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Smart Summary

Structured Summary of the Provided Opinion

Factual and Procedural Background

The petitioner, a (suspended) member of The Stock Exchange, Bombay (“the Exchange”), seeks a declaration that arbitration proceedings (Case No. 45 of 1991) before respondents 2 and 3 (the Arbitrators) are null and void because the time for making the award has expired and the petitioner has refused to consent to any enlargement of that time. Prior to the petitioner’s suspension, certain share transactions took place through him on the Exchange and disputes arose which the first respondents referred to arbitration in April 1991. The first respondents appointed respondent 2 as their arbitrator; the petitioner appointed respondent 3 as his arbitrator. Hearings before the arbitrators have largely concluded and the arbitrators are to make the award.

The petitioner relied on Clause 3 of the First Schedule to the Arbitration Act and Section 28 of the Arbitration Act, and on the Supreme Court decision in Hari Krishna Wattal v. Vaikunth Nath Pandya (AIR 1973 SC 2479), to submit that because he declined to give consent for extension the arbitrators had become functus officio and the proceedings had become null and void. The petition was served on all respondents; respondents 2, 3 and 4 did not appear to oppose admission. Counsel for the first respondents (Mr. Purohit) opposed admission.

Legal Issues Presented

  1. Whether the arbitrators have become functus officio and the arbitration proceedings null and void because the time for making the award has expired and the petitioner has declined to consent to enlargement of time.
  2. Whether sub-section (2) of Section 28 of the Arbitration Act (which renders void a provision permitting arbitrators to enlarge time except with the consent of all parties) operates so as to prevent any enlargement of time in this case.
  3. Whether Bye-laws 254 and 261 of The Stock Exchange, Bombay (statutory bye‑laws made under the Securities Contracts (Regulation) Act, 1956) — which permit the Governing Board or the President of the Exchange to extend time for making an award even without the parties' consent — prevail over Section 28(2) by dint of Section 46 of the Arbitration Act.

Arguments of the Parties

Petitioner's Arguments

  • The Arbitrators were required to make the award within four months of entering upon the reference (per Clause 3 of the First Schedule to the Act) and they have failed to do so.
  • Because the petitioner refused to consent to any enlargement of time, the Arbitrators became functus officio and have ceased to have jurisdiction; the proceedings are null and void (relying on Sections 28 and 46 of the Act and the decision in Hari Krishna Wattal v. Vaikunth Nath Pandya, AIR 1973 SC 2479).
  • The petitioner had previously requested the Arbitrators to make the award (including on 7 April 1994) and on 3 August 1994 submitted that he was not consenting to any enlargement of time and that the proceedings were therefore null and void under Section 28.

First Respondents' Arguments (as advanced by Mr. Purohit)

  • The Rules, Bye-laws and Regulations of the Exchange are statutory (under the Securities Contracts (Regulation) Act, 1956) and Bye-laws 254 and 261 empower the Governing Board or the President of the Exchange to extend the time for arbitrators to make the award without the consent of either party to the reference.
  • Section 46 of the Arbitration Act provides that where the Arbitration Act is inconsistent with another enactment or rules made under that enactment, the other enactment or its rules prevail; therefore Bye-laws 254 and 261 prevail over Section 28(2) to the extent of any inconsistency.
  • The time for making the award has in fact been enlarged from time to time by the Governing Board or the President of the Exchange; consequently the Arbitrators have not become functus officio, have not ceased to have jurisdiction, and the proceedings are not null and void.

Table of Precedents Cited

Precedent Rule or Principle Cited For Application by the Court
Hari Krishna Wattal v. Vaikunth Nath Pandya, AIR 1973 SC 2479 Reiterates that an arbitrator cannot enlarge time for making the award except with the consent of all parties; Section 28(2) renders provisions in an arbitration agreement allowing arbitrator to enlarge time void. The Court accepted the principle from this Supreme Court decision that, as a general rule under Section 28(2), arbitrators lack power to enlarge time without parties' post‑reference consent. The Court nevertheless considered whether statutory bye‑laws (Bye‑laws 254 & 261) inconsistent with Section 28(2) prevail under Section 46 of the Act.

