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Miscellaneous Appeal No. 6 of 1953, decided on 18th November 1957.

, S. 3 and First Schedule- Contents of First Schedule‑Do not have force of statutory provisions‑Can be regarded as implied terns of arbitration agree ment.

The contents of the First Schedule of the Arbitration Act do not have the force of statutory provisions but are to be deemed to be implied terms of an arbitration agreement.

, S. 30 (a)‑Arbitrators not appointing umpire‑Misconduct.

The breach of a voluntarily agreed condition and the breach of a provision of paragraph 2 of First Schedule, Arbitration, Act (X of 1940) are both breaches of contract and not violations of law. When they are committed by the Arbitrators they should ordi narily fall within the purview of clause (a) of section 30 of the Arbitration Act and should, if at all form the misconduct of the arbitrators themselves or misconduct of Arbitration proceedings by them.

, Ss. .3, & 8 and First Schedule para 2‑Omission to appoint umpire‑remedy for aggrieved party ‑Failure to invoke aid of S. 8 amounts to waiver of non‑appointment of umpire.

A breach of the provisions of paragraph 2 of First Schedule committed by an omission to appoint an umpire in terms of the paragraph is merely the non‑observance of an implied condi tion of the arbitration agreement and this non‑observance can be remedied by the aggrieved party by invoking section 8 of the Act. The failure to invoke the aid of section S of the Act amounts to a waiver of the defect of the non‑appointment of an umpire. It is not open to the aggrieved party to raise an objection on the basis of a breach which was curable by its own action and there is no justification for treating the bread as the breach of a provision of law, thus forgetting the conduct of the aggrieved party itself.

Union of India v. M/s. Allied Trading co. A I R 1956 Pb. 7; Ebrahim Ahmed v. Sind Hosiery and Textile Mills P L D 1952 Sind. 52 ; Jawala Prasad v. Amar Nath A I R 1951 All. 474 ; Malik Muhammad Anwar Khan v. Mian Wali Muhammad P L D 1956 Lah. 202 ; United Printing and Binding Works Ltd. v. Kishori Lal. A I R 1956 Cal. 593 ; Balawal Khan v Capt. Muhammad Alam Khan P L D 1956 Lah. 494 and Chooni Lal v. Madhoram and others I L R XXXVI Cal. 388 ref.

.---‑ A reference to the arbitration of Messrs Lakhani and Dingomal advocates was made under section 21 of the Arbitration Act 1940 by an agreement dated the 29th April 1952. They sent in their award on the 30th of August 1952 and the plaintiffs submitted their objections to it under section 30 of the Arbitration Act. Muhammad Bakhsh, J. considered the objections and set aside the award by his order dated 9th Decem ber 1952 on the sole ground that the Arbitrators failed to appoint an Umpire in terms of paragraph 2 of the First Schedule of the Arbitration Act. This appeal has been filed against this order with a prayer that it should be set aside and that the suit should be ordered to be disposed of in accordance with the award.

The First Schedule forms a part of the Act in terms of section 3 of the Statute. Section 3 runs as follows

"An arbitration agreement, unless a different intention is expressed therein, shall be deemed to include the provisions set out in the First Schedule in so far as they. are applicable to the reference."

It is to be noted that according to this provision the contents of the First Schedule do not have the force of statutory provisions but are to be deemed to be implied terms of an arbitration agree ment. The heading of the First Schedule also says that they are "Implied conditions of arbitration agreement." These condi tions are to be deemed to be included in an arbitration agreement unless a different intention is expressed in it. Paragraph 2 of the First Schedule should, therefore, be interpreted as a term of agreement and not as a statutory provision. This paragraph is no doubt required by the statute to be read as an implied provision of an arbitration agreement but the statutory force attached to it goes only to the point of making this paragraph to be impliedly included in an arbitration agreement and does not go further. It is not, therefore, correct to lay emphasis on the violation of any provision of paragraph 2 as if it was a violation of a provision of law. The paragraph runs as follows :‑

"If the reference is to an even number of arbitrators, the arbitrators shall appoint an umpire not later than one month from the latest date of their respective appointments."

