GHASILAL TODI Vs. BISWANATH KERWAL

JUDGEMENT

(1.) THIS is an application challenging the validity of an arbitration proceeding and the award made thereunder. It is prayed that the award made on May 23, 1962 in the said arbitration proceeding be set aside. It is prayed in the alternative that the appointment of Madanlal Dalmia as sole arbitrator be set aside. There is a third alternative prayer for remitting the award for reconsideration.

(2.) SHORTLY the facts relevant for the purpose of this application may now be stated. The petitioners are owners of a rice mill situate at Beliatore in the district of Bankura. On November 16, 1960, they entered into a partnership, agreement with the respondent for carrying on the said business. The respondent under the agreement was required to advance money both by way of capital and loan to the partnership. It is not necessary to set out and consider the other terms of the partnership except Clause 29 which is the arbitration clause. Disputes arose between the parties --each charging the other of having committed breach of the partnership agreement. Thereupon the respondent by his solicitor invoked the arbitration clause, appointed Madanlal Dalmia as the respondent's arbitrator and called upon the petitioners to appoint their arbitrator in terms of the arbitration clause in the agreement. This is evidenced by the letter dated May 17, 1961, addressed by Messrs, L- P. Agarwalla and Co., on behalf of the respondent to Satipati Banerjee, pleader of the petitioners. In reply Sri Satipati Banerjce informed the respondent's solicitors to keep the matter pending inasmuch as his clients and the agent in charge dealing with the matter were out of station and in their absence the writer was not in a position to give his clients' view in the matter. I apprehend that the tactics adopted by the petitioners were the usual dilatory tactics without realising the serious consequences. No arbitrator having been appointed by the petitioners, the respondents appointed Madanlal Dalmia as the sole arbitrator under Section 9 of the Arbitration Act and requested him to enter upon the reference. This happened on or about July 24, 1961. On November 29, 1961, long after the expiry of the period, the petitioners' pleader informed the respondent's solicitor that they have appointed Ram Avatar Dhaniwalla to act as their arbitrator. The solicitor was requested to inform Madanlal Dalmia of this appointment so that the arbitration might proceed. In reply the solicitor informed Banerjee on January 8, 1962 that the petitioners were not entitled to appoint an arbitrator after such a long period and, moreover, the said Madanlal had already been requested to act as the sole arbitrator. The petitioners oven then did not come to Court for setting aside the appointment of Madanlal Dalmia as the sole arbitrator. Useless correspondence was carried on by and on behalf of the petitioners relating to the arbitration proceeding. On or about March 17, 1962, Madanlal Dalmia entered on the reference and gave notice of holding a meeting on March 31, 1962, at his residence. As the petitioners were not present, the meeting was adjourned, and the arbitrator gave notice on Aprit 2, 1962 that a meeting will be held on April 18, 1962. The parties were informed that if any party failed to attend, the arbitrator would proceed ex parte. On April 3, 1962, the petitioners' pleader wrote to the arbitrator asking him not to proceed in the matter as his clients were taking steps in the proper Court for condoning the delay. On April 18, 1962, the arbitrator sent a copy of the respondent's statement to the petitioners with a request to file theirs by April 26, 1962 and also gave notice that a meeting has been fixed (or May 1, 1962. On April 25, 1962, S. C. Palit, solicitor, purporting to act for the petitioners wrote a long letter to Madanlal. In his said letter it is contended that his clients never received certain letters and he asked for copies. He asked for five weeks time to be ready. The letter concludes with the following observation :

(3.) IT is contended by Mr. Mukherjee appearing for the petitioners that under the arbitration clause it was not open to the respondent to appoint Madanlal Dalmia as the sole arbitrator under Section 9 of the Arbitration Act and, as such, the award by Madanlal as the sole arbitrator is a bad award. The clause makes it clear that the reference is to a board of three arbitrators and the award must be an award of the majority, that is, by two arbitrators. In answer to this argument it is contended by Mr. Sarkar that the clause is covered by Section 10(1) of the Act which reads as follows; Section 10(1). "Where an arbitration agreement provides that a reference shall be to three arbitrators, one to be appointed by each party and the third by the two appointed arbitrators, the agreement shall have effect as if it provided for the appointment of an umpire, and not for the appointment of a third arbitrator, by the two arbitrators appointed by the parties." In the instant case the third arbitrator i.e., the Chairman is in law deemed to be the umpire. He will have the same power and function as that of an umpire. Law does not empower the parties to direct the third arbitrator appointed in the manner indicated in Section 10(1) to act as other than an umpire. He will have powers and functions as that of an umpire. In that View of the matter, if the arbitration clause provides for the appointment of a third arbitrator by the two arbitrators appointed by the parties, he, in law, is incompetent to sit along with the two others as a member of the board of arbitrators and decide the disputes by a majority. He is the umpire, in law, and comes in the picture only when the two arbitrators do not agree. The provision in the contract that the majority will decide and that their decision is to be final is contrary to the provisions of Section 10(1) which is a mandaory provision and not merely directory. IT follows that the instant agreement will have the same effect as that of an arbitration agreement which provides for the appointment of two arbitrators -- one by each --and the two arbitrators to appoint an umpire. The other provisions in the agreement must be rejected as being contrary to statute. This being the effect of the instant agreement, Section 9 is attracted when one of the parties fail to appoint in arbitrator or the arbitrator appointed by one of the parties neglects or refuses to act or is incapable of acting or dies. In the instant case the petitioners failed to appoint an arbitrator though called upon to appoint one in writing within the statutory period. Thereupon the respondent appointed Madanlal Dalmia the arbitrator appointed by him to act as the sole arbitrator. Madanlal therefore was competent to make a lawful and binding award. In support of this argument a decision of Megew J. (sitting in the Queen's Bench Division) in the case of Merinos and Franges Ltd. v. Dulien Steel Products Inc. of Washington reported in (1961) 2 Lloyd's Rep 392 has been cited. IT dealt with Sections 9 and 7 of the English Act which are pari materia with Sections 10 and 9 of our Act. This decision has been cited and relied on by Russel in his book 17th Edition page 209. The reason given is substantially what is stated above. With respect I agree with the above decision and hold that having regard to Section 10 (1) of the Act the effect of the instant arbitration agreement is that the 'Chairman' to be appointed by the arbitrators is the umpire and that the clause providing that the decision of majority shall prevail, should be ignored. I further hold that on failure of the petitioners to appoint an arbitrator when called upon to do so, the respondent was entitled to invoke Section 9 of the Act and appoint Madanlal Dalmia the arbitrator appointed by him as the sole arbitrator. The award of Madanlal Dalmia is therefore not liable to be set aside on the ground taken by Mr. Mukherjee as stated above.