Bihar Plastic Industries Vs New India Assurance Company Ltd.

Prasun Kumar Deb, J.@mdashThis appeal has been preferred against the order dated 20.9.1989 passed by the then Subordinate Judge 1st, Jamshedpur, in Misc. Case No. 14/85.

2. The appellant had a factory insured with the Respondent-Insurance Company for a sum of Rs. 2,00.000/- against loss or damage by fire, riot, strike or malicious damages for a period of twelve months starting from 14.12.1981 to 24.12.1982. The fire policy also contained an arbitration clause to the effect that if any difference shall arise between the insurer and insured regarding the quantum to be paid under this policy and when the liability being otherwise admitted, then such difference shall independently of all other questions be referred for the decision of an Arbitrator. The appellant''s case was that during the period of insurance, fire broke out on 12th June, 1982 causing damages to the factory. Such damages was informed to the respondent-Insurance Company, which in turn had sent the claim forms and dispute to M/s. Survey and Investigation for assessing the loss and submitting his report. M/s. Survey and Investigation assessed the loss to the tune of Rs. 8,000/-against the claim of Rs. 14,000/- but then the Insurance Company repudiated the claim vide its letter dated 7/8th April, 1983. On this, the appellant approached the Sub-Judge''s Court on 17.6.1985 u/s 8 of the Indian Arbitration Act, and prayed for appointment of an Arbitrator and for referring the dispute. The respondent-Insurance Company was summoned and it appeared on 21.9.1985 and took time for filing show cause, but no show cause was filed on its behalf. Then by order dated 6.12.1986 (23.2.1987) the Court appointed one Sri J.K. Ghosh, Advocate as an Arbitrator and referred the dispute of the parties for adjudication and award, but before entering into the arbitration, Sri J.K. Ghosh, left Jamshedpur, and as such, on a prayer being made by the parties, learned Sub-Judge vide its order dated 4.6.1988 appointed Shri D.K. Biswas, Advocate, as an Arbitrator in the matter in place of Sri. K. Ghosh. It may be mentioned here that in the initial order of appointment of Arbitrator, there was a limit-period for filing of the award within three months, but in the later order dated 4.6.1988, whereby Shri D.K. Biswas, Advocate, was appointed as an Arbitrator, no period-limit was fixed. The Arbitrator Sri Biswas entered into the reference on 17.6.1988 and issued notice against both the parties fixing 24.6.1988 for hearing. On that date, the respondent-Insurance Company appeared before the Arbitrator and prayed for time. The matter was adjourned till 11.7.1988 (12.7.1988), on which date both the parties prayed for time. Therefore the matter was adjourned to 28.7.1988 and thereafter to 16.8.1988. On that date i.e. on 16.8.1988, the respondent-Insurance Company filed objection and the matter was adjourned for 29.8.1988. On 29.8.1988 and 4.10.1988, the matter was adjourned. The Respondent-Insurance Company took steps but no steps were taken from the side of the appellant. Thereafter, no step was taken by the respondent i.e., the Insurance Company. On 28.3.1989 the Arbitrator issued fresh notice on the lawyers of both the parties. Applicant i.e., the Appellant took steps but the respondent-Insurance Company failed in taking part in the arbitration proceeding. Lastly, on 19.5.1989, the matter was heard ex-parte and vide order dated 8.6.1989 the Award was made and submitted to the Court. The respondent-Insurance Company did not participate in the reference after 4.10.1988 as is revealed from the order-sheet of the Arbitrator. When the Award was filed before the Court for making it a rule of the Court, the respondent-Insurance Company filed objection u/s 30 of the Arbitration Act, taking the ground, inter alia, that an Award made after the fixed is ineffective as the Arbitrator lost jurisdiction to make the Award, that the Arbitrator has miscomputed himself and that the Award was otherwise, invalid because the dispute was not worth referable to the Arbitrator in view of the fact that the claim of the appellant was already repudiated by the Insurance Company.

3. During the pendency of the proceeding, the appellant filed a petition u/s 28 for extension of the time for making the Award. Learned Arbitrator on the basis of the objection and counter objection enunciated three points for decision namely-

(i) Whether the Arbitrator miscomputed the proceeding by submitting the Award after the expiry of the time fixed?

(ii) Whether the Award was otherwise invalid as the reference was bad when the Insurance Company had already repudiated the claim of the appellant?

(iii) Whether the Award itself is otherwise bad as the Arbitrator heard the matter ex-parte after the period of limitation was over and the Insurance Company was legally absent after the period fixed for filing of the Award was over?

