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Kumar & Kumar v. Union Of India .
Structured Summary of the Opinion (Shambhu Prasad Singh, J.)
Factual and Procedural Background
The appellant submitted a tender which the respondent accepted, resulting in a contract dated 16 December 1956 for manufacture and supply of furniture to the Garrison Engineer, M.E.S. (Independent) Dinapore at Ramgarh. The contract contained an arbitration clause (condition 36) providing submission of disputes to a sole arbitrator appointed by the Chief Engineer, Eastern Command. The appellant failed to supply the furniture; the C.W.E., Ranchi, on 31 July 1957 informed the appellant that the respondent would get the work done through other agencies at the appellant's risk and cost. The respondent then entered into two contracts with other firms and incurred an extra cost of Rs. 21,535/-.
The Chief Engineer appointed Lt. Col. J.S. Sandhu as sole arbitrator on 10 July 1959. The arbitrator invited terms of reference and statements of issues; the appellant refused to submit its case and challenged the arbitrator's appointment and the existence of any valid contract. The respondent pursued a claim before the arbitrator for Rs. 21,535/-, and the arbitrator proceeded ex parte and awarded that sum on 2 May 1961 (he rejected the claim for costs). The arbitrator filed the award in court (received 13 June 1961) and it was registered as Title Suit No. 60 of 1961. The matter was transferred to Patna and ultimately disposed of by the Additional Subordinate Judge, Patna, by judgment and decree dated 24 June 1968.
The appellant filed an appeal to this Court (originally First Appeal No. 583 of 1968, later converted into a Miscellaneous appeal). Before this Bench, the appeal was heard by H.L. Agrawal, J. (who allowed the appeal) and C.S.S. Sinha, J. (who dismissed it). Because of their difference of opinion on a key point, the appeal was placed before Shambhu Prasad Singh, J., who delivered the opinion summarized here.
Legal Issues Presented
- Whether Suresh Kumar (a partner) had the authority to bind the firm by entering into the contract and agreeing to the arbitration clause.
- Whether there was mutuality of consent or a concluded and binding contract between the parties.
- Whether the arbitrator had jurisdiction to decide the respondent's claim for Rs. 21,535/- (i.e., whether what was referred to arbitration was a dispute within the arbitration clause or merely a claim for damages outside the arbitrator's competence).
- Whether the appellant's post-award written statement in court could be treated as an application under Section 33 of the Arbitration Act (challenging existence/validity of the arbitration agreement) and, relatedly, whether the appellant's objections were barred by limitation or otherwise procedurally defective.
Arguments of the Parties
Appellant's Arguments
- Suresh Kumar, being only a partner, could not of his own accord bind the firm to an arbitration agreement (lack of authority).
- The contract was void for want of mutuality of consent — the contract had been entered into only by Suresh Kumar and other partners were unaware, so the firm could not be bound.
- There was never any concluded contract between the parties.
- Additional contention (advanced before H.L. Agrawal, J.): the matter referred to the arbitrator was not a dispute within the meaning of the arbitration clause but a claim for damages; the respondent should have referred the question of validity of the contract to arbitration rather than treating the contract as valid and claiming Rs. 21,535/-.
Respondent's Position (as presented in the opinion)
- The respondent accepted the appellant's tender and treated the document as a binding contract dated 16 December 1956, with an arbitration clause (condition 36).
- After the appellant failed to perform, the respondent obtained alternative contracts at the appellant's risk and cost and claimed Rs. 21,535/- as extra cost; the respondent submitted that dispute to the arbitrator and relied on the arbitrator's jurisdiction under the arbitration clause.
- The respondent maintained (and both judges agreed) that the contract was valid and binding on the appellant.
