Judgement
KUMARAYYA, J. :-
This appeal arises out of a petition made under S. 559 of Hyderabad Civil Procedure Code to file the award dated 24th Amardad 1359 F. and make it the rule of the Court. Plaintiffs-appellants are stock, shares and finance brokers and their firm is a member of the Hyderabad Stock Exchange Ltd. The defendant-respondent who is not a member of the stock exchange had dealings with them in relation to the purchase and sale of shares in various companies.
The established course of their dealings was that the defendant would intimate to the plaintiffs either on phone or otherwise that he wished to sell or purchase certain number of shares and the plaintiffs then would send contract notes evidencing the contract thus entered into between them and obtain confirmation slips. These transactions were by express agreements made subject to the rules of the Hyderabad Stock Exchange.
At one stage, these transactions barring a few shares of two companies were adjusted up to 24th March 1946. Though the outstandings thus found were not settled the transactions thereafter continued as ever. Eventually the plaintiffs made a demand but the defendant denied his liability. Thereupon the plaintiff purchased the shares due to be delivered by the defendant in the market at the risk of the defendant and claimed the difference amount from him (the defendant).
They applied in October 1946 to the Secretary, Stock Exchange for reference of the dispute to arbitration under the rules of the Stock Exchange. The arbitration proceedings were however started and after several vicissitudes an award was made on 24th Amardad 1357 P., in the absence of the parties and without notifying the date of making the award. The defendant who was out of station on account of disturbed conditions could not come to know of the award within a reasonable time.
He as the aggrieved party could have preferred an appeal but he came to know of the award only after the plaintiffs had started the proceedings for filing the award and a notice was served on him in the year 1358 P. Even the plaintiffs became aware of this award on 22nd Shehrewar 1357 F. as a result of which he could not apply to the Court under S. 559, Hyderabad Civil Procedure Code within the statutory period of limitation.
2The defendant resisted the claim of the plaintiffs on more than one ground. Of course, he admitted that there were dealings between the parties in relation to the purchase and sale of shares of various Companies and that the plaintiffs used to deliver to him contract forms duly signed and obtain from him the confirmation Blips.
He however denied the transactions of contract notes Nos. 1125 and 1136 for which he did not pass any confirmation slips and alleged in relation to all the transactions that there was express agreement between the parties, that the Shares will neither be delivered nor obtained nor their price be paid but only profits and losses in the transaction will be adjusted. Such transactions being "Badla" forbidden by law the defendant contended that they are unenforceable and cannot be made the subject-matter of arbitration.
He further alleged that he, placing entire reliance upon the plaintiffs and without ascertaining the actual prevailing market rates confirmed contract forms and that the plaintiffs never gave weekly or monthly accounts and eventually made a demand without furnishing a copy of the accounts. The other contentions raised were that the contracts entered into were not subject to the rules of the Hyderabad Stock Exchange and the plaintiffs had therefore no right and the Secretary, Stock Exchange, no power to refer the matter to arbitration, that contracts Notes 1125 and 1136 which were totally denied by the defendant and regarding which the defendant had not signed the confirmation slips could in no circumstance validly form the subject-matter of arbitration, the proceedings on that account are without jurisdiction, and that though the defendant went before the Arbitrators to defend the case it was only under protest.
His further allegations are that the arbitrators were not duly constituted, they were prejudiced against the defendant being the members of the Stock Exchange and were guilty of judicial misconduct, that the defendant was not allowed to choose his arbitrator nor was he permitted to be represented by a lawyer, that there were serious irregularities in the procedure and that at any rate, as the arbitrator who gave the award had become functus officio at the expiry of the statutory period of 15 days and no extension was obtained from the President for their continuance, the award passed is without any legal effect.
3. The Court below, on these pleadings; settled as many as 15 issues and after due enquiry found that the arbitrators had no jurisdiction, that they were guilty of judicial misconduct, that the defendant submitted to the jurisdiction of the arbitrators only under protest, that his conduct does not amount to waiver and that the petition therefore was liable to dismissal. He accordingly dismissed it with costs.
