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Civil Rule No. 1032 of 1958, decided on 17th December, 1958.

S. 5‑Revocation of authority of arbitrators‑Grant of leave‑Court's discretion‑Limits.

In granting leave under section 5 of the Arbitration Act, 1940 for withdrawal of the authority of the arbitrators, the Court has to exercise its discretion and there are two limits within which discretion is to be exercised : (1) that the Court should not lightly release the parties from their bargain and, (2) that the Court should be satisfied that substantial mis‑carriage of justice will take place in the event of ;its refusal to grant the leave.

The Court should be very cautious before it uses its power under section 5 of the Arbitration Act, 1940. It would be contrary to justice to give leave to revoke the authority of an arbitrator to a party who as a consideration of the contract had agreed to submit his disputes, whether on law or facts to arbitration.

Bhuwalka Brothers Ltd. v. Fatehchand Murlidhar .87 C L J 71 dist.

Bala Bux Agarwala v. Lachminarayan Jute Manufacturing Co., Ltd. 51 C W N 863 fol.

, S. 5‑Application for revocation of arbitrator's authority‑Petitioner, knowing well that particular arbitrator is member of arbitration to which he is submitting‑Cannot subsequently present petition on ground that he will not get proper justice at the hands of such arbitrator.

Where the petitioner submits to an arbitration, knowing full well that the particular arbitrator is a member of the arbitration, it is not open to him subsequently to say that he has got a reasonable apprehension that he will not get proper and fair trial before the arbitrators.

G. Kemp v. Rose (1858) 1 Giff 258 ref.

S. 5‑Application for revocation of arbitration not bona fide‑Revocation improper.

Where the application under section 5 of the Arbitration Act, 1940 is not a bona fide one but is an attempt to hold up the arbitration proceeding, it is exceedingly improper to exercise discretion and grant leave to revoke the submission.

Reliance Investment Co. Ltd. v. Union of India A I R 1957 Cal. 151 rel.

Asraral Hossain and Md. Nurul Huq for Petitioner.

A. S. M. Shamsuzzaman for Opposite‑Parties.

This Rule is directed against the order, dated 25‑9‑58, passed by the Munsif, 4th Court at Narayanganj in Miscellaneous Case No. 71 of 1956 under section 5 read with section 41 of the Arbitration Act refusing the prayer of the petitioner for revocation of the authority of the Arbitrators (not revocation of submission to arbitration) to whom the petitioner and opposite‑party No. I agreed to submit for arbitration of their dispute that may arise in consequence of or relating to the contract entered into between the parties.

