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First Appeal from Order No. 23 of 1959, decided on 16th May 1960.
S. 30‑Dispute between Railway and contractor‑Officer, of Railway appointed as sole arbitrator according to agreement clause‑No objection raised by contractor during proceeding before arbitrator‑Award cannot be challenged on ground that it was made by Officer of Railway No objection raised before award made‑Waiver.
On the 3rd of October 1947, the General Manager (Food), North Western Railway, asked for tenders for the supply of soap, and the bid of respondent was accepted. Clause 11 of the contract between the parties provided for reference to arbitration in the case of dispute, the arbitrator to be nominated by the General Manager. Such a dispute did arise, the Railways alleging that the soap supplied by the respondent was not according to specifications, and on the 19th of December 1949, the Chief Engineer, North Western Railway, was nominated as arbitrator. He was later promoted to the rank of General Manager, but continued the arbitration without objection by the respondent and finally gave his award on the 1st of August 1953. On the 28th of October 1953, the North Western Railway Administration applied to the Senior Civil Judge, Lahore, for a decree in terms of the award. Notice was issued to the respondent who, on the 11th of March 1954, filed objections under section 30 of the Arbitration Act, 1940 to the effect that the arbitrator was guilty of misconduct, not having allowed a full opportunity to him to lead his evidence ; that when the Chief Engineer, N.‑W. R. became General Manager his jurisdiction to proceed with the reference automatically ceased, it being then his duty to appoint another arbitrator ; and that the award was invalid as having been given after the prescribed period of four months.
The Civil Judge, 1st Class, Lahore, to whom the petition was entrusted by the Senior Civil Judge accepted the objections.
It was not alleged that the arbitrator had any personal interest in the case apart from his status as a servant of the company and there was no reason to suppose that his promotion to the post of General Manager effected any change in his outlook, the General Manager, in spite of his higher position, being as much a servant of the Railway Administration as the Chief Engineer.
The respondent was fully aware of the wording of clause 11 of the agreement, and up to the time of the submission of the award he raised no objection either to the original appointment of the arbitrator or to his continuing as arbitrator after becoming General Manager.
Held, that since the respondent was fully aware of the whole circumstances and raised no objection to the appointment and continuance of the arbitrator, he was estopped by his conduct from challenging the arbitrator's jurisdiction to act as such, and further, that the position later occupied by the arbitrator did not disqualify him, a General Manager being no more likely than a Chief Engineer to give an unfair award.
Not only irregularities but even improper conduct on the part of arbitrators may be waived and that all objections as to irregularities known to the parties before the pronouncement of the award must be made before the delivery of the award.
First Appeal from Order No. 28 of 1956, decided on the 12th of November 1956 (unreported) dissented from.
Jubilee Chamber of Commerce Ltd., Rawalpindi v. Lala Amrit Shah A I R 1940 Lah. 180 ;Messrs Mc. Kenzies, Ltd. v. Messrs Sulleman & Co. A I R 1933 Sind 75 ; Iyes & Barker v. Williams (1894) 2 Ch. 478 ; Messrs Habib & Sons v. Messrs Virak Co. P L D 1957 Kar. 245 ; Madipalli Venkatachellan v. Madipalli Suryanarayanamurty and others A I R 1941 Mad. 129 ; In re : All India Groundnut Syndicate Ltd. A I R 1945 Bom. 497 and Nanjappa and another v. Nanja Rao and another 16 I C 478 rel.
Sch. I, para. 3‑Award given after four months is merely voidable‑Court can enlarge time‑[Abdul Hakim v. Chairman L. I. Trust P L D 1949 Lah. 278 dissented from].
The provisions of paragraph 3 of Schedule I to the Arbitration Act are not mandatory. They are merely directory. The para graph in question, the provisions of which are attracted by virtue of section 3 of the Act, no doubt requires the arbitrators to make their award within four months after entering on the reference or after having been called upon to act by notice in writing from any party to the arbitration agreement or within such extended time as the Court may allow, but to construe this provision as mandatory, would nullify section 28 of the Act, subsection (1) of which confers a power on the Curt to enlarge from time to time the time for making the award whether that time has expired or not and whether the award has been made or not. If. paragraph 3 of the First Schedule is mandatory, any award given after the expiry of the statutory period of four months and without any extension of time by the Court would be automatically void, and it is difficult to see what useful purpose would be served by enlarging the time thereafter. An award delivered after the statutory period has expired is not ipso facto void, but merely voidable.
