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1987 SCC OnLine Ker 12 : AIR 1987 Ker 231 : (1987) 2 Arb LR 174

BEFORE V. SIVARAMAN NAIR AND M.M. PAREED PILLAY, JJ.

Food Corporation of India and another … Appellants;

Versus
A. Mohammed Yunus … Respondent.
M.F.A. 429 of 1982
Decided on February 13, 1987
PAREED PILLAY, J.:— Appellants are the defendants in O.S. (Arb.) 137 of 1978 of
the Sub Court, Trivandrum. The respondent (plaintiff) was entrusted with the work of
handling and transporting food grains under a contract dt. 8-7-1976 by the appellants.
The

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respondent undertook to complete the work at 373 per cent above the scheduled
rates. Respondent claimed remuneration at the rate of 650 per cent. He moved the
Sub Court for appointment of an arbitrator under S. 20 of the Arbitration Act. The
Court below appointed an arbitrator. Appellants Challenged the order of appointment
by filing M.F.A. 364 of 1980. That appeal was dismissed as time barred. The arbitrator-
entered on the reference and passed the award. The respondent moved the Sub Court
to make the award into a decree. The appellants filed application under Ss. 16 and 30
of the Arbitration Act (for short ‘the Act’) to set aside the award. The Sub Court
negatived the contention of the appellants and made the award into a decree. This is
challenged in the above M.F.A.

2. Contention of the appellants is that under Clause 19 of the contract only a person
appointed by the appellants could function as arbitrator and that being the position
the court had no jurisdiction to appoint any one else as arbitrator. Cl. 19 of the
agreement reads:
“All disputes and differences arising out of or in any way touching or concerning this
agreement whatsoever (except as to any matter the decision of which is expressly
provided for in the contract) shall be referred to the sole arbitration of any person
appointed by the F.C.I.….. It is also a term of this contract that no person other
than a person appointed by the F.C.I. as aforesaid should act as arbitrator and if for
any reason that is not possible the matter is not to be referred to arbitration at all.”
From the above clause it is clear that whenever disputes and differences arise out of or
in any way touching or concerning the agreement it shall be referred to the sole
arbitration of any person appointed by the Food Corporation of India. It also states
that no person other than a person appointed by the F.C.I. should act as arbitrator and
if for any reason that is not possible the matter is not to be referred to arbitration at
all. In P.G. Agencies v. Union of India AIR 1971 SC 2298 the Supreme Court has held
in para 4 as follows:
“Section 20 is merely a machinery provision. The substantive rights of the parties
are found in S. 8(1)(b). Before S. 8(1)(b) can come into operation it must be shown
that (1) there is an agreement between the parties to refer the dispute to
arbitration; (2) that they must have appointed an arbitrator or arbitrators or umpire
to resolve their dispute; (3) anyone or more of those arbitrators or umpire must
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have neglected or refused to act or is incapable of acting or has died; (4) the
arbitration agreement must not show that it was intended that the vacancy should
not be filled and (5) the parties or the arbitrators as the case may be had not
supplied the vacancy.”
The agreement would show that the parties had agreed that the matter in dispute
shall be referred to the sole arbitration of any person appointed by the F.C.I. It also
shows that no person other than a person appointed by the F.C.I. should act as
arbitrator and if for any reason that is not possible the matter is not to be referred to
arbitration at all. In view of the clear recitals in Clause 19 of the agreement it is
apparent that the parties never intended to supply the vacancy if an arbitrator for
some reasons could not be appointed.
3. Section 30 of the Arbitration Act postulates the grounds for setting aside an
award. Under S. 30(c) of the Act it is always open to a party to challenge the award if
it is established that it has been improperly procured or is otherwise invalid. In Union
of India v. Om Prakash, AIR 1976 SC 1745 it has been held that the words “or is
otherwise invalid” in cl. (c) in S. 30 of the Act are wide enough to cover all forms of
invalidity including invalidity of the reference. Thas it has to be held that the words “or
is otherwise invalid” in S. 30(c) of the Act are of greater amplitude to embrace all
forms of invalidity including invalidity of the referenced Whenever it is established that
an award has been improperly procured or is otherwise invalid the party who
challenges it can get it set aside under S. 30 of the Act.
4. As the appellants and the respondent had agreed that in the event of disputes
arising, between them it should be referred to an arbitrator appointed by the former
the latter cannot circumvent it by approaching the Court for appointing an arbitrator
unilaterally by the Court. When the agreement is silent as regards supplying the
vacancy the law presumes

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that the parties intended to supply the vacancy. Construing S. 8(1)(b) of the Act
Supreme Court in AIR 1971 SC 2298 (P.G. Agencies v. Union of India) held as follows:

“The language of the provision is not that the parties intended to supply the
vacancy but on the other hand it is that “the parties did not intend to supply the
vacancy”. In other words, if the agreement is silent as regards supplying the
vacancy the law presumes that the parties intended to supply the vacancy. To take
the case out of S. 8(1)(b) what is required is not the intention of the parties to
supply the vacancy but their intention not to supply the vacancy.”
As Clause 19 of the agreement is plain and unambiguous that the parties did not
intend to supply the vacancy, it is apparent that on the failure on the part of the
appellants to appoint any arbitrator the Court has no authority to fill up the vacancy.
5. Under S. 20(4) of the Arbitration Act reference can be made to an arbitrator
appointed by the parties and in the alternative to an arbitrator appointed by the Court
in a case where they cannot agree on the choice of the arbitrator. As admittedly no
arbitrator has been appointed by the F.C.I. the Court cannot enter into the fray and
impose its arbitrator. The indubitable position is that the Court cannot appoint an
arbitrator if the agreement excludes such a power to the Court. Any such appointment
in derogation of the agreement will be without jurisdiction. Award passed by the
arbitrator appointed by a Court lacking jurisdiction cannot have any binding force. It is
always open to the aggrieved party to take the stand that the award is not legally and
properly obtained. Merely because the appellants failed in their attempt to challenge
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the very appointment of the arbitrator as the appeal filed by them was dismissed as
barred by limitation they are not precluded from challenging the award under S. 30(c)
of the Act especially in view of the fact that the Court lacked jurisdiction in appointing
the arbitrator as exclusive discretion in the matter of appointment was given to the
F.C.I. Under similar circumstances in a case reported in AIR 1979 Delhi 220 (Raj
Bahadur Basakha Singh & Sons v. Indian D and P Ltd.) it was held that in view of the
refusal by the Managing Director of the respondent to appoint an arbitrator the court
cannot appoint an arbitrator and refer the matter to arbitration.
6. If an arbitrator enters upon consideration of a matter when he has no jurisdiction
to do so the award passed by him cannot have any validity. Entering appearance of a
party before the arbitrator cannot enable him to pass the award if the agreement does
not contain the necessary arbitration clause. In Chetandas Daga v. Radhakisson
Ramchandra AIR 1927 Bom 553 it is held as follows:
“If arbitrators enter upon the consideration of a matter when they have no
jurisdiction to do so by the arbitration clause or submission between the parties,
then they cannot be given jurisdiction under that submission by a mere appearance
of the parties before them at a preliminary meeting followed by a protest against
their jurisdiction before they have entered upon a consideration of the matters upon
which they subsequently purport to make an award.
Even if a party under protest continues to attend before arbitrators and cross-
examines witnesses, he does not thereby waive his objection, nor is he estopped
from saying that the arbitrators have exceeded their authority by awarding on the
matter.”
7. The authority of the arbitrator is confined to the matters lawfully submitted to
him. If there is no lawful submission the award by the arbitrator would consequently
suffer. Invalidity of the award can be urged under S. 30(c) of the Arbitration Act and
when such a challenge is made it is no answer to contend that the appointment of the
arbitrator even if it lacked jurisdiction was not successfully challenged at the
appropriate time. The question is not one of waiver but of the authority and a party
continuing to attend the arbitration proceedings after protest does not confer authority
on the arbitrator. Once parties appearing before the arbitrator object to his
jurisdiction, they do not waive their right merely by participating in the arbitration. As
protest was made by the appellants regarding the very jurisdiction of the Court in
appointing the arbitrator their right to challenge the award under S. 30(c) of the Act
cannot be said to be lost. The argument that

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appellants have waived their objection by participating in the arbitration proceedings

is without any merit. It is apposite to refer to Rambaksh Lachamandas v. Bombay
Cotton Company AIR 1931 Bom 81 at p. 82 wherein it is stated as follows:

“I think it is well established by authority that once parties appearing before

arbitrators object to the jurisdiction they do not waive their rights by proceeding
with the case before the arbitrators and defending themselves as best they may:
see Russell on Arbitration and Award, Edn. 11, at Pp. 431 and 432, and the
authorities there collected. In particular I would refer to the remarks of Lord
Selborne L.C. in Hamlyn v. Bettley where he said:
“……in arbitrations where a protest is made against jurisdiction the party protesting
is not bound to retire; he may go through the whole case subject to the protest he
has made”.”
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8. As objection has been filed by the appellants questioning the very jurisdiction of
the Court in appointing the arbitrator it is not possible to hold that the appellants took
part in the proceedings before the arbitrator on the assumption that proceedings were
before a competent authority. That would not be the position if the appellants did not
raise objection to the jurisdiction of the Court in appointing the arbitrator. It is settled
position that if a party takes part in the proceedings before the arbitrator on the
assumption that the proceedings were before a competent authority he cannot later
turn around and contend that the whole of the proceedings were coram non judice. In
AIR 1965 Cal 42 (New India Assurance Company Ltd. v. Dalmia Iron and Steel Ltd.) it
is held as follows:
“If a party allowed an arbitrator to proceed with the reference without objecting to
his jurisdiction or competence, it would not be subsequently heard to say that the
award should be set aside on the ground that the arbitrator was not competent to
decide the dispute in question.”
It is useful to quote the following passage at P. 174 of Russell on Arbitration (17th
Edition).
“In cases where an arbitrator enters into consideration of matters which are not
referred to him, or which he has no jurisdiction to try, “the question is not one of
waiver or estoppel, but of authority” and a party continuing to attend the reference
after objection taken and protest made does not give arbitrator authority to make
an award.”
Thus the position is that if the dispute is with regard to the very appointment of
arbitrator and yet the arbitrator had proceeded to make the award, the court can still
intervene when the award is sought to be enforced.
9. In AIR 1962 SC 1810 (Khardah Company Ltd. v. Raymon & Co. P. Ltd.) it has
been held that what confers jurisdiction on the arbitrators to hear and decide a dispute
is the arbitration agreement as defined in S. 2(a) of the Arbitration Act and where
there is no such agreement there is initial want of jurisdiction which cannot be cured
by mere acquiescence. S. 2(a) of the Act defines arbitration agreement as a written
agreement to submit present or future differences to arbitration whether an arbitrator
is named therein or not. When the agreement stipulates that so and so alone can be
the arbitrator, one of the contracting parties cannot ignore it and seek arbitration by
another person. Therefore the contention of the respondent that the appellants are
estopped by their conduct from questioning the validity of the award at a later stage
cannot be accepted.
10. As the court could not have appointed arbitrator it can never be said that there
was any proper appointment. It necessarily follows that there is no estoppel by
conduct in such a case. In Jagannath v. P.C. & I. Corporation AIR 1973 All 49 it has
been held that objection as to the lack of jurisdiction in the arbitrator can be allowed
to be raised at any stage and the mere fact that the party objecting had appeared
before the arbitrator at earlier stages of the proceedings and had even filed objections
against the claim of the opposite party would not operate as estoppel against them in
challenging the jurisdiction to give the award. As the Court lacked jurisdiction to
appoint the arbitrator overlooking the affirmative clause that arbitrator can only be
appointed by the appellants, the arbitrator appointed by the Court cannot get any
jurisdiction to make the award and consequently it is always open to the appellants to
challenge the award on the

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ground that it has been improperly procured or is otherwise invalid.

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11. Counsel for the respondent relying On Vulson v. Kelukutty AIR 1959 Ker 174
contended that the Court should not interfere in a case where a party did not object to
the appointment of the arbitrator at the first instance. In the above decision it was
held that the Court would not assist any party who with full knowledge of the
circumstances allowed an arbitrator to proceed and take part in it and sought to evade
it later by raising objections. This was not a case where there was any challenge
against the jurisdiction of the Court in appointing the arbitrator. The above decision
has no application to the facts of the case in hand. Counsel for the respondent relying
on Madipalli Venkatachellam v. Madeppully Surya Narayana Murthy AIR 1941 Mad 129
contended that Courts would be loath to assist a party who, with full knowledge of the
circumstances allows an arbitrator to proceed and takes part in it and later raises
objections which never occurred to him before. That would be true in a case where the
matter has proceeded without objection by anybody until after the award. The decision
reported in AIR 1941 Mad 129 has no application to the case in hand as it can never
be said that the objection raised against the award was as a result of afterthought.
12. Contention of the respondent that as the order appointing the arbitrator has
become final it is no longer available to the appellants to challenge the award is
without merit as the Court lacked jurisdiction in appointing the arbitrator. The learned
Sub Judge went wrong in holding that as the appellants had acquiesced by its
subsequent conduct in the appointment of the arbitrator it cannot challenge the
award. We hold that the said finding is not sustainable. The appellants have made out
a case to set aside the award under S. 30(c) of the Arbitration Act.
The judgment of the learned Sub Judge accepting the award and passing the
decree in terms of it is hereby set aside. The appeal stands allowed. There is no order
as to costs.
13. After pronouncing the judgment counsel for the respondent makes an oral
request for Leave to Appeal to the Supreme Court of India. As we do not find any
substantial question of law of general importance involved in this case which needs to
be decided by the Supreme Court we declined to grant leave as prayed for.
Issue xerox copy of this judgment to the counsel on both sides on usual terms.
Appeal allowed.
———
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