Table of Precedents Cited
| Precedent | Rule or Principle Cited For | Application by the Court |
|---|---|---|
| Deep Narain Singh v. Mr. Dhaneshwari (A.I.R. 1960 Patna 201) | Instances where written statements were treated as applications under Section 33 of the Arbitration Act — courts may, on substantial compliance, treat pleadings as Section 33 applications. | The Court considered this decision when assessing whether the appellant's written statement could be treated as an application under Section 33 and, for the appellant's benefit, observed that in Deep Narain Singh necessary prayers appeared to exist; but even accepting that, the Court held Section 33 relief would not be maintainable on the merits in this case. |
| Panchanan Pal v. Nani Gopal Niyogi [I.L.R. (1951) 1 Calcutta 438] | Held that Section 33 does not extend to a challenge to existence or validity of an arbitration agreement by way of defence; courts may ignore technicalities and treat petitions as Section 33 where they substantially comply. | The Court relied on this authority to note the limited ambit of Section 33 and the principle that courts may disregard technicalities, but used it to conclude the appellant's written statement did not explicitly invoke Section 33 and that the underlying challenge could not be sustained in any event. |
| Ruby General Insurance Co. Ltd. v. Pearey Lal Kumar (A.I.R. 1952 S.C. 119) | When there is a difference as to the existence or validity of the arbitration agreement itself, that question cannot be decided by the arbitrator (i.e., arbitrator lacks competence to decide that preliminary point in certain circumstances). | The Court invoked this Supreme Court authority to conclude that where there was a dispute as to the claim (and the arbitrator was invited to proceed), the arbitrator was not shown to have failed in his duty by proceeding on the assumption of a valid arbitration agreement when the appellant did not seek court intervention despite being invited to do so. |
Court's Reasoning and Analysis
The Court reviewed the difference of opinion between H.L. Agrawal, J. and C.S.S. Sinha, J. and adopted the view of C.S.S. Sinha, J. The reasoning proceeded in a series of discrete steps:
- Agreement as to contract validity: Both judges had found that the contract was not invalid. The Court accepted that finding and noted that the arbitrator's award, which proceeded on the assumption that the contract was valid, reflected that position.
- Nature of appellant's challenge before the arbitrator: The appellant wrote to the arbitrator challenging the validity of the contract and the arbitrator's jurisdiction, but the appellant did not ask the arbitrator to decide the validity of the contract; instead it challenged the arbitrator's jurisdiction. Thus, there was no point on which the appellant sought a determination by the arbitrator.
- Arbitrator's duty to give reasons: The Court observed the well-settled principle that an arbitrator, when giving an award on a dispute properly before him, need not give reasons. Therefore, the absence of express findings on the contract's validity in the award did not render the award void.
- Whether the claim was within the arbitration clause: The Court found that there was a dispute between the parties over the respondent's claim for extra cost. Clause 36 was held to be wide enough to encompass the respondent's reference of the claim to arbitration. The respondent had likely sent a copy of its claim to the appellant as required; the appellant neither challenged the correctness of the amount before the arbitrator nor moved a court when the arbitrator invited it to do so. If the appellant had admitted the claim, the award would amount to an award on admission; if the appellant repudiated the claim, a dispute existed and the arbitrator had jurisdiction.
- Procedural remedies and limitation: The Court summarized the remedies available after filing of an award under the Arbitration Act: Section 15 (modify/correct), Section 16 (remit), Section 30 (set aside on specified grounds), and Section 33 (challenge existence/validity of arbitration agreement or award). Section 17 prescribes that where the court refuses applications to remit or set aside awards, it must pronounce judgment according to the award and decree follows.
- Limitation periods: The Court noted Article 158 of the Limitation Act (or Article 119(b) of the New Limitation Act) prescribes 30 days for applications under the Act to set aside or remit the award, counted from service of notice of filing of the award. The appellant's written statement in the court was filed long after 30 days of having notice of the filing of the award.
- Whether the written statement amounted to a Section 33 application: Relying on Panchanan Pal and Deep Narain Singh, the Court examined whether the appellant's written statement could be treated as an application under Section 33. The written statement did not expressly refer to Section 33; the Court considered Deep Narain Singh (where written statements were treated as Section 33 applications) but ultimately held that even if the appellant were given the benefit of that decision, the Section 33 remedy would not avail it in the present facts because the arbitrator had jurisdiction over the difference presented.
- Application of Supreme Court authority: Citing Ruby General Insurance, the Court concluded that where a difference as to the claim arose within the meaning of the arbitration clause, the arbitrator was competent to proceed. The arbitrator did not fail in his duty by proceeding on the assumption of a valid arbitration agreement when the appellant had the option, which it did not take, to approach a court after being invited to do so by the arbitrator.
