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Civil Revision Application No. 49 of 1962, decided on 24th August 1965.
S. 33 and Civil Procedure Code (V of 1908), S. 115‑Decision under S. 33, Arbitration Act, 1940‑Open to revision under S. 115; C. P. C.
Muhammad Swaleh v. United Grain & Fodder Agencies P L D .1964 S C 97 and Singh's "Commentary on the Law of Arbitration", (IV Edn.), p. 369 rel.
Municipal Board v. E. U. P. E. Supply Co. Ltd. A I R 1958 All. 506 and Zafar Ahmad v. Abdul Khaliq P L D 1964 Kar. 149 ref.
S. 115‑Revision petition admitted for hearing‑High Court has jurisdiction to "make such order in the case as it thinks fit".
S. 2(a)‑Term "written agreement"‑Interpretation.
The words "written agreement" in section 2(a) of the Arbitration Act, 1940 mean any writing whether it be correspond ence directly embodying the agreement to refer differences to arbitration or an application for the membership of an organization necessarily implying such an agreement. Any writing or writings attributable to the parties which unmistakably prove their intention to refer their disputes to arbitration are satisfactory in terms of the provision of law.
Kotumal Pokardas v. Adam Haji Pir Muhammad A I R 1939 Sind 357 ; Mohanlal Chhanganlal Shah v. Bissesarlal Chirawalla A I R 1947 Bom. 268 and Firm Chimanram Motilal v. Firm Vandravandas Gordhandas A I R 1948 Born. 55 ref.
Ss. 8(1)(b) & 20(4) Power of Court to appoint arbitrator‑Power does not confer authority on Court to substitute original agreement of parties by entirely new agreement of its own choice.
Under section 8(1)(b) of the Arbitration Act, 1940 the Court, can appoint an arbitrator or umpire when an arbitrator or umpire appointed by the parties "neglects or refuses to act, or is incapable of acting or dies"; and in terms of section 20(4) of the Act the Court can order reference to an arbitrator appointed by itself "where the parties cannot agree upon an arbitrator" which in other words means that the Court can replace a person of its own choice to give effect to the intention of the parties. This power of the Court, however, does not confer the authority on the Court to substitute the original agreement of the parties by an entirely new agreement of its own choice. Where, therefore, the agreement itself could not be acted upon having become inoperative, it was held that the Court was not entitled to appoint arbitrator of its own choice.
Messrs Hindustan Steel Ltd. v. Messrs Ingeniurs & Con tractors A I R 1964 Pat. 468; Cannon Dunkerley & Co. v. Union Carbide (Ind.) Ltd. A I R 1962 Cal. 360 and Sm. Balika Devi v. Kedar Nath Purl A I R 1956 All. 377 ref.
Naimuddin for Applicant.
Saleem Akhtar for Respondent No. 1.
Nasir Aslam Zahid for Respondent No. 2.
Date of hearing : 26th March 1965.
This revision application is directed against the judgment of a Sub‑Judge First Class, Hyderabad, dated the 23rd of December 1961, by which he dismissed the application of the present applicant which was made under sections 5 and 33 of the Arbitration Act, 1940, for setting aside the arbitration agreement which existed between the applicant and respondent No. 1. That application was made on the ground that the agreements were for referring disputes to arbitrators selected by the parties from a panel that was maintained for this purpose by the Sind Cotton Ginners' Association, Hyderabad (Sind) but there was no longer any such Association in existence.
2. Briefly, the facts which form the background of this application; according to counsel for the parties had entered into five agreements dated the 29th of May 1958, 29th of May 1958, 2nd of June 1958, 17th of June 1958 and the 24th of June 1958 all of which contained the following arbitration clause :‑
"15.‑If there arises any dispute in respect of this 'kabala' or meaning or interpretation of the above clauses between the parties, the same shall be referred to the Board of the Sind Cotton Ginners' Association, Hyderabad. Each party shall appoint one arbitrator. If any of the parties did not appoint the arbitrator within 15 days of the notice, the party giving such notice shall have right to appoint same arbitrator on behalf of other party and get the matter decided. The decision of the sole arbitrator will be acceptable on both the parties as if the same has been decided with the consent of both parties. The arbitration proceedings will be conducted in accordance with the bye‑laws framed by the said Association under the Indian Arbitration Act No. X of 1940. In case of the arbitrators not being unanimous, the matter shall be referred for decision to the Sar Panch' who shall also be member of the panel of that Association. The award given by arbitrators or Sar Panch' shall be final and binding on both the parties. This should be‑ treated only as agreement and in that connection none of us the parties will enter into dispute."
