Citation Codes

Equivalent Citations

citation codes

Case Number

First Appeal from Order No. 89 of 1955.

Attorney(S)

A.N Grover,
A.R Whig,

Judges

Falshaw, J.

Acts

Illustration (1) to Section 29, Indian Contract Act.
SECTION 34 ARBITRATION ACT

See more information ...

Smart Summary

Structured Summary of the Opinion

Factual and Procedural Background

(Narrative strictly confined to the information contained in the provided opinion.)

This is an appeal by a company identified as "the Delhi and Financing Housing and Construction Limited" (the appellant) against an order of the lower court. The lower court dismissed the appellant's application under Section 34 of the Arbitration Act and refused to stay proceedings in a suit instituted by the respondent, Brij Mohan Shah.

The respondent-plaintiff (Brij Mohan Shah), together with Nand Kishore (defendant 2) as partners trading as Messrs S. P. Kishore and Company, entered into a contract with the appellant for an electrification scheme in the appellant's colony called Rajauri Gardens on Najafgarh Road. The partners deposited Rs. 12,000 with the Company as security. The contract was terminated by the Company in November 1952. The plaintiff filed a suit seeking recovery of Rs. 31,000 for return of the security deposit and for the price of goods supplied and work done.

The Company applied under Section 34 of the Arbitration Act for a stay of the suit proceedings on the ground that the contract contained an arbitration clause. The lower court decided most of the plaintiff's opposing grounds in favour of the defendant company, but found one ground in favour of the plaintiff: that the arbitration clause in the contract was invalid as vague and uncertain. The appellant therefore appealed that finding.

Legal Issues Presented

Whether the arbitration clause (Clause No. 68) in the contract is valid or whether it is void for vagueness and uncertainty.
Whether the lower court erred in refusing to stay the suit proceedings under Section 34 of the Arbitration Act by holding the arbitration clause invalid.

Arguments of the Parties

Appellant's Arguments

The appellant argued that Clause No. 68 could reasonably be read in more than one sensible way and that those readings made the clause operative rather than void.
Two specific constructions advanced for the clause were (a) that the Managing Agents were to be appointed as arbitrator or, failing them, the Technical Director, and (b) that either of the two named persons (Managing Agents / Technical Director) was to be selected by agreement between the parties (i.e., implication of words to provide selection by consent).
The appellant relied on the decision in Indian Hosiery Works v. Bharat Woollen Mills Ltd. (1953 Cal. 488 (AIR V. 40)) to support the submission that an arbitration agreement that does not specify number of arbitrators or the mode of appointment can be effective as an agreement to refer to a sole arbitrator to be appointed by consent or, failing agreement, by the Court.

Respondent's Arguments

The opinion does not contain a detailed account of the parties' legal arguments beyond indicating that the plaintiff opposed the application on several grounds and that those grounds (except the one upholding invalidity of the clause) were decided in favour of the defendant company.