4. Learned Court below decided the vital two points in favour of the Insurance Company-respondent by holding that the reference to the Arbitrator was bad and that the Award being time barred is ineffective in the eye of law. Regarding the third point, the learned Sub-Judge held that there was no illegality committed by She Arbitrator in hearing the proceeding ex-parte when the Insurance Company failed to take steps in the proceeding. This point became redundant because of holding of vital points as mentioned above in favour of the respondents.

5. Let me first of all take the second point as to whether the Insurance Company was at liberty to raise the point of legality or otherwise of reference to the Arbitrator at that stage u/s 30 of the Arbitration Act.

6. Mr. Alok Lal, appearing for and on behalf of the Insurance Company, has argued that within Clause 3 of Section 30 which enumerates "Award being otherwise invalid", the legality of reference can be questioned by the parties to the arbitration proceeding even after the Award being made and in which the parties had also participated. He has referred to a judgment of this Court as reported in Union of India (UOI) Vs. Narinder Singh Kanwar, . Previously, there was decision of this Court as reported in Basant Lal Vs. Surendra Prasad and Others, Bihar State Co-operative Bank Ltd. Vs. The Phosphate Company Limited and Another, , Deep Narain Singh and Others Vs. Mt. Dhaneshwari and Others, and Bahadur Singh Vs. Fuleshwar Singh and Others, to the effect that challenging of the Award on the ground of initiation of arbitration proceeding and appointment of Arbitrator cannot be questioned u/s 30 of the Arbitration Act, and invalidity of Award can only be challenged u/s 33 of the Arbitration Act but then the decision of the Apex Court came as reported in The Union of India (UOI) Vs. Shri Om Prakash, . The previous decisions and the Supreme Court''s decision were considered by the Division Bench in the case of Union of India v. Narinder Singh Kanwar (supra). The Apex Court held in the case of the Union of India v. Shri Om Prakash, (supra) that within the word "or is otherwise invalid" u/s 30 of the Act attracts also the objection regarding illegal reference to the Arbitrator also and for that it can not be said that such objection cannot be raised u/s 30 of the Arbitration Act, and no fresh petition u/s 33 of the Act is required. On the basis of that decision of the Apex Court, the Division Bench of this Court in Narinder Singh Kanwar''s case (supra) held that previous decisions of this Court were no longer good law. So, learned Court below has rightly held that such objection can be raised under the provision of Section 30 of the Arbitration Act also by the respondent regarding the legality or otherwise of the reference to the Arbitrator. Such objection may be made maintainable, but in the present case, such legal principle may not attract because of the below mentioned reasons.

7. Mr. Rajgarhia, by referring to the various orders of the record could be able to show that while reference was made to the Arbitrator, the Insurance Company did not raise any objection. Now, at the fag end they are taking the plea that the reference itself was invalid in the eye of law because under the arbitration clause, only the difference between the parties regarding the quantum can be referred to the Arbitrator and not other matters of difference and, as such, dispute regarding quantum only can be referred, when the liability is admitted by the Insurance Company. It is true that the Insurance Company after getting report from M/s. Survey and Investigation had denied its liability by a letter of 7th/8th April, 1983, and whether the repudiation was legal or not, that could have been considered by the Court before the reference was made, if objections were raised to that effect. But no such objections were ever raised. Rather it appears that at the very first instance, the Insurance Company had admitted their liability and referred for proper assessment to M/s. Survey and Investigation and when the assessment was made to the tune of Rs. 8,000/- very cleverly the Insurance Company to avoid arbitration clause had given a letter dated 7th/8th April, 1983, denying their liability. If their liability was not there then the Insurance Company ought not to have sent the claims of the applicant-appellant to M/s. Survey and Investigation. However, taking it for granted that there was repudiation from the side of the Insurance Company at a belated stage after the assessment was in favour of the appellant then also when the appellant came up u/s 8 of the Arbitration Act, for appointment of Arbitrator, the Insurance Company did never raise any objection although several opportunities were given to file show cause, father from the order-sheet it appears that on consent of both the parties, Arbitrator was appointed and when Mr. J.K. Gosh was not found 1 available, then the name of the Arbitrator was changed, that too, on consent of both the parties. At that stage, there was scope for the respondent to raise objection that the reference was not maintainable, but they did not do so. If an objection was raised and that has been denied or not considered while making the reference then after the Award also, an aggrieved party can raise the question of invalidity of the Award as the reference being illegal. But in the present case, the Insurance Company itself is estoppel from questioning the same and after the Arbitrator was appointed, the Insurance Company submitted to its jurisdiction and filed objection before the Arbitrator regarding the claims of the appellant, and as such, when the respondent-Insurance Company had submitted to the jurisdiction, they were not entitled to raise the objection of invalidity of reference at a belated stage. The same view has been taken by the Apex Court in the case of Prasun Roy Vs. Calcutta Metropolitan Development Authority and Another, . It was held by the Apex Court that when a party is aware from the begin in that the reference to the Arbitrator is not legally capable then if he participates in the arbitration proceeding and fully avails of the entire proceedings, then he is stopped from questioning the legality of reference to the Arbitrator at a belated stage.

