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Case Number

Civil Revn. No. 279 of 1976 (R)*

Attorney(S)

Sunil Kumar Sinha
S.K.Roy Chaudhary
S.B.Sinha
Pradeep Kumar
P.C.Roy
Kameshwar Prasad
Jaya Roy

Judges

Hari Lal Agrawal
Madan Mohan Prasad, JJ.

Acts

SECTION 8 ARBITRATION ACT
Sec. 8 nor Section 9 nor Sec. 10

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Smart Summary

Concise Analytical Summary of the Opinion (H.L. Ageawal, J.)

Factual and Procedural Background

This is an appeal under Section 115 of the Civil Procedure Code challenging an order passed under Section 8 of the Arbitration Act by the court below. A learned single Judge referred the matter to a Division Bench because important points of law were involved. The principal legal question identified for decision was whether a court exercising powers under Section 8 of the Arbitration Act could appoint a new arbitrator in place of a named arbitrator specified in the arbitration clause.

Material factual background (as found in the opinion): The petitioner had issued a work order dated 4-2-1971 to opposite party No. 1 for substantial engineering and erection work, and the work order contained an arbitration clause naming Sri Manohar Singh Sahay as the sole arbitrator. Opposite party No. 1 executed and performed work valued at over Rs. 4,00,000, but the petitioner did not settle the claim. Opposite party No. 1 requested reference to the named arbitrator and, after delays and correspondence in which the named arbitrator initially did not enter upon the reference (and at one point stated that the matters were not arbitrable), opposite party No. 1 notified his intention to appoint Sri D.N. Chatterjee as arbitrator and applied to the court below under Section 8 on the ground that the named arbitrator had neglected to act and had thereby rendered himself unfit to continue.

The court below examined correspondence and timings, concluded that the named arbitrator had neglected to act (having taken more than six months to enter upon the reference despite a one-month expectation under the statutory explanation), removed the named arbitrator (opposite party No. 2) and appointed Sri D.N. Chatterjee as sole arbitrator. The petitioner challenged that order before the Division Bench by way of the present Section 115 application.

Legal Issues Presented

Whether a court exercising powers under Section 8 of the Arbitration Act can appoint a new arbitrator in place of the arbitrator named in the arbitration clause of the parties' agreement.
Whether an arbitrator's failure to enter upon and proceed with a reference within the time contemplated by the statute (and the Explanation) constitutes "neglect" or "refusal to act" under Section 8, justifying replacement.
Whether a reference to an arbitrator must be bilateral (requiring both parties to join) or may be made unilaterally by one party, such that a unilateral request to the named arbitrator suffices to oblige the arbitrator to enter on the reference.
Whether an advocate is an unsuitable arbitrator in a dispute of technical nature, and whether appointment of an advocate-arbitrator could render any award incompetent.
Whether the court below's factual finding of neglect by the named arbitrator (based on the correspondence and delays) was a reviewable error justifying interference in revision.

Arguments of the Parties

Applicant / Petitioner's Arguments (as presented by Mr. Kameshwar Prasad)

The court acting under Section 8 of the Arbitration Act has no authority to replace the named arbitrator specified in the arbitration clause; reliance was placed on Amarchand Laljit Kumar v. Shree Ambica Jute Mills Ltd. (AIR 1966 SC 1086).
The reference to an arbitrator cannot be unilateral; it must be bilateral — after receipt of the letter from opposite party No. 1, the petitioner had not joined and was disputing the competency of the dispute, so the unilateral letter could not validly commence the reference.
The appointment of Shri D.N. Chatterjee as sole arbitrator was made before the expiry of 15 clear days after service of notice (a procedural objection raised on this ground).
An advocate would not be a proper arbitrator in a technical dispute; appointment of an advocate-arbitrator could render an award incompetent or inappropriate.
The trial court's finding of neglect was incorrect because, at the time of opposite party No. 1's application to the court below, the named arbitrator had already entered upon the reference (so there was no neglect to act when the application was filed).

Respondent / Opposite Party No. 1's Arguments (as presented by Mr. S.K. Roy Choudhary)

No objection to the appointment of the advocate-arbitrator (Sri D.N. Chatterjee) was taken below; the record lacks material showing the dispute to be of a technical character that would make an advocate inappropriate.
The petitioner was not setting the opposite party's bills; the advocate-arbitrator can take assistance of technical persons if required.
Cited authority (Union of India v. New India Constructors) to show the court has discretion to revoke the authority of an arbitrator and appoint an advocate-arbitrator in appropriate circumstances.

