Kishanlal Chug vs Karam Chand Thapar and Bros. (Coal Sales) Ltd.

Masud, J.—This is an application for stay of a suit u/s 34 of the Indian Arbitration Act, 1940. The Petitioner was appointed by the Respondent as its Branch Manager at the Jaipur Branch of the Respondent company. The terms of the said appointment were incorporated in a letter dated April 3, 1951 (Ex. A to the affidavit of Kashi Prosad Srivastava). The said terms contain an arbitration clause which reads as follows:

That if you and the company ever fail to come to a mutual settlement on any points or disputes arising out of or anywise relating to this letter of appointment, all such points or disputes shall be referred to the sole arbitration of the Managing Director for the time being of the Managing Agents of the company and his decision shall be final and binding on the company and yourself.

The Petitioner acted as Manager of the Jaipur Branch on the terms and conditions as set out in the said letter dated April 3, 1951. On July 24, 1958, a fresh agreement was entered into between the parties whereby the Petitioner continued to act as the Branch Manager of the said Jaipur Branch on terms and conditions which are incorporated in the letter dated July 24,1958. Save and except some modifications the terms and conditions as set out in the letter dated April 3, 1951, and the letter dated July 24,1958, are substantially the same. In the subsequent agreement the arbitration clause was, expressed in the following manner:

That if you and the company ever fail to come to a mutual agreement on any points or disputes arising out of or anywise relating to the letter of appointment, all such points or disputes shall be referred to the sole arbitration of Lala Karamchand Thapar of 12 India Exchange Place, Calcutta, and his decision shall be final and binding both on the company and yourself.

Sometime in 1964 Karam Chand Thapar died. The Respondent on the basis of some allegation against the Petitioner suspended him by a letter dated November 20, 1967. On January 18, 1968, the Petitioner denied the allegations made in the said letter. On February 7, 1968, the Respondent, inter alia, called upon the Petitioner to pay amounts which were alleged to have been overdrawn by the Petitioner in breach of the agreement, on February 17, 1968. The Petitioner denied the charges made in the said letter dated February 7, 1968, and also made a claim against the Respondent demanding an enquiry into the accounts. On May 23, 1968, the Respondent informed the Petitioner that enquiry would be held by Sri Talwar. On June 5, 1968, the Petitioner demanded in writing arbitration in terms of the agreement dated April 3, 1951. On June 10, 1968, the Respondent informed the Petitioner that the earlier agreement dated April 3,1951, was terminated in 1958 and a new agreement dated July 24, 1958, was entered into and that as Sri Karam Chand Thapar who was the sole arbitrator agreed upon by the parties in the new agreement died, the arbitration clause became infructuous. On July 12, 1968, the Respondent intimated the Petitioner that, on enquiry, a sum of Rs. 38,003-72 P. had been found due to the company by the Petitioner. On September 23, 1968, the Petitioner suggested appointment of an arbitrator in place of Sri Karam Chand Thapar, deceased. On November 12, 1968, the Respondent reiterated that the arbitration clause had no application in the present case. On February 20, 1969, a suit filed in this Court (Suit No. 557 of, 1969, Karam Chand Thapar & Bros. (Coal Sales) Ltd. v. Kishanlal Chug) claiming a decree for Rs. 40,681=94 P. and also alternatively for accounts, interest etc. On April 1, 1969, the Petitioner was served with the Writ of Summons in the suit. On April 15, 1969, the Petitioner made an application in the Court of District Judge, Jaipur, for appointment of an arbitrator u/s 8 of the Indian Arbitration Act. The said application is still pending in the Jaipur Court and the present application has been made on April 21, 1969.

