Union of India and Ors. vs Bhalla Builders

Sethi, J.

The important questions of law required to be adjudicated upon in this appeal are.

1) What procedure should be followed by the Civil Court after setting aside the award under Sections 30/33 of the Arbitration Act ? and

2) Whether the arbitration proceeding come to an end or they are relegated to the position when reference was made after the award filed by the

arbitrator is set aside ?

In order to appreciate the rival contention of the parties, it is necessary to refer some facts which have culminated in the filing of the present appeal.

After the disputes arose between the parties pertaining to the contract agreement No CPJK2/8081 for provision of married accommodation for

officers/JCos/Others at Akhnoor reference was made by this Court to the EngineerinChief for appointment of an arbitrator for adjudication of

disputes between the parties. Shri Y. M. R. Rao was appointed as an arbitrator who filed the award in this Court which was challenged by the

respondentclaimant under Sec. 30/13 of the Act on various grounds including the ground of misconduct of the arbitrator. The respondent denied

the allegations of the claimant and on the basis of the pleadings of the parties, following issues were framed:

1) Whether the arbitrator has misconducted himself and the proceedings or the award is otherwise liable to be set aside ? OPP

2) Whether the award has not been filed by a competent person1 If so, what is its affect ? OPP

3) Relief ?

The learned Single Judge decided issues No. 1 in favour of the respondentclaimant and directed the setting aside of the award on the ground of

misconduct of the arbitrator After setting aside the award, the learned Single Judge referred the disputes between the parties to Shri V V.

Abhyankar, Chief Engineer (retired), Dl 166, Vasant Kunj, New Delhi for adjudication and submission of the award within the statutory period.

The appellant felt aggrieved of the order of reference of disputes to an independent arbitrator and preferred the appeal with a prayer for setting

aside the judgment of the learned Single Judge,

We have heard learned counsel for the parties and perused the record. They have submitted that the appeal be disposed of on merits at this initial

stage.

The purpose, object and assence of arbitration is that the dispute are referred by the parties for settlement to a tribunal of their own choice instead

of to a court. In order to achieve the objective of settling the disputes from the judge of their own choice it is necessary that some assistance should

be lent by the ordinary machinery of law for which the Arbitration act (hereinafter referred to as the Act) has been enacted conferring some degree

of control by courts over the arbitration proceedings. To ascertain the extent of abdication of powers in favour of the arbitrator, an agreement is

required to be executed between the parties which should be in writing within the meaning of Sec. 2 of the Act. An arbitration agreement may be

contained in a clause quite collateral to the main purpose of the agreement. It was held by the Supreme Court in Juggilal Kamlanat etc. etc. v.

General Fibre Dealers Ltd. etc. etc. (AIR 1962 SC 1123), that ""generally speaking an arbitrator is functus officio after he has made the award

which means that no power is left in the arbitrator to make any change in the substance of the award that he had made (excepting in certain

circumstances which have been provided in the law"" Referring to the scheme of the Act, the Apex Court in that case held. That scheme of the

Arbitration Act as disclosed from Ss. 8, 10,12, 19,20(5) and 25 is, whether the arbitration is under Chapter II Chapter III or Chapter IV to give

discretion to the Court to decide whether to supersede the reference or not when it sets aside the award.

After the award is filed in the Court, the Court has the power to modify it under Sec. 15, to remit it under Sec 16 or to pass a judgment in terms of

the award. The fourth option before the Court is to set it aside under Sec. 30/33 of the Act. The Court can modify or correct award in the

following circumstances

a) Where it appears that a part of the award is upon a matter not referred to arbitration and such part can be separated from the other part and

does not affect the decision on the matter referred; or

b) Where the award is imperfect in form, or contains any obvious error which can be amended without affecting such decision; or

c) Where the award contains a clerical mistake or an error arising from an accidental slip or omission.

Similarly the Court may from time to time remit the award or any matter referred to arbitration upon such terms as it thinks fit;

i) Where the award has left undetermined any of the matters referred to arbitration, or where it determines any matter not referred to arbitration

and such matter cannot be separated without affecting t e determination of the matters referred; or

ii) Where the award is so indefinite as to be incapable or execution; or

iii) Where on objection to the legality of the award is apparent upon the fact of it.

