Lawyers Directory Listing
Chat with us free on WhatsApp — tell us your city and legal matter and our team connects you with the right lawyer. No form, no fee.
Civil Revision Application No. 129 of 1965, decided on 12th June 1968.
S. 9 (b)‑Notice contemplated by S. 9(b)‑To be sent to party having right or power to appoint or substitute arbitrator and not to party who does not have such power or right.
, S. 9(b)‑‑Provisions of arbitra tion clause Inconsistent with those of S. 9 (b)‑Principles of S. 9 (b) cannot be applied to arbitration held under such con tract.
Arbitration clause according to bye‑laws of the Firm was "if one of the parties fails to appoint its arbitrator after having received fifteen days notice from other party to do so, that other party having appointed its own arbitrator, shall have power to appoint a second arbitrator on behalf of the defaulting party".
The petitioner party having appointed its arbitrator gave requisite notice to respondent party for making appointment of its arbitrator. On respondent's failure to make its appointment petitioner appointed a second arbitrator on behalf of respondent under intimation to respondent. Upon second arbitrator's refusal to act on behalf of respondent another arbitrator (sub stitute) was appointed by petitioner.
The resulting award was vitiated by trial Court on the ground that substitute could be appointed by petitioner only after giving 15 days notice to respondent. The conclusion arrived at by lower Courts was supported in revision by respondent on the plea that arbitration contract was similar to the provisions of section 9, Arbitration Act, 1940, therefore when the second arbi trator had refused to act on behalf of respondent, the petitioner should have followed the procedure prescribed in section 9 (b), Arbitration Act, 1940:
Held, the provisions of arbitration clause in Bye‑laws being inconsistent with the provisions of section 9 (b), the principle of this section cannot be applied. The appointment of arbitrator is not complete until arbitrator accepts, the office. Power to appoint an arbitrator on behalf of defaulting party includes the power to appoint a substitute if the arbitrator pointed in first instance refuses to accept or neglects to act the reference. It was, in circumstances, 'not necessary for petitioner to follow the procedure prescribed by section 9 (b) or to give a fresh notice to respondent before proceeding with the appointment of substitute.
A. Ramjibhai & Co. v. Yusifali Muhammadali Antria A I R 1925 Sind 12; MacDonald & Co. r. Naraindas Pokerdas A I R 1927 Sind 126; Ultamchand Brifal v. Balmoand S. L. A I R 1929 Sind 55; S. M. Fazil & Co. v. Overseas Colton P L D 1959 Kar. 739; Shamdas Teumal v. Khimanmal Chandumal A I R 1914 Sind 90; Thomas v. Fredricks (1847) 10 Q B 775; Tew v. Harris 17 L J, Q B 1; Russel's Law of Arbitration 7th Edn., p. 160; Ringland v. Lowndes (1863) 15 C B (N S) 173 and Forbes Forbe's Campbell & Co. Ltd. v. Gul Muhammad Mir Ahmad A I R 1933 Sind 6 ref.
E. D. Sassoon & Cor v. Ramdutt Ramkissen Dass A I R 1922 P C 374 rel.
K. A. Ghani for Petitioner.
Sulleman Panja for Respondent.
Dates of hearing: 16th and 22nd May 1968.
This revision application calls in question the order dated 23‑10‑1962 of Mr. Muhammad Ibrahim: the then Subordinate Judge, First Class, Karachi, and the order dated 15‑2‑1965 of Mr. Abdul Kadir I, Kazi, Additional District Judge, Karachi, by which an award made by Mr. R. K. Doctor and Mr. A. K. Nasir on 29‑2‑1959 was set aside on the ground that the nomination by the petitioners of Mr. A. K. Nasir as arbitrator on the respondents' behalf was invalid and without legal effect. The arbitration proceedings arose out of a cotton contract entered into between the parties at Karachi in 1958 subject to the bye‑laws of the Karachi Cotton Association Ltd., which contract, according to the petitioners' allegation failed due to breach committed by the respondents. The petitioners sought to refer the disputes to arbitrators, and accordingly nominated Mr. R. K. Doctor as their arbitrator under Bye‑law 39 of the Cotton Association, and called upon the respondents to make appointment of their arbitrator. The respondents as they failed to make this appointment contended that the contract in question had been cancelled and there were no disputes which could be referred to arbitration. The petitioners then appointed, on 5‑1‑1959, Mr. Ameer Umar as arbitrator on the respondents' behalf under intimation to the respondent, who by letter dated 6‑1‑1959 repudiated this arbitration on the same ground which they had taken previously.. On 7‑1‑1959, Mr. Ameer Umar refused to accept his appointment as arbitrator on the respondents' behalf. So, on 8‑1‑1959, Mr. A. K. Nasir was appointed arbitrator by the petitioners on the respondents' behalf again under intimation to the respondents.
