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Shanker Lal v. Phul Chand
Structured Summary of the Provided Opinion
Factual and Procedural Background
The plaintiffs (now appellants) contracted with the defendants for the supply of three bales of dhotis under a printed agreement on the form of the Delhi Mercantile Association. Paragraph 15 of the agreement contained an arbitration clause.
A dispute arose after the date fixed for delivery: the defendants said their goods were ready and demanded payment; the plaintiffs complained certain documents had not been delivered and refused to take the goods. The defendants invoked the arbitration clause and nominated Mr. Dina Nath Kapoor as their arbitrator, calling on the plaintiffs to nominate an arbitrator as well. The plaintiffs nominated Mr. Janki Nath around the end of August 1925.
No award was initially given. On 14 October 1925, Janki Nath informed the plaintiffs he could not continue as arbitrator; he notified Mr. Dina Nath on 15 October 1925 of his inability to proceed. On 19 October 1925 Mr. Dina Nath wrote that he would decide the matter as sole arbitrator and fixed 30 October 1925 for hearing. The plaintiffs replied on 25 October protesting that Mr. Dina Nath lacked jurisdiction to act as sole arbitrator and stated they would nominate another arbitrator if Dina Nath persisted. On 27 October Dina Nath reaffirmed his stance and asked the plaintiffs to appear before him, adding they might be represented either themselves or through their "arbitrator."
On 30 October 1925, notwithstanding a telegram from the plaintiffs protesting his sole role, Mr. Dina Nath issued a document described in the record as his award. In that document he (a) awarded that the buyers were liable to pay the invoice value of the three bales with charges, interest and godown rent to date of payment, and (b) advised the defendants to give the plaintiffs a ten days' notice to take up the goods on payment and, if they did not, to give a ten days' notice of sale and then sell the goods. He did not specify a final monetary figure or indicate the matter would come back before him for further determination.
The defendants followed his directions and gave notice of sale, fixing 10 January 1926 as the sale date. On 9 January 1926 the plaintiffs instituted the suit that gave rise to this appeal, seeking a decree setting aside the award of 30 October 1925.
The suit failed in the Court below on two grounds: (1) it was premature because the 30 October 1925 award was not final; and (2) Mr. Dina Nath was entitled, in the circumstances, to act as sole arbitrator. The plaintiffs appealed on two points of law arising from these findings.
The record indicates that at a later date (said to be some time in April) Mr. Dina Nath had before him the result of the sale and made a final award directing the plaintiffs to pay a sum of about Rs. 2,000 to the defendants; that final award is not printed in the record. It is further stated that after the Subordinate Judge dismissed the plaintiffs' suit, the final award was put before the District Judge and a decree was made in terms of that final award.
Legal Issues Presented
- Whether the document dated 30 October 1925 constituted a final award (and therefore whether the plaintiffs' suit attacking it was premature).
- Whether Mr. Dina Nath was entitled, under the arbitration clause and the facts (including the withdrawal of the plaintiffs' arbitrator), to act as the sole arbitrator and make the award of 30 October 1925.
Arguments of the Parties
Plaintiffs' Arguments
- The plaintiffs objected to the award dated 30 October 1925 and sought a decree setting it aside.
- They contended that Mr. Dina Nath had no jurisdiction to act as sole arbitrator after the plaintiffs' arbitrator (Mr. Janki Nath) had declined to continue, and that they were entitled to nominate another arbitrator under the agreement.
- Implicitly, by instituting suit immediately after the notice of sale, they treated the 30 October document as a decisive act that could be challenged at once.
Defendants' / Court-Below Position
- The defendants maintained that their goods were ready and they were entitled to be paid; they sought arbitration and nominated Mr. Dina Nath as arbitrator.
- The lower court treated the 30 October 1925 document as non-final (or insubstantial) and held the suit premature; alternatively, it held Mr. Dina Nath was entitled to act as sole arbitrator in the circumstances.
Table of Precedents Cited
| Precedent | Rule or Principle Cited For | Application by the Court |
|---|---|---|
| E.D. Sassoon & Co. v. Ram Dutt Ram Kissen Das, A.I.R. 1922 P.C. 374 | The Privy Council held that an arbitration clause which required a party to appoint an arbitrator within a fixed time should be read as covering a failure to appoint a substituted arbitrator on the death or retirement of an arbitrator originally appointed; i.e., the provision for appointment by one party on failure by the other includes situations where a previously appointed arbitrator later declines to act. | The court used this decision as a guide to interpret the contract's arbitration clause, concluding that the clause should be read to permit appointment of a fresh arbitrator where the original appointee had withdrawn, and therefore that the plaintiffs ought to have been given the opportunity (within the 20 days stated in the clause) to appoint a substitute arbitrator. This interpretation led the court to hold that Mr. Dina Nath lacked authority to act as sole arbitrator when he proceeded within that 20-day period. |
Court's Reasoning and Analysis
The court analyzed the two points separately.