Court's Reasoning and Analysis

The Court examined the competing statutory provisions and the Exchange bye‑laws as follows:

  1. The Court noted Section 28 of the Arbitration Act:
    • Section 28(1): the Court may, if it thinks fit, enlarge the time for making the award.
    • Section 28(2): any provision in an arbitration agreement permitting the arbitrators or umpire to enlarge the time except with the consent of all parties shall be void.
    From this, the Court acknowledged that, generally, arbitrators cannot enlarge time for making the award unless all parties consent (as reinforced by the Supreme Court in Hari Krishna Wattal).
  2. The Court then turned to the statutory character of the Exchange's Rules and Bye‑laws (under the Securities Contracts (Regulation) Act, 1956) and quoted Bye‑laws 254 and 261, which (a) require arbitrators to make their award within four months of entering on the reference or such extended time as the arbitrators may fix with the consent of the parties or as the Governing Board or the President may allow, and (b) permit the Governing Board or the President to extend the time for making the award by periods not exceeding one month at a time, whether or not the time has expired and whether or not an award has been made.
  3. The Court applied Section 46 of the Arbitration Act, which provides that, subject to specified exceptions, the provisions of the Arbitration Act apply to arbitrations under other enactments except insofar as the Act is inconsistent with that other enactment or rules made thereunder. The Court reasoned that where inconsistency exists, the other enactment or its rules/bye‑laws prevail.
  4. Given (i) the statutory nature of the Exchange bye‑laws under the Securities Contracts (Regulation) Act, and (ii) the express power in Bye‑laws 254 and 261 for the Governing Board or the President to extend time for making awards (even without party consent), the Court concluded that those bye‑laws are inconsistent with Section 28(2) of the Arbitration Act and therefore, under Section 46, the bye‑laws prevail.
  5. As a consequence of the above conclusion, the Court held that the Governing Board or the President had the power to enlarge time for the Arbitrators to make the award, that such enlargement had in fact been done from time to time, and/or that such enlargement was still available under the bye‑laws. Therefore the Arbitrators had not become functus officio, retained jurisdiction to make the award, and the proceedings were not null and void.

Holding and Implications

PETITION DISMISSED

Direct effects on the parties:

  • The petition seeking declaration that the arbitration proceedings were null and void was dismissed at the stage of admission with no order as to costs.
  • The Arbitrators (respondents 2 and 3) were directed to make their award at the earliest and, in any event, by 31 March 1996.
  • The learned Advocates for the 1st Respondents were directed to intimate the Order in writing to respondents 2, 3 and 4 within two weeks.

Broader implication stated in the opinion: Because the Exchange’s statutory bye‑laws (Bye‑laws 254 and 261) are inconsistent with subsection (2) of Section 28 of the Arbitration Act, they prevail by virtue of Section 46 of the Act; accordingly, where such statutory bye‑laws permit extension without party consent, arbitrators do not become functus officio merely because one party refuses consent. The opinion does not purport to set out any new precedent beyond this application of Sections 28 and 46 to the Exchange bye‑laws.

Final Court Order in Opinion: Petition dismissed. Respondents 2 and 3 to make award by 31 March 1996. No order as to costs.

Show full summary ...

    Kishor Jitendra Dalal v. Jaydeep Investments

    By this petition, the petitioner seeks declaration that the arbitration — proceedings in case No. 45 of 1991 pending before respondents 2 and 3, the Arbitrators, have become null and void since time for the Arbitrators to make the award has expired and the petitioner has declined to give his consent for enlargement of time for the Arbitrators to make the award.

    2. The petitioner has been a member of The Stock Exchange, Bombay (for short, ‘the Exchange’). However, the membership of the petitioner is presently suspended by the Governing Board of the Exchange. Prior to suspension of the membership of the petitioner, the 1st respondents had effected transactions in shares through the petitioner at the Exchange in accordance with Rules, Bye-laws and Regulations of the Exchange. In respect of such transactions, certain disputes and differences arose by and between the 1st respondents and the petitioner which the 1st respondents referred to arbitration as per arbitration agreement in existence by and between the petitioner and the 1st Respondents. The 1st respondents had appointed the 2nd respondent as their Arbitrator and the petitioner had appointed the 3rd respondent as his Arbitrator. The reference to arbitration was made some time in the month of April, 1991. In the proceedings pending before them, the Arbitrators have held several meetings to hear the reference. The hearings of the reference have now practically concluded and the Arbitrators are to make the award.

    3. According to the petitioner, the Arbitrators were required to make the award within four months of entering upon the reference and since the Arbitrators have not made the award within the time prescribed under Clause 3 of The First Schedule to the Act and as the petitioner has declined to give his consent for extention of time for the Arbitrators to make the award, the Arbitrators have become functus officio and as such, are not now entitled to make the award and the proceedings before them have become null and void.

