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PETITIONER: UNION OF INDIA

       Vs.

RESPONDENT: OM PARKASH

DATE OF JUDGMENT02/04/1976

BENCH: GUPTA, A.C. BENCH: GUPTA, A.C. SINGH, JASWANT

CITATION:  1976 AIR 1745            1976 SCR  (3) 998  1976 SCC  (4)  32  CITATOR INFO :  RF         1992 SC1124  (12)

ACT:      Arbitration  Act,  1940-Secs.  8,  20,30  32,33-Whether court appointing  an arbitrator  can further  make an  order referring disputes to arbitrator - Award can be set aside on the ground  of invalidity of reference-Whether "otherwise in valid’ includes invalid reference.

HEADNOTE:      The respondent, a contractor, entered into 7 agreements with the  Union of India for the construction of a hospital, some  buildings  and  tube  wells.  In  each  one  of  these agreements there  was a  clause providing  that any  dispute arising  between   the  parties  would  be  referred  to  an arbitrator. The  designations of  the arbitrators  were also mentioned in  4 agreements  as  Director  of  Farms  in  two agreements as  the officer  Commanding, Lucknow,  and in one agreement as the Quartermaster General at Delhi. The offices by reference  to which the arbitrators were mentioned in the agreement were  abolished. The  respondent therefore, made 7 applications in  the court  of Civil  Judge at  Meerut under section 8(2)  of the  Arbitration  Act,  1940,  praying  for appointment of an arbitrator. The Trial Court appointed Col. Ranbir Singh  to act as an arbitrator in all the 7 cases and further directed  the papers to be sent to him asking him to give his  award within  2 months  from that  date. With  the consent  of  both  the  parties  the  arbitrator  made  some progress. However,  the Government  counsel submitted before the arbitrator  that he  should not proceed further since he was not  competent to deal with the questions of law arising for  decision.   Thereafter  the   District   Judge   Meerut transferred the cases to the Judge of the Small Causes Court at Meerut presumably on the assumption that the respondent’s application for  the appointment of arbitrator were pending. The learned  Judge of  Small Causes Court appointed Director of Farms,  General Headquarters. to act as arbitrator in all the 7  cases and  he was  further directed to file his award within one  month of  the said  order. The  papers were then sent to  Brig. Bhandari assuming that he was the Director of Farms. Later  on, the  respondent applied  to the  court for review of its order alleging that the office of the Director

