KESHAVSINH DWARKADAS KAPADIA ETC. v. M/S. INDIAN ENGINEERING COMPANY
Citation: [1972] 1 S.C.R. 695; 1971 INSC 243
Court: Supreme Court of India
Bench: S.M. SIKRI , A.N. RAY, D.G. PALEKAR
Judgment date:
Case summary
1971 INSC 243. Supreme Court of India judgment dated 1971-09-10. KESHAVSINH DWARKADAS KAPADIA ETC. v. M/S. INDIAN ENGINEERING COMPANY. Read the judgment and...
Judgment text
696 SUPREME COURT REPORTS KESHAVSINH DWARKADAS KAPADIA ETC. v. M/S. INDIAN ENGINEERING COMPANY September 10, 1971 [S. M. SIKRI, C. J. , A. N. RAY AND D. G. PALEKAR, JJ. ] Arbitration Act (10 of 1940), Sch. I, para. ~Appointment of umpire by arbitrators-Whether consent of umpire necessary-Disagreement between arbitrators what i's. Disputes having arisen between the appellant and the respondent, they were -referred to arbitration in accordance with an arbitration agreement. The arbitrators entered upon the reference and also appointed an umpire. After the time for making the award had expired the appellant took the stand that one df the arbitrators would be biased in favour of the respondents. The respondents therefore called upon the arbitrators to refer the matter to the umpire and also wrote to the umpire and the umpi-re entered upon the reference. Thereafter, the appellants filed applications under s. 33 of the Arbitration Act, 1940.
The High Court held that the umpire rightly entered upon the reference, and extended the time to enable the umpire to make an award. In appeal to this Court it was contended that : ( 1) the appointment of the umpire was not valid because the consent of the appointee was not obtained: and (2) under cl. 6 of the Arbitration agreement the operation of para 4' Sch. I of the Arbitration Act was excluded, and the umpire , could ente·r upon the reference only in the event of a difference arising between the arbitrators and the arbitrators referred the matter to the umpire. Dismissing the appeal, HELD : (I) There is a distinction between appointment and acceptance of an office. The question of effectiveness or perfection is ordi~ narily subsequent to appointment. The scheme of arbitration proceedings indicates tha. t the appointment of an umpire and the acceptance of office are two separate matters arising at different stages in the proceedings.
[699 H; 700 A; 704 El When the arbitrators are required to appoint an umpire it only means that the arbitrators are to concur in appointing the umpire. There iS no particular method of appointment of an umpire though the usual method is by writing. Arbitrators who are required to appoint an um. pire are under no obligation to obtain the approval of the choice of the person by the parties who appointed the arbitrators. If any party is dissatisfied with the choice it will not affect the validity of the appointment; nor is the appointment conditional upon the acceptance of appointment by the umpire. The necessity for communication of appointment to the partieS as well as to the appointee depends on the language of the arbitratien clause. The Arbitration Act does not say that the appointment of umpire by the arbitrators is to be made only after obtaining the consent of the appointee. [700 D-E; 70 I D-F; 704 D-E] When the umpire assumes his office he accepts the appointment.
Acceptance may be express or implied. It need not be in writing; it may be evidenced by conduct. It may also be evidenced by proceeding with (1972}1 S. C. R the arbitration. When the umpire is called upon to proceed in terms of the appointment he will either assent expressly or by conduct to act, or he will decline lo act. fi704 A-B, D, E-F] Mirza Sadik Husain v. Mussamat Kaniz Zohra Begc. m, L. R. 38 I. A. 181, applied. Ringland v. Lowndes, (1863) 15 C. B. (N. S. ) 173; 143 E. R. 749 and Tradax Export S. A. v. Vo~wagenwerk A. G. [1970] I All E. R. 420, ex• plained and distinguished. (2) (a) Paragraph 4 df the first schedule provides that if the arbitra· tors have allowed the time to expire without making an award, or have delivered to any party to the arbitration agreement or to the umpire notice in writing slating that they cannot agree, the umpire shall forthwith enter on the reference in lieu of the arbitrators. There is no intention in cl.
6 of the agreement, to exclude, the operation of this paragraph. On the contrary the agreement shows that the intention of the parties was that when the arbitrators allowed time to expire without making the a\vard the umpir~ should enter on the reference in lieu of the arbitrators. [704 H; 705 A. CJ (b) In the present case, the arbitrators, by reason of the attitude of one of the parties could not agree to proceed with the matter. Where one of the arbitrators declines to act and the other is left alone, in a case of tbis type, it will amount to disagreement between the arbitrators. [705 F-G] (c) Failure to make an award in time where the agreement prescribed time does in certain circumstances, amount to disagreement. [705 D-E] Io. isifoglu v. Counmantaros, (1941] I K. B. 496 and Russel on Arbitration, 18th Ed. pp. 205, 208, referred to. CIVIL APPELLATE JURISDICTION: Civil Appeals Nos. 2441 and 2442 of 1968.
