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Citation Codes
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Case Number
Attorney(S)
  • Pai
  • Menon
Judges
  • G. Viswanatha Iyer
  • K. Bhaskaran, JJ.
Acts
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Citation Codes
Equivalent Citations
citation codes
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Attorney(S)
  • Pai
  • Menon
Judges
  • G. Viswanatha Iyer
  • K. Bhaskaran, JJ.
Acts
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Smart Summary

Structured Summary of the Opinion (Viswanatha Iyer, J.)

Factual and Procedural Background

The appeal arises from Arbitration Act Petition No. 1 of 1955 on the file of the Quilon District Court. Under Ext. D3, an agreement between the 1st and 2nd counter-petitioners provided that the 2nd counter-petitioner would supply cashewnuts to the 1st counter-petitioner. Delivery occurred at Quilon on 17-2-1964. The contract incorporated Arbitration Rules governing appointment of arbitrators and the arbitration procedure.

The 1st counter-petitioner complained that the goods were of inferior quality, requested arbitration and nominated an arbitrator. The Indian Cashew Exporters' Association was asked to arrange the arbitration and contacted the appellants to nominate an arbitrator; the appellants did not nominate one. Consequently, the arbitrator nominated by the 1st counter-petitioner acted as sole arbitrator, made an award (Ext. D1) directing the appellant to pay Rs. 17,932.33 to the 1st counter-petitioner, and filed the award in court. Notice of the award was given to both counter-petitioners.

Counter-petitioner No. 1 moved for a decree in terms of the award. The appellant applied to set aside the award and filed objections, but the application to set aside was dismissed as barred by limitation. The lower court, exercising its power under Section 17 of the Arbitration Act, found no grounds to set aside the award and suo motu passed a decree in terms of the award. The 2nd counter-petitioner (appellant) filed this appeal against that decision.

Legal Issues Presented

  1. Whether the appeal is maintainable under Section 39(vi) of the Arbitration Act, 1940, where the lower court's order under Section 17 states that there are no grounds to set aside the award.
  2. Whether challenges to an arbitral award based on grounds in Section 30 of the Arbitration Act must be made by a time‑barred application under Section 33 and Article 119 of the Limitation Act (i.e., whether the appellant's delay precludes relief).
  3. Whether a court exercising powers under Section 17 can suo motu set aside an award where the award is patently illegal or a nullity (for example, invalidity of the reference), and if so, the scope and limits of that suo motu power.
  4. Whether the appointment (and substitution) of the arbitrator in this case was invalid under the Arbitration Rules appended to the contract and therefore rendered the reference void.
  5. Whether other objections (failure to give notice to the appellant; manner of findings on quality and assessment of damages) are matters that can be considered suo motu or are constrained by the procedural/time limits for challenging awards.

Arguments of the Parties

Appellant's Arguments

  • The appellant relied on Section 39(vi) of the Arbitration Act as the basis for bringing the appeal.
  • The appellant contended that the award was invalid because of defects in the arbitration reference — relying on authority (Deep Narain Singh v. Dhaneshwari) to argue that the court can suo motu set aside an award where the reference or award is invalid.
  • The appellant argued that a change in the arbitrator (as communicated by the Association) amounted to an invalid appointment and therefore the reference was invalid.
  • The appellant also objected that the arbitrator failed to issue notice to the appellant and questioned the manner in which the arbitrator assessed the quality of goods and quantified damages.

Respondent / Lower Court Position

  • The lower court applied Section 17 of the Arbitration Act, examined the award, stated that there were no grounds to set aside the award, and passed a decree in terms of the award.
  • The 1st counter-petitioner had pressed for arbitration, nominated an arbitrator, requested assistance from the Indian Cashew Exporters' Association, and ultimately filed for a decree on the award after it was filed in court.
  • The respondents implicitly relied on limitation rules (Section 33 and Article 119) to contend that objections under Section 30 were time-barred.