    4. Earlier and even on 7th April, 1994, the petitioner himself had requested the Arbitrators to make the Award. On 3rd August, 1994, the petitioner had submitted before the Arbitrators that since the petitioner was not giving his consent for enlargement of time for the Arbitrators to make the award, by reason of Section 28 of the Act the proceedings before the Arbitrators had become null and void and that the Arbitrators ceased to have jurisdiction to make the award.

    5. In support of his submission that the Arbitrators have ceased to have jurisdiction to make the award since the petitioner has declined to give his consent for enlargement of time for the Arbitrators to make the award, the petitioner has put reliance on Sections 28 and 46 of the Act as also on the case of Hari Krishna Wattal v. Vaikunth Nath Pandya, reported in AIR 1973 SC 2479.

    6. Though the Notice of the petition has been served upon all the respondents, respondents 2, 3 and 4 are not appearing to oppose admission of the petition. Mr. Purohit, the learned Advocate appears for the 1st respondents to oppose admission of the petition. Mr. Purohit submits that the Rules, Bye-laws and Regulations of the Exchange are statutory and by reason of Bye-laws 254 and 261 of the Bye-laws of the Exchange the Governing Board or the President of the Exchange has the power to extend the time for the Arbitrators to make the award and for that purpose, it is not necessary to have the consent of either party to the reference. Mr. Purohit further submits that by reason of Section 46 of the Act, the provisions as contained in the statutory Bye-laws of the Exchange enabling the Governing Board or the President of the Exchange to extend time for the Arbitrators or the Umpire, as the case may be, though inconsistent with provisions of Section 28 of the Act prevail and as such, though Section 28 of the Act contemplates mutual consent of the parties to enable the Arbitrator to enlarge the time to make the award, in view of Bye-laws 254 and 261 of the Bye-laws of the Exchange, such consent was not condition precedent for the Governing Board or the President of the Exchange to enlarge the time for the Arbitrators to make the award. Mr. Purohit has stated that in fact the time to make the award has been enlarged from time to time by the Governing Board or the President of the Exchange and the Arbitrators have neither become functus officio nor ceased to have jurisdiction to arbitrate nor the proceedings before them have become null and void.

    7. It is not disputed by the petitioner that the Rules and Bye-laws of the Exchange are Statutory Rules and Bye-laws. The Exchange is duly recognised under the provisions of. The Securities Contracts (Regulation) Act, 1956. Bye-laws 254 and 261 which are relevant for consideration read as, follows:

    “254. The arbitrators shall make their award within four months after entering on the reference or after having called upon to act by notice in writing from any party or within such extended time as the arbitrators may fix with the consent of the parties to the reference or the Governing Board or the President may allow.

    261. The Governing Board or the President may if deemed fit whether the time for making the award expired or not and whether the award has been made or not extended from time to time for making the award by the period not exceeding one month at a time from the due date or extended due date of the award.”

    Under these Bye-laws, the Arbitrators are to make their award within four months after entering on the reference or after having been called upon to act by notice in writing from any party or within such extended time as the Arbitrators may fix with the consent of the parties to the reference or the Governing Board or the President may allow. Further, the Governing Board or the President may, if deemed fit, whether the time for making the award has expired or not and whether the award has been made or not extend from time to time for making the award by the period not exceeding one month at a time from the due date of the award. Under Bye-laws 254 and 261, the Governing Board or the President of the Exchange has power to extend the time for the Arbitrators to make the award despite there being no consent of a party to the reference for such enlargement of time.

    8. Section 28 of the Act reads as under:

    Section 28(1) The Court may, if it thinks fit, whether the time for making the award has expired or not and whether the award has been made or not, enlarge from time to time the time for making the award.

    (2) Any provision in an arbitration agreement whereby the arbitrators or umpire may, except with the consent of all the parties to the agreement, enlarge the time for making the award, shall be void and of no effect.”

