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Luxmi Chand Baijnath v. Kishanlal Sohonlal .

Calcutta High Court
Aug 30, 1954
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Judgment Summary — Bachawat, J.

Factual and Procedural Background

The petitioner and respondent entered into two separate contracts dated 12 August 1953 under which the petitioner agreed to purchase blankets from the respondent. Each contract contained an arbitration clause providing that disputes would be decided either by the Arbitration Board of the Blanket and Shawl Traders' Association or by arbitrators appointed by the buyer and seller (one each), and that the decision would be final.

Part of the goods were delivered. The respondent claimed the balance of the price; the petitioner counter‑claimed damages for non‑delivery of the balance of the goods. The respondent appointed Shri Kara Nath Bagaria as his arbitrator and, by notice dated 16 February 1954, requested that the petitioner appoint an arbitrator. The petitioner did not appoint an arbitrator within fourteen clear days. On 5 March 1954 the respondent appointed Ram Nath Bagaria as sole arbitrator and gave notice to the petitioner. The petitioner did not protest or reply.

The arbitrator sent a statement of the respondent and by notice dated 19 April 1954 asked the petitioner to submit its statement within seven days (the petitioner received that notice). The petitioner did not file a statement. A hearing was appointed for 10 May 1954 at 3:30 P.M.; the hearing notice (dated 5 May) was received on 10 May and the petitioner did not attend. On 19 May 1954 the arbitrator made an ex parte award against the petitioner.

The petitioner applied to declare the arbitration agreements and the awards void, illegal and inoperative and sought to set aside the awards. The petition raised (a) procedural objections to the conduct of the arbitration (lack of opportunity to present a statement/defence, insufficient notice of hearing, and that the arbitrator proceeded ex parte without sufficient cause) and (b) substantive objections to the validity/ certainty of the arbitration clause (multiple alternative tribunals without a rule for selecting between them, need for mutual consent, and exhaustion of alternatives).

Legal Issues Presented

  1. Did the petitioner receive the letter dated 19 April 1954 referred to in the affidavit-in-opposition?
  2. Did the arbitrator give no opportunity and/or reasonable opportunity to the petitioner to file any statement and/or put forward any defence before the arbitrator (as alleged)?
  3. Did the arbitrator give no notice or reasonable notice of the hearing of the case before him on 10 May 1954 (or at all) as alleged?

Arguments of the Parties

Petitioner's Arguments

  • The petitioner alleged it had no opportunity or reasonable opportunity to file a statement, put forward its defence, or place relevant facts before the arbitrator.
  • The petitioner alleged it received no notice or reasonable notice of the hearing on 10 May 1954.
  • The petitioner alleged the arbitrator proceeded ex parte without sufficient cause.
  • The petitioner contended that the arbitration agreements were uncertain because they provided for alternative tribunals without specifying in what circumstances reference should be made to one or the other, that a reference to one set of arbitrators could not be made without the consent of both parties, and that the second alternative could not be invoked without exhausting the first.

Respondent's Arguments (as presented in the opinion)

  • The respondent (through Mr. Meyer) repudiated two constructions of the arbitration clause which would make the clause certain in particular ways, and relied entirely upon a third construction: that the clause provided alternative tribunals — either the Association Board (Tribunal "X") or the Tribunal consisting of two arbitrators appointed one by each party (Tribunal "Y").
  • On that third construction, the respondent argued the apparent uncertainty in the clause was curable by election (i.e., the right to choose which tribunal should hear the dispute), and in particular suggested that the party who first makes the reference (the party initiating arbitration) would have the option to determine which tribunal should hear the dispute.
  • The respondent also advanced analogies (e.g., choice of forum between courts) and suggested the choice could be determined by lot (relying on Roman law analogy and Re Knapton Knapton v. Hindle).
  • The respondent pleaded waiver and estoppel in relation to the petitioner's failure to object (though the court recounts the petitioner's non‑participation and rejects implied waiver/estoppel later).