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of Farms  was abolished and, therefore, Brig. Bhandari could not be  the officer  mentioned in  the order. The respondent did not  take part in the arbitration proceedings but before the respondent  could obtain a stay the arbitrator filed his award in the Court.      The respondent  made 7  applications for  setting aside the award  before the Small Causes Court, Meerut, which were rejected. Against that the respondent preferred 7 appeals to the Allahabad High Court. The High Court allowed the appeals accepting the  contention of  the respondents that the Court was functions  officio after appointing the arbitrator under section 8(2)  and had  no jurisdiction to refer the cases to the arbitrator.  The High  Court held  that it  was for  the parties to refer the disputes to the arbitrator after he was appointed by  the court and the reference by the court being without jurisdiction the awards were invalid. The High Court also held  that when  the court  made the order of reference there was  no post  of Director  of Farms and as such, Brig. Bhandari was  not competent  to act  as an arbitrator on the basis of the order of the Court.      In  these   appeals  by   certificate,  the  appellants challenged the findings of the High Court.      Dismissing the appeals, ^      HELD: An agreement to submit differences to arbitration implies  an  agreement  to  refer  the  differences  to  the arbitrator. Section 8 only empowers the 999 Court to  appoint an  arbitrator where  the parties  do  not concur in  the appointment.  Section 20  contains provisions for arbitration with the intervention of a Court,where there is no  suit pending. This section confers power on the court to order  the agreement  to be  filed and further to make an order of  reference  to  the  arbitrator  appointed  by  the parties  or   where  the   parties  cannot   agree  upon  an appointment, to an arbitrator appointed by the court. On the other  hand,  section  8  does  not  contain  any  provision empowering the  court to  make a reference to the arbitrator as one  finds in  section 20.  Therefore. the  Small  Causes Court at  Meerut had  no jurisdiction  after  appointing  an arbitrator under  section 8(2) to proceed further to make an order referring  the disputes  to the  arbitrator. [1002D-E. 1003C-E]      2. Section  30 of  the Act  sets out  the  grounds  for setting aside an award. Section 30(c) provides that an award shall not  be set  aside except  when it has been improperly procured or  is otherwise invalid. The decision of the Privy Council in  the case  of Chhabbe Lal v. Kallu Lal and others holding that  an objection to the validity of a reference to the arbitration  did not  come within the provisions of Dara 15 of  the second  schedule to  the Code  of Civil Procedure which provided  that no  award was to be set aside except on the specific  grounds mentioned  therein or  the award being otherwise invalid  cannot apply  to the present case because in the  second schedule to the Code of Civil Procedure which was repealed  by Arbitration  Act  of  1940.  there  was  no provision like  section 32 or 33 of the Act. Section 32 bars the institution  of suits  concerning arbitration agreements or awards  and provides  that no  arbitration  agreement  or award shall  be set  aside. amended.  modified or in any way affected otherwise  than as  provided in the Act. Section 33 provides that a party to an arbitration agreement seeking to challenge the agreement or the award must do so by making an application to  the court.  When the  second schedule to the Civil Procedure  Code was  in force  an  award  made  on  an

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invalid reference  could he set aside by filing a suit which was then  the appropriate proceeding but now the appropriate proceeding is  the filing  of an application to the court as has been  made  in  the  present  case.  The  words  ’or  is otherwise invalid’  in clause  (c) in  section 30  are  wide enough to cover all forms of invalidity including invalidity of the reference. [1003E, H,1004A-F]

JUDGMENT:      ClVIL APPELLATE  JURISDICTION :  Civil Appeal Nos. 1284 to 1290 of 1968.      Appeals from  the Judgment;  and Decrees dated the 30th July 1962  of the Allahabad High Court in F.A.F.O’s Nos. 220 to 226 of 1952.      L.N. Sinha,  Solicitor General,  G. L.  Sanghi, (In  CA 1284/68) and Girish Chandra, for the Appellants.      S.L. Bhatia and N. K. Puri, for the Respondent.      The Judgment of the Court was delivered by      GUPTA, J.  These seven appeals by certificate have been preferred by the Union of India against a common judgment of the Allahabad  High Court  disposing of  seven appeals under section 39(1)(vi)  of the Arbitration Act, 1940. The appeals turn on  the true  meaning and scope of sections 8 and 30 of the Act. Section 8 is in these terms: Power of Court to appoint arbitrator or umpire      "8.  (1)  In any of the following cases-           (a)   where an arbitration agreement provides that                the  reference   shall  be  to  one  or  more                arbitrators to be appointed by consent of the                parties, and  all the  partes do  not,  after                differences  have   arisen"  concur   in  the                appointment or appointments; or 1000           (b)     if  any  appointed  arbitrator  or  umpire                neglects or  re fuses 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 supplied, and                the parties  or the  arbitrators, as the case                may be, do not supply the vacancy; or           (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.           (2)  If the appointment is not made within fifteen      clear days  after the  service of  the said notice, the      Court may, on the application of the party who gave the      notice  and   after  giving   the  other   parties   an      opportunity of  being heard,  ap point an arbitrator or      arbitrators or  umpire, as  the case  may be, who shall      have like  power to act in the reference and to make an      award as if he or they had been appointed by consent of      all parties." The question  that arises  for consideration  is whether the court having appointed an arbitrator under subsection (2) of section 8  can proceed further to make an order of reference to the  arbitrator. According  to the  respondent the  court becomes functions officio after appointing an arbitrator and has no jurisdiction to refer the matter to him.      The facts  leading to the appeals are these. During the

