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Letters Patent Appeal No. 47 of 1960, decided on 12th September 1963.
, Sch. I, para. 3‑Expression "after entering on reference"‑Means after arbitrator does some thing in pursuance of reference‑Issuing notice to parties for appearance before him‑Amounts to entering upon reference.
Baker v. Stephens (1867) 2 Q B 523 not fol.
Abdul Majid v. Bhawal Bakhsh P L D 1950 Lah. 228 dis tinguished.
Shambhu Nath v. Hari Shankar Lai A I R 1954 All. 673 held not applicable.
Sardar Mal Hardat Rai v. Sheo Bakhsh Rai Sri Narain I L R 1922 All. 432 ; Amin Agencies Ltd. v. Haji Moosa Haji Oomar P L D 1953 Sind 57 ; Sind Cotton Exporters v. A. B. Sadiq Brothers P L D 1955 Sind 268 ; Ismail Brothers Ltd. v. S. M. Fazail & Co. P L D 1958 Kar. 158 ; Bajranglal Laduram v. Ganesh Commercial Co. A I R 1951 Cal. 78 ; Bhogilal Purshottam v. Chimanlal Amritlal A I R 1928 Bom. 49 ; Soneylal Thakur v. Lachhminarain Thakur A I R 1957 Pat. 395 ;
Hari Shankar Lai v. Shambhu Nath A I R 1962 S C 78 ; lossifoglu v. Coumantaros L R 1940 K B 396 and Muhammad Anwar Khan v. Wall Muhammad P L D 1956 Lah. 202 ref.
, S. 28‑Discretion to; extend time‑Cannot be exercised in favour of party guilty of negligence ---Arbitrator not taking reference seriously and prolonging proceeding on flimsy grounds‑Court, held, justified in refusing to extend time.
Shambhu Nath v. Hari Shankar Lai A I R 1954 All. 673 ; Bhogilal Purshottam v. Chimanlal Amritlal A I R 1928 Bom. 49 and Kesholal Ramdayal Kahar v. Laxman Rao Ramkrishna Rao Deshpande A I R 1940 Nag. 386 ref.
Z. C. Yaliani for Appellant.
Hafiz Ahsan for Respondent.
Dates of hearing : 21st and 22nd August 1963.
---‑This Letters Patent Appeal is against the judgment of our brother Qadeeruddin Ahmed, J. in Suit No. 35/1959 decided on the original side of this Court by judgment dated 19th January 1960. By this judgment the learned Single Judge set aside the award filed by the arbitrator.
2. Briefly the facts leading to the appeal are : that the respondents entered into an agreement for constructing Rating quarters. On 30th September 1952, the respondents commenced the work but it was stopped under the directions of the appellants on the 27th of October 1952. Certain changes were then made in the plans and the respondents were directed to start construction, in accordance with the amended plans, which they did. In July 1954, dispute arose between the parties and Mr. Basharatullah, S. E. was appointed sole arbitrator by the Engineer‑in‑Chief, M. E. S. Rawalpindi, on 27th July 1954. According to the appellants on 9th January 1957 the arbitrator gave notice to the parties to appear before him on 17th January 1957. Further notice was given on 6th April 1957 to the parties to appear on 16th April 1957. Another notice was given to the parties to appear on 24th April 1957. This was followed by a further notice on 2nd July 1957, to appear before the arbitrator on 12th July 1957. Final notice was given to the parties to appear on 1st August 1957. The respondents failed to appear before the arbitrator, who gave an ex parte award on 12th August 1957 in favour of the appellants directing the respondents to pay Rs. 83,021‑14‑0 to them.
3. The award was filed in Court by the arbitrator on 18th February 1958, under section 14 (2) of the Arbitration Act, 1940 for making it the rule of the Court. The award was resisted on behalf of the respondents. The respondents raised three‑fold objections against the award : Firstly, that the award was bad for having been given after four months, contrary to section 3 of Schedule I of the Arbitration Act, 1940. Secondly, the arbitrator miscon ducted himself judicially by protracting the proceedings as a result of which the respondents became unable on the lastly appointed dates to appear and defend. Thirdly, the alterations made in the plans amounted to an amendment in the agreement between the parties, and that there was no clause for arbitration in the amended agreement. The learned Single Judge found no substance in the last objection and disposed of the matter on the first two objections. On these objections, he found that the award was filed beyond time and the conduct of the arbitrator was objectionable. The appellants oral request to condone the delay in filing the award beyond time was rejected. The Government of Pakistan being aggrieved by the order of the learned Single Judge has come up in this appeal.