The Sind Cotton Ginners' Association, Hyderabad, represented the ginners of Sind only, but the Government desired to create an association which would represent the interests of all the ginners of Pakistan. The Government, therefore, decided, on the 31st of January 1959, to withdraw its recognition of the Sind Cotton Ginners Association, Hyderabad. The Sind Cotton Ginners Association took the initiative to implement the decision by dissolving itself in November 1959 with the result that on the 21st of April 1960, the Pakistan Cotton Ginners Association was established with its own panel of arbitrators. constitution, bye‑laws and rules which are almost the same as those of the former Sind Association (see paragraph 9 of the written statement of the Pakistan Cotton Ginners' Association). In March 1961, the newly‑formed Association decided with the express or implied concurrence of all members including the present applicant as follows :‑
"Further the newly‑formed association has taken over all assets and liabilities as well as the functions of the said defunct associations (i.e. the Sind Cotton Ginners' Association, Hyderabad, West Pakistan, and the Pakistan Cotton Ginners' Association, Karachi) to take up all the pending, unfinished and incomplete business of the said defunct associations which includes the settlement of arbitration matters which were executed on the approved contract forms (kabalas) of the said defunct associations, so as to validate, carry on and finalize such arbitration proceedings, arising out of such pending matters or fresh institution of disputes for decision:
Further, it is resolved that in case any Civil Court raises any objection about the validity of arbitration proceedings and awards arising out of any pending matter or fresh institution of disputes for decision based on old contracts of the defunct association, the present association shall on all occasions inform the honourable Courts about the Government orders and the inability of the defunct associations to proceed in the matters and pray the Courts to condone the inevitable delay which was due to no fault of any party to the arbitration proceedings;"
3. At the time of the above decision, there were five contracts of 1958 between the present applicant and respondent No. 1 which contained the arbitration clause which has been reproduced above. Those clauses had reference to the bye‑laws of the Sind Cotton Ginners' Association. Reference to arbitration could be made under the 5th bye‑law of that association which was as follows :‑
"All disputes of whatsoever nature arising out of a contract of Phutties, Cottonseed, or out of any agreement or provision having a clause for referring disputes under the same to arbitration for settlement, to which at least one of the contracting parties is a member of the Association, in respect of any breach of the terms specified in the contract or agreement, and including the interpretation or meaning of any of the clauses mentioned therein, shall be referred to arbitration, to two disinterested members from among the above panel of arbitrators, one to be nominated by each party."
The words "above panel" may be noted in the bye‑law. The relevant bye‑laws under which the panel was constituted were the second and third which ran as follows :‑
"2. A panel of arbitrators of this Association shall consist of the nominated representatives of the ordinary members and the Associate Members (if any) in accordance with clause I above. A list of arbitrators constituting the panel shall be prepared by the office and shall be supplied on demand.
(3) Any vacancy on this panel, caused by disqualification death, resignation or otherwise shall be filled by the Member from among his representatives."
The above provisions show that the panel consisted of the representatives of the Ordinary and Associate Members of the Sind Association which had ceased to exist at the time of the reference of the disputes to arbitration. Moreover, for the purpose of referring the disputes which arose under the existing contract respondent No. 1 had to apply to the Sind Association under the sixth bye‑law which is as follows :‑
"The aggrieved party in connection with the contract, agreement, etc., shall in the first instance send his written application to the Association stating the nature of dispute in detail with the other party and the amount claimed and shall nominate an arbitrator on his behalf, deposit the fees in accordance with the scheduled rate along with such application in the office of the Association."
