The Judgment of the Court was delivered by

Harries, C.J:— These are three connected appeals from an order and two decrees of Sinha, J. By the said order Sinha, J., dismissed two applications to set aside awards made by the Bengal Chamber of Commerce and made two decrees in favour of the Respondents in terms of the two awards.

2. The parties to these three appeals entered into two contracts for the sale and purchase of certain jute materials. By contract No. 130 of February 15, 1946, the Appellants agreed to sell to the Respondents 3,60,000 B Twill gunny bags at Rs. 64-4-0 per hundred bags. Delivery was to be made by equal instalments in the months of July, August and September. By a second contract No. 131 of February 16, 1946, the Appellants agreed to sell to the Respondents a similar quantity B Twill gunny bags at Rs. 64-6-0 per hundred bags. The terms relating to delivery were similar to those in contract No. 130. Each of these contracts contained an arbitration clause which is in these terms:

“All matters, questions, disputes, differences and/or claims arising out of and/or concerning and/or in connection with and/or in consequence of or relating to this contract whether or not the obligations of either or both parties under this contract be subsisting at the time of such dispute and whether or not this contract has been terminated or purported to be terminated or completed shall be referred to the arbitration of the Bengal Chamber of Commerce under the rules of its Tribunal of Arbitration for the time being in force and according to such rules the arbitration shall be conducted.”

3. On March 9, 1946, it was agreed between the parties that only 90,000 bags per month should be delivered under contract No. 131. The Appellants apparently paid the Respondent the damages in respect of the remaining 30,000 bags per month which they could not deliver.

4. The Appellants failed to deliver the bags due under both contracts for the months of July and August, but their failure to deliver was settled by payment of the difference between the prices of these bags on due date and the contract price. After such settlement there was left only the September deliveries under both contracts.

5. On September 23, 1946, the Appellants by letter informed the Respondents that they could not deliver any gunny bags under either of the contracts for the month of September and they asked the Respondents to submit their bills for the loss sustained by reason of this non-delivery. On October 1, 1946, the Respondents sent to the Appellants two bills—one for Rs. 12,600 being the loss in respect of contract No. 130 and Rs. 16,650 being the loss in respect of contract No. 131. The loss was estimated as the difference between the price of Rs. 78-4-0 per hundred bags and the contract prices.

6. It is common ground that until September 30, 1946, the Jute Price Control Order was in force and that the price of one hundred B Twill gunny bags on September 30, 1946, was Rs. 66-12-0. The Respondents did not apparently deny this, but they claimed that damages should be assessed on the price ruling not on September 30, when the contracts came to an end, but on the following day, namely, October 1, 1946. On that date the Respondents contended that the price of jute had risen to Rs. 78-4-0 by reason of the fact that the Jute Price Control Order had ceased to be operative at midnight on September 30.

7. The Appellants refused to pay the amounts stated in the Respondents' bills and on June 23, 1947, the matter was referred to the arbitration of a Tribunal of the Bengal Chamber of Commerce at the instance of the Appellants.

8. On July 3, 1947, the Registrar of the Bengal Chamber of Commerce wrote to the Appellants informing them that the Respondents had filed their case and calling upon the Appellants to submit their case. On July 16, 1947, the Registrar of the Bengal Chamber of Commerce sent notices to the Appellants and Respondents that he had on that day duly constituted a Court under the rules of the Bengal Chamber of Commerce to decide the dispute. On July 23, the Registrar again wrote to the Appellants informing them that he had been directed by the arbitrators to demand from the Appellants their statement and papers connected with the case which were, to be delivered on or before July 26, after which date the arbitration would be proceeded with upon the evidence then before the arbitrators. The Appellants were guilty of delay in forwarding their statement and on August 11, 1947, the Registrar on behalf of the arbitrators again called upon the Appellants to submit their case on or before August 14, 1947. The Appellants again failed to submit their case and the Registrar again wrote on behalf of the arbitrators calling upon them to submit their case on or before August 28, 1947. On August. 28, 1947, the Appellants submitted their case and on September 16, 1947, the Respondents filed a reply. On September 18, 1947, the Registrar sent the Respondents' reply to the Appellants and asked them to forward any comment they had to make by September 25, 1947. On September 29, 1947, the Registrar informed both parties that he had handed over all the papers to the arbitrators for their consideration. For some reason or other the arbitrators delayed making their award and on December 3, 1947, the Registrar wrote to both the Appellants and the Respondents that he had constituted another Court under the provisions of r. 7 of the Rules of the Bengal Chamber of Commerce. This second tribunal decided the dispute and on December 27, 1947, made two awards in favour of the Respondents. With respect to contract No. 130 the arbitrators awarded the amount claimed by the Respondents, namely, Rs. 12,600. With respect to contract No. 131 the arbitrators also awarded the Respondents the amount the latter had claimed, namely, the sum of Rs. 16,650.