The word "shall" used in this paragraph has been the subject of much discussion and careful judicial thought. It has been pointed out tons by the learned counsel of the respondent that this word has been inserted in substitution of the word "may" which occurred in paragraph 2 Schedule I of the Indian Arbitration Act, 1879 and it has been contended by him that this amendment reveals the intention of the Legislature for making the appoint ment of an umpire within one month from the latest date of the respective appointment of arbitrators to be essential as a condition precedent. The weakness of this argument lies in the first place in disregarding the fact that this entire paragraph is an implied term of the arbitration agreement and that the observance of its provisions is not at par with the observance of the provisions of a statute. Secondly, if the appointment of an umpire within one month of the latest date of the respective appointments of the arbitrators is mandatory, then it would be mandatory irrespec tive of the circumstances of the arbitration proceedings, and if this were so then an umpire would be required to be appointed by the Arbitrators even if they made their award within one month from the latest date of their respective appointments, and in the event of their failure to do so even if it be after the award there, would be a violation of a mandatory provision entailing the invalidation of the award. Such a view of the provision is obviously untenable and reduces the arguments to an absurdity.

In Union of India v. M/s. Allied Trading Co. (A I R 1956 Pb. 7), Falshaw, J., has interpreted the provisions of paragraph 2 of the First Schedule almost as statutory provisions and yet reached the conclusion that their non‑observance was a mere irregularity. He‑ firstly pointed out that if the arbitration agreement itself contained any provisions regarding the appointment of the umpire there would be no need to fall back on the implications contained in the First Schedule, and then went on to observe as follows :‑

"In any case it does not seem to me that a defect of this kind in any way makes the appointment of an umpire invalid or deprives him of jurisdiction. The word shall' in context similar to the provisions of clause 2 in the First Schedule has often been interpreted as merely being directory, and the criterion for deciding whether failure to comply with such a provision is "a mere irregularity or invalidates the whole procee dings is whether the statute itself provides any penalty or other consequences for the failure to comply.

In my opinion even if clause 2 supersedes or supplements the arbitration clause in the contract, the failure to appoint an umpire within a month of the appointment of the arbitrators, perhaps because they were too busy to get together any earlier, is a mere irregularity which does not invalidate the subsequent proceedings, and I also consider that the contractor had long since waived his right to raise any objection of this kind. I thus consider that the lower Court was wrong in holding that the award should be set aside on these technical grounds."

This view of the learned Judge is based on considerations of justice, equity and good conscience, because he could not persuade himself to take an unnecessarily strict view of the provisions of paragraph 2 and felt that in circumstances where there was no injustice done to anybody, it could not be right to hold that the failure to appoint an umpire vitiated the award.

There are a few decisions in which the learned Judges could not persuade themselves to take an equitable view of the provision and held that the word "shall" in paragraph 2 made the appoint ment of an umpire in terms of paragraph 2 mandatory provision. Two of such decisions are Ebrahim Ahmed v. Sind Hosiery and Textile Mills (P L D 1952 Sind 52) and Jawala Prasad v. Amar Nath (A I R 1951 till. 474), but as pointed out by Kaikaus, J. in Malik Muhammad Anwar Khan v. Mian Wali Muhammad (P L D 1956 Lah. 202), there is no discussion in these judgments of the effect of section 8 of the Arbitration Act. In the words of the learned Judge, "Section 8 takes the bottom out of the argument based on the failure to appoint an umpire". Section 8 (e) is as under :‑

"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."

As pointed out by Mukharji, J., in United Printing and Binding Works Ltd. v. Kishori Lal (A I R 1956 Cal. 593), "Such a provision (i.e. S. 8) would have been unnecessary if failure to appoint an umpire under clause 2 of Schedule I of the Act irretrievably and incurably taints and vitiates the arbitration proceedings and the resulting award". The learned Judge has observed : "Failure of the arbitrators to appoint an umpire under Paragraph 2 of Schedule 1, Arbitration Act being a breach curable by the procedure prescribed by section 8 of the Act itself, a party who fails to follow the procedure permitted by the Statute to remedy the breach and stands by till the award is made cannot put forward non‑appoint ment of an umpire as a ground for setting aside the award."

These views of the learned Judge have been expressed irrespective of whether the First Schedule of the Arbitration Act contains provisions of law or not and they have arrived at the undoubtedly correct conclusion that in the presence of section 8 of the Arbitration Act the provisions of Paragraph 2 that an umpire shall' be appointed within the stated time cannot to taken to be mandatory. This conclusion apparently dispenses with the necessity of laying emphasis on a distinction between statutory provisions and the provisions which are statutorily required to be deemed to be the conditions of an agreement. We may however add here that the following observations of Kaikaus, J. in P L D 1956 Lah. 202 at page 214 have been brought to our notice

"I hold that in a case where there is no provision in an arbitration agreement rendering the appointment of an umpire essential to the assumption of their functions by the arbitrators who have not disagreed does not vitiate the award."

