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Petitioner: Messrs FAQIR SPINNING MILLS LTD. VS Respondent: GOVERNMENT OF WEST PAKISTAN AND JUDGMENT
Court Name: Sindh High Court Judge(s): Qadeer-ud-Din Ahmad, Noorul Arfin Title:Messrs FAQIR SPINNING MILLS LTD. vs GOVERNMENT OF WEST PAKISTAN AND
JUDGMENT
Reported As: PLD 1970 Karachi 153 Result: Appeal dismissed Judgment JUDGMENT NOORUL ARMN, J.-----This appeal raises an important question of law under the Arbitration Act, 1940, namely, whether an application can be made to Court for setting aside an award or adjudging it a nullity, without, however, the award having been filed in Court. The background of the dispute is an agreement entered into between the appellants and the former State of Khairpur for the construction of a power house at Cambat. There was dispute as to whether the appellants had fulfilled their obligations under the agreement. The appellants referred the dispute to the sole arbitration of Sardar Muhammad Aslam Khan, the respondent No. 2 herein, who gave his award but did not file it in Court under the provisions of the Arbitration Act. Nor did the appellants take any proceedings to have the award filed in Court by the arbitrator. The Government of West Pakistan, the successor-in-interest of the Khairpur State, therefore, made an application to the District Court at Khairpur under sections 30 and 33 of the Arbitration Act, 1940 to contest this award. The District Judge, however, held, on the basis of several Indian decisions, that such an application was not maintainable unless and until the award is filed in Court under the Arbitration Act, 1940. This judgment was set aside by a learned Single Judge of this Court, from whose decision the present letters patent appeal has come before us. 2. A preliminary question was raised as to whether an award, which is not filed in Court, and consequently is not made rule of the Court, can cause prejudice to any party thereto. One view is that such an award remains ineffective, so that the Government's application under sections 30 and 33 of the Arbitration Act would be premature. But in some decisions a contrary view has been taken. The learned Government counsel argued that in view of this judicial conflict, it would be
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safer to assume that under certain circumstances an award, though not made rule of the Court, could still cause prejudice to either party thereto. Reference in this connection was made to a Sind decision, namely, Lutufallah and others v. Muhammad Sidik Sobho Bhati and others (AIR 1946 Sind 117), in which it was held that a valid award operates to merge and extinguish all claims embraced in the submission, and after it has been made, the submission and award furnish the only basis by which the rights of the parties can be determined, and constitute a bar to any action on the original demand. 7 he High Court of Calcutta as held in Pushraj Puranmal v. Clive Mills Co. Ltd. (AIR 1960 Cal. 180), that no section of the Arbitration Act says that an unfiled award is a nullity and if the agreement for arbitration itself stipulates that the award shall be binding on the parties, then the award, subject of course to the rules of exception recognised by the arbitration agreement or the grounds permitted by the Arbitration Act, remains binding as part of the agreed contract, even though it is not filed in Court. We would, therefore, agree with the learned Government counsel that in view of the conflict in judicial opinion on this point, we should decide the main question involved in the appeal, rather than dispose of the appeal on the preliminary point only. 3. The question, as stated above, is whether legal pro--ceedings can be taken to contest an award, that is, to have it-- set aside or adjudged a nullity, even though it has not been filed in Court under the provisions of the Arbitration Act. Before coming directly to this question, it will be useful to examine the scheme of this Act. This act was enacted to consolidate and amend the law relating to arbitration which, before the act came into force, was contained in the Indian Arbitration Act, 1899 (IX of 1899) and the Second Schedule to the Code of Civil Procedure. 1908. The operation of the 1899 Act was confined to the Presidency Towns and to such other areas to which it was extended by the Provincial Government, and the Act applied only to arbitrations without the intervention of the Court. The Second Schedule to the Code of Civil Procedure related to arbitrations not embraced within the scope of the 1899 Act; and for the most part dealt with arbitrations in suits, though provision for arbitration without intervention of the Court was also made. The pro--visions of the 1940 Act which are relevant for the purpose of this appeal are sections 14 to 17, and sections 30 to 33. Under section 14, the arbitrators are to sign and to give notice of the award to the parties, and at the request of any party to the agreement, or if directed by the Court to cause the award, or a signed copy thereof, to be filed in Court, and thereupon notice shall be given to the parties of such filing. Under section 15, the Court is empowered to modify or correct the award, in the circumstances mentioned therein. Section 16 empowers a Court to remit the award, or any matter referred to arbitration, to the arbitrators or umpire for reconsideration