2. The arbitrators, namely, Mr. R. K. Doctor and Mr. A. K. Nasir entered upon reference, and by award dated 29‑9‑1959, directed the respondents to pay Rs. 8,400 to the petitioners. This award was filed in the Court of Mr. Muhammad Ibrahim, Subordinate Judge,' First Class, Karachi, who by the order mentioned above, held that the power vested in the petitioners to appoint arbitrator on the respondents' behalf under Bye‑law 39(1) of the Cotton Association had been exhausted by tire appointment of Mr. Ameer Umar, and that on the latter's refusal to act as arbitrator; the petitioners could appoint another arbitrator in his place only after giving 15 days notice to‑the respondents, and as no such notice had been given, the appointment of Mr. A. K. Nasir as the respondents' arbitrator was invalid and the resulting award teas, vitiated by this defect in the appointment of the arbitrator., This conclusion was maintained in appeal by the Additional District Judge by the order referred to above:' .
3. The petitioners" have questioned in the present revision proceedings the concurrent conclusions of the, Subordinate Judge and the Additional District. Judge in appeal with regard to the validity of Mr. A. .K: 14asir's appointment as arbitrator. A preliminary objection was raised by Mr. Suleman Panja, the respondents' learned Advocate, as regards the maintainability of this petition to the effect 'that the petitioners had failed to challenge the order of the trial Court in the first instance, and that now this order cannot be done under section 115, C. P. C., as this order is an appear table order and an appeal was in fact preferred to and dismissed by the. Additional District Judge. This objection is apparently based on the following prayer in the present petition
"It is therefore prayed that the Honourable Court will be pleased to set aside the judgment and decree of the trial Court and' make the award rule of the Court with costs throughout."
In my opinion, however, the omission of the reference to the order of the Additional District .fudge in this prayer is an accidental mistake, in view of the fact that the opening portion of the petition expressly states that the petitioners are aggrieved by the order dated 15‑2‑1965 of the Additional District .fudge, by which the petitioners' appeal against the order of the Subordinate Judge was dismissed. The present petition is in fact directed against the order of the Additional District Judge, and notwithstanding the omission of any reference to this order in the prayer clause, I will be quite justified in treating the present proceedings as having been brought principally to question the order of the lower' Appellate Court. I would, therefore, overrule this preliminary objection raised by Mr. Suleman Panja.
4. The conclusions of the two Courts below are supported by Mr. Suleman Panja by the argument that Bye‑law 39‑I of the Karachi Cotton Association Ltd., under which the arbitration in question purports to have taken place, is similar to the provisions of section. 9 of the Arbitration Act (X of 1940), and, therefore, when Mr. Ameer Umar refused to act as arbitrator, the petitioners should have followed the procedure prescribed by clause (b) of this section. In effect Mr. Panja's contention is that the appellant, by nominating Mr. Ameer Umar as the respondents' arbitrator under Bye‑law 39‑1, exhausted the power of appointment and could not make another appointment except by giving 15 days' notice to the respondents.
5. To appreciate the point in contention, it would be convenient to reproduce here clause (a) of Bye‑law 39‑1 of the Cotton Association, which is the relevant provision for the purpose of the present dispute; and the sections of the Arbitration Act which appear pertinent to Mr. Panja. Clause (a) of Bye‑law 39‑I reads as follows :‑
"Any dispute arising out ‑of a ready transaction or out of a forward contract 'other than on the question of class and/or staple of the cotton tendered but including the construction of the official forward contract forms shall be referred to the arbitration of any two disinterested members from the panel of Arbitrators referred to in Bye‑law 39‑1(b), one to be appointed by each any. If one of tire parties to the contract fails to appoint an Arbitrator, after having received fifteen clear days notice from the, other party to do so, the party who has appointed an arbitrator shall have power to appoint the second arbitrator, both of whom shall then proceed to deal with the question at issue. In case the two arbitrators are unable to agree the matter shall then be referred to an umpire, who shall be nominated by the two arbitrators from among the panel of arbitrators. In the event of two arbitrators being unable to agree as to the name of the umpire, the Board shall appoint an umpire from among the panel of Arbitrators. The decision of the arbitrators or umpire shall be final and binding .on the parties to the contract."
