P C AGGARWAL Vs. K N KHOSLA

JUDGEMENT

(1.) [Appellant carried on forward transactions in stock and shares through respondent No. 1 who was a member of Delhi Stock Exchange Association. Contract note between them contained arbitration clause that disputes would be settled a :cording to Rules of the Association. Respondent No. 1 appointed his arbitrator and on appellant's, failure, President of Association appointed his Arbitrator. Appellant challenged the award given by them as unilateral. Single Judge held against the appellant and he filed appeal against the same. The D.B. observed that definitions of 'agreement' and 'reference' in S. 2(2) and (e) of the Act of 1940 are not without significance Para 9 onwards the judgement is ;

(2.) IT is to be noted, however, that the definition of 'arbitration agreement" in the Act of 1949 is precisely the same as the definition of "submission" in the Act of 1899. How is it then that the definition of "arbitration agreement" in the Act of '940 is the same despite the insertion of the new definition of "reference" in the Act of 1940 ? The reason appears to be this ; The definition of "arbitration agreement" is comprehensive enough to include two types of arbitration agreement. On the one hand, it includes merely an agreement between the parties that disputes arising between them should be decided by arbitration. This is a bare arbitration agreement. IT does not provide for a reference of the dispute to arbitration. IT merely provides that disputes would be referred to arbitration On the otter hand, the definition also includes arbitration agreements which combine an agreement that disputes shall be decided by resort to arbitration with a reference of the disputes between the parties to arbitration. IT is only when the arbitration agreement is of the former type, namely, a bare agreement, that disputes shall be decided by resort to arbitration that an arbitration agreement is used' separately from the reference of disputes to arbitration. IT is only when an arbitration agreement is of this type that a separate reference to arbitration would have to be made apart from the arbitration agreement and this is why the two things have been separately defined in sections 2(a) and 2(e). But because section 2(a) is comprehensive enough to include the latter type of arbitration agreement which combines both the arbitration agreement and the reference that only the "arbitration agreement" is defined to include both the types of agreement while "reference" is not defined at all except to mean that it is a reference to arbitration. B. Nature, manner and time of consent

(3.) WITH respect, it seems to us that the above observation of the Supreme Court has been wrongly understood in some decisions as laying down the wide proposition that there can be no reference to arbitration except through the Court under section 20 unless both the parties join in it. For instance, in P.C. Aggarwal v. Banwari Lal F.A.O. 139-D of 1962 decided by P.N. Khanna, J. on July, 18, 1972, the reference to arbitration had been made in accordance with the Bye-laws and Regulations of the Delhi Stock Exchange Association which had become a part of the arbitration agreement which also thus contained the reference to arbitration. Though the attention of P.N. Khanna, J was invited to the Bye-laws and Regulations as being a part of the arbitration agreement, the learned Judge did not consider whether the arbitration agreement thereby contained the reference to arbitration also. An absolute proposition that no unilateral reference could be made except through Court was laid down under the impression that the decision of the Supreme Court in Thawardas and of the Full Bench in P.C Aggarwal supported such a view. The learned Judge was, with respect, in error in this conclusion for the reasons stated by us. In M/s. Security and Finance (P) Ltd. v. Bachittar. Singh, 1972. Rajdhani L.R. 103=AIR 1973 Delhi 140, Ansari, J also thought that no unilateral reference can be made at all except under section 20. It is not known if the arbitration agreement included the reference also in the case before the learned Judge. If it did, than the learned Judge was not justified in hying down such a broad proposition. The same remarks would apply to the decisions in Madhusudan Limited v. Ram Parkash, 1966 D.L.T. 123, and Om Prakash v. Union of India, AIR 1963 Allahabad 242. The observation of the Supreme Court does not mean that no reference to arbitration can be made except under section 20 of the Act unless all the parties join in making the reference. Our reasons are as follows :- (1) In the case of Thawardas itself the arbitration provision was invoked by the Government while the reference was proceeded with by the contractor alone. The Government and the contractor did not join in making a reference to arbitration. On the contrary, the reference was initiated by the contractor basing himself on the consent of the parties to the reference contained in the original arbitration agreement. (2) The Supreme Court did not not hold that the award was bad because the initial reference to the arbitration was itself bad being unilateral. (3) On the contrary, the Supreme Court held that the award was bad because it disclosed an error of law apparent on the face of the record. (4) The Court further expressed the view that the arbitrator would have been entitled to commit such an error of law apparent on the face of the record and the award would still have been binding between the parties if a specific question of law had been referred by the parties for the decision of the arbitrator. Such a specific question of law could not be expected to be referred to. arbitration in the original arbitration agreement containing the reference inasmuch as the question would not be known to the parties unless and until the dispute actually arises. Such a question can be formulated only after the dispute arises. Since the question was not contained in the original reference, it has to be referred to arbitration by both the parties. It is in this context that the Supreme Court considered the necessity of the making of such a reference by both the parties. Even if the general observation of the Supreme Court is construed to apply to all references and is not restricted to the reference of a specific question of law, till the said observation cannot mean that no reference to arbitration can be made except through section 20 unless it is jointly made by the parties.