Case No: Civil Appeal No. 1-D of 1969
Court: Appellate Division ,,
Advocate: S.R. Pal,Mr. Asrarul Hossain,,
Citation: 29 DLR (1977) (SC) 215
Case Year: 1977
Appellant: Abdur Rahim Afroze
Respondent: B. C. Aga and Co. Ltd. and others
Delivery Date: 1975-02-18
A.M. Sayem, CJ.
Muhammad Abdullah Jabir, J.
Ahsanuddin Choudhury, J.
Abdur Rahim Afroze
B. C. Aga and Co. Ltd. and others
February 18, 1975
Arbitration Act is silent as to the consequence of non-compliance of the provisions of Para 2 of Schedule 1. An intention that the disregard of the provision should be followed by nullification of the proceedings must not be attributed to the legislature when that result would involve general inconvenience or injustice to innocent persons or advantage to those guilty of the neglect, without promoting the real aim and object of the Act.
If the parties agree to give a larger time for appointment of an umpire, provision of Para 2 of Schedule 1 will not apply.
S. R. Pal. Senior Advocate, Supreme Court, instructed by Abdur Rab, (absent) Advocate-on-Record—For the Appellant.
Asrarul Hossain, Advocate, Supreme Court, instructed by Abu Backkar. Advocate-on-Record. —For the Respondent No. 1.
Ex-parte—Respondents Nos. 2-3.
Civil Appeal No. 1-D of 1969
(From the judgment and order dated 9.2.67 passed by the erstwhile High Court of East Pakistan in Appeal from Original Decree No. 132 of 1959).
1. This appeal by special leave is from a judgment of the erstwhile High Court of East Pakistan in First Appeal No. 132 of 1965 affirming the judgment and decree passed by the Subordinate Judge, First Court, Chittagong in other suit No. 17 of 1958 in terms of an award.
2. The circumstances leading to the aforesaid suit are as follows B. C. Aga & Co. (hereinafter called the respondent) while carrying on business under the name and style L. D. Seymore & Co. (Pak) Ltd. was requested by the appellant who was at the relevant time carrying on business under the name and style Rahim Afroze & Co. to import two consignments of cotton piece goods from Singapore. Accordingly the respondent who were acting as agent of Messrs Choonilal & Co. of Singapore ordered for import of cotton piece goods under Import Order Nos. 12 and 13 , dated 15-11-51 and 31.11.51 respectively for the appellant. The latter was, therefore, asked to open a letter of Credit. After arrival of the aforesaid goods at Chittagong Port, Sight draft was presented by the respondent to the appellant for payment of the price of the goods but the price having gone down, the appellant refused to honour the sight draft. As a result of their refusal to honour the sight draft the respondent was forced to send the goods to Karachi sold them there on behalf of the appellant. The respondent claimed that they had suffer loss of Taka 26,693/ and demanded of appellant to make up the loss. The appellant having failed to make good the loss, the respondent proposed for arbitration as provided in the contracts signed by them. Thereafter respondent and appellant nominated arbitrators on 12.7.54 and 20.7.54 respectively. The arbitrators having failed to come to an unanimous decision even within a extended time appointed an umpire on 6.8.56. The umpire, on the disagreement of the arbitrators, gave an award favour of the respondent for a sum of Tk. 19,565/8/-. This award was filed in court at the respondent's request for having made it a rule of the court. The appellant contested the award and sought to have it set but a decree was ultimately passed in to of the award. On appeal, a Division Bench of the High Court affirmed the decree passed by the trial court.
3. Special leave to appeal was granted to consider as to whether the appointment of the umpire made beyond one month from the latest date of the appointment of the arbitrators was illegal in view of Para 2 of the First Schedule to the Arbitration Act when reference was to an even number of arbitrators and whether the award made by the said umpire was wholly without jurisdiction and void.