The substantial points raised by Mr. Bhabhra, counsel for the Respondent, is that under the agreement dated July 24,1958, the parties agreed to refer their disputes and differences, if any, to the sole arbitration of Karam Chand Thapar. According to him, by using the word ''sole'' the parties intended to have the arbitration of the said K. C. Thapar and Thapar alone. Relying upon the dictionary meaning of the word ''sole'' in A New English Dictionary (vol. 1, pt. I), he has argued that the word ''sole'' in the present context means ''exclusive''. According to him, the parties by using the word ''sole'' -clearly intended that the vacancy caused by the death of Sri Thapar is not to be supplied by any other person inasmuch as reference to arbitration to any other person was not contemplated. He has, therefore, asked me to hold that the arbitration clause has become ineffective and non est. Reference has been made by him on Chief Engineer, Buildings and Roads, Jaipur and Anr. v. Harbans Singh AIR 1955 Raj. 30.

Mr. Amiya Kumar Bose, counsel on behalf of the Petitioner, has however contended that on the death of Karam Chand Thapar the arbitration agreement has not become infructuous. According to him, the words ''sole arbitration'' mean ''a single arbitration'' as distinguished from the joint arbitration. The mere use of the word ''sole'' does not express the intention of the parties in clear terms to the effect that vacancy caused by death of Sri Thapar is not to be sup plied by the Court. Relying upon Governor-General in Council v. Associated Live Stock Farm (India) Ltd. (1947) 52 C.W.N. 288, Yar Muhammad and Anr. v. Ghulam Sarwar and Ors. AIR 1950 Lah. 145. 147 and Surendranath Paul Vs. Union of India (UOI), he has argued that this is a proper case ''where a Court should appoint an arbitrator u/s 8(l)(b) of the India Arbitration Act, 1940.

In my view, on the death of Sri Thapar the arbitration clause has not become ineffective or non-existent in law. The reasons why I say so are as follows:

Firstly, it is admitted that the parties entered into agreement on July 24, 1958, on terms and conditions as set out in the letter bearing the said date. It was the clear intention of the parties that disputes and differences between the Petitioner and the company should not be decided in a Court of law but should be decided in a private forum. The Petitioner was appointed as the Manager of the Jaipur Branch by an earlier agreement on April 3, 1951, and under the old agreement also it was the intention of the parties that the disputes should be referred to the arbitration of the Managing Director of the company. Thus, it is obvious that both under the previous agreement and under the subsequent agreement the parties intended to have their disputes, if any, to be decided by arbitration and not by judicial proceedings in a Court of law. It may be added here that even prior to the second agreement the Managing Director of the company happens to be the said gentleman, i.e. Sri Thapar. It can certainly be argued by adding the words, ''to the sole arbitration of Lala Karam Chand Thapar of 12 India Exchange Place, Calcutta'', in place of ''to the sole arbitration of the Managing Director for the time being of the Managing Agents of the company'' the parties included a new term or condition that the disputes, if any, must be decided by Sri Thapar and Thapar alone. When the second agreement Was entered into, Sri Thapar was alive and the parties thought that Sri Thapar should be the person who should be the arbitrator in the matter as the parties had confidence in him. But, by mentioning his name, it cannot be said that the parties must have intended that, in the absence of Sri Thapar, disputes between the parties, if any, are not to be decided in a private forum outside the Court of law. If that had been the intention of the parties the agreement would have expressly provided such a clause.

Secondly, the death of a named arbitrator does not necessarily mean the end of the arbitration agreement. The named arbitrator may fall ill, may refuse to act or may die. It cannot be said that although at the inception of the agreement the parties intended to have their disputes determined by arbitration the physical or legal incapacity of the named arbitrator or his arbitrary decision to neglect or to refuse to act the arbitrator or the involuntary fact of death would necessarily terminate the substratum or basis of the agreement between the'' parties that the disputes between them should be decided by arbitration.

Thirdly, Section 28(l)(b) reads as follows:

8(1) In any of the following cases-

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(b) If any appointed arbitrator or umpire neglects or refuses to act or is incapable of acting or dies, and the arbitration agreement does not show that it was intended that the vacancy should not be supplied, and the parties or the arbitrators, as the case may be, do not supply the vacancy; or ...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, the party who gave the notice, and after giving the other parties an opportunity of being heard, appoint 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 marginal note of Section 8 shows that the Court has been given the power to appoint an arbitrator or umpire in certain contingencies. The contingencies mentioned in Section 8(l)(b) are

