Case: M/S. Amarchand Lalitkumar Vs. Shree Ambica Jute Mills Ltd

2. In the High Court of Calcutta, in or about February-July, 1961, a series of applications numbering about 170 were filed by sellers of raw jute. The main relief asked for by those applications was the revocation of the authority of an arbitrator appointed under certain contracts which the applicants had entered into with the respondents in circumstances which we shall presently state. Except in two or three cases the respondents were all jute mill companies which purchase raw jute and manufacture finished goods therefrom. The main controversy which these applications gave rise to was dealt with by the High Court in its judgment dated September 14, 1961, in the application entitled Ram Kumar Chhotaria v. Titaghur Jute Factory Co. Ltd., (Matter No. 20 of 1961 (Cal ) before the High Court). Certain special points arising in some of the other applications were dealt with in separate judgments. The High Court stated in its judgment in Matter No. 20 of 1961 (Cal), that the only relief, among the many included in the petition, pressed at the hearing was leave to revoke the authority of the appointed arbitrator under the provisions of S. 5 of the Arbitration Act, 1940 (Act 10 of 1940) which provides that "the authority of an appointed arbitrator or umpire shall not be revocable except with the leave of the Court, unless a contrary intention is expressed in the arbitration agreement.3. We shall now state the circumstances in which the applications were made for leave to revoke the authority of the appointed arbitrator and in doing so we shall state somewhat fully the facts alleged in the application of M/s. Amarchand Lalitkumar, a firm registered under the Indian Partnership Act and carrying on business in Calcutta, which firm is the appellant before us in Civil Appeal No. 640 of 1961. The facts being similar we shall not repeat them with regard to the other three appeals, but refer to such special facts or points in those appeals as have been pressed before us.4. On April 22, 1960, M/s. Amarchand Lalitkumar, whom we shall refer to as the appellant, entered into a contract being contract No. 1786 with Shree Ambica Jute Mills Ltd., respondent in Civil Appeal No. 640 of 1961, whereby the appellant agreed to sell and the respondent agreed to buy some 10.000 maunds of Middle and Bottom Jute at a particular price. The contract was negotiated by a firm of brokers M/s. A. M. Mair and Co. (Private) Ltd., and was entered into in the standard printed form prescribed by the East India Jute and Hessain Exchange Ltd. (hereinafter referred to as the Exchange) and was subject to the rules and byelaws made by it The contract was a forward contract being a transferal le specific delivery contract in raw jute, the contract providing by a guarantee clause for "shipment or despatch during August/September, 1960. By the operation of the provisions of the Forward Contracts (Regulation) Act, 1952 (Act 74 of 1952), and the notifications made by the Central Government thereunder, forward contracts for the sale or purchase of raw jute in the city of Calcutta which included the area within the municipal limits of Calcutta, the Port of Calcutta and the districts of 24 Parganas, Nadia, Howrah and Hooghly, could only be entered into between members of a recognised association or through or with any such member. The Exchange was such a recognised association. The Act empowered recognised associations to make bye-laws for the regulation and control of forward contracts subject to the previous approval of the Central Government. The Exchange made such bye-laws relating to the transferable specific delivery contracts in raw jute which bye-laws will be found in Chapter IX of the Working Manual issued by the Exchange. Terms and conditions of transferable specific delivery contracts in raw jute as prescribed by the said bye-laws provided for arbitration of all claims and disputes arising out of or in relation to such contracts by the Tribunal of Arbitration of the Bengal Chamber of Commerce and Industry or the Indian Chamber of Commerce in Calcutta in accordance with the rules framed by the said Chambers. In some appeals before us the contracts provided for arbitration by the Bengal Chamber of Commerce and Industry and some by the Indian Chamber of Commerce in Calcutta. The rules of the two Chambers for constituting Tribunals of Arbitration are similar and such difference as is material for our purpose will be adverted to later in this judgment. Paragraph 11 in Ch. IX of the Working Manual of the Exchange made certain provisions for unavoidable delay in the supply of goods by the sellers of jute. In order to appreciate the main controversy between the parties it is necessary to quote the relevant portions of that(a) In the case of jute and in the event of sellers being prevented or delayed in carrying out their obligations under the contract by the occurrence of fire, strikes, riots, political or commercial disturbances, hartals and/or civil commotions, breakdown of public transport services, suspension of bookings, they shall given immediate intimation thereof to buyers. The sellers and buyers rights shall thereupon be as follows:(i) On the sellers producing satisfactory evidence of the prevention or delay, they shall be granted an extension of time for delivering not exceeding thirty days from due date free of all penalties.