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Judicial Opinion Summary

Factual and Procedural Background

The petitioner, Morarji Jairam Naranji, filed a petition under the Indian Arbitration Act arising from a written Gujarati agreement dated 21 March 1918, executed in Bombay. That agreement referred disputes relating to contracts for sales and purchases of piecegoods for ready and forward delivery to joint arbitration by three named arbitrators: Lalji Govindji, Morarji Mathurdas Kamdar (a solicitor and solicitor for respondent 1), and Mansukhlal Oghadlal. The writing required the arbitrators to publish their award within two months, with a power to extend that period by one or two months.

The arbitrators began the reference but, by letter dated 12 April 1918, informed the parties that they declined to continue. Thereafter the petitioner, invoking Section 8 of the Arbitration Act, by attorneys' letter dated 24 April 1918 proposed that three arbitrators be appointed in place of the originals and suggested that Mansukhlal Oghadlal resume as one arbitrator, calling on the respondents to concur and suggest two additional names within seven days. Respondent 2 (Pitamber Vithalji) informed the petitioner's attorneys that he had again appointed Lalji Govindji and that Lalji had no objection to continue. Respondent 1's attorneys replied on 25 April 1918 that, because all three arbitrators had refused to act, the petitioner was not entitled to make fresh appointments and declined to concur.

The petition sought (1) confirmation of the appointments of Mansukhlal Oghadlal and Lalji Govindji and appointment of a third arbitrator (or direction that the two proceed from the stage where the original arbitrators left off), or (2) alternatively, appointment of three new arbitrators to proceed with the reference.

Procedurally, Gopalji Kuverji objected that the Arbitration Act did not confer jurisdiction on the Court to make the orders sought. Marten, J. in Chambers held that Section 8 did give jurisdiction and, with subsequent consent of the parties, appointed a single new arbitrator. That appointment was the subject of an appeal.

Legal Issues Presented

  1. Whether Section 8 of the Arbitration Act confers jurisdiction on the Court to appoint one or more arbitrators when an original panel of three arbitrators (jointly appointed under a triangular submission) have refused to proceed.
  2. If Section 8 confers such jurisdiction, whether the Court could appoint a single arbitrator or must follow the mechanism contemplated by the Act for filling vacancies in the particular categories envisaged by its clauses.

Arguments of the Parties

Petitioner's Position

  • The petitioner relied upon Section 8 of the Arbitration Act to justify the appointment of three arbitrators in place of the original panel or, alternatively, confirmation of two existing arbitrators with the appointment of a third so that the reference could proceed.
  • The petitioner proposed that Mansukhlal Oghadlal resume as one arbitrator and requested the respondents' concurrence in appointing the other arbitrators within seven days.

Respondents' Positions

  • Respondent 2 (Pitamber Vithalji) informed the petitioner's attorneys that he had reappointed Lalji Govindji and that Lalji had no objection to continue as arbitrator.
  • Respondent 1's attorneys stated that, because all three original arbitrators had refused to act, the petitioner was not entitled to make fresh appointments and declined to concur in any appointment proposed by the petitioner.
  • Gopalji Kuverji objected (as counsel) that the Arbitration Act did not confer jurisdiction on the Court to make the orders sought in the circumstances of the case.

Table of Precedents Cited

Precedent Rule or Principle Cited For Application by the Court
Russell on Awards (Part II, Ch. III; editions cited: 1870, 1882, 1906) Describes the practice and understanding that where one of two arbitrators fails, unless the appointing party appoints a fresh arbitrator, the remaining arbitrator may be appointed to act alone; and distinguishes duties of third arbitrator and umpire. The Court relied on Russell as evidence of the historical and professional understanding of the scope of the relevant statutory provisions; Russell was used to support the conclusion that the Arbitration Act provisions do not extend to the present triangular joint appointment of three arbitrators.
In re Smith & Service and Nelson & Sons Authority cited to show judicial understanding of the scope of the sections reproducing older English statutory provisions (analogous to Sections 8 and 9 of the Indian Act). The opinion refers to dicta in this authority to reinforce that the provisions have been understood in a limited sense and do not cover the present factual pattern of a direct reference to three arbitrators jointly appointed.
Manchester Ship Canal Co. v. S. Pearson & Son, Limited Used as judicial authority showing a similar understanding of the statutory provisions reproducing the English statute. Quoted alongside other authorities to demonstrate that learned judges interpreted the relevant provisions narrowly; the Court relied on it to support that Marten, J. lacked jurisdiction under Section 8 to appoint fresh arbitrators in this triangular submission.
In re Eyre & Corporation of Leicester Cited in connection with the interpretation of judicial discretion where statutory language uses "may" (discretionary power). The opinion (Hayward, J.) notes that Marten, J. interpreted this authority correctly in observing that "may" need not mean "must," although the Court did not base the decision solely on discretion.
In re Baker Authority cited for the proposition that exercise of a discretionary power conferred by "may" may in certain circumstances become imperative on a judge. The Court (Hayward, J.) referred to this case when discussing the nature of the discretionary power conferred by the statute and whether that discretion could become obligatory in particular circumstances; the Court did not, however, rest the decision on an imperative duty to act under that discretion.