If the Court chooses not to modify or remit the award it may pass judgment in terms of the award under Sec. 17. If the award is neither modified

nor remitted or made a rule of the Court, the court has the power to set it aside on the grounds mentioned in Sec. 30 of the Act. After the award is

set aside, no procedure is prescribed under the Act for any further proceeding in the matter. Keeping in view the scope, purpose and object of the

arbitration, the Legislature in its wisdom has opted not to provide any machinery or procedure after the award is set aside presumably on the

ground that as the Judge or the tribunal of the choice of the parties has failed to adjudicate upon the disputes and the court does not find ground

either to remit or to modify the order, lis before the arbitrator should be deemed to have been terminated and the parties left to choose other

forums available to them for adjudication of their civil rights, if any, in accordance with the general law. The failure on the part of the arbitrator does

not confer any additional right upon the parties to get their disputes settled without the intervention of law in that eventuality. The arbitration

agreement between the parties, does not confer a right upon them but only provides a remedy for getting their rights adjudicated through an

independent agency and without the intervention of the Court. If the parties fail to get their rights adjudicated through such an independent agency

or the arbitrator is incapacitated from performing the duties as judge of the choice of the parties, court has no right to go on substituting the

arbitrators for the one who is one who is found to have misconducted or whose award has been set aside on any of the grounds mentioned in Sec.

30 of the Act.

Three matters are required to be borne in mind while deciding about the arbitration proceedings. The first of the existence of the arbitration

agreement, second being reference to the arbitrator and lastly the award. A duty is cast upon the Court under Sec. 19 of the Act to supersede the

reference and order that the arbitration agreement shall cease to have effective with respect to the disputes covered under it. The word ""may"" used

in Sec. 19 gives a discretion to the Court not to supersede the reference only in a case where the arbitration agreement executed between the

parties itself makes it obligatory for fresh reference of disputes to the arbitrator even after setting aside of the award. In all other cases, after setting

aside the award, reference is required to be superseded. We are fortified in our view by the observations made by the Supreme Court in Juggi

Lal's case (supra) where it was held :

The legislature has therefore given discretion to the Court under S. 19 to decide when it sets aside the award what the consequences of its order

setting aside the award will be. If the court finds that the arbitration agreement is of the kind which exhausts itself after the first reference is made or

if it finds on account of the reasons which have impelled it to set aside the award that there should be no further reference of the dispute to

arbitration, the Court has the power to supersede the reference and thereupon order that the arbitration agreement shall cease to have effect with

respect to the difference referred. On the other hand if the Court finds that the arbitration agreement is of a general nature and contemplates

continuation of the reference with respect to different disputes arising under the terms of the arbitration agreement it may not supersede the

reference with the result that the reference as well as the arbitration agreement on which it is based survives. In such a case there can in our opinion

be no doubt that where the reference arid the arbitration agreement survive the same dispute may go before the arbitrators again provided there is

machinery provided in the arbitration agreement which makes this possible. It will thus be seen that the discretion vested in the Court under S. 19

depends upon the nature of the arbitration agreement in particular cases and it is on a consideration of those terms that the Court may decide in

one case to supersede the reference and order the arbitration agreement to cease to have effect after taking into account the reasons which have

impelled it to set aside the reference with the result that the reference and the arbitration agreement subsist; and if the arbitration agreement

provides for machinery to have further arbitration on the same dispute or other dispute arising under the arbitration agreement it is permissible to

have further arbitration on the same dispute or other disputes

It was further held in that case that generally speaking, the arbitrator becomes functus officio after he has given award and does not have the

jurisdiction to further arbitrate unless especially empowered in that behalf by the Court in accordance with the terms of the agreement executed

between the parties. Their Lordships further went on to hold that where the reference is not specifically superseded the parties are left to rely upon

the arbitration agreement which would become elective for setting aside of the award and it will depend upon the terms of the arbitration agreement

where the arbitration proceedings can go on with respect to the same dispute or with respect to other disputes arising under the arbitration

agreement The Court in that case also considered the cases decided in the 1958 Calcutta 490, AIR 1956 Madras 269 and AIR 1959 Punjab

102.

The order of setting aside the award cannot be equated with the order of remitting the award under Sec. 17 of the Act. Sec. 30 is an exhaustive

provision specifically dealing with the setting aside of the award and prescribing the procedure to be followed thereafter. In Union of India V. K. L.