According to these observations of the learned Judge a provision similar to those as are contained in paragraph 2 of the First Schedule when contained in an arbitration agreement would be of greater force and effect than the provisions of paragraph 2 itself. With great respect we find it difficult to understand the reason for assigning a greater force to a condition voluntarily accepted by the parties than a condition statutorily implied in an arbitration agreement. The language of paragraph 2 is emphatic enough to place it at par with the provision of an arbitration agreement suggested by the learned Judge. If the language of paragraph 2 is interpreted by itself, as was done in some judgments without taking into consideration section 8 of the Act or considerations of equity and good conscience were boldly imported by Falshaw, J., A I R 1956 Pb. 7, then it can be interpreted to mean that the appointment of an umpire is essential to the valid assumption of functions by the arbitrators. No reason for making an exception regarding "a provision in an arbitration agreement rendering the appoint ment of an umpire essential to the assumption of their functions by the arbitrators" has been given by Kaikaus, J. in Anwar Khan's case, but in an earlier Judgment by the same learned Judge reported in Balawal Khan v. Capt. Muhammad Alam Khan. (P L D 1956 Lah. 494), one can find an explanation for this view. He has discussed in it Chooni Lal v. Madhoram and others (I L R XXXVI Cal. 388), so as to suggest the reason which apparently led him to this opinion. The relevant observations of the learned Judge in this regard are as follows:‑

In the last mentioned clause of cases, (i.e., cases in which appointment of an umpire before entering upon a reference is held mandatory) if there be at the same time no machinery for the appointment of an umpire if the arbitrators fail to appoint one, there is good ground for the argument that the arbitral tribunal is not properly constituted and the proceedings in arbitration cannot, therefore, be effective. In Chooni Lal v. Madho Ram and others, as I have already stated, the rules which governed the arbitration agreement necessitated the appoint ment of an umpire before entering on the reference. There is an English case relied upon in that judgment in which it had been held that "if the umpires do not make an appointment, they cannot be forced to do so." This would imply that in that case there was no other machinery for the appointment of an umpire.

If the absence of a machinery to enforce the appointment of an umpire was the foundation of the opinion of Fletcher, J., then it is not clear as to why Kaikaus J. found it necessary to add an exception to his conclusion while at the same time holding that section 8 provides the required machinery. There is no point of principle for drawing a distinction between the suggested condi tion and paragraph 2 of Schedule I and we do not think that it can be argued on the basis of the exception made by Kaikaus J. that there is a difference in the effects of a breach of provisions of paragraph 2 and of a voluntarily agreed condition of an arbitration agreement. We think that the two breaches are of the same nature and that when they relate to the appointment of an umpire by the arbitrators they are equally curable by section 8 of the Arbitration Act, 1940. We wish to emphasize that the breach of a voluntarily agreed condition and the breach of a provision of paragraph 2 of Schedule 1st are both breaches of contract and not violations of law. When they are committed by the Arbitrators they should ordinarily fall within the purview of clause (a) of section 30 of the Arbitration Act and should, if at all, form the misconduct of the arbitrators themselves or misconduct of Arbitration proceedings by them. A confusion is created by the interpretation of the word "shall" in a style of argument which is more suited to the interpretation of statutes than of agreements, Sometimes the confusion develops to the point of a suggestion that the failure to act in obedience to this word deprives the arbitrators of their jurisdiction to act as such. If this confusion is not allowed to obscure the fact that paragraph 2 of Schedule I is a condition of an agreement then the point Of discussion would shift from the distinction between mandatory and directory to the distinction between essential and unessential.

Our conclusion is that a breach of the provisions of para graph 2 of Schedule 1 committed by an omission to appoint an umpire in terms of the paragraph was merely the non‑observance of an implied condition of the arbitration agreement and that this non‑observance could be remedied by the aggrieved party by invoking section 8 of the Act. The failure to invoke the aid of section 8 of the Act amounts to a waiver of the defect of the non‑appointment of an umpire. It is not open to the aggrieved party now to raise an objection on the basis of a breach which was curable by its own action and there is no justification for treating the breach as the breach of a provision of law, and thus forgetting the conduct of the aggrieved party itself.

We hold the award to be valid qua the defect of the non- appointment of an umpire, set aside the order under appeal and decide that the case be disposed of according to law.

K. M. A. Appeal accepted.

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