(ii) If the contract be not implemented within the extended period referred to in Cl. (i) above buyers shall thereupon be entitled to exercise any one of the following options:(1) Of cancelling the contract,(2) Of buying against sellers in the open market on the day on which the option is declared and charging them with any difference,(3) Of cancelling the contract and charging sellers the difference between the contract and the market price on the day on which the option is declared.Sellers shall notify buyers that the goods will or will not be shipped within such extended period referred to in Cl (i) and in the case of sellers intimating that they will be unable to ship within the extended time buyers shall exercise their option under Cl. (ii) on the fifth working day of receiving such notice and notify sellers. In the absence of any such notice from sellers it shall be deemed that the goods have not been shipped and buyers shall exercise their aforesaid option on the fifth working day after expiration of the extended date and notifycase of the appellant was that at the relevant time certain emergent conditions arose in the raw jute trade and industry, which prevented the appellant from supplying the raw jute stipulated for in the contract within the time mentioned in the guarantee clause. By a letter dated October 10, 1960, the respondent exercised its option under para 11 quoted earlier, cancelled the contract and charged the appellant for the difference in price between the contract rate and the market rate prevailing on the date of cancellation. The appellant denied that if had any liability to pay the difference. Thereupon, the respondent applied for arbitration by the Tribunal of Arbitration constituted in accordance with the rules of the Bengal Chamber of Commerce and Industry. The Registrar of the Chamber wrote to the appellant that the arbitration case (No. 10 of 1961) would be heard by the Tribunal on a certain date. The date was then extended and before the Arbitration Tribunal could decide the matter the applications in the High Court were made for revoking the authority of the appointed arbitrator.5. The facts and circumstances which according to the appellant constituted the emergency were stated in para 11 of the petition and the substance of the allegations was that owing to the two causes of scarcity or raw jute and speculation, the prices of raw jute shot up abnormally giving rise to an emergent condition in the jute trade and industry and especially in respect of trading in future contracts in raw jute. The appellants case was that by reason of that emergency the buyers and sellers of raw jute were placed in two conflicting camps and the vast majority of the arbitrators in the panel of arbitration comprising the Tribunal of Arbitrator of the Bengal Chamber of Commerce and Industry were either directly or indirectly connected with one or other of the jute mills which were all buyers of raw jute. In paras 21, 22 and 23 of its petition the appellant stated that when the parties entered into the contract they never contemplated that there would happened such an exceptional situation as arose in the jute trade during the relevant period of September-October, 1960: that the arbitrators of the Tribunal of Arbitration of the Bengal Chamber of Commerce and Industry were disqualified from acting as arbitrators inasmuch as they were all connected with the buyers and there was every probability that they would be biased in favour of the buyers; therefore, the appellant reasonably apprehended that it would not be possible for the arbitrators to act as impartial or disinterested judges. In para 33 the appellantinterest of the sellers of raw jute are in conflict with the interest of the buyers of raw jute. In the events that have happened the sellers of raw jute have formed themselves into a group and the buyers of raw jute have formed another group. The Indian Jute Mills Association is dominated by the buyers. The Indian Jute Mills association dominates the said Chamber and its Arbitrators. The Indian Jute Mills Association is committed to the view that the said contracts have not been frustrated. The said Association has also formed an opinion in respect of the disputes between the buyers and the sellers of rawwere the allegations on which the appellant prayed that the authority of the appointed arbitrator should be revoked under S. 5 of the Arbitration Act. 1940.6. The application was opposed by the respondent which denied the allegations made by the appellant both as to the facts and circumstances which were said to constitute the emergency and as to the alleged reasonable apprehension of bias in the appointed Arbitration Tribunal.7. We have stated earlier that in the High Court the main controversy between the parties centered round the questions, (1) if there was such an emergent condition in the jute trade and industry at the relevant time as divided the sellers and buyers of raw jute into two opposing camps, and (2) if the existence of such opposing camps, provided such opposing camps were proved to exist, would justify the revocation of the authority of the appointed arbitrator. The learned Judge who heard the applications dealt first with the legal position in England and India, in the matter of revocation of the authority of an appointed arbitrator. Having dealt with the legal position he went into the facts of the case and held that no such emergent condition had been proved as would justify the revocation of the authority of an appointed arbitrator. He expressed his final conclusion in thesemy opinion, the allegations about the buyers and sellers in raw jute being thrown into conflicting camps by the operation of emergent circumstances or about reasonable apprehension of bias in the minds of the sellers that they will not get justice from the persons whose names appear on the list of the panel of arbitrators of the Bengal Chamber of Commerce and Industry areaccordingly dismissed the applications with costs.