Court's Reasoning and Analysis

The Court's analysis is presented through two separate reasoned opinions (Scott, C.J. and Hayward, J.), both addressing whether the specific statutory provisions (principally Section 8 of the Arbitration Act) authorized the Court to appoint arbitrators in the facts before it.

Scott, C.J. — Analysis

  • Scott, C.J. examined the language and structure of Section 8 and concluded that its clauses are directed to specific classes of cases: e.g., vacancies in appointments of a single arbitrator, or the special case of two arbitrators with power to call in a third or umpire.
  • He rejected Marten, J.'s broader reading of S.8(1)(b) (which had treated that clause as providing a general power to fill vacancies caused by death, refusal, etc.) on the ground that clause (b) cannot reasonably be read to cover a triangular submission in which three arbitrators were jointly appointed.
  • Scott, C.J. emphasized that the third arbitrator (or umpire) described in clauses (c) and (d) occupies a special category (an umpire or a jointly-selected third arbitrator to resolve differences), distinct from the two arbitrators nominated independently by each party; clauses (a)/(b) and (c)/(d) must be read together respectively.
  • He concluded that Section 8 does not contemplate the case of two arbitrators jointly appointed by the parties plus a third of the same class appointed by the two; accordingly, the Court is not authorized by Section 8 to select an individual where the selection is reserved to one of the disputing parties.
  • Scott, C.J. relied on the treatment in Russell on Awards and the dicta of English judges in the cited cases as indicating a consistent professional and judicial understanding of the limited scope of the statutory provisions.
  • On this basis, Scott, C.J. held that the Court had no jurisdiction to make the appointment that Marten, J. had made and concluded that the appeal should succeed on that ground.

Hayward, J. — Analysis

  • Hayward, J. framed the issue as one of statutory construction: the Arbitration Act is an amending statute that does not purport to deal with all aspects of arbitration law and therefore must be construed strictly where it confers special powers of judicial interference.
  • He emphasized that the Act primarily contemplates references to a single arbitrator or to two arbitrators (one appointed by each party) with power to call in a third or an umpire, and that various sections (S.6, S.8(1)(a),(b), S.9 and S.8(1)(c),(d)) address specific failures in those commonly envisaged arrangements.
  • Hayward, J. held it was not permissible to extend the special jurisdiction of Section 8 to a contractual arrangement where the parties have directly referred their dispute to three arbitrators jointly appointed; there is no provision in S.8 for interference in that scenario.
  • He noted that such direct references to three arbitrators might fall within other provisions of the Act (for example, Section 19) but not within the targeted provisions of Sections 8 and 9 relied upon by Marten, J.
  • On the question of discretion, Hayward, J. observed that the word "may" in a statutory discretionary provision does not automatically mean "must," though in particular circumstances a discretionary power might become imperative; he did not find it necessary to resolve whether the powers of the Court under Section 8 were discretionary in the present appeal because he concluded the section simply did not apply.
  • Hayward, J. therefore agreed that Marten, J. had no jurisdiction to appoint fresh arbitrators under Section 8 in the circumstances and that the appeal should be allowed.

Holding and Implications

Core Ruling: Appeal allowed; the decree of Marten, J. is set aside and the petition is dismissed with costs.

Direct Consequences for the Parties

  • The order made by Marten, J. (appointing a single new arbitrator under Section 8) was held to be beyond the Court's jurisdiction under Section 8 and is therefore set aside.
  • The petition of Morarji Jairam Naranji is dismissed and the petitioner is ordered to pay costs throughout.

