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Soneylal Thakur v. Lachhminarain Thakur And Another Opposite Party.

Patna High Court
Apr 15, 1957
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Structured Summary of the Opinion (Choudhary, J.)

Factual and Procedural Background

This revision application arises from an arbitration held without prior court intervention. The material facts (as stated in the opinion) are:

  • The petitioner admittedly owned survey plot No. 3926 and exchanged it to one Sri Bans, who in turn exchanged it with opposite party No. 1.
  • Opposite party No. 1 built a house on plot No. 3926 and later dispossessed Sri Bans from land that Sri Bans had given in exchange; Sri Bans then dispossessed the petitioner from the land the petitioner had received in exchange.
  • Several criminal cases arose between the parties; while those were pending the parties amicably settled the land dispute and executed four sale deeds on 16-11-1951 effecting mutual transfers (including deeds between the petitioner, Sri Bans and opposite party No. 1 relating to plot No. 3926 and the exchanged lands).
  • Certain money claims remained unsettled; the parties agreed on the same date to refer those differences to opposite party No. 2 as arbitrator by a registered agreement of reference.
  • The petitioner later alleged that the arbitrator had been influenced (by his father-in-law) and that the arbitrator had promised not to proceed; the petitioner alleged collusion between opposite party No. 1 and the arbitrator resulting in an award made without notice to or hearing of the petitioner.
  • The petitioner applied on 13-11-1952 to call upon the arbitrator to file the award; the arbitrator filed it on 15-12-1952; on 5-3-1953 the Court directed objections to be filed; the petitioner filed an application on 12-3-1953 to set aside the award on four grounds (vagueness of the reference, termination of the reference by promise, arbitrator misconduct/ex parte award without notice, and award made beyond time prescribed by Rule 3 of Schedule I, Arbitration Act, 1940).
  • The trial Court rejected the first three contentions but accepted the fourth (award made after the time prescribed by Rule 3) and set aside the award. The lower appellate Court reversed that finding and ordered a decree in accordance with the award. The petitioner moved this Court in revision aggrieved by the appellate Court's order.

Legal Issues Presented

  1. Whether the award was void for being made beyond the time prescribed by Rule 3 of Schedule I of the Arbitration Act, 1940 — i.e., what is the meaning of the expression "entering on the reference" for the purpose of computing the four-month period.
  2. Whether the agreement of reference was void or defective because it was too vague (it used the phrase "Len Den") and did not correctly specify the dispute to be decided by the arbitrator.
  3. Whether the reference was terminated because the arbitrator had promised the petitioner not to proceed with the arbitration.
  4. Whether the arbitrator misconducted himself by making an award without giving notice to the petitioner and without hearing him (an ex parte award), thereby invalidating the award.

Arguments of the Parties

Petitioner's (Appellant's) Arguments — as advanced by Mr. Kumar

  • The deed of reference was vague and did not adequately identify the dispute to be arbitrated (it used the words "Len Den" while the petitioner sought mesne profits and costs arising from criminal cases).
  • The arbitrator had promised not to proceed with arbitration; that promise terminated the reference.
  • The arbitrator misconducted himself by giving an award without notice to or hearing the petitioner.
  • The award was made beyond the time prescribed by Rule 3 of Schedule I of the Arbitration Act (the award was not made within four months after "entering on the reference"), and was therefore void.
  • On the specific meaning of "entering on the reference," Mr. Kumar contended an arbitrator enters on a reference when he accepts the reference after the execution of the deed of reference.

Opposite Party No. 1's (Respondent's) Arguments — as advanced by Mr. Sinha

  • On the meaning of "entering on the reference," Mr. Sinha contended that an arbitrator enters on a reference when, after having accepted the reference, he does something relating to the execution of the work of arbitration — i.e., some act in furtherance of the arbitration (not merely acceptance alone).
  • The appellate Court relied on authorities (including a Lahore decision and an Allahabad decision) supporting the view that "entering on the reference" is the time when the arbitrator actually enters upon the matter (for example, by hearing parties or giving a peremptory order enabling ex parte proceedings).