2. The facts of the case, shortly stated, are as follows : On 2‑7‑55, the petitioner contracted to sell 51 bales of jute to the opposite‑party No. I at the rate of Rs. 91‑1‑3 pies per bale and opposite‑party No. 1 contracted to purchase the same and fixed the period of delivery in August‑September, 1955, at Seller's ghat. In the form of the contract, there is an arbitration clause for arbitration of any dispute that may arise between the parties in relation to the contract. On or about 29‑7‑55, the Government of Pakistan announced the devaluation of its currency and, as a result of the same, there was a sudden and unprecedented rise in the price of jute to the extent approximately of Rs. 40 per bale of jute at the time when generally there occurs no variation in the price of jute: According to the petitioner, under the paramount clause of the contract, the aforesaid contract was frustrated and all these clauses including the clause of arbitration became inoperative and null and void. On or about 2‑8‑55, the petitioner informed opposite‑party No. 1 that the contract of jute became null and void and a fresh one could be entered upon if the opposite‑party was ready and willing to increase the rate of price of the contracted jute by 44 per cent on the previous agreed upon rate. On 4‑8‑55, the opposite‑party sent, contrary to the contract, a bill for Rs. 1,832. 0‑3 pies for payment as difference between the market rate and the contracted rate of the jute. On 21‑10‑55, the opposite‑party referred the matter to arbitration and claimed the difference of the price. On or about 20‑10‑55, opposite‑party No. 2, Registrar of Tribunal of Arbitration, Dacca Narayanganj Chamber of Commerce and Industry, informed the petitioner of the fixation of Arbitration, numbered as G/77 of 1955, and requested the petitioner to submit objections together with the arbitration fee of Rs. 450. Thereafter the petitioner filed Miscellaneous Case No. 53 of 1956 under section 33 read with section 41 of the Arbitration Act in the 4th Court of the Munsif at Narayanganj. In this Miscellaneous Case under section 33 of the Arbitration Act, there was an application for injunction restraining opposite‑parties Nos. 1 and 2 from proceeding with the arbitration case. This application for injunction was dismissed up to the lower Appellate Court. During the pendency of this injunction application, the petitioner approached the High Court for a writ of mandamus and certiorari against opposite‑party No. 2 and the Pakistan Jute Association. Having failed in that writ application; the petitioner filed an application for leave to appeal to the Supreme Court. That application also was dismissed in April, 1957. After the dismissal of the injunction petition, opposite‑party No. 2 served notice on the petitioner on 2‑7‑56 fixing 12‑7‑56 as the date of deposit of Rs. 450 as arbitration fee on failure of which the petitioner was threatened that the papers would be handed over to the arbitrators. Failing to obtain the injunction prayed for, and in his application for a writ in the High Court, the petitioner filed the present application under section 5 of the Arbitration Act for revocation of the authority of the arbitrators on the ground that the arbitrators are not com petent to decide a complicated question of law, namely, whether there is frustration of the contract on account of devaluation of Pakistan currency and that there is apprehension in the mind of the petitioner that he will not get proper justice in the hands of the arbitrators. The application under section 5 of the Arbitration Act was rejected by the trial Court on 25‑9‑58. Against that order of the learned Munsif, the present Rule has been obtained by the petitioner. During the pendency of this Rule, the petitioner's application under section 33 of the Arbitration Act has been dismissed for default on 15‑11.‑58. On 22‑11‑58, the petitioner filed, it is stated by the learned counsel for the petitioner, an application under Order IX, rule 9 of the Code of Civil Procedure for restoration of the said application under section 33 of the Arbitration Act which is still pending.

3. In this Rule, the point is whether the petitioner should be allowed to revoke the authority of the arbitrators under section 5 of the Arbitration Act on the grounds stated, namely‑(1) Whether the points involved in the case, namely, whether on account of the devaluation of the Pakistan currency there has been a frustration of the contract or not, is a complicated question of law and the prospective arbitrators would not be competent to decide that question, (2) whether there is any reasonable 4pprehension in the mind of the petitioner that he will not get fair justice from the arbitrators and (3) whether the arbitrators are likely to be influenced by legal opinion already taken by the Pakistan Jute Association from the legal expert on the point after devaluation of the currency and circulated it among those from whom the arbitrators will be selected.

4. In order to understand the points raised, I think it necessary to quote the two relevant paragraphs, namely, paragraph 18 providing for arbitration and paragraph 19 described as paramount clause in the form of contract, entered into between the parties.

"18 Arbitrations:

All matters, questions, dispute, difference and/or claims arising out of and/or concerning and/or connected with and/or in consequence of or relating to this contract whether or not the obligations of either or both parties under this contract be subsisting at the time of such dispute and whether or not this contract has been terminated or purported to be terminated or completed shall be referred to the arbitration of the Dacca Narayanganj Chamber of Commerce and Industry under the rules of its Tribunal of Arbitrations for the time being in force and according to such rules the arbitration shall be conducted".

"19 Paramount:

Notwithstanding anything hereinbefore contained should this contract in whole or in part become impossible of fulfilment through the interruption or the result of interruption of the normal course. of business in Pakistan or any part of Pakistan by or in consequence of war, civil war or social unrest or by or in consequence of the action of any Pakistan Government or any Government claiming to be such for any part of Pakistan or other authority, then it shall be null and void without the payment of any damages or penalties by either party to the other upon the declaration by the Committee of the Pakistan Jute Association that such impossibility has, in fact, come about".