The provisions of the Arbitration Act which require considera tion to the present case are sections 8 and 9, which read as under :‑‑ .
8.‑(1) In any of the following cases‑--
(a) where an Arbitration agreement provides that the reference shall be to, one or morn arbitrators to be appointed by consent of the parties, and all the parties do not, after. differences have arisen, , concur in the appointment ar appointments,; or
(b) if any appointed arbitrator or umpire neglects or refuses to act, or is incapable of acting, or dies, and the 'arbitration agreement does not show that it was intended that the vacancy should not be supplied, and the parties or the arbitrators, as the case may be, do not supply the vacancy ; or
(c) where the parties or 'the arbitrators are required to appoint an umpire and do not appoint him; .
any party may serve the other parties or the arbitrators, as the case may be, with a written notice to concur in the appointment or appointments or in supplying the vacancy. .
(2) If the appointment is not made within fifteen clear days after the service of the said notice, the Court may, on the application of the party who gave the notice and after giving the other parties an 'opportunity of being heard, appoint an arbitrator or arbitrators or umpire, as the case maybe, who shall have like power to act in the reference and to make an award as if he‑ or they had been appointed by consent of all parties:"
"9. Where an arbitration agreement, 'provides that a reference shall be to two arbitrators, one to be appointed by each party, then ‑ unless a different intention is expressed In the agreement,‑ .
(a) if either of the appointed arbitrators neglects or refuses to act, or is incapable of acting, or dies, the' party who appointed him may appoint a new arbitrator in his place ;
(b) if one party fails to appoint an arbitrator, either originally or by way of substitution as aforesaid, for fifteen clear days after the service by the other party of a notice in writing to make the appointment, such other party having appointed his arbitrator before giving the notice, the party who has appointed an arbitrator may appoint that arbitrator to act as sole arbitrator in the reference, and his award shall be binding on both parties as if he had been appointed by consent
Provided that the Court may set aside any appointment as sole arbitrator made, under clause (6) and either, on sufficient cause being shown, allow further time to the defaulting party to appoint an ‑ arbitrator or pass such other order as it thinks fit."
6. Section 8, on which the learned Advocates for both the parties addressed their arguments, will, in my opinion, have no application to the present case. This section can be referable only to cases in which the appointment of one or more arbitrators, either originally or by way of substitution, is to be made with the concurrence of all the parties to the dispute, so that if one of the parties withholds this concurrence, the other or others may serve such party with a written notice to concur in the appointment or in supplying the vacancy. Where, however, each of the two contesting parties is given the right to appoint one arbitrator, it is section 9, and not section 8, which would come into action. In the present case, the contract between the parties being either in the nature of a ready transaction or of forward contract, the arbitration had to tale place under Bye‑law 39-I(a); under which each , party, that is, the seller as well as the buyer, had to appoint its own arbitrator out of the panel of arbitrators maintained , by the Cotton Association. 'Accordingly, it is section 9, and .not section 8, of the Arbitration Act which may be taken into consideration in the present case due to the similarity between Bye‑law 39‑I(a) and section 9 of the Act. Section 9 requires careful consideration, as I feel that its provisions have been much misunderstood. This section consists of two parts‑clause(a) and clause (b). Clause (a) answers the question as to who has the right to appoint a 'substitute ‑when one of the arbitrators neglects or refuses' to act or is incapable of acting, or dies. The clause provides that the right to appoint 'the substitute vests in the party by whom the original appointment of the arbitrator was made. On the other hand, clause(b) deals with the situation when a party having the right to appoint the arbitrator, or a substitute, neglects or refuses to do so,. In such a case, it, is provided that 'the other party,, having made the' appointment of its own arbitrator, .may serve the party who has neglected or refused 'to make appointment of the arbitrator or of the substitute with 15 days' clear notice to make such appointment; and