4. The learned counsel for the appellant, raised pleas which he had unsuccessfully advanced in the lower Court. Of course, there were certain points which were found by the trial Judge in his favour but the main grounds of jurisdiction and judicial misconduct on which the case was fought, have been decided against him and these are the very points which require determination in this appeal.
In order to appreciate the arguments advanced in this behalf, it is necessary to set out essential particulars of the case on which these arguments are based. Before we do so, it is expedient to quote the relevant rules of the Hyderabad Stock Exchange Ltd., viz., Rr. 60 to 66, which according to the contentions of the defendant are statutory and admittedly regulate the course of arbitration:
"60. All unpaid claims, whether admitted or not and all other claims and disputes arising out of or in relation to transactions or contracts for ready delivery, or shares, stocks, securities, debentures etc., and whether between members in ter se or between any of the Members on the one hand and their constituents on the other hand or between any of the Members on the one hand and their sub-brokers on the other hand or between the sub-brokers on the one hand and their constituents on the other hand in respect of any transactions or contracts made subject, to the Rules of the Exchange shall be referred to Arbitration of two disinterested persons, one to be chosen by each party, from among the members of a panel of arbitrators, which shall be nominated by the Board.
61. The Arbitrators shall, before they commence the Arbitration proceedings, appoint an Umpire to whom they shall refer the dispute in case they disagree about their award.
62. The Arbitrators shall make their award within 15 days of their appointment unless the President shall, when appointing arbitrators (in the manner prescribed below) or upon the subsequent application of the arbitrators, whether appointed by the parties or by the President, grant an extension of this period.
Explanation:- An award shall be deemed to have been made on the date when the arbitrators shall have first recorded their decision in writing.
63. Umpire shall make his award within 10 days of the date of the reference of the dispute-to him, unless the time is extended by the President.
64. Upon application and on payment in advance of the minimum fees of arbitrators as provided by Rule 87 by either disputant, the President shall appoint the two arbitrators-(having power to appoint an Umpire) in any of the following cases : (i) If after one party has appointed an arbitrator ready and willing to act, the other party refuses or neglects to appoint a second arbitrator (ready and willing to Act) within 72 hours after service of written notice of that appointment in Hyderabad, Secunderabad or Atraf-Balda or within 144 hours after service thereof elsewhere in H. E. H. the Nizams Dominions;
(ii) If the arbitrators appointed do not within 15 days or such extended period as may have been fixed by the President, either make an award or appoint an Umpire.
(iii) If either of the arbitrators dies, refuses or neglects to act or becomes incapable of acting before an award is made by them or by the Umpire.
In cases (ii) and (iii) the arbitrators or the surviving or acting arbitrator shall at once give notice thereof to the parties.
65. The President may appoint an Umpire-
(i) If from any cause the two arbitrators appointed by him fail within 15 days of their appointment, or within such extended period as may have fixed as aforesaid, to make an award or appoint an Umpire;
(ii) If from any cause the Umpire fails to make his award within 10 days from the date of his appointment or within such period as may have been extended by the President.
(iii) In case of the death, refusal or neglect to act, or incapacity of the umpire occurring at any time before his award is made.
In any of these cases the arbitrators or the acting arbitrators shall give notice to the President.
66. In the absence of the President, or in the event of his illness or interest in the matter in dispute, the appointment of arbitrators or an umpire shall be made or the extension of time dealt with by the Directors."
It will be noticed that the above rules provide for reference of claims and disputes relating to transactions or contracts to two disinterested arbitrators one to be chosen by each party from the members of the panel. If one of the parties refuses or neglects to choose his arbitrator within 72 or 144 hours (as the case may be) of the service of notice after the other party has appointed one, the President has the power to appoint the arbitrator himself.
It is also manifest that the arbitrators have to appoint an umpire before they commence proceedings and make the award within 15 days of their appointment unless the President in case he has appointed the arbitrators fixed a larger period or upon the application of the arbitrators grants an extension of time. Rule 64 provides for the cases for which and the manner in which the extension may be applied for and granted.