Table of Precedents Cited

Precedent Rule or Principle Cited For Application by the Court
Madan Lal v. Sunderlal & Another, AIR 1967 SC 1233 Cited for the proposition that challenges under Section 30 must be made by an application under Section 33 within the prescribed limitation period; also noted to have taken note of and approved an observation regarding patent illegality. The court relied on this decision to support the conclusion that time‑barred applications under Section 33 cannot succeed and to show that limited suo motu examination of patent illegality has been acknowledged by higher courts.
Deep Narain Singh v. Dhaneshwari, AIR 1960 Pat 201 Authority for the proposition that where an award is a nullity (e.g., invalid arbitration agreement or reference) or prima facie illegal, the court has power under Section 17 to set it aside suo motu. The appellant relied on this case to argue for a suo motu setting aside. The court analyzed this authority and its limits, acknowledging the rule but applying it only where illegality is patent.
Deo Narain Singh v. Siabar Singh, AIR 1952 Pat 461 Supportive precedent referenced as consistent with the view that courts have duties to detect and set aside awards that are nullities when passing decrees under Section 17. Used as part of the chain of authority explaining the scope of the court's suo motu power under Section 17; cited to show historical acceptance of the principle in certain High Court decisions.
Hastimal Dalichand v. Hira Lal Motichand, AIR 1954 Bom 243 Applied the principle that if an award directs a party to do an act prohibited by law or is patently illegal/void, the court may consider the patent defect suo motu, and limitation does not arise when the court acts suo motu. The opinion quotes and treats this decision as supporting the narrow scope of suo motu intervention for patent illegality; the court accepted the observation but limited its application to patent defects.
Chhabba Lal v. Kallu Lal, AIR 1946 PC 72 Interprets "otherwise invalid" in Section 30(c) and is taken to mean that invalidity arising from an invalid reference does not fall under that clause (i.e., may not be covered by Section 30(c)). The court relied on this decision to explain that invalidity arising from an invalid reference may be dealt with either on an application under Section 33 or by the court's suo motu power under Section 17, but is not automatically subsumed within Section 30(c).

Court's Reasoning and Analysis

The court proceeded in a stepwise manner that tracked statutory provisions and the cited authorities:

  1. Maintainability: The court considered a preliminary objection to the maintainability of the appeal. Section 39(vi) of the Arbitration Act provides for appeal against orders refusing to set aside or setting aside an award. The court reasoned that an order under Section 17 stating that there are no grounds to set aside the award falls within the scope of Section 39(vi). Accordingly, the objection to maintainability was rejected and the appeal was held maintainable.
  2. Limitation and Section 30 challenges: The court observed that challenges to an award on grounds enumerated in Section 30 must be made by an application under Section 33, which must be filed within the limitation period (Article 119 of the Limitation Act — 30 days from receipt of notice of filing of the award). The appellant had filed the Section 33 application and objections out of time; those applications were rightly rejected as barred by limitation. Therefore, the appellant could not rely on Section 30 grounds in this appeal.
  3. Scope of suo motu power under Section 17: The court accepted that there is authority (Deep Narain Singh and related decisions) for the proposition that a court may, under Section 17, suo motu set aside an award if the award is a nullity or patently illegal — matters going to the root of the award. However, the court emphasized the limit of that power: it can be exercised only where the illegality is patent on the face of the award and does not require further inquiry.
  4. Application to the facts — appointment/substitution of arbitrator: The court examined the Arbitration Rules (Clause 5) appended to the contract. Clause 5 required written notice desiring arbitration to be given not later than 4 days after the goods were landed, and envisaged forwarding a copy of the notice and consent letter of the nominating arbitrator to the Association; the other party was required to submit its arbitrator's consent letter within a specified time. The record (Ext. D20) showed that the 1st respondent sent a telegram within 3 days desiring arbitration and suggesting an arbitrator's name; Ext. D11 showed the Association informed the appellant that the 1st respondent had appointed the 2nd respondent as arbitrator. Section 9 of the Arbitration Act permits substitution of an arbitrator if the originally appointed person is unwilling to act. The court concluded that substitution had occurred and that the Rules did not prohibit substitution; hence there was no patent illegality in the appointment that would render the reference invalid on its face.
  5. Other objections (notice, manner of findings, quantum of damages): The court held that alleged failures of the arbitrator to issue notice to the appellant, and objections about the arbitrator's fact‑finding and assessment of damages, fall within the grounds of Section 30. As those grounds require an application under Section 33 and the appellant's application was time‑barred, those objections could not be considered by the court suo motu. The court contrasted these issues with patent illegality: they required inquiry and thus were unsuitable for suo motu disposal.
  6. Conclusion from analysis: Given that no patent illegality appeared on the face of the award (particularly in relation to appointment of the arbitrator) and the substantive objections were time‑barred Section 30 challenges, the court found no reason to set aside the award or upset the decree entered under Section 17.

Holding and Implications

Holding: The appeal is dismissed. The court found no merit in the appellant's contentions and confirmed the decree in terms of the arbitral award; costs were awarded to the 1st respondent.

Implications:

  • Direct effect: The decree passed by the lower court in terms of the arbitral award stands; the appellant's challenge to the award was rejected (both on limitation grounds for Section 30 challenges and on a merits review regarding patent illegality).
  • Scope of court's suo motu power reaffirmed: The opinion reiterates that a court exercising Section 17 powers may suo motu set aside an award only where the illegality or voidness is patent on the face of the award (e.g., an award directing an act prohibited by law or otherwise obviously void). If the alleged illegality requires inquiry, the court should not exercise suo motu jurisdiction.
  • Procedural consequence for challenging awards: Challenges based on Section 30 grounds must ordinarily be pursued under Section 33 within the prescribed limitation period; failure to do so generally precludes consideration of those grounds, subject to the narrow patent‑illegality exception.
  • No new legal principle was formulated in this opinion; the court applied existing statutory provisions and precedent to the facts and dismissed the appeal without creating a novel rule.

