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Case Number

Regular Appeal No. 70 of 1957

Advocates

V.S. Malimath
Basalingappa
by B.A. Maheshi
N.H. Naik

Judges

K Hegde
O C J
N S Rau

Acts

Article of the Limitation "Act" being Art. 178.
S. 14(2) of the Indian Arbitration "Act"

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Smart Summary

Judgment Summary: Hegde, J.

Factual and Procedural Background

The appellant (plaintiff) instituted Special Civil Suit No. 29 of 1954 in the Court of the Civil Judge, Senior Division, Dharwar, seeking that an award made and signed by defendants 1 and 2 on 7-1-1950 (or a signed copy thereof) be filed in Court and that judgment be pronounced according to that award. Some parties to the award raised objections to the reliefs sought by the plaintiff. On the pleadings, the Court below framed three preliminary issues, the first of which was: "Is this suit in time?"

The disputes had been referred to defendants 1 and 2 by instrument dated 26-10-1949 (Ex. 3/1). The arbitrators entered upon their duties and made and signed the award on 7-1-1950. The two arbitrators were unanimous; no umpire had been appointed and the terms of reference contained no provision for the appointment of an umpire. The Court below held that the statutory requirement to appoint an umpire within the prescribed time (clause (2) of the First Schedule to the Arbitration Act) was mandatory and that failure to comply vitiated the award. The present appeal arises from that decision.

Legal Issues Presented

Whether clause (2) of the First Schedule to the Arbitration Act (providing that arbitrators, if an even number, "shall appoint an umpire not later than one month from the latest date of their respective appointments") is mandatory such that failure to comply vitiates an award made by the arbitrators.
For the purpose of limitation under Article 178 of the Limitation Act, whether the period for filing an application under Section 14(2) of the Arbitration Act begins from the date of the party's knowledge of the making of the award or from the date of service of the written notice of the making and signing of the award as required by Section 14(1) read with Section 42 of the Arbitration Act.

Arguments of the Parties

Respondents' Arguments

The respondents' counsel contended that clause (2) of the First Schedule is mandatory and that the arbitrators' failure to appoint an umpire within the stipulated time vitiated the award.
The respondents also argued that limitation for filing an application under Section 14(2) of the Arbitration Act runs from the date on which a party becomes aware of the making of the award (i.e., knowledge of the award), not from the date of service of a written notice as contemplated by Section 14(1) and Section 42.
The respondents relied on decisions such as Jawala Prasad v. Amar Nath and Vinayak Vishnu Sahasabundhe v. B. G. Gadre in support of the view that paragraph 2 of the First Schedule is mandatory.