Table of Precedents Cited

Precedent Rule or Principle Cited For Application by the Court
Dwarkadas v. Daluram Yoganmull (citation in text: (1) (54 C.W.N 844, 568)) Cited for a construction in which the word "or" is substitutional: first recourse to a named board and failing them to two arbitrators appointed by the parties. The court lists this case as an authority supporting construction (a) (substitutional meaning). Mr. Meyer repudiated this construction; the court observed that if this construction were adopted the respondent would fail because the Association Board was never asked to arbitrate.
Re Knapton; Knapton v. Hindle [(1941) 1 Ch. 428] Cited for the principle that where several legatees/options exist the choice may be determined by lot (example of curing uncertainty by mechanism of selection). The court considered the analogy and held that, even if the lot mechanism could determine choice, the lot must be cast before arbitration is commenced; since the respondent made the reference before any lot was cast, the arbitrator had no authority and the award could not be validated retrospectively.
Bhowanidas Ramgobind v. Harsukh das Balkissendas (27 C.W.N 933) Cited for the proposition that an arbitration agreement is certain where the agreement itself indicates who has the option to choose between alternatives. The court used this authority to illustrate that agreements which expressly show who has the option are certain; by contrast, the court found the present agreements do not indicate who has the option and so raised uncertainty under the third construction relied on by the respondent.
Sundarmull v. Tribhubandas Hirachand (I.L.R. 51 Cal. 657) Cited similarly for the proposition that an arbitration agreement is certain where the option is clearly assigned within the agreement. The court cited this case alongside Bhowanidas as authority for the point that certainty exists where the agreement designates who has the option; used to contrast with the present clause which does not indicate who has the option.

Court's Reasoning and Analysis

The court tried the enumerated issues on oral evidence and proceeded issue by issue:

  1. Issue No. 1 (receipt of 19 April letter): The court answered affirmatively — the petitioner received the 19 April 1954 notice.
  2. Issue No. 2 (opportunity to file statement/defence): The court found the petitioner had a full opportunity to file a statement, put forward its defence and place relevant facts before the arbitrator; the issue was answered in the negative (i.e., there was no denial of opportunity).
  3. Issue No. 3 (notice of hearing of 10 May 1954): The court found the 5 May notice was served and received on 10 May 1954. Although the five‑day transmission delay was noted as "somewhat curious" and the original cover was not produced by the petitioner, the petitioner did not prove the notice was unreasonable nor assert that after receipt attendance was impossible. The court therefore answered the issue in the negative.

On the procedural complaints, because the petitioner did not file any statement, did not attend the meeting despite notices, and gave no evidence that attendance was impossible, the arbitrator was justified in proceeding ex parte. The objections contained in paragraph 6 of the petition were rejected.

The court then addressed the objections to the arbitration clause's certainty. It identified three plausible constructions of the clause:

  • Construction (a): "or" is substitutional — first the Association Board, failing them two arbitrators (supported by Dwarkadas v. Daluram Yoganmull).
  • Construction (b): the clause provides for a panel of tribunals from which one tribunal is selected by consent of the parties.
  • Construction (c): "or" provides genuine alternatives — either the Association Board (Tribunal X) or a Tribunal of two arbitrators appointed one by each party (Tribunal Y).

The respondent repudiated constructions (a) and (b) and relied wholly on (c). The court analyzed construction (c) and found that, under it, the clause does not indicate under what circumstances the reference is to be made to Tribunal X or Tribunal Y; thus the identity of the appointed arbitrator cannot be ascertained with certainty. The court acknowledged that uncertainty in contracts may in some circumstances be cured by election (and discussed authorities on election and alternative promises), but observed that election is not a universal cure — it requires that the agreement indicate who has the option.

The court considered the respondent's contention that the party making the reference first has the option, but rejected this: the agreement did not require any party in particular to commence arbitration nor did it indicate that the party who commences arbitration will have the option to determine the tribunal. The court also rejected the analogy to concurrent courts (choice of forum), noting the crucial difference that two arbitration tribunals cannot simultaneously have concurrent jurisdiction over identical subject‑matter in the way courts with concurrent jurisdiction might.

The court further considered the suggestion that choice could be determined by lot (analogous to Roman law or Re Knapton). It held that if such a mechanism were applicable, the lot must be cast before arbitration is commenced; here the respondent had made the reference before any lot was cast, and consequently the arbitrator (Ram Nath Bagaria) had no authority to make the award. The court also observed that the petitioner did nothing from which waiver or estoppel could be implied; thus the petitioner was not barred from raising the objection.

