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PETITIONER: PARBHAT GENERAL AGENCIES ETC.

       Vs.

RESPONDENT: UNION OF INDIA & ANR.  ETC.

DATE OF JUDGMENT: 12/10/1970

BENCH: HEGDE, K.S. BENCH: HEGDE, K.S. SHAH, J.C. GROVER, A.N.

CITATION:  1971 AIR 2298            1971 SCR  (2) 564  CITATOR INFO :  RF         1992 SC1124  (7,12)

ACT: Arbitration Act, 1940, s. 8(1)(b)-Scope of-Circumstances  in which  an  arbitrator  in  place  of  named  or   designated arbitrator can be appointed.

HEADNOTE: The  appellants  entered into agreements with the  Union  of India  under  which they were allotted certain  areas  in  a ’forest  to  tap Resin Blazes.  The  agreement  included  an arbitration  clause  which  provided  that  any   questions, differences,  or  disputes  between  the  parties  would  be referred  for  arbitration  to  the  Judicial  Commissioner, Himachal  Pradesh.  After certain disputes had  arisen,  the appellants ’requested the respondents to refer the  disputes to  the  arbitration of the Judicial  Commissioner  but  the respondents declined to agree.’ The appellants then filed an application under s. 20 of the Arbitration Act, 1940, for an order on the respondents to file the agreements in the court and   for  reference  of  the  disputes  to   the   Judicial Commissioner for arbitration.  The Trial Court accepted  the applications   and  referred  the  disputes.   However   the Judicial Commissioner declined to act as an arbitrator.   An application  made to the Court for the appointment  of  some other  arbitrator  was  opposed by the  respondents  on  the ground that the arbitration clause did not provide for  such an  appointment  and this application was  rejected  by  the court.   The  Judicial Commissioner dismissed  the  revision petitions  filed  by  the appellants  following  an  earlier decision   of  that  court  and  holding  that   under   the agreements,  no reference for arbitration could be  made  to anyone other than the named authority. On appeal to this Court, HELD  : The appeal must be allowed and the orders passed  by the  trial  court as well as the Judicial  Commissioner  set aside.   The cases must be remitted to the Trial Court  ’for appointing  a  new  arbitrator  in  place  of  the  Judicial Commissioner. The  substantive  rights  of the parties  are  found  in  s. 8(1)(b).  Before s. 8(1)(b) can come into operation, it must

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be shown that (1) there is an agreement between the  parties to refer the dispute to arbitration; (2) that they must have appointed an arbitrator or arbitrators or umpire to  resolve their  dispute; (3) any one or more of those arbitrators  or umpire must have neglected or refused to act or is incapable of  acting or has died; (4) the arbitration  agreement  must not show that it was intended that the vacancy should not be filed;.  and (5) the parties or the arbitrators as the  case may be had not supplied the vacancy. [568 E] In  the  present  case  all  the  other  ’requirements  were satisfied  and the only question was whether  the  agreement read  as a whole shows either explicitly or  implicity  that the  parties  intended  that  the  vacancy  should  not   be supplied.   It  may  be  noted  that  the  language  of  the provision  is not ’that the parties intended to  supply  the vacancy’ but that ’the parties did not intend to supply  the vacancy’.   In  other words if the agreement  is  silent  as regards  supplying  the vacancy, the law presumes  that  the parties  intended to supply the vacancy.  To take  the  case out of s. 8 (1) (b) what is required is not the intention of the parties to supply the vacancy 565 but their intention not to supply the vacancy. [568 G] The  Judicial Commissioner as well as the trial court  erred in   thinking  that  merely  because  the   arbitrator   was designated  with  reference to the office held  by  him,  it should  be inferred that the parties intended not to  supply the  vacancy.  The appointment of the Judicial  Commissioner as arbitrator by itself does not afford any indication  that the  parties  to the agreement intended not  to  supply  the vacancy  if the Judicial Commissioner refused to act or  was incapable  of acting.  What the Judicial Commissioner  could have competently done if he had acted as an arbitrator could certainly  be  done by an independent and  impartial  person possessing  adequate knowledge of law.  The language  of  s. 8(1)  (b)  is  plain and unambiguous and the  terms  of  the agreement in the present case did not in the least show that the parties intended not to supply he vacancy. [569 D] Governor  General in Council v. Associated Live  Stock  Farm (India)  Ltd., I.L.R. 1948 Vol. 1 Cal. 161;, Union of  India v.  Rai  Narain  Misra, (1952) 1, Cal.  342  and  Fertilizer Corporation   of   India  Ltd.  v.   M/s.   Domestic   Engg. Installation, A.I.R. 1970 All. 31; referred to. Chief  Engineer,  Buildings and Roads, Jaiour  and  anr.  v. Harbans Singh A.I.R. 1955 Raj. 30 and Mls.  Isherdass  Sahni and  Bros.  v. Union of India and ors; 68,  P.L.R.  p.  325; distinguished. District Co-operative Federation Ltd. v. Khub Chand,  A.I.R. 1961  H.P. 31 and Bharat Construction Co. Ltd. v.  Union  of India, A.I.R. 1954 Cal. 606; disapproved.