Thus these rules lay down a code for arbitration, the observance of which is highly essential. The grievance of the defendant is that there has been serious omission to comply with the provisions. It would appear from the record that the plaintiffs had appointed Mr. Chotalal Chaturbhuj out of the panel of arbitrators on 1-12-1946 to be their arbitrator. The defendant was requested to appoint his own arbitrator within 72 hours through the letter dated 23-11-1946.
He failed to exercise his right with the result that on 18-12-1947 the President appointed Mr. Syed Yousif as the arbitrator and this was intimated to the defendant. So far there has been no material irregularity in complying with the procedure. Then the award should have made within 15 days of this date viz., by 5-3-1947. Curiously enough even the first sitting of the arbitrators took place only on 8-3-1947.
Then the hearing was adjourned to 24th March, 31st March and then to other dates. No steps were taken to obtain extension from the President and not even notice contemplated by R. 64 was given to the parties. In spite of discovery of defect the arbitrators practically chose to go on with the arbitration. This was a serious contravention of provisions of Rr. 62 and 64 by the arbitrators.
Then again as Chotelal Chaturbhuj had left the station and" was not on the panel for the year 1948, the plaintiffs were called upon to nominate and they nominated Mr. Mamchand Goel as their arbitrator. This nomination was a contravention of R. 64 (2). However this was communicated to the defendant on 14-5-1948 and he forthwith took objection and called upon the Secretary to send him a panel of names so that he may also select another arbitrator in place of Syed Yousif appointed by the President on his behalf.
This request was turned down. The defendant through his letter dated 20-5-1948 communicated to the Secretary that the appointment of Mr. Syed Yousif. on his behalf and his submission to the Stock Exchange has always been under protest, that since he cannot expect fair play and justice from the members of the stock exchange who have got dealings with each other he would like to appoint a non-member out of the named panel of arbitrators; but this request too was turned down under the letter dated 21-5-1948.
On 11th Amardad 1357 P. (11-6-1948) when the arbitrators entered on enquiry into the claims by recording evidence, they however asked the" defendant whether he had any objection as to Syed Yousifs continuance as an arbitrator. He replied no such question would arise as the letter dated 21-5-1948 made it clear that the defendant had no longer a right to nominate his own arbitrator. Thereafter on 24-6-1948 the award was made.
It is significant that notwithstanding the lapse of more than one year the arbitrators continued to work even though their statutory period of continuance as arbitrators was not extended in accordance with the provisions of R. 64 of the Hyderabad Stock Exchange Ltd. It appears at one stage when the defendant was absent, the arbitrators had found defect in their continuance in office and had directed that necessary steps be taken in that regard but as the evidence would show no steps were taken in this direction.
Not even a notice was given to the defendant in that behalf as provided under R. 64. The question therefore for consideration is whether this is fatal or a mere curable irregularity which does not vitiate the proceedings. S. 54 of the Hyderabad Civil Procedure Code provided inter alia under Cl. (c) that an award may be set aside if it is made after the period fixed by the court or if it is otherwise invalid.
The matter not being referred to arbitration through the intervention of the Court, the first mentioned clause may not apply. But the principle therein cannot be ignored as the last mentioned clause is comprehensive enough to cover all cases invalidating the award. In the absence of any statutory provision no doubt it is always open to the parties at the time of making submission to fix the period within which the award should be made or they may even extend the said period under an agreement express or implied.
But we are now concerned with a case where the parties have imported into their contract the Hyderabad Stock Exchange Rules and in fact the submission purports to be made thereunder. As already observed, there is express provision fixing the time in which the award should be made and the manner in which the extension should be obtained if necessary.
These provisions have, as pointed out above, been violated. It cannot be said that these provisions are inconsequential. One would do well to remember that this is not altogether a voluntary arbitration but has an element of compulsion inasmuch as the business in stock, shares and security cannot be transacted unless it is through a recognised stock exchange and is subject to the stock exchange rules.
Section 5 of the Securities Contracts Regulation Act No. 7 of 1353 P. makes every contract void unless it is made between members or through a member of a recognised stock exchange. Stock exchange rules are required to be sanctioned by the Government and are to be published twice in the Gazette in accordance with the Hyderabad Securities Contracts Regn. No. 21 of 1352 P. The said Regulation and the subsequent act 7 of 1353 p. are designed for controlling and regulating the business in securities and are therefore essentially based on public policy.
