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PETITIONER: RESERVE BANK OF INDIA

       Vs.

RESPONDENT: S.S. INVESTMENTS AND ORS.

DATE OF JUDGMENT14/08/1992

BENCH: BHARUCHA S.P. (J) BENCH: BHARUCHA S.P. (J) THOMMEN, T.K. (J)

CITATION:  1992 AIR 1932            1992 SCR  (3) 871  JT 1992 (4)   500        1992 SCALE  (2)174

ACT:     Arbitration Act, 1940: Sections 3 8: Schedule I:  Clause 4:  Arbitration-Disagreement between  arbitrators--Differing awards  made by two arbitrators-Umpire  entering  reference- Challenge  to  validity of awards-Allegation of  absence  of joint   deliberations   and   consultations   between    the arbitrators   before   passing  award-   Held   meeting   of arbitrators before passing award  is not  imperative-Parties to   arbitration  are  not  expected  to  know  that   joint deliberations   had  taken  place  between   arbitrations-On disagreement  between  arbitrators Umpire  was  entitled  to enter upon the reference.      Umpire-Expiry of time to pass award-Written  submission by  parties-Categorical  statement as to  no  objection  for extension  of  time to pass award-Held there was  waiver  of objection to enter reference by the Umpire.

HEADNOTE:      The  appellant-Bank and the  respondent-Company(Resp-1) entered into an agreement for sale of a property.  Under the agreement  the  disputes  between the  parties  were  to  be settled by arbitration.  A dispute arose between the parties and for its settlement the appellant-Bank appointed a former Judge  (Resp-2)  while the  respondent-company  appointed  a member  of the Bar (Resp-3) as their arbitrators.  Both  the arbitrators entered upon the reference, appointed the Umpire (Resp-4),   and   heard  the  parties.   Since   there   was disagreement between the two arbitrators both of them passed their separate awards.  In view of the differing awards made by  them  the appellant-Bank requested  the  arbitrators  to refer  the  matter to the  Umpire.   The  respondent_Company objected  to the Umpire entering upon the reference  on  the ground that the awards were made without joint deliberations between   the   arbitrators,   therefore   the   arbitration proceedings were vitiated.      In  the proceedings before the Umpire counsel for  both the parties made written submission stating that though  the time  to make the award has expired they have  no  objection for  extension  of time for the Umpire to  make  the  award. Subsequently, the respondent-Company challenged the                                                        872 validity  of the arbitration proceedings before  the  Madras