on any of the grounds stated in this section. Then comes section 17, which provided that where the Court sees no cause to remit the award or any of the matters referred to arbitration for reconsideration, or to set aside the award, the Court shall, after the time for making the application to set aside the award has expired, or after such application has been refused, proceed to pronounce judgment according to the award, and upon the judgment so pronounced a decree shall follow. Under section 30, an award may be set aside by the Court on one or more of the following grounds: (a) that an arbitrator or umpire has misconducted himself or the proceedings ; (b) that an award has been made after the 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. Under section 31, it is provided, amongst other things, that an award may be filed in any Court having jurisdiction in the matter to which the reference relates and further, all questions regarding the validity, effect or existence of an award or arbitration agree--ment between the parties shall be decided by the Court in which the award has been, or .May be, fled and by no other Court. Section 32 creates a bar on suits to contest an arbitration agreement or an award, by providing that no suit shall lie on any ground whatsoever for a decision upon the existence, effect or validity
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of an arbitration agreement or an award, nor shall any arbitration agreement or award be set aside, amended, modified or in any way effected, otherwise than as provided in the Act. Under section 33, any party to an arbitration agreement, or any person claiming under him, desiring to challenge the existence or validity of an arbitration agreement or an award, or to have the effect of either determined, shall apply to the Court and the Court shall decide the question on affidavits, provided that where the Court deems it just and expedient, it may decide the case on other evidence. 4. These sections of the Arbitration Act may be compared with the provisions of the Second Schedule (now repealed) to the Code of Civil Procedure, 1908. It has been stated above that the provisions of this Schedule related mainly to arbitrations in suits. Paragraph 3 provided that an order of reference may be made by the Court on the application of the parties to the suit. Paragraph 12 empowered the Court to modify or correct the award on any of the grounds stated therein, that is to say: (i) where it appeared that a part of the award is upon a matter not referred to arbitration and such part can be separated from the other part ; (ii) where the award is imperfect in form, or contains any obvious error which can be amended without effecting such decision; or (iii) where the award contains a clerical mistake or an error arising from accidental slip or omission. Under paragraph 14 the Court was given power to remit the award or any matter referred to arbitration for the reconsideration of the arbitrators or umpire where the award left undetermined, or where it determined any matter not referred to arbitration; or where the award was so indefinite as to be incapable of execution; or where an objection to the legality of the award is apparent upon the face of it. Paragraph 15 provided that no award should be set aside except on one or more of the following grounds, namely: (a) corruption or misconduct of the arbitrators or umpire ; (b) either party had been guilty of fraudulent concealment of any matter which he ought to have disclosed, or of willful by misleading or deceiving the arbitrators or the umpire; (c) the award having been made after the issue of an order by the Court superseding the arbitration and proceeding with the suit, or after the expiration of the period allowed by the Court, or being otherwise invalid. Paragraph 16 provided that where the Court saw no cause to remit the award or any of the matters referred to an arbitration for reconsideration, and no application was made to set aside the award, or the Court had refused such application, then in such case judgment should be pronounced according to the award and upon the judgment so pronounced a decree should follow. Paragraphs 20 and 21 of the Schedule related to arbitrators without the intervention of the Court. Under paragraph 20, any party could apply to the Court for order that the award be filed. Paragraph 21 provided that if the Court was satisfied that a matter had been referred to arbitration and that an award had been made and that there was no ground for remission or setting aside of the award, then in that case the Court should order the award to be filed and should proceed to pronounce judgment according to the award, and this having been done, a decree should follow the judgment. The analogous provisions of the Arbitration Act, 1899 are sections 11, 13; 14 and 15. Under section 11 an arbitrator, after making the award and giving notice to the parties, was required to file the award in Court on the request of any party to the submission. Under section 13, the Court was given power to remit, the award to the re--consideration of the arbitrator or umpire. Under section 14, the Court could set aside the award if the arbitrator or umpire had misconducted himself, or the arbitration or award had been improperly procured. Under section 15, the award, on being filed in the Court, was enforceable as a decree of the Court.