Table of Precedents Cited

Precedent Rule or Principle Cited For Application by the Court in This Opinion
Damodar Thakur v. Ramlochan Thakur (Civil Revn. No. 544 of 1951; Dated 6-5-1952) — (unreported decision of this Court) Quoted passage suggesting the award must be made "within four months of the date of reference" (as used by Lakshmikanta Jha, C.J., in that passage). The Court held that the cited passage used "within four months of the date of reference" inadvertently in place of "within four months after entering on the reference" and did not decide that the date of execution of the agreement was the date of entering on the reference. The Court rejected reliance on the passage as supporting the execution-date rule.
Abdul Majid v. Bahawal Bakhsh, A.I.R. 1950 Lah. 174 Authority holding that an arbitrator entered on the reference on the subsequent date when the ex parte order was given — i.e., entry on reference meant actual entry upon the matter resulting in ex parte action. The Court noted this Lahore decision and its reliance on an Allahabad decision, but contrasted it with other authorities and observed the Lahore decision did not consider a later English case (Iossifoglu v. Coumantaros). The Court treated it as part of the spectrum of views but did not adopt its narrow view exclusively.
Sardar Mal, Hardat Rai… (Plaintiff) v. Sheo Bakhsh Rai, Sri Narain… (Defendant), I.L.R. 44 All. 432 : A.I.R. 1922 All. 106 Held that "entering upon the reference" means when the arbitrator actually enters upon the matter of the reference, e.g., when the parties are before him or under peremptory order enabling ex parte conclusion. The Court described this Allahabad decision as one of the authorities relied upon by Rahman J. in the Lahore case; it recognized the decision but treated it as representing one view (the view that ties "entering" to hearing or peremptory proceedings) that needed to be considered alongside other authorities.
Baker v. Stephens (1867) 2 Q.B. 523 English authority holding an arbitrator enters on the reference when he enters into the matter of the reference, either with both parties before him or under a peremptory appointment enabling ex parte proceedings. The Court acknowledged Baker v. Stephens as supporting the "actual hearing or peremptory entry" view; it was noted as an authority relied upon in the Allahabad decision. The Court considered it but did not adopt a rule that would confine "entering" only to hearing or peremptory proceedings.
Iossifoglu v. Coumantaros, 1941-1 K.B. 396 English decision holding arbitrators enter upon a reference as soon as they have accepted their appointment and have communicated with each other about the reference (broader view — entry may occur soon after acceptance and communication). The Court noted this decision goes further (holding entry upon acceptance and communication) and observed it "has gone too far" in treating acceptance plus communication as equivalent to entry in all cases. However, the Court accepted the narrower element from it: that communicating with each other about the reference can be an act indicating entry.
Bajranglal Laduram v. Ganesh Commercial Co. Ltd., 55 Cal. W.N. 147 : A.I.R. 1951 Cal. 78 Calcutta High Court held arbitrators entered upon the reference when they accepted their appointment and instructed the Registrar to call for statements from the parties. The Court cited this as following the communication/act-in-furtherance view (acceptance plus an act referable to arbitration constitutes entry). The opinion regarded this as supportive authority for the view it adopted.
Dr. Babubhai Vanmalidas Mehta v. Prabhod Pranshankar Joshi, A.I.R. 1956 Bom. 146 Bombay High Court (single Judge) held that an arbitrator must do some act referable to his position as arbitrator (and nothing else) before it can be said he entered upon the reference; it would be excessive to hold that the moment of acceptance is itself entrance. The Court expressly agreed with this view: that mere acceptance is not enough and that some act in furtherance of arbitration is needed to mark entering on the reference.

Court's Reasoning and Analysis

The Court's analysis focused primarily on the statutory phrase in Rule 3 of Schedule I of the Arbitration Act, 1940 that an award must be made "within four months after entering on the reference" (or after being called upon to act). The Court undertook the following analytical steps (as recorded in the opinion):