- Ultimate conclusion on maintainability: Because there was a dispute within the arbitration clause and the appellant had not timely availed itself of statutory remedies, and because Section 33 relief was not maintainable on the facts, the challenge to the award could not succeed except on the narrow grounds permitted by Section 17 (i.e., that the decree is in excess of or not in accordance with the award).
Holding and Implications
Holding: Appeal dismissed. The Court agreed with the view of C.S.S. Sinha, J. and dismissed the appeal, but without costs.
Implications and consequences:
- The arbitrator's award for Rs. 21,535/- in favour of the respondent was upheld as valid and within the arbitrator's jurisdiction on the facts presented.
- The appellant's challenges — that the contract was not binding (authority of Suresh Kumar), lack of mutuality, and that no concluded contract existed — were rejected as having no merit by the Court (reflecting the conclusions already reached by the lower court and one of the learned Judges).
- The Court held that the appellant had not timely availed statutory avenues (such as making applications under Sections 15, 16 or 30 within the limitation period) and that its written statement could not successfully be treated as a Section 33 application to avoid the consequences of the arbitration award in the circumstances of this case.
- The direct effect on the parties is that the award and the consequent decree remain effective and the appeal fails; the Court did not set any broader or novel precedent beyond applying existing authorities to the facts (i.e., no new law was declared).
If any requested element from the original opinion is not reflected above, it is because the source text did not contain that information.
Shambhu Prasad Singh, J.:— This appeal has been placed before me for hearing on account of difference of opinion between H.L Agrawal, J. and C.S.S Sinha, J. While the appeal was allowed by H.L Agrawal, J., it was dismissed by C.S.S Sinha, J. Both the Judges, however, agreed that they would make no order as to costs in favour of the successful party.
2. The facts of the case are elaborately stated in the judgment of H.L Agrawal, J. and I do not consider it necessary to restate them in any detail. As it appears the appellant submitted a tender in the prescribed form which was accepted by the respondent and thus there was a contract between them dated 16th of December, 1956 according to which the appellant was required to manufacture and supply certain furniture to Garrison Engineer, M.E.S (Independent) Dinapore at Ramgarh at the rates mentioned in the document. The contract contained an arbitration clause according to which the parties were to refer all disputes as required by condition 36 to the sole arbitration of an Engineer/Officer to be appointed by the Chief Engineer, Eastern Command, whose decision was to be final, conclusive and binding. Condition no. 36 read as follows:—
“All disputes between the parties to the contract (other than those for which the decision of the C.W.E or any other person is by the contract expressed to be final and conclusive) shall, after written notice by either party to the contract to the officer appointed by the authority mentioned of an officer appointed by the authority mentioned in the tender document.”
3. As the appellant did not supply the furniture, the C.W.E, Ranchi, on behalf of the respondent wrote a letter dated 31st of July, 1957 to the appellant informing it that the respondent would get the work done through other agency at the risk and cost of the appellant. Thereafter the respondent entered into two separate contracts with other firms who supplied the furniture and incurred extra cost amounting to Rs. 21535/-. The Chief Engineer, Eastern Command by his letter dated 10th of July, 1959 appointed Lt. Col. J.S Sandhu as the sole arbitrator to decide the dispute between the parties. The Arbitrator by his letter dated 15th of July, 1959 called upon both the patties to forward to him terms of reference preferably a joint statement signed by both the parties and in case they were unable to come to an agreement as to the points in dispute to be referred to him, they should forward to him separately their statements of the items in dispute with a copy to the either party. The appellant refused to submit its case to the arbitrator and took a stand that there was no legal and valid contract between the parties. It further challenged the validity of the appointment of the arbitrator. The respondent submitted its claim before the arbitrator claiming the aforesaid sum of Rs. 21535/- being the extra cost incurred by it in getting the two contracts executed later on the failure of the appellant to perform the same. It also claimed Rs. 500/- as cost. As the appellant did not attend the arbitration proceeding, the arbitrator proceeded with it ex parte and made an award on 2nd of May, 1961 in favour of the respondent for the sum of Rs. 21535/- but rejected the claim for cost. Thereafter he sent an application dated 24th of May, 1961 to the court of Special Subordinate Judge, Ranchi, for making the award a rule of the court and passing