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J. Miscellaneous Application No 87 of 1969, decided on 13th April 1970.
‑Arbitrator, appointment of‑Permanent Auditor of party appointed as its arbitrator without disclosing real position to other party‑Such arbitrator may have bias in favour of party appointing him‑Appointment, in circumstances, held, not proper.
Kali Prosanno Ghose v. Rajani Kant Chatterjee and another I L R 25 Cal. 142 ref.
, S. 28‑Extension of time for arbitration‑Powers of Court discretionary‑One of arbitrators improperly appointed‑Circumstance, held, sufficient for refusing application for extension of time.
R. H. Farooqui for Plaintiff.
Naimuddin for Defendant.
Date of hearing : 3rd April 1970.
This is an application under section 28 of the Arbitration Act, 1940 and as it is the second application under section 28 by the applicant, it is necessary to refer briefly to the background of events leading to it. The contract between the applicant and the respondent contained an arbitration clause and as there were disputes between them the respondent appointed Mr. A. R. Kazi, retired Special Judge, as its arbitrator by its letter an 26th April 1966 (Exh. 2) and called upon the applicant to appoint its own arbitrator. The applicant appointed a firm of accountants by the name, Rahim Jan & Co., of Lahore, as its arbitrator and intimation of this appointment was given by Rahim Jan & Co., to Mr. A. R. Kazi by its letter of 9th May 1966, (Exh. 3). As the appointment was obviously illegal, the respon dent pointed out to the applicant that it could not appoint a firm as an arbitrator and that only an individual could be appointed as its arbitrator. Therefore by his letter of 26th May 1966 (Exh. 5) Mr. Rahimjan of Lahore, a partner of Rahimjan & Co, informed Mr. A. R. Kazi that the applicant had appointed him as its arbitrator. Thereafter the arbitrators met and appointed an Umpire and on 20th June 1966, they gave notice to the parties to appear before them on 16th July 1966.
I may observe here that the venue of the arbitration was Karachi, therefore, Mr. Rahimjan had come to Karachi on 16th July 1966, but having agreed to this date with Mr. A. R. Kazi, he later changed his mind and informed Mr. A. R. Kazi that the date (16th July 1966), did not suit him therefore at Mr. Rahim jan's request the case was postponed to 8th August 1966.
The arbitrators met i n Karachi on 8th August 1966. The case proceeded with before then and was then adjourned on 13th August 1966. On that day the respondent asked for time and the case was adjourned to 29th August 1966. On 29th August 1966, the respondent filed its statement of claim and the applicant was to file its objection on the next date, namely, 19th September 1966. Although Mr. Rahimjan did not come to Karachi on the 19th of September 1966, the applicant filed its written statement and the case was adjourned to 1st of October 1966. On 1st of October 1966, both the arbitrators met and settled the points for determination in the case before them and fixed 27th of October 1966, as the next day in the case. But Mr. Rahimjan was not able to come to Karachi from Lahore on that day, therefore, the case was adjourned to 2nd November 1966. On 2nd November 1965, the case was fixed for the filing of the docu ments by both the parties, however, only the respondent filed its documents on that date, and the arbitrators gave the applicant further time to file its documents and adjourned the case for that purpose to 5th December 1966. I have observed that the arbitrators had given notice to the parties on 20th June 1966, therefore, the statutory period of four (4) months had expired and the date 5th December 1966, was given in order to enable the parties to obtain an order from this Court for extension of time. Apparently for reasons which have not been given, the arbitrators thought that they could proceed further with the arbit ration only after the Court had extended time under section 28. Be that as it may, the applicant filed an application under section 28 on 21st August 1968, nearly two (2) years after the last sitting of the arbitrators and this application was allowed ex parse by this Court on 10th February 1969. Then by its letter dated 1st April 1969 (Exh. 8), the applicant informed both the arbitrators of the Court's order enclosing with its letter to them a copy of the Court's order. I may, however, observe here that this order merely states :‑
"Mr. R. H. Farooqi for plaintiff. Respondent called absent. Order as prayed."
Then the respondent sent letters dated 11th April 1969, to both the arbitrators calling upon them to proceed with the case, Exh. 11, is a copy of this letter. However, no progress whatever, was made in the case by the arbitrators and the question is whether in these circumstances the applicant has made out a case for further extension of time under section 28.