  1. The Court observed that neither party had given a written notice calling the arbitrator to act nor was there any extension of time by agreement or Court, so the award had to be made within four months "after entering on the reference."
  2. The Court examined competing interpretations: the trial Court treated "entering on the reference" as the date of execution of the deed of reference; the appellate Court treated it as the date when parties appeared before the arbitrator and the matter was heard. The Court rejected both extremes as incorrect.
  3. The Court analyzed Section 11(1) of the Act (quoted in the opinion) which permits removal of an arbitrator who "fails to use all reasonable dispatch in entering on and proceeding with the reference and making an award." The Court reasoned that this language implies the existence of an acceptance by the arbitrator prior to "entering on the reference" — otherwise removal for failure to "enter on" would be meaningless.
  4. From statutory language and Section 11(1), the Court concluded that "entering on the reference" cannot be the mere execution of the deed of reference nor merely the acceptance; it must relate to some subsequent act in furtherance of arbitration once the arbitrator has accepted the reference.
  5. The Court reviewed authorities from England and Indian High Courts. It rejected the view that an arbitrator enters upon a reference the instant he accepts (rejecting the broadest interpretation found in Iossifoglu v. Coumantaros insofar as it equates acceptance alone with entry). The Court accepted the middle-ground principle that after acceptance, an arbitrator "enters on the reference" when he applies his mind and does something in furtherance of and towards the execution of arbitration work — for example, giving notice to parties, fixing hearing dates, or actually hearing them.
  6. The Court emphasized that the exact date when an arbitrator enters on a reference is fact-specific: if the first post-acceptance act is hearing with parties present, that hearing-start date is entry; if the first act is sending notice to parties, that notice-date is entry; if after acceptance the arbitrator does nothing but defer the hearing to an unspecified future time, he has not entered on the reference for the purpose of Rule 3.
  7. Applying these principles to the record, the Court examined the arbitrator's own evidence. The arbitrator's statement that he was told he was appointed, called for the deed and "told them that I shall do it according to my convenience" was held to show only acceptance (and the seeing of the deed) but not an act amounting to entry on the reference.
  8. The Court found that the first act in furtherance of arbitration was the sending of registered letters by the arbitrator on 30-4-1952 fixing 20-5-1952 for hearing. The Court therefore fixed 30-4-1952 as the date the arbitrator "entered on the reference."
  9. Since the award was made on 30-8-1952, the Court concluded the award was made within four months from 30-4-1952 and was therefore within time under Rule 3. Accordingly, the petitioner's contention that the award was time-barred was rejected.
  10. With respect to the other three contentions (vagueness of the reference, alleged termination by promise, and arbitrator misconduct/ex parte award), the Court stated that it had reviewed the evidence and concluded that the appellate Court had acted with material irregularity in exercising its jurisdiction and that those issues required reconsideration by the lower appellate Court.

Holding and Implications

Holding:

The application in revision was allowed. The High Court set aside the judgment and order of the lower appellate Court and remitted the case to that Court for a fresh decision in accordance with law. The Court specifically held that the award in question was not void for being made beyond the time prescribed by Rule 3 of Schedule I, because the arbitrator "entered on the reference" on 30-4-1952 (the date he sent registered letters fixing a hearing), and the award dated 30-8-1952 fell within four months from that date.

Implications:

  • Direct effect on the parties: The appellate Court's order directing a decree to follow in accordance with the award was set aside and the matter was remitted to that Court for reconsideration of the remaining contentions (the vagueness of the reference, alleged termination, and alleged arbitrator misconduct). Costs were ordered to "abide the result."
  • Interpretive guidance: The Court provided a controlling interpretation of "entering on the reference" for purposes of Rule 3 of Schedule I and the removal provision in Section 11(1) of the Arbitration Act — namely, that "entering on the reference" requires (after acceptance) some act in furtherance of the arbitration (such as giving notice, fixing hearings, or commencing hearing), and is a fact-specific determination.
  • The Court did not adopt either extreme position (i.e., neither the execution of the deed of reference nor mere acceptance is by itself the date of entry); rather, it adopted the middle-ground approach that some post-acceptance step in furtherance of arbitration marks entry.

Disposition recorded in the opinion: Application allowed; judgment and order of the Court of appeal set aside; case remitted for fresh decision; costs to abide result. Dayal, J. concurred and the formal order reads "Application allowed."

Show all summary ...

