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Judgment Summary: Mukerji, J. (with Banerji, J. concurring) — Revision against decree following arbitration award

Factual and Procedural Background

Two plaintiffs (one of whom later died and is represented in this Court by two applicants) sued for recovery of nearly Rs. 20,000. During trial the parties agreed to refer the dispute to three arbitrators: Jokhai Ram, Jai Narayan Ram and Ram Kumar Marwari (President). The Subordinate Judge made an order of reference on 28 January 1927 and fixed 26 February 1927 as the date for submission of the award.

On 23 February 1927 the arbitrators sent back the order of reference and papers to the court, explaining they had no time for arbitration and the parties had not agreed to compromise. The Subordinate Judge nevertheless ordered the report to be taken up on 26 February. On that date the court recorded conflicting accounts by the parties: the plaintiff said the arbitrators refused to arbitrate; the defendant said the plaintiff had prevented the arbitrators from deciding and asked the court to summon the arbitrators. The court summoned the arbitrators to appear personally on 12 March.

On 12 March the arbitrators stated they were willing to arbitrate. One plaintiff, Tribeni Ram, made two applications: first arguing there was nothing to inquire into because the arbitrators had already refused; second making allegations against the arbitrators. The court noted there was no sufficient reason to supersede arbitration and that any impeaching grounds would be heard after award. The arbitrators then made an award. The plaintiffs objected; the Subordinate Judge heard and dismissed those objections and ordered a decree to follow the award (decree dated 14 June 1927). The plaintiffs applied in revision to the High Court challenging the decree/award primarily on the ground that the judge could not properly send the case back to the arbitrators after they had returned the papers on 23 February 1927.

Legal Issues Presented

  1. Whether a petition in revision to the High Court is competent to impeach a decree that follows an arbitration award on the ground that the original reference to arbitration was invalid or bad.
  2. Whether the Subordinate Judge, after receipt of the arbitrators' report of 23 February 1927 returning the papers (stating lack of time and failure of parties to compromise), could properly summon the arbitrators, inquire into the circumstances and, on their expressing willingness, allow them to continue and make an award instead of accepting their apparent resignation/refusal and initiating the procedures under paragraph 5, clause (1), of Schedule II of the Code of Civil Procedure (i.e., permitting nomination of fresh arbitrators, court appointment of arbitrators, or supersession of arbitration).

Arguments of the Parties

Applicants / Plaintiffs

  • The Subordinate Judge had no legal power to send the case back to the arbitrators after they returned the papers by their report dated 23 February 1927; that return amounted to a refusal to act (a resignation) and the judge should have proceeded under paragraph 5(1) of Schedule II of the Code of Civil Procedure (permit nomination of fresh arbitrators, appoint arbitrators, or supersede the arbitration and decide the case).
  • As a consequence, the award was vitiated and the decree which followed it could not stand; accordingly revision should be allowed.

Respondents / Defendants

  • Preliminary contention that a petition in revision is not competent and that the decree following the award cannot be impeached by revision.
  • On the merits, argued that the arbitrators' apparent refusal was not final; they could reconsider and agree to arbitrate; therefore the Subordinate Judge properly inquired and allowed the arbitrators to proceed. Two cases were cited in support of this contention (noted in the opinion but not detailed in the summary beyond citation).

Table of Precedents Cited

Precedent Rule or Principle Cited For Application by the Court
Ajudhia Prasad v. Badar-ul-Husain Supports view that question of validity of the reference is a matter to be inquired into by the Judge under paragraph 15, clause (1), of Schedule II of the Code of Civil Procedure and that the Judge's opinion should be final on the point. Cited as one of the earlier authorities taking the position that the Judge's opinion on the validity of reference is final; the court contrasted this line with other authorities and noted the divergence of authority.
Hari Shankar v. Ram Piari Similar to Ajudhia Prasad: supports that validity of reference is for the Judge under paragraph 15(1) and his opinion is final. Mentioned as another authority supporting finality of the Judge's view under paragraph 15(1); the court observed conflicting authority exists.
Kanhaiya Lal v. Jagannath Prasad Represents contrary view to Ajudhia Prasad/Hari Shankar (i.e., not accepting that the court's procedural act in making a reference is to be treated as final in the way an award is). Listed among cases that establish the contrary view; the court acknowledged these authorities but held that revision was competent in the circumstances.
Hanuman Prasad, Gopal Das v. Baij Nath Another authority cited as supporting the contrary view regarding scope for attack on the reference itself. Referred to as part of the line of cases taking the contrary position; used to show conflict in the authorities, but did not determine the present outcome.
Tej Singh v. Ghasi Ram Also cited among cases taking the contrary view on whether the court's own reference can be examined like an award. Noted in the list of contrary authorities; the Court nonetheless held revision competent for the reasons given in the opinion.
Maharajah Joymungul Singh v. Mohun Ram (Privy Council) Privy Council considered a case where an arbitrator sent a resignation which the District Judge was unwilling to accept and induced withdrawal; held arbitrator was not functus officio and had not formally divested himself of character of arbitrator. Applied as a close parallel in principle: the Court relied on it to support the conclusion that an apparent resignation or refusal does not necessarily vitiate arbitration when the arbitrator later agrees to continue and there was no formal divestment; the Judge's conduct in inducing withdrawal of resignation was not criticised by the Privy Council and the present court found no reproach to the Subordinate Judge's conduct.
Har Narain Singh v. Bhagwant Kuar Held that where an arbitrator had at one stage sent in a resignation but in fact continued to take part in the proceedings, the proceedings were not vitiated by the resignation; the decision referred to the Privy Council case above and upheld the award. Relied upon to support the proposition that an interim resignation that is not effectively acted upon and where the arbitrator continues to participate does not vitiate the arbitration; used by the Court to confirm that the reference remained valid despite the 23 February communication.