4. Mr. S. R. Pal, learned counsel for the appellant at the outset referred us to Para 2 of the First Schedule of the Arbitration Act which provides:
5. With a view to emphasise the importance of this question learned counsel also referred us to the order of the court granting the leave. It appears from the order granting that no such question was raised either before the court of first instance or before the High Court, nevertheless the leave was granted to examine this question since this is a pure question of law and goes to the root of the jurisdiction of the umpire. Mr. Pal pointed out that the latest date of the appointment of an arbitrator was 20th July, 1955 and the umpire was appointed on 6th of August 1956. The appointment of the umpire, it was submitted, was made in violation of the provisions of para 2 quoted above. According to him this is a mandatory provision the violation of which must make the appointment illegal and hence the award made by the umpire was wholly without jurisdiction and as such void. Reliance was placed on 85 C. L. J. 232, A.I.R. 1951 Allahabad 474 A.I.R. 1954 Nagpur 236, and A.I.R. 1959 Bom. 39 and A I.R. 1963 Allahabad 23. In the first case under reference, namely Harack Chand Damni Vs. Ramsarup Lakkar (85 C.L.J. 232) the contract between the parties contained an arbitration clause to the effect that "if any dispute or difference arise in connection with the agreement the same shall be settled by arbitration in terms of the Arbitration Act". In spite of the aforesaid arbitration clause two arbitrators were appointed one by each party and the arbitrators subsequently appointed an umpire who finally gave an award in favour of the respondent. The question arose regarding the validity of the appointment of arbitrators and the umpire. It was held that the reference under the Arbitration Act must be to a single arbitrator unless there is an express provision in the arbitration agreement itself to the contrary. There was no express provision in the arbitration agreement as to how many arbitrators shall be appointed. The reference in view of section 3 of the Arbitration Act must be to a single arbitrator. The appointment of two arbitrators was, therefore, found to be bad and appointment of the umpire by those arbitrators was consequently found to be without jurisdiction. Hence the award given by them was found to be null and void. There can be no dispute that the judgment of a court or of an arbitrator or of an umpire, if-passed without jurisdiction, is a nullity. In the instant case, of course, it is to be decided whether the arbitrators as well as the umpire acted without jurisdiction. In Jawala Prashad vs. Amar Nath (A.I.R. 1951 Allahabad 474) there was a suit by Amar Nath for recovery of a sum of Rs. 4.000/-from Jawala Prashad. During the pendency of the suit, by mutual agreement, the matter was referred to two arbitrators. The arbitrators gave an award in favour of the plaintiff and awarded him proportionate costs and future interest. Objection against the award was filed by the defendant. The matter went up to the High Court where the question arose that reference being to an even number of arbitrators, it was obligatory on the arbitrators to appoint an umpire within one month of their appointment. It was urged that in as much as the arbitrators had either failed or had not cared to appoint an umpire as provided in Para 2 of Schedule I, the arbitration was invalid. It was held that the provisions of Para 2 of Schedule I are of mandatory character and in the absence of the appointment of the umpire the award made was invalid. This case apparently stands on a different footing because of non-appointment of the umpire by the arbitrators and hence it is not referable to the present case. In Firm Shriram Vs. The President, (A.I.R. 1954 Nagpur 236) it was observed, "if a dispute is referred for arbitration by two arbitrators, they have to appoint an umpire in accordance with clause 3 of First Schedule of the Arbitration Act unless the arbitration agreement provides otherwise". It does not appear from this judgment as to whether the appointment of an umpire beyond the time prescribed in Para 3 of the First Schedule will be illegal. So this decision is no authority on the point under our consideration. In Vinayak Vishnu Vs. B, G. Cadre (A.I.R. 1959) Bombay 39 one of the clauses in the arbitration agreement was that the arbitrators would appoint an umpire before entering upon the reference. So it was held, "where there is an express term in the agreement for arbitration to the effect that arbitrators shall appoint an umpire before entering upon the reference, the provisions of clause (2) of the First Schedule will not be attracted and the matter would be governed only by that term". It may be noted that an arbitrator derives his authority from reference which furnishes the scope and prescribes the limits of jurisdiction. In the above mentioned case the arbitrators acted in violation of the express term in the agreement by not appointing an umpire before they entered upon arbitration. This case renders no support to the appellant's tion. In Ram Kishoree. Vs. Raj Narain (A 1963 Allahabad 23) the point involved was whether the provisions of Para 2 of Schedule 1 relating to the appointment of an umpire on the request of the arbitrators are mandatory or merely directory and whether in a case where no opportunity for taking recourse to the provisions of section 8(1) (c) arose, the provisions of Para 2 could be treated to be merely directory and failure to appoint an umpire should be treated to be a mere irregularity. In this case the arbitrators neither appointed any umpire nor any opportunity was given to the parties to take recourse to section 8(1)(c) as after the refers the award was made by the arbitrators alone within one month. The award made without the appointment of the umpire was held to be invalid. It was further held "the provisions Para 2 of Schedule I are of a mandatory character, so it was open to the arbitrators to appoint an umpire within one month and if they fail to make a prayer to the court for appoint of an umpire, the parties are at liberty to make a prayer to the court for appointment an umpire under section 8(1) (c) of the Arbitration Act."
