Appeal Dismissed, Costs Awarded Upholding Time Limit on Arbitration Awards

The appeal was dismissed with costs, affirming the High Court's decision that the award was made after the expiry of the prescribed period, and the arbitrators had no jurisdiction to make it. The court clarified that the notice to act must be given within four months from the date the arbitrators enter on the reference, and if given after this period, the arbitrators become functus officio unless the court extends the time for making the award under Section 28 of the Act.

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Issues Involved:
1. Construction of Rule 3 of the First Schedule to the Arbitration Act, 1940.
2. Validity of the award made after the prescribed period.
3. Interpretation of "entering on the reference" and "called upon to act."

Detailed Analysis:

1. Construction of Rule 3 of the First Schedule to the Arbitration Act, 1940:

The primary issue in this appeal revolves around the interpretation of Rule 3 of the First Schedule to the Arbitration Act, 1940. The appellant argued that Rule 3 provides alternative periods within which arbitrators must make their award. Specifically, the second alternative allows an award to be made within four months from the date of notice issued by a party calling upon the arbitrators to act. The appellant contended that since the notice to act was given on August 31, 1950, the award made on October 1, 1950, was within the prescribed time.

The court analyzed the relevant provisions of the Act, including Section 3, which incorporates the First Schedule into arbitration agreements unless otherwise specified, and Section 28, which allows the court to extend the time for making an award. Rule 3 mandates that arbitrators make their award within four months after entering on the reference or after being called upon to act by notice from any party, or within such extended time as the court may allow.

2. Validity of the award made after the prescribed period:

The court examined whether the notice to act given after the arbitrators had already entered on the reference could extend the period for making the award. It was concluded that "entering on the reference" and "called upon to act" are not synonymous. The former is a specific act of the arbitrators, while the latter is broader and can include various actions taken by the arbitrators. However, allowing a notice to act to be given at any time would defeat the purpose of Rule 3, which aims to ensure the expeditious disposal of arbitration proceedings. Therefore, a notice to act can only be given within four months from the date the arbitrators entered on the reference.

In this case, the notice to act was given long after the four-month period had expired. Consequently, the arbitrators could no longer act pursuant to the notice, and the proper course should have been to apply to the court for an extension of time under Section 28 of the Act. Thus, the High Court's conclusion that the award was made after the expiry of the period of limitation was upheld.

3. Interpretation of "entering on the reference" and "called upon to act":

The court distinguished between "entering on the reference" and "called upon to act." The former refers to the arbitrators beginning to take evidence or otherwise starting their inquiry. The latter is broader and includes any action taken by the arbitrators in their capacity as arbitrators. The court cited previous cases to support this distinction, including Baring-Gould v. Sharpington Combined Pick and Shovel Syndicate and Sardar Mal Hardat Rai v. Sheo Bakhsh Rai Sri Narain.

The court formulated the legal position as follows:
- A notice to act may be given before or after the arbitrators enter on the reference.
- If given before entering on the reference, the four months are computed from the date of entering on the reference.
- If given within four months after entering on the reference, the arbitrators can make an award within four months from the date of the notice.
- After the expiry of the four months, the arbitrators become functus officio unless the period is extended by the court under Section 28.

In the present case, since the notice was given long after the four-month period had expired, the arbitrators could no longer act, and the award was invalid.

Separate Judgment by Raghubar Dayal, J.:

Raghubar Dayal, J. agreed with the dismissal of the appeal but for different reasons. He emphasized that the period of four months begins to run from the date the arbitrators enter on the reference. Any subsequent notice calling upon them to act does not restart the four-month period. He noted that the arbitrators had entered on the reference by the end of August 1948, and the award made on October 3, 1950, was beyond the four-month period, making it invalid.

He also discussed the competency of arbitrators to act after the expiry of the four-month period, suggesting that arbitrators can continue to act in expectation of the court extending the time for making the award. However, he did not find it necessary to decide on the exact meaning of "entering on the reference" or "called upon to act."

Conclusion:
The appeal was dismissed with costs, affirming the High Court's decision that the award was made after the expiry of the prescribed period, and the arbitrators had no jurisdiction to make it.

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