9. The Appellants then filed two applications in this Court praying that these awards be set aside on the ground firstly, that the arbitrators had no jurisdiction as no new tribunal could be appointed under the rules on December 3, 1947. It was contended that on that date the old tribunal were still entitled to function and no new tribunal could be appointed in their stead. Secondly, it was contended that the arbitrators had been guilty of legal misconduct in that they had awarded the Respondents damages either for breach on October 1, 1946, which they could not do, or had awarded damages on the basis that the Respondents were entitled to buy as against the Appellants on the black market and pay black market prices for the goods.

10. When the matter came before Sinha, J., the second contention was not pressed as Sinha, J., made it clear to the two Counsel that he would have to reject the contention and follow the decision of Das, J., in Tolaram Nathmull v. Ganesh Commercial Co., Ltd.(1) which decision was later affirmed in Appeals Nos. 6, 7 and 16 of 1948 by an Appellate Bench of this Court. Sinha, J., however gave the Appellants liberty to urge this point before the Appellate Bench in the event of an appeal.

11. On the first point, namely, whether the arbitrators had jurisdiction it might be contended on the authority of Chhabba Lal v. Kallu Lal(2) that such a point could not be raised on an application to set aside an award. Their Lordships of the Privy Council held in that case that an application to set aside an award presupposes an award made with jurisdiction and if it is contended that the arbitrators had no jurisdiction proceedings for setting aside an award under sec. 30 of the Indian Arbitration Act would not be appropriate. The Appellants realised that such an application would not be maintainable and the application made was a composite application, namely, one to set aside an award and an application challenging the validity of the award under sec. 33 of the Indian Arbitration Act. It is, I think, clear that an award can be challenged for want of jurisdiction under sec. 33 of the Indian Arbitration Act and the claim of the Appellants was an alternative one—either that the Court should set aside the award or adjudge the said award to be invalid which is a prayer under sec. 33 of the Act. Sinha, J., held that the award was with jurisdiction as the period for making the award by the first arbitrators had expired before the second arbitrators were appointed by the Registrar.

12. Under r. 25 of the Rules relating to arbitration by Tribunals of the Bengal Chamber of Commerce, it is provided as follows:

“The Court shall make its award in writing within four months after entering on the reference or on or before any later day to which the Court, with the consent of all parties concerned in the proceedings, by any writing signed by them, may from time to time, enlarge its time therefor or any extension of time granted by the Court of Judicature at Fort William in Bengal.”

13. The time for making the award was not extended and, therefore, the first arbitrators were bound to make an award within four months after entering on the reference.

14. The second arbitral tribunal was appointed by the Registrar under r. 7 of the Rules of the Bengal Chamber of Commerce which is in these terms:

“If the Court have allowed the time or extended time to expire without making any award, and without having signified to the Registrar that they cannot agree, the Registrar shall constitute in manner aforesaid another Court which shall proceed with the arbitration and shall be at liberty to act upon the record of the proceedings as then existing and on the evidence, if any, then taken in the arbitration or to commence the arbitration de novo.”