Court's Reasoning and Analysis

The Court addressed first the preliminary objection that revision was incompetent. It reviewed paragraph 15, clause (1) of Schedule II of the Code of Civil Procedure (which enumerates grounds on which an award may be set aside) and the phrase "or being otherwise invalid." The Court held, on principle and authority, that those words do not extend to cover a situation where the reference itself is bad. The Court explained the distinction between an award (an adjudicative act by arbitrators) and the court's own procedural act of making a reference: the statutory grounds to set aside awards concern actions by parties or arbitrators and are meant to give finality to awards; they were not intended to require the court to pronounce final judgments on the validity of its own procedural acts. Nevertheless, the Court concluded that revision was competent where the award was impeached on the ground that the reference itself was incompetent, and therefore it was appropriate to examine the point in revision.

On the merits the Court proceeded by applying the statutory framework in Schedule II:

  • Paragraph 5, clause (1), Schedule II provides the procedural route in case of death or refusal of arbitrators to act (chance to appoint fresh arbitrators, or in default court may appoint or supersede arbitration and decide the case).
  • The Court examined the contemporaneous events: the arbitrators' report of 23 February (return of papers for lack of time and because parties wouldn't compromise), the parties' conflicting statements on 26 February, and the summons of arbitrators to 12 March.
  • Faced with two conflicting accounts (plaintiff: arbitrators unwilling; defendant: plaintiff obstructed arbitration), the Subordinate Judge was required to inquire into the facts. The court was bound to determine whether a contingency (death/refusal) had actually occurred so as to trigger paragraph 5(1)'s procedures.
  • When the arbitrators appeared on 12 March they expressed willingness to arbitrate. The plaintiff Tribeni's application that the arbitrators should not be questioned was disallowed. There was evidence (examined during objections) that the President of the Board of Arbitrators asked for two hours, conferred with colleagues, and then agreed to accept the reference; there was no suggestion in cross-examination of any improper inducement by the court or the parties to procure the arbitrators' acceptance.
  • Thus the Court found no instance of a definitive, irrevocable refusal to act by the arbitrators. Because the arbitrators ultimately accepted the reference without any established impropriety, the Subordinate Judge's order holding the reference good and permitting the arbitrators to extend time and make an award was proper.
  • The Court considered authorities: the Privy Council decision in Maharajah Joymungul Singh v. Mohun Ram (where an arbitrator's resignation was induced to be withdrawn and the arbitrator was not functus officio) and Har Narain Singh v. Bhagwant Kuar (where an arbitrator who had sent a resignation continued to participate) supported the conclusion that an interim resignation or apparent refusal does not necessarily vitiate proceedings if the arbitrator continues and there is no formal divestment or improper inducement).

On these grounds the Court concluded the reference remained valid and the award was not vitiated for the reason asserted by the applicants.

Holding and Implications

Holding: The High Court held that the revision application failed on the merits and the application was dismissed with costs. The Court also stated expressly that a revision is competent where an award is impeached on the ground that the reference itself was incompetent, and proceeded to apply that competence to the facts.

Implications:

  • Direct effect on the parties: The decree that followed the arbitration award was upheld; the plaintiffs' revision was dismissed and they were ordered to pay costs.
  • Broader precedent: The opinion discusses and reconciles conflicting authorities and applies Privy Council and High Court decisions to hold that an apparent resignation or temporary refusal to act by arbitrators does not automatically vitiate the reference where (1) the court properly inquires into the facts, (2) the arbitrators subsequently agree to continue, and (3) there is no proof of improper inducement. The opinion does not purport to create a new rule beyond this application; it rests its conclusion on statutory interpretation and cited authorities.

