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Petitioner: MESSRS M. M. ISPAHANI LTD. VS Respondent: MESSRS PAKISTAN TRADING COMPANY
P L D 1966 Dacca 54
P L D 1966 Dacca 54
Before K. M. Hasan, J
MESSRS M. M. ISPAHANI LTD.‑Petitioner
versus
MESSRS PAKISTAN TRADING COMPANY ---Opposite‑Party
Civil Rule No. 1004 of 1961, decided on 16th April 1964.
(a) Arbitration Act (X of 1940), Ss. 4, 5 & 33‑Arbitrators initially vested with jurisdiction to proceed with case‑Mere pendency of another proceeding in civil Court or mere contingency of future happening does not render award null and void.
Where the arbitrators are ‑admittedly vested with initial jurisdiction to decide the matters in terms of contract entered into between the parties, the mere fact that there was some proceeding in the civil Court at the instance of one of the parties would not ipso facto take away the jurisdiction of the arbitrators to proceed with the case. Of course, when there is a dispute about the very existence of a contract, the arbitrators become functus officio and as such any award made by them would be a nullity. But when the dispute is under the contract, the m ere fact that the opposite‑party filed several suits under section 33 of the Arbitration Act, 1940 would not take away jurisdiction already vested 'in the arbitrators so as to make their award a nullity.
Hanutmull Boid v. Fatehchand Muralidhar A I R 1954 Cal. l; Heyman and another v. Darwins, Limited A I R 1942 A C 356 and 1 All. 337 ref.
(b) Arbitration Act (X of 1940), First Sch, cl. 3 Phrase "entering on the reference"‑Meaning.
Clause 3 of the First Schedule to the Arbitration Act, 1940 mentions three cases giving the starting point of limitation. First is four months from entering on the reference, second four months after having been called upon to act by notice in writing from any party to the arbitration agreement and third, four months within such extended time as the Court may allow.
Although there are conflicting decisions but the words "entering on the reference" do not mean when the arbitrators have the parties before them and begin to hear the parties. They mean that when a reference has been made and the arbitrators accept the reference. The following are the reasons for adopting the above view. The Arbitration Act is for speedy disposal of the dispute between the parties. Any other view will frustrate that purpose of the Act and put the parties waiting for the result for an unknown time, e.g., after reference the arbitrators may not take up the matter immediately but put it off to indefinite time. It may be argued that for such emergency notice to arbitrators for action has been provided for. This argument cannot be accepted for the simple reason that in that case the provision "within four months after entering on the reference" will become redundant, that 4 months has also been provided in such cases; and that the provision for notice is not for a case when the arbitrators have accepted the reference but when not.
Firm Sardar Mal Hardat Rai v. Firm Sheo Baksh Rai Sri Narain A I R 1922 All. 106; Guardians of Newack Union v. The Guardians of Glandford Brigg Union L R 2 Q B 522; Abdul Majid v. Bhawal Baksh and others P L D 1950 Lah. 228; Messrs Ismail Brothers (Karachi) Ltd. Karachi v. Messrs S. N. Fazail & Co., Karachi P L D 1958 Kar. 158; Messrs Bajrangalal Laduram v. Ganesh Commercial Co. Ltd. A I R 1951 Cal. 78; Losstroglu v. Coumantaros L R (1941) 1 K B 396; Hari Sankar Lai v. Shamsbhu Nath and others A I R 1962 S C (Ind.) 78 and Md. Ismail Serang v. Munshi Ali Husain and others 6 D L R 641 ref.
(c) Arbitration Act (X of 1940), S. 28‑Court has absolute discretion to enlarge time‑Term "Court"‑Includes "appellate Court".
Narsing Das Hiralal Ltd. and another v. Bisandayal Satyanarain Firm A I R 1954 Orissa 29; Lakhmir Singh v. Union of India and another A I R 1957 Pat. 633; Nani Bala Saha v. Ram Gopal Saha and another A I R 1945 Cal. 19; Abani Bhusan Chakraborty and others v. Hem. Chandra Chakraborty and others A I R 1947 Cal. 93; Munni Lal v. Kishan Prasad and another A I R 1948 All. 443; Lakshmi Narain v. Ram‑Babu and another A I R 1953 All. 9 and Thakur Prasad v. Baleshwar Ahir and others A I R 1954 Pat. 106 ref.
