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Suit No. 1240 of 1952, decided on 5th August 1953.
S. 2 (1)‑Mutuality, want of-- Option of appointing arbitrator resting with one party only and not with the other‑Arbitration agreement voidable‑ Sale of Goods Act (III of 1930), S. 54 (4).
A clause in a contract of sale and purchase of goods read:
"In the event of dispute of any nature arising in respect of the said goods or the execution of this contract you are always to have the option of cancelling contract or referring the matter to the Arbitration of one or two merchants and I/We agree and bind myself/ourselves to accept the decision of the Arbitrator/Arbitators as final and should the Arbitrators not agree they are to appoint Umpire whose decision shall be final and binding upon the parties the party at fault to pay the fee or fees."
Held : that such an arbitration agreement was voidable within the meaning of section 2 (i) of the Contract Act and, therefore, was not enforceable.
Held further, that the clause being a conditional clause and the plaintiffs having exercised the option of cancelling the contract, should have come to Court with a suit for damages and not with the arbitration proceedings.
First Schedule, para. 3-- Arbitrator enters upon reference when he starts actual duty as arbitrator e. g. sending notice to a party.
Muhammad Hafiz Ahsan for Plaintiff.
Sharif‑ud‑din for Defendants.
This is an application by the sole arbitrator under section 14 (2) of the Arbitration Act read with rule 282 (1) of the Chief Court Rules for filing the award in Court.
Objections, legal and otherwise, have been taken by the defendant and it is only the legal objections which I have heard now and which I wish to dispose of.
The plaintiffs are the sellers and the defendants are the pur chasers. They entered into three different contracts on 20th November 1951, for the sale and purchase of cotton yarn of December shipping. The three contracts in question were entered into on the same kind of printed forms and it is necessary to reproduce clause (7) of these contracts:
"In the event of dispute of any nature arising in respect of the said goods or the execution of this contract you are always to have the option of cancelling contract or referring the matter to the Arbitration of one or two merchants and I/We agree and bind Myself/Ourselves to accept the decision of the Arbitrator/ Arbitrators as final and should the Arbitrators not agree they are to appoint Umpire whose decision shall be final and binding upon the parties the party at fault to pay the fee or fees."
The goods actually arrived by the end of January 1952, but the defendants refused to take delivery on the plausible ground that the goods were not of December shipping though the fact seems to be that the market had gone down. The plaintiffs therefore gave a notice to the defendants on 12th March 1952 to take delivery of the goods. The defendants refused to take the same. On 24th April 1952 the plaintiffs in accordance with the arbitration agreement appointed a sole arbitrator Mr. Badr‑ud‑din and gave notice of it to the defendant. The defendant refused to take any notice of this appointment of the arbitrator, and on 6th May 1952, the arbitrator sent a notice to defendant of the date of hearing. In spite of this the defendant did not appear before the arbitrator who made his ex parte award on 16th September 1952.
The legal objections against this award urged by the learned advocate for the defendants, Mr. Sharif‑ud‑din, are these:
(a) that the agreement in question suffers from uncertainty and is, therefore, bad in law;
(b) the agreement in question is also bad as there is no mutuality therein ;
(c) that clause (7) is a conditional clause which gives the plaintiffs one of the two options, namely either to cancel the contract or to appoint the arbitrator. The plaintiff has sold the goods by public auction and has also appointed the arbitrator,
Therefore, the award is bad; and
(d) the award is out of time.
I have heard the arguments of the learned advocates for both the sides and will now proceed to give my decision thereon.
Mr. Sharif‑ud‑din has relied on section 29, illustration (f) of the Contract Act which reads as follows:
"A agrees to sell to B "my white horse for Rs. 500 or Rs. 1,000." There is nothing to show which of the two prices was to be given. The agreement is void."
I regret I am unable to see the analogy between the illustra tion which appears on the statute and the present case. The present agreement recites that the plaintiffs had the option either to appoint the sole arbitrator or two arbitrators who had to be merchants.