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last world  war the  respondents a  contractor, entered into seven  agreements   with  the  military  department  of  the Government of  India for  the construction  of  a  hospital" three other buildings and three tube wells. In each of these agreements there  was a  clause providing  that any  dispute arising  between   the  parties  would  be  referred  to  an arbitrator.  In  four  cases  the  agreements  provided  for arbitration by  the Director of Farms, General Headquarters, Simla, in  two cases the officer Commanding, Lucknow, was to be the  arbitrator, and  in  the  remaining  other  case,  a Quarter-Master  at  Delhi  was  chosen  as  the  arbitrator. Disputes having  arisen between  the parties, the respondent made seven  applications in  the court  of the  First  Civil Judge, Meerut,  under section  8(2) of  the Act stating that the offices  by reference  to  which  the  arbitrators  were selected in  the agreements  had been  abolished and  it was therefore necessary  to  appoint  new  arbitrators.  In  the applications the  respondent named  several officers praying that one  of them  be appointed  to act  an arbitrator  "who shall have like power to act in the reference and to make an award as  if he  has been  appointed by  the consent  of the parties". It  will be  noticed that  the prayer  repeats the material   portion of  sub-section  (2)  of  section  8.  On February 13,  1950 the  court appointed  Col.  Ranbir  Singh whose name  was not  in the  respondent’s list,  to  act  as arbitrator in  all the  seven cases and further directed the papers to  be sent  to him,  asking him  to give  his  award within 1001 two months from that date. If the respondent’s contention in these  A   appeals  is  correct  that  after  appointing  an arbitrator under  section 8(2)  the  court  ceases  to  have jurisdiction and  cannot make  an order  of  reference,  the further directions  given in  the order of February 13, 1950 were  invalid.   However,  the   question  did   not  assume importance at that stage because both sides agreed to submit the disputes to Col. Ranbir Singh for arbitration. After the arbitration  had  made  some  progress,  Col.  Ranbir  Singh returned the  papers to  the court  on being  asked  not  to proceed further  by the  Government counsel who thought that the arbitrator  was not competent to deal with the questions of law  arising for decision. After this the District Judge, Meerut, transferred  the cases  to the  Judge of  the  Small Cause Court,  Meerut, presumably  on the assumption that the respondent’s  applications   for  the   appointment  of   an arbitrator were  pending. If  the respondents  contention is right, this  was an  erroneous assumption,  but no objection was raised  at the  time  and  the  Judge of the Small Cause Court  by  his  order  dated  February  13,  1951  appointed Director of  Farms, General  Headquarters, Simla,  to act as arbitrator in  all the  seven cases. In that order the court further directed as follows:           "All these  cases should  be referred  to him  for      arbitration. He must file his award within one month of      this order." The papers  were then  sent to  Brigadier H. L. Bhandari who was. said  to  be  the  officer  concerned.  The  respondent applied to  the court  on March  8, 1951  for review  of the order alleging  that the  office of  the Director  of Farms, General Headquarters,  Simla, had been abolished and as such Brig. H.  L. Bhandari  could not be the officer mentioned in the  order.   The  respondent  did  not  take  part  in  the proceedings be  fore Brig. Bhandari, but before he moved the court on  May 4, 1951 for stay of the proceedings before the arbitrator, the  latter had made his awards which were filed