(a) Neglect or refusal of the appointed arbitrator to act

(b) The appointed arbitrator''s incapacity to act as arbitrator, and

(c) Death of the appointed arbitrator

In all the said three contingencies the Court may appoint an arbitrator in place of the named or appointed arbitrator provided the other conditions. regarding notice or opportunity are complied with and provided that the arbitration agreement does not show that the parties intended that the vacancy should not be supplied. Mr. Bhabhra has argued that by agreeing to refer their disputes to the ''sole arbitration of Karam Chand Thapar'' the parties intended that Karam Chand Thapar and Karam Chand Thapar alone was entitled to be arbitrator and no other person was agreed to fill up his vacancy. I must confess that such a contention has a logic in it. But, at the same time, on a proper construction and on the facts of this case it is difficult for me to accept the same. A hypothetical case may be considered; if the sole arbitrator neglects or refuses to act as the arbitrator at a subsequent stage arbitrarily or vindictively does it follow that the arbitration clause lapses whereas the agreement between the parties which contains the arbitration clause survives. As other contingencies are mentioned in the same Sub-section, the same result should follow if the sole arbitrator dies; otherwise uniformity of construction of the Sub-section as a whole would be disturbed, and legal consequences would be different in different contingencies mentioned in the Sub-section. When parties enter into an agreement, the terms and conditions are generally fixed by themselves. The parties may simply agree that the disputes, if any, are to be decided by arbitration or outside Courts of law, or they may choose to mention in the agreement a particular arbitrator for the said purpose by naming him or describing him. If the named arbitrator is not available on account of a voluntary act or an involuntary event, the agreement between the parties in respect of the detailed execution of the work and their desire to have their disputes decided by arbitration do not vanish. It is not the Respondent''s case here that the entire agreement has fallen through on account of the death of Sri Thapar''. On the contrary, Sri Thapar died in 1964, and the Petitioner was allowed to continue the work until February 20, 1967, under the second agreement. Thus, I fail to appreciate Mr. Bhabhra''s argument "that the agreement subsists but the arbitration clause becomes infructuous.

Thirdly, u/s 8(l)(b) before the Court appoints an arbitrator there should be nothing in the arbitration agreement which would show that the parties intended that the vacancy should not be supplied. Mr. Bhabhra has argued that as the word ''sole'' has been used it has made a world of difference. Supposing the arbitration clause excludes the word ''sole'' and provides that the disputes are to be referred to the ''arbitration of Sri Thapar'' can it not be argued that by naming the arbitrator the parties intended that the disputes could only be referred to Sri Thapar and Sri Thapar alone., Even assuming that the word ''sole'' means ''exclusive'', the exclusiveness must be limited to the lifetime of Sri Thapar. If he was not otherwise incapable or unwilling, he and he alone must be the arbitrator because that was the parties'' intention at the time when the agreement had been entered into. If the parties had intended that in the event of Sri Thapar not being available, there would be no arbitration, the parties should have specifically expressed so. In any event the word ''sole'' also means ''alone'', ''without companions'', ''solitary'', ''with no other person or persons'' (vide Shorter Oxford English Dictionary, vol. II). Thus, by using the word ''sole'' the parties have intended that, so long Sri Thapar is available or willing, he alone would be the arbitrator. Unless the additional words are mentioned in the arbitration clause showing that the vacancy caused by death, negligence, refusal, incapacity or failure of the named arbitrator to act will not be filled up, the Court is not debarred from supplying the vacancy. In this connection, reference may be made to the Rule 1 of sch. I to the Arbitration Act, X of 1940, which reads as follows.

Unless otherwise expressly provided, the reference shall be to a sole arbitrator.