Abani Bhusan Chakraborty and others v. Hem Chandra Chakraborty and others A I R 1947 Cal. 93 and Shukrullah and another v. Mst. Rahmat Bibi and others A I R 1947. All. 304 not fol.
(d) Interpretation of statutes‑Words and expressions in enactment taken from earlier statute `in pari materia' and having received judicial interpretation‑Legislature presumed to be aware of interpretation while incorporating such words and phrases in later statute.
Halsbury" Laws of England (Hailsham 2nd Edn.), Paras. 770, 771 Vol. 31 ref.
A. S. M. Shamsuzzaman for Petitioner. Asrarul Husain and Md. Nurul Huq for the Opposite‑Party.
JUDGMENT
This Rule is directed against the judgment and decree passed in the suit for setting aside the award passed by the Arbitration Tribunal of the Dacca‑Narayanganj Chamber of Commerce on 12th June, 1959. The suit arose m the following ways : There was a contract between the petitioner and, the opposite‑party for sale of certain jute. As the opposite‑party did not supply the goods as contracted, the plaintiff‑petitioner sent a bill to the opposite‑party claiming certain amount being the difference between the contract price and the market price at the relevant time. As the opposite‑party did not accept the bill and as such a dispute having arisen, the petitioner referred the matter to the Arbitrators as provided in clause (18) of the contract, vide Exh. 3 (1) dated 21st October 1955. The Registrar issued notice asking the opposite‑party for submission of their statement and also a sum of Rs. 450 vide Exh.'3 (J) dated 25th October 1955. As no statements were submitted by the opposite‑party, three other reminders were given by the Registrar but the opposite did not submit their rejoinder and instead of submitting their rejoinder the opposite‑party started Misc. Case No. 151 of 1955 on 14th December 1955 and obtained an injunction order restraining the Arbitrators to proceed with the award. Subsequently, the Rule was discharged by the High Court on 17th December 1958. Then again on 20th January 1959 vide Exh. 17 notice was issued by the Registrar to the parties to submit their pleadings with a rider that if the pleadings were not submitted, the papers would be handed over to the Arbitrators. It appears that on receipt of the notice, the parties filed their rejoinder and an award was passed on 12th June, 1959 and the Registrar forwarded the award to the Court for disposal of the same in accordance with law.
Several objections were taken by the opposite‑party. The important ones that were pressed are (1) that the award was a nullity, (2) that the award was barred by limitation and (3) that the Arbitrators were guilty of misconduct.
Both the Courts below were of opinion that the award was barred by limitation; that the award was a nullity and that the Arbitrators were guilty of misconduct and in that view of the matter dismissed the suit. Hence the present Rule.
The same points have been pressed before me by the learned Advocate for the petitioner. As regards the nullity, the Courts below were of opinion that as there was a proceeding pending in a Civil Court challenging the validity of the contract, the Arbitrators had no jurisdiction to proceed with the proceeding in order to pass an award. In order to appreciate this point, it is necessary to refer to some facts. It appears that on 14th December 1955, the opposite‑party filed an application under section 33 of the Arbitration Act on which Misc. Case No. 151 of 1956 was started. The opposite‑party also obtained an ad interim injunc tion. It further appears that the order of ad interim injunction was at some time vacated and at some other time restored but ultimately the ad interim injunction restraining the Arbitrators to proceed with the case was vacated by the High Court on 17th December 1958. So merely because there was some proceeding in the Civil Court at the instance of the opposite‑party, that did not ipso facto take away the jurisdiction of the Arbitrators to proceed with the case as the Arbitrators had admittedly the initial jurisdiction to decide the matters, vide agreement entered into between the parties. The Court below opined that the Arbitrators were aware of the proceedings and if the suit had been decreed in favour of the opposite‑party, then the Arbitrators could have no jurisdiction. To this I cannot give my assent as I have already observed that the Arbitrators had initial jurisdic tion to proceed with the case as there was a dispute between the parties. That jurisdiction could not have been taken away merely because a separate proceeding was pending in the Civil Court or merely because an unknown happening, namely, the suit being decreed, would have taken away the jurisdiction vested in the Arbitrators or made the award to be passed a nullity. It has not been contended before me that the Arbitrators proceeded with the case during the continuance of the ad interim injunction but it appears that they stopped the proceeding of the case before them and only started action just after the discharge of the ad interim injunction order by the High Court. Then again if the Arbitrators did not proceed with the proceedings before them in the absence of any ad interim injunction, then in view of the provision of the Arbitration Act, the award would have been barred by limitation on the face of it. For the aforesaid reasons, I hold that merely because some proceedings were pending or merely because a decree might have been passed which has not been passed in this case, the Arbitrators could have no jurisdiction but in my opinion the Arbitrators had the jurisdiction and the award passed as such cannot be called al nullity on this count.