As the Sind Association was not in existence respondent No. 1 made an application to the Pakistan Association in terms of the resolution of that Association of March 1961 which has been reproduced above and appointed its own arbitrator from the panel which was maintained for this purpose by the Pakistan Association. The latter Association issued a notice to the present applicant in terms of the 9th bye‑law calling upon it to nominate an arbitrator. That bye‑law is as follows :‑
"9. On receipt of such application for arbitration by the office and at the request of a party, a notice shall be issued by the office to the other party calling upon him to nominate an arbitrator on his behalf. If within 15 days from the service of such notice by the Association, the other party fails to nominate an arbitrator, the party who has already nominated his arbitrator, may nominate that arbitrator to act on behalf of the other party, i.e. to act as sole arbitrator in the reference and his decision and or award shall be binding on both the parties, as if he had been nominated by consent of both the parties."
4. The present applicant did not appoint an arbitrator in response to that notice with the result that the arbitrator of respondent. No. 1 was made the sole arbitrator. Thereafter, the present applicant applied to Court on 17th April 1961, against respondent No. 1 which is the opposite‑party to the agreements of arbitration and against respondent No. 2 which is the newly created Pakistan Association under sections 5 and 33 of the Arbitration Act, 1940 to challenge the existence and validity of the arbitration agreements which was dismissed as mentioned above by the learned Sub‑Judge and First Class Magistrate, Hyderabad vide his order dated 23rd.December 1961. The appli cant has now come to this Court in revision against that order.
5. The grounds on which the application was based were :‑
(i) that the Sind Cotton Ginners' Association had ceased, to exist;
(ii) that there were no arbitrators of that Association; and
(iii) that the arbitration agreement had become inoperative or frustrated.
6. The respondents opposed the application and contended that the Sind Cotton Ginners' Association had not ceased to exist but had become merged, in the newly‑created Pakistan Cotton Ginners Association. Moreover, the panel of arbitrators which was maintained by the Sind Cotton Ginners' Association had been retained by the Pakistan Cotton Ginners' Association so that the parties could choose their arbitrators from the same panel. Additionally, the applicant was a party to the resolution of March 1961 by which the Pakistan Cotton Ginners' Association decided to take over the assets and liabilities of the Sind Cotton Ginners' Association as well as to assume the functions of that Association including the function of the settlement of arbitration matters.
7. The learned Sub‑Judge came to the conclusion that the Sind Cotton Ginners' Association was not to act as an arbitrator but bad only to maintain a panel from which the parties had to select their arbitrators; that panel was still in existence; therefore, the applicant could not rightly contend that the agreements had become frustrated. The purport of the arbitration clauses, according to the learned Sub‑Judge, was that the parties should make their selection from the panel that was existing; therefore, they could still make their selection from that panel and refer their disputes to the arbitrators of their choice. In these circumstances, it was immaterial as to whether the Sind Cotton Ginners' Association had ceased to exist by its merger with the Pakistan Cotton Ginners' Association or not, because the individuals to whom reference 6ould be made for deciding the disputes by arbitration were still available and their presence could be utilized for implementing the agreements.
8. In this Court, Mr. Nasir Aslam Zahid, counsel for respondent No. 2, has raised a preliminary objection to the maintainability of this revision application by referring to Municipal Board v. E. U. P. E. Supply Co. Ltd. (A I R 1958 All. 506, 510) and Zafar Ahmad v. Abdul Khaliq (P L D 1964 Kar. 149, 158). A Division Bench of the Allahabad High Court has observed in .the said judgment as follows:‑--
"He (the Munsiff) entertained the application (under section 33 of the Arbitration Act, 1940) which he dealt‑with on merits and allowed. As such he cannot be said to have committed any irregularity in the exercise of his jurisdiction. His decision whether correct or incorrect is a decision arrived at in course of the lawful exercise of jurisdiction. His order cannot therefore be revised under section 115 of the Civil Procedure Code."
A bench consisting of seven Judges of this Court has observed in the other judgment as follows :‑
"The position with reference to, section 115 may thus be summarised in the following provision
(i) The High Court may, in respect of any state of facts judicially considered, on which a Court subordinate to High Court has given a decision, make such order as it thinks fit if in the opinion of the High Court, such Court in giving the decision,
(a) has exercised or assumed a jurisdiction not vested in it by law, or
(b) has failed to exercise or declined to assume a jurisdiction vested in it by law, or
(c) while exercising its jurisdiction has taken a procedural step which is contrary to a mandatory provision of the law, or has omitted to take a procedural step which is required by a mandatory provision of the law to be taken, or
(d) while exercising its jurisdiction has taken a procedural step which is contrary to a directory provision of the law, or to a general principle of law, and which in the final result has given to one party an advantage over the other which it would not have got but for the fact that that step was taken.