The rules framed to advance the cause and purpose of the said Regulation so far as they are mandatory in their nature ought to be therefore observed in full. Their violation would indeed entail serious consequences. Clauses (f), (i) of sub-s. (2) of S. 5 of the said Regulation and S. 4 of the Regulation Act refer to rules dealing with settlement of disputes arising between the members and the punishment of the defaulting member. The rules under discussion are framed in compliance with this provision.
No doubt these rules provide for arbitration of disputes between members and non-members also as would appear from R. 60 of the Hyderabad Stock Exchange. But this provision is probably rendered necessary on account of the permitted transactions of the non-members through the members of the stock exchange. Thus the said rules so far as non-members are concerned may not be strictly within the letter of the Regulation but are nevertheless within its spirit and are intended to advance its cause and purpose.
Besides, S. 4 of the Act which confers rulemaking power on the stock exchange, under subsection (2) only enumerates some of the cases and is not exhaustive of the powers conferred under S. 4 (1). R. 60 therefore is indeed within the purview of that section. Further, this rule seems to have been made in exercise of the powers under Art. 87 (g) of the Articles of Association as well.
Thus the statutory nature of the rules is not open to doubt. It may also be remembered that before the trial Judge the plaintiffs counsel had advanced an argument that these rules have received the sanction of the Nizam as well; but there is no material on record which would enable us to arrive at that conclusion. If the sanction of the Nizam is admitted or assumed there can be little doubt that the rules thus enforced have statutory force.
However, having regard to the scanty material on record as regards full compliance with the provisions of the regulation in the publication of the rules we feel that we need not go into the matter in detail in this regard. It is nevertheless clear that since the parties have imported into their contract the arbitration clause as provided for the members of the Hyderabad Stock Exchange, the rules are as much binding, on the contracting non-member as they are on a member and equally binding on those who derive authority thereunder.
They cannot be therefore contravened without affecting the binding authority of the arbitration. The question therefore is whether the contravention in question is vital and goes to the very root of the matter so as to vitiate the entire proceeding. A distinction must always be drawn between elements which are essential for the foundation of jurisdiction and the mode in which such jurisdiction has to be assumed and exercised.
Where there is jurisdiction over the subject-matter but only non-compliance with the procedure prescribed as essential for the exercise of jurisdiction, the defect might be waived but the same may not be said in a case where there is inherent lack of jurisdiction. The arbitrators therefore could make a valid award only if they were duly appointed according to rules which the parties had to abide by and had thus acquired jurisdiction.
Admittedly Mamchand Goel was not the original arbitrator when the submission was made. He was appointed as Chotalal Chaturbhuj had gone out of station and ceased to remain on the panel of arbitrators. If on account of any disability the arbitrator could not continue to function, the procedure under R. 64 ought to have then been followed. The nomination of Mamchand Goel by the plaintiff is clearly opposed to Rr. 62 and 64 of the Stock Exchange.
It cannot therefore be said that Mamchand Goel was a validly appointed arbitrator to have any jurisdiction in the matter. It is worthy of mention that as soon as the defendant came to know of it he challenged the action taken and applied for similar concession for himself which was rejected. Not only the appointment was without any legal authority but his continuance was under protest. Such a breach of the provisions which goes to the jurisdiction of the arbitrator is indeed vital and strikes at the very root of the arbitration agreement. The award passed under such circumstances cannot be said to be a legal or valid award so as to bind the parties.
5. Rule 62 has been contravened in other respects also for the award was not made within 15 days, and no extension of time was obtained by the arbitrators. The evidence in this behalf consists of the arbitrators, the secretary and the record of the arbitration proceedings. It is clear and conclusive. It admits of no doubt that no extension as contemplated by the provisions has been obtained to confer authority on the arbitrators after the lapse of 15 days and upto the date of the award.