2. Mr. Naimuddin opposed this application on behalf of the respondent. He submitted that nearly 4 (four) years had passed since the date when the arbitrators had entered on the reference and that proceedings had been delayed throughout this period of 4 (four) years by the applicant, therefore, the application should be dismissed. In particular he placed great stress on the fact that the applicant had taken nearly 2 (two) years to file its first section 28 application in this Court. Mr. Farooqi on the other hand submitted that even if the applicant had been guilty of any delay before 10th February 1969, that delay had been condoned by the order of this Court dated 10th February 1969, I agree with Mr. Farooqi that in view of the Court's order of 10th February 1969, the application cannot be dismissed merely because of the inordi nate delay of the applicant in filing its first section 28 applica tion. However, the manner in which the arbitrators conducted proceedings in 1966, shows that some delay was admittedly caused by the fact that Mr. Rahimjan, the applicant's arbitrator, lived in Lahore, whilst the venue of the arbitrators was Karachi. It also seems to me that the arbitrators gave unnecessarily long dates to the parties for formal purposes and could have proceeded with the arbitration more expeditiously, and this is not irrelevant to this application because I am appre hensive that the arbitrators will again be slow in their proceed ings if time is extended again.
3. However, even if the delay by the arbitrators and by the parties before this Court's order dated 10th February 1969, is excluded, the burden is heavily on the applicant to prove that a further extension of time is necessary. As Mr. Farooqi had submitted that delay had been caused by the respondent's arbitrator, I had permitted his examination and Mr. Farooqi has cross‑examined him at length. The point for determina tion therefore is whether the arbitration proceedings have been delayed by the applicant's arbitrator or by the respon dent's arbitrator, and as Mr. Farooqi has not cared to examine the applicant's arbitrator the only evidence before me is that of Mr. A. R. Kazi, which I shall now consider.
4. As I have pointed out, the Court's order allowing the applicant's first section 28 application was made ex parte, there fore, it was for the applicant to have informed the arbitrators of the Court's order. It made no attempt whatsoever to do so until the 1st April 1969, vide its letter (Exh. 8). Time could have been extended by the Court only for 4 (four) months, yet the applicant did not care to inform the arbitrators until half of this statutory period was nearly over. Absolutely no explana tion has been given of this delay by the applicant. Then Mr. Kazi said in his evidence that he was not able to proceed with the arbitration, because the order of the Court did not specify the further period which had been allowed to the arbitrators in this order. I would have expected the learned Arbitrators to get in touch with the respondents for this purpose but they did not do so. However, the consequent delay was slight, because, by its letter dated 11th April 1969 (Exh. 10). The respondent had called upon both the arbitrators to proceed with the reference immediately. The question there fore, is why the arbitrators did not proceed with the reference immediately. In this connection Mr. Kazi identified his noting on Exh. 10, which reads :‑
"Wait till I hear from Mr. Rahimjan.
(Sd.) (A. R. Qazi)
16‑4‑69."
Mr. Kazi has explained this noting and said in his evidence that this was based on my impression that he (Mr. Rahimjan) was out of the country and I have a faint idea that my impression was based on telephonic conversation with his local office. Further in the order of the Government appointing us as arbitrators he had to contact me". The question whether Mr. Rahimjan was out of the country in April 1969, was within the sole knowledge of the applicant, yet it has not cared to give any explanation, much less produce any evidence in this respect. On the other hand, I was impressed by Mr. Kazi's evidence, and I have no doubt whatever about the truth of his statement that he could not proceed with the case because, as far as he could ascertain, Mr. Rahim Jan was out of the country. Mr. Kazi has further said in his evidence that after Mr. Rahimjan had returned to the country, they had given a notice to the parties dated 16th July 1969, to appear before them on 24th July 1969, but as the statutory period of four months, which had been allowed by the Court, had already been expired, they had called upon the parties to obtain a fresh extension of time from the Court under section 28. As there is no evidence to the contrary, Mr. Kazi's evidence proves that even after he had received intimation from the applicant in April, he could not proceed with the arbitration because of Mr. Rahimjan's absence from the country. 1t is therefore clear that no arbitration proceedings took place after this Court's order of 10th February 1969, first on account of the applicant's delay in informing the arbitrators, and thereafter on account of the absence of the applicant's arbitrator from the country, and on this ground alone the application of the applicant deserves to be dismissed.
5. However, a further controversy has arisen between the learned counsel about the validity and propriety of the appoint ment of the arbitrator. The respondent has stated in para. 7 of its counter‑affidavits
"that the applicant's arbitrator is the permanent counsel of the applicant's in the matters of accounts and income‑tax etc., and hence an interested party."