Bhalla, (AIR 1977 Delhi 82) it was held that the order setting aside the award on the ground of misconduct of the arbitrator for reconsideration

was without jurisdiction. In Haran Chandra Lakhar v. Krishna Kanta Das (AIR 1955 Assam 61), a Division Bench of the Assam High Court

found after the award is set under Sec. 30, the proposed course for the party was to proceed with the suit in its usual way and remitting of the

matter to the arbitration was improper. In arriving this conclusion the Assam High Court was persuaded by the judgment of the Privy Council

reported in AIR 1945 PC 76. In that case the petitioner had instituted a suit in a subordinate court for the recovery of a specific sum on the basis

of two promissory notes executed by the defendantparty in his favour. The defendant pleaded liability only to a limited extent and state that one of

the promissory notes was executed on adjustment of account between the parties During the pendency of the suit both the parties filed petition in

the subordinate court praying therein that the matter might be and was referred to the arbitrators named therein. After protracted litigation and

award was set aside and it was contended that there was no power to remit the proceedings conferred upon the court under Sec. 30 of the Act.

Reliance was placed upon the judgment reported in AIR 1951 Allahabad 350 and AIR 1948 Madras 40. In the circumstances of the case, the

Court held :

When an award has been improperly procured or is otherwise invalid it may be set aside under S. 30 of the Act and here the setting aside of the

award came under c 1. (c) of that section and not under S.16 (1) (c)which applies only when the objection to the legality of the award is apparent

upon the face of it, as for instance. when it is based on a legal principle which is clearly an I definitely wrong. Section 19 of the Act, final and

bidding on both parties to the contract however, provides that where an award has become void under subs. (3) of S. 16, or has been set aside,

presumably under S. 30, the Court may, by order supersede the reference and shall thereupon order that arbitration agreement shall cease to have

effect with respect to the difference referred.

In view of the various pronouncements by different High Courts and the judgment of the Supreme Court in juggilal's case (supra) it is held that in all

the cases where the award is set aside under Sec. 30 read with Sec. 33 of the Act, the Court is obliged to supersede the reference and the

arbitration agreement ceased to have effect with respect to differences referred unless the original agreement executed between the parties itself

provides a machinery for fresh reference to the arbitrator. With the setting aside of the award the arbitration proceedings should generally come to

an end and the parties left to have other remedies available to them under the general law.

In the instant case the parties were governed by the following arbitration clause :

Arbitration : All disputes, between the parties to the Contract (other than those for which the decision of the C.W E. or any other person is by the

Contract expressed to be final and binding) shall, after written notice by either party to the Contract to the other of them, be referred to the sole

arbitration of an Engineer Officer to be appointed by the authority mentioned in the tender documents.

Unless both parties agree in writing such references shall not take place until after the completion of alleged completion of the Works or termination

or determination of the Contract under Condition Nos. 55,56 and 57 hereof.

Provided that in the event of abandonment of the Works or cancellation of the Contract under Condition Nos. 52, 53 or 54 hereof, such reference

shall not take place until alternative arrangements have been finalised by the Government to get the works completed by or through any other

Contractor or Agencies.

If the Arbitrator so appointed resigns his appointment or vacates his office or is unable or unwilling to act due to any reason whatsoever, the

authority appointing him may appoint a new Arbitrator to act in his place.

The Arbitrator shall be deemed to have entered on the reference on the date he issues notice to both the parties, asking them to submit to him their

statement of the case and pleading in defence.

The Arbitrator may, from time to time, with the consent of the parties, enlarge the time upto but not exceeding one year from the date of his

entering on the reference, for making and publishing the award.

The Arbitrator shall give his award within a period of six months from the date of his entering on the reference or within the extended time as the

case may be on all matters referred to him and shall indicate his findings, along with sums awarded separately on each individual item of dispute.

The venue of Arbitration shall be such place or places as may be fixed by the Arbitrator in his sole discretion.

The award of the Arbitrator shall be final and binding on both parties to the contract.

A perusal of the aforesaid clause clearly shows that after setting aside of the award the reference stop impliedly superseded as no inaclinery was

provided in the arbitration agreement which made it possible for fresh reference, to the arbitrator whether earlier agreed or independently

appointed,

Under the circumstances this appeal is allowed by setting aside the judgment of the learned Single Judge to the extent by which despite setting

aside of the award, disputes were referred to Shri V. V. Abhyankar, Chief Engineer retired, D1\66, SectorD Vasant Kunj, New Delhi, which

could not be referred to the terms of the arbitration agreement executed between the parties The award filed by the arbitrator shall be deemed to

have been set aside superseding the arbitration reference and the parties shall be at liberty to resort to such other appropriate remedies which may

be available to them under law.

Interim direction of the Court dated 12.11.1992 shall stand

vacated thereby disposing of C. M. P. No. 684 of 1992.