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Case Number

First Appeal No.151-D of 1964

Attorney(S)

R.L. Agarwal
Advocate.

Judges

Mr. Justice S.S. Dulat
Mr. Justice Harbans Singh Rai

Acts

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Smart Summary

Opinion Summary — Dulat, J. (with Harbans Singh, J. concurring)

Factual and Procedural Background

The respondents and the appellant Company entered into a hire-purchase agreement that contained an arbitration clause. After disputes arose, the appellant purported to refer the dispute to the arbitrator named in the agreement. The respondents did not appear before the arbitrator nor submit to his jurisdiction; the arbitrator proceeded ex parte and made an award. When the appellant filed the award in Court and sought a decree based on it, the respondents raised objections. One objection (central to this litigation) was that they had never consented to the reference to the arbitrator, and that a valid reference required the assent of both parties or alternatively a Court order under the Arbitration Act. The Subordinate Judge accepted this objection, relied on the Supreme Court decision in Thawardas v. Union of India (AIR 1955 SC 468), held the reference to the arbitrator invalid and incompetent, set aside the award and dismissed the appellant’s application. The appellant appealed from that decision.

Legal Issues Presented

Whether, in the circumstances of a single-party referral to an arbitrator (i.e., where one party alone submits the matter to arbitration and the other party does not consent or submit), the arbitrator acquires valid jurisdiction to proceed and render an award.
Whether the Supreme Court's observations in Thawardas v. Union of India (AIR 1955 SC 468) are to be read generally (applying to all kinds of references) or confined only to references of specific questions of law.
Whether, absent mutual assent, recourse must be had to a Court order under Section 20 (or, by implication, other relevant provisions) of the Arbitration Act to compel a recalcitrant party to submit to arbitration.

Arguments of the Parties

Appellant's Arguments

It was argued by Mr. Radhey Lal Aggarwal for the appellant that the Supreme Court's observations in Thawardas should be read narrowly: they were made in the context of deciding whether a specific question of law had been referred to the arbitrator in that case, and therefore the rule should be understood as confined to references of specific questions of law.
On that narrow reading, the appellant contended that the general observations in Thawardas do not preclude a valid reference in other situations where the arbitrator is appointed or invoked by one party, provided the question is not a specifically referred question of law (as understood by learned counsel).

Respondents' Arguments

The respondents contended that they never consented to the reference to the arbitrator and therefore the reference was invalid. They relied on the principle (as stated in Thawardas) that a reference requires the assent of both sides and, in the absence of such assent, only a Court order under the Arbitration Act can compel a party to submit to arbitration.
They relied on the trial court's finding that the arbitrator lacked jurisdiction when the reference was made unilaterally by the appellant without the respondents' consent.

Table of Precedents Cited

Precedent	Rule or Principle Cited For	Application by the Court
Thawardas v. Union of India, AIR 1955 SC 468	The Supreme Court observed that "a reference requires the assent of 'both' sides." If one side will not submit, recourse must be had to the Court under Section 20 of the Arbitration Act and the recalcitrant party can be compelled to submit under subsection (4). In the absence of either mutual agreement on terms of reference or a Court order under Section 20(4), the arbitrator lacks exclusive jurisdiction. Also observed that when a question of law is the point at issue, both sides must specifically agree to refer it.	The trial court relied on this decision to hold the unilateral reference invalid. The present Court interpreted the language as general (not limited to questions of law) and agreed that Thawardas supports the conclusion that a reference made by one party alone, without the other's consent or a Court order, gives no jurisdiction to the arbitrator.
M/s. Alopi Parshad v. Union of India, AIR 1960 SC 588	Mentioned as another Supreme Court decision referred to in arguments (no specific rule from it is elaborated in the opinion).	The Court noted that nothing said in that decision really assisted the appellant's argument nor shed light on Thawardas for purposes of the present case.
Balika Devi v. Kedar Nath, AIR 1956 All. 377	Concerned a party suggesting an arbitrator while the other party refused to agree and an application under Section 8 of the Arbitration Act to appoint arbitrators; considered whether Section 8 proceedings were competent where one party did not agree.	The Allahabad High Court rejected the contention that Thawardas supported the view that only Section 20 proceedings were competent in such circumstances; the Court below in the present case observed that the context in Balika Devi was entirely different and thus it did not govern the present dispute.
Om Parkash v. Union of India, AIR 1963 All. 242	Held that an arbitrator appointed by one party was not competent to act because his appointment was not made by the Court; relied on Thawardas' principle that a reference out of Court cannot be made by one party alone.	The present Court observed that this decision supports the respondents' position and thus is consistent with rejecting the appellant's unilateral reference.
M/s. Vallabh Pittey v. Narsingdas, AIR 1963 Bom. 157	Addressed an objection that there was in fact no arbitration agreement; held that where a question of fact is raised about the existence of an arbitration agreement, the Court must decide that fact before decreeing in accordance with its decision.	The Bombay High Court found no support in Thawardas for the proposition that mere denial by one party automatically ousts arbitrator jurisdiction. The present Court considered this context different and observed that Vallabh Pittey does not support the appellant's stance.
Mangal Prasad v. Lachman Prasad, AIR 1964 All. 108 (Full Bench)	Considered whether an application under Section 20 of the Arbitration Act was competent where an arbitrator had already entered upon a reference but was unable to proceed due to non-cooperation; majority held Section 20 not competent in those circumstances, distinguishing situations where the arbitrator had not entered upon the reference.	The present Court noted that the Full Bench's context was different and that its views did not materially assist either party on the precise issue before this Court (i.e., whether an arbitrator can validly proceed when appointed or referred to by one party without the other's consent).