JUDGMENT: CIVIL APPELLATE JURISDICTION             Civil Appeals  Nos. 1961 to 1963 of 1966. Appeals  by special leave from the order dated  October  27, 1965 of the Judicial Commissioner’s Court, Himachal  Pradesh at Simla in Civil Revision Nos. 16 to 18 of 1965. Bishan Narain, B. Datta, for the appellant (in C.A. No. 1961 of 1966). B.   Datta, for the appellants (in C.As. Nos. 1962 and  1963 of 1966). V. C. Mahajan, for the respondents (in all the appeals). The Judgment of the Court was delivered by

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Hegde,  J.  These appeals by special leave  raise  a  common question of law.  Therefore they can be dealt with together. The appellants herein entered into agreements with the Union of India. under which they were allotted certain areas in  a forest  to  tap  Resin Blazes and supply  the  same  to  the Turpentine  Factory at Sirmur.  The agreements entered  into included  an arbitration clause.  That clause is  common  in all the three agreements.  That clause reads thus               "If  any  question,  difference  or  objection               whatsoever  shall arise in any  way  connected               with or arising out of               --L436Sup.Cl/71               566               this  or the meaning or operation of any  part               thereof  or the rights dues or liabilities               of  either party, then save in so far  as  the               decision  of any such matter  is  hereinbefore               provided  for and has been so  decided,  every               such matter including whether its decision has               been otherwise provided for and whether it has               been  finally decided accordingly  or  whether               the contract should be terminated or has  been               rightly  terminated and as regards the  rights               and  obligations of the parties as the  result               of   such   termination   be   referred    for               arbitration  to  the  Judicial   Commissioner,               Himachal  Pradesh, and his decision  shall  be               final  and  binding  and  where  the.   matter               involves  a  claim  for  or  the  payment   or               recovery  or  deduction  of  money,  only  the               amount,  if  any awarded in  such  arbitration               shall be recoverable in respect of the  matter               so referred." The  parties  are  agreed  that  no  other  clause  in   the agreements  is relevant for our present  purpose.   Disputes arose between the appellants and the respondents in  respect of  some  claims  arising  from  the  said  contracts.   The appellants  requested the respondents to refer the  disputes to  the arbitration of the Judicial  Commissioner,  Himachal Pradesh.   The  respondents declined to agree  to  make  the reference in question.  Thereafter the appellants moved  the Senior  Sub Judge, District Sirmur Nihan under S. 20 of  the Indian Arbitration Act, 1940 (to be hereinafter referred  to as  the  Act)  for  ordering the  respondents  to  file  the agreements  in question in his court and for  referring  the disputes to the Judicial Commissioner, Himachal Pradesh  for arbitration.    The   learned   Sub-Judge   accepted   these applications and directed the respondents to file the agree- ments  in question into his court.  Thereafter  he  referred the   disputes   to   the  arbitration   of   the   Judicial Commissioner, Himachal Pradesh.  The Judicial  Commissioner, in  our  opinion rightly declined to act as  an  arbitrator. Thereafter  the  learned  subordinate  judge  was  moved  to appoint  some  other  arbitrator in place  of  the  Judicial Commissioner.   The respondents opposed that prayer  on  the ground  that arbitration clause did not provide for such  an appointment.   The learned subordinate judge  accepted  that contention  and dismissed the applications As  against  that decision the appellants went up in revisions to the Judicial Commissioner,  Himachal Pradesh.  The Judicial  Commissioner following an earlier decision of that court in District  Co- operative  Federation  Ltd. v. Khub Chand(1)  dismissed  the revision  petitions  holding that, under the  agreements  no reference  for arbitration can be made to anyone other  than the  named authority.  The question for decision is  whether