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in court  on that  very  day.  The  review  application  was ultimately dismissed on May 12, 1951.      The respondent  made seven  applications urging several grounds for  setting aside  the awards, but the Judge of the small Cause  Court, Meerut,  overruled  all  objections  and conferred the  awards, and a decree in terms of the award in each case was passed on May 26, 1952. Against that order the respondent preferred  seven appeals  to the  Allahabad  High Court. The  High Court  allowed the  appeals  accepting  the contention  that   the  court   was  functus  officio  after appointing the  arbitrator under  section 8(2)  and  had  no jurisdiction to  refer the cases to the arbitrator. The High Court was  of the  view that it was for the parties to refer their disputes  to the  arbitrator after he was appointed by the court,  and the  reference by  the court  being  without jurisdiction the awards were invalid. The High Court further held that  when the  court below made the order of reference there  was   no  post   of  Director   of   Farms,   General Headquarters,  Simla,  in  existence  and,  as  such,  Brig. Bhandari was not competent to act as arbitrator on the basis of the  order dated  February 13,  1951. The  Union of Indra questions the  correctness of  the High  Court’s decision in these appeals. 1002      The validity of the order of reference depends upon the scope of  section 8  which deals with the power of the court to appoint  an arbitrator  or  umpire.  Sub-section  (1)  of section 8, so far as it is relevant for the present purpose, provides that  if any  appointed arbitrator  is incapable of acting, and  the arbitration agreement does not show that it was intended  that the  vacancy should  not be supplied, any party to  the agreement  may serve  the other parties with a written notice  to concur  in supplying  the  vacancy.  Sub- section (2) of section 8 lays down that if no appointment is made within 15 days after the service of the said notice the Court may,  on the  application of  the party  who gave  the notice and after giving the; other parties an opportunity of being heard" appoint an arbitrator or arbitrators "who shall have like  powers to  act in  the reference  and to  make an award as  if he or they had been appointed by consent of all parties  ’.   The  question  is  whether,  having  made  the appointment, the  court acting sub-section (2) can also make an  order   of  reference   to  the   arbitrator.  The   Act contemplates three  kinds of  arbitration:  (i)  arbitration without intervention of a court, dealt with in chapter II of the Act  which  includes  section  3  to  section  19;  (ii) arbitration with  intervention of  a court where there is no suit pending,  dealt with  in chapter  III which consists of only one  section, viz. section 20; and (iii) arbitration in suits which  is covered  by chapter IV. It is clear from the provisions of  chapter II  that  after  the  appointment  of arbitrator, the  proceedings are to be outside court, and up to the  stage of  filing the  award intervention of court is not of  unless any  occasion arises  requiring the  court to remove the  arbitrator under  section 11.  An  agreement  to submit differences  to arbitration  implies an  agreement to refer  the  differences  to  the  arbitrator.  Section  only empowers the  court  to  appoint  an  arbitrator  where  the parties  do  not  concur  in  the  appointment.  Section  20 occurring  in   chapter   III.   contains   provisions   for arbitration with  the intervention of a court where there is no suit pending. Section 20 reads:      Application to file in Court arbitration agreement.           "20(l) Where  any persons  have  entered  into  an      arbitration agreement  before the  institution  of  any

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    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 applies  they or any of      them, instead of proceeding under Chapter II, may apply      to a  Court having  jurisdiction in the matter to which      the agreement  relates, that  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      interested  as   plain  tiff   or  plaintiffs  and  the      remainder  as   defendant   or   defendants,   if   the      application has  been presented  by an the parties, or,      if otherwise,  between the  applicant as  plaintiff and      the other parties as defendants. 1003           (3) on  such application  being  made,  the  Court      shall direct  notice thereof to be given to all parties      to the  agreement other  than 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 arbitrator, 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." This section  confers  power  on  the  court  to  order  the agreement to  be filed  and, further,  to make  an order  of reference to  the arbitrator  appointed by  the parties, or, where the  parties cannot  agree upon  an appointment, to an arbitrator  appointed  by  the  court.  Sub-section  (1)  of section 20 makes it plain that the provisions of the section can be  availed of only if no providing under chapter II has been initiated.  Section 8  does not  contain any  provision empowering the  court to  make an  order of reference to the arbitrator as  one finds  in subsection  (4) of  section 20. Thus it  seems clear that the court in the instant cases had no  jurisdiction,   after  appointing  an  arbitrator  under section 8(2),  to proceed further to make an order referring the disputes to the arbitrator.      The question  which now  arises is  whether the  awards could be  set aside  as invalid  because the  reference  was incompetent. Section  30 of  the  Act  which  sets  out  the grounds for setting aside an award is in these terms:-      Grounds for setting aside award.           "30. An award shall not be set aside except on one      or more of the following grounds, namely:           (a)  that an arbitrator or umpire has misconducted                him self or the proceedings;           (b)   that an  award has been made after his issue                of an  order by  the  Court  superseding  the                arbitration or  after arbitration proceedings                have become invalid under section 35;           (c)  that an award has been improperly procured or                is otherwise invalid." According to  the respondent an award obtained on an invalid reference is  also invalid  and is  covered by clause (c) of section 30. It was argued on behalf of the appellant, on the authority of  the Privy  Council in Chhabbe Lal v. Kallu Lal and others(1), that the

