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Union Of India v. M/S. Bhatia Tanning Industries, Kanpur .
Structured Summary of the Opinion (Avadh Behari Rohatgi, J.)
Factual and Procedural Background
An agreement dated 1-11-1974 was entered into between the appellant, the Director General of Supplies and Disposals, and the respondent, Bhatia Tanning Industries (the Industries), under which the Industries were to supply certain material to the Director-General. The Director-General alleged that the Industries defaulted in supplies and raised a claim on account of risk purchase. The agreement provided for arbitration by a sole arbitrator named by the Director-General. The first arbitrator resigned and the Director-General appointed Mr. B.C. Rao as arbitrator.
Mr. Rao issued registered A.D. notices twice to the Industries at their last known address in Kanpur. Both registered notices were returned with reports that the addressee was not available and had gone to Punjab. One registered cover had a minor address error (138 instead of 133 Beconganj) while the other correctly showed 133 Benconganj; it was admitted that at least one registered letter was correctly addressed.
On 10-1-1980 the arbitrator ordered publication of notice in a newspaper; publication appeared in The Pioneer dated 8-2-1980. No one appeared for the Industries and the arbitrator made an ex parte award on 12-3-1980. When the award was filed in Court, notice was issued to the Industries, who objected that the arbitrator lacked power to order service by newspaper publication. The trial Judge accepted that contention, held the arbitrator guilty of misconduct for not applying to the Court under S.43 of the Arbitration Act, and set aside the award by order dated 16-12-1983. The Director-General appealed to the court delivering this opinion.
Legal Issues Presented
- Whether the arbitrator was guilty of misconduct for ordering service of notice by publication in a newspaper.
- Whether, in the circumstances of this case, the arbitrator should have applied to the Court under Section 43 of the Arbitration Act, 1940, to obtain an order for service by publication.
- Whether service effected by sending registered post to the party's usual or last known place of business (as per Section 42 of the Arbitration Act, 1940) was sufficient in this case.
Arguments of the Parties
Respondent (Bhatia Tanning Industries) / Counsel (Mr. Mehta)
- Objected that the arbitrator had no power to order service by publication in a newspaper and therefore the arbitrator misconducted the proceedings by doing so.
- Pointed out a clerical error in one registered letter where the address was given as 138 instead of 133 Beconganj, Kanpur.
Appellant (Director General of Supplies and Disposals)
- Maintained that notices had been sent by registered post to the Industries' last known place of business in compliance with Section 42 of the Arbitration Act and that such service satisfied the statutory requirement.
- Contended that the arbitrator had acted properly and, if anything, had taken additional steps (publication) ex abundanti cautela to enable the Industries to participate; therefore there was no misconduct causing a substantial miscarriage of justice.
Table of Precedents Cited
| Precedent | Rule or Principle Cited For | Application by the Court |
|---|---|---|
| Firm Kapur and Sons v. Raj Kumar Khanna, AIR 1955 Punj 235 | Held that Section 42 requires that a notice be sent by post to a person's usual or last known place of abode or business and that such a notice is a good and proper notice. | The court treated this decision as "perfectly sound" and followed it; it formed the basis for holding that the registered notices in the present case satisfied S.42. |
| Chouthmal v. Bhagwandas, AIR 1973 Bom 337 | Expressed that a notice duly sent by post to the person's place of address, where there is evidence to that effect, must be treated as a good and proper notice. | The court cited this case to support the interpretation of S.42 that sending registered post to the last known address is sufficient service. |
| James Mackintosh and Co. v. Scindia Steam Navigation Co. Ltd., AIR 1922 Bom 444 | Illustrated that under the earlier Indian Arbitration Act, 1899, the Court had no power to issue a summons to a witness to appear before an arbitrator (a defect in the earlier law). | The court cited this authority to explain the historical change effected by the Arbitration Act of 1940, demonstrating why S.43 was enacted to permit Court processes for witnesses in arbitrations. |
| Bulchand Khimandas v. Thakurdas Udhavdas, AIR 1933 Sind 300 | Used in the context of demonstrating the prior absence of Court power (under the 1899 Act) to issue processes for arbitrators' witnesses. | Referred to as part of the historical background showing the need for the statutory change in 1940 embodied in S.43. |
Court's Reasoning and Analysis
The court began by identifying Sections 42 and 43 of the Arbitration Act, 1940 as the relevant provisions. Section 42 prescribes modes of service by a party or arbitrator where service is required other than through the Court: (a) personal delivery or (b) sending by post in a letter addressed to the person's usual or last known place of abode or business in India and registered under Chapter VI of the Indian Post Offices Act, 1898. Section 43 empowers the Court to issue processes (including summonses and commissions for examination of witnesses and summonses to produce documents) for parties and witnesses whom the arbitrator desires to examine.