The trial Court dismissed the application holding that though the question of frustration is a difficult point, yet, according to the terms of the contract, a declaration to that effect by the Committee of the Pakistan Jute Association will be final between the parties with reference to the Paramount clause in paragraph 19 of the contract and disallowed the point. As to the apprehension of the petitioner that he will not get fair trial before the Tribunal because opposite‑party No. 1 is a very influential business concern and is also a member of the Inner Committee of the Chamber of Com merce and Industry as well as of the Pakistan Jute Association and has very great influence upon the members of the aforesaid bodies from which the arbitrators are to be taken, the trial Court pointed out that this position was known to the petitioner from before it entered into a contract with opposite‑party No. 1 and knowing it full well the petitioner entered into the contract with opposite‑party No. 1 and bound himself with the terms of the contract. The trial Court also pointed out that the Pakistan Jute Association turned down the petition of the petitioner to declare that the contract became impossible of fulfilment and against it the petitioner moved a writ petition in the High Court. It has also pointed out that Ext. (a) is the legal opinion at the instance of the Pakistan Jute Association about the effect of the devalua tion of the Pakistan Currency on many forward contracts. The trial Court characterised this alleged apprehension of the petitioner as pre‑conceived notion of the petitioner which the trial Court could not accept. If there was an appointment of arbitrators and if they mis-conducted the proceeding, the learned Munsif held the petitioner will have a remedy in the Court of law.

5. It is contended by Mr. Asrarul Hossain, the learned counsel for the petitioner that when the arbitration in this case involves a difficult question of law, namely, whether the devalua tion of the Pakistan currency has frustrated the contract between the parties, that by itself is a ground for revocation of the authority of the arbitrators who are not expected to be competent to decide the complicated question of law, and, in support of the contention he relied on the case of Bhuwalka Brothers, Ltd., v. Fatehchand Murlidhar (87 C L J 71), where at page 105 it has been held:-

"When the parties enter into a contract they do so on the basis that a change may happen. If changes which are within the reasonable contemplation of parties at the time of making the contract take place, the parties cannot get rid of their bargain on the plea that changes have taken place which in fact they did not contemplate, but if the changes that take place are so great as to be beyond the possibility of any human con templation, the Court has certainly to consider whether it would be just and equitable to enforce the contract, which may result in unjust enrichment.

On a careful consideration of these matters I think I should give leave to the petitioner to revoke the authority of the appointed arbitrators".

That is a case where on account of the devalution of Indian currency price of jute in Pakistan went up and jute dealers in India were not slow to take advantage of the situation and they entered into a speculative contract for purchase and sale of jute. The price necessarily went further up and as a result there was a deadlock in the jute trade and it was impossible for the peti tioner to fulfil the contract. Then the Government of West Bengal promulgated an Ordinance on the 22nd September, 1949, which provides:

"Notwithstanding anything contained in any other law for the time being in force :‑----

(i) every such contract made, and every claim in respect of margin, in contravention of the provisions of clause (a) shall be void and unenforceable, and (ii) every such contract made prior to the date of publication of the notification shall be varied and settled on the basis of the last closing rate in a notified market".

Questions arose whether, in these circumstances, the contract entered into by the petitioner was frustrated or became impossible of execution. At page 105 of the report (87 C L J 71), the learned Judge observed:

"It may said that the parties with eyes open agreed to submit to the arbitration of the Bengal Chamber of Commerce under its rules and it is not for teem now to complain against these rules. That is true. But in this case, the circumstances are also special. At the time of making the contract, could the parties foresee that there would be devaluation of pound sterling the final consequence of which cannot yet be seen, though its immediate effects have been already a change in the whole pattern of world economic relations'. Could the parties foresee that there would be disparity between the Pakistan and Indian rupee Could they foresee that as a result thereof there could be a check in the free flow of jute from East Bengal to West Bengal Could they foresee the promulgation of the Ordinance and the results consequent all thereto "

After making the above observations, the learned Judge held:

"When the parties enter into a contract, they do so on the basis that a change may happen. If changes which are within the reasonable contemplation of the parties at the time of making the contract take place, the parties cannot get rid of their bargain on the plea that changes have taken place which in fact they did not contemplate, but if the changes that take place are so great as to be beyond the possibility of any human contemplation, the Court has certainly to consider whether it would be just and equitable to enforce the contract, which may result in unjust enrichment. On a careful con sideration of these matters, I think I should give leave to the petitioner to revoke the authority of the appointed arbitrators. In doing so, I have not over‑looked the fundamental principle that the Court should be very cautious before it uses its power under section 5. I have kept that principle throughout in view while considering the facts of this case. I have not overlooked that the parties must be held to their bargain, whether it is wise or unwise, prudent or imprudent. It would be contrary to justice to give leave to revoke the authority of an arbitrator to a party who as a consideration of the contract had agreed to submit his disputes, whether on law or on facts which might arise, to his (arbitrator's) arbitration".