Court's Reasoning and Analysis

The Court began by accepting that the facts were not in dispute and concentrated on whether the trial court had correctly understood and applied the Supreme Court's opinion in Thawardas. It examined the key passages from Thawardas (paragraph 18 of that judgment) and quoted the Supreme Court's language, including:

"A reference requires the assent of ‘both’ sides. If one side is not prepared to submit a given matter to arbitration when there is an agreement between them that it should be referred, then recourse must be had to the Court under Section 20 of the Act and the recalcitrant party can then be compelled to submit the matter under Sub-section (4). In the absence of either, agreement by ‘both’ sides about the terms of reference, or an order of the Court under Section 20(4) compelling a reference, the Arbitrator is not vested with the necessary exclusive jurisdiction."

The court analyzed the appellant's submission that Thawardas should be confined to the special context of whether a specific question of law had been referred to the arbitrator. The court rejected this narrow reading for the following reasons, relying on the text of Thawardas itself:

The broader passage in Thawardas begins with a general statement—"A reference requires the assent of 'both' sides"—without any indication that the statement is limited to questions of law.
Bose, J.'s general formulation speaks of "any given matter" about which there may be a prior agreement to refer; the Court interpreted "given matter" to be generic and not limited to a question of law.
The conclusion in Thawardas about questions of law follows from the earlier, general proposition; there is no textual signal that the general rule should be restricted to a subset of references.

The Court therefore held that Thawardas sets out a general rule: absent mutual assent to the reference or a Court order under the Arbitration Act (Section 20), an arbitrator has no jurisdiction to proceed. The Court reviewed the other cited decisions and found that none changed this reading: some decisions supported the respondents; others involved materially different contexts (e.g., challenges on fact as to whether an arbitration agreement existed, or procedural distinctions where an arbitrator had already entered upon a reference), and so did not aid the appellant's contention that Thawardas was limited in scope.

Applying that general rule to the present facts — where the appellant unilaterally referred the matter to the arbitrator and the respondents neither consented nor submitted to the arbitrator's jurisdiction — the Court concluded that the arbitrator could not validly proceed and that his award was therefore invalid.

Holding and Implications

Holding: The Court affirmed the decision of the trial court: the appeal is dismissed and the award is set aside. The Court held that the arbitrator could not validly proceed where the reference had been made by one party alone without the consent of the other party and without a Court order under the Arbitration Act; consequently, the ex parte award could not stand. The Court left the parties to bear their own costs in this Court.

Implications:

The direct effect is that the arbitrator's ex parte award is set aside and the appellant's application for a decree based thereon fails.
The decision reiterates (in accordance with Thawardas) that a valid arbitration reference requires either the assent of both parties or a court order under the Arbitration Act compelling the recalcitrant party to submit; absent either, the arbitrator has no jurisdiction.
The opinion does not purport to lay down a broader new precedent beyond interpreting and applying Thawardas and related authorities to the facts; it primarily affirms the trial court's application of the existing Supreme Court authority to the case at hand.

Opinion authored by Dulat, J.; Harbans Singh, J. concurred.

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Madhusudan Limited v. Ram Parkash

Dulat, J.

The respondents had entired into a hire purchase agreement with the appellant Company, and in that agreement there was an arbitration clause. Certain disputes having arisen subsequently, the appellant-Company handed over the dispute to the Arbitrator named in the agreement. The respondents did not appear before the Arbitrator nor otherwise submit to his jurisdiction, and in the result, an ex parte award was made. When the award was filed in Court and a prayer for a decree on its basis made by the appellant-Company, several objections were raised by the respondents. One of these was that they had never consented to the dispute being referred to the Arbitrator, and the reference was, therefore, invalid as such a reference in law required the assent of both the parties and failing that an order of the Court. This objection prevailed and the learned Subordinate Judge hearing the case held that the reference to the Arbitrator was invalid and incompetent. He relied for this on a judgment of the Supreme Court in Thawardas v. Union of India, AIR 1955 SC 468. In the result, the appellant’s application was dismissed and the award set aside and it is against that decision that the present appeal is brought.