The court analyzed which section applied. It concluded that Section 42 is the applicable and complete code for service by an arbitrator where the arbitration agreement does not specify a mode of service (the agreement in this case was silent on service). The court relied on Firm Kapur and Sons and Chouthmal v. Bhagwandas to support the proposition that sending notice by registered post to the person's last known place of business is sufficient service under Section 42.
The court then interpreted Section 43 narrowly. It held that Section 43 relates to the Court's power to issue processes in respect of witnesses whom the arbitrator desires to examine — i.e., it is mainly concerned with compelling attendance/evidence and the enforcement of contempt/punishments for defaults by witnesses. The court emphasized the significance of the word "examine" and reasoned that the presence of the term "witnesses" alongside "parties" demonstrates that the word "parties" in S.43 refers to parties called to give evidence as witnesses, not to summon a party generally to defend itself in the arbitration.
Applying these principles to the facts: the arbitrator sent two registered covers to the Industries' last known business address and postal reports showed they were taken to the business premises but not delivered because no one was available to receive them. The court held that such sending satisfied Section 42. It further agreed with the trial Judge that an arbitrator does not have power to order service by means of publication (if service is to be effected through the Court, the provisions of Order V of the Civil Procedure Code would apply under S.41 of the Arbitration Act). However, the court held that the newspaper publication in this case was superfluous and ex abundanti cautela (an extra precaution) and did not vitiate the proceedings.
On the issue of misconduct, the court explained that an arbitrator is guilty of misconduct only where there is such an irregularity of procedure as may have caused a substantial miscarriage of justice. As the registered notices complied with S.42 and the publication caused no prejudice to the Industries, there was no substantial miscarriage; therefore the arbitrator was not guilty of misconduct.
Holding and Implications
Holding: The court set aside the trial Judge's order dated 16-12-1983 and allowed the Director-General's appeal. The court held that Section 42 applied (and was satisfied) and Section 43 did not require the arbitrator to approach the Court for service by publication. The arbitrator was not guilty of misconduct.
Implications for the parties and proceedings:
- The direct effect is that the trial Judge's order setting aside the award is overturned; the arbitrator's ex parte award is not invalidated on the ground of service irregularity or misconduct related to publication.
- The case was remitted to the original Judge to deal with any other objections to the award; the parties were directed to appear before that Judge on 17-12-1984.
- The parties were ordered to bear their own costs in the appeal.
The court applied and followed existing case law (Firm Kapur and Sons; Chouthmal v. Bhagwandas) and statutory construction of Ss.42 and 43 rather than creating a novel rule. The opinion does not purport to establish any broader new precedent beyond the interpretive conclusions stated.
AVADH BEHARI ROHATGI, J.:— The short question in this appeal is whether the arbitrator was guilty of misconducting the proceedings because he resorted to the method of publication in the newspaper for the purpose of effecting service on the respondent. Bhatia Tanning Industries, for the hearing of the case.
2. These are the facts. An agreement was entered into between the appellant, Director General of Supplies and Disposals and the respondent, Bhatia Tanning Industries (the Industries) on 1-11-1974. The Industries were to supply certain material to the Director-General. The case of the Director-General was that the Industries had committed default in making the supplies. So he raised a claim against the Industries on account of risk purchase. The agreement provided for arbitration. According to the terms of the arbitration clause the disputes between the parties were to be referred by the Director-General to a sole arbitrator named by him. The Director-General appointed an arbitrator who resigned. Subsequently he appointed another arbitrator, Mr. B.C Rao. Mr. Rao, the learned arbitrator issued notice to the Industries requiring them to appear before him on a particular day fixed for hearing of the case. Such registered A.D notices were issued twice at the last known address of the Industries at Kanpur. On both occasions the registered notices were returned with the report that the addressee was not available and had gone to Punjab.