Table of Precedents Cited

Precedent	Rule or Principle Cited For	Application by the Court
Amarchand Laljit Kumar v. Shree Ambica Jute Mills Ltd., AIR 1966 SC 1086	Relied upon by petitioner to argue that the court cannot replace a named arbitrator; concerned the exercise of discretion before revoking an arbitrator's authority.	The court clarified that this decision does not stand for an absolute prohibition on replacing a named arbitrator. Instead, it establishes that a court must exercise discretion and should be satisfied that refusal to revoke would cause substantial miscarriage of justice. The court treated the case as addressing discretionary revocation, not a blanket bar on replacement.
Satya Narayan v. Baidyanath Mandal, AIR 1972 Pat 21	Principle that the discretion to revoke the authority of a sole arbitrator should be exercised after appreciation of relevant facts to enable judicial discretion.	The court cited it to reinforce that revocation is a discretionary judicial act and must follow consideration of material facts; supportive of the court's approach to review the lower court's exercise of discretion.
Ramkhelawan Mistry v. Rabindra Kumar Ghose, AIR 1961 Pat 128	Addressed a partnership arbitration clause referring to three arbitrators, and held Sections 8–10 were not applicable to such a case; remedy lay in ordinary law.	The court distinguished this decision as being on a different factual and legal point (three-arbitrator partnership clause) and therefore not applicable to the present facts involving a sole named arbitrator.
Union of India v. New India Constructors (Delhi), AIR 1955 Punj 172	Cited for the proposition that a court has discretion to revoke the authority of an arbitrator and, in one instance, to replace a government arbitrator with an advocate-arbitrator where appropriate.	The court noted the case had been cited by opposite party No. 1 in support of the discretion to replace an arbitrator and used it as an example of the court exercising such discretion in a construction dispute context.
National Electric Supply & Trading Corporation Pvt. Ltd. v. Punjab State, AIR 1963 Punj 56	Considered on the point whether an arbitrator may take ministerial assistance (measurements, calculations) from outsiders without vitiating an award.	The court relied on this authority to support the view that seeking help for measurements or arithmetical assistance from a third person is ministerial and does not render an award incompetent, distinguishing that from consulting an outsider to arrive at substantive findings.

Court's Reasoning and Analysis

The court proceeded by identifying the statutory text that governs appointment or replacement of arbitrators: Section 8 of the Arbitration Act (particularly clause (b) concerning neglect or refusal to act) and the Explanation to clause (b) (referred to from Section 9 in the opinion) which states that failure by an arbitrator to enter upon a reference within one month of a request may constitute neglect within the meaning of Section 8.

Applying those provisions to the facts, the court examined the correspondence and timeline: opposite party No. 1 requested the arbitrator to act; the arbitrator did not enter upon the reference within one month and, in fact, only communicated an intention to enter on 28-7-1975 (some six months later). The court below had found that delay amounted to neglect to act, and relied on the statutory one-month expectation and the four-month period for making an award (First Schedule, para 3) to conclude that the named arbitrator had lost jurisdiction to act.

The court rejected the petitioner's primary legal contentions for the following reasons:

On the contention that Section 8 does not permit replacement of a named arbitrator, the court observed that the statutory language expressly allows appointment when an appointed arbitrator "neglects or refuses to act." The Supreme Court authority cited by petitioner did not stand for an absolute prohibition on replacement; rather it recognized a judicial discretion that must be exercised where necessary to prevent substantial miscarriage of justice. The court also cited a Patna High Court decision (Satya Narayan) to the effect that revocation of authority is discretionary and requires consideration of material facts.
On the unilateral-vs-bilateral reference point, the court held that a unilateral request to the named arbitrator by one party does suffice to oblige the arbitrator to enter upon the reference (the Explanation contemplates action after a request by either party). Requiring a bilateral initiation would allow a recalcitrant party to frustrate the arbitration clause.
On the objection to appointment timing (15-day issue), the court found no such point was taken below and held that the cited subsection did not apply in the manner argued by the petitioner; the 15-day period referred, if at all, to an earlier communication and not the nomination of D.N. Chatterjee.
On whether an advocate is an improper arbitrator in a technical dispute, the court observed that no objection had been raised below and there was no material demonstrating the dispute to be technical. The court accepted that an arbitrator must not rely on an outsider to reach substantive findings (which would amount to misconduct), but it also held that taking ministerial assistance (measurements, calculations) from technical persons is permissible and does not vitiate an award — a view supported by the National Electric Supply decision.
Finally, concerning the alleged error in the trial court's factual finding of neglect, the court treated that as a finding of fact based on the correspondence and circumstances; it found no material irregularity that would justify interference under revisional jurisdiction.