Abdul Hakim Khan v. Chairman, Lahore Improvement Trust, Lahore P L D 1949 Lah. 278 dissented from.
Meman Tayab Sharif and another v. Kasam Adamji, Haji Abdul Latif and: others P L D 1955 Sind 224 ; Ship Sam v. Ram Bakha Mal A I R 1951 Pepsu 45 and Kunj Lal v. Banwari Lall and others A I R 1918 Pat. 83 rel.
Shah Muhammad Rahman Ansari for Appellant.
Muhammad Shafi and Ghulam Mohy‑ud‑Din for Respondent.
Date of hearing : 27th April 1960.
The facts of this case are that on the 3rd of October 1947, the General Manager (Food), North Western Railway, asked for tenders for the supply of soap, the bid of the respondent, Ghulam Mohy‑ud‑Din, a contractor, being accepted. Clause 11 of the contract between the parties provided for reference to arbitration in the case of dispute, the arbitrator to be nominated by the General Manager. Such a dispute did arise, the appellant alleging that the soap supplied by the respondent was not according to specifications, and on the 19th of December 1949, Mr. M. J. Chughtai, then Chief Engineer, North Western Railway, was nominated as arbitrator. He was later promoted to the rank of General Manager but continued the arbitration without objection by the respondent and finally gave his award on the 1st of August 1953. On the 28th of October 1953 the North Western Railway Administration applied to the Senior Civil Judge, Lahore, for a decree in terms of the award. Notice was issued to the respondent who, on the 11th of March 1954,1 filed objections under section 30 of the Arbitration Act to the effect that the arbitrator was guilty of misconduct, not having allowed a full opportunity to the respondent to lead his evidence ; that when Mr. Chughtai became General Manager his jurisdiction to proceed with the reference automatically ceased, it being then his duty to appoint another arbitrator ; and that the award was invalid as having been given after the prescribed period of four months.
2. The appellant claimed that the objections of the respon dent were without force and the following issues were framed :‑
(1) Is the award invalid and was improperly procured
(2) Has the arbitrator been guilty of judicial misconduct
(3) Was the arbitrator on his appointment as General Manager not competent to proceed with the arbitration case
(4) Is the award without jurisdiction
(5) Is the opposite‑party, H. Ghulam Mohy‑ud‑Din, estopped from raising objections to the award in view of the clause 11 of the agreement deed
(6) Is the respondent, H. Ghulam Mohy‑ud‑Din, estopped by reason of his own conduct from challenging the award on the jurisdiction of the arbitration
(7) Relief.
The learned Civil Judge, 1st Class, Lahore, by order dated they 17th of February 1959, accepted the objections. On issue Nos. 1 to 3, which were dealt with together, he found that as the arbitrator had become General Manager, the award was invalid, being given in his own favour. On issue No. 4 the learned Civil Judge held that the provisions of clause 3 of Schedule I to the Arbitration Act X of 1940 are mandatory, and that as the award was not filed within the statutory period of four months and the time had not been extended by the Court, it was without jurisdiction. Issues Nos. 5 and 6 were also decided against the appellant‑petitioner, whose application was accordingly dismissed, the parties being directed to bear their own costs. Against the above order of the learned Civil Judge the Federation of Pakistan filed the present appeal,
3. The finding of the learned Civil Judge that on becoming General Manager of the North Western Railway Mr. Chughtai ceased to have jurisdiction to arbitrate on the dispute is based on an unreported decision of this Court in First Appeal from Order No. 28 of 1956, decided on the 12th of November 1956, in which the learned Single Judge held‑
"In my opinion, the award is, however, liable to be set aside on the short ground that the arbitrator appointed by the appellant was one of its employees who had an interest in the arbitration proceedings which rendered his appointment illegal. The agreement itself has not been placed on the record, but even if the appellant was under its terms legally entitled to appoint unilaterally an arbitrator without the consent of the respondent, he could not appoint one of its employees as the sole judge between the two contracting parties. No authority is needed in support of the proposition that a person who has an interest in the arbitration proceedings cannot become an arbitrator, for it is against the elementary principles of justice, and the position of an employee is no better than the party himself."
Clause 11 of the agreement between the parties in the present case runs :‑--
"In the event of any question or dispute arising under these conditions or in connection with the contracts (except as to any matters the decision of which is specifically provided for in these conditions), the same shall be referred to an arbitrator, to be nominated by the General Manager of the N. W. Railway. The decision of the arbitrator shall be final, conclusive and binding on the parties under the provisions of the Indian Arbitration Acts, 1899 and 1940 and the rules thereunder."