Appeals by special leave from the judgment and order dated October 17, 1968 of the Bombay High Court in Arbitration Peti-ti~ns. Nos. 49 and 50 of 1968. I. N. Shroff, for the appellant (in C. A. No. 2441/1968). V. M. Tarkunde and/. N. Shroff, for the appellant (in C. As. Nos. 2442 of 1968). S. V. Gupte, B. R. Agarwa/a, for the respondent (in both the appeals). The Judgment of the Court was delivered to Ray, J, These two appeals are by special leave againsi the judgment dated 17 October, 1968 of the High Court at Bombay determining under section 33 of the Arbitration Act that the umpire rightly entered upon the reference and further extending the time till 31 December, 1968 for making an award thereof by the umpire. Two questions iirise for consideration in these appeals. First, Whether there can be any valid appointment of umpire by arbitrators without obtaining consent of the appointee to be an um• KESHAVSINH v. INDIAN ENGG. CO. (Ray, J. ) 61}7 pire.
Second, on the construction of the arbitration agreement in the presen\ case was the operation of paragraph 4 of Schedule I of the Arbitration Act excluded with the result that the umpire could enter upon the reference only in the event of a difference arising between the arbitrators. On 26 April, 1967 there was an arbitration agreement bet- 8 ween the partnership firm of Indian Engineering Company and Keshavsinh Dwarkadas Kapadia. Kapadia had appointed M/s. Chelan Trading Company as the sole selling agent of Kapadia~& several products including aluminium and copper wire by an agreement dated 16 September, 1965. Chetan Trading Company in their tum appointed Indian Engineering Company as their sole selling agent in respect of aluminium and copper wires. Chetan Trading Company terminated their agreement with Indian Engineering Company.
Kapadia also terminated the sole selling agency with Chetan Trading Company Indian Engineering Company contended that on the termination of the sole selling agency between themselves and Chelan Trading Company Indian Engineering Company became the sole selling agent of Kapadia in terms of the agreement dated 16 September, 1965. Indian Engineering Company claimed damages against Kapadia for breach of the agreement. Kapadia claimed damages a;nd moneys from Indian ·Engineering Company. Disputes arose between the parties. These disputes were referred to arbitration in accordance with the agreement dated 26 April, 1967. There was a similar arbitration agreement between Cheta. n Trading Company and Indian Engineering Company on 5 June, 1967 in respect of their disputes and claims against each other. The arbitration agreement and the arbitrators were identical in both the cases.
Clauses 1, 2, 5 and 6 of the arbitration agreement which are relevant for the purposes of the present appeals are as follows:- Clause ( 1) : All the disputes and differences arising out of or in relation to the said Sole Selling Agency Agreement be and they are hereby referred . to the arbitration of the said Shri H. G. Advani and Shri J. N. Gandhi. Clause ( 2) : That the arbitration shall be governed by the provisions of the Arbitration Act, 1940. Clause ( 5) : The arbitrators shall make and publish their award within four months from the date of their entering upon the reference and they are hereby authorised to extend the said tinre fl'Ollll time to time as may be required with the pr. e-vious written consent of both the parties hereto- Clause ( 6) : The said arbitrators shall before proceeding With the arbitration appoint an umpire and in • the event of any difference arising between them, they shall refer the matter to the umpire for his decision and award.
The arbitrators Messrs. Advani and Gandhi held their first meeting on 12 September, 1967. At the said meeting . before entering upon the reference the arbitrators appointed an umpire in the following terms: "Mr. Porus Mehta failing him . Mr. Murzban Mistry appointed umpire". On 11 January, 1968 the time laid down by clause (5) of the agreement for making the award expired. On 14 January, 1968 the respondents wrote to the appellants to obtain the necessary extension of time for making the award. The appellants did not comply with the request and on 6 March, 1968 wrote to the arbitrators that Mr. Advani one of the arbitrators would be biased in favour of the respondents. Thereafter, the respondents through their solicitors called upon the arbitrators to refer the matter to the umpire and also by a separate letter cailed upon the umpire Mr. Porus A. Mehta to enter on the reference as '" umpire appointed by the arbitrators. Mr. Mehta fixed a meeting on 27 May, 1968.
The appellants raised certain objections. The meeting was adjourned. Another meeting was fixed on 17 June, 1968. At the meeting held on 17th June, 1968 Mr. Mehta gave certain directions in regard to the proceedings and instructions thereof and fixed 12 July, 1968 for hearing. The appeilants by letter dated 12 July, 1968 addressed to Mr. Mehta contended that the consent of the umpire was Jnon obtaine efore his ,appointment and therefore there was no valid appointment of the umpire. Mr. Mehta fixed the meeting on 13 July, 1968 and decided to proceed with the arbitration and adjourned the meeting to 20 July, 1968. The appellants obtained an adjournment on the ground that the appellants wanted to file a petition challenging the appointment of Mr. Mehta as an umpire. Mr. Mehta adjourned the matter till 30 July, 1968. In this context of events the appellants filed applications under section 33 of the Arbitration Act which resulted in the order appealed against.