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5. The provisions of the Arbitration Act, 1940 and of the law of Arbitration which prevailed before the enactment of this statute have been reviewed because the decisions in the Indian jurisdiction, which alone were cited before us, have dealt with the question at issue with reference to these provisions. Turning to these decisions, the first case in point is Ratunji Virpal do Co. v. Dhirojipal Manilal (AIR 1942 Bom. 101), in which Cbagla, J., as lie then, was, held that under the Arbitration Act of 1940 it was riot competent to file a petition for setting aside the award till the award had been filed in Court. The learned Judge referred to the argument that the provisions of section 31(3) of the Act provide that all applications regarding arbitration shall be made to the Court where the award has been, or may be filed and to no other Court, and, therefore, an application to set aside the award could be filed in the Court where the award would be filed but has not been filed, the learned Judge held that this provision should be read with subsection (2) of section 31, under which all questions regarding the validity, effect or existence of an award or an arbitration agreement between the parties to the agreement shall be decided by the Court in which the award has been, or may be filed, and by no other Court. In the opinion of the learned Judge, in subsection (2) the phrase "the Court in which the award under the agreement may be filed" has reference only to proceedings in connection with the arbitration agreement and, therefore, if a question arises with regard to the validity, effect or existence of an arbitration agreement, then the question has to be decided by the Court in which the award, which may result from the arbitration agreement, may be filed. If the question is with regard to the award itself, then the question has to be determined by the Court in which the award has been filed. Proceeding further, it was held that in cases where the party feared that it may be prejudiced by the award, then the compe--tent procedure is either to call upon the arbitrator to file the award in Court, or to obtain a direction from the Court to arbitrator to file the award, and it is only after such filing that an application to set aside the award could be filed. This conclusion was based on the language of Article 158 of the Limitation Act, 1908, under which an application to set aside the award or to get an award remitted for re-consideration can be made within 30 days from the date of service of the notice of filing of the award. The learned Judge appeared to be of the view that an, application to set aside the award could only be made after the date of service of such notice and not otherwise. 6. The next decision is that of the Calcutta High Court in Bengal Jute Mills v. Jewraj. Heerlal (AIR 1944 Cal. 304), in which McNair, J., held that the effect of sections 14 and 31 of the Arbitration Act was that an application to set aside the award could not be entertained if the award had not been filed in Court. With regard to the words "may be filed" in section 31(2), the learned Judge held that it is not an enabling section, but a section, which merely defines the jurisdiction by pointing out to a particular Court which may deal with the question regarding the validity, effect or existence of an award. The learned Judge further held that the scheme of the Arbitration Act, 1940, particularly section 14 of the Act, contemplated that the Court could consider an award only when it had actually been filed in the Court. This question came up for consideration again before the High Court of Calcutta in I. C. H. Arijf and others v. Bengal Silk Mills Ltd. And another (AIR 1949 Cal. 350), in which S. R. Das, J., held that an application under section 33 of the Arbitration Act for setting aside the award, so far as it prays for a declaration that there was no submission or arbitration agreement and that the arbitrator had no jurisdiction to act as such arbitrator, is main--tainable in Court in which the award may be filed, even if the award had not been filed when the application was made; and as regards the application for setting aside the award on the grounds stated in section 30, if such application was made before the filing of the award, then the defect was curable by the subsequent filing of the award. This decision went in appeal, but the appellate judgment appears, in Bengal Silk Mills Co. Ltd. v. Aisha Ariiff (AIR 1947 Cal. 106), (the anomaly appears to be due to mistake in reporting). Both Gentle and Ormand, JJ., held that an application to set aside the award cannot be made without the award being filed in Court. But Gentle, J. Dissented from