3. It is not disputed before us that the registered letters contained the correct address of the Industries. Mr. Mehta, learned counsel for the Industries, has pointed out that in one of the registered letters the address is 138 instead of 133 Beconganj, Kanpur. On the other registered cover he does not dispute that the address is correctly given as 133 Benconganj. In our opinion, 138 in place of 133 is an inconsequential error because the letter did go to the addressee's place of business and was not delivered. On the second occasion as on the first, the report on the registered letter was the same. In any case there is at least one registered letter correctly addressed admittedly which was sent to the Industries. This is all that the law requires of the arbitrator.
4. On 10-1-1980 the arbitrator ordered that there shall be a publication in the newspaper. This was done in the Pioneer dt. 8-2-1980. No one appeared on behalf of the Industries even after the publication in the newspaper. So the arbitrator made an ex parte award on 12-3-1980.
5. When the award was filed in Court, notice was issued to the Industries. They raised an objection that the arbitrator had no power to order service by means of publication in the newspaper. The learned Judge accepted this contention of the Industries and set aside the award. He held that the arbitrator was guilty of misconducting the proceedings because he ought to have gone to Court under S. 43 of the Arbitration Act and should have obtained an order from the Court regarding service by means of publication in the newspaper. From his order dt. 16-12-1983 the Director-General appeals to this Court.
6. The two relevant sections in this connection are Ss. 42 and 43 of the Arbitration Act, 1940 (the Act). S. 42 says:
“Service of notice by party or arbitrator:— Any notice required by this Act to be served otherwise than through the Court by a party to an arbitration agreement or by an arbitrator or umpire shall be served in the manner provided in the arbitration agreement, or if there is no such provision, either -
(a) by delivering it to the person on whom it is to be served, or
(b) by sending it by post in a letter addressed to that person at his usual or last known place of abode or business in India and registered under Chapter VI of the Indian Post Office Act, 1898”.
Section 43 says :
“Power of Court to issue processes for appearance before arbitrator — (1) The Court shall issue the same processes to the parties and witnesses whom the arbitrator or umpire desires to examine as the Court may issue in suits tried before it.
(2) Persons failing to attend in accordance with such process, or making any other default, or refusing to give their evidence, or guilty of any contempt to the arbitrator or umpire during the investigation of the reference shall be subject to the like disadvantage, penalties and punishments by order of the Court on the representation of the arbitrator or umpire as they would incur for the like offences in suits tried before the Court.
(3) In this section the expression “processes” includes summonses and commissions for the examination of witnesses and summonses to produce documents.”
7. The learned Judge held that to this case S. 43 applied and it was incumbent on the arbitrator to approach the Court to obtain orders for service on Industries by means of publication in the newspaper. It is the validity of this view that we have to examine in the present appeal.
8. In our opinion S. 42 applies to this case and not S. 43. Under S. 42 the arbitrator has to serve the party in the manner provided in the arbitration agreement and if there is no provision in the arbitration agreement regarding the service of notice, then service must be effected either (a) by delivering it to the person on whom it is to be served; or (b) by sending it by post in a letter addressed to that person at his usual or last known place of abode or business in India and registered under Chap. VI of the Indian Post Offices Act, 1898. It is the common case of the parties that the arbitration agreement does not provide for the mode of service. Therefore, the arbitrator has to resort to either of the two modes prescribed in Cls.(a) and (b) of S. 42. In Firm Kapur and Sons v. Raj Kumar Khanna, AIR 1955 Punj 235 a Division Bench (Kapur and Falshaw, JJ) of the Punjab High Court held that all that S. 42 requires is that a notice has to be sent by post to a person at his usual or last known place of abode or business. Therefore, a notice sent by post to a person at his last known place of business or abode is a good and proper notice. The same view was taken in Chouthmal v. Bhagwandas, AIR 1973 Bom 337, Masodkar, J. at page 340 said : “All that is necessary is that such a notice must be sent by post to the person's place of address. If, therefore, a notice is duly sent to the person's address and there is evidence to that effect it must be treated as a good and proper notice.”
