Case: M/S. Premier Fabricators, Allahabad Vs. Heavy Engineering Corpn. Limited, Ranchi

3. The appellant had entered into an agreement with the respondent on May 2, 1971 for execution of certain works. During the course of their execution, certain disputes has arisen between them. Clause 78 of the contract provided resolution of the disputes by arbitration. In furtherance thereof, the parties has referred the disputes in 1972 to two arbitrators, one of the disputes referred to them was "whether claims referred to at item 2,3,4 and 5 of Annexure- A are or are not referable to arbitration in terms of the contract". The total claim including items 2 to 5 was for Rs. 2,55,600/-. The arbitrators held that the claim Nos. 2 to 5 were referable under arbitration agreement but they could not come to an agreement on the merits of the claims. Therefore, they had appointed an umpire by their letter dated November 2, 1973. The umpire made a non-speaking award directing the respondent to pay a lump sum of Rs.80,000/- besides interest. On an application made by the appellant, the Civil Court made the award rule of the court and the application under Section 33 of Arbitration Act, 1940 (for short, the "Act"] to set aside the award was dismissed. The respondent preferred and appeal in the High Court.4. When the matter came before the Division Bench consisting of B.P. Jha and B.S. Sinha, JJ., both the learned Judges agreed that one of the terms of the reference was that the arbitrators were required to decide as to whether the claim referred to under items 2 to 5 of Annexure-A are or are not referable to arbitration in terms of the contract. They further held that the finding by the arbitrator that the claims were arbitrable, was not an interim award. The entire controversy including arbitrability of items of to 5 was at large and the umpire was to decide whether items 2 to 5 of Annexure-A were arbitrable under contract. B.P. Jha, J. held that when the matter was referred to an umpire, the whole dispute which was referred to the umpire. If a part of the dispute was decided by the arbitrators, the arbitrators could not refer the other half of the dispute to the umpire. The learned Judge observed that "In my opinion, the whole dispute is referred to the umpire for the simple reason that the umpire acts in lieu of the arbitrator. The umpire is entitled to give a consolidated award instead of giving the award on each point. While setting aside an award the court can look at the award and not on any other extraneous evidence on the record". Accordingly, the learned Judge dismissed the appeal of the respondent, B.S. Sinha, J. held that if a dispute is capable of being split into different parts and the arbitrators agreed on one part and disagreed on the other part. "I can see no reason whey the whole dispute must be referred to the umpire. An interim award can be made in terms of Section 27 of the Act. Of course, if the dispute is not capable of being split up and the arbitrators do not agree, the whole dispute will go to the umpire. In other words, as far as I can see whether the whole dispute was referred to the umpire or not depends upon the facts and circumstances of each case for which no hard and fast rule can be laid down." He held that the whole dispute had been referred to the umpire. The arbitrators did not give an interim award to say that items 2 to 5 were arbitrable and then to further decide as to what amount was payable to the respondent. It was not necessary to express the decision in that behalf. "Therefore, the umpire had to consider firstly whether items 2 to 5 were arbitrable or not. There is no such statement in the award of the umpire. Therefore, to hold that items 2 to 5 were arbitrable would be speculative." Accordingly the learned Judge held that the Judgment and decree of the Civil Court making the award as rule of court is invalid and illegal. The award was held to be illegal and one which could not be acted upon. When the matter was referred to L.M. Sharma, J. [as the then was], in the first instance, the learned Judge indicated that since the umpire could not clothe himself with jurisdiction to decide conclusively whether items 2 to 5 were arbitrable or not, the question was whether the learned Judge could go into that question ? Both the counsel had taken time and after consultation had stated before the learned Judge that as the scope of reference was limited to the question whether the umpire had to decide the arbitrability of items 2 to 5, the learned Judge could not go into the question whether the claims could have validly been referred to the arbitrators or umpire and could conclusively decide the arbitrability thereof or whether they were within the scope of the agreement itself or within the scope of Section 36 of the Act. On that submission, the learned Judge had proceeded on the basis that both the learned Judges constituting the Division Bench were agreed that it was for the umpire to consider and decide as the preliminary question of arbitrability of claim 2 to 5 under the contract. The inference that the umpire "chose to give an award allowing the claim partially" cannot be drawn. It was also held that unless it was possible to draw only one inference from the impugned award, it was not permissible in law to arrive at a conclusion that on the basis of mere possibility of having arrived at the decision of preliminary question which was not stated in the expressed terms in the award, to infer that he considered the arbitrability of item 2 to 5. Therefore, the learned Judge concluded thus : " I, therefore, hold that the respondent, the application in the court below, has failed to show that the umpire had decided the preliminary question in its favour before proceeding to consider the claims on merits. The award must, therefore, be set aside. In accordingly agree with the conclusion arrived at by Mr. Justice B.S. Sinha and regret to have taken a view different from Mr. Justice B.P. Jha for whom I have great respect ". The learned Judge thus allowed the appeal and set aside the award.

Court's reasoning:
21. In view of the admitted position that the umpire in the present case has not considered the arbitrability of items 2 to 5 of the claims in the non-speaking award, it cannot be construed that by implication he had considered the arbitrability of the claims. The preliminary question raised by the parties was as to the arbitrability of items 2 to 5 of the claims and whether they are within the scope of the contract. Before proceeding to adjudicate the claims 2 to 5 on merits, the umpire was required to give his finding on the issue of arbitrability of claims 2 to 5 and reasons in support thereof. The third learned Judge (L.M. Sharma, J. as he then was) and Sinha, J. have rightly held that the umpire cannot conclusively decide for himself in a non-speaking award of the arbitrability of the claims and that, therefore, the umpire was required to decide as a preliminary issue of the arbitrability of the claims 2 to 5. We agree with the learned judges on that finding that the award is illegal.22. The question that found that remains to be considered is what procedure in such a situation is required to be adopted ? In M/s. Sudarshan Trading Company Case, Tarapore Co. Case, G.S. Atwal case and Tamil Nadu Electricity Board case (supra) this Court pointed out that in such a situation two courses are open to the Court, viz., either to set aside the award in toto and relieve the parties from the arbitration or to remit the a ward to the umpire/arbitrator for de novo consideration. In G.S. Atwal case and Tamil Nadu Electricity board cases this Court had set aside the award and thereby put the lis in quietus. But in view of the fact in this case we think that since the preliminary issue raised by the parties was not decided by the umpire which is condition precedent to proceed with adjudication of the Clair on merits, he committed misconduct in giving the award We, therefore, direct that the matter will go back to the Umpire for reconsideration of the same afresh in the light of what we have stated hereinbefore. If for any reason, the Umpire is not available the parties may choose a new Umpire and if the parities fail to do so, the Court may appoint a new Umpire who will decide the matter afresh, clearly expressing his views on the arbitrability of claims 2 to 5 while deciding the matter.