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the  interpretation  placed by the courts below on  the  re- levant provision in the arbitration agreements is correct. (1)  A.T.R. 1961 H. P. 35. 5 6 7 It may be noted that the agreements in these appeals  relate to the exploitation of certain forest produce.  The disputes that  have arisen between the parties are not  of  technical nature  requiring any specialised knowledge on the  part  of the  arbitrator.   It  is  clear  from  the  terms  of   the agreements that the Judicial Commissioner was not  appointed as  an  arbitrator  because  of  any  special  or  technical knowledge possessed by him relating to the subject matter of the  dispute,  Evidently  he was appointed,  though  in  our opinion  quite improperly, arbitrator because he was a  high judicial  officer The relevant provisions of the  Act  which bear on the point under consideration are ss. 8(1) and 20(4) of the Act.  Section 8(1) reads               "Power  of  Court  to  appoint  arbitrator  or               umpire.               "  in any of the following- cases-               (a)   where an arbitration agreement  provides               that  the  reference  shall  be  two  or  more               arbitrators to be appointed by consent of  the               parties,  and  all the parties  do  not  after               differences   have  arisen,  concur   in   the               appointment or appointments; or               (b)   if  any appointed arbitrator  or  umpire               neglects or refuses to act, or is incapable of               acting, or dies, and the arbitration agreement               does  not show that it was intended  that  the               vacancy  should not be filled and the  parties               or the arbitrators, as the case may be, do not               supply the vacancy.               (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  or the arbitrators, as the  case  may               be,  with  a written notice to concur  in  the               appointment  or appointments or  in  supplying               the vacancy.               Section 20 reads thus               "(1)  Where  any persons have entered  into  a               arbitration  agreement before the  institution               of any suit with respect to the subject-matter               of the agreement or any part of it, and  where               a difference has arisen to which the agreement               a  plies,  they  or any of  them,  instead  of               proceeding  under Chapter 11, may apply  to  a               Court  having  jurisdiction in the  matter  to               which  the agreement relates the agreement  be               filed in Court.               (2)   The application shall be in writing  and               shall  be  numbered and registered as  a  suit               between one or more of the parties  interested               or claiming to be               568               interested as plaintiff or plaintiffs and  the               remainder  as defendant or defendants, if  the               application  has  been presented  by  all  the               parties,   or,  if  otherwise,   between   the               applicant  as plaintiff and the other  parties               as defendants.               (3)   On  such  application  being  made,  the               Court shall direct notice thereof to be  given               to all the parties to the agreement other than

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             the  applicants, requiring them to show  cause               within  the time specified in the  notice  why               the agreement should not be filed;               (4)   Where no sufficient cause is shown,  the               Court  shall order the agreement to be  filed,               and  shall make an order of reference  to  the               arbitrator  appointed by the parties,  whether               in  the agreement or otherwise, or, where  the               parties  cannot agree upon an arbitration,  to               an arbitrator appointed by the Court.               (5)   Thereafter the arbitration shall proceed               in accordance with, and shall be governed  by,               the  other  provisions of this Act so  far  as               they can be made applicable." Section 20 is merely a machinery provision.  The substantive rights  of the parties are found in s. 8(1)(b).   Before  s. 8(1)(b)  can come into operation it must be shown  that  (1) there  is  an  agreement between the parties  to  refer  the dispute to arbitration; (2) that they must have appointed an arbitrator  or  arbitrators  or  umpire  to  resolve   their dispute;  (3) anyone or more of those arbitrators or  umpire must  have  neglected or refused to act or is  incapable  of acting  or has died; (4) the arbitration agreement must  not show  that  it was intended that the vacancy should  not  be filled  and (5) the parties or the arbitrators as  the  case may be had not supplied the vacancy. In  the  cases  before us it is admitted that  there  is  an agreement  to refer the dispute to arbitration.  It is  also admitted  that  the  parties  had  designated  the  Judicial Commissioner  of  Himachal  Pradesh as  the  arbitrator  for resolving any dispute that may arise between them in respect of the agreement.  The Judicial Commissioner had refused  to act  as the arbitrator.  The parties have not supplied  that vacancy.   Therefore  the  only  question  is  whether   the agreement  read  as  a  whole  shows  either  explicitly  or implicitly that the parties intended that the vacancy should not be supplied.  ’It may be noted that the language of  the provision  is not ’that the parties intended to  supply  the vacancy’ but on the other hand it is that ’the parties 5 69 did  not intend to supply the vacancy’.  In other  words  if the  agreement is silent as regards supplying  the  vacancy, the  law  presumes that the parties intended to  supply  the vacancy.   To  take  the  case out of  s.  8(1)(b)  what  is required  is not the intention of the parties to supply  the vacancy  but their intention not to supply the vacancy.   We have  now to see whether the agreements before  us  indicate such an intention. As  mentioned  earlier the only relevant  provision  in  the agreements   before   us  is  the  provision   relating   to arbitration.  The other provisions in the agreements do  not throw any light as regards the intention of the parties.  We have  earlier  mentioned  that  the  Judicial  Commissioner, Himachal  Pradesh  could  not have  been  appointed  as  the arbitrator  for any specialised knowledge possessed  by  him relating to any dispute that may arise under the  agreement. What  the Judicial Commissioner could have competently  done if he had acted as an arbitrator could certainly be done  by an  independent  and impartial  person  possessing  adequate knowledge of law.  In our opinion the language of s. 8(1)(b) is  plain  and unambiguous and the terms  of  the  agreement before us do not in the least show that the parties intended not  to  supply the vacancy.  The Judicial  Commissioner  as well as the learned subordinate judge erred in thinking that merely because the arbitrator was designated with  reference