1. Finality of the 30 October 1925 "Award"
- The court rejected the lower court's view that the 30 October document was insubstantial and not an award. It reasoned that Mr. Dina Nath's document did not indicate that it was only a preliminary stage to a future decision. Instead, he framed two issues and gave decisions on them, and he had given sufficient indication as to how liabilities between the parties were to be assessed. The letters in the record showed the matters the defendants wanted settled by arbitration and those matters were settled by Mr. Dina Nath in the document.
- The court further held that subsequent conduct by Mr. Dina Nath (including making a later "final award" after the sale results were known) could not vitiate the plaintiffs' right to bring suit once the 30 October document had been issued; in other words, the existence of later proceedings by the arbitrator did not render the earlier document non-justiciable at the plaintiffs' election.
- On the related point of res judicata and subsequent decrees, the court observed that if the very basis of the arbitrator's award were taken away, any later award founded on it would also fall. The court noted historical practice under earlier civil procedure law and the modern rule that a party must appeal from a preliminary decree if he wants to challenge the matter of appeals, but these observations were limited to illustrating how a preliminary determination affects later decrees.
2. Authority of Mr. Dina Nath to Act as Sole Arbitrator
- The court used the Privy Council decision in E.D. Sassoon (supra) as a guide to interpret the arbitration clause in paragraph 15 of the parties' contract. It concluded that the clause, which required appointment within twenty clear days, should be read to include the situation where an originally appointed arbitrator later declines to act and a fresh appointment becomes necessary.
- Reading the clause in that light, the court held the plaintiffs should have been given the opportunity to appoint a substitute arbitrator in place of Mr. Janki Nath. They were entitled to the full twenty days under Clause 15 to make that fresh appointment.
- Mr. Dina Nath gave his decision within that twenty-day period (Mr. Janki Nath had declined on 14 October and Dina Nath's decision came on 30 October). Consequently, the court held Mr. Dina Nath did not have the authority to make an award at that stage because the plaintiffs had not been afforded the contractual opportunity to appoint a fresh arbitrator.
- The court expressly rejected the idea of importing Section 9 of the Arbitration Act (Act IX of 1889) into the contract; it noted the statutory words "unless a different intention is expressed therein" supported the approach that the parties' own contractual terms should control interpretation.
Holding and Implications
Core Ruling: The appeal is allowed; the plaintiffs' suit is decreed in the terms prayed. However, the plaintiffs shall be awarded no costs and, having regard to the circumstances, the parties will pay their own costs in both Courts.
Implications and immediate consequences:
- The court set aside the authority and effect of Mr. Dina Nath's award of 30 October 1925 by holding he lacked authority to make that award at the time he did so.
- The plaintiffs succeeded on the legal (technical) point that the arbitrator acted without authority, and therefore their suit challenging that award was maintainable rather than premature.
- The court declined to grant costs to the plaintiffs despite their success, because it found the plaintiffs were guilty of delay which frustrated the object of the arbitration clause (to avoid delay and expense). As to costs between the parties, each party was ordered to bear its own costs in both the trial and appellate courts.
- No wider precedent beyond the facts and the court's application of the Privy Council decision was expressly stated; the decision is grounded on contract interpretation of the arbitration clause and the application of the cited authority to those contractual terms.
This summary is drawn exclusively from the content of the provided opinion. No external facts or matters not contained in the opinion have been added.
1. The appeal raises only two points, both of law, which arise under the following circumstances:
The plaintiffs, who are the appellants before us, gave the defendants an order for supply of three bales of dhotis of a certain kind. The order was accepted and the contract was drawn up in the terms laid down by the Delhi Mercantile Association. The agreement is printed at p. 27 of the record. It contained in para, 15, an arbitration clause. After the date fixed for delivery a difference arose between the parties. The defendants said that their goods were ready and they should be paid for. The plaintiffs demanded certain documents, and complained that they had not been delivered, and they were not bound to take the goods. We are, however, not concerned with the exact nature or the merits of the difference that arose between the parties. The defendants wanted that the difference that had arisen should be settled by reference to arbitration. They nominated one Mr. Dina Nath Kapoor of Delhi as their arbitrator, and called upon the plaintiffs to nominate an arbitrator. The agreement was that there should be two arbitrators, one nominated by each party and under certain circumstances a sole arbitrator nominated by one party could decide the matter in difference.