15. The Registrar in appointing the second Court acted under r. 7 as in his view the first Court had allowed the time for making their award to expire without having made an award and without having signified to the Registrar that they were not agreed.

16. The contention of the Appellants is that the time given to the first Court of arbitration to make their award had not expired by December 3, 1947, when the Registrar appointed a second Court to decide the dispute. Clearly, if the time for making the award by the first tribunal had not expired when the second tribunal was appointed, the latter could not possibly have jurisdiction to entertain the reference. The latter Court could only entertain the reference if they were properly appointed and these arbitrators could not be properly appointed ex- cept in the case where the first arbitrators appointed had made no award for four months from the date upon which they entered upon the reference.

17. According to the Appellants the first arbitral tribunal did not enter upon the reference until September 29, 1947, at the earliest. As I have already stated, on that date the Registrar wrote to both the parties that he had on that day handed the papers to the Court for adjudication. The Appellants' contention is that until the papers had been handed to the arbitrators they could not possibly begin their duties and it could not be said that they had entered upon the reference before they had received the papers. The Appellants in fact went further and contended that the first arbitrators could not be said to have entered upon the reference until they had met to consider the papers with a view to making an award. The Appellants pointed out that there was no evidence that they had so met before December 3, 1947. However the Appellants were quite satisfied to take September 29, 1947, as the date upon which the first arbitrators entered upon the reference and if they had not entered upon the reference before September 29, 1947, then clearly no new arbitrators could be appointed on December 3, 1947, because only less than 2½ months had elapsed from the time upon which they had entered upon the reference.

18. The Respondents on the other hand contended that the Court was bound to hold that the arbitrators had entered upon the reference by July 23, 1947, because on that date the Registrar wrote to the Appellants to the effect that he had been directed by the arbitrators to call for the Appellants' statement before July 29 and if such statement was not filed by that time the arbitrators would proceed with the arbitration. The contention of the Respondents is that the arbitrators could give the Registrar no directions to call for statements until they had entered upon the reference. Calling for statements is an act of the Court preliminary to the actual hearing. But it is an act which the Court could not perform unless it had entered upon its duties.

19. The Appellants contended, however, that the matter was decided by authority and that it had been held both in England and in India that arbitrators cannot be said to have entered upon the reference until they had actually begun to hear the reference. Reliance was placed upon an old English case of Baker v. Stephens(3). The head-note of that case is as follows:—

“By sec. 15 of the Common Law Procedure Act, 1854, the arbitrator, acting under any document or compulsory order of reference, or under any order referring the award back, shall make his award, if no other time is fixed, ‘within three months after he shall have been appointed and shall have entered on the reference.’

“An award was referred back by rule of Court on the 12th of June, 1865; the arbitrators, on the 5th of October (having previously made an appointment, which the Defendant did not attend), appointed the 19th of October to proceed peremptorily and ex parte, if either of the parties did not attend; the Defendant made an excuse for not attending, and the arbitrators, thinking the excuse valid, made a fresh peremptory appointment for the 31st of October. The Defendant did not attend, and the arbitrators then took the Plaintiff's evidence; and after further notice proceeded with the reference, the Defendant still refusing to attend; and they made their fresh award on the 6th of January, 1866.

“It was held that the award was made in time; for that an arbitrator enters on a reference, not when he accepts the office, or takes upon himself the functions of arbitrator by giving notice of his intention to proceed, but when he enters into the matter of the reference, either with both parties before him, or under a peremptory appointment enabling him to proceed ex parte.”

20. Cockburn, C.J, at page 526 of the report observed:

“The words of the section are somewhat ambiguous but the only sound construction appears to me to be that the three months must date from the time the arbitrator actually enters upon the reference: not from the time that he merely takes upon himself the office of arbitrator by accepting the reference, but from the time he takes upon himself and exercises the functions of arbitrator.”