But the learned Counsel on behalf of the plaintiffs has argued that as the rules existed for the benefit of the parties it was open to the party to waive the benefit under the rules and that the waiver in this case may be presumed from the conduct of the party as well. He further argued that the fact that defendant had submitted to the jurisdiction and asked for adjournments extending beyond the period of 15 days must operate as an estoppel against him.
He cannot in law dispute the authority of the arbitrators. It is no longer open to him to turn round and question either the jurisdiction of the arbitrators or the validity of the arbitration award. It is so even in cases where there is compulsory arbitration.
6. Evidently the pleas advanced are twofold. They cover both waiver and estoppel. Waiver and estoppel are not one and the same thing. They differ from each other in various respects. Waiver is an intentional relinquishment of a known right or such conduct as warrants an inference of the relinquishment of that right. It is an intentional act and implies consent to dispense with or forego something to which he has a right.
Thus waiver is created upon knowledge of all the facts by both the parties; but in case of estoppel by representation, the fact that the representee has knowledge of the facts destroys the plea of estoppel. Mere silence will not be waiver. A person may waive the provisions made for his individual benefit but he cannot be deemed to have waived in law the statutory provisions which are based on public policy.
7. In support of the pleas raised that it is a case both of waiver and estoppel, the learned Advocate has referred us to various English authorities. In Thomas Tyerman v. Sarah Smith, (1856) 119 ER 1033 (A), where arbitration was a creature of a statute and the arbitrator was bound to give his award within a period of three months, unless the parties have consented in writing to enlarge the time the fact that the plaintiff attended meetings even after the expiry of the said period without demur and acted as though the arbitrator was still exercising a valid authority, was held to be sufficient to enlarge the time and preclude the party from denying the authority of the arbitrator. Watson v. Bennet, (1860) 157 ER 1412 (B), is again a case of compulsory reference under similar circumstances. Bramwell B. referring to Russel on Awards observed that
"attending before the arbitrator after the expiry of three months from the date of appointment of the arbitrator after the arbitrators powers have ceased was evidence of parole submission."
Similar are the observations in King v. Hill. (1819) 146 ER 1085 (C), where the arbitrator did not make his award even within the extended period and that being the consequence of delay made by the defendants in furnishing him with the name of the trustee and thereafter the defendants solicitor wrote a letter, the conduct of the defendants and the solicitors letter were held to be equivalent to a consent to extend the time.
The authorities cited, in my opinion, do not help the case of the plaintiffs inasmuch as extension of time by the parties was permitted under the Act and by their conduct though not in writing the parties had consented to extension.
8. We are then referred to some of the Indian Cases. The first of these is Pattokumari v. Upendranath Ghose, 50 Ind Cas 52 : (AIR 1919 Pat 93) (D), wherein it was held that an award made out of time was not a nullity but according to the provisions of paragraph 15 of Sch. II of C. P. C., it is merely voidable and is binding if not sought to be set aside within the period. The question in that case was when the proper authority to grant extension was a Civil Court, could such purpose be achieved by the conduct of the parties?
The learned Judge observed that the power vested in the court under the rules is permissive and discretionary and that if the parties to an arbitration proceeding by their conduct lead the arbitrators to think and believe that even though the time for making an award had in fact expired they should continue the proceeding and thus have assented by acquiescing in taking part in these proceedings, the jurisdiction of the arbitrators would be deemed to continue to validate and give effect to the award.
The learned Judge has cited with approval various English authorities on the point. There is however no reference to Sheonath v. Ramnath, 10 Moo Ind App 413 (PC) (E). But in Fayazuddin v. Aminuddin, 1 Ind Cas 354 (All) (F), where one of the arbitrators having refused, the Court with the consent of the parties had appointed one of the arbitrators in his place, the fact that the appointment was not with the consent of both the parties as provided in law was held to be material.
The conduct of the parties which showed subsequent acquiescence in the proceedings of the arbitrator was held not to validate the reference when it was made by the Court without jurisdiction. The next case cited Venkata Chellam v. Madipalli Suryanarayanamurty, AIR 1941 Mad 129 (G). is not directly in point. In this case too the principle of estoppel was invoked for the party seeking to evade the award raised a number of objections which never occurred to him before.
