1955 (9) TMI 15 - HC - Companies Law

Appeal allowed, lower court decision reversed, arbitration award set aside.

Shiv Omkar Maheshwari Versus Bansidhar Jagannath

The appeal was allowed, the order of the City Civil Court Judge was reversed, and the award made against the appellant was set aside with costs ... Memorandum and articles of association – Registration of, Articles of association and Effect of memorandum and articles Issues Involved1. Setting aside of the arbitration award.2. Extension of time for making the award.3. Jurisdiction of the Lavad Committee under the articles of association and bye-laws.4. Validity of arbitration agreement under section 2 of the Arbitration Act.5. Alleged irregularities in the arbitration proceedings.Detailed Analysis1. Setting Aside of the Arbitration AwardThe appellant had applied to the City Civil Court to set aside an arbitration award made against him, which was dismissed by the trial judge. The appellant argued that the Lavad Committee had no jurisdiction to decide the dispute as he disputed the existence of the contract itself. The court held that the relevant articles of association did not confer jurisdiction on the Lavad Committee to deal with the preliminary dispute as to whether the contract had been entered into between the appellant and the respondent. The court stated, 'A dispute as to the existence of the contract itself is outside the contract altogether and the decision of this dispute as an essential preliminary before dealing with the disputes arising out of or in course of the said contract.'2. Extension of Time for Making the AwardThe respondent applied for an extension of time to make the award, which was granted by the trial judge. The appellant argued that the proceedings before the arbitrators were delayed and irregular. However, the court observed that under section 39 of the Arbitration Act, an order extending time is not appealable. The court noted, 'The Legislature has clearly contemplated that the question as to whether time should be extended should be left entirely to the discretion of the trial Judge and the order that the trial Judge may pass in the exercise of his discretion should be regarded as final.'3. Jurisdiction of the Lavad CommitteeThe court examined whether the articles of association and bye-laws constituted an agreement in writing to refer the dispute to arbitration. The court held that the relevant articles did not confer jurisdiction on the Lavad Committee to deal with disputes as to the existence of the contract. The court stated, 'It is very difficult to hold that a dispute as to the existence of the contract itself arises out of the contract or arises in course of the contract.' The court further noted that the arbitration agreement must reside in the articles of association, and no bye-law can validly confer jurisdiction to entertain such disputes on the Lavad Committee.4. Validity of Arbitration Agreement under Section 2 of the Arbitration ActThe court discussed whether the articles of association could constitute an arbitration agreement under section 2 of the Arbitration Act. The court noted the conflicting judicial opinions on this point. The court concluded that the articles of association could constitute a general contract containing an arbitration clause, which would govern all dealings entered into between members in respect of commodities falling within the purview of the association. The court stated, 'We prefer to accept, with respect, the view taken by Mr. Justice BHAGWATI in Mohanlal's case (supra).'5. Alleged Irregularities in the Arbitration ProceedingsThe appellant argued that the arbitration proceedings were irregular due to the fluctuating composition of the Lavad Committee. The court noted that bye-law 88 of the chamber specifically provided that objections regarding the composition of the arbitration committee would not invalidate the award. The court held, 'We must, therefore, hold that the infirmity in the award on which Mr. K.T. Desai relied cannot invalidate the award because bye-law 88 expressly precludes the appellant from raising such a contention.'ConclusionThe appeal was allowed, the order of the City Civil Court Judge was reversed, and the award made against the appellant was set aside with costs throughout. The court concluded that the dispute as to the existence of the contract itself was not covered by the arbitration agreement in the present case, rendering the award made by the arbitrators invalid.