(ii) The High Court cannot exercise this power if that same matter could have been brought before it by way of appeal.
(iii) When a complaint is made to the High Court that a Court subordinate to it has acted in any of the four ways mentioned in the first proposition and the High Court is of the opinion that the Court appears to have acted as complained, it may send for the record relevant for the purpose of ascertain ing whether the complaint is correct or not, but is not bound to send for the record, if it can satisfactorily ascertain by other means the facts necessary for a decision of the point raised."
9. On the basis of the above observations of the High Court of Allahabad and the High Court of West Pakistan counsel argued that in the order which is the subject‑matter of this revision application there is neither involved any jurisdictional nor procedural question which could make it revisable under section 115 of the Code of Civil Procedure. If the order is erroneous, then too, in view of the above observations it is not open to revision under law.
10. The above argument of counsel can be effectively countered on the authority of .the observations made by the Supreme Court in Muhammad Swaleh v. United Grain & Fodder Agencies (P L D 1964 S C 97 at pp. 101‑02) which are as follows :‑
"It is not necessary, however; to decide whether the order of the, 22nd April 1960 and the ex parte decree of the 27th April 1960, are wholly void for there is no doubt as to their being not in accordance with law and this is a 'sufficient ground for their being set aside. The learned Single Judge had power when exercising his jurisdiction under section 115, C. P. C. to set aside the order directing ex parte proceedings and the ex parte decree based on that order, for they were the result of illegal or materially irregular exercise of jurisdiction . . . . . . . . It is true that the learned Single Judge had a discretion to set aside or not to set aside the order of 22nd April 1960, but the discretion is judicial and subject to the appellate powers of this Court and in this case the failure to exercise jurisdiction was due to a mistaken view of law. . : . . . .
When questioned as to why the illegal order of 22nd April 1960, should not have been set aside in the exercise of revisions powers all that learned counsel for the respondents urged was that the limitation for filling application for revision had expired when the learned Single judge decided the case, 'and that the revision before him was not directed against the order of the 22nd April 1960, but only against the order of the trial Court setting aside the ex parte decree. This contention is wholly devoid of force. The Limitation Act does not provide for any period of limitation for an application in revision ..and once the High Court is seized of the case in the exercise of such jurisdiction it can in accordance with section 115, C. P. C. make such order in tile case as it thinks fit'."
This application was admitted to regular hearing by a learned Judge of this Court on the 8th of February 1962, therefore, this Court has the jurisdiction to make such order as it thinks fit.
11. I may mention here that the order which is the subject matter of these proceedings, is not appealable owing to the provisions of section 32 of the Arbitration Act, 1940. S. D. Singh has expressed the view in his commentary on the Law of Arbitration (Edn. IV) at page 369, as follows:‑--
"There is no specific provision in the Act for an appeal against on order passed under this section. An order passed under this section will be an order' and not a decree' and, therefore, no appeal will lie against it even under the provisions of the Code of Civil Procedure. An order passed under this section will also not fall under any one of the clauses (i) to (ii) of section 39 (1) and no appeal will lie against it. This appears to be a lacuna in the Act. Orders passed under this section may be of far reaching importance and it is desirable that the parties should have the right of at least one appeal against such an order.
As the order is not open to appeal, the decision would certainly amount to a case decided and revision would lie against it."
The problem of the present applicant is solved by the above mentioned judgment of the Supreme Court. 1n view of that judgment I respectfully come to the conclusion that this revision in application is maintainable.
12. The point for decision now is as to whether the newly, established Pakistan Association could according to law be moved by respondent No. 1 for taking steps in aid of arbitration proceedings under the existing agreements and whether arbitrators could be appointed from its panel or not. The Sind Association which could be moved in this respect under bye‑law 6 had admittedly ceased to exist in its own right and independently. That association could neither accept applications under that bye‑law nor issue notices under Bye‑law 9. It is immaterial whether this was the result of its re organisation, or dissolution or merger in the Pakistan Association because its own entity was wiped out. The panel which the latter association maintained could not represent the members of the Sind Association in terms of Bye law 2 and its vacancies could not be filled up in terms of Bye‑law 3. Thus, even if the panel was substantially the same as that of the former Sind Association, it did not fulfil the requirements of the bye laws.