In sum, from the court's perspective the arbitrator who made the award lacked authority under the construction advanced by the respondent (construction (c)), and the resulting award was invalid. However, the court clarified that it was not holding the agreements uncertain under constructions (a) or (b); rather, because the respondent expressly repudiated those constructions, the respondent's case failed if either of those constructions were to be adopted.

Holding and Implications

Holding:

The court adjudged and declared that the award is invalid, and set aside the award.

Consequences and immediate implications:

  • The ex parte award dated 19 May 1954 is declared invalid and is set aside.
  • Each party is directed to pay and bear his own costs of the application.

The opinion does not articulate broader doctrinal changes or declare a new general precedent beyond the application of established principles concerning contractual certainty, election, and the authority of arbitrators. The decision's direct effect is limited to setting aside the particular award and allocating costs between the parties.

Solicitors noted in the opinion: B.K. Mukherjee for the Petitioner; G. Bagaria & Co. for the Respondent.

Prepared strictly from the provided opinion text. No information beyond the opinion was added.

Show all summary ...

Bachawat, J.:— This is an application to declare that the arbitration agreements and the awards are void, illegal and inoperative and for setting aside the awards.

2. By two separate contracts dated the 12th August, 1953 the petitioner agreed to purchase blankets from the respondent I have looked at the original contracts which are in Hindi and I accept the official transition to be correct. Each of the contracts contained the following arbitration clause:

“If there arise any dispute or trouble regarding this contract, then the same shall be decided by the Arbitration Board of the Blanket and Shawl Traders' Association or by the arbitrators appointed by the buyer and by the seller, one (by) each both of whom shall be senior traders, (and such decision) shall be accepted by both persons—(buyer and seller), and the said decision shall be deemed as the final decision.”

3. Part of the goods were delivered. The respondent claims the balance of the price of goods sold and delivered. The petitioner counter-claims for damages for not delivering the balance goods. The respondent appointed Shri Kara Nath Bagaria as his arbitrator and by notice dated the 16th February, 1954, requested the petitioner to appoint his arbitrator. The notice was received by the petitioner on the 17th February, 1954. Fourteen clear days expired from the date of the service of the notice, but the petitioner did not appoint his arbitrator and did not send any reply. On the 5th March, 1954, the respondent appointed Ram Nath Bagaria as sole arbitrator and gave notice of the appointment to the petitioner. The petitioner did not send any protest nor any reply to this letter By notice, dated the 19th April, 1954, the arbitrator enclosed the statement of the respondent and asked the petitioner to submit his statement within 7 days. This notice was received by the petitioner on the 20th April 1954. The petitioner did not file any statement and did not send any reply. By notice, dated the 5th May, 1954, to the petitioner the arbitrator appointed the 10th May, 1954, 3-30 P.M for hearing the notice was received by the petitioner on the 10th May, 1954. The petitioner did not appear at the hearing of the arbitration on the 10th May, 1954. On the 19th May, 1954, the arbitrator made an ex parte award against the petitioner.

4. The objections to the award are summarised in paragraphs 5 and 6 of the petition.

5. Objections under paragraph 6: Grounds (e) and (f) of this paragraph have been abandoned by learned counsel for the petitioner. The petitioner charges that there was no opportunity or reasonable opportunity to flie a statement or to put forward its defence or to place relevant facts, (b) that no notice or reasonable notice of the hearing on the 10th May, 1954, was given and (c) that the arbitrator proceeded ex parte without sufficient cause.

6. The following issues were raised:—

1. Did the petitioner receive the letter dated 19th April, 1954, referred to in paragraph 6 of the affidavit-in-opposition?

2. Did the arbitrator give no opportunity and|or reasonable opportunity to the petitioner to file any statement and|or put forward any defence before the arbitrators as alleged in paragraph 6(a) of the petition?

3. Did the arbitrator give no notice or reasonable notice of the hearing of the case before him on the 10th of May, 1954, or on any other date or at all as alleged in paragaph 6(b) of the petition?

7. These Issues were tried on oral evidence.

8. Issue No. 1: Clearly the issue must be answered in the affirmative.

9. Issue No. 2: The petitioner received the notice dated the 19th April, 1954, and had full opportunity to file statement and to put forward its defence and to place relevant facts before the arbitrator and the issue is answered in the negative.