Broader Legal Implications (as stated in the opinion)

  • The Court refused to extend Section 8 of the Arbitration Act to cover a triangular submission in which three arbitrators were directly and jointly appointed by the parties; Sections 8 and 9 were construed to apply to the more ordinary cases of single arbitrator references or two arbitrators with power to call a third or umpire.
  • The opinion indicates that references directly to three arbitrators might instead fall to be dealt with under other provisions of the Act (the opinion explicitly mentions Section 19 as a possible alternative), but the Court did not decide those issues in the present appeal.
  • The decision underscores a strict approach to statutory construction of the Arbitration Act where the statute confers specially limited judicial powers of interference; it does not establish a novel expansion of jurisdiction under Section 8.

Disposition recorded in the opinion: "Appeal allowed."

    Gopalji Kuverji v. Morarji Jeram Naranji And Another

    Scott, C.J:— The petitioner Morarji Jairam Naranji petitions under the indian arbitration act as follows:

    “1. That by a Writing in the Gujarati language and character made in Bombay on the 21st March 1918 between respondent 1 of the first part, the petitioner of the second part, and respondent 2, Pitamber Vithalji, of the third part, certain disputes between the said parties in respect of contracts for sales and purchases of piecegoods of ready and forward delivery were referred to the joint arbitration of Messrs Lalji Govindji, Morarji Mathurdas Kamdar (a solicitor of this Hon'ble Court and Solicitor for respondent 1) and Mansukhlal Oghadlal upon and subject to the terms and conditions mentioned in the said writing. By the said writing it was provided that the said arbitrators should publish their award within two months, and power was given to the said arbitrators to further extend the said time by one or two months. A copy of the said writing is hereto annexed and marked A. 2. The said arbitrators entered upon the said references and, after partly proceeding with the reference, they, by their letter of 12th April 1918, addressed to the aforesaid parties to the said reference, informed them that they declined to continue to act further as arbitrators. A copy of the said letter is hereto annexed and marked B.

    3. There-upon the petitioner by his attorneys' letter, dated the 24th April 1918, addressed to the respondents, informed them that under the events that had happened the petitioner was entitled to have three arbitrators appointed in place of the said three originally appointed arbitrators under the provisions of S. 8 of the above Act, an suggested the name of the said Mr. Mansukhlal Oghadlal (whom he had induced to act again as arbitrator) as one of the said newly to be appointed arbitrators and called upon them to concur in his appointment and to suggest the names of two other persons as arbitrators within seven clear days after the service of the said letter. A copy of the said letter is hereto annexed and marked C and the office translation of the consent in writing of the said Mr. Mansukhlal Oghadlal to again act as arbitrator, dated 15th May 1918, is hereto annexed and marked D. 4. In reply to the said letter respondent 2, Pitamber Yithalji, by his attorneys' letter dated 14th May 1918, addressed to the petitioner's attorneys, informed them that their client had again appointed the said Mr. Lalji Govindji as one of the arbitrators and that the said arbitrator, Mr. Lalji Govindji, had no objection to continue as arbitrator. Copy of correspondence between the petitioner's attorneys and the attorneys of the said Pitamber Vithalji is hereto annexed and marked E. 5. Respondent 1 has in his attorneys' letter, dated 25th April 1918, addressed to the attorneys of the petitioner, stated that all the three arbitrators having refused to act, the petitioner was not entitled to make any fresh appointment and to call upon respondent 1 to concur in such appointment and to suggest the names of two other arbitrators, and respondent 1 declined to do so. A copy of the, said letter is hereto annexed and marked F.”

    2. The prayer is to the Court: (1) to confirm the appointment of Mansukhlal Oghadlal and Lalji Govindji as arbitrators and appoint a third arbitrator and to make an order directing such three arbitrators or only the two above-named to proceed with the reference from the stage where the originally appointed arbitrators left it; or (2) alternatively to appoint three arbitrators to proceed with the reference.

    3. It was objected by Gopalji Kuverji that the Arbitration Act did not confer upon the Court jurisdiction to make any such order in the circumstances of the case. Marten, J., before whom the case came in Chambers, held that S. 8 of the Act did give him jurisdiction, and acting upon a subsequent consent of the parties he appointed a single and entirely new arbitrator to dispose of the reference.