4. Mr. Valiani, the learned counsel for the appellants has urged before us that the view of the learned Single Judge on the two objections raised by the respondents is not in accordance with the law. The learned counsel contended that the arbitrator entered on the reference on the date when the parties were expected to appear and ex parte proceedings were taken against the respondents. He further contended that it was a fit case in which the learned Single Judge should have exercised his dis cretion under section 28 of the Arbitration Act, 1940 and condoned the delay in filing the award beyond time. The main point for consideration is about the date on which the arbitrator entered on the reference made to him. Mr. Valiani's contention is that the date on which the parties appeared before the arbitrator namely 24th April 1957 is the date on which he entered on the reference. On the other hand Mr. Hafiz Ahsan, the learned counsel for the respondents' contention is that the arbitrator entered on the reference on 31st July 1954, when he called upon the respondents to submit his claims to him. He further contended that even if this date is not taken as the date on which the arbitrator entered on the refer ence, there is sufficient reliable evidence on the record to establish that the arbitrator had commenced the arbitration proceedings much earlier than 24th April 1957 and had waited long for the parties to appear before him. The learned counsel has referred us to the following portion of the letter dated 24th April 1957, addressed by the arbitrator to the appellants. It was stated in that letter as under :‑
Although you in your letter No. S‑32/52‑53/189/E‑6, dated 13th March 1956, stated that you are prepared to defend the case even if the defence is not scrutinized by C. M. A., Karachi', more than a year's time was given for vetting of the defence by C. M. A. Finding no results the hearing was fixed on first occasion on 16th April 1957, but since the contractors required time, the hearing was postponed to 24th April 1951. Although M. E. S. started to open the case to say (that) they were entirely not prepared to give their case ..Since considerable time was being wasted, the arbitrator had to postpone the hearing to 30th April 1957, at 08‑00 hours.
5. There is thus not the slightest doubt that the arbitrator had contacted the parties and called upon them to submit their claim and defence much earlier than 24th April 1957 and the contention of the respondents that notices were issued to the respondents to submit their claim on 31st July 1954, is sufficiently borne out by the documentary evidence on the record.
6. Mr. Valiani's contention that the arbitrator entered on the reference on 24th April 1957, when the parties appeared before him was repelled by the learned Single Judge. In support of his contention, the learned counsel has referred us to a decision of the appellate Court in Baker v. Stephens ((1867) 2 Q B 523). In that decision a strong English Court held that‑---
"an arbitrator enters on a reference, not when he accepted the office, or takes upon himself the functions of arbitrator by giving notice of his intention to proceed, but when he enters into the matter of the reference, either with both parties before him, or under a peremptory appointment enabling him to proceed ex parte."
This decision was followed by a Division Bench of Allahabad High Court in the case of Sardar Mal Hardat Rai v. Sheo Bakhsh Rai Sri Narain (I L R 1922 All. 432). The Allahabad Court also held that :‑
" Entering upon the reference' means not when the arbitrator accepted the office or takes upon himself the duty, but when he actually enters upon the matter of the reference, when the parties are before him, or under some peremptory order compelling him to conclude the hearing ex parte."
We have gone through the decision with the aid of learned counsel for the parties. The learned Judges accepted the English Court view without much discussion and it is not of much assistance. In Abdul Majid v. Bahawal Bakhsh (P L D 1950 Lah. 228), a Lahore case, Rahman, J., as he then was, as Single Judge accepted the Allahabad view without any discussion. This is obvious from the following observation at page 233 :‑
"Reference in this connection may be made to Sardar Mal Hardat Rai v. Sheo Bakhsh Sri Narain A I R 1922 All. 106. It was held therein that an arbitrator enters on the reference when he enters upon the matter of the reference i.e. when the parties are before him or under some peremptory order he is compelled to, conclude the hearing ex parte. On 6th November 1944, the umpire merely directed that no further notice need be sent to the respondent but the actual ex parte order was given on 25th November 1944 and that seems to be the relevant date. The argument of the learned counsel for the respondent appears to be devoid of force."
Mr. Valiani further referred us to a decision of Allahabad High Court in support of his contention in Shambhu Nath v. Hari Shankar Lal (A I R 1954 All. 673). In that case the point involved before us was not directly in issue before the High Court and it is not of much help for the decision of the point under consideration.
6‑A. The view accepted in Allahabad High Court and the Lahore case did not find favour with the Sind Chief Court. Muhammad Bakhsh, J. in Amin Agencies Ltd. v. Haji Moosa Haji Oomer (P L D 1953 Sind 571964) held that :‑
"The arbitrator enters upon the reference when he starts actual duty as arbitrator for sending notice to a party."