On balance, the court concluded that the court below had acted within its discretion under Section 8 in removing the named arbitrator for neglect and in appointing a replacement, and there was no sound basis to disturb that conclusion in the present application under Section 115 C.P.C.

Holding and Implications

Holding: The Division Bench dismissed the Section 115 application. The court affirmed the lower court's action in removing the named arbitrator for neglect and in appointing Sri D.N. Chatterjee as the sole arbitrator. The formal outcome recorded in the opinion is: Application dismissed. Hearing fee assessed at Rs. 200/-.

Implications: The direct effect is that the lower court's order removing the named arbitrator and appointing a replacement stands undisturbed. The opinion explains the court's view of how Section 8 and the statutory Explanation operate — namely that neglect to act (including failure to enter upon reference within a month of a request) can justify replacement — and it clarifies that unilateral references by one party can trigger the arbitrator's duty to act. The court treated the factual finding of neglect as one of fact not susceptible to interference in revision. The opinion does not purport to lay down a novel binding precedent beyond its application of existing statutory provisions and cited authorities; its decision upholds the exercise of discretion by the court below in the circumstances of this case.

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M/S. Manohar Singh Sahay And Co. v. Jogendra Singh Kalra And Another Opposite Parties.

H.L Ageawal, J.:— This application under Section 115 of the Civil P.C arising out of an order passed under Section 8 of the Arbitration Act (briefly ‘the Act’) by the court below on an application filed by opposite party No. 1 has been referred to the Division Bench by a learned single Judge as some important points of law are involved in this case. The main question of law is as to whether the court exercising powers under Section 8 of the Act could appoint a new arbitrator in place of the named arbitrator in the arbitration clause of the agreement between the parties.

2. The relevant facts are these: According to the case of opposite party No. 1 (being the managing partner of the firm of the petitioner), the petitioner had entered into a contract with Heavy Engineering Corporation for erection of a steel structure work of about 950 metric tonnes and machinery repairing and other equipments for toiler house and Gas producer plant of approximately 1800 metric tonnes. This job was entrusted to opposite party No. 1 under a work order dated 4-2-1971 containing an arbitration clause to the effect that in case of any dispute between the parties i.e the petitioner and opposite party No. 1, it will be decided through arbitration which will be binding on both the parties and Sri Manohar Singh Sahay will be the sole arbitrator.

The Work Order was executed by opposite party No. 1 in accordance with the terms of the agreement which was relating to 6000/- tonnes Hydrolic press in E.O.T cranes and also some extra work Opposite Party No. 1 is thus said to have carried the work for over Rs. 4,00,000/- (Four Lacs). The petitioner, however, did not settle the claim and accordingly the opposite party No. 1 requested the petitioner on 21-9-1974 to refer the matter to opposite party No. 2 for arbitration.

3. Having received no reply, opposite party No. 1 requested the arbitrator (opposite party No. 2) to enter upon the reference. Opposite party No. 2, however, did not enter upon the reference for a pretty long time so much so that by a letter dated 24-7-1976 (sic) (annexure-4) addressed to opposite party No. 1 it was stated that:

“We do not agree that the matters sought to be referred by you are now arbitrable.”

In the circumstance mentioned above, opposite party No. 1 sent a notice on 16-7-1975 to the petitioner informing him that as the named arbitrator had neglected to arbitrate in the matter, he would appoint Sri D.N Chatterjee Advocate as the arbitrator in his place requesting him to concur with the said appointment. On receipt of this notice, opposite party No. 2 by his letter dated 28-7-1975, however informed opposite party No. 1 that he would enter into the reference. Notwithstanding the said attitude of the other side, opposite party No. 1 made an application in the court below as mentioned above on the ground that the named arbitrator having neglected to enter upon the reference for such a long time rendered himself unfit to act as the arbitrator and that opposite party No. 1 had also lost his confidence in him on account of his being the managing partner of the debtor firm.

4. In the show cause filed by the petitioner, inter alia, he took the stand that the sole arbitrator having already entered upon the reference on 28-7-1975 asking both the parties to submit their written statements or counter-claims, the application was not maintainable inasmuch as opposite party No. 1 in spite of submitting to the arbitrator, has filed this application with false and fictitious grounds.