2. The plaintiffs nominated one Mr. Janki Nath as their arbitrator. This was about the end of August 1925. No award, however, was given by the arbitrators, and it is the complaint of Mr. Dina Nath that Mr. Janki Nath, at the instance of the plaintiffs, delayed the matter. We are not for the present concerned with this point. Ultimately, on 14th October 1925, Janki Nath informed the plaintiffs that owing to pressure of work and owing to his having lost his son he was not in a position to continue to be an arbitrator. The next day, the 15th October 1925, Janki Nath gave an intimation of his inability to proceed with the arbitration to Mr. Dina Nath. Thereupon Mr. Dina Nath wrote on 19th October 1925 to the plaintiffs, saying that he was going to decide the matter in difference between the parties as the sole arbitrator, and that he had fixed 30th October, Friday, 3 p.m., for hearing the case of the parties: see p. 101 of the record. The plaintiffs replied: see p. 102, on 25th October 1925 that Mr. Dina Nath had no jurisdiction to act as the sole arbitrator, and the plaintiffs were going to nominate another arbitrator, if Mr, Dina Nath gave up his attitude, which, as we have already stated, was that he was going to be the sole arbitrator in the matter. Mr. Dina Nath replied on 27th October 1925: see p. 103, that he re-affirmed his letter of 19th October 1925: see p. 101, and he asked the plaintiffs to appear before him. In this letter Mr. Dina Nath also stated that the plaintiffs could represent their case before him either themselves or through their "arbitrator." It is difficult to see exactly what Mr Dina Nath meant by asking the plaintiffs to be represented by their arbitrator. We, however, take it that Mr. Dina Nath declined to wait till the plaintiffs had appointed an arbitrator to act with him and not as a mere agent on the plaintiff's behalf. On 30th October 1925, in spite of receiving a telegram from the plaintiffs protesting against his acting as the sole arbitrator, Mr. Dina Nath wrote out a document which has been described as his award and which will be found printed at p. 105. By this award he said:
I, therefore, award that the buyers are liable for payment of the invoice value of the three bales, of all charges incurred on them, interest and godown rent as usual to the date of the payment.
3. After having said that, Mr. Dina Nath proceeded to give what may be said a piece of advice to the defendants. It was to the effect that the defendants should serve on the plaintiffs a ten days notice to enable them to take up the goods against payment of all dues and in default of the plaintiffs, the defendants were again to give the ten days notice of sale and then they (the defendants) were to sell the goods. Mr. Dina Nath did not indicate that the matter was again to come up before him at a subsequent stage, and that he was ready to make what may be called a final award by stating how much the plaintiffs were to pay to the defendants or vice versa.
4. The defendants proceeded to act as directed by Mr. Dina Nath, and ultimately gave a notice of sale of the goods. The 10th January 1926 was fixed for sale, and on 9th January 1926 the suit, out of which this appeal arises, was instituted by the plaintiffs. The plaintiffs took various objections to the award of 30th October 1925 and prayed that a decree setting aside the award of Lala Dina Nath bearing date 30th October 1925 with costs of the suit be passed....
5. The suit has failed in the Court below, on two grounds, namely it was premature, because the award of 30th October 1925 was not a final award, and secondly, Mr, Dina Nath, in the circumstances, was entitled to act as the sole arbitrator.
6. We have to see whether these two grounds for dismissal of the suit were correct. Coming to the first point, it appears to us that Mr. Dina Nath left nothing in his document which he himself called an award to indicate his own mind. He did not say that he would reconsider the matter again when his directions, which he was giving (which are more correctly, items of advice given to the defendants) would be carried out. We are told that as a matter of fact some time in April Mr. Dina Nath had before him the result of the sale and made a final award directing the plaintiffs to pay a sum of Rs. 2,000 odd to the defendants. That final award has not been printed. We have also been told that after the learned Subordinate Judge had dismissed the plaintiffs' suit, the final award was put before the District Judge and a decree was made in terms of the award.