21. It is, however, clear that Cockburn, C.J, was of opinion that an arbitrator does not begin to exercise the functions of an arbitrator until he hears the case in the presence of both parties or ex parte as a result of some peremptory order. Blackburn, J., was also clearly of opinion that arbitrators do not enter on the reference until they actually begin to hear the dispute and such was the opinion also of Mellor, J. The fourth Judge, Shee, J., summed the matter up in these words:

“And the three months ‘after he shall have been appointed’ must be taken first in the sense of the original appointment, and secondly, in the sense of a reference back; but then the section says, ‘and shall have entered on the reference,’ so that the time is extended beyond the mere date of the appointment or reference back; and the question is, what is the meaning of ‘entering on the reference?’ I think it means the beginning the real business of the reference by holding a meeting of the parties, or proceeding under a peremptory appointment ex parte.”

22. It is contended on behalf of the applicants that this case is conclusive and we should follow it. If the principle enunciated in Baker v. Stephens is followed, I think it is clear that the time given to the first arbitrators for making an award had not expired before December 3, 1947, because there is nothing to suggest that they had met to consider the dispute at any time more than four months before December 3. Sinha, J., however, distinguished the decision on the ground that by the rules of the Bengal Chamber of Commerce the arbitrators were not bound to hear the parties and could proceed to decide the dispute upon the papers which had been submitted to them. That, I think, is clear from r. 15 which provides:

“The dispute will normally be decided by the Court on the written statements of the parties and oral evidence will not be taken nor will the parties be entitled to appear, or any formal hearing be held. The Court shall have power, however, if it thinks fit to appoint a time and place for the hearing of the reference and to hear oral evidence.”

23. In the view of Sinha, J., the case of Baker v. Stephens could not possibly apply to an arbitration such as is contemplated by the rules of the Bengal Chamber of Commerce. In his view, having regard to the nature of the arbitration contemplated by those rules the arbitrators could be said to have entered upon the reference when they had taken steps to ensure the placing before them of the respective statements of the parties.

24. Counsel for the Appellants also relied upon the case of C. Varipati & Co. v. The Olympia Oil and Cake Company(4). In that case the question arose as to when an arbitration had been held. But it appears to me that the case is of no assistance in arriving at a conclusion as to when it can be said that arbitrators have entered upon the reference.

25. Counsel for the Appellants also relied upon an observation of Lindley, M.R, in Baring-Gould v. Sharpington Combined Pick and Shovel Syndicate(5). Lindley, M.R, observed:

“Stirling, J., has, as I understand him, construed ‘called on to act’ as meaning ‘called on to enter on the reference’; that is, to proceed to hear the parties.”

26. From this observation it would appear that Lindley, M.R, took the same view as the learned Judges did in Baker v. Stephens. But it seems to me that there is in this case no express decision as to what is the meaning of the phrase “to enter upon a reference.”

27. Baker v. Stephens was followed by a Bench of the Allahabad High Court in Sardar Mal, Hardat Rai…(Plaintiff); v. Sheo Bakhsh Rai, Sri Narain…(Defendant).*, Sri Narain(6). The Bench held that the phrase “entering on the reference” appearing in cl. (3) of Sch. I of the Indian Arbitration Act, 1899, meant not when the arbitrator accepted the office or took upon himself the duty, but when he actually entered upon the matter of the reference, when the parties were before him, or under some peremptory order compelling him to conclude the hearing ex parte. There can be no doubt that this case is an authority for the proposition contended for by the Appellant.

28. The Appellants also relied upon a case of this Court, Nanda Kishore Goswami v. Bally Co-operative Credit Society, Ltd.(7). That was a case under the Co-operative Societies Act and it was held by a Bench consisting of Mukherjea and Blank, JJ., that the provisions contained in Chap. II of the Arbitration Act, 1940, were inconsistent with the procedure for arbitration indicated in r. 22 framed under sec. 43 of the Co-operative Societies Act, 1912, and, under sec. 46 of the Arbitration Act, its provisions did not apply to an arbitration of a dispute relating to co-operative societies. That being so, where an award was made under the Co-operative Societies Act, it was not necessary to obtain a judgment of the Civil Court on that award in order to execute it. At page 434, Mukherjea, J., who delivered the judgment of the Bench observed as follows:

“It goes without saying that an arbitrator cannot be said to enter on the reference, the moment that he is appointed an arbitrator. It is necessary that he must actually begin the work in the presence of the parties or with notice to them before he can be said to have entered on the reference.”