Case-specific references in this summary are taken only from the provided opinion and reflect the court's citations and factual findings as stated therein (e.g., Ext. D1, Ext. D3, Ext. D11, Ext. D20; Sections 9, 17, 30, 33, 39 of the Arbitration Act; Article 119 of the Limitation Act).

Show full summary ...

    P. Mulji And Sons, Africa v. Keral Produce Exporting Co., And Another

    Viswanatha Iyer, J.:— This is an appeal by the 2nd counter-petitioner in Arbitration Act Petition No. 1 of 1955 on the file of the Quilon District Court. Under Ext. D3 agreement entered into between the Ist and 2nd counter-petitioners the 2nd counter-petitioner supplied cashewnuts to the Ist counter petitioner. The same was delivered at Quilon on 17-2-1964. Under the agreement any dispute regarding the quality of the goods has to be referred to an arbitration and the Arbitration Rules which govern the parties provide for appointment of Arbitrators, the time within which that should be done and the procedure which should be followed by Arbitrators. Complaining that the quality of the goods supplied was inferior the Ist counter-petitioner requested the 2nd counter-petitioner to appoint an Arbitrator. There was some attempt at settling the matter otherwise and when that failed the Ist counter-petitioner pressed for a reference to Arbitration. He informed the Secretary, Indian Cashew Exporters' Association and requested him to arrange for the arbitration. He also nominated his Arbitrator. The said Association contacted the appellants and requested them to nominate their Arbitrator. Since that was not done the Arbitrator appointed by the Ist counter-petitioner acted as a sole Arbitrator and proceeded with the arbitration. He made an award to the effect that the appellant should pay Rs. 17,932.33 to be Ist counter-petitioner. This award was filed into court by the petitioner-Arbitrator and notice of it was given to counter-petitioners 1 and 2. Counter-petitioner No. 1 moved for passing a decree in terms of the award. But, the appellant applied to set aside the award and also filed objection to the passing of the judgment on the award. The application to set aside the award was filed out of time and so it was rejected. But, the lower court considered the objections on the merits and finding that there are no grounds to set aside the award suo motu passed a decree in terms of the award. The appeal is filed by the 2nd counter-petitioner in these circumstances.

    2. A preliminary objection is taken to the maintainability of the appeal. Section 39 of the Arbitration Act, 1940 provides for an appeal against certain orders passed by the court in Arbitration proceedings. Section 39, Clause (vi) provides for an appeal against an order refusing to set aside or setting aside an award. The appellant's counsel relies on this provision to sustain the appeal. No doubt, the application to set aside the award was dismissed on the ground of Limitation and the decision under appeal was rendered under Section 17 of the Arbitration Act. Section 17 requires the Court to be satisfied that there are no grounds to set aside the award, and if so satisfied, to pass a decree. It is not necessary that the order refusing to set aside the award must be an order on the application to set aside the award. Such an order can as well be contained in the order passed under Section 17 of the Act. The lower court has stated in the order under Section 17 that there are no grounds to set aside the award and that comes within the scope of Section 39 (vi) of the Act. Therefore, the preliminary objection is repelled.

    3. The award Ext. D1 filed by the Arbitrator may be challenged by the appellant as invalid. But, if the challenge is based on any of the grounds mentioned in Section 30 of the Act it has to be made by an application under Section 33 and that should be filed within a particular time, namely 30 days of the receipt of the notice of the filing of the award (see Article 119 of the Limitation Act). The appellant admittedly filed an application, but it was out of time and so was rightly rejected. The objection filed against accepting the award was also filed beyond the time limit prescribed under the said Article. So, it is not open to the appellant to challenge the award on any of the grounds mentioned in Section 30 of the Arbitration Act (see Madan Lal v. Sunderlal & Another, AIR 1967 SC 1233). But, there are certain decisions which take the view that the court exercising the powers under Section 17 can suo motu consider whether the award is liable to be set aside on other grounds. Reliance is placed by the counsel for the appellant on Deep Narain Singh v. Dhaneshwari (AIR 1960 Pat 201) in support of the contention that the court can suo motu set aside an award on the ground of invalidity of reference. At page 206 the law is stated thus:

    “where, therefore, the award is found to be a nullity because of invalidity of the arbitration agreement or, for any other reason or the award is prima facie illegal and not fit to be maintained, the Court has power under Section 17 of the Act to set it aside without waiting for an objection to the award being filed or without considering any application for setting it aside, if there be any.