may proceed to appoint its own arbitrator as the sole arbitrator in the reference if the party to whom notice is given is still' in default. It should be clearly under stood that notice tender clause (b) has. to be given only when the party who has a right to make to appointment of 'the arbitrator or the substitute, fails to do so. No notice is either necessary or required under clause (b) when there is no neglect or refusal to make such appointment. No question of such notice arises if the party who has to shake the appointment of the arbitrator or the substitute, does in fact make the appoint ment. Further, if the occasion for such notice arises, the notice has to be directed to the party who has to make this appointment, and not to the party who has neither the rights' nor the obligation to make the appointment. Bye‑law 39‑I(a) should therefore be considered in the liable of this interpretation of section 9 of the Arbitration Act. Now, this bye‑law provides that each of the parties to the contract, teat is the seller as well as the buyer, should appoint its own arbitrator out of the panel of arbitrators 'maintained by the Cotton Association, and if one of the parties fails to do so, even after having received 15 clear days' notice from .the other party, this other party, having appointed its own arbitrator, shall have the power to appoint a second arbitrator, that is, an arbitrator on behalf of the party who has neglected or refused to appoint its arbitrator. If in a case of this kind, one of the parties has itself appointed both the arbitrators, the question arises as to who will appoint the substitute if one of the‑arbitrators neglects or refuses to act in the reference or does not accept the appointment. As far as the neglect or refusal of this party's own arbitrator is concerned, the right to appoint a substitute is not in any way in doubt. This substitution will have to be made by this party itself. The difficulty is with regard to the right‑ to appoint' the substitute for the arbitrator appointed on behalf of the party who originally made default in appointing its arbitrator. The f. ordinary rule is that power: to make the appointment carries with it the power to make substitution if the original Appoint ment fails for any reason. If Bye‑law 39‑I(a) is construed in the light of clause (a) of section 9 of the Arbitration Act, 1940, then, in that case, the right to appoint a substitute for the arbitrator originally .nominated by one party on behalf of the party who made default in making this appointment, vests in the party who made the original appointment.' This legal position will be better understood by reference to the present case. The respondents failed to appoint their arbitrator when called upon to do so by the petitioners under Bye‑law 39‑I(a), whereupon the appellants appointed Mr. Ameer Umar to act as arbitrator on the respondents' behalf. When Mr. Ameer Umar refused to act under the reference then; if section 9(a) of the Arbitration Act is applied, the substitute for Mr. Ameer Umar had to be appointed by the petitioners, because according to this clause it is the party we made the original appointment who has the power to appoint the substitute if the original arbitrator has neglected or refused to act or is incapable of acting or dies. If it is accepted that the right or power to, appoint substitute vests in the petitioners, no question could arise of 15 days' notice: being sent by 'the petitioners to the respondents before the former could make the appointment of the substitute. Under clause (b) of section 9, such notice has to be sent to the party who has the power or right to make the appointment of the arbitrator or the substitute, and 'o not to the party who does not have such power or right. Thus, when Mr. Ameer Umar refused to act in' the reference, the petitioners were not required to send any notice under clause (b) of section 9 to the respondents before appointing Mi. A. K. Nasir as Mr. Ameer Umar's substitute. If this view is taken of the real intent and purpose of section 9, the two Courts below clearly misdirected themselves in holding that the petitioners should have followed the procedure prescribed by clause '(b) of section 9 and sent 15 days' notice to the respondents before appointing Mr. A. K. Nasir as substitute for Mr. Ameer Umar.
7. The respondents' learned Advocate; Mr. Suleman Panja, supported his contentions by referring to several decisions, namely :‑--
(1) A. Ramjibhai & Co. v. Yusifali Mohomedalli Antria A I R 1925 Sind 12.
(2) MacDonald & 'Co. v. Narainadas Pokerdas A I R 1927 Sind 126.
(3) Uttamchend Brijlal v. Balmoand S. L. A I R 1929 Sind 55.
(4) S M. Fazil & Co. v. Overseas Cotton P L D 1959 Kar. 739.