2. The facts are not in dispute and the only question is whether the Court below has correctly understood the opinion of the Supreme Court expressed in Thawardas v. Union of India, (supra). The relevant observations of that Court occur in paragraphs 18 of the judgment. The Supreme Court was pressed to hold in that case that a point of law had been specifically referred to the Arbitrator in that case, and, negativing that suggestion, the Supreme Court said:

“We are of opinion that this is not the kind of specific reference on a point of law that the law of arbitration requires. In the first place, what was shown to us is no reference at all. It is only an incidental matter introduced by the Dominion Government to repel the claim made by the contractor in general terms under claim No. 5. In the next place, this was the submission of the “contractor alone.”

Having said this, Bose, J., speaking for the Court, proceeded to lay down the general law on the subject, and he said—

“A reference requires the assent of ‘both’ sides. If one side is not prepared to submit a given matter to arbitration when there is an agreement between them that it should be referred, then recourse must be had to the Court under Section 20 of the Act and the recalcitrant party can then be compelled to submit the matter under Sub-section (4). In the absence of either, agreement by ‘both’ sides about the terms of reference, or an order of the Court under Section 20(4) compelling a reference, the Arbitrator is not vested with the necessary exclusive jurisdiction.”

Having laid down the law in this manner, Bose, J., proceeded to draw the conclusion.

“Therefore, when a question of law is the point at issue, unless ‘both’ sides ‘specifically’ agree to refer it and agree to be bound by the Arbitrator’s decision, the jurisdiction of the Court to set an arbitration right when the error is patent on the face of the award is not ousted.”

The language employed by the Supreme Court is plain enough, for it says clearly that “If one side is not prepared to submit a given matter to arbitration when there is an agreement between them that it should be referred then recourse must be had to the Court under Section 20 of the Act and the recalcitrant party can then be compelled to submit the matter under Sub-section (4).”

3. Mr. Radhey Lal Aggarwal for the appellant suggests that the observations of the Supreme Court were made when the learned Judges were considering whether in that case specific question of law had or had not been referred to the Arbitrator, and they must be understood as confined to such a situation so that, according to learned Counsel, the meaning of the above-quoted passages is simply this that a specific question of law cannot be referred to an Arbitrator unless both parties agree that it will be so referred. In support of the suggestion, learned Counsel points to the conclusion drawn by Bose, J. and expressed thus......

That such was the conclusion in that particular case is not in doubt. The point is that that conclusion was the result of and followed the general statement which precedes it beginning with the words “A reference requires the assent of ‘both’ sides.” There is no indication here that the reference in contemplation is a reference about a question of law and when Bose, J., goes on to say: “If one side is not prepared to submit given matter to arbitration when there is an agreement between them that it should be referred, then recourse must be had to the Court,” he is not speaking of any question of law being referred to arbitration but speaking generally of any given matter about which there may be a previous agreement to refer to arbitration. It is, in the circumstances, hard to agree with, Mr. Aggarwal that the observations of the Supreme Court and the law of arbitrations laid down in the passages quoted above are confined to a reference involving specifically a question of law. On the other hand, the; observations are in general terms and cover every kind of reference, and, Bose, J., says clearly that if one of the parties is unwilling to go to arbitration in spite of there being a previous agreement about the matter, then that party has to be compelled by Court under Section 20 of the Act. Without such an order the Arbitrator gets no jurisdiction. It seems to me, therefore, that Court below was right on its understanding of the Supreme Court observations.