7. The Court below was of opinion that the award, which was impeached by the plaintiffs, was nothing substantial and could not be called an award, and therefore the suit was premature. We are of opinion that this view 'is not sound As already stated Mr. Dina Nath gave no indication in his "award" that it was only a preliminary stage to the final decision to be given by him. On the other hand, he framed two issues and gave decisions on them. It is true that he did not state that so many rupees were to be paid by one party to the other, but he had given sufficient indication as to how the liabilities of the parties were to be assessed. The letters at pp. 75 and 80 indicate the matters, the defendants wanted to be settled by arbitration, and this Dina Nath settled. In the circumstances we think that the plaintiffs were justified in instituting the suit, and the subsequent conduct of Mr. Dina Nath cannot vitiate the suit already instituted.
8. As regards the contention that the decree of the learned District Judge would operate as res judicata, it seems to us that, if the very basis of Mr. Dina Nath's award be taken away, the whole structure (namely the subsequent award) would also fall. It has been held that where a preliminary decree is appealed from and the final decree is not appealed from, the setting aside by the appellate Court of the preliminary decree, also demolishes the final decree, although there was no separate appeal against that decree. This was held under the old Civil Procedure Code (1832) and the new Civil Procedure Code has made it incumbent on a party to appeal against the preliminary decree if he wants to appeal at all.
9. Now we have to take up the second point, and this is whether Mr. Dina Nath was entitled to act as the sole arbitrator. The matter would not have been very easy to determine, but we have fortunately a guide in a decision of their Lordships of the Privy Council in E.D. Sassoon & Co. v. Ram Dutt Ram Kissen Das A.I.R. 1922 P.C. 374. Para. 15 of the contract (to be found at p. 30 (of 50 Cal.) reads as follows:
It is further agreed that if within 20 clear days... after being requested by letter addressed to his or their usual place of business either party fail to appoint an arbitrator or surveyor ready and willing to act the decision of the arbitrator or surveyor appointed by the other party shall be in like manner binding on both parties....
10. This rule, as it stands, contemplates one appointment and one appointment alone, that is to say, if both the parties have once, each, appointed one arbitrator, the rule does not take into consideration what was going to happen if one of the arbitrators died or declined to proceed with the arbitration. Both the arbitrators may have been when they wore appointed "ready and willing to act" within the meaning of the contract. No party could possibly know that the arbitrator appointed by him might, later on, change his mind and decline to proceed with the arbitration. The contract cannot be read as meaning that the arbitrator appointed must be one who should not, under any circumstances decline to act later on. Reading a similar contract as to arbitration, their Lordships of the Privy Council said that in their opinion the clause covered the case of appointment of a fresh arbitrator when the arbitrator already appointed had declined to act. The language of the two arbitration clauses is not identical, but the effect of thorn is similar. Their Lordships say on p. 10 of the report.
The effect of these provisions is that on a failure by either party to appoint an arbitrator which includes (in their Lordships' opinion) a failure to appoint a substituted arbitrator on the death or retirement of an arbitrator originally appointed, the appointment is to be made....
11. The clause, therefore, which deals with the initial appointment of an arbitrator may clearly be said as also dealing with the appointment of a fresh arbitrator on the retirement of a former one.
12. Reading, therefore, the arbitration clause at p. 30 in the light of the decision of their Lordships of the Priyy Council, we are of opinion that the plaintiffs should have been given a chance to appoint a fresh arbitrator in place of Mr. Janki Nath. They were declined an opportunity to make their appointment, although under Clause 15 they had 20 days within which to do it. It is not proper that Section 9, Arbitration. Act (Act 9 of 1889) should be imported into the contract which was entered into by the parties themselves. The words "unless a different intention is expressed therein" in Section 9 clearly support this view.
13. The plaintiffs, therefore, had 20 days time within which to appoint an arbitrator. Mr. Janki Nath having declined to act on 14th October 1925 at the earliest, the decision was given by Mr. Dina Nath within the 20 days time within which the plaintiffs could make a fresh appointment. We are therefore of opinion that Mr. Dina Nath had not the authority to make an award.
14. The result is that the appeal should succeed. As regards the costs, we are of opinion that the proceedings that have been printed indicate clearly that the plaintiffs have been guilty of delay. If they had proceeded diligently the matter in dispute would have been decided at a much earlier date. The object of the insertion of the arbitration clause in the contract was to avoid delay and expense, and the plaintiffs must be held guilty if they caused any delay. In the circumstances, we are of opinion that the plaintiffs should be awarded no costs, although they have succeeded on the technical point. In the result, we allow the appeal and decree the plaintiffs' suit in the terms prayed. Having regard to the circumstances of the case, the parties will pay their own costs in both the Courts.
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