The first of these cases reported in A I R 1925 " Sind 12, was decided by Aston, A. J. C.; in a case in which the sellers, having appointed their own arbitrator, also appointed an arbitrator the buyer's behalf according to the terms of the arbitration agreement. The arbitrator appointed on the buyer's behalf did root, however, accept the appointment, arid so the sellers appointed a substituted in his place The learned Additional judicial Commissioner expressed his dissent froth the view taken in Shamdas Teumal v. Khirnanmal Chandurnal (A I R. 1914 Sind 90), that appoint ment of an arbitrator is not complete until the person appointed arbitrator has consented to act in the 'reference, and 'for this purpose relied on two English decisions, Thomas v. Fredricks ((1847) 10 Q B 775=74 R R 502) and Tew v. Harris (17 L J Q B I), in which it was held that the nomination or appointment of an arbitrator is complete as soon as the nomination or appointment is communicated by one party in clear and unequivocal language in writing to the other. In these case reported say A I R 1927 Sind 128, Lobo, A. J. C., held that the reference is complete when he arbitrators have be, nominated in terms of the submission clause, and, further the appointment of an arbitrator is complete even though the reference is drawn up and has been accepted by the arbitrates subsequently. The cash, reported in A I R 1929 Sind 55 held that if an arbitrator appointed sole arbitrator under section 9 (b) of the Arbitration Act of 1899 corresponding to section 9 (b) of the Arbitration Act, 1910, refuses to act the procedure prescribed by section 9 (b) should be repeated, so that a fresh opportunity be afforded to the party who was originally in default, to appoint , its own arbitrator. The decision in P L D 1959 Kar. 739 is to the effect that both under section 9(b) of the Arbitration Act, 1940, and under Bye-law 39‑I(a) of the Karachi Cotton Association Ltd it is necessary for a party, before exercising them right to appoint an arbitrator as the sole arbitrate or try appoint act arbitrator on behalf of the party who has failed to make the appointment, to, give a formal notice calling upon the party who has so failed, to appoint its arbitrator, and that failure to give such notice is fatal to the arbitration proceedings. This decision has no bearing on the question under discussion before me. The principle laid down in A I R 1929 Sind' 55 should at best, be confined to cases where an 'arbitrator appointed by one party, having been made the sole arbitrator fails or refuses to act in the reference. With regard to the decisions in A I R 1925 Sind 12 and A I R 1927 Sind 126. I would with the utmost respect, record my dissent. In my view, the provision in a submission clause or an arbitration agreement for appointment of an arbitrator, means the appointment of an arbitrator who is willing to act. That this view is correct, was recognized by Aston, A. J.C. himself when he observed that :‑‑
The parties, however, in the submission or agreement to refer, may in certain cases, wizen providing for a subsequent appointment, amend by the word "appoint" the appointment of an arbitrator who is willing to act . . . . ."
Aston, A. J. C. s opinion was based on the two English decisions noted above. But in these, cases the point which arose for determination was whether the appointment of an arbitrator is complete without communication of the appoint ment to the other party. It was held, that communication of the appointment to the other party was necessary to complete the appointment of the arbitrator. The question whether an appointment is not complete‑until it is accepted by the arbitrator himself, was not at all at issue in these cases. On this question Russell observes ' in his Law of Arbitration, 17th Edn., p. 160 that :.‑‑
"acceptance of the office, by the arbitrator appears necessary to perfect his appointment. It has been so decided in the case of an. Umpire and. it would seem to be only reasonable that an appointment should not be considered effective until the person appointed has agreed either expressly or tacitly to exercise the functions of the office."
This observation is made on the authority of the rule in Ringland v. Lowndes (1863) 15 C B (N S) 173=33 L J C p. 25). 1 should here refer to another decision of Aston, A. J. C., Forbes Forbes Campbell &Co. Ltd. v. Gul Muhammad‑Mir Ahmad (A I R 1933 Sind 6), in which the learned Judge distinguished his earlier decision in Ramjibhai Bc Co. v. M/s. Yasifali Mahomadali Antria & Bros" on the ground that in that case "there was no refusal or inability on the part of the arbitrator to act . . . and therefore no question of an appointment by way of substitution arose". Referring to section 9 of the Arbitration Act, 1899, the learned Judge observed that this section did not provide for cases where one party is entitled in. certain circumstances to appoint two arbitrators one on its own behalf and another on behalf of the other party, and the power to appoint another arbitrator on behalf of the other, Party on its failure to make appointment of his arbitrator, includes the power to appoint the substituted arbitrator if the arbitrator first appointed declined or he was unwilling to act. Thus, the principal decision, that is A I R 1925 Sind 12, on which Mr. Suleman Panja rested his case was not subsequently followed by the learned Judge himself who decided that case and was distinguished on the ground that in that case the arbitrator originally appointed by the Seller on the buyer's behalf had neither refused nor expressed inability to act in the reference.