5. The court below, on taking into consideration all the facts and circumstances, mentioned above and the series of letters addressed fey opposite party No. 1 to the arbitrator and his replies, came to the conclusion that “the arbitrator should have entered upon the reference within one month of the receipt of the letter dated 10-1-1975 (Ext. A). But, admittedly he did not enter into the reference and, for the first time sent a letter dated 28-7-1975 (Ext. A/7). The sole arbitrator, therefore, entered into the reference after the, expiry of more than six months………… The sole arbitrate has, thus neglected to act as the sole arbitrator”. The court below has also referred to para 3 of the First Sch. where a period of four months, only has been fixed for submission of the award and then came to the conclusion that the sole arbitrator has lost his jurisdiction to act as the arbitrator. The court below accordingly took the view that the sole arbitrator had neglected to act as the arbitrator and was liable to be removed and accordingly it removed apposite party No. 2 and appointed Sri D.N Chatterjee, advocate as the arbitrator in his place to act as the sole arbitrator in the matter. The court below has also observed that the petitioner did not state any word against the appointment of Sri D.N Chatterjee advocate as the sole arbitrator.

6. Mr. kameshwar Prasad, learned counsel appearing in support of this application, raised several points challenging the order of the court below. He firstly contended that the court acting under S. 8 of the Act has no authority to replace the named arbitrator in the arbitration clause. In support of this contention he placed reliance upon the case of Amarchand Laljit Kumar v. Shree Ambica Jute Mills Ltd. (AIR 1966 SC 1086).

Before coming to the consideration of the above case I would like to refer to the relevant propositions of S. 8 itself which empower the court to appoint an arbitrator or umpire in any of the following cases:—

“(a) xxxx

(b) if any appointed arbitrator or umpire neglects or refuses to act, or is incapable of acting, or dies and the arbitration agreement does not show that it was intended that the vacancy should not fee supplied, and the parties or the arbitrators as the case may be do not supply the vacancy: or”

In this connection explanation to cl. (b) of S. 9 of the Act is also relevant and is quoted hereunder.

“Explanation:— The fact that an arbitrator or umpire after a request by either party to enter on and proceed with the reference, does not within one month comply with the request may constitute a neglect or refusal to act within the meaning of Section 8 and this section.”

7. Coming to the proposition of law relied upon by Mr. Kameshwar Prasad that the court had no authority to remove the named arbitrator as such on the face of it was erroneous because it there could be any such restriction then many a claim for arbitration would be frustrated fry such arbitrators very easily. The Supreme Court decision (supra) is not an authority for the proposition. All that it lays down is that the court before exercising its discretion to give leave to revoke an arbitrator's authority, it should be satisfied that a substantial miscarriage of justice will take place in the event of its refusal. This very decision speaks of the discretion which is vested in the court. A similar decision was given by this Court in the case of Satya Narayan v. Baidyanath Mandal (AIR 1972 Pat 21) where it was observed that the discretion, to revoke the authority of the sole arbitrator should be exercised after appreciation and consideration of all the facts which are material for the purpose of enabling a judge to exerciser a judicial discretion.

8. It is no doubt true that in view of the agreement between the parties, opposite party No. 1 having reposed his confidence in the named arbitrator, takes him for the better or worse. In that view of the matter, the court acting under S. 8 of the Act should exercise its power cautiously and sparingly and the parties complaining to it should not be relieved from the decision of the arbitrator because he fears that has decision may go against him. S. 8(1) itself also indicates the grounds on which the authority of an arbitrator may be revoked and one of them being where he neglects or refuses to act. The conduct of the arbitrator in not acting for a long time is in itself a sufficient ground for appointment of another arbitrator in his place. The explanation to S. 9 referred to above has put a time limit of one month after request by either party to enter upon the reference failing which he will be deemed to have neglected to act. The first point advanced by Mr. Prasad has, therefore, got no substance.

9. The next argument of Mr. Kameshwar Prasad was that the reference to the arbitrator cannot be unilateral and it must be bilateral. Developing this argument, he contended that inasmuch as after receipt of the letter by the arbitrator from opposite party No. 1 the petitioner had not Joined him and was stilt disputing the competency of the so-called dispute the letter of opposite party No. 1 dated 10-1-1975 could not constitute a valid basis for entering upon the references. This contention of Mr. Prasad as the previous one is also entirely misconceived and if I may say so the contention is contrary to the elementary principles of law of Arbitration. If this could be the law then the defaulting party would always make the arbitration clause infructuous by refusing to join in the reference. I under stand a bilateral reference through the intervention of the court or out of court also in some cases where the parties may agree and formulate the dispute and make a joint reference but to lay down as a principle of law that there cannot be any unilateral reference, is absolutely unthinkable. The explanation to S. 9 of the Act also provides that the arbitrator has to enter upon the reference within period of one month after the request by either party.