One of us in Sind Cotton Exporters v. A. B. Sadiq Brothers (P L D 1955 Sind 268) expressed the same view namely :‑
The date of entering upon reference' means date on which arbitrators began actually discharging their functions, not their date of appointment.
This decision was further dis uf1sed by one of us in the case of Ismail Brothers Ltd. v. S, M. Fazail & Co. (P L D 1958 Kar. 158). It was held in that case that " entering upon reference means when arbitrators issue notices."
7. Mr. Hafiz Ahsan, the learned counsel for the respondents has strongly urged before us that the view taken at Karachi is in accordance with law and should be taken as laying down the correct law. The learned counsel referred us to certain Indian decisions in support of his contention that entering upon the reference' means the date on which the arbitrators commenced some action in the matter referred to him, namely the date on which the notices are issued to the parties for appearance before them. In Bajranglal Laduram v. Ganesh Commercial Co. (A I R 1951 Cal. 78) ; Bhogilal Purshottam v. Chimanlal Amritlal (A I R 1928 Born. 49) and Soneylal Thakur v. Lachhminarain Thakur (A I R 1957 Pat. 395) it was held that :‑
"An arbitrator enters upon a reference when, after having accepted the reference, he applies, his mind anti does something in furtherance and execution of the work of arbitration."
According to these decisions, the exact date as to when an arbitrator enters on a reference in a particular case, however, is to be determined on the facts and circumstances of each case. The learned counsel further referred us to Hart Shankar Lal v. Shambhu Nath (AIR 1962 S C 78). In that case Raghubar Dayal, J. observed as under :‑
"the arbitrators entered upon the reference as soon as they have accepted their appointments and have communicated with each other about the reference."
8. The contention of the learned counsel for the parties has received our anxious consideration. In our opinion, the view taken by the learned Single Judge that entering upon the reference means when arbitrator issues notice to the parties, to appear before them is more consistent to the spirit of Arbitration Act namely‑
To give expeditious relief to parties unhampered by rules of procedure laid down in Civil Procedure Code and Evidence Act.
The view expressed in Allababad case I L R 1922 All. 43, as already stated is based on the English Court decision it Baker v. Stephens. But in the English Court itself this view hay been departed from in a latter decision in lossijoglu v Coumantaros (L R 1940 K B 396). The Appellate Court on this point expresses as under :‑
"The arbitrators enter upon a reference as soon as the; have accepted their appointment and have communicated with each other about the reference."
Rahman, J. in the Lahore case has followed the Allahabad decision but the last mentioned English case does not seem to have been brought to his notice. It is not possible for us to say what view he would have taken if this case was brought to his notice, but the fact remains that no contrary view was placed before Rahman, J. in the Lahore case. It was brought to our notice that Kaikaus, J. in Muhammad Anwar Khan v. Wali Muhammad (P L D 1956 Lab. 202) has also followed the earlier Lahore case but the discussion at page 203, however, shows that the point before him was absolutely different. The contention before him was that an arbitrator should be deemed to have entered on the reference on the date when he received some account books from one of the parties for the purposes of arbitration. He repelled this contention and held that the arbitrators are deemed to enter on the reference only when they enter on the matter of the reference. There is no further discussion on the point under consideration.
9. It would, however, be noticed that the basic English decision on which some of pre‑partition Indian and Lahore decisions are based is no longer followed in English Courts. The latest English decision has given an entirely different meaning to the words "entering upon the reference" and the recent decision of the Court of appeal referred to above is contrary to the earlier view taken in Baker v. Stephens. The weighty considerations expressed in Ismail Brothers Ltd. v. S. M. Fazail & Co., that to accept the view that the arbitrator enters on a reference when the parties appear before him or when he is in a position to proceed ex parte against a certain party would be against the spirit of the Arbitration Act and would result in interpreting the rules and the Act in such a way as to prolong the proceedings before the arbitrators cannot be lightly set aside. Undoubtedly the object of the Arbitration Act is to give expeditious relief to the parties concerned unhampered by the rules and procedure prescribed by the Code of Civil Procedure or the Evidence Act. In our opinion if the date of issue of notice by the arbitrators to the parties is not taken as the date when the arbitrators enter upon the reference, the arbitrators would have free hand in arbitration matters and would be able to prolong the proceedings as much as they like. This surely is not the object of rule 3, of Schedule I reproduced below :
The arbitrators shall 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 to the arbitration agreement or within such extended time as the Court may allow.