In reply to this allegation, in para. 11' of his counter affidavit Mr. Hamidullah, the respondent's director has stated in reference to this allegation as follows :‑
The said allegation is only to cover up or give a camou flage to the inactivity of the opponent's arbitrator and the delaying tactics on the part of the opponents in league with their arbitrator so as to attempt at the frustration of the said proceedings. It is denied that the applicant's arbitrator is so interested as to act illegally. On the contrary the opponent's arbitrator is a retired officer of the Ministry of Law and after his retirement manipulated to act as arbitrator for the Government in a number of cases. His interestedness is, therefore, obvious and apparent on the face of the record.
6. It will be convenient to consider first the applicant's offensive allegations against the respondent's arbitrator. The applicant has made no attempt to substantiate its allegations against him and it is clear that they are an abuse of judicial proceedings. However, having abused the respondent's arbit rator in this manner, I cannot understand how the applicant can seek indulgence from the Court for extension of time for referring its dispute to the very arbitrator whom it has abused so recklessly. I should think, however, honestly Mr. Kazi tries to carry out his duties, about which I have no doubt, he may be prejudiced against the applicant because of its false and reckless attack on him, therefore, on this ground also I have no doubt that this application merits dismissal.
7. The other aspect of the case which troubles me is the respondent's statement that Mr. Rahimjan was the applicant's permanent auditor. This allegation has not been denied by Mr. Hamidullah in his vitriolic statement which I have quoted, therefore, I have no doubt that it is true, and I may also observe here that learned counsel for the applicant did not deny this allegation. But the applicant's letters informing the respondent of this appointment dated 9th May 1966, and 26th May 1966 (Exhs. 3 and 5 respectively), do not contain any information that it was appointing its own permanent auditor as its arbitrator. It is possible that, through long association, the permanent advisor of a party may have a bias in favour of that party, therefore, the point for determination is whether, in these circumstances, the appointment of Mr. Rahimjan as Arbi trator by the respondent was proper.
8. On general principle, it seems to me that the appoint ment was not proper, and that on this ground also the applica tion before me is fit to be dismissed. I am fortified in my opinion by a judgment of the Calcutta High Court in Kali Prosanno Ghose v. Rajani Kant Chatterjee and another (I L R 25 Cal. 142). The facts of that case were that a dispute about arrears of rent was referred to the retained pleader of the plaintiff who gave his award in the plaintiff's favour. As the plaintiff had not informed the defendant that the arbitrator was its permanent pleader a Division Bench of the Calcutta High Court set aside the arbitrator's award and at page 143 Maclean, C. J., observed as follows :‑
"It is admitted that the arbitrator in this case was the retained pleader of the plaintiff. It is proved that the defen dants were not aware of that most important fact until after the proceedings had terminated before the subordinate Judge. It is equally clear that the fact was not disclosed to the defen dants. What then is the position of matters You have a gentleman appointed as arbitrator who had been admittedly retained as the pleader of the plaintiff; you have the fact that there is no disclosure of that fact made by the plaintiff or by the arbitrator himself, to the defendant, and that the defendant goes to arbitration in ignorance of that fact. To my mind that circumstance alone is sufficient to justify the Court in holding that the award is not valid and binding upon the defendant. In cases of arbitration where a person is appointed by two parties to exercise judicial duties there should be uberrima fides on the part of all the parties concerned in relation to his selection and appointment, and every disclosure, which might in the least affect the minds of those who are proposing to submit their dispute to the arbitrament of any particular individual, as regards his selections and fitness for the post, ought to be made, so that each party may have every opportunity of considering whether the reference to arbitration to that particular individual should or should not be made. In my opinion there was such concealment in this case on the part of the plaintiff as to vitiate the award, under the provisions of section 521 of the Code; and holding that view, and that there was a right of appeal, the appeal must be dismissed with costs."
This judgment of the Calcutta High Court has been good law for more than 70 years and I am in respectful agreement with the observations of Maclean, C. J., which I have quoted. The facts in the instant case are on fours with these in this judgment, because as I have shown, the applicant bad not informed the respondent when it appointed Mr. Rahimjan as its arbitrator that his firm were its permanent auditors. It is true that Mr. Rahimjan is an auditor whilst, in the Calcutta case the arbitrator was an Advocate. But by the very nature of his training and discipline an Advocate acquires some measure of objectivity, therefore far from helping the applicant's case this distinction is a circumstance which goes against it.
9. Mr. Farooqi then argued that the respondent could have filed an application to challenge the appointment of Mr. Rahimjan as arbitrator, but as it has not done so it could not make a grievance of his appointment now. The argument is fallacious. Extension of time under section 28 is discre tionary, and if the appointment of an arbitrator is not proper this is a circumstance on account of which an application under section 28 should be dismissed.
10. In the result the application is without merit and is dismissed with costs.
A. E. Application dismissed.
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