13. Counsel for respondents Nos. 1 and 2 urged as against the above points of view that the present applicant had agreed to refer its disputes to the arbitration of the members of the panel that is maintained by the Pakistan Association because that decision was taken in writing by the latter association and the present applicant had concurred in it. No writing has been produced to prove that concurrence but the contention was that no formal document was necessary for constituting an arbitration agreement in terms of section (2) (a) of the Arbitration Act, 1940, because the language of the provision did not require it. The provision is as follows :‑
'arbitration agreement' means a written agreement to submit present or future differences to arbitration, whether an arbitrator is named therein or not;"
The words "written agreement" have been interpreted to mean any writing whether it be correspondence directly embodying the agreement to refer differences to arbitration or an application for the membership of an organisation necessarily implying such an agreement. Moreover, the interpretations have gone to the point of laying down that the signatures of the parties on such writings are riot necessary. See for‑instance Kotumal Pokardas v. Adam Haji Pir Muhammad (A I R 1939 Sind 357), Mohanlal Chhanganlal Shah v. Bissesarlal Chirawalla (A I R 1947 Bom. 268) and Firm Chimanrarn Motilal v. Firm Vandravandas Gordhandas (A I R 1948 Dom. 55). The sense in which these views can be unhesitatingly accepted is that any writing or writing attributable to the parties which unmistakably prove the intention to refer their disputes to arbitration are satisfactory in terms of the provision of law; but even this view does not help) the respondents in this case because the agreement on which reliance is placed cannot be acted upon. The reason why it cannot be acted upon is that the case of the respondents is not that the bye‑laws of the Sind Association have ceased to apply but that the panel of Arbitrators has been changed by agreement. The new panel, however, cannot be used because as pointed above, at least bye‑laws 6 and 9 cannot be complied with.
14. Counsel for the respondents argued that in spite of the above difficulties the agreements could not be treated as frustrated in terms of section 8 (1) (b) of the Arbitration Act, 1940, because the intention of the parties, which was ascertainable from the original agreements and the circumstances, was that they desired to have arbitration and did not intend that a vacancy should not be supplied. This intention could be and ought to be given effect, according to counsel, by the appointment through Court of a sole or of two arbitrators in terms of section 20(4) of that Act. This view is supported by M/s. Hindustan Steel Ltd. v. M/s. Ingenuirs and Contractors, (A I R 1964 Pat. 468) and by the two judgments on which it is based namely Cannon Dunkerely & Co. v. Union Carbide (Ind.) Ltd. (A I R 1962 Cal. 360) and Sm. Balika Devi v. Kedar Nath Puri (A I R 1956 All. 377). Counsel did not realise that under section 8 (1) (b) the Court can appoint an arbitrator or umpire when an arbitrator or umpire appointed by the parties "neglects or refuses to act, or is incapable of acting, or dies" and that in terms of section 20(4) the Court can order reference to an arbitrator appointed by itself "where the parties cannot agree upon an arbitrator", which means that the Court can replace a person of its choice to give effect to the intention of the parties. This power does not confer the authority on the Court to substitute the original agreement of the parties by an entirely new agreement of its own choice. This being the law on which counsel relied they were not entitled to contend that the bye‑laws of the defunct Sind Association could be discarded or disregarded. Counsel for the present applicant rightly pointed out that such an argument would amount to raising .the contention that not only novation by alteration but by substitution of a completely new contract has taken place. He argued that such novation has in fact not taken place in terms of section 62 of the Contract Act. But it is unnecessary to go into those details because that was not the case of the respondents at the time of making the reference to arbitration or before the trial Court. They have nowhere alleged that the applicant had agreed to substitute a completely new contract for the original one but have on the contrary pleaded that the Sind Association itself exists by virtue of its merger in the Pakistan Association and that the panel of latter Association is not different from the panel of the former Association; therefore, the original agreement itself can be enforced. That plea cannot succeed unless the bye‑laws of the said association too are discarded for making the reference.
15. In consequence of the above, the revision application is accepted with costs against both respondents, the order o f the learned trial Judge is set aside and the application that was made to the trial Court is granted.
K.B.A. Petition accepted.
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