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High  Court  which  held  that  since  there  was  no  joint deliberation or consultation between the arbitrators  before of  the  passing  the  awards,  the  awards  passed  by  the arbitrators  individually  were invalid and  the  subsequent proceedings  conducted  by the Umpire were also  not  valid. Accordingly,   the  High  Court  remitted  the   matter   to arbitrators to pass awards afresh.      In appeal to this Court, it was contended on behalf  of the appellant Bank that the awards individually made by  the arbitrators  and  sent to the parties  indicated  that  they could  not agree and, therefore, the Umpire was entitled  to enter upon the reference.  In the alternative, if the awards made  by  the  arbitrators  were  not  awards  in  law,  the arbitrators had allowed their time to expire without  making an  award  in which event also  the Umpire was  entitled  to enter  upon  the  reference  under Clause  4  of  the  First Schedule to the Arbitration Act.      Allowing the appeal and setting aside the judgement  of the High Court, this Court      HELD:1. Parties to an arbitration cannot be expected to know  that  joint consultations or deliberations  had  taken place between the arbitrators.      2. Regard must be had to the ordinary course of conduct of   judicial   and  arbitration   proceedings,   especially considering  the  fact  that one of the  arbitrators  was  a former  Judge  and  the  other was  a  member  of  the  Bar. Discussions  do ordinarily take place during the  course  of the arguments between counsel and the Judges or arbitrators. Questions are asked by the Judges or arbitrators which would indicate   their  minds  to  counsel  and  to  each   other. Discussions also, ordinarily, take place between the  Judges or  arbitrators inter se during the course of  the  hearings and  immediately  before  or after the  same.   It  is  not, therefore,  imperative that arbitrators should meet upon  the conclusion  of the hearings to discuss the matter and  agree to an award or agree to disagree in that behalf.      3.  In the instant case it is not in dispute that  both the  arbitrators  were present at all the  meetings  in  the arbitration  proceedings.   That there  had  been  divergent views  expressed  even  during the  course  of  the  present arbitration hearings is clear from the letter written by one of  the  arbitrators to the other as well as from  the  fact that the other arbitrator                                                   873 gave his separate award.  Thus, it is evident that there was a disagreement between the arbitrators and the fact of  such disagreement  was  conveyed to the parties when one  of  the arbitrators  sent  them his award.   Therefore,  the  Umpire became entitled to enter upon the reference.      4.  The terms of the joint submission made by   counsel for  both  the parties before the  Umpire  are  unqualified. There  is a categorical statement therein that they have  no objection  to the extension of time for the Umpire  to  make the award. Therefore, the respondent-Company must be held to have waived its objection to the entering upon the reference by the Umpire.      Keshavsinh   Dwarkadas   Kapadia  etc.   v.M/s   Indian Engineering Company, [1972] I.S.C.R.695; Allen Pering v.John Keymer, III E.R. 406 (K.B.); Dalling v. Matchett, 125   E.R. 1138 [C.P.], Abu Hamid Zahir Ala v. Golam Sarwar, A.I.R.1918 Cal.865;J.  Kuppuswami Chetty v. B.V. Anantharamier &  Anr., (1947)   1  M.L.J.297;  Mamidi  Appayya  &  Ors.  v.   Yedan Venkataswami  &  Ors.,  A.I.R  1919  Madras  877;   Sheodutt v.Pandit  Vishnudatta  &  Anr., A.I.R 1955  Nagpur  116  and Winterringham  v.Robertson, [1858]27 L.J.Ex.  301,  referred

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to.      Russel on Arbitration, 20th edn., referred to.

JUDGMENT:      CIVIL APPELLATE JURISDICTION : Civil Appeal No. 2945 of 1992.      From the Judgment and Order dated 8.7.91 of the  Madras High Court in  O.P. No.58 of 1991.      Kapil  Sibal,  H.S.Parihar  and K.S.  Parihar  for  the Appellant.      V.A.  Bobde, Mukul Mudgal, C.A. Sundaram and T.Ray  for the Respondents.      The Judgement of the Court was delivered by      BHARUCHA, J. Leave to appeal granted.      This is an appeal against the Judgment and order of the Madras  High  Court  whereby it  declared  that  arbitration awards given on 7th and 30th December, 1989, by the 2nd  and 3rd respondents respectively, in respect                                                         874 of a dispute between the appellant and the first respondent, were   not  valid;  and  that  the  subsequent   proceedings conducted  by the Umpire, the 4th respondent, were also  not valid.  The  order  of the Madras High  Court  remitted  the matter to the 2nd and 3rd respondents to pass awards  afresh in the light of its observations.      An agreement for the sale of five blocks of residential flats  and  a community complex, along with  the  land,  was entered into between the appellant and the 1st respondent on 4th  June  1984. Clause 36 of the  agreement  provided  that disputes   between   the  parties  would  be   resolved   by arbitration;  if the parties could not agree upon  a  common arbitrator  each  would nominate an  arbitrator,  who  would appoint   an  Umpire  before entering  upon  the  reference. Disputes  having  arisen  the appellant  appointed  the  2nd respondent,  who was a former Judge, and the 1st  respondent appointed  the 3rd respondent, who was a member of the  Bar, as  their arbitrators. The 2nd and 3rd  respondents  entered upon  the  reference on 19th April 1988, appointed  the  4th respondent  as  umpire and heard the appellant and  the  Ist respondent. On 7th December  1989 the 2nd respondent made an award  holding  the 1st respondent to be in  breach  of  the agreement   with  the  appellant  and   gave   consequential directions.  On 12th December 1989 the 3rd respondent  wrote to the 2nd respondent stating that he could not subscribe to the award made by the 2nd respondent. He said that "for  the purposes of the record I shall write a separate  award....." he  added, "We could have sat together and discussed  matter before  writing  the  award even if our points  of  view  or judgments  therein varied or even if differed on any  issues or points for determination." On 30th December 1989 the  3rd respondent  made  his award. He came to a  conclusion  quite different  from that arrived at by the 2nd  respondent.  The last  day upon which an award could have been made was  31st December 1989. On 3rd April 1990 the appellant requested the 2nd  and  3rd  respondents to refer the matter  to  the  4th respondent as Umpire in view of the differing awards made by them. On 19th April 1990 the 1st respondent objected to  the 4th  respondent entring upon the reference.  It stated  that the  2nd  respondent  had made  is  award  unilaterally  and without  any deleberations with the 3rd respondent. The  3rd respondent  had made his award on 31st December  1989.  Both the  awards  had been made without joint  deliberation  and, therefore,  the  arbitration proceedings were  vitiated  and