I am not able to see any ambiguity in it the like of which appeared to the Legislature at the time illustration (f) was brought on the Statute Book. With all respect to the Legislatures I am not able to see any ambiguity even in illustration (f). According to me illustration (f) would in the ultimate analysis mean that only Rs. 500 had to be paid for the horse, and nothing more. But this was beside the point.
The learned advocate has then relied on the ruling in the case of the Governor‑General‑in‑Council v. Simla Banking and Industrial Co. Ltd. reported in (A I R 1947 Lah. 215) in support of his theory. The arbitration clause in that case was As follows :‑
" the decision of the Superintending Engineer of the circle for the time being shall be final, etc."
Their Lordships came to the conclusion that the words "for the time being" in the above clause were ambiguous, and it was not clear whether they applied to the word "circle" or the words "Superintending Engineer."
With all respect to their Lordships, I am unable to agree with that opinion. At the time the arbitration agreement was entered into by the parties, it could not possibly be in the imagina tion of the parties that the circles were to be changed thereafter. Besides the "circle" will always be the circle wherein the work was carried out. Therefore the words "for the time being" in my opinion clearly applied to the words "the Superintending Engineer." Whatever that may be, the conclusion in that case was reached on entirely different ground because the "Superintending Engineer" who was in charge of the office at the time the cause of action arose or at the time the suit was filed had both retired and were no longer in service.
Their Lordships therefore came to the conclusion that the arbitration agreement had become impossible of being enforced. In any case; even the facts of that case are not the same as we have here. Here the words admit of no ambiguity whatsoever. The reference was to be either to a sole arbitrator or to two arbitrators within the option of the plaintiffs. There can be no second interpretation of this clause and, therefore, I am definitely of the opinion that this agreement is not bad on account of uncertainty.
I now come to the second point that there is want of mutuality in this agreement and, therefore, it is bad. I think the defendant's contention on this point must prevail. Clause (i) of section 2 Contract Act which is the interpretation clause reads as follows :‑
"(i) An agreement which is enforceable by law at the option of one or more of the parties thereto, but not at the option of the other or others, is a voidable contract."
It appears clear that clause (7) of the contract in suit will clearly come within the mischief of this clause as the option to appoint an arbitrator was conferred on the sellers i.e., the plaintiffs only, while the defendants‑purchasers were not given any such option. It appears there was a single Judge ruling of the Court of the Judicial Commissioner of Sind reported in Mulchand v. Radkha kishin (A I R 1926 Sind 27) and Chetoomal v. Shankardas (A I R 1929 Sind 83) wherein it was held by Aston, A. J. C. that the doctrine of mutuality did not apply to India. For his conclusion the learned Judge relied on a previous Division Bench ruling of the Judicial Commissioner's Court reported in Kewalram v. Donald Graham (5 S L R 61). This last case was decided in 1911 while the Privy Council in 1912 in the case of Mir Sarwar Jan v. Fakhruddin reported in (I L R 39 Cal. 232) held that the doctrine of mutuality did apply to India. It is unfortunate that this ruling which was published in 1912 was not brought to the notice of the learned Judge who gave his rulings in 1926 and 1929. The principle laid down by the Privy Council ruling was followed in 1925 in the case of Burjor F. R. Joshi v. Ellerman City Lines Ltd. reported in (I L R 49 Bom. 854). The learned single Judge Aston, A.J.C. had relied on an English ruling reported in Woodall v. Pearl Assurance Co. Ltd. ((1919) 1 K B 593), but I find the facts of that case were different from the present case. In that case both the parties had been given the option of appointing arbitrators. I am therefore clearly of the opinion that this arbitration agreement was voidable within the meaning of section 2 (i) of the Contract Act and, therefore, cannot be enforced. The defendants had retracted it on many grounds including the validity thereof.
As regards the third point, the learned advocate for the defend ants has contended that having exercised the option of cancelling the contract, the plaintiffs can not exercise the other option of referring to arbitration. Section 54 (4) of the Sale of Goods Act reads as follows :‑
"Where the seller expressly reserves a right of re‑sale in case the buyer should make default, and, on the buyer making default, re‑sells the goods, the original contract of sale is thereby rescinded, but without prejudice to any claim which the seller may have for damages."