6. What has been said by the learned Judge, as quoted above, may be perfectly justified with reference to the facts of that case, but it is difficult for me to apply the same principle in the present case where there is a provision in the Paramount clause providing for all these emergencies and it cannot be said that the parties did not contemplate the changes that have taken place on account of the devaluation of the Pakistan currency. In the Paramount clause, in paragraph 19 of the contract‑form, the parties undertook to be bound by the declaration by the Committee of the Pakistan Jute Association whether such impossibility has in fact come about as a result of interruption of the normal course of business in Pakistan or in consequence of war, civil war, social unrest or in consequence of the action of any Pakistan Government, That is a matter which distinguishes the present case from the case reported in 87 C L J 71 and must be taken into consideration. The learned counsel for the petitioner on my inquiry could not say whether there was a similar clause in the agreement between the parties in the case reported in 87 C L J 71 nor it appears from the judgment of that case. Following the principles, and not the decision, enunciated in that case and also in the case of Bala Bux Agarwala v. Lachminarayan Jute Manufacturing Co., Ltd. (51 C W N 863), permission for revocation of the authority of the arbitrators, in the circumstances of the case, should not be allowed. In the case of Bala Bux Agarwala, Das, J., held as follows :‑----

"The doctrine of frustration is not half as difficult in its application to a given set of facts as it is in the explanation of the legal theory on which it is based.

The question of frustration of a commercial contract is specially well‑suited for decision by commercial men as arbitrators, particularly where the questions of law are dependent on questions of fact."

His Lordship further held as follows :‑---

"There is no general rule that when the only question in a dispute covered by an arbitration agreement is one of law, stay of suit must be refused.

Nor can it be said that whether a dispute involves questions of fact or law, the Court should always give effect to the agreement of the parties for arbitration' by granting a stay of suit".

His Lordship also held that the ultimate factor in stay of legal proceedings under section 34 of the Arbitration Act is the discretion of the Court, to be exercised on a consideration of the facts and circumstances of each case.

7. The same principle I think which is applicable to a case under section 34 of the Arbitration Act in the exercise of discre tion of the Court is applicable to a case of an application under section 5 of the Arbitration Act for withdrawal of the authority of the arbitrators. Further it should be remembered that in granting leave under section 5 of the Arbitration Act the Court exercised its discretion and it has been held in a series of cases that there are two limits within which discretion is to be exercised (1) the Court should not lightly release the parties from their bargain that follows from the sanctity the Court attaches to contracts and the other, (2) that the Court should be satisfied that substantial miscarriage of justice will take place in the event of its refusal to grant the leave. The facts of the present case are quite different from those of the case reported in 87 C L J 71, as I have already pointed out.

8. Now coming to the second question raised by the learned counsel for the petitioner that there is a reasonable apprehension in the mind of the petitioner that he will not get a fair trial before the arbitrators, it may be said that it is not possible for any one to say that the arbitrators will, in fact, be biased. Benerjee, J., in the case reported in 87 C L J 71 observed at page 102 as follows:‑---

"Here lies the difference between an application for leave to revoke the authority of an arbitrator or to stay an action under section 34 and an application for setting aside an award on the ground of bias. In the first two applications all that is necessary is to show that there is a probability of bias or a reasonable prospect of bias or, as Mr. Justice Sinha has put it in a very recent case (judgment delivered on 14th March last re. Arb. Oswal Trading Co. v. Amar Chand & Co.), there is reasonable apprehension of bias. This difference arises from the very nature of the application".