In this connection it has been argued by Mr. Asrarul Hussain that when there was a pleading by any of the parties before the Arbitrators that there was no contract or that the contract was frustrated, the Arbitrators could not have any jurisdiction to proceed with the arbitration and in support of the proposition reference has been made to the case of Hanutmull Boid v. Fatehchand Muralidhar (A I R 1954 Cal. 1) and the case of Heyman and another v. Darwins Limited (A I R 1942 A C 356). In the aforesaid Calcutta case it was held that if a party to a contract challenged the very existence of the contract, then the Arbitrators became functus officio as in such cases the very jurisdiction of the Arbitrators was challenged in that case reliance was placed on the case 1 All. 337. In the case A I R 1942 A C as referred to above, it was observed:
"At the risk of some repetition, I would summarize what I conceive to be the correct view on the matter as follows: An arbitration clause is a written submission, agreed to by the parties to the contract, and, like other written submissions to arbitration, must be construed according to its language and in the light of the circumstances in which it is made. If the dispute is whether the contract which contains the clause has even been entered into at all, that issue cannot go to arbitration under the clause, for the party who denies that he has ever entered into the contract is thereby denying that he has ever joined in the submission. Similarly, if one party to the alleged contract is contending that it is void ab initio (because, for example, the making of such a contract is illegal), the arbitration clause cannot operate, for on this view the clause itself also is void. But, in a situation where the parties are at one in asserting that they entered into a binding contract, but a difference has arisen between them whether there has been a breach by one side or the other, or whether circumstances have arisen which have discharged one or both parties from further performance, such differences should be regard as differences which have arisen 'in respect of', or `with regard to', or `under' the contract, and an arbitration clause which uses these, or similar, expressions should be construed accordingly. By the law of England (though not, as I understand, by the law of Scotland), such an arbitration clause would also confer authority to assess damages for breach, even though it does not confer on the arbitral body express power to do so.
I don't agree that an arbitration clause expressed in such terms as above ceases to have any possible application merely because the contract has `come to an end,' as, for example, by frustration. In such cases it is the performance of the contract that has come to an end. The doctrine of discharge from liability by frustration has often been explained as flowing from the inference of an implied term, and in giving my opinion on the occasion of the recent decision of this House in Joseph Constantine Steamership Line, Ltd. v. Imperial Smelting Corporation, Ltd. Ante, p. 154, 163; 1 expressed the view that the most satisfactory basis upon which the doctrine can be put is 'that it depends on an implied term in the contract of the parties' if, therefore, when parties have entered into a contract, circumstances arise before the performance of the contract is completed which, in the view of one party, bring the contract to an end by frustration, and, therefore, discharge both parties from further performance but the other party does not agree, this is a difference about the applicability of the implied term and is just as such within the arbitration clause as if it were a difference about an express term of the contract. There is a previous decision of this House which establishes this precise proposition. I refer to Scott & Sons. Ltd. v. Del Sel 1923 S C H L 37, where sellers of jute contended that a contract to export from Calcutta 2,800 bales to Buonos Ayres was brought to an end, after a portion had been dispatched, by a Government prohibition of further export, notwithstanding that the contract contained an express term exempting the sellers from liability for late delivery due to unforeseen circumstances. The Arbitration clause ran: 'Any dispute that may arise under this contract to be settled by arbitration. The sellers argued that the dispute as to frustration was not a dispute under the contract, but a dispute as to the existence of the contract.' This contention was unanimously rejected. Lord Dunedin reasons thus (ibid 41) "They (the sellers) can only succeed .If they bring themselves within one of two categories. Either they must show that there was an express term of the contract which had that effect, i.e., of bringing the contract to an end,' or they must show that there was an implied term in the contract which had the same effect. That an implied term in a contact may have that effect is quite clearly shown by what was decided in this House in the case of Tamplin Steamship Co. (1916) 2 A C 397 and in the case of the Metropolitan Water Board v. Dick Keerr & Co. Ltd. 1918 A C 119. It seems to me, therefore, that they are in this dilemma, that in either view they have got to have recourse to the contract, it seems to me that the dispute is a dispute under the contract'."