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there  had to be afresh arbitration. A copy of  this  letter was  sent to the 4th respondent. On 19th November  1990  the 4th respondent entered upon                                                        875 the reference as Umpire. Counsel on behalf of the  appellant presented  his  submissions  to the 4th  respondent  in  the presence of the 1st respondent’s representatives and counsel on 22nd December 1990 and 12th, 15th and 19th January  1991. On  26th  January  1991,  the arguments  on  behalf  of  the appellant were concluded and the matter was adjourned to 4th February  1991  to enable counsel for the 1st respondent  to address the 4th respondent. In the meantime, on 17th January 1991, counsel for the appellant and the 1st respondent  made a written submission to the 4th respondent which noted  that his time to make the award expired on 18th January 1991  and that  the  proceedings  before him  were  in  progress.  The submission stated, "The claimant and the respondent have  no objection  for  extension of time by two  months  from  18th January  1991  for the Umpire to make the  Award."  On  31st January 1991 the 1st respondent filed the proceedings before the  Madras  High Court upon which the  judgment  and  order under  appeal were passed. It prayed for  declarations  that the  arbitration proceedings and awards passed therein  were invalid  and unenforceable, that the  arbitration  agreement was invalid and unenforceable and had ceased to have  effect and  that  the reference to the 4th respondent  was  without jurisdiction  and  invalid. The 1st respondent  also  prayed that  4th respondent’s authority as Umpire be revoked and  a permanent injection be granted restraining the appellant and the  2nd, 3rd and 4th respondents from proceeding   to  pass any  award or execute any award in respect of the  reference before the 4th respondent.      The  High  Court held that the case was "one  in  which admittedly   there  has  been  no  joint   deliberation   or consultation  between respondent 2 and 3 before the  passing of   the  awards  and,  therefore,  the  award   passed   by respondents  2 and 3 individually in the circumstances  will become  void." "It also stated that it was not  possible  to hold   that  the  1st  respondent  had  acquiesced  in   the competency  of the reference to the 4th respondent.  In  the result,  the High Court declared that the awards of the  2nd and 3rd respondents were invalid and that the entering  upon the  reference  by  the 4th respondent  and  the  subsequent proceedings conducted by him were not valid. It remitted the matter to the 2nd and 3rd respondents to pass awards  afresh in the light of the observations it had made.      Mr. Sibal, learned counsel for the appellant, drew  our attention  to Section 3 of the Arbitration Act, 1940,  which states  that  an arbitration agreement  unless  a  different intention is expressed therein, shall be                                                        876 deemed  to  include  the provisions set  out  in  the  First Schedule to the Act in so far as they are applicable to  the reference. Clause 4 of the First Schedule states that if the arbitrators have allowed their time to expire without making an  award or have delivered to any party to the  arbitration 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.  In  Mr.  Sable’s submission, the awards individually made by the 2nd and  3rd respondents  and  sent to the parties  indicated  that  they could  not  agree  and the 4th  respondent  was,  therefore, entitled  to  enter  upon the reference as  Umpire.  In  the alternative, Mr. Sibal submitted, if the awards made by  the 2nd and 3rd respondents were not awards in law, the 2nd  and