    4. The reasoning by which the learned Judge arrived at his decision was as follows:

    “Section 8(c) contemplates the case of two arbitrators plus an umpire or third arbitrator. As power is given to supply a vacancy caused by the death of the third arbitrator, one would expect a provision to supply a vacancy or vacancies caused by the death of the two first arbitrators. Sub-S. (b), if read liberally, would furnish such provision and if so, it would equally apply to the supply of vacancies caused by the death, refusal, etc., of three arbitrators.”

    5. But is it correct to hold that Cl. (b) is meant to cover the case of arbitrators 1 and 2 where the appointment of arbitrator No. 3 falls under Cl. (c) and (d)? I think not because arbitrator No. 3 in the cases supposed in (c) and (d) is in a special category like an umpire appointed jointly by the parties, or by arbitrators Nos. 1 and 2, each of whom is appointed by one of the parties independently of the other. S. 8(1)(b) does not apply to the case of independent appointments of two arbitrators. In such case, when a vacancy occurs, it would ordinarily be filled by the original appointer, as contemplated in S. 9. S. 8(1)(b) only applies in terms to a single vacancy to be supplied by the parties. S. 8 nowhere seems to contemplate the case of two original arbitrators appointed jointly by the parties plus a third of the same class appointed by the two already jointly appointed by the parties. In short S. 8 only applies to certain cases of failure to appoint jointly. Where chooses should but do not concur, the Court is enabled to assist them by the selection and appointment of an individual falling in one of the following categories an (i.e, one) arbitrator; an umpire; a third arbitrator in the special sense in which the term is used. It follows that, in my opinion, Cl. (b) must be read with Cl. (a), and Cl. (d) with Cl. (c), S. 8. The Court is not at liberty to take upon itself to select an individual where the selection is by the submission reserved for one of two disputing parties. The Act does not attempt to provide for every case. It only gives assistance in the commoner cases where joint appointment cannot be arrived at. It is said that the present case is one of joint appointment of three arbitrators. That is probably correct, but it is not one of the common cases of joint appointment contemplated by the section. It is unusual, except perhaps in references in the course of a suit, to have a triangular submission and the joint appointment of three. In Russell on Awards, Part II, Ch. III, S. 3, in the editions of 1870, 1882 and 1906, it is said:

    “In case of the death, refusal to act, or incapacity, of a single arbitrator …. a Judge may appoint a new one if the parties do not; and …. where one of two arbitrators fails for the like causes, unless the party appointing him appoints a fresh arbitrator, the remaining arbitrator may be appointed to act alone.”

    6. The authority given for this statement is until 1889 the Sections 12 and 13 of the Common Law Procedure Act, 1854 and after that date the Arbitration Act, Sections 5 and 6 (Sections 8 and 9 of the Indian Act), which reproduced Sections 12 and 13 of the Act of 1854. This, as the pronouncement of the standard text-book on arbitration unaltered through a period of 35 years, is a good indication of the understanding of the profession as to the scope of these sections. The dicta of Lindley, L.J and A.L Smith, L.J in In re Smith & Service and Nelson & Sons (1) and Manchester Ship Canal Co. v. S. Pearson and Son, Limited (2) respectively show that those learned Judges understood the provisions in question in the same sense. In my opinion therefore the Court had no jurisdiction to make the order that it did, and the appeal must therefore succeed upon that ground. The appeal is allowed, and the decree is set aside and the petition dismissed with costs throughout upon the petitioner.