It was held that the Court would be unwilling to assist such a party who with full knowledge of the circumstances, allowed the arbitration to proceed and takes part in it but subsequently seeks to evade it. Our attention is invited to the observations of Mukherjee J., in National Fire and General Insurance Co. Ltd. v. Union of India. AIR 1956 Cal 11 (H); Jupiter General Insurance Co. Ltd. v. Corporation of Calcutta (S) AIR 1956 Cal 470 at p. 473 (I) : and Nanalal M. Varma and Co.. (Gunnies) Private Ltd. v. G. Ambalal. AIR 1956 Cal 476 (J. and K)
It is argued that the doctrine of estoppel is of wide and universal application and the observations of the learned Judge in the second mentioned case seem to go to the extent of holding that the doctrine of estoppel can apply even to cases where the arbitration proceeding itself was void under the statute. The learned Judge observes :
"It (the Court) does not decide the question of competence of the reference. In fact it does not at all go into the question of statutory disability................. It does not say that there can be any estoppel against statute or consent will create statutory capacity when there is none, as indeed no Court can say it either in respect of a person or a corporation ............
In such cases what the Court does is not to pronounce on the question whether the award or the arbitration proceeding was void but it prevents the point being taken by a party to challenge the award, if being aware of the disability of the other party he did not take objection on that ground at the stage when the matter was referred or submitted to arbitration." With respect, we cannot fully agree with the observation of the learned Judge if it lays down as a general principle or rule of practice that the doctrine of estoppel may or ought to be invoked even though that may in effect be to validate what the statute says is void or invalid on grounds of general public policy.
We cannot also subscribe to the view that this doctrine admits of no limitations and could be applied to defeat a statutory obligation of an unconditional character. As observed in the Maritime Electric Co. Ltd. v. General Dairies Ltd., AIR 1937 PC 114 (L),
"an estoppel is a rule of evidence which under certain circumstances can be invoked by a party to an action. It cannot enable a defendant to escape from a statutory obligation of such a kind (the kind mentioned in the case) on his part. It is immaterial whether the obligation is onerous or otherwise to the parties to it, the duty of each party is to obey the law."
Their Lordships further pointed out that there is not a single case in which an estoppel has been allowed to defeat a statutory obligation of an unconditional character, and cited with approval Reg. v. Blenkinsop, 1892-1 QB 43 (M), (Referred to in No. 11); Anctil v. Manufacturers Life Insurance Co. Ltd., 1899 AC 604 (N); and In re, A Bankruptcy Notice, (1924)-2 Ch 76 (O). Lord Atkinson in 1924-2 Ch 76 at p. 97 (O), (referred to in No. 11) referring to a contention as regards approbation and reprobation remarked as below:
"Whatever the principle may be (referring to a contention as regards approbation and reprobation), it appears to me that it does not apply to this case, for it seems to me well-established that it is impossible in law for a person to allege any kind of principle which precludes him from alleging the invalidity of that which the statute has on grounds of general public policy, enacted shall be invalid."
It is plain that an estoppel cannot be restored to as an attempt in any way to break upon the terms of an enactment which are based on public policy and are for the benefit of a section of the public. Subject to such limitations and such others as would render this principle of personal exception incapable of being applicable without offending the mandatory provisions of law, the doctrine of estoppel may be availed of in proper cases.
It is indeed open to the party to give up his rights which the statute conferred on him for his benefit though it may be difficult to hold that there can be a right of waiver of a provision which is opposed to public policy. Waiver at all events should be an intentional act with full knowledge of the fact and of his right. In the instant case, the defendant has not thus waived his right nor by subsequent conduct has he acquiesced in the proceedings of the arbitrators.
It is plain that the defendant was not aware of the defect in the authority of the arbitrators to continue in office after 15 days. It was not known to him that the arbitrators had not obtained the extension of time. On one occasion no doubt there was a reference to the defect in the proceedings but it is when the defendant was absent. Under these circumstances, it cannot be said that the defendant had acquiesced in the authority of the arbitrators with full knowledge of the defect in their authority.