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3rd  respondents  had allowed their time to  expire  without making an awards, in which event also the 4th respondent was entitled  to  enter upon the reference.  Our  attention  was invited  by  Mr.  Sibal to the Judgment  of  this  Court  in Keshavsinh Dwarkadas Kapadia etc. v. M/s Indian  Engineering Company, [1972] 1 S.C.R. 695, wherein the Court stated  thus :-          "As to what constitutes disagreement cannot be laid          down  in  abstract or inflexible  propositions.  It          will  depend  upon  the facts of  the  case  as  to          whether            there           was            a          disagreement.............Disagreement  between  the          arbitrators  may take various shapes and forms.  In          the  present  case  the arbitrators  by  reason  of          attitude of a party in 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."      Mr.   V.A.  Bobde  ,  learned  counsel  for   the   1st respondent,  submitted  that there had to  be,  between  the arbitrators, a joint deliberation and application of mind to the  case after the hearing was concluded. There had  to  be such  discussion  because each arbitrator  should  have  the opportunity  to  change  the  other’s  mind.  When   parties selected  the forum of joint arbitrators for  resolution  of their  differences  they  were entitled  to  have  a  result arrived  at  after  discussions  between  the   arbitrators. Emphasis was laid by Mr. Bobde upon the authorities to which we now refer.                                                        877      In  the matter of the arbitration between Allen  pering and  John Keymer, 111 E.R. 406 (K.B.), a reference was  made to  stevens and Vincent and such person or persons  as  they should  appoint.  They  appointed  a  barrister  as  Umpire. Stevens  and Vincent did not agree and the  three  proceeded with  the  reference. After the case had been  heard,  at  a meeting  of  the  three the Umpire stated  the  terms  of  a proposed  award,  to  which  stevens  objected.  After  some discussion  Stevens left the other two to draw up the  award saying he would not join in it if he could not change  their minds.  The  three  did not meet  again.  Afterwards,  by  a mistake  of Vincent’s clerk, the draft of a  proposed  award made by Vincent at an earlier stage of the case was sent  to Stevens. Stevens, considering it to be a draft of the  award that  was  then proposed to be made, sent it to  the  Umpire with written objections. After this, and without any further communication with Stevens, the other two executed the award in  the terms that they had proposed at the last meeting  of the  three. The award was objected to on the ground that  it had  been made by one of the arbitrators and Umpire  without any consultation with or intimation to Stevens. The  learned Judges upheld the objection. Lord Denman, C.J. after setting out the facts, noted that Stevens had placed his  objections to  the draft award that had been sent to him in writing  but the  other two, without meeting him or considering  how  far their  view  may be varied by the  objections,  executed  an award.  They were bound to here what Stevens had to say.  It was  only  upon  full notice given to  him  that  they  were entitled  to  proceed without him. It is important  to  note