8. Thus, I find and hold that the second point as held by the learned Sub-Judge is not proper and in the facts and circumstances of the case, the Insurance Company is debarred from raising the question of disability of reference at that stage.

9. On the first point regarding expiry of time before the Award being filed, the learned Court below held that the Arbitrator Shri D.K. Biswas had filed the Award beyond the period of limitation and hence, the Award is not maintainable to be made a rule of Court.

10. The first submission of Mr. Rajgarhia for and on behalf of the appellant is that there was no time limit fixed by the Court regarding submission of the Award by the Arbitrator. In the first order by which Mr. J.K. Ghosh was appointed as an Arbitrator, time limit was fixed for three months vide order dated 23.2.1987. But because of inability of Sri J.K. Ghosh in entering into the reference, the name of the Arbitrator was changed vide order dated 4.6.1988, and Sri D.K. Biswas was appointed as Arbitrator, but in that order, there was no time limit fixed by the Court and when the time limit is not fixed then by Schedule-I of the Arbitration Act, the Arbitrator must file his Award within four months from the date of entering into the reference. This position has been accepted by Mr. Rajgarhia. Then his submission is that the learned Arbitrator i.e., Shri D.K. Biswas could enter into the reference only on 19.5.1989, when the Arbitrator applied his mind.

11. Mr. Alok Lal, appearing for and on behalf of the respondent vehemently objected to it and submitted that when the Arbitrator issued notice on 17.6.1988, then practically, he entered into the reference and when the Award has been filed long after one year then the Award is beyond the period and hence, the learned court below has rightly held that the Award is not fit to be made a rule of the Court.

12. In support of his contention, Mr. Rajgarhia has submitted that issuance of notice to the parties are only ministerial works and, as such, issuance of notice cannot be said to be entering into the reference by the Arbitrator. He has referred to a judgment of Division Bench of the Gujarat High Court in the case of Gujarat Water Supply and Sewerage Board, Gandhinagar Vs. Unique Erectors (Guj) Pvt. Ltd. and Another, . The Division Bench of the Gujarat High Court held that entering upon a reference as per para 3 of the First Schedule of the Arbitration Act means the date when the Arbitrator actually applies his mind for the first time to the disputes to be resolved by him and not when he first issues a notice whereby he calls upon the parties to produce their statements of cases etc. Thus, according to Mr. Rajgarhia, issuance of notice on 17.6.1988 firstly by the Arbitrator to both the parties to file their statements was not the date to be construed for the purpose of entering into the reference. It appears, that, as I have stated earlier, after taking two adjournments by the Insurance Company written statement was filed on 16.8.1988, although the appellant filed the same on 28.7.1988. After the statements have been filed then also the Insurance Company took adjournment on 29.8.1988 and for absence of both the parties again notice was issued on 13.10.1988 and then there was absence of the respondent-Insurance Company and again on 12.5.1989 notice was issued. Thus, the claims made by the parties were before the Arbitrator on 16.8.1988, and as such, definitely, there was application of mind by the Arbitrator atleast from 16.8.1988 and it cannot be said that the notice sent afterwards to the parties were also ministerial actions and not application of mind. When the statements of the parties were before the Arbitrator, he was knowing the cases of the parties, and as such, at least from that date i.e., 16.8.1988, the Arbitrator had entered into the reference. But as the Award has been filed on 19.6.1989 i.e., after one year than definitely, it is not within the time of four months from the date of entering into the reference. According to Mr. Rajgarhia, the application of mind was on 19.5.1989 when the Arbitrator took up the case for disposal. I am not convinced with such submission made by Mr. Rajgarhia. He has again referred to a decision of the Apex Court as reported in Sham Lal (Dead) by Lrs. Vs. Atme Nand Jain Sabha (Regd.), Dal Bazar, . That was the case of eviction of tenant under the East Punjab Urban Rent Restriction Act. The date of first hearing of the application for ejectment was held to be not the date fixed for return of summons. It was held by the Apex Court that the first day of hearing of the application that Act should be construed when the Court applied its mind to the case. That judgment of the Apex Court has got no bearing in present context. There is no mention of first hearing in Rule 3 of Schedule-1 of the Arbitration Act. It was the date of entering into the reference and entering into the reference is, definitely, the date when the claims of the parties were before the Arbitrator and he applied his mind for resolving the dispute.

