Hari Singh Nehal Chand v. Kankinarah Co. Ld.

Mookerjee, A.C.J:— This is an appeal against the judgment of Mr. Justice Rankin in the matter of an application to set aside an award.

2. On the 28th August, 1919, the appellants agreed to sell to the respondents 5,000 bales of jute of what has been called the Narainganj mark.

3. The contract contained an arbitration clause in the following terms:

“Any dispute arising out of this contract shall be referred to the arbitration of the Bengal Chamber of Commerce whose decision shall be accepted as final and binding on both parties to this contract.”

4. The case for the appellants is that between the 1st and 30th September, 1919, they delivered to the buyers 2,494 bales of jute of the contract mark assortment and quality, which were received by them. The buyers were apparently not satisfied with the quality of the jute and on the 11th September, 1919, referred the matter to the arbitrators without any notice to the plaintiffs. On the 17th September, 1919, the Registrar of the Arbitration Tribunal of the Chamber intimated to the appellants the objection taken by the buyers. On the next day,: the appellants replied that they had received no complaint from the buyers and denied that there was any case for arbitration. After some correspondence, not material for the decision of the questions raised in this appeal, the Registrar sent the following letter to the appellants on the 6th November, 1919.

“I am instructed by the Court which has been constituted to adjudicate on the above dispute to request you to select in conjunction with Messrs Jardine Skinner & Co., Managing Agents, Kanki-narrah Co., Ld., ten bales from the 1,275 bales in dispute, five bales to be selected by yourselves and five bales by Messrs Jardine Skinner & Co. The bales must be here at 10 O'clock on Saturday, the 8th instant. Should you refuse or neglect to select your portion of the bales in time to enable Messrs Jardine Skinner & Co. to send them here on the day and at the hour mentioned, Messrs Jardine Skinner & Co., have been informed that they will be at liberty to select the whole ten bales themselves and send them here. You may identify the bales here at 10-30 a.m on that day.”

5. On the next day, the sellers replied as follows:

“With reference to your letter No. 21914, dated the 6th instant, we are to submit to the Court which have been constituted to adjudicate on the above dispute that our representatives went to select bales, out of the lot of 1,275 bales, as advised by the Court, and they found only a mixed lot containing about 150 to 200 bales of the mark in dispute. They politely but persistently requested the mills authorities to show them the lot of 1,275 bales in dispute which they refused and failed to do; thus they were not in a position to select bales as required by the Court. In the circumstances we would submit to the Court to postpone the arbitration for the present and to find out the lot in dispute so that we can select the bales for their inspection. If inspite of this our submission to the Court, it proceeds with the arbitration, we would not be bound by the Court's award which will be based on inadequate and one-sided evidence.”

6. It appears that on the 6th November, 1919, the Registrar had also sent a letter to the buyers in the following terms:

“I am instructed by the Court which has been constituted to adjudicate on the above dispute to request yon to select, in conjunction with Messrs Harising Nehal Chand, ten bales from the 1,275 bales in dispute, five bales to be selected by yourselves and five bales by Messrs Harising Nehal Chand. The bales must be here at 10 O'clock on Saturday next, the 8th instant. Should Messrs Harising Nehal Chand refuse or neglect to select their portion of the bales in time to enable you to send them here on the day and at the hour mentioned, you will be at liberty to select the whole ten bales yourselves and send them here.”

7. To this, the buyers replied next day as follows:

“In acknowledging receipt of your letter No. 21915-C of 6th instant, we beg to advise yon that as Messrs Harising Nehal Chand have refused to select bales for arbitration ex the parcel in dispute, we have exercised the authority granted us in your letter under reply and have to day despatched 10 bales of our own selecting to the Chamber for favour of arbitration.”

8. It now transpires that the arbitrators did not communicate to the buyers the reply received from the sellers on the 7th November, 1919, in which they alleged that they could not make the selection as directed by the arbitrators, as they were not allowed by the buyers to have access to the 1,275 bales. Nor did the arbitrators communicate to the sellers the reply received from the buyers. On the other hand, they accepted the 10 bales selected by the buyers and called upon the sellers on the 14th November, 1919, to identify them:

“I am directed to give you notice to identify on or before 2 p.m to-morrow Saturday, the 15th November, the ten bales which have been sent here by Messrs Jardine Skinner & Co., from the parcel in dispute, failing which the bales will be inspected for purposes of the arbitration.”