Then the learned Judge quotes the remarks of Sir John Stuart in the case of G. Kemp v. Rose ((1858) 1 Giff. 258) as follows :‑----

"A perfectly even and unbiased mind is essential to the validity of every judicial proceeding. Therefore, where it turns out that, unknown to one or both of the persons who submit to be bound by the decision of another, there was some circumstance in that situation of him to whom the decision was entrusted which tended to produce a bias in his mind, the existence of that circumstance will justify the interference of the Court. Whether in fact the circumstance had any operation in the arbitrator must, for the most part, be incapable of evidence and may remain unknown to himself. It is enough that such a circumstance did exist."

In the present case it is not unknown to one or both the parties that defendant No. 1 is a member of the Inner Committee of the Dacca‑Narayanganj Chamber of Commerce and Industry and the Pakistan Jute Association. In the case reported in 51 C W N 863, Das, J., observed:

"It is not out of bounds of possibility that situation may some time arise in a trade which will divide persons engaged therein into two opposite groups and, if such situation does rise, the Court will certainly take that into consideration".

Then His Lordship proceeded to observe :‑

"It is not clear whether the allegations are statements of facts, true to the knowledge of the deponents, or based on information received from any particular source or any mere expressions of apprehensions, real or pretended".

His Lordship then further observed :‑---

"The Registrar of the Tribunal appoints the arbitrator for a particular case. The rules of the tribunal make it clear that the Registrar shall not appoint any person who for any reason within his knowledge would not be a proper person to act as arbitrator. I have no reason to assume that the Registrar will violate this salutary rule."

9. It is not the case of the petitioner that any such person that would be selected or has been selected will have or has a biased mentality against the petitioner. What is contended is that defendant No. 1 wields a great influence over all other members of the Chamber of Commerce and Industry and the Pakistan Jute Association. There is no evidence that he wields such an influence except that fact that he is a member and the assertion of the petitioner. When the petitioner submitted to the arbitration with his eyes wide open and knowing full well that defendant No. 1 is a member of the Inner Committee of both the organisations from before, it is not now open to him to say that he has got a reasonable apprehension that he will not get proper and fair trial before the arbitrators because of the fact that the opposite party is a member of the Inner Committee of both the organisations.

10. Now coming to the third point raised by the learned counsel for the petitioner that the Committee of the Pakistan Jute Association of which defendant No. 1 is a member of the Inner Committee has already taken legal opinion from the expert on the effect of the devaluation of the Pakistan currency on such contract as entered into by the petitioner with opposite party No. 1. The Paramount clause in the agreement provides that the parties will treat the contract null and void without payment of any damages or penalties by either party to the other upon declaration by the Committee of the Pakistan Jute Association that such an impossibility has, in fact, come about. Here there is a declaration by the Committee of the Pakistan Jute Association which has been circulated among the members of the Association. The declaration affects all similarly placed and not only the petitioner. The learned counsel contends that the petitioner undertook to be bound by the declaration of the Committee of the Pakistan Jute Association but that should have been independently of any legal advice; I am unable to accept this contention of the learned counsel. In the Paramount clause, there is no provision as to how this declaration is to be made, whether with or without consulting the legal export on the point, but the fact remains that the parties undertook to be bound by the declara tion of the Committee of the Pakistan Jute Association. It is not the concern of the petitioner how they came into that declaration.

11. In the case of Reliance Investment Co. Ltd. v. Union of India (A I R 1957 Cal. 151), it was held that where the application under section of the Arbitration Act was not a bona fide one but it was an attempt to hold up the arbitration proceeding and delay the payment as long as possible, then it was exceedingly improper to exercise discretion and grant leave to revoke the submission. I have already stated the facts in the beginning of my judgment relating to the conduct of the petitioner in following proceedings, one after another, and to keep his application under Order IX, rule 9 of the Code of Civil Procedure for restoration of the proceeding under section 33 of the Arbitration Act dismissed for default pending uptil now which sufficiently makes it clear that it is nothing but an attempt to delay the arbitration proceeding and not a bona fide application. Apart from any other consideration, the Court should not exercise its discretion on this ground alone. The result, therefore, is that this Rule is discharged with costs.

K. B. A./A. H. Rule discharged.

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