    There is no doubt that as per sub-section (2) of Section 28, the Arbitrators can enlarge the time for making the award upon the consent of all the parties to the agreement. Therefore, if one of the parties to the agreement decline to give consent for enlargement of time for making the award, the Arbitrators under sub-section (2) of Section 28 cannot enlarge the time to make the award. This position in law has been reiterated by the Supreme Court in the case of Hari Krishna Wattal v. Vaikunth Nath Panday (AIR 1973 SC 2479) (supra) on which reliance has been placed by the petitioner. In that case, the Supreme Court has observed:

    “There is no doubt that the Arbitrator is expected to make his award within four months of his entering on the reference or on his being called upon to act or within such extended time as the Court may allow. Reading Clause 3 of the Schedule along with Section 28 one finds that the power to enlarge the time is vested in the Court and not in the Arbitrator. Clause 2 and Section 28(1) exclude by necessary implication the power of the Arbitrator to enlarge the time. This is emphasised by Section 28(2) which provides that even when such a provision giving the Arbitrator power to enlarge the time is contained in the agreement, that provision shall be void and of no effect. The head note of Section 28 brings out the force of this position in law by providing that the power is of the Court only to enlarge time for making the award.

    sub-section (2) of Section 28, however, indicates one exception to the above rule that the Arbitrator cannot enlarge the time, and that is when the parties agree to such an enlargement. The occasion for the Arbitrator to enlarge the time occurs only after he is called upon to proceed with the arbitration or he enters upon the reference. Hence, it is clear that if the parties agree to the enlargement of time after the Arbitrator has entered on the reference, the Arbitrator has the power to enlarge it in accordance with the mutual agreement or consent of the parties. That such a consent must be a post-reference consent is also clear from Section 28(2) which renders null and void a provision in the original agreement to that effect. In a sense where a provision is made in the original agreement that the Arbitrator may enlarge the time, such a provision always implies mutual consent for enlargement but such mutual consent initially expressed in the original agreement does not save the provision from being void. It is, therefore, clear that the Arbitrator gets the jurisdiction to enlarge the time for making the award only in a case where after entering on the arbitration the parties to the arbitration agreement consent to such enlargement of time.”

    However, the question which still requires consideration to wheher in view of Rules and bye-laws of the Exchange being Statutory, sub-section (2) of Section 28 of the Act would apply to the facts of the present case. Section 46 of the Act reads as under:

    Section 46. The provisions of this Act, except sub-section (1) of Section 6 and Sections 7, 12, 36 and 37, shall apply to every arbitration under any other enactment for the time being in force, as if the arbitration were pursuant to an arbitration agreement and as if that other enactment were an arbitration agreement, except in so far as this Act is inconsistent with that other enactment or with any rules made thereunder.”

    As per Section 46, Sections 6(1), 7, 12, 36 and 37 of the Act will not apply to statutory arbitrations so also, if there is anything in the Act which is inconsistent with the enactment under which arbitration is taking place or with any Rules or bye-laws framed under that enactment, the provisions of that enactment and the Rules and bye-laws thereunder shall prevail. Therefore, since provision has been made under Bye-laws 254 and 261 of the bye-laws of the Exchange empowering the Governing Board or the President of the Exchange to enlarge time for the Arbitrators to make the award despite there being no consent of the party or parties to the agreement which provision though inconsistent with sub-section (2) of Section 28 of the Act shall prevail and in that view of the matter, the Governing Board or the President of the Exchange has the power to enlarge the time for the Arbitrators to make the award. In exercise of such powers from time to time, the time for making the award by the Arbitrators has in fact been enlarged by the Governing Board or the President of Exchange. Even otherwise also if the time to make the award is not yet enlarged by the Governing Board or the President of the Exchange, under Bye-laws 254 read with bye-law of the bye-laws of the Exchange, the Governing Board or the President of the Exchange can still enlarge the time for the arbitrators to make the award. In the circumstances, the Arbitrators have neither become functus officio nor have ceased to have the jurisdiction to arbitrate in the matter. The proceedings before the Arbitrators have not become null and void.

    9. Mr. Purohit informs this Court that the proceedings before the Arbitrators have been completed and the Arbitrators have just to make their award. The petitioner, as averred in the petition, also desires, that the award be made at the earliest since restoration of his membership is dependent upon completion of pending arbitration proceedings against him. That being the position, it is in the interest of the petitioner that the arbitration proceedings instituted by the 1st Respondents against the petitioner are completed at the earliest.

    10. Since I find no merit in the petition the petition is dismissed at the stage of its admission itself with no order as to costs. However, the Respondents 2 and 3 are directed to make their award at the earliest and in any event by 31st March, 1996. The learned Advocates for the 1st Respondents are to intimate this Order in writing to Respondents 2, 3 and 4 within two weeks from today.

    Petition dismissed.
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    Comments

    Kishor Jitendra Dalal v. Jaydeep Investments
    (Jan 10, 1996)