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that  Lord  Denman,  C.J. said  "If,  after  discussion,  it appears that there is no chance of agreement with one of the arbitrators,  the  others may indeed  proceed  without  him. Here,  Stevens, the arbitrator appointed by  Pering,  always took  a  view  more  favourable to  pering  than  the  other arbitrators; and on one occasion he said that he would  have no  more  to do with the matter. Had that  declaration  been acted  on, I do not say that the award would not  have  been valid. The same view was expressed by Coleridge. J. thus :-          "One of them refused his assent. I do not say  that          this  might  not  have  authorised  the  others  to          proceed   without   him;   but   they   got    into          communication with him again, and he sent them  his          objections.  Now  they either did or did  not  take          those objections into their consideration. If  they          did not, the award is clearly bad for that  reason;          if they did, they ought to have consulted him  upon          them, before they made the award. Instead of this,                                                        878          they made another award."      In  Dalling  v. Matchett, 125 E.R. 1138 (C.P),  it  was held  that when a cause is referred to three persons and  if they  or any two of them are empowered to make an award,  an award made by two of them is good if the third had notice of the  meetings.  But if he had no such notice, then  such  an award is bad.      The  same  principle was applied by the  Calcutta  High Court  in Abu Hamid Zahir Ala v. Golam Sarwar,  A.I.R.  1918 Calcutta 865, thus  "          "....the presence of all the arbitrators at all the          meetings  and above all at the last  meeting,  when          the final act of arbitration is done, is  essential          to the validity of the award".      The judgment quoted the then current edition of Russell on Arbitration, which said :          "As the arbitrators must all act, so must they  all          act  together. They must each be present  at  every          meeting; and the witnesses and the parties must be          examined  in  the  presence of them  all;  for  the          parties  are  entitled  to  have  recourse  to  the          arguments,   experience   and  judgment   of   each          arbitrator  at  every  stage  of  the   proceedings          brought to bear on the minds of his fellow  Judges,          so  that by conference they shall  mutually  assist          other in arriving at a just decision."      In  J. Kuppuswami Chetty v. B.V. Anantharamier &  Anr., (1947)  1  M.L.J.  297,  the court held  that  it  was  well established  that  whilst  an  arbitration  agreement  might provide   that  the  decision  of  the  majority    of   the arbitrators  would  prevail, nevertheless the  law  required that   all   the   arbitrators  must   give   their   united consideration  to  all matters arising  in  the  arbitration which had been referred to them.      In Mamidi Appayya & Ors. v. Yedan Venkataswami &  Ors., A.I.R. 1919 Madras 877, a learned Single Judge held that for a  final award by arbitrators to be valid it  was  essential that all the arbitrators should have been present at all the meetings,  including  the last, that witnesses  should  have been  examined  in the presence of all and that  all  should have  consulted  together as to the form  that  their  award should take.                                                        879      The  last of the judgments referred to is  Sheodutt  v. Pandit Vishnudatta & Anr., A.I.R. 1955 Nagpur 116. This  was a case, where, upon the facts, it appeared to the Court that

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one  of the five arbitrators had dominated  the  proceedings and  taken undue advantage of the fact that two  arbitrators were illiterate. The court was left "with an uneasy  feeling that  all the arbitrators did not jointly deliberate in  the proceedings  or  in the making of the award" and  held  that there had been such a "mishandling of the arbitration" as to result  in  substantial miscarriage of  justice,  for  which reason the award was set aside.      Before  we  proceed  further  we  must  note  that  the relevant  passage in Russell on Arbitration, 20th Edn.,  now reads  "All the arbitrators must act together. As they  must all  act, so they must all act together. They must  each  be present at every meeting; and the witnesses and the  parties must be examined in the presence of them all.      All  must make award together. Where there are  two  or more  arbitrators, all should execute the award at the  same time   and  place.  If  they  do  not,  the  award  may   be invalidated,  but  as  the objection is  one  of  a  formal character,  if  no other objection is shown, the  Court  may remit the award to the arbitrators for correction".      While  on  Russell on Arbitration, we  may  refer  with advantage   to   the   discussion   on   what    constitutes disagreement.  It  is said, "The question  what  constitutes such a disagreement between arbitrators as will entitle  the Umpire  to  make  an award...........is one  upon  which  no definite rule can be laid down. It has been held that  there was  such  a  disagreement  where  one  of  the  arbitrators declined to proceed further with the case and also where one arbitrator refused to permit certain evidence to be produced which his fellow arbitrator declared to be essential, and in another case it was decided that non-agreement on  important points  was  equivalent to disagreement". One of  the  cases referred  to by Russell in this context is  Winteringham  v. Robertson,  [1858]  27  L.J. Ex. 301. A submission  provided that  the  matters in difference should be referred  to  two arbitrators, and in case they should not agree it should  be lawful for them to appoint another person to be Umpire or to concur  with them in considering the matters  referred.  The arbitrators   appointed  an  Umpire,  who  sat   with   them throughout  the  reference. On the   arbitrators  submitting their  views to the Umpire, it appeared that they  were  not agreed on important points, and                                                        880 the  Umpire formed the opinion that there was no  likelihood of their agreeing. The Umpire then made his award in  favour of the plaintiff. The defendant objected to the award on the ground  that  it had been made before  the  arbitrators  had disagreed.  It  was  held  that  the  non-agreement  of  the arbitrators  was equivalent to disagreement’ that  on  their non-agreement  as  to  some of the matters  in  dispute  the Umpire could make an award as to all these matters, and that his award should be enforced.      In  the present case it is not in dispute that the  2nd and 3rd respondents were present at all the meetings in  the arbitration proceedings. It is urged that there had been  no joint  deliberation and application of mind by them so  that it  cannot be said that there was any  disagreement  between them and the 4th respondent was, therefore, not entitled  to enter upon the reference.      Regard must be had, in our view, to the ordinary course of   conduct  of  judicial  and   arbitration   proceedings, especially considering the fact that one of the  arbitrators was  a former Judge and the other was a member of  the  Bar. Discussions  do ordinarily take place during the  course  of the arguments between counsel and the Judges or arbitrators.