29. This observation of Mukherjea, J., does support the contention of the Appellants. But I think the observation is obiter and was not really necessary to the decision of the case as the Court had held that the provisions of the Indian Arbitration Act, 1940, did not apply to the arbitration which they were considering in that case.

30. Counsel also referred to the case of S. Ranganathan v. A. Krishnayya(8). There are observations of Leach, C.J, at page 121 which would suggest that the learned Chief Justice was of opinion that entering upon a reference was synonymous with entering upon the hearing of a particular claim. However, the meaning of the learned Chief Justice is not clear and in any event the observation is obiter.

31. The English Courts have quite clearly changed their view as to the meaning of the term “entering upon a reference” and the most recent decision in Iossifoglu v. Coumantaros(9) cannot possibly be reconciled with the case of Baker v. Stephens. In this case a contract of sale contained an arbitration clause which provided that “should any dispute arise between the sellers and buyers under this contract, the same shall be referred to persons in London, one to be appointed by each of the parties hereto. In case the arbitrators so appointed disagree they shall appoint an umpire.” A dispute arose between the sellers and buyers and each of them appointed an arbitrator. One of the arbitrators repeatedly endeavoured to arrange a meeting with the other, but the latter failed to arrange such a meeting. The arbitrator then unsuccessfully endeavoured to obtain the consent of the latter to the appointment of an umpire. Application was then made to the Court for the appointment of an umpire under sec. 5 of the Arbitration Act, 1889.

32. It was held by the Court of Appeal affirming a Divisional Court of three learned Judges that arbitrators entered upon a reference as soon as they had accepted their appointment and had communicated with each other about the reference. The Court was entitled to appoint an umpire under sec. 5 of the Arbitration Act, 1889, as there had been a disagreement between the arbitrators.

33. It is clear that in this case the Court was bound to consider when the arbitrators had entered upon the reference. From the report it would appear that the case of Baker v. Stephens was not cited either to the Divisional Court or to the Court of Appeal. But the decision of the Court of Appeal is an emphatic one. At page 400, Scott, L.J, who delivered the judgment of the Court of Appeal observed:

“In this case a question has arisen as to the appointment of an umpire pursuant to the provisions of sec. 5 of the Arbitration Act, 1889, under an arbitration clause contained in an agreement. The question raised by the appeal really resolves itself into this: When can arbitrators be said to enter upon a reference? In my view, they enter upon it as soon as they have accepted their appointment and communicated with each other about the reference. That was the view taken by the Divisional Court in the present case, reversing a decision of Cassels, J., who had affirmed a decision of Master Moseley.”

34. The Courts in India are of course not bound by any English decisions though such decisions are powerful persuasive precedents. From what I have said it is clear that the later view taken by the Court of Appeal is contrary to the earlier view taken by the Queen's Bench in Baker v. Stephens. It is open to this Court to follow either of these decisions or to follow neither. In my view, however, the recent case of Iossifoglu v. Coumantaros should be followed, particularly in cases of the kind now before us where arbitrators, by the rules, are not bound to meet the parties. It seems to me that arbitrators appointed under the rules of the Bengal Chamber of Commerce must be held to have entered upon the reference when they have accepted their appointment and instructed the Registrar to call for statements from the parties. According to the later view of the English Court of Appeal arbitrators have entered upon the reference when they have merely accepted their appointment and communicated with each other about the reference. Obviously in the present case the arbitrators had accepted their appointment and must have communicated with each other because they actually instructed the Registrar to call for statements by a certain date. They had begun the preliminary work of the reference and it seems to me it must be held that they had entered upon the reference when they had both decided to accept their appointment and had taken steps in concert to obtain from the parties the necessary statements and papers to enable them to decide the matter and make an award.