10. Mr. Prasad however, also referred to a single judge decision of this Court in the case of Ramkhelawan Mistry v. Rabindra Kumar Ghose (AIR 1961 Pat 128). This decision is entirely on a different point where the arbitration clause provided for reference to three arbitrators in a partnership agreement each partner having a right to appoint his own and appointment of arbitrators was made by two of them but the third refused. Thereupon the two partners applied to the court to appoint an arbitrator for the third partner and when an application was made by the two partners it was held that neither Sec. 8 nor Section 9 nor Sec. 10 was applicable to such cases and the remedy was under the ordinary law of instituting a suit and they could not get any relief under the arbitration clause.

11. It was next contended by Mr. Prasad that appointment of Shri D.N Chatterjee as the sole arbitrator was made before the expiry of 15 clear days after the service of notice. No such plea was taken in the court below nor do I find any substance in the same as the provisions of sub-sec. (2) referred to above have no application inasmuch as 15 days would be referable to their first letter of January, 1975 and not to the letter by which the opposite party No. 1 nominated Mr. D.N Chatterjee as his arbitrator.

12. The last point that was raised by Mr. Kameshwar Prasad was that the nature of dispute between the parties being technical, an advocate would not be a proper and desirable arbitrator.

13. The reply of Mr. S.K Roy Choudhary, learned counsel appearing on behalf of opposite party No. 1, firstly was that no such objection was taken in the court below and that there was no material on the record to suggest any technical nature of the dispute. According to opposite party No. 1 the petitioner was not setting his bills. He also contended that the advocate arbitrator can take assistance of technical persons if so needed. It is, no doubt, true that in the case of Union of India v. New India Constructors, Delhi (AIR 1955 Punj 172) which Mr. Roy Choudhary himself cited in support of the proposition that the court had discretion to revoke the authority of an arbitrator and appoint an advocate-arbitrator in place of the Govt. arbitrator where the dispute related to a Govt. construction was held to be improper and he was replaced by the High Court.

14. Mr. Kameshwar Prasad again contended that this argument of Mr. Roy Choudhary is entirely erroneous and would render the award incompetent. It is no doubt true that an arbitrator can not take assistance of an outsider for arriving at a finding in the proceeding and if an arbitrator arrives at a finding by consulting such any outsider or if he allows his decision to be affected by such persons, he would be guilty of misconduct and to this extent I would accept the contention of Mr. Prasad. But, in my opinion, taking assistance of a stranger to help the arbitrator in taking measurements or making arithmetical calculations or the like would not amount the award being effected by the decision of an outsider. It would simply amount to seeking help of a ministerial machinery. I find support for this view from the case of National Electric Supply & Trading Corporation Pvt. Ltd. v. Punjab State (AIR 1963 Punj 56).

15. Some argument was also advanced by Mr. Prasad regarding the finding of the trial court regarding the neglect of the arbitrator. He contended that in any view of the matter at the time when the application was made by opposite party No. 1 in the court below the arbitrator had already entered upon the reference.

16. I have already referred to the circumstances which induced the court below to come to the conclusion of ‘neglect’ on the part of the arbitrator. Apart from the fact that on the circumstance considered by the court below it is not possible to take a different view as the same is apparently a finding of fact. I do not find any material irregularity in coming to that conclusion by the court below justifying interference in the re-visional jurisdiction.

17. The application, therefore, having no substance must fail and it is hereby dismissed, Hearing fee is assessed at Rs. 200/-.

Madan Mohan Prasad, J.:— I agree.

Application dismissed.

M/S. Manohar Singh Sahay And Co. v. Jogendra Singh Kalra And Another Opposite Parties.

Concise Analytical Summary of the Opinion (H.L. Ageawal, J.)

Factual and Procedural Background

Legal Issues Presented

Arguments of the Parties

Applicant / Petitioner's Arguments (as presented by Mr. Kameshwar Prasad)

Respondent / Opposite Party No. 1's Arguments (as presented by Mr. S.K. Roy Choudhary)

Table of Precedents Cited

Court's Reasoning and Analysis

Holding and Implications

M/S. Manohar Singh Sahay And Co. v. Jogendra Singh Kalra And Another Opposite Parties.

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