by the respondent/Objector for the setting aside of the award dated 9.3.1995 published by Shri Mahender Pal Goel, Sole Arbitrator. The Objector has contended that there was no arbitration agreement subsisting between the parties. The clause relied upon by the petitioner can be found printed on its Bills. It states that “any dispute regarding this bill shall be referred to the arbitration of Delhi Hindustani Mercantile Association or their appointed Judge Tribunal and the decision shall be binding upon both parties.” The respondent/Objector has further contended that the award deserves to be set aside since it emanates from a unilateral reference, since the respondent/Objector had not consented to the arbitration. Both these points are no longer res Integra. Three learned Single Judges have come to the same opinion on this subject; it is well-settled. In Tikkanlal Sewaram v. Jiwandas Desraj, 1980 Rajdhani Law Reporter 681, S.B Wad, J. had held that where the arbitration clause is contained on the bills of sale the reference to arbitration, of Delhi Hindustani Mercantile Association or its nominee as in the present case, was proper. The learned Judge had relied on the decision of the Division Bench of this Court in P.C Agarwal v. K.N Khosla, AIR 1975 Delhi 64. A similar arguments were raised in the case titled as Luda Ram Ved Prakash v. Maharani of India, AIR 1989 Delhi 169. The learned Judge held as follows:

“5. It is, indeed, not in dispute that the goods have been sold to the Objector-firm vide the bills which contained the clause regarding the goods having been sold in accordance with the rules and regulations of Delhi Hindustani Mercantile Association, Delhi. The mere fact that Objectors are not members of the said Association would not mean that if they had purchased the goods according to the aforesaid condition they would not be bound by the rules and regulations of the said Association. It is not disputed that the rules and regulations of the said Association contain the arbitration clause and also the mode how the reference to the Arbitrator is to be made. The law does not require that an arbitration agreement must be signed by the parties before the same could not be considered binding. The only requirement of Section 2 of the Arbitration Act is that the arbitration agreement must be in writing. However, this point stands now settled by this Court in various judgments given from time-to-time. Reference may be made to Chaudhary Hukam Chand & Sons v. Sugar Silk and Sarees, 22 (1982) DLT 196; Chhajjumal Samer Chand v. Firm Sohan Lal Kanhaiya Lal, ILR (1971) 2 Delhi 416, and Krishan Chander Ramesh Chander and Brothers v. Sohan Lal, (1983) 23 Delhi LT (SN) 9. All these are Single Bench judgments. However, in Sohan Lal v. Krishan Chander Rameshchander & Brothers, (1983) 24 Delhi LT 305, a Division Bench of this Court also held that if goods are sold subject to the rules and regulations of Delhi Hindustan Mercantile Association the arbitration clause appearing in the said rules and regulations would be deemed to be binding on the parties even though the purchaser is not member of the said Association and such a clause appearing in the bills on the basis of which the goods are sold even though bills are not signed by the purchaser would bring about arbitration agreement between the seller and the purchaser. Counsel for the Objectors tried to distinguish this judgment by arguing that in the said case at least some of the bills were signed by the purchaser. The ratio of law laid down in the judgment is not based on this fact alone because out of 84 bills in the said case only very few of them had been signed, but the arbitration agreement was held to be arrived at between the parties in respect of the bills including the bills which did not bear signature of the purchaser. So, mere fact that Objectors had not signed the bills would not mean that no arbitration agreement had come into existence between the parties when the facts show indisputably that the goods were sold on the basis of the bills which contained a printed clause that they are being sold subject to the rules and regulations of the said association.

9. Then, it has been argued by the learned Counsel for the Objectors that reference to Arbitrator was unilateral and thus, the whole of the proceedings before the Arbitrtor were vitiated. There is no merit in this contention in view of the ratio laid down by a Divison Bench of this Court in P.C Aggarwal v. K.B Khosla, AIR 1975 Delhi 54. In the cited case also, there were the Rules of Delhi Stock Exchange Association subject to which the contracts had been made and the said Rules provided the whole machinery as to how the disputes are to be referred to arbitration. Taking resort to the said provisions, the Arbitrator was appointed and it was held by the Division Bench that a separate reference to the arbitration is necessary only where there is a bare agreement between the parties that disputes between them shall be decided by resort to arbitration and Section 2(a) of the Arbitration Act is comprehensive enough to cover both a bare arbitration agreement and an agreement that dispute shall be decided by resort to arbitration with a reference of the dispute between the parties to arbitration. It was held that consent of the parties to the reference is distinct from a mere agreement to refer disputes. The consent 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 dispute and that the nature of reference had become consensual in the law of arbitration. So, making reference to the Rules and Regulations of the Association, it was found that as parties have agreed to be bound by the said Rules and Regulations, the appointment of Arbitrator and reference of disputes to the said Arbitrator in accordance with the said Rule and Regulations could not be considered to be a unilateral reference. This judgment was followed in Tikkan Lal Sewa Ram v. Seth Jiwan Das Des Raj, (1980) 18 DLT 248 by S.B Wad, J., where also the goods have been sold on the basis of Beejhaks containing an agreement to be bound by Rules and Regulations of Delhi Hindustani Mercantile Association. The only point raised in this case was that the reference to arbitration was unilateral and thus was void. It was held following the ratio laid down by this Court in the case of P.C Aggarwal (supra) that such a reference is not unilateral when it is made in accordance with the Rules and Regulations of the Association and no fresh agreement for reference was needed in such like cases. I, following the aforesaid judgments, hold that a reference to the arbitration was not unilateral.”