a decree in terms thereof which was received in court on 13th of June, 1961. That was registered as Title Suit No. 60 of 1961. The case was, however, transferred to Patna under orders of this court in M.J.C No. 380 of 1962 and finally disposed of by the 3rd, Additional Subordinate Jndge, Patna, by his judgment and decree dated 24th of June, 1968. It also appears from the ordersheet of the Special Subordinate Judge, Raachi that both the parties had appeared before that court by 26th of March, 1962 and thus the appellant had notice of the riling of the award by that date. At any rate, the appellant must have had notice of the filing of the award before 30th of April, 1962 on which date it filed the M.J.C No. 380 of 1962 in this Court. The appellant filed its written statement on 3rd of December, 1963 challenging the award on various groands, namely, that there was no valid contract at all between the parties, that the arbitrator had no jurisdiction to decide the dispute as the appellant was not a party to the contract and that the arbitrator had misconducted the proceeding and did not give any award as required by the Arbitration Act (hereinafter referred to as ‘the Act’). The plea of the appellant that it was not a party to the contrast was based on a statement that it was signed by one Suresh Kumar who had no authority to sign it on behalf of the firm of the appellant. The learned Additional Subordinate Judge came to the conclusion that the contract entered into by Suresh Kumar was valid and binding on the appellant and that Ajit Singh (father of Suresh Kumar) the other partner, must be deemed to be aware that there was a contract between the parties and that the award was valid and within the jurisdiction of the arbitrator and was not in any way vitiated on account of misconduct in any manner.
4. The appeal as originally filed in this Court in the year 1968 was styled as First Appeal No. 583 of 1968 and a declaratory court fee of Rs. 22-50p. was paid on its memorandum. In the year 1970 it was converted into a Miscellaneous appeal.
5. The main arguments which were advanced by Mr. R.S Chatterji appearing on behalf of the appellant before H.L Agrawal and C.S.S Sinha, JJ. were three:—
6. (Please see paragraph 11 of the judgment of H.L Agrawal, J.
(i) Suresh Kumar being only a partner of the appellant firm, could not of his own accord, agree to any arbitration agreement.
(ii) The contract was void because there was no mutuality of consent between the parties, (In other words, the contention was that inasmuchas the contract in question had been entered into only by Suresh Kumar, the other partners of the firm having no knowledge of the same, it could not be held that the firm was bound by the contract in question).
(iii) There was never any concluded contract between the parties.
7. Both the learned Judges are agreed that there was no merit in any of these three contentions of Mr. Chatterji in course of elaborating these three contentions, it appears, Mr. Chatterji canvassed a further point which has been discussed in detail in paragraph 17 of the judgment of H.L Agrawal, J. The substance of the point raised by Mr. Chatterji was that the point referred to the arbitrator was not really a dispute between the parties but a claim for damages. Mr. Chatterji appears to have further contended that as the appellant had repudiated the validity of the contract itself by writing letters to the respondent, the respondent should have referred, if at all, to the arbitration the question whether the contract was valid or not and not the claim for Rs. 21535/- on the assumption that the contract was valid. In spite of the findings recorded by him rejecting all the three contentions of Mr. Chatterji and holding that there was a con eluded contract between the parties binding, on the appellant, the aforesaid contention of Mr. Chatterji that what was referred to the arbitrator by the respondent was not a dispute but a claim for damages appealed to H.L Agrawal, J. He accordingly came to the conclusion that the award submitted by the arbitrator was invalid and beyond his competence and, there, fore, it should not have been made a rule of the court. On the other hand, C.S.S Sinha, J. has held; that since the appellant was denying the existence of a valid contract itself, any notice issued to it demanding the exact amount was not likely to serve any useful purpose and in the circumstances there was a dispute between the parties as to the amount which the respondent claimed oil account of non-performance of the contract by the appellant which was valid according to the respondent and invalid according to the appellant. C.S.S Sinha, J. has further emphasised on the fact that after the appellant challenged the jurisdiction of the arbitrator to proceed with the arbitration, the arbitrator wrote to the appellant on 6th of October, 1959 that it could move a court of law if it so like but the appellant did not choose to do so and it was in these circumstances that the arbitrator had to proceed exparte and give his award and that the arbitrator in his turn also gave opportunity to the appellant to submit statement outlining the dispute.