It will thus clearly appear from the facts of the present case that the plaintiffs had rescinded the contract and that was one of the two options conferred on them by clause (7) of the contract in suit.
I therefore think that having exercised that option the only course for the plaintiffs was to sue for damages which was the difference between the contract price and the sale price and not to refer the matter to arbitration. The learned advocate for the plaintiffs has relied on the case reported in A I R 1946 Lah. 116, but that has no bearing on the facts of this case. In that case there was no option like the present case given to a particular party of either cancelling the contract or appointing arbitrators. There was a usual kind of arbitration clause in the Lahore case.
In the present case the arbitration clause is rather an extraordinary one, and I think the plaintiffs should blame the draftsman who drafted such a stipulation in the contract. The Lahore ruling has no application to the facts of this case. I hold that clause (7) being a conditional clause and the plaintiff; having, exercised the option of cancelling the contract, should have come to Court with a suit for damages and not with the arbitration, proceedings.
The last point raised is with regard to time. The relevant dates for consideration of this point are :‑
(1) 24th April 1952, when the plaintiffs appointed a sole arbitrator and gave notice to the defendant about it.
(2) 6th May 1952, when the arbitrator sent a notice of the date of hearing to the defendants.
(3) 16th September 1952, when the award was actually made.
Now under the Act the award has to be made under para. 3 of the First Schedule within four months after the arbitrators enter on the reference or within four months after they are called upon by a notice in writing from a party to act. In my opinion the period of 4 months has to be computed from 6‑5‑1952, when the arbitrator issued a notice to the defendants giving the date of hearing. That is the only date on which the arbitrator can legally be said to have entered upon the reference (and not ) 24‑4‑1952, because that is the day when he was only appointed as an arbitrator. Entering on the reference is equivalent to starting of the actual performance of the duty as the arbitrator. Four months therefore expired on 6th September 1952, and the award being 19 days late is out of time, and will also be bad in law.
The learned advocate for the plaintiff has relied on the ruling reported in the case of Abdul Majid v. Bhawal Bakhsh (P L D 1950 Lah. 228), which lays down that the period of four months was to be computed from the date when the parties appeared before the arbitrator. This ruling was based on another ruling of the Allahabad High Court in the case of F. O. Sardar Mal‑Hardat Rai v. F. O. Sheo Bakhsh Rai‑Sri Narain reported in (A I R 1922 All. 106). The Allahabad ruling itself followed an old English ruling reported in (1867) 2 Q B 523 which itself was subsequently dissented from in 1941 by the same Court in the case of lossifoglu v. Coumantaros reported in ((1941) 1 K B 396). Then came the ruling in the case of Messrs Bajranfal v. Ganesh Commercial Co. Ltd. reported in (1951 Cal. 78) which sets the law on this point at rest by saying that four months will be computed from the date when the arbitrator accepts appointment and proceeds with the arbitration matter.
The learned advocate for the plaintiffs then asked me to enlarge the time by ten days by virtue of the power given to me under section 28 of the Arbitration Act. I would have considered this question if I had not held that the arbitration agreement was bad on account of want of mutuality and on account of the plaintiffs having exercised one of the two options already. I therefore do not think this is a case in which I can extend the time under section 28 of the Arbitration Act.
In the result I allow the objections filed against the award, dismiss the application of the arbitrator under section 14 (2) of the Arbitration Act, and direct that the plaintiffs do bear the costs of the defendants. In view of my finding on the legal objections, it is not necessary, to go into the objections on facts.
This order will also apply to S. No. 1241 of 1952 where the plaintiffs are the same and the defendants are different. Mr. Hafeez Ahsan the learned advocate for the plaintiffs in this case also appears for the plaintiffs in that case. The facts and law involved in the other case are also the same with the excep tion that in that case the award was made by the arbitrator in time.
This order therefore with the exception of my finding and reasons on the question of time, will apply to the other case.
A. H. Application dismissed.
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