9. The sellers protested against this procedure and declined to be a party to the arbitration proceedings further. Ultimately, the arbitrators made an award on the 26th November, 1919, holding that the quality of the jute was not equal to the standard of the mark, and directing the sellers to pay to the buyers an allowance of Rs. 31,875 on the 1,275 bales in dispute. The award was filed in Court on the 19th January, 1920. On the 16th March, 1920, the sellers made an application to have the award set aside, which has been refused by Mr. Justice Rankin. On the present appeal, we have been invited to set aside the award as improperly made. In our opinion, the award must be remitted to the arbitrators for reconsideration under Section 13(1) of the Indian Arbitration Act. From the correspondence already set out, it appears that on the 7th November, 1919, the sellers alleged that they were unable to select five bales as directed by the arbitrators from 1,275 bales in dispute, because the sellers allowed them access to only 150 or 200 mixed bales. The buyers, on the other hand, intimated to the arbitrators that as the sellers had refused to select the bales, they had exercised the option allowed to them and had selected all the ten bales. Consequently, there was at that stage a substantial matter in controversy between the parties, namely, whether or not the conduct of the buyers made it impossible for the sellers to carry out the instructions of the arbitrators. This question should have been decided in the presence of both the parties concerned, after the respective allegations of the sellers and the buyers had been intimated, each to the other. Now it may be conceded, as stated by Lord Halsbury in Andrews v. Mitchell (1), that although we must not insist upon a too minute observance of the regularity of forms among persons who naturally, by their education or by their opportunities, cannot be supposed to be very familiar with legal procedure, there are some principles of justice which it is impossible to disregard. Whether the arbitration is conducted on the footing that it is a mercantile or a legal arbitration, the first principles of justice, as Lord Langdale, M.R, put it in Harvey v. Shelton (2), must be equally applied in every case. One of these elementary principles is that an arbitrator must not receive information from one side which is not disclosed to the other, whether the information is given orally or in the shape of documents, though the rule has sometimes been ignored by mercantile arbitrators, whose awards have on this ground been set aside: Matson v. Trower (3); In re Brook and Delcomyn (4) In re Camilla Eitzan and Jewson & Sons (5).

10. The validity of the proceedings in this case must consequently be tested in the light of the well-established doctrine that in arbitration proceedings both; sides must be heard, and each in the presence of the other; however immaterial the arbitrator may deem a point, he should be very careful not to examine a party or a witness upon it, except in the presence of the opponent. This rule was formulated by Lord Eldon in Walker v. Frobisher (6), where he set aside an award on the ground that the evidence had been improperly admitted, and observed that even though the arbitrator swore that the evidence received had no effect on his award, no Court would permit him to decide so delicate a matter as whether a witness examined in the absence of one of the parties had an influence on him or not. The same view was adopted by Lord Denman in Dobson v. Groves (7), and In Re Plews & Middleton (8). In Drew v. Drew (9), Lord Cranworth followed the rule, laying down that an arbitrator misconceives his duty if he, in any the minutest respect, takes it upon himself to listen to evidence behind the back of a party who is interested in controverting it or is entitled to controvert it. Lord Eldon and Lord Cranworth thus concurred in the view that the principles of universal justice require that the person who is to be prejudiced by the evidence ought to be present to hear it taken, to suggest cross-examination or himself to cross-examine, and to be able to find evidence if he can that shall meet and answer it. It is indeed indispensable to the impartial administration of justice between the parties that both should be present when proof is being led by either; the same rule applies to an inspection or an experimental test which are regarded as practical proof: Paterson & Son v. Corporation of Glasgow (10). It is both an unwise and unsafe proceeding for an arbitrator to take proof in the absence of either or both parties. These rules have been adopted and applied in Cursctji v. Crowder (11) and Gawes Narayan v. Malida Koer (12). In the present case, the arbitrators decided of their own motion, to adopt a certain method to obtain a fair sample of the disputed goods. It is conceivable that they might have adopted some other method equally convenient or efficacious; but this much is clear that they could not arbitrarily depart from the procedure they had invited the parties to follow. Now, one of the parties complained that they had been prevented by the other party from making the selection in the manner directed by the arbitrators. The arbitrators did not investigate the matter. Their conclusion that the buyers had rightly exercised the option to select all the ten bales was arrived at ex parte, without intimation to the sellers that the buyers claimed this right and without opportunity afforded to them to controvert the allegation of the buyers. This plainly affects the validity of the award, because as pointed out by Lord Parmoor in Amir Begam v. Khwaja Saiyed Badruddin (13), if irregularities in procedure are proved which amount to no proper hearing of the matters in dispute, that would be misconduct sufficient to vitiate the award, without any imputation on the honesty or impartiality of the arbitrator.