Table of Precedents Cited

Precedent	Rule or Principle Cited For	Application by the Court
Hari Vishnu Kamath v. Ahmad Isaque	Principle that an enactment in form mandatory may in substance be directory; the use of "shall" does not conclusively render a provision mandatory.	Used to support the view that the word "shall" in clause (2) must be examined in context to determine whether it is mandatory or directory.
Julius v. Bishop of Oxford (1880) 5 AC 214	Authority setting out rules for when a statute should be construed as mandatory or directory.	Cited as foundational guidance for determining whether clause (2) is mandatory or directory.
United Printing and Binding Works Ltd. v. Kishori Lal	Held that the word "shall" in clause (2) does not make the provision mandatory so as to vitiate arbitration proceedings if breached.	Relied on as supportive precedent for treating clause (2) as directory and for rejecting vitiation of the award for non-appointment of an umpire within the time limit.
Shambhu Nath v. Harishankar Lal	Arrived at a similar conclusion that clause (2) is not of such mandatory effect as to invalidate an award for non-compliance.	Counted among the authorities in preponderance favouring directory construction of clause (2).
Sheoramprasad Ram Narayanlal v. Gopalprasad Parmeshwardayal Shukla	Listed among cases treating the breach of clause (2) as not invalidating the award.	Relied upon as supporting authority for the Court's position.
Chacko v. Chacko	Another decision aligned with the view that clause (2) does not invalidate awards if not complied with.	Included in the group of decisions favouring directory construction.
Jawala Prasad v. Amar Nath	Decision cited as taking the contrary view (i.e., that paragraph 2 is mandatory and non-appointment of an umpire invalidates the award).	The Court considered this decision but held its effect weakened by later authority (Shambhu Nath) and confined to its facts.
Vinayak Vishnu Sahasabundhe v. B. G. Gadre	Another decision cited in support of the contrary view that paragraph 2 is mandatory.	The Court declined to follow this decision, stating inability to subscribe to its view for reasons given in the judgment.
Puppala Ramulu v. Nagidi Appalaswami, AIR 1957 AP 11	Cited for the proposition that mere knowledge of the making of the award is not equivalent to the notice required under Section 14(1) for the commencement of limitation under Art. 178.	Used to support the Court's conclusion that limitation runs from service of written notice as required by the Act, not from mere knowledge.
Jagadish Mahton v. Sunder Mahton, AIR 1949 Pat 393	Same proposition: knowledge of award does not substitute for the prescribed mode of notice for limitation purposes.	Relied on by the Court to hold that the period of limitation begins on service of written notice under Section 14(1) and Section 42.
Misri Lal v. Bhagwati Prasad	Listed among authorities supporting that the starting point of limitation is service of notice in writing, not mere knowledge.	Counted in support of the Court's limitation analysis.
Ganga Ram v. Radha Kishan	Case(s) dealing with the question whether knowledge suffices in place of the prescribed written notice for limitation; the judgment record shows conflicting single-judge and Division Bench views.	The Court noted the existence of a single Judge decision taking a contrary view and a Division Bench decision dissenting from it; used to show prevailing authority favours notice requirement.

Court's Reasoning and Analysis

The Court proceeded in two principal strands of analysis: (A) whether clause (2) of the First Schedule is mandatory or directory, and (B) when limitation under Article 178 begins to run for an application under Section 14(2) of the Arbitration Act.

(A) Mandatory or Directory Nature of Clause (2)

The Court observed that the language of clause (2) ("the arbitrators shall appoint an umpire not later than one month from the latest date of their respective appointments") appears at first sight to be imperative, but that the term "shall" is not determinative of mandatory effect; prior authorities (e.g., Hari Vishnu Kamath and Julius v. Bishop of Oxford) show that "shall" may be construed as directory depending on context.
The Act contains no express provision that failure to appoint an umpire renders any award void. The First Schedule clause (2) operates only in the absence of any provision in the terms of reference regarding appointment of an umpire; therefore parties could by agreement avoid an umpire or adopt other methods of appointment.
The Court reasoned that clause (2) was included as a convenient machinery to resolve an evenly balanced disagreement, not as the substantive crux of arbitration. The time limit was imposed for practical reasons (to encourage appointment before disagreement and to provide a temporal marker enabling parties to approach the Court if arbitrators fail to appoint an umpire).
An umpire becomes relevant only upon an evenly balanced disagreement; where arbitrators are unanimous or reach a majority decision, an appointed umpire is, in practice, unnecessary. Given these considerations, the Court concluded clause (2) is directory and that non-compliance does not affect the validity of an award.
Further, the Court examined the scheme of the Act: Section 8(c) permits the Court to appoint an umpire at any stage. If failure to appoint an umpire under clause (2) automatically vitiated proceedings, Section 8(c) would be rendered meaningless. This supported the directory construction of clause (2).
The Court noted that the preponderance of judicial opinion supported its view and that contrary decisions (e.g., Jawala Prasad) were, in the Court's view, confined to their facts or otherwise distinguishable.

(B) Limitation under Article 178 — Commencement Point

The award had been made and signed on 7-1-1950, and the petition under Section 14(2) was filed on 24-12-1951. No written notice of the making and signing of the award had been given to the parties, although the parties were present when the award was read and signatures obtained.
The Court held that Article 178 of the Limitation Act makes the starting point for limitation the date of service of the notice of making the award. It rejected the respondents' contention that "notice" under Article 178 should be equated with mere knowledge of the making of the award.
The Court relied on Sections 14(1) and 42 of the Arbitration Act to emphasize that notice in writing is required and that Section 42 prescribes the mode of such service (either by personal delivery or by registered post to the usual or last known place of abode or business). The Court held that mere awareness of the making of the award is a wholly irrelevant circumstance for computing limitation under Article 178.
The Court observed existing authorities supporting this conclusion (Puppala Ramulu, Jagadish Mahton, Misri Lal, Ganga Ram, etc.) and noted conflicting treatment by a single-judge decision which had been dissented from by a Division Bench.
The Court also rejected the submission that, in the absence of the prescribed written notice, the suit was premature, citing precedent for that position.