Choudhary, J.:— This application in revision arises out of an arbitration proceeding without the intervention of the Court. The facts leading to the institution of the proceeding, put shortly, are these. There was a dispute between the petitioner and opposite party no. 1 with regard to survey plot no. 3926 which, admittedly, belonged to the petitioner. He, however, gave this plot in exchange to one Sri bans who, in his own turn, exchanged the same with opposite party no. 1. Thereafter, opposite party no. 1 built a house on the said plot, and, subsequently, dispossessed Sribans from the land which he had given to him in exchange for the above plot. Consequently, Sribans dispossessed the petitioner from the land which he had given to him in exchange of that plot. As a result of this, there were several criminal cases between the parties. During the pendency of these cases, it appears the dispute between the parties with regard to land was amicably settled and in consequence of the settlement four sale deeds were executed on 16-11-1951, one by the petitioner in favour of Sribans with respect to the said plot no. 3926, the other by Sribans to opposite party no. 1 with regard to the same plot, the third by opposite party no. 1 to Sribans with regard to the land that the former had given to the latter in exchange and the fourth by Sribans to the petitioner with regard to the land which had been given to the petitioner in exchange by him. The dispute between the parties with regard to certain money claims remained unsettled and for that purpose they on the same date agreed to have their differences decided by opposite party no. 2 as an arbitrator. Accordingly, a registered agreement to refer the above dispute to the arbitration of opposite party no. 2 as executed on that date. Subsequently, the petitioner, as is alleged by him, learnt that the father-in-law of the said arbitrator was influencing him and, as such, the petitioner requested the arbitrator not to arbitrate. It is said that the said arbitrator accepted the request and promised not to proceed with the arbitration. Accordingly, the petitioner got assured that the arbitration had fallen through and he began to demand his dues from opposite party no. 1. The case of the petitioner is that opposite party No. 1 was thus annoyed with him and he, therefore, in collusion with the arbitrator, opposite party No. 2, got an award fabricated behind the back of the petitioner and without hearing him. No notice of this award was given to the petitioner, but when he learnt about it, he made an application in court on 13-11-1952, to call upon the arbitrator to file the award in court. As a result of this application, the arbitrator filed the award in court on 15-12-1952, and on 5-3-1953, the Court directed the parties to file objection to the award. Thereafter, the petitioner filed an application on 12-3-1953, for setting aside the award on various grounds. It was contended on his behalf that the agreement of reference is vague and did not mention correctly the dispute that had to be decided by the arbitrator. The ground for this contention was that the petitioner was claiming from opposite party No. 1 mesne profits for the exchanged land for the period during which he was kept out of possession and for costs incurred by him in the criminal cases. But the deed of reference used the words “Len Den” as being the matter of dispute between the parties. The next contention was that, opposite party No. 2 having promised not to proceed with the arbitration, the reference was terminated. The third contention was that the arbitrator misconducted himself as he gave the award without giving notice to the petitioner and without hearing him. The fourth point that was raised was that the award was made beyond the time prescribed by Rule 3 of Sch. I, Arbitration Act, 1940 and, as such, it was void. The Courts below overruled the first three contentions. The Court of first instance, however, accepted the last contention and set aside the award. On appeal, the lower appellate Court reversed the trial Court's finding on this point and passed an order for a decree to follow in accordance with the award. Being, thus, aggrieved, the petitioner has moved this Court in revision.

2. Mr. Kumar appearing for the petitioner has pressed before us all the four points stated above. I will first take up the last point, namely whether the award is void as having been made beyond the time prescribed by Rule 3 of Sch. I, Arbitration Act. That rule provides that the arbitrators shall make their award within four months after entering on the reference or after having been called upon to act by notice in writing from any party to the arbitration agreement or within such extended time as the Court may allow. In this case, no notice in writing from any party h;u been given to the arbitrator calling upon him to act, nor has the time for giving the award been extended either by agreement between the parties or by Court. Therefore, the award had to be made within four months after entering on the reference. The question, however, is as to what the expression “entering on the reference” means. The trial Court interpreted this expression to mean the execution of the deed of reference. The lower appellate Court took the view that this expression meant the appearance of the parties before the arbitrator and the hearing of the matter under reference by him. The two Courts below have, thus, taken two extreme views both of which, in my opinion, are wrong, and counsel for the parties have not supported the two extreme views. Mr. Kumar has contended that an arbitrator enters on a reference when he accepts the reference after the execution of the deed of reference. On the other hand, Mr. Sinha appearing for opposite party No. 1 has contended that he enters on a reference when, after having accepted the reference, he does something relating to the execution of the work of arbitration. The alternative provision in Rule 3 of Sch. I of the Act to the effect that the award has to be given within the prescribed time after having been called upon to act itself signifies that the arbitrator has already accepted the reference. The expression “entering on the reference” has also been used in S. 11(1) of the Act which runs as follows:

“The Court may, on the application of any party to a reference, remove an arbitrator or umpire who fails to use all reasonable dispatch in entering on and proceeding with the reference and making an award.”