35. It is clear that the attitude of the English Courts towards arbitrators has changed very materially. In earlier decisions such as in Baker v. Stephens the tendency was to deny jurisdiction to the arbitrators in any case where such a view was possible. This attitude has changed materially in later years and now the tendency of the Court is to uphold the jurisdiction of arbitrators whenever such a view is possible. That change in attitude does in my view probably account for the conflicting decisions in Iossifoglu v. Coumantaros and Baker v. Stephens. This later view of the English Courts accords with my own view and with the view of Sinha, J., and I think must be accepted in India.

36. For these reasons, therefore, I am satisfied that Sinha, J., was right in holding that the arbitration was with jurisdiction as four months had expired before the Registrar appointed the second tribunal. As I have stated already, the arbitrators had certainly entered on the reference by July 23, 1947, as by that date they had instructed the Registrar to call for a statement from the Appellants and the four months had elapsed on November 23, 1947.

37. The second point argued before us was that the arbitrators had clearly misconducted themselves by awarding the damages which they did. On behalf of the Appellants it was contended that damages had to be assessed on September 30, which was the last date for delivery and which is known as the due date. Their Lordships of the Privy Council have emphatically laid down that the due date is the last date for delivery which in this case was September 30, 1946 and Counsel for the Respondents has quite frankly conceded this. He, however, has attempted to uphold the award on three grounds.

38. Firstly, he has contended that the arbitrators must have held that the time for delivery was extended to October 1, 1946. As I have already stated, the Jute Price Control Order which controlled the price of jute expired on September 30, 1946 and on October 1, there was a free market for jute and the price was uncontrolled. The contention of the Appellants is that if the time for delivery had been extended then it was open to the arbitrators to find the price at which jute could be bought by the Respondents against the Appellants. Admittedly, the price had risen immediately the Jute Price Control Order had ceased to be effective and the price upon which damages were based, namely, Rs. 78-4-0 could, therefore, be justified.

39. It is to be observed that the damages awarded by the arbitrators in both cases were the precise amounts claimed by the Respondents in the bills which they submitted to the Appellants on October 1, 1946 and, therefore, it is urged that it must be admitted that the arbitrators must have taken the date of delivery as being October 1, 1946 and, therefore, they must have held that the date of delivery had been extended.

40. In my view the arbitrators could not hold that the last date of delivery had been extended without some evidence. This was not the Respondents' case and there is no suggestion in any of the documents which were placed before the arbitrators that the time for delivery had been extended. Arbitrators who are experts in the trade can decide matters which are within their expert knowledge without evidence. But they cannot decide whether two parties have extended the time of delivery except on evidence, as such would not be a matter within their expert knowledge. Counsel for the Respondents eventually conceded that the award could not be justified on the assumption that the arbitrators must have held that the time for delivery had been extended. If they had held that the time had been extended such would have been a finding upon no evidence at all and would clearly amount to legal misconduct. There are a number of recent decisions of this Court which have taken this view and which need not be referred to in this judgment.

41. Secondly, it was suggested that the arbitrators must have held that the proper measure of damages was the price on October 1, 1946, because it had been provided by the rules of the Gunny Traders' Association that damages in respect of contracts expiring on September 30, 1946, should be calculated with reference to the price ruling on October 1, 1946. It was never the case of the Respondents that this or any other rule of the Gunny Traders' Association had been incorporated in the contract and, therefore, there was nothing in the contracts to warrant the assessment of damages based upon the price ruling on October 1, 1946. If the arbitrators accepted the view of the Gunny Traders' Association that the price on October 1, 1946, was a fair method of assessing the damages then they substituted the views of the Gunny Traders' Association for their own. It is for the arbitrators to decide how damages are to be assessed and they must not accept the view of any other person or association, as such would amount to legal misconduct. The arbitrators must themselves find the point of time at which damages have to be assessed and a rule of the Gunny Traders' Association not incorporated in the contract could not form the basis for the assessment of such damages. Counsel for the Respondents finally did not press this point.