1 Tlm:e contentions wh\ch had been advanced ~n the High Jc Court were repeated here. First, that the arbitrators before pro- ,EK>intml;Dt of um, pire are all special and peculiar features in Ringland v. Lowndes (sup(a) to support tht: view that accqitapce of umpirage is tijielssaey for the appointment of the 11mpi. re. The decision ·of the Judicial Conunittee in Mirza Sadiq Husain v. Musanitnat Kaniz Zohm Begatn (supra) was on the meaning of the wor(js 'refuses to act' o f the office. Thereupon the power of appointment is exhausted. Jf the appointed person SUPREME COORT REPORTS [1972] 1 S. C. R. after acceptance of office refuses to act or will not act the parties have to. take recourse to the court. When the umpire assumes his office he accepts the appointment. The acceptance may be express or implied. The acceptance need not be in writing. It may be evidenced by conduct. It may be also by proceeding with the arbitration.
In Mirza Sadik Husain's case (supra) both the parties by agreement appointed arbitrators to settle their respective rights. One of the arbitrators refused to act. The respondents in that case declined to nominate another arbitrator in their behalf. The Judicial Committee said that this declinature was within their rights, the reason being that the arbitrator refused to accept office or to act after he had been 11ppointed. The arbitrators in the present case completed their appointment of umpire before entering on the reference. Thereafter, it remained for the umpire to act or to refuse to act. The question of acceptance of appointment of umpire arises with reference to the stage when he is called upon to act. The Arbitration Act, 1940 does not say that appointment of umpire by arbitrators is to be made only after obtaining consent of the appointee. The arbitrators here appointed an umpire before entering on the reference. The appointment was not conditional upon t)l.
e acceptance of appointment by the umpire. The scheme of arbitration proceedings indicates that the appointment of umpire and the acceptanee of office are two separate matters arising at different stages in the proceedings. When the umpire is called upon to proceed fu terms of the appointment he will either assent expressly or by conduct to act or he will decline to act. The High Court was correct in holding that there was a valid appointment of the umpire and the umpire rightly entered upon the reference. The umpire's authority commenced when he entered upon the reference on being asked to proceed with the reference. The other contention on behalf of the appellants that paragraph 4 of the First Schedule to the Arbitration Act, 1940 was excluded by clause ( 6) of the . arbitration agreement in the present case is unsound.
Section 3 of the Arbitration Act provides that 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. Paragraph 4 of the First Schedule provides that if the arbitrators have allowed their time to expire without making an award or have delivered to any party to the arbitration XESHAVSINH v. INDIAN ENGG. CO. (Ray, I. ) 70S agreement or to the umpire a notice in writing stating that they cannot agree, the umpire shall forthwith enter on the reference in· lieu of the arbitrators. Clause ( 6) of the arbitration agreement does not state that only in . the event of a difference arising between the arbi. trators there shall be a reference io the umpfre. There is no intention in the agreement to exclude the operation . of paragraph 4 of the First Schedule to the Arbitration Act. In the present case the agreement provided for appointment of umpire.
The agreement lilso provided for making of the award by the arbitrators. It is, therefore, apparent that the intention of the parties was that when arbitrators would allow their time to expire without making the award the umpire would enter on the reference in lieu of the arbitrators. The High Court expressed the view that if the arbitrators allowed the time to expire that by itseH would not amount to disagreement between the arbitrators. As to what constitutes disagreement cannot be laid down in abstract or inflexible pro-n positions. It will depend upon the facts of the case as to whether there was a disagreement. The High Court did not ·agree with the view expressed in Russel on Arbitration, 18th Ed. at pages 205 and 208, that failure to make an award in time where the agreement prescribed time in which the arbitrators award is to be made would amount to disagreement. In Lossifoglu v. Cqun-mantaro [1941] 1 K. B.
396 the arbitration clause provided "in case the arbitrators so appointed disagree they shall appoints an umpire". One of the arbitrators repeatedly endeavoured to· arrange a meeting with the other, but failed to arrange such a meeting. The arbitrator then unsuccessfully attempted to obtain consent of the latter to the appointment of umpire. Thereafter, application was made to the court for the appointment of umpire. Disagreement between the arbitrators may take various shapes and forms. In the present case the arbitrators by reason of attitude of a party iin correspondence addressed to the arbitrators could not agree to proceed with the matter. Where one of the arbitrators decline to act and the other is left alone it will in a case of this type amount to disagreement between the two arbitrators. In the present case, there was disagreement between the arbitrators. Time to make the award also expired.
Therefore, from both points of view the umpire had authority to enter upon the reference. For these reasons, we are of opinion ihat the High Court was correct in making the order. The appeals are dismissed. The order of ihe High Court is upheld. In view of the fact that the time granted by the High Court till 31 December, 1968 for m~ ing the award cannot apply, the umpire Porns A. Mehta 1s ll-LlSup. Cl/72 A granted time for three months to make the award. Three months will run from the date of service of this order by any party to these appeals. The appellants will pay one set of hearing fee to the respondents. B V. P,S. Appeals dismissed. ',
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