Table of Precedents Cited

Precedent	Rule or Principle Cited For	Application by the Court
Indian Hosiery Works v. Bharat Woollen Mills Ltd., 1953 Cal. 488 (AIR V. 40)	Held that where an arbitration agreement neither specifies the number of arbitrators nor the mode of appointment, it may be effective as an agreement for reference to a sole arbitrator to be appointed by consent of the parties or, if parties do not concur, to be appointed by the Court.	The court distinguished this authority: it found the present clause materially different because two arbitrators are expressly named and there is an indication that one or the other is to be selected but no mechanism for selection. Therefore the principle in Indian Hosiery could not be applied to cure the present clause's vagueness.
Ganpatrai Gupta v. Moody Bros. Ltd., 85 Cal. LJ 136	An arbitration clause that provides alternatives ("...referred to arbitration under the rules of the Tribunal of Arbitration, Bengal Chamber of Commerce or Indian Chamber of Commerce...") was held to be vague and uncertain.	The court regarded this case as one of the most in point and applied its reasoning by analogy to hold that the clause in the present contract was likewise vague and uncertain.
Luxmi Chand Baljnath v. Kishanlal Sohanlal, 1955 Cal. 588 (AIR V. 42)	Considered an arbitration clause presenting alternatives (a named tribunal "or" arbitrators appointed by buyer and seller); discussed three possible constructions and held that where the agreement does not indicate who has the option to elect between alternatives the agreement may be uncertain and the uncertainty is not necessarily curable by election.	The court treated this decision as directly applicable and persuasive, adopting its reasoning that an arbitration agreement which provides alternatives without indicating who has the option is uncertain. The court applied this reasoning to find the clause in the present case invalid.
Bhowani-das Ramgobind v. Harsukhdas Balkishendas, 1924 Cal. 524 (AIR V. 11)	Example of an arbitration agreement that is certain because the agreement itself shows who is to have the option (i.e., where the agreement indicates who has the option, uncertainty can be avoided).	Cited in Luxmi Chand as an example of a certain arrangement; the present court referenced Luxmi Chand's discussion, which in turn invoked this authority to contrast with the present clause (which does not indicate who has the option).
Sundermull Poresh-ram v. Tribhuban Hirachand & Co., 1924 Cal. 828 (AIR V. 11)	Another authority cited in Luxmi Chand supporting that certainty exists where the agreement itself indicates who has the option.	Referenced by Luxmi Chand and relied upon by the present court's consideration of whether uncertainty in the clause could be cured by showing who had the option; here it could not.
Knapton v. Kindle, (1941) 1 Ch 428	Illustration that where there are several legatees and a choice is necessary the choice may be determined by lot (example of how choice can be determined in some contexts).	Cited in Luxmi Chand as an example of methods by which an election might be effected in some contexts; the present court referenced Luxmi Chand's treatment of such examples and concluded they did not make the present arbitration clause certain.

Court's Reasoning and Analysis

The court proceeded by close textual analysis of Clause No. 68, which provides (as quoted in the opinion):

"All disputes between the parties to the contract, arising out of or relating to the contract shall, after written notice by either party to the the contrast to the other of them, be referred to the sole arbitration of the Managing Agents/Technical Director, DLF Housing and Construction Ltd., New Delhi."

The court noted the express use of the words "sole arbitration" together with the slash between "Managing Agents" and "Technical Director." It inferred that the slash must be read as "or," such that one or the other of the two named persons was to be appointed as arbitrator. The central legal question therefore became whether the clause, which names two possible arbitrators but contains no provision for selecting between them, is sufficiently certain or is void for vagueness.

The appellant advanced two possible constructions: (1) that the clause contemplates a primary and secondary arbitrator (e.g., Managing Agents, or failing them the Technical Director), or (2) that either of the named arbitrators was to be selected by agreement between the parties (i.e., implying words to provide selection by consent). The appellant relied principally on Indian Hosiery Works v. Bharat Woollen Mills Ltd. to argue that an arbitration agreement that does not specify number or mode of appointment can still be effective (as a reference to a sole arbitrator appointed by consent or, failing consent, by the Court).

The court distinguished Indian Hosiery on the ground that that case involved an agreement that neither specified the number of arbitrators nor the mode of appointment; the natural meaning there supports construing the agreement as a reference to a sole arbitrator with appointment by consent or court. In contrast, the present clause specifically names two arbitrators and indicates that one or the other is to serve, but contains no mechanism or provision for how the choice between them is to be made.

The court considered and accepted the respondent's authorities as most in point, particularly Ganpatrai Gupta v. Moody Bros. Ltd. and Luxmi Chand Baljnath v. Kishanlal Sohanlal. The Luxmi Chand decision, discussed at length in the opinion, examined alternative constructions of an "or" clause and concluded that where an arbitration agreement permits two alternative tribunals without indicating under what circumstances one or the other should be selected and without indicating who has the option, the agreement is prima facie uncertain and that such uncertainty is not necessarily curable by election.

Applying these principles, the court held that it was not permissible to imply words into the clause to create a mechanism of selection (for example, to imply that the arbitrator was to be chosen by agreement). The absence of any indication in the clause as to who would have the option to determine the forum or how the choice was to be made rendered the arbitration clause vague and uncertain.