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to  the office held by him, it should be inferred  that  the parties  intended not to supply the vacancy.  Evidently  the parties did not mention the name of any particular  Judicial Commissioner as arbitrator because there may be a change  in the personnel.  The appointment of Judicial Commissioner  as arbitrator by itself does not afford any indication that the parties  to be agreement intended not to supply the  vacancy if the Judicial Commissioner refused to act or is  incapable of acting. In Governor General in Council v. Associated Live Stock Farm (India)Ltd.(1)  the arbitration clause that came to be  con- sidered by the Court read as follows :               "Any dispute or difference arising out of  the               contract,   settlement   of   which   is   not               hereinbefore  provided for, shall be  referred               to the arbitration of the officer  sanctioning               the contract whose decision shall be final and               binding."               Interpreting that clause read alongwith  other               clauses  in the arbitration agreement  Das  J.               (as he then was) observed :               "I  do  not find anything in  the  arbitration               clause suggesting that the parties agreed that               any vacancy in the               (1)   I. L. R. 1948 Vol.  1 Cal. 161.               5 7 0               office of arbitrator should not be filled  up.               In  the  absence  of any  such  agreement  the               vacancy can be easily supplied and there is no               reason  to think that the arbitration will  be               infructuous at all.  If the particular officer               sanctioning the contracts refuses to act or is               incapable of doing so by reason of his absence               or  otherwise  there  are  provisions  in  the               Arbitration Act for the appointment of another               arbitrator in his place and the arbitrator  so               appointed  will be quite competent to  proceed               with the arbitration." In Union of India v. Raj Narain Misra(1) S. R. Das Gupta  J. (as he then was) held that in the absence of an  indication in the agreement against supplying any vacancy in the office of  the arbitrator and in view of the provision in S.  8  of the  Arbitration  Act, 1940, for supplying  a  vacancy,  the agreement for arbitration cannot become infructuous due  to a vacancy. In Fertilizer Corporation of India Ltd. v. M / s.   Domestic Engg.  Installation(2),  a division bench of  the  Allahabad High  Court laid down that a perusal of cl. (4) of S. 20  of the  Act indicates that there are three courses open to  the court  under that provision of law.  After  the  arbitration agreement  has  been  ordered to be filed  the  court  shall proceed  to  make  a reference  firstly  to  the  arbitrator appointed  by the parties in the agreement; secondly to  the arbitrator  not named in the agreement, but with  regard  to whom  the  parties agree otherwise; and  thirdly  when,  the parties  cannot agree upon an arbitrator, to  an  arbitrator appointed by itself. The  respondents, in support of their case that the  vacancy could  not  be  filled  up relied on  the  decision  of  the Rajasthan High Court in Chief Engineer; Buildings and Roads, Jaipur  and anr. v. Harbans Singh(3).  Therein Wanchoo  C.J. (as  he then was) after referring to the various clauses  in the  agreement  and particularly to the  clause  which  said "that  the Chief Engineer, shall be the sole arbitrator  and judge  in case of dispute...... came to the conclusion  that