10. Issue No. 3: The notice dated the 5th May, 1954, was served on the petitioner on the 10th May, 1954. The notice was issued in Calcutta and was served in Calcutta. The delay, of 5 days in the course of transmission of the notice is somewhat curious. The original cover has not been produced by the petitioner. The notice was received by Raghunath on the 10th of May, 1954. The hearing of the arbitration was fixed at 3.30 P.M on that date. Raghunath has given evidence. He does not say that the notice was unreasonable or that after receipt of the notice he could not attend the meeting. The petitioner has not proved that the notice was unreasonable. The issue is answered in the negative.

11. The arbitrator was justified in proceeding ex parte. The petitioner did not file any statement and did not attend the meeting inspite of notice. The petitioner did not intend to appear before the arbitrator.

12. The objections raised in paragraph 6 of the petition are rejected.

13. Objections under paragraph & of the petition: Clauses (c) and (d) of the paragraph have been abandoned by learned counsel for the petitioner. The remaining objections may he summarised thus:

(a) The arbitration agreements are uncertain as they provide for alternative Board of Arbitrators without specifying under what circumstances reference is to be made to one or the ether Board of Arbitrators;

(b) in any event the reference could not be made to one set of Arbitrators without the consent of both parties;

(c) in any event the reference could not be made to the second set of Arbitrators without exhausting the first alternative.

14. The respondent disputes these contentions and also pleads waiver and estoppel.

15. The following constructions of the expression, “The Arbitration Board of the Blanket and Shawl Traders' Association or by the Arbitrators appointed by the buyer and by the seller one by each” in the Arbitration agreements may be suggested:

(a) The word “or” is substitution al and appends a secondary alternative after a primary alternative, and the expression means “by the Arbitration Board of the Blanket and Shawl Association and failing them by two Arbitrators, one to be appointed by each party”. See Dwarkadas v. Daluram Yoganmull (1) (54 C.W.N 844, 568).

(b) The expression provides for a panel of Arbitration Tribunals, and the reference is to a Tribunal to be selected out of the panel by the consent of the parties.

(c) The word “or” provides for alternatives and the expression means “either the Arbitration Board of the Blanket and Shawl Traders' Association or the Arbitration Tribunal consisting of the Arbitrators appointed by the buyer and by the seller, one by each.”

16. Mr. Meyer on behalf of the respondent expressly repudiated the first two of the suggested constructions. It is clear that the respondent fails in this application if either of the first two constructions are adopted. The Arbitration Board of the Blanket and Shawl Traders' Association was never asked to arbitrate and cannot be said to have failed to act as Arbitrators It is also clear that the Arbitration Tribunal consisting of two Arbitrators to be appointed by each party was not selected with the consent of both parties. The selection was a unilateral act of the respondent.

17. Mr. Meyer, therefore, bases his client's case entirely on the footing that the third construction is the correct construction and he argues that the Arbitration clause provides for reference of the disputes to either the Arbitration Board of the Blanket and Shawl Traders' Association which I will call Tribunal ‘X’ or by the Arbitration Tribunal consisting of two Arbitrators, one to be appointed by each party which I will call Tribunal ‘Y’

18. If this construction is, accepted, the Arbitration agreements do not say under what circumstances the reference is to be made to ‘X’ Tribunal and under what circumstances the reference is to be made to the ‘Y’ Tribunal, and it cannot be said with certainty whether ‘X’ Tribunal or ‘Y’ Tribunal is the appointed Arbitrator.

19. Under this argument prima facie the Arbitration agreements are uncertain.

20. Mr. Meyer contends that the uncertainty is curable by election.

21. I agree that uncertainty in certain cases may be cured by election, e.g, in the case of a grant by giving a right of election to the party, who is to do, the first act towards completion of the grant Halsbury, Vol. X, Art 349-50, pp. 281-82; and in the case of alternative promises by giving the right of election to the party who is to perform the promise— Halsbury, Vol. VII, Art. 461, p. 331 and Art. 267, pp. 189-90. It has also been held that where there are several legatees to whom the option is given—e.g where there is a bequest of one house each to the nephews and the nieces of the testator in the event of disagreement between them the choice may be determined by lot, Re. Knapton, Knapton v. Hindle (2) [(1941) 1 Ch. 428] Reference may also be made to Stroud's Judicial Dictionary, 3rd Edition, p. 2008, Norton on Deeds, 2nd Edition, pp. 109413. Jarman on Wills, 8th Edition, Volume I, p. 477, and British Empire Digest, Vol. XVII, pp. 359-61.