Court's reasoning:
11. We have taken all these circumstances into our consideration and we are unable to agree with the appellants that they made out a case of a reasonable apprehension of bias on the basis alleged namely, that of a clash of interests between buyers and sellers on the ground of a rise in prices. The High Court has rightly pointed out that it is not quite correct to say that the persons who made the applications were only sellers of raw jute and not buyers in their turn; they are people who carry on business in Calcutta and some of them probably have buying agencies in the mofussil. They must be buying jute from others and selling them to shippers, balers and jute mills, The jute mills usually buy raw jute and turn out manufactured products therefrom, which they sell. Balers and shippers buy raw jute and sell the same after pressing and baling. At one end of the chain there are jute growers who are only sellers while others are both buyers and sellers of jute or jute goods. This latter category of persons must be taking note of the trends in the market in entering into then contracts and unless there was an emergency of the kind which nobody could foresee, it is impossible to say that there was such a clash of interests between buyers and sellers that the appointed arbitration having practical experience of normal fluctuations of the market would not be able to judge with fairness and impartiality the claim of the sellers that they were entitled to an extension of time or other relief. The High Court further pointed that though there are 170 applications, the number of applicants was only 42 and some only of the jute mills in West Bengal were involved. The High Court thenone takes into consideration the number of jute mills situate in the districts of 24 Parganas, Howrah, Hooghly and Nadia and considers further that there are thousands of persons who are engaged in the trade of raw jute it is significant that only a few dozen of them have come to this Court in between the period February, 1961, to the end of June 1961. It appears to me that the difficulty, real or assumed, is confined to a very small number of persons, not brought about by any emergent conditions at all as alleged. There can be no denying the fact that the outturn of jute has been smaller than expected and that jute mills have had to reduce their working hours Such a shortage in jute cannot be said to have brought about an upheaval in the trade throwing buyers and sellers into sharply divided conflictingare in agreement with the view thus expressed by the High Court.12. As to the arbitrators to be appointed, by the Indian Chamber of Commerce, Calcutta, and in some of the appeals before us the arbitrators have to be so appointed, there can hardly be any ground for a reasonable apprehension. The names of the arbitrators are not known nor even their classification. The rules contemplate that the Registrar shall not appoint any person as arbitrator who for any reason within his knowledge would not be a proper person to act as arbitrator. What grounds can there be of a reasonable apprehension in such cases? We have held that there are no conflicting camps of buyers and sellers, and even if there are such camps, the Registrar can select persons who have practical experience of the subject-matter of the contracts and not otherwise improper persons to act as arbitrators. The difference between an application under S. 5 of the Arbitration Act and one under S. 34, is a difference as to the point of time when the application is made. If proceedings are commenced in Court, application is made under S. 34; if proceedings have not been commenced in Court the application is made under S. 5. The object of both the sections is the same, namely, to prevent arbitration. But different considerations would arise on an application to set aside an award on the ground that the arbitrator was biased. It is true that on an application under S. 5 it is not necessary to show that the arbitrator is in fact biased and it is enough to show that there is a reasonable ground for apprehension that the arbitrator will be biased. But the reasonable ground must be established to the satisfaction of the Court to which an application for leave to revoke the authority of an appointed arbitrator is made. No such reasonable ground is made out in the present appeals.13. We now turn to the legal position which seems to us to be quite clear. Before the Court exercises its discretion to give leave to revoke an arbitrators authority, it should be satisfied that a substantial miscarriage of justice will take place in the event of its refusal. In considering the exercise by the Court of the power of revocation it must not be forgotten that arbitration is a particular method for the settlement of disputes. Parties not wishing the lawsknow, or ought to know, that in referring a dispute to arbitration they take arbitrator for better or worse, and that his decision is final both as to fact and law. In many cases the parties prefer arbitration for these reasons. In exercising its desecration cautiously and sparingly, the Court has no doubt these circumstances in view, and considers that the parties should not be relieved from a tribunal they have chosen because they fear that the arbitrators decision may go againsthave held that there were no such exceptional circumstances in these cases as would justify us to come to the conclusion that the appointed arbitrator would be disqualified as a result of bias by reason of a conflicting class interest. In view of this finding it is unnecessary to examine the decisions, English or Indian, as respects the principle that an interest of which the parties were fully aware at the date of the arbitrators appointment will not in general disqualify him, nor will the fact that he stands in a particular relationship to the parties or to the matters in dispute, if it can be said that the parties selected him with knowledge that this was or must be so. Nor are we concerned with the exception to which the aforesaid rule is subject in relation to arbitrators appointed to determine future disputes, and the statutory changes made in English law relating thereto.We have, therefore, come to the conclusion that on the main point of controversy between the parties, the High Court came to a correct finding on facts and there are no grounds fordo not see any material conflict between para 7(c) of the bye-laws and the clauses in the bought and sold notes. Instead of one month given to the buyers for delivery of letter of authority in para 7(c) the time given in the contracts was up to December 1960. We do not think that this extension of time brought the contracts into any material conflict with the provisions of para 7(c). As to the second point the argument was that the expression "without any difference on both sides occurred in the sold notes and not in the bought notes, and therefore, the parties were not ad idem with regard to this clause. The learned Judge rightly to this clause. The learned Judge rightly pointed out that the expression "without any difference on both sides made no real difference. Clearly the parties contemplated that in case the buyer failed to furnish the license to import Pakistan Jute within the period mentioned, the contract would be deemed to be cancelled which meant that the contract was to be treated as non est for all purposes. If the contract was deemed to be cancelled, it must mean that the rights and obligations of the parties came to an end simultaneously. It was not really necessary to insert the words "without any difference on both sides in the bought notes and such addition in the sold notes did not make any difference to the rights of the parties.