2. Yet an another decision of a learned Single Judge on this very point is to be found in Madan Mohan Rajgarhia v. Mahendra R. Shah, 1995 (32) DRJ 517, Usha Mehra, J. held that the arbitration clause printed on the bill would be applicable even to a non-member. She had relied on the precedents Krishan Chander Ramesh Chander and Bros. v. Sohan Lal, AIR 1982 Delhi 122 as well as Banwari Lal Kotiya v. P.C Aggarwal, (1985) 3 SCC 255 : AIR 1985 SC 1003. The learned judge observed as follows:

“Being even a non-member, he would be covered by the arbitration clause because he accepted that in the event of further disputes between him and defendant those be referred to arbitration and parties would be governed by the rules, bye-laws and regulations of the Exchange. Having accepted the printed clauses of the agreement i.e the arbitration clause which formed part of the contract, the contract is to be governed by the rules, bye-laws and regulations of the Stock Exchange, Bombay. Therefore, even if the plaintiff is a non-member he will still be governed by these regulations, rules and bye-laws”.

3. The third contention of the learned Counsel for the respondent/Objector is that the reference was premature. The argument is that in the legal notice dated 8.11.1994 issued on behalf of petitioner by its Advocate, the respondent/Objector had been called upon to pay a sum of Rs. 11,63,175.80 within fifteen days of the receipt of its notice. It has been strenuously argued that this notice was received on 28.11.1994 These oral arguments are contrary to the pleadings before me inasmuch as in para D of the application it has been averred that the legal notice dated 8.11.1994 was served on 20.11.1994 The argument of the learned Counsel for the respondent/Objector proceeds that time for payment would have run out only on 13.12.1994 and hence the commencement of arbitration prior to this date would be premature. There is no substance in this argument for the reason that the period postulated by the legal notice expired on 5.12.1994 Even if the appropriate date was 13.12.1994, there is no statutory or legal stipulation that arbitration proceedings cannot be commenced. This argument could have been appreciated if some payment had been tendered on or before 13.12.1994 This is not the case.

4. Learned Counsel for the respondent/Objector had also taken great pains to submit that sufficient opportunity had not been given to the respondent/Objector to contest the proceedings before the Arbitrator. He has relied on a letter dated 30.12.1994 addressed to the Delhi Hindustani Mercantile Association bringing to their attention that it had received a notice dated 15.12.1994 on 29.12.1994 for hearing scheduled for that very date. I have perused the proceedings of the Arbitrator. The first hearing is prior to 15.12.1994 since the first order records the issuance of notice for that date. Much emphasis was laid by learned Counsel for the Objector on the absence of the date of the first hearing. It was contended that this is sufficient reason to set aside the Award since it discloses the manipulation of dates and of the records. This argument is wholly misconceived. The Arbitrator is not a trained Lawyer or Judge and, therefore, quite possibly, ignored the dating of his first order. This would not vitiate the proceedings. On 15.12.1994 notice to the respondent was issued for 29.12.1994 on which date notice was again issued for 12.1.1995 On this date a representative of the respondent/Objector had appeared. While recording the statement of the special Attorney of the plaintiff, the Arbitrator had adjourned the proceedings to 19.1.1995 On 19.1.1995 summons were again sent to the respondent through registered A.D post as well as under postal certificate for the next date of hearing. On that date, that is 2.2.1995 as there was no appearance on behalf of respondents they were proceeded ex parte. However, the award was not published on that very date itself and there was subsequent hearings on 16.2.1995 and 23.2.1995 The award was published on 9.3.1995 manifestly without any undue haste. The argument that sufficient opportunity had not been given to the respondent/Objector is, therefore, wholly misconceived and is rejected.

5. Learned Counsel for the respondent/Objector had thereafter raised arguments touching upon the production of only six bills and that the claim was based on books of accounts and that the bills had not been signed by the Objector. All these objections pertain to factual findings of the Arbitrator which, by a catena of judgments, is not open to challenge under Section 33 of the Arbitration Act, 1940. This Court is not sitting as a Court of Appeal. Reference may be directed towards Union Of India v. A.L Rallia Ram, AIR 1963 SC 1685, Coimbatore District Podu Thozillar Sangam v. Balasubramania Foundry, (1987) 3 SCC 723 : AIR 1987 SC 2045; Sudarsan Trading Co. v. Government of Kerala, (1989) 2 SCC 38; Hind Builders v. Union Of India., (1990) 3 SCC 338 : AIR 1990 SC 1340; Jawahar Lal Wadhwa v. Haripada Chakroberty, (1989) 1 SCC 76; Hindustan Construction Co. Ltd. v. Governor of Orissa, (1995) 3 SCC 8 : AIR 1995 SC 2189; Trustees of the Port of Madras v. Engineering Constructions Corporation Ltd., (1995) 5 SCC 531; Army Welfare Housing Organisation v. Gautam Construction & Fisheries Ltd, 1998 (5) Scale 296.

6. For the aforementioned reasons the objections are dismissed with costs of Rs. 5,000/-.

S. 1150A/95:

7. This is a petition under Sections 14 and 17 of the Arbitration Act for making the award dated 9.3.1995, for a sum of Rs. 11,65,575.80, Rule of the Court. The respondent had filed objections to the Award which have been dismissed.

8. I have perused the award. It does not suffer from any illegality, apparent on the face of it. I see no cause to remit the award or to set it aside. The award dated 9.3.1995 is made Rule of the Court.

9. The decree-sheet be drawn up accordingly.

Objections dismissed with costs.

Award made Rule of Court.

J.N. Textiles v. Bon Chance

Judgment Summary — Vikramajit Sen, J.

Factual and Procedural Background

Legal Issues Presented

Arguments of the Parties

Respondent / Objector's Arguments

Petitioner / Applicant's Position

Table of Precedents Cited

Court's Reasoning and Analysis

Holding and Implications

J.N. Textiles v. Bon Chance

Comments