Judge Banerji concurred. Application dismissed.

    Mahadeo Prasad v. Badri Das

    Mukerji, J.:— This is an application on the revisional side of the High Court by the plaintiffs of a certain suit against a decree made on the 14th of, June, 1927, by the Subordinate Judge of Basti.

    It appears that two plaintiffs, one of whom is an applicant in this Court and the other of whom, having died, is now represented by the remaining two applicants in this Court, instituted the suit out of which these proceedings have arisen for recovery of a large sum of money amounting to nearly Rs. 20,000 from the defendants. After the trial began, the parties agreed to refer their differences to the, arbitration of three gentlemen, namely Jokhai Ram, Jai Narayan Ram and Ram Kumar Marwari (the latter being the President of the Board of Arbitrators). An order of reference to the arbitrators was made by the learned Subordinate Judge on the day the petition was filed, namely, the 28th of January, 1927. The 26th of February, 1927, was fixed by the Judge for the submission of the award. By a petition dated the 23rd of February, 1927, and signed by the President, Ram Kumar Marwari, the arbitrators sent back the order of reference and the papers sent with it to them, to the court. In this petition they said that the parties had been summoned and asked to compromise the case, but they did not agree to do so and that as the arbitrators had no time to devote to the arbitration, the papers were being returned. On the 24th of February, 1927, the Subordinate Judge ordered the report to be put up on the date fixed, namely, the 26th of February, 1927. On the latter date, the court took down the statements of the prominent parties, one on each side. It recorded, in the proceedings of the day, that, according to the plaintiff, the arbitration had returned the papers as they had no time to spare for arbitration and as the parties had failed to come to terms. The proceedings proceeded to note that the defendant's version was that the plaintiff had prevented the arbitrators from deciding the case and had forced them to return the papers. The defendant suggested that the court should summon the arbitrators and inquire from them whether they were really willing to arbitrate. The court accordingly ordered that the arbitrators should be summoned to appear personally before it on the 12th of March.

    On the 12th of March, the arbitrators appeared and on being questioned by the court they stated that they were willing to arbitrate. On the same day, one of the plaintiffs, viz., Tribeni Ram, made two applications before the court. By the first he said that as the arbitrators had definitely refused to arbitrate, there was nothing about which an inquiry could be made from the arbitrators themselves. On this, the court made the remark that it had already given the reasons in its order dated the 26th of February, 1927, as to why it had summoned the arbitrators. It noted further that on the said 26th of February, 1927, the applicant Tribeni did not object to the course adopted by the court and that, because the arbitrators were present, it was desirable to inquire whether they were willing to arbitrate. Evidently, it was after the disposal of this application that questions were put to the arbitrators and they expressed their willingness to arbitrate. By the second application Tribeni, one of the plaintiff, made various allegations against the arbitrators. The Judge recorded an order stating that there was no sufficient reason for superseding the arbitration and if there were any other sufficient grounds for impeaching the award, the plaintiff would be heard in due time, i.e, after the award had been made.

    The arbitrators, thereafter, made an award. The plaintiffs filed objections to the award. The learned Judge, heard the objections and dismissed them. Thereupon he ordered that a decree should follow award. It is against this decree that the present application in revision has been filed.

    The only ground on which exception has been taken to the award is that the learned Subordinate Judge could not, in law, send back the case to the arbitrators after they had, by their report dated the 23rd of February, 1927, returned the papers and that, therefore, the whole a wand was vitiated. The first six grounds of the petition of revision are concerned with this point. The seventh ground, which related to the misconduct of the arbitrators and certain irregularities said to have been committed by the court below, was not pressed.

    A preliminary point is taken on behalf of the defendants respondents that a petition in revision is not competent and that the decree which has followed the award cannot be impeached.