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Chagla, J.'s opinion in Ratanji Virpal & Co., v. Dhirajilal Manilal that such an apple--cation could only be made after the service of the notice of filing of the award, as, in his opinion, Article 158 of the Limitation Act could not be taken as a test as to when the right to make an application to set aside an award arises. But Gentle, J., took the situation into consideration in which the very existence of the award is questioned in which case, he thought, the filing of the award was not necessary as the award itself does not exist. However, in his view, the determination of the validity or effect of the award may raise the question whether the award should be modified, corrected or remitted, which cannot be done unless the award is before the Court. Ormond, J., however, qualified his agreement with the view that an application to set aside the award could not be made without the award being filed in Court by stating that he would prefer to put his conclusion only on general grounds and not on any such interpretation of the language of section. 31 as was suggested by Chagla, J. With regard to this section, the learned Judge tools the view that the double alternative `has been' or 'may be' is equally applicable to an award as to the arbitration agreement for the purpose of determining the validity, effect or existence thereof, and, further, the language of the section can be read as being equally correct if the legal position is, that an application to set aside an award can be made before its filing, as if it is, that it cannot. Notwith--standing this interpretation, Ormond, J., preferred to take the cautious course by agreeing with the view of Gentle, J. The High Court of Patna also, in Lachhmf Prasad v. Gobardhan Das and others (AIR 1948 Pat. 171), agreed with the view taken by the Bombay High Court, which was adopted, as noted above, by the Calcutta High Court also in some of its decisions, that until the award is filed, no application to set aside can be entertained. Reference may here be made to another decision of the High Court of Calcutta, Bajranglal Laduram v. Ganesh Commercial Co. Ltd. (AIR 1951 Cal. 78), in which a Division Bench held that an application to set aside an award pre-supposes an award made with jurisdiction, and that if it is contended that the arbitrators had no jurisdiction, proceedings for setting aside the award under section 30 would not be appropriate and that in such a case, the proper course would be to move the Court by an application under section 33 of the Act. 7. I will now take up the main case on which reliance has been placed by the respondent No. 1. This case is A. R. Savkur v. Amritlal Kalidas and others (AIR 1954 Bom. 293) and the judgment is again of Chagla, who was the C. J. The challenge to the award in this case was made by an application which was moved for more than 30 days after the service of notice of the filing of the award. The application was rejected as barred by limitation. In appeal, it was contended that the application was one under section 33 of the Arbitration Act, and it was not to set aside the award, but for a declaration that the award was invalid, in which case, it was contended, the case was governed not by Article 158 of the Limitation Act, but by the residuary Article 181. The scope of sections 30 and 33 was discussed by the learned Judge at length with reference to sections 17 and 39 of the Arbitration Act, and Article 158 of the Limitation Act. In his view, section 30 deals with the grounds on which an award may be set aside, whereas section 33 contains procedural provisions, that is, provisions with regard to the procedure to be followed in making an application to set aside the arbitration agreement or an award, and that whatever may be the nature of the challenge to the award, the result would in every case be the setting aside of the award, as the Court could not give a mere declaration that the award is invalid, without further proceeding to set it aside. This view, in the opinion of the learned Judge, is supported by the scheme of section 17, which makes it incumbent upon the Court to pronounce judgment according to the award except in three cases, that is, (i) where there is no cause to remit the award or any of the matters referred to arbitration for re-consideration of the arbitrators or the umpire; (ii) where the Court sees sufficient cause to set aside the award or (iii) where the time for making the., application to set aside the award has not expired. The learned Judge goes on to say that under section 17, an opportunity is given to the parties who dispute the award to make an application to set it aside, but this application should be