3. This section, therefore, clearly rules out the possibility of the date on which the agreement of reference is executed or the reference is accepted by the arbitrator to be the date of entering on the reference. It, in my opinion, necessarily implies that there must have already been an acceptance by the arbitrator to arbitrate on a reference being made to that effect. Otherwise, there is no meaning in removing him if he fails to use all reasonable dispatch in entering on the reference. It is, thus, clear that the expression “entering on the reference” relates to something which has to be done in the matter of arbitration in furtherance thereof apart from the acceptance of reference. In my opinion, therefore, an arbitrator enters on the reference when after having accepted it he proceeds to do something in furtherance of and towards the execution of the work of arbitration. The contention of Mr. Sinha in this regard is accepted.

4. There is no decision of this Court on the point under consideration. In support of the view taken by the Court of first instance that an arbitrator enters on a reference when the deed of reference is executed, reliance has been placed on a passage in the judgment of Lakshmikanta Jha, C.J, in an unreported decision of this Court in Damodar Thakur v. Ramlochan Thakur, Civil Revn. No. 544 of 1951, D/- 6-5-1952 (A), which runs as follows:

“The domestic tribunal was created by agreement of the parties. The law prescribes that the award must be made within four months of the date of reference or within the time extended under the provisions of the Act.”

5. It was, therefore, submitted that the learned Chief Justice took the view that the award must be made within four months of the date of reference itself. The argument is based on confusion. His Lordship by that passage did not intend to decide the question as to whether the award has to be made within four months from the date of execution of the agreement of reference itself. He intended to reproduce the provision as laid down in Rule 3 of Sch. 1, Arbitration Act, as will appear from the earlier passage in the judgment itself where his Lordship observed as follows:

“I think the view taken by both the Courts below is erroneous. Rule 3 of Sch. 1, Arbitration Act provides that the arbitrators shall make their award within four months after entering on the reference…….”

6. It is thus clear that in the passage referred to above on which reliance has been placed by the petitioner, his Lordship used the expression “within four months of the date of reference” inadvertently in place of the expression “within four months after entering on the reference.” On the other hand, opposite party No. 1 successfully supported his contention before the lower appellate Court on the authority of Abdul Majid v. Bahawal Bakhsh, A.I.R 1950 Lah. 174 (B) and Sardar Mal, Hardat Rai…(Plaintiff); v. Sheo Bakhsh Rai, Sri Narain…(Defendant).*, I.L.R 44 All. 432 : (A.I.R 1922 All 106 (O). In the Lahore case on a certain date the arbitrator decided that no further notice need be sent to one of the parties and on a subsequent date the actual ex parte order was given by him. It was held that the arbitrator entered on the reference on the subsequent date when the ex parte order was given. In coming to this conclusion Rahman J. relied on the decision of the Allahabad High Court referred to above in which it was held that “entering upon the reference” means not when the arbitrator accepts the office or takes upon himself the duty, but when he actually enters upon the matter of the reference, when the parties are before him, or under some peremptory order compelling him to conclude the hearing ex parte. Reliance was placed by their Lordships in that Allahabad case on the decision of Baker v. Stephens, (1867) 2 Q.B 523 (D). No doubt, in the case of (1867) 2 Q.B 523 (D) it was held that an arbitrator enters on the reference when he enters into the matter of reference, either with both parties before him, or under a peremptory appointment enabling him to proceed ex parte but a different view was expressed in a recent decision of the English Courts in Iossifoglu v. Coumantaros, 1941-1 K.B 396 (E) in which it was held that arbitrators enter upon a reference as soon as they have accepted their appointment and have communicated with each other about the reference. This case does not seem to have been brought to the notice of Rahman J., who decided the above Lahore case. According to this decision, the arbitrators enter upon a reference not necessarily at the time of actual hearing by them but even at a much earlier stage. This case, however, has gone too far in holding that they enter upon a reference as soon as they accept their appointment and for the reasons already given, I record my disagreement with this view. But the view that they entered upon the reference when they communicated with each other about the reference, in my opinion, is the correct view to be followed. Following this case, the Calcutta and the Bombay High Courts have also taken the same view. In Bajranglal Laduram v. Ganesh Commercial Co. Ltd., 55 Cal. W.N 147 : (A.I.R 1951 Cal. 78 (F)), a Bench of the Calcutta High Court held that the arbitrators 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. In Dr. Dr. Babubhai Vanmalidas Mehta… v. Prabhod Pranshankar Joshi,…., A.I.R 1956 Bom. 146 (G), a single Judge decision of the Bombay High Court, it was held that an arbitrator must do some act which is referable to his position as an arbitrator and to nothing else before it can be said that he entered upon the reference. It was also held there that it would be going a bit too far to hold that the moment the arbitrator accepts an appointment he enters upon a reference. I am in perfect agreement with the view taken in this case.