Holding and Implications

Holding: The Court held that clause (2) of the First Schedule to the Arbitration Act is directory and not mandatory; non-appointment of an umpire within the period specified by that clause does not, by itself, vitiate an award. The Court also held that for the purpose of Article 178 of the Limitation Act, time begins to run only from the service of the written notice of the making and signing of the award as required by Section 14(1) read with Section 42 of the Arbitration Act; mere knowledge of the award by a party is insufficient to commence limitation.

Disposition and Immediate Consequences: APPEAL ALLOWED. The decree and judgment of the Court below were set aside and the case was remanded to the Court below for decision on the other points arising in the case. The costs of the appeal were directed to abide the result of the suit in the trial Court and to be provided for therein.

Implications: The direct effect of the decision is to reinstate the proceedings before the trial Court (by setting aside the lower court's decree and remanding the case). The opinion confines its conclusions to the issues before it (directory nature of clause (2) and commencement of limitation) and does not purport to lay down further expansive rules beyond those specific holdings.

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Ratnawa v. Gurushiddappa Gurushantappa Magavi And Ors.

JUDGMENT Hegde, J.

(1) This appeal arises out of proceeding under S. 14(2) of the Indian Arbitration "Act" to be referred to as the ""Act"" hereinafter. The parties to this appeal are relations. The appellant as the plaintiff instituted Special Civil Suit No. 29 of 1954 in the Court of learned Civil Judge, Senior Division, Dharwar, praying that the award made and signed by defendants 1 and 2 on 7-1-1950 or a signed copy of the same be caused to be filed in Court and judgment according to that award be pronounced. Some of the parties to the award raised various objections to the reliefs prayed for by the plaintiff. On the pleadings, the Court below raised three preliminary issues. They are :

"1. Is this suit in time ?

(2) The material facts are undisputed. The parties to the arbitration referred their disputes to defendants 1 and 2 as per Ex. 3/1 dated 26-10-1949. Immediately thereafter, the Arbitrators entered upon their duties. The ward in question was made and signed on 7-1-1950. The two Arbitrators mentioned above were unanimous in their decision. No umpire had been appointed by them. In the terms of reference, no provision for the appointment of an umpire was made. But, as per S. 3 of the ""Act"", an arbitration agreement, unless a different intention is expressed therein, shall be deemed to include the provisions set out in the First Schedule in so far as they are applicable to the reference. Four our present purpose, only clause (2) of the First Schedule is relevant. That clause reads:

"If the reference is to an even number of arbitrators, "the arbitrators shall appoint an umpire not later than one month from the latest date of their respective appointments"

The award was made and singed long before the time fixed for the appointment of an umpire under clause (2 ) of the First Schedule. The Court below has opined that the appointment of an umpire within the stipulated time is a mandatory requirement of the law and any failure to comply with that requirement vitiates the award made. Is this view correct ?

(3) The language employed in clause (2) of the First Schedule appears at first sight as imperative. That clause lays down that

"the arbitrators shall appoint an umpire not later than one month from the latest date of their respective appointments"

. But as observed in Hari Vishnu Kamath v. Ahmad Isaque, (S) :

"It is well-established that an enactment in form mandatory might in substance be director, and that the use of the word "shall" does not conclude the matter. The question was examined at length in Julius v. Bishop of Oxford (1880) 5 AC 214 and various rules were laid down for determining when a statute might be construed as mandatory and when as directory. They are well-known, and there is no need to repeat them. But they are all of them only aids for ascertaining the true intention of the legislature which is the determining factor and that must ultimately depend on the context. What we have to see is whether in Rule 47, the word "shall" could be construed as meaning "may".