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filed within the period of limitation prescribed by Article 158 of the Limitation Act, and that if no such application is made, or an application has been made but has resulted in dismissal, then there is no other course for the Court but to give a decree in terms of the award. The argument that a challenge to the award can be made either under section 30 on the grounds stated therein or under section 33 in a case where the challenge is to the validity of the award, say for the reason that the arbitrator had no jurisdiction, was not accepted by the learned Judge, as, in his view, acceptance of this contention would produce the result that there would be two periods of limitation, one for applications under section 30, which have to be made under Article 158 of the Limitation Act within 30 days of service of the notice of the filing of the award, and the other for applications under section 33, which could be made within 3 years under the residuary Article 181. Such interpre--tation, in the opinion of the learned Judge, would create anomalies, in that a party may allow an award to become the decree of the Court by failing to make an application to set it aside on receipt of notice of its filing and then, within three years, make an application under section 33 to challenge the validity of the award itself on the grounds that it was made without juris--diction, or such other ground as would render the award a nullity. Therefore, the learned Judge came to the conclusion that every challenge to the award has to be by an application to set it aside, and such application can be made only under section 33 of the Act, though the grounds of challenge are contained in section 30, the expression "otherwise invalid" in clause (c) covering, in his opinion, even grounds which would render the award void or a nullity. This argument is sought to be supported by reference to section 39, which gives a right of appeal to set aside the award, but not the right of appeal against an order refusing to declare the award invalid. 8. The next case of importance is the Full Bench decision of the Calcutta High Court in Saha & Co. v. Ishar Singh Kirpal Singh & Co. (AIR 1956 Cal. 321), The majority judgment is to the effect that the Arbitration Act, 1940 does not distinguish between an application for setting aside an award and an application for adjudging the award a nullity and that the Act does not contemplate that an application of the former kind should be made under section 30 of the Act, and an application of the latter kind under section 33, and, further, that all applications challenging the award must be made under this last section and they must be applications for setting aside the award, except in cases where the existence of the award itself is challenged. With regard to the expression "otherwise invalid" in section 39 (c) the majority view is that the rule of " ejusdem generis " cannot be applied in construing this expression, which being a general expression would cover all forms of invalidities, including invalidities which amount to nullities. 9. The Indian decisions reviewed above appear to be based on certain assumptions with regard to the scheme of the Arbitration Act, 1940. I do not include in these decisions the several cases to which I would advert later, and the Calcutta cases, namely I. G. H. Ariff and others v. Bengal Silk Mills Ltd. And another and Bajranglal Laduram v. Ganesh Commercial Co. Ltd. To which I had had to refer with these other decisions as the views taken in these two cases were dissented from in the subsequent decisions of the same Court. These assumptions may be enume--rated as follows :- (i) That the scheme of sections 15, 16, 17 and 30 requires that the Court can act on the award only if the award is before it, and that the award can come before the Court only if it is filed under section 14 of the Act ; (ii) that all grounds on which an award may be challenged are contained in section 30, and that these grounds include grounds which would even render the award a nullity ; (iii) that an award can be questioned in Court only by an application to set it aside on grounds stated in section 30, and the machinery or procedure for making such application is contained in section 33 of the Act, and that the Act does not contemplate two applications with separate periods of limitation, that is, one under section 30, and the other under section 33 of the Act.
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(iv) that if no application is made to set aside the award after service of its filing, or if such application has been made has been refused, or if the Court sees no cause to remit for consideration the award or any of the matters referred to…
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