8. I have stated above that section 9 of the Arbitration Act of 1940 corresponds to section 9 of the Arbitration Act of 1899. Both the Courts below have taken the view that on Mr. Ameer Umar's refusal to act as an arbitrator in the reference, the procedure prescribed under section 9 (b) of the Arbitration Act,, 1940, should have been followed. This view assumes that Bye‑law 39‑I(a) of the Karachi Cotton Association does not express an intention different from that of section 9 of the Act. But this assumption itself is erroneous, and I would support my opinion by the decision of the Judicial Committee ' of the Privy Council in E. D. Sassoon & Co. v. Ramdutt Ramkissen Das (A I R'1922 P C 374). In this case, the contracts under dispute were for sale of bales of jute and provided for adjudication of the disputes according to the rules and bye‑laws of Calcutta Baled Jute Trade Association. Bye‑law 15 provided as follows :‑‑
"Where one of the parties to a dispute shall fail to appoint an arbitrator within 48 hours after having been called upon to do so, the Chairman of the Association shall appoint an arbitrator whose appointment shall be as lawful and binding upon the defaulting party as though he himself had appointed such arbitrator.'
Their Lordships held that this provision was inconsistent with section 9(b) of the Arbitration Act of 1899. The bye‑law which was considered by their Lordships may be compared with Bye‑law 39‑1(a) of the Karachi Cotton association. Under this latter by law, if one of the parties fails to appoint its arbitrator after having received 15 days' notice from the other party to do so, that other party having appointed its own arbitrator, shall have the power to appoint a second arbitrator on behalf of the defaulting party. There is no material difference between this bye‑law and the one before the Judicial Committee. In one case, the Chairman of the Association was empowered to appoint an arbitrator on behalf of the defaulting party. In the other case, the appointment on behalf of the defaulting party had to be made by the party who had appointed its own arbitrator. If the bye‑law of the Calcutta Baled Jute trade Association was inconsistent with section 9(b) of the Arbitration Act, 1899, so also Bye‑law, 39‑I(a) is inconsistent with section 9(b) of the Arbitration Act of 1940. In this view of the matter, both the lower Courts fell into error in applying the principle of section 9(b) of this latter Act to the present case.
9. The conclusion of the foregoing discussion is :‑‑
(a) That the power to appoint an arbitrator contained in Bye‑law 39‑I(a) of the. Cotton Association includes the power to appoint an arbitrator willing to act as such.
(b) That the appointment of the arbitrator is not complete until the arbitrator accepts the office.
(c) That power given under Bye‑law 39‑I(a) to appoint an arbitrator on behalf of the defaulting party, includes the power to appoint a substituted arbitrator, if the arbitrator, appointed to the first instance refuses to adept office or refuses or neglects to acting the reference.
(d) That the provisions of Bye‑law 39‑I(a) are inconsistent with the provisions of section 9 (b) of the Arbitration Act, 1940, and therefore the principle of this section cannot be applied to arbitrations held out under Bye‑law 39‑1(a) of the Cotton Association.
10. In view of these conclusions, I am of the opinion that Mr. Ameer Umar having refused to accept the office of the arbitrator on the respondents' behalf, the appointment by the petitioners of Mr. A. K. Nasir as arbitrator in Mr. Ameer Umar's place was valid and it was not necessary for the petitioners to follow the procedure prescribed by section 9(b) of the Arbitration Act, 1940, or to give a fresh notice to the respondents before' proceeding with the appointment of Mr. A. K. Nasir. In my view, the two Courts below adopted a totally erroneous view of the legal questions at issue and as such their orders should be held to be vitiated by material irregularity. The present petition is therefore accepted and the award in question is made rule of the Court. The petitioners will have costs here .end in the Courts below.
A. E. Petition accepted.
Dealing with a matter like this? Connect with a verified advocate in your city — free on SJP Lawyers Directory.
🔍 Find a Lawyer