4. Reference was made in the course of arguments to another decision of the Supreme Court, M/s. Alopi Parshad v. Union of India, AIR 1960 SC 588 but, nothing said there really assists the appellant’s argument nor throws much light on the earlier judgment. Four other decisions have been referred to three of them of the Allahabad High Court and one of the Bombay High Court in which Thawardas v. Union of India (supra) has been mentioned. The first is Balika Devi v. Kedar Nath, AIR 1956 All. 377. In that case one of the parties to a dispute suggested the name of an Arbitrator but the other party refused to agree. The first party thereupon made, an application under Section 8 of the Arbitration Act, requesting the Court to appoint an Arbitrators. Objection was taken that such an application was not competent and in support of that objection reliance was placed on the observations of Bose, J., in Thawardas’s case (supra) that where one of the parties does notagree to a reference, recourse must he had to Section 20 of the Arbitration. Act, the suggestion being that Section 8 proceedings would not be competent. The learned Judges of the Allahabad High Court negatived that contention and found no support in the Supreme Court decision for the view that only an application under Section 20 was competent in such circumstances and application under Section 8 was not. The context, therefore, in which the Supreme Court judgment was cited, was entirely different from the present. The next, case, also of the Allahabad High Court, is Om Parkash v. Union of India, AIR 1963 All 242. In that case the learned Judges held that an Arbitrator appointed by one of the parties was not competent to act as his appointment was not made by the Court and in support of their conclusion that a reference out of Court cannot be made by one party alone, they relied on Thawardas v. Union of India, (supra) more or less that same way as the Court below in the present case has done. This decision, therefore, supports the respondents and not the appellant. The third case is from Bombay, M/s. Vallabh Pittey v. Narsingdas, AIR 1963 Bom. 157. In that case, however, objection had been taken to the Arbitrator’s jurisdiction on the ground that there was in fact no arbitration agreement and without going into the question the Court below had decided on the very basis of the denial that the arbitrator had no jurisdiction. When the matter went to the Bombay High Court, it was held that the question of fact had to be decided and the jurisdiction of the Arbitrator depended upon the fact whether there had or had not been an arbitration agreement between the parties and the mere denial by one party of such an agreement would not conclude the matter. Patel, J., delivering the judgment of the Court observed in that connection:

“In a case where a question is raised that there is no arbitration agreement, the Court is bound to decide it and make its decree in accordance with the said decision.”

Reliance was placed on the Supreme Court Judgment in Thawardas’s case for the proposition that if one party denies the existence of such an agreement, the jurisdiction of the Arbitrator is ousted. The Bombay High Court found no support for such a proposition in the Supreme Court decision and, if I may add with great respect, there is indeed none to be found in that judgment. Again, it is clear that the content, in which the decision was relied upon, was very different from the present case. The last case is a Full Bench decision of the Allahabad High Court, Mangal Prasad v. Lachman Prasad, AIR 1964 All. 108, but there again the context was very different. A dispute had been referred to an Arbitrator who had entered upon the reference and taken a considerable time over it. A suit as then filed by one of the parties in respect of the same dispute. The opposite party made an application under Section 20 of the Arbitration Act saying that there was an arbitration agreement which should be brought to Court and the dispute should be referred to the Arbitrator and a decree should be made on the award to be made by him. That application was opposed. The question before the Full Bench was whether in the circumstances of that case an application under Section 20 was competent as the Arbitrator had actually entered upon the reference and proceeded with it. The Court held by a majority of two against one that an application under Section 20 was not in the circumstances competent as the Arbitrator had started to function after entering upon the reference but was unable to proceed with it because of the non-co-operation of one of the parties. Thawardas v. Union of India (supra) was cited to support the contention that a, recalcitrant party can be compelled to submit to arbitration only through an application under Section 20 of the Arbitration Act. The majority of the Full Bench held that the observations of the Supreme Court concerning Section 20 of the Arbitration Act referred to situation where the Arbitrator had not entered upon the reference and did not contemplate a situation where the Arbitrators had entered upon the reference. This opinion of the Full Bench whether right or wrong, does not really assist the argument of either side in the present case, for here the question is whether, if reference to the Arbitrator is only by one of the parties to the agreement without the consent or agreement of the other party and without the other party submitting to the Arbitrator’s jurisdiction, the Arbitrator can validly proceed with the matter, and, as far as that question goes, the only answer is to be found in the observations of the Supreme Court which I have already referred to at some length, and the meaning in my opinion is that such a reference must be with the consent of both the parties, and in the absence of such consent only a Court’s order under the Arbitration Act, can give Jurisdiction to the Arbitrator and, apart from these two contingencies, the Arbitrator has no jurisdiction.

5. For these reasons I find myself in agreement with the view of the Trial Court that in the present case the Arbitrator could not have validly proceeded with the award and his award has been set aside for good reasons I, therefore, affirm the decision of the Court below and dismiss the appeal but, considering the circumstances, leave the parties to bear their own costs in this Court.

Harbans Singh, J.

I agree.

Madhusudan Limited v. Ram Parkash

Opinion Summary — Dulat, J. (with Harbans Singh, J. concurring)

Factual and Procedural Background

Legal Issues Presented

Arguments of the Parties

Appellant's Arguments

Respondents' Arguments

Table of Precedents Cited

Court's Reasoning and Analysis

Holding and Implications

Madhusudan Limited v. Ram Parkash

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