It is thus clear that the General Manager had full authority to appoint an arbitrator, and the first question for decision is whether the nomination of Mr. Chughtai was vitiated on the ground adduced by the respondent.
4. With great respect, I am unable to agree with the proposition laid down in the case above cited. The point at issue has been considered in several other authorities, and a conclusion contrary to that of the learned Single Judge was arrived at. In Jubilee Chamber of Commerce Ltd., Rawalpindi v. Lala Amrit Shah (A I R 1940 Lah. 180) the facts were that one Amrit Shah instituted a suit against the Jubilee Chamber of Commerce Ltd., Rawalpindi for recovery of money. The defendant company was a registered corporation carrying on business as commission agents at Rawalpindi. The plaintiff alleged that he entered personally into eighteen contracts with the defendant company, who failed to deliver goods of the proper quality and at the proper time and thereby committed a breach of the contract. The clause in the agreement providing for submission of disputes to arbitration laid down that the arbitrators were to be directors of the company and the plaintiff alleged that the directors who were to be the arbitrators under the submission clause had a personal and private interest in the subject‑matter of the suit and were therefore not fit persons to act as arbitrators. In this connection Addison, J. held:‑--
"As regards the second point that two of the directors are personally interested as they are partners in one or other of two firms which purchased the wheat forming the subject matter of dispute at some of the public auctions held by the defendant company, there is already a decision by Monroe, J. who held that that did not matter as there were other directors who could he chosen ' * * * * " * * * The fact that' the arbitrators had to be chosen from the directors is of course perfectly legal. I, therefore decide this point also against the plaintiff. As the onus is always on the plaintiff to show why he should not be bound by the agreement to refer and as he has failed to discharge that onus in this case I have no option but to accept this petition
5. Another authority, on all fours with the present case, is Messrs Mc. Kenzies, Ltd. v. Messrs Sulleman & Co. (A I R 1933 Sind 75). The petitioners in that case entered into an agreement with a firm as sub‑contractors of certain work connected with the Karachi Main Drainage, and in accordance with the‑ arbitration clause in the agreement, a dispute that later arose was referred to the Chief Engineer of the Karachi Municipality. An objection was raised that the said Chief Engineer was an interested party. Following Iyes and Barker v. Williams ((1894) 2 Ch. 478) the learned Additional Judicial Commissioner observed :‑-
"The case of Iyes & Barker v. Williams seems to me on .all fours with the present case. On an application by the defendants in that case to stay an action in view of an agreement to refer, it was held that the action should be stayed, the mere fact that the Engineers (who were to be the arbitrators) had a duty to watch the works on behalf of the company and might already have formed an opinion upon the matters in dispute not being enough, in the absence of any evidence that they would not act fairly, to prevent them from being proper persons to decide the disputes."
6. With great respect, I agree with the view of the law expressed in the above authorities. It is not alleged that Mr. Chughtai had any personal interest in the case apart from his status as a servant of the company and there is no reason to suppose that his promotion to the post of General Manager effected any change in his outlook, the General Manager, in spite of his higher position, being as much a servant of the Railway Administration as the Chief Engineer.
7. There is also another aspect of the case to be considered. The respondent was fully aware of the wording of clause 11 of the agreement, and up to the time of the submission of the award he raised no objection either to the original appointments of Mr. Chughtai or to his continuing as arbitrator after becoming General Manager. In Messrs Habib & Sons v. Messrs Virak Co. (P L D 1957 Kar. 245) it was held by a Division Bench that by participating in the arbitration proceedings and not raising any objection to the jurisdiction of the arbitrators; the party concerned waived its objections to the competence of the arbitrators to deal with the matter in dispute, and that any irregularity in their appoint ment was cared by the conduct of the party. Again, reference may be made to Madipalli Venkatachellan v. Madipalli Suryanarayanamurty and others (A I R 1941 Mad. 129) in which the learned Judges observed that a Court will be unwilling to assist a party who, with full knowledge of the circumstances, allows an arbitration to proceed and takes part in it and then seeks to evade it later on by raising a number of objections which had never occurred to him before.