    On this preliminary point the latest cases in this Court seem to have held that where the award is impeached on the ground that the very reference was incompetent, this Court can revise the proceedings and, if necessary, set aside the order of reference; with the necessary result that the award will fall through. An argument to the contrary is based on the last four words of sub-clause (c) of clause (1) of paragraph 15 of the second schedule of the Code of Civil Procedure, viz., “or being otherwise invalid.” Paragraph 15 of the second schedule which deals with arbitration lays down that no award shall be set aside except on one of the grounds mentioned in subclauses (a) to (c). The question whether the ground of objection to an award, that it is bad on Account of a bad reference, comes within the words “or being otherwise invalid” has been sometimes debated in this Court. We are of opinion that on principle, and on authority, the four words quoted do not and cannot cover an award where the reference itself is bad. The court is required to consider whether an award is good or bad. The finding of the Judge on the point is final and cannot be impeached in appeal. The examination of the grounds on which an award may be set aside will show that they all relate to something which has been done either by the parties or by the arbitrators. There is nothing, if we omit the words “or being otherwise invalid” for a moment, to suggest that the court is called upon to examine its own procedure and to pronounce an opinion whether its own procedure was good or bad. If a reference to arbitration is bad, it is so because the Judge's order was not justified in the circumstances of the case. If a court has to pronounce an opinion as to whether its own act, in making the reference, was justified or not, it is not to be expected, ordinarily speaking, that its own opinion on its own conduct should be allowed to have that finality which, for good reasons, is allowed to an award. On principle, therefore, the words “or being otherwise invalid” should not be taken as including the question whether there was a valid reference to arbitration.

    Coming to authorities in this Court, while the cases of Ajudhia Prasad v. Badar-ul-Husain, per Piggott, J., , and Hari Shankar v. Ram Piari, support the view that the question of the validity of the reference is one of the matters to be inquired into by the Judge under paragraph 15, clause (1), of schedule II of the Code of Civil Procedure, and that his opinion should be final on the point, the following cases establish the contrary view:—Kanhaiya Lal v. Jagannath Prasad, Hanuman Prasad, Gopal Das v. Baij Nath and Tej Singh v. Ghasi Ram.

    We are of opinion, that a revision is competent.

    On the merits, the point to be decided is really very short. The facts have been all given above. The argument for the applicant is that when the arbitrators refused to act, the course that was open to the court was indicated by paragraph 5, clause (1), of schedule II of the Code of Civil Procedure. The course was not to “coax” the arbitrator to reconsider their position and to persuade them to effect the arbitration. It is argued that the court should have accepted the resignation sent in by the arbitrators by their report, dated the 23rd of February, 1927, and should have allowed the parties to nominate other arbitrators and default of their doing so, the court should either have itself appointed arbitrators or should have superseded the arbitration and proceeded with the case. On the other hand, the argument for the respondents is that the refusal of the arbitrators to arbitrate was not a final decision arrived at by them, that it was open to them to reconsider their position and to agree to arbitrate in the matter referred to them. Two cases have been cited by the respondents' learned counsel in support of their contention. Before we consider the authorities it will be proper to examine the Code itself.

    According to the provisions of the Code of Civil Procedure, when an application is made to the court stating that the parties have agreed to refer their differences to arbitration, the court is bound to make a reference accordingly. Where a reference is made, the court's jurisdiction is temporarily ousted and the arbitrators, if they accept the arbitration, become seised of the subject-matter in dispute. But the arbitrators may not accept the position assignee to them, or may be incapacitated by death or other circumstances from acting. Provision, therefore, had to be made as to what was to be done in those circumstances. The law, therefore, says that in the case of death or refusal of the arbitrators to act, the court has to give a chance to the parties to nominate fresh arbitrators and, in the case of their default, the court may cither itself nominate arbitrators for the purpose or may supersede the arbitration; and, in the latter case, the court is to decide the case itself. It must be reasonably clear, therefore, that the court has to decide the question of fact whether a contingency mentioned above has occurred and whether it should give the parties a chance to appoint fresh arbitrators. In this particular case the arbitrators' report was received a few days before the date fixed, and the only order proper was one to put it up before the parties on the date fixed in the case. When the report of the arbitrators was taken up, the plaintiff present stated that the arbitrators were not inclined to take the trouble of deciding the case. The defendant present stated that the arbitrators were quite willing to arbitrate but that the plaintiff present in court had put obstructions and had induced them to give up the arbitration. The court, therefore, had two versions before it as to why the proposed arbitration was going to fall through. It is clear that no party to a reference to arbitration is entitled to resile from the arbitration or has a right to nullify the reference by doing some improper act. The court was, therefore, not only entitled, but was bound to inquire into the truth of the allegations of the parties. The court accordingly sent for the arbitrators. When the arbitrators arrived, the plaintiff Tribeni put in a petition stating that the arbitrators should not be questioned. This application was properly disallowed. The arbitrators, on being questioned, expressed their willingness to proceed with the arbitration. The result was that the order of reference held good and time was extended to the arbitrators to inquire into the matter and to formulate their award. No suggestion has been made anywhere that the court took up any improper attitude towards either of the parties or towards the arbitrators with regard to the reference. On plaintiffs' behalf our attention has been drawn to the statement of the President of the Board of Arbitrators, namely Mr. Ram Kumar, as to what happened on the 12th of March, 1927, when the arbitrators appeared. Mr. Ram Kumar was examined during the course of the investigation into the objections filed by the plaintiffs after the award was made. Mr. Ryu Kumar stated that when the court asked whether they were prepared to arbitrate, he said that he should have two hours' time to consider the matter. The time was granted. Ram Kumar conferred with his colleagues, Messrs Jai Narayan and Jokhai Ram, as to whether they should really devote (the word actually used is “waste”) some of their time over the investigation of the affair. They all agreed that they might devote some time to the arbitration and, “thereupon, they agreed to accept the reference. The gentleman was examined and cross-examined at great length, but no suggestion whatsoever was made that anything improper was done to persuade the arbitrators to accept the reference.