8. After having give anxious consideration to the judgments of the learned Judges on the point they have differed and to the arguments advanced by learned counsel for the parties, I am inclined to agree with the view taken by S.S Siaha, J. As already stated, both the learned Judges and agreed that the contract was not invalid. Therefore, the award of the arbitrator cannot be held to be invalid on the ground that he has not said a single word on that question in his award. The fact that the arbitrator has given an award in favour of the respondent for a sum of Rs. 21535/- shows that the arbitrator proceeded on the assumption that the contract was valid and as I shall show hereafter he was right in doing so. The appellant though sent a letter to the arbitrator challenging the validity of the contract did not ask him to decide that question, rather challenged his jurisdiction itself to proceed with the arbitration proceeding. Thus, there was no question on which the appellant wanted a decision from the arbitrator. The only question which the arbitrator had to decide was one raised before him by the respondent and it is well settled that an arbitrator while giving an award on any dispute raised before him need not give his reasons for the award. The award cannot be held bad for want of reasons or, in other words, a funding that the contract was a valid one. C.W.E, Ranchi, on behalf of the respondent had written a letter dated 31st of July, 1957 informing the appellant that the respondent would get the work done through other agency at the risk and cost of the appellant. Nothing was pointed out to me to show that the appellant challenged the power of the respondent to do so except that it had already informed the respondent that by an earlier letter it had repudiated the contract itself. However, it has not been the case of the appellant either before the arbitrator or the court below or this Court that it admitted its liability to pay to the respondent extra cost incurred by the latter for the work done through other agency. It is obvious that had such been the case of the appellant, then it could not be allowed to challenge the claim of the respondent to realise extra cost incurred in getting the work done through other agency. Thus, there was in my opinion, a dispute between the appellant and the respondent on this question. The language of clause 36 is wide and reference of such a dispute to the arbitrator by the respondent was within its ambit even H.L Agrawal, J. admits this position when he observes. “It is no doubt true that in the arbitration agreement there may be an agreement to submit present or future difference to arbitration.” As pointed out by C.S.S Sinha, J. though the arbitrator wrote to the appellant on 6th of October, 1959 that it could move a court of a law challenging the jurisdiction of the arbitrator, the appellant did not choose to do so. The arbitrator had also written to the parties that in failure on their part to submit a joint statement as to the disputes between them, either of the party could state the dispute separately and send a copy of it to the other side. In the circumstances it must be presumed that the respondent must have sent to the appellant a copy of the letter which it wrote to the arbitrator claiming Rs. 21535/-. The appellant did not challenge the correctness of the amount claimed by the respondent before the arbitrator. After the respondent made the claim before the arbitrator and sent a copy of it to the appel and, though the latter had challenged the jurisdiction of the arbitrator to proceed with the arbitration, in the alternative, it should have either admitted the claim or repudiated it. If it is assumed that the appellant admitted the claim then once it is held that the contract was valid and all disputes relating to it could be referred for arbitration, the award of the arbitrator has also to be held as valid as an award on admission. On the other hand, if one proceeds on the assumption that the appellant repudiated the claim of the respondent to claim extra cost incurred by it for getting the work done through other agency, then there was a dispute between the parties on that question and the award of the arbitrator will be valid.