42. Thirdly, it was argued that at most the arbitrators have merely made a mistake of law in assessing damages based upon the price ruling at a date other than September 30, 1946, or in the alternative they had committed an error of law in fixing the price on September 30, 1946, as the price ruling in the black market.

43. This matter has been considered by this Court in a number of cases recently. The matter was first raised before Das, J., in the case of Tolaram Nathmal v. Ganesh Commercial Co., Ltd.. In that case the time for delivery expired on September 30, 1946, but an award of the arbitrators awarding damages based on the price ruling after the expiry of the Jute Price Control Order on September 30, 1946, was upheld. Sinha, J., was of opinion that this case which had been affirmed by an Appellate Bench concluded the matter. But this case is no authority for the proposition that where there was a breach on September 30, 1946, any price other than the controlled price on that date could form the basis of damages for non-delivery. In Tolaram Nathmal's case it was expressly raised in the statements that by a custom of the trade damages could be assessed upon the basis of the price ruling not on September 30, 1946, but on October 1, 1946. Whether there was such a custom would be within the special knowledge of the arbitrators and as the custom was expressly raised this Court held that there was proper material before the arbitrators upon which they could hold that the damages could be based on the price ruling on October 1, 1946, and not on September 30, 1946. There was, however, nothing in the statements before the arbitrators in this case suggesting any such custom and, therefore, it was not open to the arbitrators to take into account custom if such existed because the matter had never been pleaded or relied upon by the Respondents.

44. The precise point came before this Court for decision in Chhogmal Rawatmal v. Sankalchand G. Shah & Co.(10). In that case Chatterjee, J., held following an earlier decision of an Appellate Bench consisting of Sinha, J., and myself in Khusiram Benarshilal v. Girdharilal Dharamchand(11) that to award damages based on a price admittedly in excess of the maximum price in vogue during the relevant period under the Jute Price Control Order would amount to misconduct. As Chatterjee, J., observed:

“To allow the arbitrators to award such damages would be to legalise an act which has been declared to be an offence under the relevant statute and cannot possibly be permitted by a Court of law…. It is impossible for the Court in such a case to accept the contention that at the most the arbitrators are guilty of an error of law and as the error is not apparent on the face of the award, it is not open to the Court to set aside the award.”

45. The Bench consisting of Chatterjee, J., and myself held that the assessment of damages based upon black market prices would amount to legal misconduct and would vitiate the award. It appears to me that the present case cannot be distinguished from the case of Chhogmal Rawatmal v. Sankalchand G. Shah and the case of Khasiram Benarshilal v. Girdharilal Dharamchand and that being so it must be held that the arbitrators in making the awards which they made in this case were guilty of misconduct and, therefore, the awards should be set aside.

46. In the result, therefore, though we hold that the awards were made with jurisdiction, nevertheless they must be set aside as the arbitrators were guilty of misconduct.

47. These three appeals must, therefore, be allowed and the order of Sinha, J., and the decrees made in consequence thereof must be set aside and the applications for setting aside the awards must be allowed in each case and the awards set aside. The Appellants are entitled to their costs in this Court and in the Court below, but as the three appeals have been consolidated and heard together there will be only one set of costs.

Chatterjee, J.:— In my view certain amount of confusion has been created by the following passage in Russell on Arbitration and Award, 12th Edn., page 351:

“Arbitrators do not enter on the reference by mere acceptance of the appointment, or by giving a peremptory notice for a meeting, or until they begin judicially to enquire into the case. [Baker v. Stephens and Varipati v. Olympia Oil and Cake Co., In re.]”

48. It is to be observed that in the latest edition of Russell on Arbitration, this paragraph has been omitted. The law has been changed in England.

49. I agree with the learned Chief Justice that Baker v. Stephens would not be considered as good law in England in view of the judgment of the Court of Appeal in Iossifoglu v. Counmentaros. In the latter case six learned Judges including Viscount Caldecote, C.J and Scott, L.J, rejected the argument advanced on behalf of the Appellants that entering upon reference does not take place till the arbitrators actually meet and discuss matters. In my view, the arbitrators enter upon reference when they take upon themselves the office of arbitrators and exercise some functions as arbitrators. If they meet and determine the date of hearing and issue directions as to pleadings they exercise the functions of arbitrators and, therefore, they should be treated as having entered on the reference.