10. This rule clearly provides that the award must be filed within four months after the arbitrators entered upon a reference or within four months of the date when they are called upon to act by notice in writing from any of the parties or within such extended time as the Court may allow. The Legislature has thus clearly indicated that if the arbitrators fail to file the award within four months they can proceed with the arbitration pro ceedings by obtaining further extension of time under section 28 of the Arbitration Act. Moreover, ordinarily, entering upon a reference means, that an arbitrator has done something or taken some action in respect of the dispute referred to him for private adjudication, It is perfectly clear to us that when an arbitrator issues notice to the parties to appear before him, he does so by entering upon the reference and not otherwise. In our opinion, the learned counsel for the appellants has force in his argument that when an arbitrator accepts the appointment, he does not enter upon a reference but we do not agree with his contention that when he issues notices to the parties this step is not of entering upon the reference made to him. What else it can be called Undoubtedly when an arbitrator issues notices to the parties for appearance before him, he is acting in pursuance of the reference made to him and such a step cannot be described anything else but entering upon a reference. In view of this discussion we are not inclined to follow the English Courts view expressed in Baker v. Stephens. We would, therefore, hold that the learned Single Judge was perfectly justified in holding that the phrase "entering upon a reference" means that an arbitrator does something in pursuance of the reference made to' him and the step of issuing notice to the parties to appear before him amounts to entering upon a reference. On this view of the; matter, there is not the slightest doubt that the award filed by the learned arbitrator was much beyond time and could not be made the rule of the Court unless time was extended under section 28 of the Arbitration Act.
11. It was next contended by Mr. Valiani that in this case the learned Single Judge failed to exercise his discretion vested in the Court judicially under section 28 of the Arbitration Act. Mr. Valiani has urged before us that the delay in giving the award so late was primarily due to the fault of the respondents, who had been seeking adjournments, after adjournments for preparation to defend the appellants claim. We have gone through the record and it is quite clear that there is no reasonable explanation by the arbitrator for not taking proceedings from 1954 to 1957. In our opinion, the observation of the learned Single Judge that the arbitrator's conduct in taking about four years for making the award cannot be defended is fully borne out by the relevant material on the record.
12. There is no dispute as to the proposition that the discretion to be exercised by the Court under section 28 of the Arbitration Act is to be exercised judicially and not arbitrarily. Mr. Hafiz Ahsan, the learned counsel for the respondents has referred us to a case decided by a Division Bench of Lahore High Court in J. W. Oliver v. Mian Dost Muhammad (A I R 1935 Lah. 191). It was observed in that case that :‑
"The Indian Arbitration Act prescribes a procedure for the expeditious and speedy settlement of disputes by private tribunals especially those arising in commercial transactions, and the Legislature has, in the Schedule, fixed a period of three months for the delivery of awards in cases where no time is fixed in the reference. The Court has no doubt a discretion to extend time under section 12, but it will do so only if cogent reasons are forthcoming. Obviously the discretion cannot be exercised in favour of a party who himself has been negligent and has been guilty of dilatory tactics."
In that case the submission was made in February 1928 and the award should have been made in May of that year. The arbi trator, however, did nothing in the matter and neither party took any action till the following February when the application for extension was made. It appeared from the averments in the application that the petitioner had gone out of India and even after his return he did not move. On these facts the application for extension was held to be much belated and found to be rightly rejected. Mr. Hafiz Ahsan has further referred us to a decision of Bombay High Court in Bhogilal Purshottam v. Chimanlal Amritlal. It was held by a Division Bench in that case that :‑
"If the arbitrator has not and he does not know and cannot satisfactorily explain the delay, then he can be said to have failed in material respects in his ordinary duties as an arbitrator and so he is guilty of misconduct within the meaning of para. 15, and, accordingly, the award may be set aside."
A similar view was expressed in Kesholal Ramdayal Kahar v. Laxman Rao Ramkrishna Rao Deshpande (A I R 1940 Nag. 386).
13. In our opinion, in the present case there is no explanation on the record why the arbitrator kept the proceedings pending from July 1954 till August 1957. In the letter of the arbitrator dated 24th April 1957 it is admitted that more than a year's time was given for vetting of the defence by C. M. A. It is, therefore, abundantly clear that the arbitrator was not taking the reference made to him seriously and protracted the proceedings on flimsy grounds. He failed to discharge his duties properly.. In these circumstances the learned Single Judge was perfectly justified in refusing to exercise his discretion in favour of the appellants. We find no ground to interfere with the view taken by the learned Single Judge in this respect. We would, therefore, repel the contentions raised on behalf of the appellants and hold that the learned Single Judge was perfectly justified in the circumstances of the case in setting aside the award. In the result, we find no force in this appeal and dismiss it with no order as to costs.
K. H. A. Appeal dismissed.