22. An uncertainty is not curable by election in all cases. It is not curable by election where there is nothing to indicate, who is to have the option. Thus a gift either to A or to B is uncertain where the gift is not substitutional — Jarman on Wills, 8th Edition, pp. 493-95. And a contract of sale for either Rs. 500 or Rs. 1,000 also is uncertain— Illustration (f) to section 29 of the Indian Contract Act.

23. An arbitration agreement between A and B to refer disputes to the Arbitration of ‘X’ or at the option of A to ‘Y’ is certain because the agreement itself shows, who is to have the option— Bhowanidas Ramgobind v. Harsukh das Balkissendas (3) (27 C.W.N 933); and Sundarmull v. Tribhubandas Hirachand (4) (I.L.R 51 Cal. 657),

24. The arbitration agreements in this ease do not indicate who is to have the option.

25. Mr. Meyer contends: that he, who is to make the reference-first is to have the option. I am unable to agree with the contention.

26. Either party may commence the arbitration and may require that the disputes be referred and settled by arbitration. The arbitration agreements do not require that one of the parties rather than the other is to commence the arbitration or to do the first act in making the reference There is nothing to indicate in the arbitration agreements that one of the parties has the option of determining the arbitration Tribunal to whom the reference is to be made.

27. Mr. Meyer contends that the disputes may be referred to either Tribunal X or Tribunal Y just as a suit may sometimes be instituted in either Court ‘X’ or Court ‘Y’.. This analogy is fallacious. Where two Courts have concurrent jurisdiction, the plaintiff has a choice of forum and may institute his suit in either Court. But there is no election in the sense that the choice of Courts is finally determined and the other Court is deprived of its jurisdiction. Either party may still institute a suit in the other Court which retains its concurrent, jurisdiction. Under an Arbitration agreement two Arbitration Tribunals cannot have concurrent jurisdiction over the identical subject matter at the same time. An Arbitration agreement is an agreement that the disputes shall be settled by an Arbitrator named or designated in the agreement or by an Arbitrator appointed in accordance with the Arbitration agreement An agreement to refer either to ‘X’ or to ‘Y’ is not an agreement to a named Arbitrator because it is not certain, who the Arbitrator is ‘X’ does not become the appointed Arbitrator because one of the parties makes the reference to him first. The agreement does not authorise one of the parties to appoint either ‘X’ or ‘Y’ as Arbitrator by making a reference to him.

28. Mr. Meyer then contends that the choice may be determined by lot on the analogy of Roman Law and on the analogy of Re, Knapton Knapton v. Hindle, (2) [(1941) 1 Ch. 428]. Assuming that the principle of Roman Law applies to Arbitration agreements the choice must be determined by lot before the Arbitration is commenced. The respondent made the reference to one set of Arbitrators before the choice was determined by lot. The Arbitration Tribunal throughout had no authority to make the award and the award is invalid. Even if the lot is cast now and even if the Arbitration Tribunal which made the award is now chosen by lot the award cannot be validated retrospectively.

29. The petitioner did not participate in the Arbitration proceedings at all and did not do anything from which waiver may be implied or upon which estoppel may be founded. The petitioner is not barred from taking the objection either by way of waiver or estoppel.

30. From whatever point of view the matter is locked at Ramnath Bagaria had no authority to make the award, and the award is invalid.

31. The Arbitration agreement is uncertain if the construction put forward by Mr. Meyer is accepted.

32. I must not be supposed to say, however that I hold that the agreements are uncertain. The agreements are not uncertain if either of the first two constructions are adopted. Those instructions have been expressly repudiated by Mr. Meyer and as I have said already If either of those constructions are adopted on the facts of this case the respondent cannot succeed.

33. Fart of the objections in this case was tried on evidence, and the petitioner has failed to succeed on those objections. Looking at all the circumstances of this ease, it is just that each party should be directed to pay and bear his own costs.

34. I pass the following order:

35. I adjudge and declare that the award is invalid, and I set aside the award.

36. Each party will pay and bear his own costs of the application.

Solicitors: B.K Mukherjee for the Petitioner; G. Bagaria, & Co., for the Respondent.

A.K.D.G