50. In Baker v. Stephens the arbitrators gave notice to both parties of their intention to meet on the 8th August. On August 8, they actually met and the Plaintiff's attorney attended but the Defendant's attorneys did not appear. They had written a letter to the arbitrators saying that they could not attend on that day. The arbitrators considered that letter and determined not to proceed ex parte. On October 5 they sent a formal notice fixing October 19 peremptorily to proceed with the case. On October 19, the Defendant's attorneys did not attend and put forward an idle excuse that their Counsel was out of town. On that date also the arbitrators did meet but they did not proceed ex parte but fixed October 31 for the next sitting. On October 31, the Defendant did not appear nor his attorneys and the arbitrators proceeded to take the Plaintiff's evidence and they ultimately made an award on January 6. It was held by Blackburn, J., that the arbitrators did not enter upon the reference until after the 5th October. With great respect I differ. Clearly the arbitrators had met on August 8, and again on October 5, and exercsied their functions as arbitrators on these dates. On principle it is difficult to agree with Millor, J., that the arbitrators do not enter upon the reference until the parties are before them or until they proceed ex parte, specially when there are special Rules which do not make it obligatory for the arbitrators to hear the parties or to take evidence. In my view the issuing of directions as to pleadings or the filing of the statements in reply or rejoinder or the fixing of dates for hearing are acts done by the arbitrators in the exercise of their functions as such and they cannot discharge such duties unless and until they enter on the reference.

51. I agree with my Lord the Chief Justice that the correct view was taken in Iossifoglu v. Coumantaros. In that case the arbitrators had never met. As a matter of fact one of the arbitrators did his best to avoid a meeting, but he raised disputes and suggested to his co-arbitrator that they should appoint an Umpire. The Court of Appeal held that the arbitrators had accepted their appointment and they were communicating with each other about the reference and that was quite enough to constitute “entering upon the reference.” With respect I agree that this is the correct view.

52. Sardarmal Hardatrai v. Sheo Baksh Rai Sri Narain merely followed Baker v. Stephens. It seems Mukherjea, J., in Nanda Kishore Goswami v. Bally Cooperative Credit Society, Ltd. was inclined to take a similar view. Strictly his observation is an obiter. But I agree with his Lordship that an arbitrator cannot be said to enter upon the reference the moment he is appointed an arbitrator. Arbitrators enter upon reference when they actually begin to discharge the functions of arbitrators and that does not connote that both the parties must be before the arbitrators or that there must be some previous peremptory order compelling the arbitrators to conclude the hearing ex parte. Issuing mandatory direction for pleadings, or for particulars or for interrogatories or fixing peremptory dates for hearing can only be done by the arbitrators when they have begun their work as such and taken upon themselves the functions of arbitrators.

53. With regard to the second point urged by the learned Counsel for the Appellant, I agree that it is concluded by the judgment of the Court of Appeal in Chhogmal Rawatmal v. Sankalchand G. Shah.

54. The question raised here is not one of mistake but of misconduct. The arbitrators were clearly guilty of legal misconduct when they awarded damages either on the basis of black market rates on September 30, which was the date of the breach of this contract in violation of the Jute Price Control Order, or, on the basis of an extension of the due date without any evidence or any material before the arbitrators. As I pointed out in my judgment in the above case, take the award on either footing. If the arbitrators held that there was no extension then they awarded damages contrary to the law of the land and they were guilty of legal misconduct. If they held that there was an extension, then they were equally guilty of legal misconduct because there was no evidence at all of any extension and no averment and no material to support the same.

55. I agree that the appeals should be allowed and the decrees and the award should be set aside.

56. Solicitors: P.D Himmatsingka & Co. for the Appellants: Choudhury & Choudhury for the Respondents.