Before proceeding further, it may be noticed that the ""Act"" nowhere stipulates, either specifically or by necessary implication, that if the Arbitrators fail to appoint an umpire, the ward made by them, for that very reason would become void.

(4) In construing whether a particular rule is mandatory or directory, we have to look to the language employed therein, the purpose behind the rule, the scheme of the ""Act"" etc. Clause (2) of the First Schedule comes into play only in the absence of any provision in the terms of the reference as regards the appointment of an umpire. In other words, it is open to the parties to the reference to refuse to have an umpire. It is equally open to them to devise other measures for appointing an umpire in cause of need. From this it follows that the provisions contained in clause (2) were included only as a measure of convenience and not as the crux of the matter.

The reason for having that clause is obvious. There is always the possibility of evenly balanced disagreement amongst the arbitrators. Therefore, it is necessary to create a machinery to resolve that disagreement unless the parties insist on some other course. The time limit was evidently fixed in the present "Act" for two reasons. Firstly, it must have been thought desirable that the Arbitrators should appoint an umpire even before there was any disagreement between them; once they begin to disagree on any point, human reactions being what they are the atmosphere is likely to be surcharged with suspicion, prejudice and the like; it may be difficult for them to make an impartial selection thereafter. Secondly, provision is made in the "Act" for the parties to approach the Court, for the appointment of an umpire. If the Arbitrators fail to do so. Unless a time limit is fixed for the Arbitrators to make their selection, it is difficult for the parties to approach the Court.

(5) An empire does not come into the picture unless and until there is evenly balance disagreement between the Arbitrators. Even if an umpire is selected as required by clause (2) of the First Schedule, he would have to remain in the background till occasion arises for him to step out.

In cases where the Arbitrators are unanimous in their decision, or even in cases where they are able to arrive at a majority decision, the appointed umpire would function as the fifth wheel to the coach. If we bear in mind all these aspects, it is clear that the requirements laid down in clause (2) of the First Schedule cannot be consider as mandatory.

(6) This view of ours is further strengthened by an examination of the scheme of the ""Act"".

The failure of the Arbitrators to appoint an umpire does not finally close that chapter. As seen earlier, under S. 8(c) of the ""Act"", the Court can at any stage step in and appoint an umpire. If the failure of Arbitrators to appoint an umpire is deemed as per se vitiating the arbitration proceedings, S. 8(c) becomes meaningless. In our opinion, clause (2) of the First Schedule is just one step in the proceedings and by no means the final step. It may possibly put limits on the powers of the Arbitrators in the matter of appointing an umpire, --- though we do not propose to express any firm opinion on that point; but, we are satisfied that any contravention of that clause does not in any manner enter into the validity of an award made. In other words, it is only a directory provision and not a mandatory one.

(7) The preponderance of judicial opinion is in favour of the view taken by us. In United Printing and Binding Works Ltd., v. Kishori Lal, , P. B. Mukharji, J. Held that the word "shall" in clause (2) does not make the provision mandatory in the sense that its breach will vitiate the entire arbitration proceeding and make the award illegal. A similar view was taken in Shambhu Nath v. Harishankar Lal, ; Sheoramprasad Ram Narayanlal v. Gopal- prasad Parmeshwardayal Shukla, and Chacko v. Chacko, .

(8) The learned counsel for the respondents invited our attention to the decision in Jawala Prasad v. Amar Nath, and Vinayak Vishnu Saharabundhe v. B. G. Gadre, in support of the contrary view. The effect of the decision in Jawala Prasad's case, is considerably weakened by the decision of another Bench of the Allahabad High Court in Shambhu Nath's case, , Sapru J. Who delivered judgment in Jawala Prasad's case was a party to the latter decision. The latter Bench distinguished Jawala Prasad's case, with these words:

"Learned counsel for the appellant has, however, relied on a decision of a Bench of this Court to which one of us we as a party, viz. and has urged that it has been held that the provisions of paragraph 2 of First Schedule are mandatory as the arbitrators are bound to appoint an umpire; in the absence of such appointment the award is invalid. The provisions of paragraph 2 of the First Schedule impose an obligation and it cannot be denied that the arbitrators should have appointed an umpire. But the question remains, what is the effect of such failure. The question whether the parties had walved the irregularity and were esteemed from questioning the award on that ground was not considered in that case as the point was not raised. The learned udges took care to confine their decision to the facts of that particular case and have said that in the circumstances of "this particular case" the award made is not valid". In view of the above decision, the decision in Jawala Prasad"s case, has to be confide to the facts of that particular case. With great respect to the learned judges who decided Vinayak Vishnu Sahasrabundhe's case, we are unable to subscribe to the view taken in that decision for the reasons already mentioned. From what we have stated earlier, it follows that, in our opinion, the Court below was not right in holding that the failure on the part of the Arbitrators to appoint an umpire has vitiated the arbitration proceedings.

(9) For considering the question of limitation, it is necessary to set out the following facts: The award was made and signed on 7-1-1950. At the time of the signing of the award, the parties to the award were present. It appears the award was read out to them and their signatures obtained. But no notice of the making and signing the award as such had been issued to them. The present petition under S. 14(2) of the ""Act"" was filed only on 24-12-1951. The question for consideration is whether the petition was barred by limitation, the relevant Article of the Limitation "Act" being Art. 178. That Article reads thus:

" Under the Arbitration "Act", 1940, Ninety The date of service of the notice of for the filing in Court of the award. Days. the making of the award"

From the above it is seen that the starting point of limitation is the date of service of the notice of the making of the award. It has been urged on behalf of the respondents that the notice contemplated under "Act". 178 is the same as the knowledge of the party about the making of the award. In other words, it was urged that the limitation for filling an application under S. 14(2) of the ""Act"" begins to run from the date the party comes to know about the making of the award. This contention cannot be accepted. Under S. 14(1) when the arbitrators or the umpire have made their award, they shall sign if and shall give notice in writing to the parties of the making and signing thereof. Section 42 of the ""Act"" prescribes the mode in which the notice has to be given. It says:

" Any notice required to be served otherwise than through the Court by a party to an arbitration agreement or by an arbitrator or umpire shall be served in the manner provided in the arbitration agreement, or if there is no such provision, either --

(a) by delivering it to the person on whom it is to be served, or

(b) by sending it by post in a letter addressed to that person at his usual or last known place of abode or business in India and registered under Chapter VI of the Indian Post Office "Act", 1898". Admittedly, in the instant case, no written notice of making the ward had been given to the parties to the reference. All that is said is that the parties were aware of the making of the award. For the purpose of computing the period of limitation under Art. 178 of the limitation "Act" that circumstances is a wholly irrelevant circumstance. See: Puppala Ramulu v. Nagidi Appalaswami, AIR 1957 AP 11; Jagadish Mahton v. Sunder Mahton. AIR 1949 Pat 393; Misri Lal v. Bhagwati Prasad, and Ganga Ram v. Radha Kishan, (S) .

(10) The only decision brought to our notice which has taken the contrary view is the decision of a single Judge of the Punjab High Court in Ganga Ram v. Radha Kishan, . That decision was dissented from by a Division Bench of the Punjab High Court in Ganga Ram's case, (S) .

(11) In our opinion before time begins to run under Art, 178 of the Limitation "Act", the parties concerned must have been notified by means of a notice in writing as contemplated in S. 14(1) read with S. 42 of the

"Act"

(12) A feeble attempt was made to show that in the absence of a notice as contemplated under S. 14(1) of the ""Act"", the suit under appeal must be considered as premature. We do not think that there is any substance in that contention. See AIR 1949 Pat 393.

(13) In the result, this appeal is allowed and the decree and judgment of the Court below are set aside and the case remanded to that Court for deciding the other points arising in the case.

(14) The costs of this appeal will abide the result of the suit in the trial Court and shall be provided for therein.

(15) Appeal allowed.

Ratnawa v. Gurushiddappa Gurushantappa Magavi And Ors.

Judgment Summary: Hegde, J.

Factual and Procedural Background

Legal Issues Presented

Arguments of the Parties

Respondents' Arguments

Table of Precedents Cited

Court's Reasoning and Analysis

Holding and Implications

Ratnawa v. Gurushiddappa Gurushantappa Magavi And Ors.

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