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1004 words "otherwise  invalid" in  section 30(c) did not cover a case where  the award  was challenged  on the ground of some invalidity attaching  to anything  outside the award itself. In Chhabbe  Lal’s  case  the  Privy  Council  held  that  an objection to  the validity of a reference to arbitration did not come  within the  provisions of  paragraph 15 of the 2nd schedule  to  the  Code  of  Civil  Procedure,  1908,  which provided that  no award was to be set aside except on the sp civic  grounds   mentioned  therein,  or  the  award  "being otherwise invalid".  This view  which affirms  that of Iqbal Ahmed J. in his dissenting judgment in a Full Bench decision of the  Allahabad High Court, Mt. Mariam v. Mt. Amisa(l) was taken in relation to an award on a reference made in a suit. Their Lordships observed:           ".... all  the powers  conferred on  the court  in      relation to  an award  on a  reference made  in a  suit      presuppose a valid reference on which an award has been      made which  may be  open to  question. If  there is  no      valid reference,  the purported award is a nullity, and      can be challenged in any appropriate proceeding." There was  no provision in the 2nd schedule to the Choice of Civil Procedure,  which was repealed by the Arbitration Act, 1940, like  section 32  or section 33 of the Act. Section 32 bars  the   institution  of   suits  concerning  arbitration agreements  or  awards  and  provides  that  no  arbitration agreement or award shall bet set aside,, amended, . modified or in  anyway affected  otherwise than  as provided  in this Act;  section  33  says  that  a  party  to  an  arbitration agreement seeking  to challenge  the agreement  or the award must do  so by  making an application to the court. When the 2nd schedule to the Code of Civil Procedure was in force, an award made  on an  invalid reference could be set aside only by  filing   a  suit   which  was   then  the   "appropriate proceeding", but now the proceeding appropriate for the same purpose is  an application to the court as the respondent in these cases  has done.  Also, these are cases of arbitration without the  intervention of  court, and the obsenation from the judgment  in Chhabe  Lal’s case,  quoted above,  that  a reference in  a suit  should  be  presumed  to  be  a  valid reference, does  not apply  to these cases. The words "or is otherwise invalid"  in clause  (c) of  section 30  are  wide enough to cover all forms of invalidity including invalidity of the  reference. We do not find any reason why the general and unqualified language of clause (c) should not include an award on  an invalid reference which is a nullity. The cases cited at the Bar show that all the High Courts with only one or two  exceptions have  taken this view. We hold  therefore that the  awards challenged  in these  appeals are nullities and have  been rightly  set aside  by the High Court. In the view we  have taken  that is  not necessary  to consider the other question,  whether Brig.  Bhandari who made the awards was the  officer answering  the description  on Director  of Farms, General  Headquarters, Simla,  to whom  the court had referred the  disputes. In  the result  the appeals fail and are dismissed with costs. One set of hearing fee. P.H.P.    Appeals dismissed. 1005