9. As we have already pointed out the original arbitrators did not continue to the end. The plaintiff had nominated another arbitrator in place of his previous arbitrator. So far as this arbitrator, Mamchand Goel, is concerned, the defendant at the earliest opportunity objected to the right of the plaintiff nominating him and has pressed this objection in clear terms and made it clear that it was under protest that he was taking part in the proceedings.
After such protest, it was not necessary for him to retire and cease to take part in the proceedings. His objection to the jurisdiction of the arbitrator cannot be considered to have been waived by his continuing to attend before the arbitrator and leading evidence. In these circumstances, it is a mistake to believe that the defect in the nomination of the arbitrators or their continuance in office was cured by the conduct of the defendant going in before them and taking a chance of having a decision.
From what has been already stated, it is clear that his protests were frequent. Whatever part he took in the proceedings before the arbitrators must be deemed to have been taken under continuous protests. The case therefore falls within the principle of the authority in 10 Moo Ind App 413 (PC) (E). Thus neither the plea of waiver nor of estoppel can be maintained. The award therefore must be held to be void as the arbitrator had no valid authority to make the same. The appeal must fail on this very ground.
10. The question of jurisdiction involved in the case does not end here itself. There is yet another aspect of the case wherein this question is involved. The point is whether contracts Nos. 1125 and 1136 which are denied by the defendant could form the subject-matter of arbitration. Admittedly there are no confirmation slips signed and sent by the defendant.
It is open to doubt whether these contract forms which have been marked as plaintiffs exhibits have at all been in the custody of the defendant. Admittedly the defendant is a non-member. He can be subjected to the rules of the Stock Exchange only by virtue of an agreement as may be embodied in the contract notes. But when contracts 1125 and 1136 are denied by him and admittedly confirmation slips do not bear his signatures, and neither the plaintiff nor his agent has come into the witness-box to give evidence in this behalf and the defendant had through his notice dated 29-9-1946 before the arbitration proceedings had started and during the course of the proceedings and as a witness in the case denied on oath and remained unshaken in the lengthy cross-examination, it is impossible to hold that there was such a contract between the parties.
Thus when there has been no contract, there could be no valid submission for it is common ground that the arbitration clause is entered only in the contract notes which are invariably accepted by confirmation slips. The learned counsel for the plaintiffs relying on the wording of R. 60 of the Hyderabad Stock Exchange has argued that the contracts whether admitted or not can form the subject-matter of arbitration and that the arbitration proceedings on that basis are not without jurisdiction.
As we have already pointed out, there should be a reference to arbitration under an agreement.
The contract note being disproved, there can be no basis for such agreement of reference. The learned counsel for the defendant has referred us to the judgment of Wadia J., in Mohomed Haji v. Pirojshaw R. Vekharia and Co., AIR 1932 Bom 341 (P), wherein no contract memo was signed as in this case.
The learned Judge held that as the contracts had been repudiated and their acceptance was not proved there was no written agreement to refer the disputes arising out of or in relation to them, and hence the arbitrators had no jurisdiction to enter upon consideration of matters which could not be referred to them.
We are next referred to Shriram Hanutram v. Mohanlal and Co., AIR 1940 Bom 93 (Q), wherein the principle laid down in AIR 1932 Bom 341 (P) and Jai Narain Babu Lal v. Narain Das Jaini Mal, AIR 1922 Lah 369 : ILR 3 Lah 296 (R), was approved of. It was held therein that mere sending contract notes by a party to another without any confirmation notes signed by the other party does not amount to submission in writing as required by the Arbitration Act and that if the fact of contract itself is disputed the arbitrators cannot decide the point.
11. The learned Counsel for the plaintiffs has invited our attention to the fact that the arbitration provision in the byelaws of the Bombay Cotton Contract Act is somewhat different from the provisions of R. 60 of the Hyderabad Stock Exchange inasmuch as the words "all unpaid claims whether admitted or not do not find a place in the Bombay Act or byelaws.