6. Mr. Asrarul Hossain, learned counsel the respondent referred to a number of sions, namely, A.I.R. 1954 Nagpur 241, A.I.R 1956 Cal. 593, A.I.R. 1956 Punjab 7, P.L.D 1958 Karachi 378, A.I.R. 1964 Allahabad 231, A.I.R. 1967 Patna 235, A.I.R. 1967 Bombay 373 and 23 D.L.R. Dac. 104 to show that provisions of para 2 of Schedule I are not mandatory but merely directory. It will be necessary to consider the above decisions with a view see whether the submissions made by Mr. Asrarul Hossain are borne out by those decisions. In Tikaram vs. Hansraj (A.I.R. 1954. Nagpur 241) it has been held that the mere presence of the word "shall" in para 2 of Schedule 1 does not necessarily mean in proceedings disregard of the requirement of the statute are null and void and the question whether it is so is in the main governed by consideration of convenience and justice. In United Printing vs. Kishori Lal (A.I.R. 1956 Cal. 593), Union of India vs. Allied Trading Co. (A.I.R. 1956 and Punjab 7.) Haji Sattar Vs. Abdul Karim (P. L. D. 1958 Karachi 378) and Baikuntha Vs. Gouri Shanker (A. I. R. 1967 Patna 235) the question arose whether the word ''shall" in clause 2 of Schedule I made the provisions mandatory and non-compliance of the said provisions would vitiate the entire arbitration proceeding and make the award illegal. It was held in all the above cases that the word "shall" in clause 2 of Schedule I did not make the provisions mandatory in the sense that its non-compliance would vitiate the arbitration proceeding and make the award illegal. It was further held that the criterion to decide if failure to comply with such a provision is a mere irregularity or it vitiates the whole proceedings is whether the statute itself provides any penalty for such failure. In Ram Bali Vs. Tulsi (A.I.R. 1964 Allahabad 231) the award was made without appointment of an umpire, it was held that failure to appoint an umpire was not an illegality but a mere irregularity which could be waived by the parties and in the absence of the appointment of an umpire the party making a grievance could have availed of its right under section 8(1) (c) by calling upon the arbitrators within the statutory time to appoint an umpire. Similar view was taken in Modern Builders vs. Hukmatri (A. I. R. 1967 Bom. 373), In Raja Mia vs. Muhammad Eassack (23 D.L.R. Dacca 104) a question arose as to the effect of non-appointment of an umpire within the stipulated time. It was contended that in view of Para 3 of the First Schedule the Arbitration proceeding would be void. It was, however, held that if appointment of an umpire is not made within the stipulated time then that cannot ipso facto render the arbitration proceeding void. It was further observed that if that would have been the position then the provisions of section 8 would have been completely meaningless.
7. It is evident that there is a conflict of views regarding the effect of the omission to appoint an umpire within the specified period. One view is that the word "shall" in Para 3 of Schedule I does not make the provision mandatory in the sense that its breach will vitiate the arbitration proceeding and make the award illegal or, in other words, that mere failure of the arbitrators to appoint an umpire within the prescribed period of one month will not take away the jurisdiction of the umpire appointed beyond the said period to make the award. The other view is that if the arbitrators fail to appoint an umpire within the prescribed period under Para 3 of Schedule I they are, in the absence of any provision in the arbitration agreement, guilty of misconduct and the award made by the said umpire would be vitiated.
8. Needless to say those difficulties are sometimes felt to determine whether a certain provision of a statute is mandatory or directory. When the legislature itself expresses its opinion as to the consequence of non-compliance with certain direction, no difficulty arises but in a case where the legislature does not indicate its mind as to the consequence of violation of such direction the court is to consider whether the direction is mandatory or merely directory and this is to be determined on the construction of the legal provisions in question and the importance attached to the direction therein.