7. On a careful consideration of the authorities discussed above, I have no hesitation in arriving at a conclusion that an arbitrator does not enter upon a reference the moment he accepts to work as an arbitrator, nor can it be said that he enters upon a reference only when he actually hears the reference. In my opinion, as already observed, an arbitrator enters upon a reference when, after having accepted the reference, he applies, his mind and does something in furtherance and execution of the work of arbitration. The exact date as to when an arbitrator enters on a reference in a particular case, however, will have to be determined on the facts and circumstances of that case. For example, after having accepted the office of arbitrator, the first thing that he does is that, the parties, being already before him, he proceeds to hear them, he will be said to have entered on the reference when he actually began the hearing. Again, suppose, parties not being before him, the first act that he does is to give notice to them to appear in that case he enters on the reference when he gives notice. But, suppose, after having accepted the office, he says that he will hear the parties some time after or on a date to be fixed later or at his convenience, he cannot be said to have entered upon the reference because he does nothing in furtherance of the arbitration till then. Now, applying these tests we have to see as to when in the present case the arbitrator entered on the reference.

8. Mr. Kumar has drawn our attention to the statement of the arbitrator who has been examined in this case as opposite party witness No. 2 which is as follows:

“The parties had not consulted me before appointing me arbitrator. They told me about it, so far I remember a few days after the registration of deed of reference. They came to me without that deed. They told me that there was dispute between them about some “len-den.” I did not object as to why they appointed me arbitrator without consulting me. I called for the deed of reference. Some of them made it over to me after about 2 weeks. I do not remember if both the parties had come on that occasion at my residence at Laheriasarai. It was perhaps in the morning. I did not enquire anything about ‘Len Den’ then. I did not give them any date then. I told them that I shall do it according to my convenience.”

9. It has been submitted that the above evidence shows that the arbitrator entered on the reference about two weeks after the execution of the deed. I am unable to agree with this contention. All that appears from this statement is that the arbitrator when informed about his being made an arbitrator did not challenge as to why he was selected as an arbitrator and that he wanted to see the deed of reference for the purpose of ascertaining for what he was made an arbitrator. The statement quoted above, in my opinion, cannot imply anything more than this that the arbitrator accepted the reference. That, as already held, does not amount to his having entered on the reference. The next work that was done in connection with the arbitration, as appears from the evidence adduced in the case is that the arbitrator on 30-4-1952, sent registered letters to both the parties fixing 20-5-1952 for the hearing of the matter. In my opinion, this is the date in this case on which the arbitrator entered on the reference. The award having been made on 30-8-1952, just within four months from the date on which he entered on the reference is, therefore, within time. The contention of Mr. Kumar in this regard is, therefore, rejected.

10. [With respect to the other three contentions his Lordship reviewed the evidence on record and came to the conclusion that the Court of appeal below had acted with material irregularity in the exercise of its jurisdiction and the case required reconsideration.]

11. The result, therefore, is that the application is allowed, the judgment and the order of the Court of appeal below are set aside and the case is sent back to it for a fresh decision in accordance with law.

12. Costs will abide the result.

13. Dayal, J.:— I agree.

V.S.B

14. Application allowed.