From the aforesaid two decisions it is clear that when there is a dispute about the existence of a contract the arbitrator is became functus officio and as such any award passed by the arbitrators will be nullity, but not when the dispute is under the contract. In the present case, the' contract is admitted. Dispute arose between the parties on the difference of the market price and the contracted price. Furthermore, I have been taken through the pleadings filed by the opposite‑party wherefrom it does not appear that the opposite‑party in any way refuted the contract but placed their case as to what amount the petitioner would be entitled to get. I have already observed that merely because the opposite‑party filed several suits under section 33 of the Arbitra tion Act in the Civil Court, that did not take away the jurisdiction already vested in the arbitrators in order to make the award a nullity. I accordingly hold that the award that has been passed in this case is not a nullity.
The award has also been challenged on the ground that the arbitrators mis-conducted themselves in the proceeding. 'The basis of this argument and the finding of the Courts below is that to the knowledge of the arbitrators there had been a civil suit pending before the Civil Court challenging the validity of the contract. Now let us see whether the arbitrators have themselves mis-conducted in the proceeding. It appears from the record that the contract was entered on 2nd July 1955 and as the goods were not supplied by the opposite‑party, the petitioner referred the matter to the arbitrators as agreed upon between the parties and subsequently the suit was filed by the opposite‑party on 14th December 1955. So initially the arbitrators had jurisdiction to proceed with the reference made to them. Now the question is whether any subsequent suit in a Civil Court challenging the contract will take away the jurisdiction already vested in the arbitrators. In my opinion that will not take away as observed that as the arbitrators were aware of the proceeding in the Civil Court including the High Court, the arbitrators should have restrained from proceeding with the arbitration and as they did not, they mis-conducted themselves. It appears that the reference was made before the suit was filed and after filing of the suit the opposite‑party obtained an ad interim injunction but the stay order was ultimately vacated by the High Court on 17th December 1958. It has not been found or contended by Mr. Asrarul Husain that during the pendency of the ad interim injunction arbitrators in any way proceeded with the case before me, rather it appears from the records that after the ad interim injunction order was discharged on 17th December 1958 the petitioner approached the arbitrators and as such the Registrar issued notice on 20th January 1959, vide Exh. 10 inviting the parties to file their pleadings. The last rejoinder was filed by the opposite‑party on 16th March 1959 and the award was made on 12th June 1959. Then again the Misc. Case No. 151 of 1955 on which much reliance has been placed by Mr. Asrarul Hussain as well as by the Courts below was dismissed for default on 15th November 1959 and the same was restored on 23rd May 1959, that is, long after the pro ceeding was started by the arbitrators commencing from 20th January 1959 and it has been submitted by the learned Advocate for the petitioner that the Registrar passed the papers to the arbitra tion on 17th March 1959. So up to 23rd May 1959, there was no suit by the opposite‑party pending. It further appears that the said suit was again dismissed for default on 23rd January 1960. This way the opposite‑party carried on with the litigation filed at his instance. In these circumstances I cannot agree with the Courts below that the arbitrators mis-conducted in the proceeding I am rather of opinion on the facts as disclosed in the records that the arbitrators did not misconduct themselves.
In this connection Mr. Asrarul Hussain has contended that his client was not given any chance to adduce any fresh evidence as to the amount to be paid by the opposite‑party to the petitioner and as such the arbitrators mis-conducted. This point has been negatived by the trial Court and I do not find anything in the appellate Court. I have been taken through the pleadings and I do not find that any further evidence needed to be furnished by the opposite‑party to the arbitrators in order to determine the amount to be paid by the opposite‑party to the petitioner. Hence in my opinion the case of Amin Jute Baling Co. Ltd. v. Aminpur Union Co‑operative Multi‑Purpose Society Ltd. (P L D 1961 Dacca, 102) relied on by Mr. Asrarul Hussain, is of no help to him.