Obviously, where the parties want their disputes to be referred to arbitration without mentioning the name or description of the arbitrator the implied form of the agreement would be that the reference shall be to a single arbitrator. In the arbitration clause of the second agreement this implied agreement has only been made explicit in the agreement itself. Mr. Bhabhra has argued that the words ''sole arbitrator'' and ''sole arbitration of Karam Chand Thapar'' do not mean the same. But, in my view the legal effect does not alter by mentioning the name of an arbitrator.. In the premises, I hold that reference to the sole arbitration of Mr. K. C. Thapar means reference to Mr. Karam Chand Thapar alone during his life. As the parties did not contemplate the appointment of respective nominees of the two parties, the parties intended that the reference would be a reference to a single arbitrator. I, therefore, hold that the arbitration agreement has not failed and the Court has power to appoint an arbitrator in this case inasmuch as the arbitration agreement does not show that the parties intended that the vacancy would not be supplied.

The next contention of Mr. Bhabhra is that the suit has been filed by the Respondent relating to disputes and differences under two agreements dated April 3, 1951 and July 24, 1958. The present application has been made in respect of the disputes under the agreement dated July 24, 1958, only and, as such, the suit in respect of the cause of action under agreement dated April 3, 1951, cannot be stayed. Mr. Bose, on behalf of the Petitioner, has conceded that the entire cause of action in the suit relates to the Respondent''s claim under the agreement dated July 24, 1958. In any event, the Court, on his oral application should have the cause title amended by substituting the words, ''In the matter of Arbitration agreements contained in letters dated April 3, 1951 and July 24, 1958'' for the words, ''In the matter of arbitration agreement contained in a letter dated July 24, 1958''.

In my view, in the facts of the present case, the objection seems to be more of form than of substance. It is true that the Respondent in the plaint has claimed a total sum of Rs. 40,681-94 out of which a sum of Rs. 11,785-62 relates to a claim under the agreement dated April 3, 1951. But the said amount has been mentioned in para. 8(a) & (b) of the plaint for the purpose of saving the suit from being barred by law of limitation. The said amount, according to the Respondent, has been described as the sum which the Petitioner acknowledged in writing on March 31, 1958, as the total sum due and payable by the Petitioner to the Respondent. According to the Respondent, as the said debt had been acknowledged in writing by the Petitioner on March 31, 1958, the Respondent''s claim was not barred on March 31, 1960, when the Petitioner again acknowledged in writing a sum of Rs. 14,582-28 to be the sum due and payable by the Petitioner to the Respondent. Similarly, by acknowledgments in writing dated June 20, 1963, June/July 2, 1966 and June/July 1967, the Petitioner continued to acknowledge his debts to the Respondent amounting to Rs. 18,175-26, Rs. 28,240-81, Rs. 33,261-50 respectively. The substantial nature of the Respondent''s suit is set out in para. 6 of the plaint where it is stated:

In respect of the dealings and transactions between the plain tiff and the Defendant, a mutual open and current account was maintained at the said Jaipur Branch outside the said jurisdiction according to the year of account of the Plaintiff....

The last credit entry in the said account has been made on June 30, 1967, and the last debit entry in the said account has been made in June 30, 1968.

Thus, the Respondent''s main claim is based on adjustments of account as on June 30, 1968. The earlier agreement dated April 3, 1951, has come to an end. The Respondent''s claim, as set out in the plaint, is based on the sum due and payable by the Petitioner to the Respondent on June 30, 1968, under the subsisting agreement, i.e. July 24, 1958. In any event, Mr. Bose has frankly admitted that the entire sum claimed in the suit amounting to Rs. 40,681-94 is a dispute under the agreement dated July 24, 1958, and, as such, the Respondent will be at liberty to contend before the arbitrator that the Petitioner is estopped from raising the contention in future that a portion of the said claim is based on the earlier agreement. It should be remembered that the earlier agreement also contains an arbitration clause and the terms under the old and new agreements were substantially the same although there were differences as to the details in respect of the remuneration, house allowance and commission. Both the agreements relate to appointment of the Petitioner as the Manager of the Jaipur Branch. Both the agreements and terms relate to the duty and nature of remuneration of the Petitioner and under both the agreements parties have agreed to refer their disputes to arbitration. In any event, by abundant caution I allow the prayer of Mr. Bose in substituting the cause title as prayed for by him. In my view, the Petitioner should not be denied determination of his disputes and differences in arbitration when there is an agreement to that effect.