    The position therefore is this. At one time the arbitrators thought that they should induce the parties to come to terms and thereby save, themselves the trouble of inquiring into the merits of the case. This was probably a natural desire. In this country nobody wants to decide a case as an arbitrator with the prospect of making the losing party his enemy. There is nothing on the record to indicate that previous consent of the arbitrators had been obtained before the reference to arbitration was made. The arbitrators, therefore, at one time, were unwilling to devote time to inquire into the merits of the case. Later on, without any improper inducement, they were persuaded to accept the reference and to make an award, there was therefore, no case in which a definite refusal to arbitrate was made. If there had been such a refusal, the court had no alternative left but to allow time to the parties to nominate fresh arbitrators and in the case of such nomination to make a reference afresh. In default of such fresh nomination of arbitrators, the court could either nominate arbitrators of its own or could proceed with the case, after formally recording an order of supersession. No such thing happened. Therefore, we must take it that this is not a case in which the arbitrators can be said to have “refused to act.”

    Coming to the authorities, only two have been cited before us. The case of Maharajah Joymungul Singh v. Mohun Ram is a Privy Council decision. It appears that a reference to arbitration was made and there were two arbitrators appointed. The arbitrators made an award, but it was signed by the arbitrators on different dates. From the decree that followed the award an appeal was taken to the High Court. By reason of the fact that no ten days' time had been allowed to take exception to the award and by reason of the fact that the arbitrators had signed the award at different times and not in the presence of each other, the case was remanded by the High Court and a direction was given that the arbitrators' should come together and sign the award. When the case went back before the District Judge, one of the arbitrators, Mr. Sandys took exception to something (we do not know what) and sent in a resignation to the District Judge in the following language:— “I can discover no other alternative to be left me than herewith to submit my resignation”. The learned District Judge was very unwilling to accept the resignation and induced Mr. Sandys to withdraw it. Mr. Sandys did withdraw and the two arbitrators then signed the award before the District Judge. Their Lordships of the Privy Council expressed the opinion that in the circumstances of the case, Mr. Sandys was not functus officio and he had “never formally divested himself of his character of arbitrator.” The case before us is parallel in principle to the case before the Judicial Committee. The arbitrators, in this present case, sent in their resignation, ostensibly on the ground that the parties did not compromise the case. If the parties were going to compromise the case, there was hardly anything about which the three gentlemen could arbitrate. In view of the conflicting reasons given by the parties before the Judge as to the motive which persuaded the arbitrators to send in their resignation, the learned Judge made an inquiry and found that the arbitrators were willing to take up the responsibility which had been thrown on them. In the words of the Privy Council judgement, “The Judge was very unwilling to accept that resignation and induced Mr. Sandys to withdraw it.” The action of the District Judge in the case before the Privy Council was not adversely commented upon by their Lordships of the Privy Council, and we do not see why we should regard the conduct of the learned Subordinate Judge in the case before us as in, any way reprehensible.

    The other case is that of Har Narain Singh v. Bhagwant Kuar. In this case, Janki Prasad one of the arbitrators, had at one stage of the case sent in his resignation, but it was found that as a matter of fact he had all along been taking part in the arbitration proceedings. It was held that the proceedings were not in any way vitiated because of the resignation. The learned Judges referred to the case decided by the Privy Council, mentioned above, and upheld the award.

    On authorities, therefore, the reference to arbitration continued to be valid in spite of the ‘resgnation,’ dated the 23rd of February, 1927, sent in by the arbitrators.

    The result is that the application fails on the merits and is hereby dismissed with costs.

    Banerji, J.:— I concur.

    Application dismissed.

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    Comments

    Mahadeo Prasad v. Badri Das
    (Jun 5, 1928)