9. However, there is another aspect of the matter which has not been considered in the judgment of either of the learned Judges for, it appears, it was not argued before them. Once an award is filed in court by the arbitrator under Section 14 of the Act and notice thereof is given to the parties, four courses are open to the party aggrieved by the award, viz., (i) to make an application under Section 15 of the Act for modifying or correcting an award in accordance with the provisions of that section, (ii) to make an application under Section 16 of the Act to remit the award if the objection is covered by the provisions of that section, (iii) to make an application under Section 30 of the Act for setting aside the award on the three grounds mentioned therein and (iv) to make an application under Section 33 of the Act challenging the existence or validity of an arbitration agreement or an award or praying to have the effect of either determined. Section 17 of the Act lays down that where the court sees no cause to remit the award or any of the matters referred to arbitration for reconsideration or to set aside the award, the court shall, after the time for making an application to set aside the award has expired, or such an application having been made, after refusing it, proceed to pronounce judgment according to the award, and upon the judgment so pronounced a decree shall follow and no appeal shall lie from such decree except on the ground that it is in excess of, or not otherwise in accordance with the award. According to Article 158 of the Limitation Act (Act IX of 1908) or Article 119(b) of the New Limitation Act (Act No. 36 of 1963), 30 days was the period for limitation for application under the Act for setting aside an award or getting an award remitted for reconsideration, the time from which period begins to run being the date of service of the notice of the filing of the award. In the instant case the written statement of the appellant was filed much after 30 days of the date it had notice of the filing of the award. It was suggested on behalf of the appellant that it was the duty of the arbitrator to have determined the dispute as to the validity of the agreement for the question was raised before him. Assuming that it was the duty of the Arbitrator to decide that matter and he left a matter referred to him for arbitration undetermined, the appellant then should have made a prayer for remitting the award under Section 16 of the Act within 36 days from the date it had notice of me filing of the award, but it failed to do so.
10. It was contended, however, by learned counsel for the appellant that really the appellant challenged the validity of the award before the court below under Section 33 of the Act and there is no limitation for an application under that section. In support of that contention reliance has been placed on a Bench decision of this Court in (1) Deep Narain Singh v. Mr. Dhaneshwari (A.I.R 1960 Patna 201). The question which arises for decision, therefore, is whether the written statement of the appellant can be treated as an application under Section 33 of the Act for the purposes of this case. The prayer portion of the written statement reads as follows:—
“It is, therefore, prayed that the petition under Section 14(2) of the Arbitration Act filed by Lt. Col. J.S Sandhu, Arbitrator, be dismissed with costs or your honour may be pleased to pass such other order or orders as may be deemed fit and proper.”
11. The written statement nowhere refers to Section 33 of the Act. In the case of (2) Panchanan Pal v. Nani Gopal Niyogi [I.L.R (1951) 1 Calcutta 438] it has been held that Section 33 of the Act does not extend to a case of challenge to the existence or validity of an arbitration agreement by way of defence. This esse, however, further lays down that courts may ignore technicalities and treat the petition of objection as an application under Section 33 where, in substance, it complies with the terms thereof. In Deep Narain Singh's case, however, the written statements were treated as applications under Section 33 of the Act. From the facts stated in the decision it is not quite clear whether in those written statements any reference was made to Section 33 of the Act or there was any prayer for deciding the question as to the existence and validity of arbitration agreement or award. Since the written statements have been referred to as applications for it is observed in paragraph 10 of that judgment “Even if it is assumed that such an application is governed by three years' rule of limitation, the present application, so far as it challenges the validity of the reference is maintainable” I am inclined to think that necessary prayers were there in the written statements so that they could be treated as applications under Section 33 of the Act on account of substantial compliance of the terms thereof. However even if the appellant is given benefit of the decision in Deep Narain Singh's case and its claim is not held as barred by limitation, in view of the finding that a difference as to the claim of the respondent for getting extra cost from the appellant on account of getting furniture made through other agency did arise for decision within the meaning of the arbitration clause and the arbitrator had jurisdiction to decide it, it has to be held that in such a case petition under Section 33 of the Act by the appellant would not be maintainable. If any authority is needed, I may refer to the decision of the Supreme Court in (3) Ruby General Insurance Co. Ltd. v. Pearey Lal Kumar (A.I.R 1952 S.C 119). Rather, this decision lays down that when there is a difference as to the existence or validity of the arbitration agreement itself that question cannot be decided by the arbitrator. The arbitrator cannot therefore, be said to have failed in his duty by not deciding that point and proceeding on the assumption that the arbitration agreement was valid one when the appellant did not go to a court of law for a decision of that point even though it was expressly asked by the arbitrator to do so. An application under Section 33 of the Act being not maintainable on the question the arbitrator has given his award, the decree based on the award of the arbitrator cannot be challenged by the appellant except on the ground that it is in excess of or not otherwise to accordance with the award as provided for in Section 17 of the Act.
12. In fine, I agree with the view taken by C.S.S Sinha, J. and dismiss the appeal but without costs.
Appeal dismissed.
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