    Hayward, J.:— The appeal involves a point of importance. The Arbitration Act applies to the appointment of a single arbitrator and in certain cases to the appointment of two arbitrators. Does it apply in any case to the appointment of three arbitrators? It is important to remember in resolving this point that the Act is an Act to amend the law relating to arbitration. It does not deal with the whole law of arbitration and it must be construed strictly, in that it confers special powers of interference not otherwise inherent in the Court. It appears to me, with this in mind, that it applies primarily to the ordinary commercial contracts in which the reference is to a single arbitrator or else to two arbitrators, one appointed by each party, with power to call in a third arbitrator or leave the decision to an umpire. Such are the references treated in Ss. 1 and 2 and at p. 202 in S. 3, Ch. 4 of Russell on Arbitration, Edn. 4 of 1870. This application is indicated by S. 6, which provides that a submission shall be deemed ordinarily to be to a single arbitrator and that if the reference is to two arbitrators they shall have power to appoint an umpire; while S. 8(1)(a) and (b) proceeds to provide for the failure of the parties to nominate the single arbitrator or the failure of the nominated arbitrator to proceed with the arbitration, and S. 9 for the failure of either of the parties to nominate either of the two arbitrators or the failure of either of the nominated arbitrators to proceed with the arbitration, while provision has already been made in S. 8(1)(c) and (d) for the failure of the parties or the two arbitrators to nominate the third arbitrator or the umpire. It has been provided that the arbitration shall in all these cases be made effective, if necessary, by the special interference of the Court. These provisions of the arbitration act reproduce verbatim the English Statute, 1889. It is not, in my opinion, open to us to extend this special jurisdiction to special contracts not clearly contemplated and expressly mentioned by the Act. Thus it is not open to us to interfere where the reference is to two arbitrators to be appointed, not one by each party, but the two jointly by the two parties. There is no provision in S. 8 for interference on the failure of the parties jointly to nominate the two arbitrators. Nor do Cls. (a) and (b) read together provide for interference on the failure of two arbitrators so nominated to proceed with the arbitration. These two clauses must, in my opinion, be read together and “the words the appointment of an arbitrator” at the end of Cl. (a) read as repeated in the words “if an appointed arbitrator” at the opening of Cl. (b), just as the two clauses (c) and (d) have also plainly to be read together. It would, in my opinion, be repugnant to the arrangement and plain meaning of Section 8 of the Arbitration Act, to give effect to the general provisions of Section 13 of the General Clauses Act.

    7. It is similarly, in my opinion, not open to us to interfere where the reference is to more than two arbitrators and the parties fail to nominate the arbitrator or the arbitrator fail to proceed with the arbitration. There is no provision in S. 8, Cls. (c) and (d), providing for a difference of opinion between two arbitrators and settlement by a third arbitrator or by an umpire.

    8. Such references are thus treated at p. 203, S. 3, Ch. 4 of Russell on Arbitration, Edn. 4 of 1870:

    “The arbitrators selected, one by each side, ought not to consider themselves the agents or advocates of the party who appoints them … In order to ensure a decision in case of difference of opinion, the submission frequently goes on to prescribe that the two arbitrators shall name a third and that an ward made by any two, if they cannot all agree, shall be sufficient. If the two arbitrators do not appoint a third arbitrator or an umpire, when at liberty to do so, a Judge may appoint …”

    9. Russell proceeds to distinguish the duty of a third arbitrator from that of an umpire:

    “The arbitrators named by the parties often seem to think that they are to represent their respective no minors and act rather as advocates than Judges, while the third arbitrator frequently supposes he is an umpire and that his active interference is not to commence until the others have differed finally…”

    10. And at p. 211, S. 4:

    “Where two arbitrators are appointed, the submission often provides that in case of their not agreeing in award, the matters shall be decided by a third person, who is styled an umpire.”

    11. Clauses (c) and (d), S. 8, do not, in my opinion, provide for interference where the reference is not to two arbitrators with power to settle differences of opinion by summoning a third arbitrator or referring the matters to an umpire, but is, as here, directly to three arbitrators. Such references would appear not to have been included within the particular provisions of Ss. 8 and 9, though they might fall within the provisions of the other sections including Section 19 of the Arbitration Act. This would appear to have been the view held in In re Smith & Service and Nelson and Sons and in Manchester Ship Canal Company v. S. Pearson & Son, Limited , under the English Statute relied on in para. 964, Vol. 1, Halsbury's Laws of England. The appeal should therefore in my opinion be allowed as the appellant and two respondents referred their dispute direct to three arbitrators; and Marten, J., had no jurisdiction on their refusal to proceed with the arbitration to appoint fresh arbitrators under the Arbitration Act. It would not be necessary in this view of the matter to decide whether the special powers conferred by the Act were discretionary with the Court. It would appear to me however that Marten J., placed the right interpretation upon the decision in In re Eyre & Corporation of Leicester (3) and that the word “may” never can mean “must” so long as the English language retains its meaning, though the exercise of a discretionary power conferred by the word “may” might, in certain circumstances being established, become imperative on the Judge, as observed by Cotton, L.J, in In re Baker (4). It would farther appear to me that it would not have been proper for us to interfere with the exercise of the discretion vested in Marten, J., merely upon our own views of the desirability or otherwise of leaving the parties in this particular matter to their ordinary remedies in the Court.

    G.P/R.K

    12. Appeal allowed.

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    Gopalji Kuverji v. Morarji Jeram Naranji And Another
    (Jan 16, 1919)