9. As we have said, the two registered covers were addressed to the usual place of business of the Industries at Kanpur. The postman's report shows that these were taken to the business premises of the Industries. But they could not be delivered because there was none to receive them. The learned Judge has held that this is not proper service. He took the view that the Punjab decision in Firm Kapur and Sons (supra) does not lay down good law. We find it difficult to defend this view. In our opinion, S. 42 is a complete Code, and provides for the modes of service of notice by the arbitrator on a party before he proceeds to hear the case. Firm Kapur and Sons (supra) is a perfectly sound decision in our view. We respectfully follow it.
10. The learned Judge thought that under S. 43 the arbitrator must apply to the Court for service on a respondent or non-claimant by means of publication. We cannot endorse this view. S. 43 empowers the Court to issue summonses to the parties and witnesses whom the arbitrator or umpire decides to examine, in all arbitrations whether with or without the intervention of the Court. Under the Indian Arbitration Act, 1899 the Court had no power to issue a summons to a witness to appear before an arbitrator. See James Mackintosh and Co. v. Scindia Steam Navigation Co. Ltd., AIR 1922 Bom 444; Bulchand Khimandas v. Thakurdas Udhavdas, AIR 1933 Sind 300. This was a grave defect in the law. So the legislature changed the law which it was enacting Arbitration Act of 1940. The present S. 43 changes the previous law.
11. We, therefore, hold that S. 43 is confined to cases where a person, whether a party or a third person, is required to appear as a witness before the arbitrator. Such witnesses “whom the arbitrator or umpire desires to examine” may be summoned through Court. This is apparent from the explanation attached to S. 43. In the explanation the expression ‘process’ is defined as including summonses and commissions for the examination of witnesses and summonses to produce documents. The expression ‘examine’ is significant. Suppose the arbitrator desires to examine a witness or a party, the Court is given the power to issue what are called a ‘witnesses’ summons'. By its coercive power the Court compels the attendance of a witness to give evidence before the arbitrator. If the witness is “guilty of any contempt to the arbitrator or umpire” he can be punished by the Court. Sub-sec.(2) of S. 43 says this. So S. 43 is confined to witnesses and witnesses alone.
12. Section 43 has no application where the party to an arbitration agreement has to be summoned for appearance before the arbitrator so that he may participate in the proceedings and state his defence. The learned Judge seems to have been misled by the expression ‘parties’ appearing in S. 43. The word ‘parties’ is used in the sense where the party itself is desired to be examined as a witness by the arbitrator or umpire. The expression ‘witnesses’ used along with the word ‘parties’ makes the meaning of the legislature abundantly clear. The principle of construction is that words of the same feather flock together.
13. It is not disputed that twice the registered letters were sent to Bhatia Tanning Industries, the respondent. This was sufficient service. The arbitrator has no power to order service of notice by means of publication, as the learned Judge has held. This is correct. If the notice is to be served through Court, the provisions of Order V.C.P.C will apply. (See S. 41 of the Act). On this view the publication must be treated as a superfluity, a needless exercise. We do not differ from the learned Judge on this holding. Where we do differ from him is on his holding that service by registered notice was not proper service. He held that mere sending the registered notice, unless served, is not sufficient service. This is the fundamental fallacy in his reasoning. Ail that S. 42 requires the arbitrator to do is to send notice by registered post to the party's usual or last known place of abode or business. Firm Kapur and Sons (AIR 1955 Punj 235) (supra) holds this. The learned Judge disented from it. In our respectful opinion the law is correctly stated in Firm Kapur and Sons.
14. So publication in no way vitiates the proceedings. Nor has this prejudiced the Industries in any manner. In fact the arbitrator out of abundant caution, took this course of publication in the newspaper in order to safeguard the interests of the Industries so that they may take part in the proceedings before him and have their say.
15. In our judgment it is wrong to hold that the arbitrator was guilty of misconducting the proceedings. He did all that the law required him to do and something more ex abundanti cautela. But that something more does not amount to misconducting the proceedings. An arbitrator can be said to have misconducting the proceedings, when there is such an irregularity of procedure as may have caused a substantial miscarriage of justice. Here there is none.
16. For these reasons the order dt. 16-12-1983 is set aside. The appeal is allowed. The case is sent back to the Judge on the original side to deal with other objections to the award, if any. The parties are directed to appear before him on 17-12-1984. In the appeal the parties are left to bear their own costs.
Appeal allowed.
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