13. In this respect, Mr. Alok Lal has referred to a judgment of this Court in the case of Soneylal Thakur Vs. Lachhminarain Thakur and Another, wherein "Entering on the reference" has been interpreted by a Division Bench of this Court and it was held that the word ''entering on the reference'' does not mean the moment when the Arbitrator accepts to Work as an Arbitrator and issues notice nor does it mean the date when the actually hears the reference, rather it legally construed, entering on the reference means the exact date when the Arbitrator applies his mind to determine the facts and circumstances of the case, I am of the firm view that the initial issuance of notice to the parties after the Arbitrator takes up the Arbitration proceeding is not the date for entering into the reference. Entering into the reference would be the date when both the parties or a party had filed their statements and the Arbitrator applied his mind for the purpose of determination of his duties to resolve the dispute. In any view of the matter, the present Award is, definitely, barred by law of limitation and hence, the same cannot be made a rule of the Court. The position would have been different if the Insurance Company would have continued in the reference before the Arbitrator even after the expiry of the period. Although different High Courts have held that in the fight not knowing the provision of law if a party submits to the jurisdiction, he cannot be estoppel from challenging the limitation point after the Award is, filed, but here the case is different; when the period of four months had been passed, the Insurance Company debarred itself from appearing before, the Arbitrator revealing their clear intention that arbitration proceeding had lost its force due to efflux of time. Hence, the Award is, definitely, beyond the period of limitation and hence the same is not fit to be made a rule of the Court.

14. Then Mr. Rajgarhia submitted that there was a petition u/s 28 of the Indian Arbitration Act for extending the period of limitation, but the learned Court below has not passed any order on it. His further submission is that in a fit and proper circumstances of a case, even the appellate Court has the power to extend the time and this extension of time to be granted by the Court is not limited to before the filing of the Award. It can be done even after the filing of the Award also. He has referred to a decision of the Apex Court as reported in State of Punjab Vs. Hardyal, . In the referred case the Hon''ble Apex Court held that the power to extend time for making the Award can be exercised by the appellate Court also u/s 28(2) of the Arbitration Act. But facts and circumstances of the case are quite different from the present case. In that case, appeal was pending before the Supreme Court since 1970 and the order was passed in the year 19S5 and in that case, even after the expiry of the period fixed in Schedule-1, parties had willingly taken part in the arbitration proceeding and did not raise objection and, as such, it was held in the nature and circumstances of that case, that the time limit can be extended by the appellant Court even. In the same, judgment, the Apex Court had clearly held u/s 28 read with Schedule-1, Clause 3 that time limit prescribed cannot be extended by the Arbitrator himself suo motu and it can only be done by the Court and non-else. Even if the parties are agreeable then that circumstances can be taken into consideration for the purpose of extension, but in no case, the Arbitrator can do it. But in the present case, it appears that the Insurance Company during the arbitration proceeding had absented itself after the expiry of the period and then they had not appeared and taken part and the Award was passed ex-parte: The claim of the appellant was also repudiated, although at a belated stage by the Insurance Company. But that repudiation, as has been held by the this Court in the foregoing paragraphs, can not debar the appointment of Arbitrator, when such Arbitrator was appointed on consent of both the parties; that means that right had already been waived out by the Insurance Company and cannot be taken a plea u/s 30 of the Arbitration Act, although legally he is not debarred but in the facts and circumstances of the case, the Insurance Company is debarred. Considering all these factors, I am of the firm view that the learned court below has rightly not entertained the petition filed u/s 28 of the Arbitration Act, and in the present case, there is no scope to extend the period by the appellate Court.

15. Regarding the third point the learned Court below has already held in favour of the appellant and, as such, that point has not been argued by either of the parties.

16. In the result, the appeal is rejected having no force in it, but in the circumstances of the case, no cost is awarded to either of parties.