The last contention of Mr. Bhabhra is that cl. 14 of the agreement dated July 24, 1958, empowers the Managing Director to terminate the services of the Petitioner summarily for disobedience of order and negligence in performance of duties etc. Under the said clause, the Managing Director of the company shall be the sole Judge _ in the matter of termination and a certificate from him shall be conclusive between the Petitioner and the Respondent. Thus, the Petitioner''s right of action, if. any, against the termination of his service is a matter which is outside the scope of arbitration as set out in cl. 18 of the agreement. Reference has been drawn by him to para. 7 of the am davit-in-opposition where the Respondent has set out in details the circumstances under which the Petitioner''s service had to be terminated. Mr. Bose has, however, contended that the question of termination of the service of the Petitioner is not an excepted matter and, as such, the arbitrator''s jurisdiction in cl. 18 has not been taken away. He, however, has made it clear that, so far as the present proceedings are concerned, his client is not raising any contention on the rightful or wrongful termination of his service. He has, therefore, argued that Mr. Bhabhra''s contention is not relevant and should be rejected. It is true that under the contract itself the Managing Director has been given the sole power to terminate the service of the Petitioner under cl. 14 and his decision is final on the matter. But the arbitration clause in the agreement dated July 24, 1958, has been expressed to cover all points or disputes arising out of or anyway relating to the appointment of the Petitioner. It is not mentioned in the arbitration clause that cl. 14 or any other matter is excepted. But, assuming that the scope of arbitration under cl. 18 is restricted by the question of termination under cl. 14, as an excepted matter outside the arbitration clause, the arbitrator may legitimately give his decision on the question whether the decision of the Managing Director on the question of termination of the Petitioner''s service has been final and conclusive by the Managing Director and cannot be re-opened under cl. 14 if of course the parties so choose to raise such disputes before the arbitrator. In the present case, there were other difficulties in accepting the contention of Mr. Bhabhra. Clause 14 on which Mr. Bhabhra is relying itself says that

a certificate from the Managing Director on the question of the termination of the Petitioner''s service shall be conclusive between the parties.

No certificate has been shown to me and, as such, cl. 14 is not attracted. There is also good reason why the certificate has not been marked as an annexure either in the plaint or in the affidavit filed by the Respondent. The Respondent has instituted the "suit on the money payable to them by the Petitioner under the contract between them. Upon scrutiny of the accounts between the parties a sum of Rs. 40,681-94 has been claimed by the Respondent as the sum found due and payable by the Petitioner to the Respondent. No claim for damages has been prayed for. in the said suit arising out of the termination of the service of the Petitioner. The Respondent has filed a suit on the basis of accounts stated between the parties and the said disputes are disputes under the agreement which contains the arbitration clause and, therefore, there is no difficulty in the determination of that dispute by the arbitrator. If, however, the Petitioner raises a new dispute on the question of wrongful termination of his service the Respondent will be at liberty to take such defence as it thinks best. At the present moment no dispute as to the wrongful termination of his service has been raised. It may be added here, according to Mr. Bhabhra, the question of termination of the service of the Petitioner could only be determined by a Court of law and not by the arbitrator. If the Petitioner chooses to raise the question of termination of service he may choose to file a suit against the Respondent. But, that situation has not yet arisen before me. If such hypothetical situation arises, the parties may agree to have that dispute also be determined by the same arbitrator or any other arbitrator or such dispute may be decided in a Court of law.

For all the reasons stated above, Mr. Bhabhra''s contention must be rejected. I, however, direct that the description in the cause title, ''In the matter of an. arbitration contained in the letter dated 24th July 1958.... be amended or substituted by the words ''In the matter of arbitration agreements contained in letters dated April 3, 1951 and July 24, 1958 .'' There will be order in terms of prayer A.

As Mr. Bose wanted the Court to appoint an arbitrator, I almost decided to appoint a member of the Bar to be the arbitrator in this matter. But, as an earlier application u/s 8 of the Act is pending before the Jaipur Court, I am not making any order appointing an arbitrator in this matter. Parties will bear their respective costs. As prayed for, the order is stayed for a fortnight.