8. Another decision relevant to the point now in issue is In re All India Groundnut Syndicate Ltd. (A I R 1945 Bom. 497) in which it was held that although a party does not waive the right to object to the jurisdiction of the arbitrator by merely appearing, and taking part in preliminary discussions, if he takes part in the proceedings on the assumption that they were before a competent tribunal he cannot be allowed to contend that the whole of the proceedings were coram non judice.
9. To sum up on these issues, I hold that since the respon dent was fully aware of the whole circumstances and raised no objection to the appointment and continuance of Mr. Chughtai as arbitrator, he is estopped by his conduct from challenging Mr. Chughtai's jurisdiction to act as such, and further, that the position later occupied by Mr. Chughtai did not disqualify him, a General Manager being no more likely than a Chief Engineer to give an unfair award.
10. I am also unable to agree with the learned Civil Judge that the award is without jurisdiction as having been given after the period of four months and without the time having been extended by the Court. It is true that his conclusion finds support from the judgment in Abdul Hakim Khan v. Chairman, Lahore Improvement Trust, Lahore (1) but with the utmost respect to the learned Judge, I cannot subscribe to the view that the provisions of paragraph 3 of Schedule I to the Arbitration Act are mandatory and not merely directory. The paragraph in question, the provisions of which ate attracted by virtue of section 3 of the Act, no doubt requires the arbitrators to make their award within four months after entering on the reference or after having been called upon to act by notice in writing from any party to the arbitration agreement or within such extended time as the Court may allow; but to construe this provision as mandatory, would, in my opinion, nullity section 28 of the Act, subsection (P L R 1949 Lah. 789=P L D 1949 Lah. 278) of which confers a power on the Court to enlarge from time to time for making the award whether that, time has expired or not and whether the award has been made or not. If paragraph 3 of the First Schedule is mandatory, any award given after the expiry of the statutory period of four months and without any extension of time by the Court would be automatically void, and it is difficult to see what useful purpose would be served by enlarging the time thereafter. In my opinion, an award delivered after the statutory period has expired is not ipso facto void, but merely voidable. This view finds support from several authorities, for example, Meman Tayab Sharif and another v. Kasam Adamji, Haji Abdul Latif and others (P L D 1955 Sind 224) and Shiv Ram v. Ram Rakha Mal (A I R 1951 Pepsu 45).
11. Another important principle, with which I respectfully agree, is enunciated in Kunj Lal v. Banwari Lall and others (A I R 1918 Pat. 83), namely, that where delay in making an award has been caused by the voluntary absence of one of the parties, that party cannot impugn the award on the ground of delay, nor is such delay a sufficient ground for revocation of the submission by the party in default. Applying the above principle to the present case the following note attached to the award is significant. It runs :‑
"Although I was appointed arbitrator on 19‑12‑49 and the arbitration proceedings were commenced in right earnest, the first hearing could not take place till 5‑3‑51 due to the contractor, Haji Ghulam Mohi‑ud‑Din, firstly not being available and then asking for copies of certain documents, which he was allowed to see in my office during working hours. Later, Haji Ghulam Mohi‑ud‑Din asked for time to produce witnesses and applied for more time on this account on two occasions. Thereafter, the proceedings had to be stayed for some time due to Haji Ghulam Mohi‑ud‑Din having proceeded on Haj. Also, the dates for the hearings had to be fixed in consultation with the counsel (sic) of both the parties and on every occasion the convenience of the counsel of Haji Ghulam Mohi‑ud‑Din was kept in view. Finally, on the conclusion of the evidence, the parties were asked on 25‑4‑53 to submit their written arguments by 16th May 1953, which period was further extended up to 22nd May 1953, on a representation from the Railway's counsel."
It is clear from the above note that by far the greater part of the delay that has taken place 'in the submission of the award was occasioned by the laches of the respondent himself. It consequently does not lie in his mouth to characterise the award as invalid on the ground of delay.
12. Finally, reference may be made to Nanjappa and another v. Nanja Rao and another (16 IC478) in which it was held that not only irregularities but even improper conduct on the part of arbitrators may be waived and that all objections as to irregularities known to the parties before the pronouncement of the' award must be made before the delivery of the award. It is true that the above decision was given before the passing of the Arbitration Act X of 1940, but the principle it lays down is equally applicable to the latter Act, and with great respect I agree with it.
13. In the result I hold that the objections of the respon dent are without force. I accordingly accept the appeal with costs, set aside the order of the learned Civil Judge and direct that the award be made a rule of the Court.
K. M. A. Appeal accepted.
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