But in our opinion that will make no difference. The words "all unpaid claims ("whether admitted or not") are not substituted for the words "contracts or transactions". These claims should be in relation to transactions or contracts for ready delivery of shares, stocks, securities, debentures etc., as would appear from the language used. The phrase "all unpaid claims whether admitted or not" qualifies the words arising out of or in relation to transactions or contracts" in the same way as do the words "and all other claims and disputes".
The unpaid claims have been brought under the category while all other claims form a separate category and the disputes are brought in a third category for the purpose of R. 60; but it is necessary for the application of R. 60 that they all should arise out of or relate to transactions or contracts specified in R. 60. We do not think it necessary to enter into a detailed discussion on this point.
It is however clear that the word claims occurring in two places in the same rule must convey the same meaning. This term even having regard to its context is incapable of being construed as a synonym for transactions or contracts, so that irrespective of the contract any alleged claim or dispute may be taken to arbitration. It is well settled that when the factum of contract itself is denied or when it is contended that the contract is void ab initio the matter would not go to arbitration. In Heyman v. Darwins Ltd., 1942-1 All ER 337 at p. 343 (S), the law on the subject has been stated in the following passage:
"An arbitration clause in a written submission, agreed to by the parties to the contract, and, like other written submissions to arbitration, must be construed according to its language and in the light of the circumstances in which it is made. If the dispute is as to whether the contract which contains the case has ever been entered into at all, that issue cannot go to arbitration under the clause, for the party who denies that he has ever entered into the contract is thereby denying that he has ever joined in the submission.
Similarly, if one party to the alleged contract is contending that it is void ab initio (because, for example, the making of such a contract is illegal), the arbitration clause cannot operate, for on this view the clause itself is also void.
If, however, the parties are at one in asserting that they entered into a binding contract, but a difference has arisen between them as to whether there has been a breach by one side or the other, or as to whether circumstances have arisen which have discharged one or both parties from further performance, such difference should be regarded as differences which have arisen in respect of or with regard to or under the contract, and an arbitration clause which uses these, or similar, expressions, should be construed accordingly."
We are also referred to Ruby General Insurance Co. Ltd. v. Pearey Lal Kumar, AIR 1952 SC 119 (T); Gaya Electric Supply Co. Ltd. v. State of Bihar, AIR 1953 SC 182 (U); and Hussain Kasam Dada v. Vijayanagram Commercial Association, AIR 1954 Mad 528 (V). We do not think it necessary for the purpose of this appeal to deal at length with these authorities.
It is plain that when the contract was denied and when there was no valid submission, the matter relating to contracts 1125 and 1136 could not go to arbitration and the award on that basis is without any legal validity. As this part of the award is closely interlinked with the entire award in the case and is inseparable the whole award should fail in law. Thus the appeal fails on this ground also.
12. There is yet another point raised in relation to the nature of transactions between the parties. It is argued that the transactions in question were in their nature Badala transactions cloaked though they may be in any other form and that as these badala transactions are prohibited by law, they would not go to arbitration in the same way as no court would enforce contracts against public policy.
The learned trial Judge has dealt at length and has found that the transactions in question cannot be called badala transactions. Having regard to the material on record we see no reason to differ. We are then referred to the question of misconduct. As the appeal fails on the ground of jurisdiction itself, we think it unnecessary to enter into a detailed discussion in this regard.
Suffice it to say that we agree with the conclusions arrived at by the trial court in relation to the acts of judicial misconduct. We are firmly of the opinion that the arbitrators should perform their quasi-judicial functions in a judicial manner and should not make a farce of the enquiry before them. They should give full opportunity to the parties to adduce their evidence and also allow them to be heard.
In this case it is clear from the evidence that the defendant was given an opportunity to file the statement within three days and though that statement was filed the arbitrators without going through the same and without giving an opportunity to the defendant to be heard or fixing a further date for hearing gave their award and no date was fixed even for the award. Having regard to the evidence of Syed Yousif it is impossible to hold that the award was passed after full enquiry. The Court below has held that the arbitrators are guilty of judicial misconduct. We see no reason to differ from this conclusion.
13. In the result, the appeal fails, and is therefore dismissed with costs.
Appeal dismissed.