    These are matters which really go to the root of the award itself and irrespective of any objection by the parties, a duty is cast upon the Court to decide these matters before a decree can be passed on the basis of the award. Therefore, the mere fact that an objection is not filed by any of the parties to the award within the period of limitation does not altogether absolve the Court from its responsibility of deciding whether there was a competent reference or whether the award was a valid award on the face of it. It is obvious that in such a situation the question of limitation is of no materiality. The award has to be set aside because of this inherent infirmity. This view finds ample support from the decision of this Court in Deo Narain Singh v. Siabar Singh, AIR 1952 Pat 461 and a Bench decision of the Bombay High Court in Hastimal Dalichand v. Hira Lal Motichand, AIR 1954 Bom 243, with the reasonings of which I respectfully agree”.

    4. The decision of the Bombay High Court referred to in the above quotation contains the following observation:—

    “If the award directs a party to do an act which is prohibited by law or if it is otherwise patently illegal or void it would be open to the Court to consider this patent defect in the award suo motu, and when the Court acts suo motu no question of limitation prescribed by Article 158 can arise”.

    5. This latter observation was taken note of by the Supreme Court in (AIR 1967 SC 1233) at p. 1236, paragraph 10, and apparently approved it as correct. The provisions of Section 30 are very wide and every possible kind of objection may possibly come under clause (c) of the said Section. The expression “otherwise invalid” in Section 30 (c) is interpreted in some cases to take in a case of invalidity arising out of an invalid reference. But, in the light of the decision in Chhabba Lal v. Kallu Lal (AIR 1946 PC 72) it has to be taken that invalidity arising out of an invalid reference does not come under that clause. If so it may be considered on an application under Section 33 or in exercising the powers suo motu under Section 17 of the Act.

    6. But, the suo motu power of the court to invalidate the award can be exercised only if there is any patent illegality or voidness or the award directs a party to do an act which is prohibited by law. If this illegality is not patent and requires an enquiry to find that out the Court may not be justified in exercising its suo motu jurisdiction. That is the position in this case. The attack on the award is based on the alleged failure to observe the rules in the matter of appointment of an Arbitrator. As stated earlier, to the contract Ext. D3 is appended the Arbitration Rules which would govern the arbitration proceedings under the contract. Clause 5 of the Arbitration Rules provides for a written notice desiring arbitration to be given to the other party not later than 4 days after the goods under the contract have been completely landed. That such a notice was given by the Ist respondent is evident from Ext. D20, a copy of a letter sent to the appellant by Ist respondent. That refers to the telegram sent by the Ist respondent within 3 days of the landing of the goods desiring an arbitration. That telegram is not disputed. Clause 5 in the Arbitration Rules also requires other formalities to be complied with, namely, forwarding by the party desiring arbitration a copy of the written notice desiring arbitration to the Association and also forwarding to it the consent letter of its Arbitrator. The other party who is served with this notice is also required by the said clause to submit to the nearest Association the consent letter of his Arbitrator within a particular time. Thereafter, as per the rules, it is the function of the Associations to contact the respective parties and arbitrators and take the necessary steps to proceed with the arbitration. It is not stated in the rules that the party serving the notice should communicate to the opposite party the name of his Arbitrator within the stipulated time of 4 days. Even if that is required, it is seen from the telegram referred to in Ext. D20 that the Ist respondent had suggested the name of one Shamsuddin as Arbitrator. Ext. D11, the letter issued by the Indian Cashew Exporters' Association to the appellant, mentions that the Ist respondent has appointed the 2nd respondent as the Arbitrator. The argument of the appellant's counsel is that this change amounts to an invalid appointment and as such the reference to him was invalid. Section 9 of the Arbitration Act allows a party to substitute another person as arbitrator if the one appointed previously is unwilling to act. That has what happened in this case. The rules do not prohibit the substitution of another and hence there is no invalidity. In this view there is no patent illegality in the appointment of the Arbitrator by the Ist respondent and therefore it is not possible to bold that the reference was invalid and as such that the court should set it aside suo motu.

    7. The other objections to the award namely the alleged failure of the Arbitrator to issue notice to the appellant and regarding the manner in which he found that the quality of the goods supplied was inferior and that the damages payable to the Ist respondent will be so much are all objections which come within one or other of the grounds in Section 30 of the Act. The validity of these objections cannot be gone into by the court suo motu; and the application to set aside the award on these grounds has been rejected as out of time. Hence, those objections do not deserve any consideration.

    8. In the result, there is no merit in this appeal. It is dismissed with costs to the 1st respondent.

    9. Appeal dismissed.

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    Comments

    P. Mulji And Sons, Africa v. Keral Produce Exporting Co., And Another
    (Jun 17, 1975)