11. The question next arises whether the award should be remitted under Section 13(1) or should be set aside under Section 14 of the Indian Arbitration Act. The appellants have urged that the award should be set aside and the matters in controversy investigated in Court. We are unable to accept this contention in the circumstances of the present case. There can be no doubt that the Court may remit the award where the arbitrator has been guilty of misconduct in a technical sense, that is, if the misconduct is of such a nature as does not disqualify him from acting or render it impossible for the Court to trust him. If the arbitrator is guilty of fraud or partiality or such like misconduct, as would justify his removal, the Court will not remit the award. But where the arbitrator has merely failed to exercise all his powers or has improperly exercised a discretion, such as, hearing witnesses or consulting documents in the absence of the parties, and this has happened inspite of a complete absence of dishonest motive, the Court will not hesitate to remit the award to the arbitrator instead of setting it aside. This is in accord with the course adopted in Anning v. Hartley (14) and Davenport v. Vickery (15) and with the opinion expressed by Romilly M.R in Re Tidswell (16).

12. In this connection, it is important to bear in mind that Courts have been invested with statutory authority to remit an award, only in comparatively recent times, as is clear from Section 8 of the Common Law Procedure Act, 1854; even the Arbitration Act (Scotland) 1894, did not embody a corresponding provision; consequently, in many of the earlier decisions on the subject, orders were made for cancellation of the award under circumstances in which, in more recent times, the award would have been probably only remitted to the arbitrators. To take one example, when an award was remitted by the Lord Ordinary (Lord McLaren) in Rogevson v. Rogerson (17), the Court of Session (Lords Mure, Shand and Adam) set aside the order; see also Rollick v. Heatly (18) and the decisions of the House of Lords in Adams v. G.N Scotland Ry. Co. (19); Holmes Oil Co. v. Pumpherston Oil Co. (20); Edinburgh Water Trust v. Clippens Oil Co. (21). In the present case, the Court, has authority either to set aside the award or to remit it to the arbitrators; the sole question is, which of these alternatives should be adopted. Although the procedure followed by the arbitrators was, as we have held, irregular, there is no suggestion that they acted as they did, from corrupt or improper motives. The appellants are, in view of the unfavourable result of the arbitration, naturally anxious to escape from the tribunal of their choice; but that is no reason why the Court should assist them to achieve that purpose. An arbitrator is the Judge chosen by the parties; he has a wide measure of discretion as to the manner in which the proceedings are to be conducted and a due knowledge of the whole case is to be brought to his mind. His award will not be set aside, merely because the Court differs in opinion from him upon the merits of the dispute submitted for his decision; as Lord Halsbury said in Holmes Oil Co. v. Pumpherston Oil Co. “the parties have agreed that his award shall not be subject to the ordinary mode of appeal and that it shall be final; that is, in nine cases out of ten, the very object which they mean to attain by submitting their differences to arbitration.” This purpose should not be lightly defeated, merely because, in the course of the arbitration the arbitrator had failed to comply with what Lord Watson called in Adams v. G.N Scotland Ry. Co. “any one of the express conditions contained in the contract of submission, or any one of those important conditions which the law implies in every submission.” [See also Sharpe v. Bickerdye (22)]. The position is manifestly otherwise when the proceedings indicate that the arbitrator has been guilty of corruption, bribery or falsehood; but the case before us does not fall within that category.

13. The result is that this appeal is allowed, the order made by Mr. Justice Rankin set aside and the award remitted to the arbitrators for reconsideration with reference to the point whether the samples were or were not properly drawn. The costs of this appeal will abide the result; this, however, does not affect the order for costs thrown away by the adjournment of the appeal on the 23rd June, last.

Fletcher, J.:— I agree. Appeal allowed.