For these reasons the court agreed with the lower court's finding that the arbitration clause was invalid for vagueness. The court therefore dismissed the appeal.

Holding and Implications

Holding: The appeal is dismissed. The arbitration clause (Clause No. 68) was held to be bad as being vague and uncertain.

Direct consequences for the parties:

The lower court's decision refusing to stay the suit proceedings stands; the plaintiff's suit for recovery of Rs. 31,000 may therefore proceed in the ordinary course.
The appellant was ordered to pay costs: counsel's fee of Rs. 50/-.

The opinion does not state or claim the setting of any new broad precedent beyond applying earlier authorities; the decision applies existing case law (as discussed above) to hold the particular arbitration clause void for uncertainty.

Show full summary ...

D.L.F, Housing And Construction, Ltd., New Delhi, v. Shri Brij Mohan Shah And Another,

1. This is an appeal by a Company the Delhi and Financing Housing and Construction Limited, against the order of the lower Court dismissing the Company's application under Section 34, Arbitration Act and refusing to stay proceedings in a suit instituted by Brij Mohan Shah respondent.

2. The plaintiff's case was that he and Nand Kishore defendant 2 as partners under the name of Messrs S. P. Kishore and Company entered into a contract with the appellant Company for carrying out the electrification scheme in the Company's colony known as Rajauri Gardens on the Najafgarh Road and deposited Rs. 12,000/-with the Company as security. The contract was terminated by the Company in November 1952 and the plaintiff filed this suit for the recovery of Rs. 31,000/- on account of the return of his security deposit and also the price of goods supplied and work done.

3. The Company applied under Section 34, Arbitration Act for stay of the proceedings on the ground that the contract between the parties contained a clause for reference of any disputes to arbitration. The application was opposed on several grounds by the plaintiff, all of which were decided in favour of the defendant company except one, namely that the arbitration clause in the contract was invalid as being vague and uncertain.

4. The clause in question, which is No. 68 in the contract, reads-

"All disputes between the parties to the contract, arising out of or relating to the contract shall, after written notice by either party to the the contrast to the other of them, be referred to the sole arbitration of the Managing Agents/Technical Director, DLF Housing and Construction Ltd., New Delhi."

5. Since the words 'sole arbitration' are used, it must be assumed that the '/' which occurs between the names of the two arbitrators means 'or' and that one or the other of them was to be appointed as arbitrator, and the question which arises is whether in the absence of any provisions as to how the choice was to be made between the two arbitrators, the clause is invalid as being vague and uncertain.

6. On behalf of the Company it was argued that the clause either means that the Managing Agents should be appointed as arbitrators or, failing them, the Technical Director, or else that it means that either of the arbitrators named was to be selected by agreement between the parties, and that in either event the clause was good. It seems to me, however, that the very fact that even the learned counsel for the Company could find at least two alternative meanings which could naturally be ascribed to the word clearly shows that some vagueness exists.

6a. Indeed he more or less chose to concentrate on the second of his suggested interpretations, namely that one or either of the arbitrators named was to be chosen by agreement between the parties and he contended that some such words were implied in the clause.

In this connection he relied on the decision in 'Indian Hosiery Works v. Bharat Woollen Mills Ltd.', 1953 Cal. 488 (AIR V. 40) (A). There the relevant words of the clauses Were -- "Shall be referred to arbitration at Calcutta"; and it was held by Chakravatti C.J. and Sarkar J. that an arbitration agreement, neither specifying the number of arbitrators nor specifying the mode of appointment, is perfectly effective and valid and the incidents of such an agreement are that it is to take effect as an agreement for reference to a sole abitrator, to be appointed by consent of the parties or, where the parties do not concur in making an appointment, to be appointed by the Court.

7. It will, however, be seen that that case was totally different and the meaning ascribed to the words in the clause by the learned Judges is the perfectly natural meaning, but the case is different where, as in the present case, two arbitrators are named with an indication that one of them is to be selected, but without any provision as to how the selection is to be made, and I do not find it possible to imply the words in such a clause that one or either was to be selected by agreement between the parties.