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the  parties  to  the agreement intended  that  the  vacancy should  not  be filled up if the Chief Engineer  refused  or failed  to  act.  The said decision turned on the  facts  of that case.  The learned judges who decided that case came to the  conclusion by reference to the various clauses  in  the agreement that the parties to the agreement intended not  to supply   the  vacancy.   Hence  this  decision  is   clearly distinguishable. Reliance was next placed by the respondents on the  decision of  the division bench of the Calcutta High Court in  Bharat Construction   Co.  Ltd.  v.  Union  of  India(4);   Therein Chakravarti C.J. (1) (1952) 1, cal.  342.            (2) A.I.R. 1970 All. 31. (3)  A.I.R.  1955 Raj. 30.            (4) A.I.R.  1954  Cal. 606. 571 speaking  for the court opined that it is  doubtful  whether cl. (b) of s. 8(1) of the Arbitration Act at all applies  to a  case where a named arbitrator, obviously chosen  for  the possession  of  qualifications special to  him,  has  become unavailable or refused to act; but any way the applicability of that clause ’in a particular case, must be determined  by he  test laid down in the section itself; the test  is  that the arbitration agreement must not show that it was intended that  the  vacancy should not be supplied;  in  other  words however individual, the original choice may appear to be, if the agreement itself contains sufficient indication that the parties  nevertheless  intended that, in  default  of  their original  nominee,  they would be prepared to  fill  up  the vacancy  by  choosing another arbitrator, the  section  will apply  and  a  new appointment may be  made  either  by  the parties or by the Court, as the case may be. In our opinion the learned judge while approaching the ques- tion  from a correct angle fell into the error  of  thinking that  the agreement must indicate that the parties  intended to  fill up the vacancy. That is not what s. 8(1)(b)  says. What  that section says is that "the  arbitration  agreement does  not show that it was intended that the vacancy  should not be supplied.". Reference  was  next made to the decision  of  the  Judicial Commissioner,  Himachal  Pradesh  in  Distt.    Co-operative Federation  Ltd.’s  case(1).   Therein  the  learned   judge purporting to follow the decision in Harbans Singh’s case  ( 2  )  held that it may reasonably be assumed  that  the  way arbitrator is appointed by the parties with reference to the office  the  intention  is that the  arbitration  should  be conducted by the holder of that office and by none else; and on  refusal of such an arbitrator to act, the court  has  no power  to appoint another in his place.  The learned  judge, in  our  opinion,  has misunderstood  the  decision  of  the Rajasthan High Court and the principles of law enunciated by him are not borne out by the provisions of s. 8(1)(b). Lastly  reference was made on behalf of the  respondents  to the  decision  of the Punjab High Court in  M/s.   Isherdass Sahni and Bros. v. Union of India and ors. (3 ) wherein  one of  us (Grover J.) after referring to the various  decisions rendered  under  s. 8(1.)(b) and s. 20(4) of  the  Act,  and noticing  the conflict of the judicial opinion rejected  the revision petition solely on the ground that he would not  be justified  in  the  exercise of  his  revisional  powers  in setting aside the view taken by the lower court.  In fact in the course of his judgment he observed :               "If  the matter were res integra I might  have               agreed  with one view or the other but  in  my               opinion the court below has on a consideration

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             of the material facts and               (1) A. I. R. 1961 H. P. 35.                (2)               A. I. R. 1955 Raj. 30.               (3)   68, P. L. R. p. 325.               572               relevant  law came to the conclusion that  the               arbitration agreement in question showed  that               there was no intention to fill up the vacancy.               I  would  not  be  justified  in  Revision  in               setting  aside  that  finding even  if  I  was               disposed  not to concur with the  decision  of               the trial court on this point." For the reasons mentioned above we allow these appeals,  set aside the orders passed by the subordinate judge as well  as by  the  Judicial Commissioner and remit the  cases  to  the trial court for appointing a new arbitrator in place of  the Judicial  Commissioner, Himachal Pradesh.   The  respondents shall pay the costs of the appellants both in this Court  as well as in the courts below. R.K.P.S.                                             Appeals allowed. 5 7 3