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Questions are asked by the Judges or arbitrators which would indicate   their  minds  to  counsel  and  to  each   other. Discussions also, ordinarily, take place between the  Judges or  arbitrators inter se during the course of  the  hearings and  immediately  before  or  after the  same.  It  is  not, therefore, imperative that arbitrators should meet upon  the conclusion  of the hearings to discuss the matter and  agree to an award or agree to disagree in that behalf.      That  there  had been divergent views  expressed   even during  the  course of the present  arbitration  hearing  is clear  from the letter written by the 3rd respondent to  the 2nd respondent for he says, "We could have sat together  and discussed  matters  before  writing the award  even  if  our points  of view or judgments varied or even differed on  any issues or point for determination." That the 2nd  respondent wrote  out his own award indicates that he had no  doubt  in his  mind  that  the differences between  him  and  the  3rd respondent  about the case before them were  irreconcilable. As has been said, disagreement can take a variety of  forms. Upon  the facts of this case we are of the view  that  there was a disagreement between the 2nd and 3rd respondents;  the facts of such disagreement was conveyed to the parties  when the 2nd respondent sent them his award and the 4th                                                        881 respondent then become entitled to enter upon the  reference as Umpire.      We  think  that  the High Court was  not  justified  in placing  reliance  upon the fact that there was no  plea  on behalf of the appellant that there was a joint  consultation between the 2nd and 3rd respondents after the submission  of the  arguments by both sides and before the passing  of  the award by the 2nd respondent, which, in its view, established that   there   was   "no  joint   deliberation   or   united consideration" by the 2nd and 3rd respondents. Parties to an arbitration  cannot  be  expected to know  that  such  joint consultations  or deliberations had taken place between  the arbitrators.      Mr. Sibal drew our attention to the written  submission made  by  counsel  on behalf of the appellant  and  the  1st respondent  to the 4th respondent extending time for him  to make  the  award.  In Mr. Sibal’s submission,  there  was  a categoric  statement therein that the 1st respondent had  no objection  to  the  extension  of  such  time  for  the  4th respondent to make the award, whereby the 1st respondent had waived its objection to the 4th respondent entering upon the reference as Umpire. Mr. Bobde submitted, on the other hand, that  the protest made by the 1st respondent about  the  4th respondent entering upon the reference as Umpire  continued. In  his submission, the 1st respondent could not have  acted otherwise  because the authorities laid down that it is  not open  to  a  party  to  abstain  from  appearing  before  an arbitrator or Umpire, although he objects to that arbitrator or Umpire having entered upon the reference. The authorities do not say that the party so objecting is obliged to  extend the time for the arbitrator or Umpire to make the award.  At any  rate,  the  agreement to extend the time  for  the  4th respondent  to make the award should have been qualified  by the Ist respondent and should have reserved to it the  right to   agitate   its  objection  to   the   4th   respondent’s jurisdiction.  The  terms of the joint  submission  made  by counsel for the appellant and the 1st respondent to the  4th respondent  are  unqualified  and  we  think  that,  in  the circumstances,  the  1st  respondent must be  held  to  have waived  its objection to the entering upon the reference  by the 4th respondent as Umpire.

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    In  this view of the matter the appeal is allowed,  the judgment  and order of the Madras High Court dated 8th  July 1991 is set aside and the petition and application filed  by the  1st respondent are dismissed. The 1st respondent  shall pay to the appellant the costs throughout. T.N.A.                                       Appeal allowed.                                                        882