8. The two cases most in point are those cited on behalf of the respondent, 'Ganpatrai Gupta v. Moody Bros. Ltd.', 85 Gal LJ 136 (B), and 'Luxmi Chand Baljnath v. Kishanlal Sohanlal', 1955 Cal 588 (AIR v. 42) (C). In the first of these cases the contract contained a clause to the effect that

"all disputes whatsoever arising on or out of this contract shall be referred to arbitration under the rules of the Tribunal of Arbitration, Bengal Chamber of Commerce or Indian Chamber of Commerce applicable for the time being for decision."

These words were held by Sinha J. to be vague and uncertain and the arbitration clause was in consequence held to be invalid.

9. In the other case the arbitration clause read -

"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."

Bachawat J. held that this could be interpreted in three ways-

"(a) The word 'or' is substitutional and appends a secondary alternative after a primary alternative, and the expression means 'by the Arbitration Board of the Blanket and Shawl Traders' Association and failing them by two Arbitrators one to be appointed by each party"

(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'.

He went on-

"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'.

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. Under this argument prima facie the Arbitration agreements are uncertain. Mr. Meyer contends that the uncertainty is curable by election.

I agree that uncertainty in certain cases may be cured by election, e.g., in the case of a grant bv giving a right of election to the party who is to do the first act towards completion of the grant --Halsbury, Vol. X, Articles 349-50, pages 281-82, and in the case of alternative promises by giving right of election to the party who is to perform the promise -- Halsbury, (Vol. VII. Article 461, page 331, and Article 267. pp. 189-190.

It has also been held that where there are several legatees to whom the opinion is given -- e.g., where there, is a bequest of one house each to the nephews and neices of the Testator in the event of disagreement between them -- the choice may be determined by lot, -- In re, 'Knapton, Knapton v. Kindle', (1941) 1 Ch 428 (D).

Reference may also be made to Stroud's Judicial Dictionary, 3rd Ed., page 2008, Norton on Deeds, 2nd Ed., pp. 109-118, Jarman on Wills, 8th Ed., Vol. I, p. 477, and British Empire Digest, Vol. XVII, pp. 359-61.

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 B is uncertain where the gift is not substitutional : Jarman on wills, 8th Ed., pp. 493-95. And a contract of sale for either Rs. 500/- or Rs. 1,000/- also is uncertain. Illustration (1) to Section 29, Indian Contract Act.

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: 'Bhowani-das Ramgobind v. Harsukhdas Balkishendas', 1924 Cal 524 (AIR V 11) (E), and 'Sundermull Poresh-ram v. Tribhuban Hirachand & Co.', 1924 Cal. 828 (AIR V. 11) (F). The Arbitration agreements in this case do not indicate who is to have the option.

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. Either party may "commence the arbitration and may require that the dispute 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 agreement that one of the parties has the option of determining the Arbitration Tribunal to-whom the reference is to be made.

Mr. Meyer contends that the disputes may be referred to either Tribunal 'X' or Tribunal 'Y' just as a suit may some times 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 jurisdic tion. Under an Arbitration agreement two Arbi tration Tribunals cannot have concurrent jurisdic-

tion over the identical subject-matter at the same time. An Arbitration agreement is an agreement) that the disputes shall be settled by an Arbitraton named or designated in the agreement or by an Arbitrator appointed in accordance with the Arbi tration agreement.

An Agreement to refer either to 'X' or to 'Y' is not an agreement by 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."

10. In these circumstances the arbitration agreement in question was held to be invalid and an award was set side. In ray opinion these re marks are applicable in the present case and I thus agree with the finding of the lower Court that the arbitration clause was bad as being vague and un-

certain. I accordingly dismiss the appeal with costs. Counsel's fee Rs. 50/-.

D.L.F, Housing And Construction, Ltd., New Delhi, v. Shri Brij Mohan Shah And Another,

Structured Summary of the Opinion

Factual and Procedural Background

Legal Issues Presented

Arguments of the Parties

Appellant's Arguments

Respondent's Arguments

Table of Precedents Cited

Court's Reasoning and Analysis

Holding and Implications

D.L.F, Housing And Construction, Ltd., New Delhi, v. Shri Brij Mohan Shah And Another,

Comments