9. Let us now proceed to see if Para 2 of Schedule I is mandatory as urged by Mr. Pal. It is to be observed that the Arbitration Act is silent as to the consequence of non-compliance of the provisions of Para 2 of Schedule I. An intention that the disregard of the provision should be followed by nullification of the proceedings must not be attributed to the legislature when that result would involve general inconvenience or injustice to innocent persons or advantage to those guilty of the neglect, without promoting the real aim and object of the Act. It is the duty of a court of law to try to get at the real intention of the legislature by carefully attending to the whole of the statute to be construed. In each case the court must look to the subject matter, consider the importance of the provision that has been disregarded, and the relation of that provision to the general object intended to be secured by the Act; and upon a review of the case in that aspect decide whether the matter is what is called imperative or only directory.
10. Mr. Asrarul Hossain argued that it is an un-denying fact that the aim and object of the Arbitration Act is to give opportunity to the disputing parties to settle up their disputes amicably without being hampered by the rules and procedures prescribed by the Code of Civil Procedure. When the parties agree to refer a dispute to arbitration all facilities for amicable settlement of the dispute should be provided and the parties should be left to proceed unhampered with the arbitration. In that view of the matter he submitted that the importance should be attached to the appointment of an umpire when reference is to an even number of arbitrators and not to the period within which the umpire should be appointed inasmuch as the provision regarding the appointment of the umpire may be varied by the arbitration agreement itself. So the time is not the essence in the case of appointment of an umpire even when reference is to an even number of arbitrators.
11. It is to be noted that 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 forth in the First Schedule in so far as they are applicable to the reference. It is thus clear that the provisions set forth in the First Schedule of the Act are subject to the intention expressed by the parties. In words, the parties can come to a different agreement regarding what is provided in the first Schedule. It is thus open to the parties give a larger time for the appoint of the umpire than is provided in Para 2 Schedule I. In the present case it was tended that the arbitration themselves would come to unanimous decision of their own on the dispute between the parties and in event of their being unable to agree they would appoint an umpire to arbitrate on the dispute vide ext. 53. It appears that after the appointment of the arbitrators by the parties, the arbitrators entered upon the reference to examine the relevant papers but ultimately thus failed to agree between them and in the event of their of their disagreement they appointed an umpire. In so doing the arbitrators obviously acted in accordance with the agreement between the parties. In these circumstances there was no question of appointment of an umpire within one month from the latest date of appointment of the arbitrators because the arbitrators in terms of the agreement of the parties first entered upon the reference with a view to come a decision of their own on the dispute. They could not agree between them within the already granted to them. They therefore had the time extended. Nevertheless they failed to agree between them even within the extended time and on their failure to come to a unanimous decision they appointed the umpire. So regard being had to the agreement of the parties the appointment of the umpire was not illegal even though the umpire was appointed beyond the period prescribed under Para 2 of Schedule 1. The parties to the agreement had the authority to so direct the arbitrators under the provisions of the Act. It may also be observed that if, in the absence of any agreement contrary to Para 2 of Schedule 1, an umpire is not appointed within the time prescribed there under, that will not render the arbitration proceedings illegal or void because a breach of the provisions of Para 2 of Schedule 1 by an omission to appoint an umpire in terms thereof will merely amount to non-observance of an implied condition of the arbitration agreement and this non-observance can be remedied by the aggrieved party by invoking section 8 of the Act which empowers the court to appoint an umpire in certain cases so that the arbitration agreement may not become abortive. It is thus evident that the Act provides machinery for effectively working out and enforcing the arbitration agreement. The relevant provisions of section 8 of the Arbitration Act may profitably be quoted as a reference to the point:
(c) where the parties or the arbitrators are required to appoint an umpire and do not appoint him;
any party may serve the other parties of the arbitrators, as the case may be, with a written notice to concur in the appointment or appointments or in supplying, the vacancy."
In view of the discussion made above, the provision of Para 2 of Schedule I is not mandatory; it is directory. The appointment, in the instant case, of the umpire beyond the period prescribed thereunder was not illegal. The umpire had, therefore, jurisdiction to enter upon arbitration on his appointment and the award made by him was not void.
In the result the appeal is dismissed without, however, any order as to costs.