There remains the question of limitation. In the present case both the Courts below have found that the award is barred by limitation. The learned Advocate for the petitioner has referred me to the provision of clause (3) of Schedule 1 of the Arbitration Act. Clause 3 runs as follows: '
"The arbitrators shall make their award within four months after entering on the reference or after having been called upon to act by notice in writing from any party to the arbitration agreement or within such extended time as the Court may allow."
Relying on the provision of clause 3 that the arbitrators shall make their award within four months after entering on the reference, it has been contended that in the present case four months commenced only from the date when the Registrar passed the papers to the arbitrators, namely, from 17th March, 1959 and the award having been passed on 12th June 1959, the award is not barred by limitation. This argument invites for interpretation of this clause 3. From the aforesaid clause we find three cases giving the starting point of limitation. First comes four months from entering on the reference, second four months after having been called upon to act by notice in writing from any party to the arbitration agreement and third, four months within such extended time as the Court may allow.
An extensive argument has been advanced by the learned Advocates for the parties on the meaning of the phrase "entering on the reference". It has been submitted by the learned Advocate for the petitioner that the phrase "entering on the reference" means when the arbitrators start the hearing of the case having the papers before them and as the arbitrators could not have started the business before the papers were passed on to them on the 17th March 1959, it cannot be said that the award is barred by limitation, that having been passed on 12th June 1959 in support of this contention the learned Advocate for the petitioner has relied on the case of Firm Sardar Mal Hardat Rai v. Firm Sheo Baksh Rai Sri Narain (A I R 1922 All. 106), the case of the Guardians of Newaok Union v. The Guardians of Glandford Brigg Union (L R 2 Q B 522 .), the case of Abdul Majid v. Bhawal Baksh and others (P L D 1950 Lah. 228) and the case of Messrs Ismail Brothers (Karachi) Ltd., Karachi v. Messrs S. N. Fazail & Co., Karachi (P L D 1958 Kar. 158). In the first case it was observed by Walsh, J:
"We are of opinion that the provisions `entering on the reference' and `having been called upon to act by notice in writing' are alternative in, this sense, that where no reference is entered upon at all, then the time runs from the notice calling upon the arbitrators to act. But, on the other hand, even although the arbitrators may be called upon to act by entering upon the reference, if they enter upon the reference, they have three months from that moment for making their award and for enlarging the time for making the award if the circumstances at the reference satisfy them that they cannot complete the award within three months. To hold otherwise would seem to strike out from clause 3 the words `within three months after entering on the reference' in a case where one of the parties happened to call upon the arbitrators to act before they began the reference.
This clause was considered by the English Court of Appeal Baring Gould against Sharpington (1899) 2 C H D, p. 80. And the view which we take seems to be that which was laid down by the Master of the Rolls, the late Lord Lindley, in a passage contained in page 91 of the report.
In addition to that, under the old clause in England, which was slightly different in form, an equally strong Court came to the conclusion in Baker against Stephens L R 2 Q B 523 that `entering upon the reference `means not' when an arbitrator accepts the office, or takes upon himself the duty but when he actually enters upon the matter of the reference,. when the parties are before him, or under some peremptory order compelling him to conclude the hearing ex parte."
2 Q B has not been supplied to me. In the Lahore case as referred to above, it was held by S. A. Rahman, J. as he then was:
"Reference in this connection may be made to Sardar Mal Hardat Rai v. Sheo Bakhsh Rai Sri Narain A I R 1922 All. 106. It was held therein that an arbitrator enters on the reference when he enters upon the matter of the reference, i.e., when the parties are before him or under some peremptory order he is compelled to conclude the hearing ex parte. On 6th November, 1944 the umpire merely directed that no further notice need be sent to the respondent but the actual ex parte order was given on 25th November 1944 and that seems to be the relevant date. The argument of the learned counsel for the respondent appears to be devoid of force."
In the Karachi case relied on by the learned Advocate it was held:
"The other contention of Mr. Dingomal relating to the question of limitation has also no force. The most favourable interpretation to the plaintiff that can be put on the words `taking over…
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