P L D 1954 Lahore 58 (PLP)

KAIKAUS, J.‑‑Nawab Din, appellant and Abdur Rashid, respondent entered into a partnership agreement on 10th of April 1948. They carried on the partnership for some time but their relations soon became strained and on 23rd of November 1949 they entered into an agreement to refer all the disputes to the arbitration of one Muhammad Ramzan. According to the arbitration agreement Muhammad Ramzan was to hear the parties, consider the partnership agreement and decide the disputes. Muhammad Ramzan gave an award on 12th of January 1950 and ordered the payment of Rs. 7,000 by the appellant to the respondent. An application to file this award was put in on 28th of February 1950 but the present appellant Nawab Din objected to a decree being passed in terms of the award and the Court after hearing the objections set aside the award on the ground that proper notice of the date of hearing had not been served on Nawab Din, appellant. This order which was passed on 1st of May 1950 was in the following terms :‑ " In view of the above I dismiss the application. But my decision does not imply that the arbitrator if allowed by law would not have the right to decide the dispute after giving a proper notice to both the parties. * * * *." The arbitrator then served another notice on Nawab Din that he would be proceeding to hear the case. Nawab Din sent the arbitrator a registered notice on 15th of July 1950 saying that the arbitrator's award had already been set aside for misconduct: that lie (Nawab Din) did not expect justice from him; and that, therefore, the arbitrator should not proceed to decide the matter. Nawab Din did not attend the proceed ings and on 1st of April 1951 the arbitrator gave ex‑parse award of Rs. 7,000 against the appellant. An application for filing this award was made on 9th of April 1951. A number of defences were raised by the appellant one of them being that the arbitrator had no jurisdiction to give a second award. The learned Additional Senior Civil judge, by his order, dated 24th of November 1952, refused to set aside the award and Nawab Din has filed the present appeal challenging that order. The only point pressed before me is that a second award could not be given, the question for determination is whether if an award be set aside, the arbitrator can deliver a second award. This question is really a part of the broader question as to what courses are open to the parties and to the Court when an award is found not to be capable, as it stands, of being made a rule of Court. It will help in understanding the matter involved if I snake a brief reference to the history of the law on the subject and as our Arbitration Act of 1899 closely followed the English Act of 1889, I will begin with England. The first legislative provision in England which dealt with procedure in arbitration cases was the Common Law Procedure Act of 1854. Before that Act a question had arisen as to whether on an award being found defective, the Court could only set aside the award or whether it could refer it back to the arbitrator for a re‑decision, and the answer given was that there would be power in the Court to refer the matter back to the arbitrator only in case there was a clause to that effect in the agreement of reference, but not if there was no such provision. Section 8 of the Common Law Procedure Act made a provision for the first time for a remission of the award to the arbitrators and section 10 of the Arbitration Act of 1889 retained that provision. The position is well explained in In re : Keighley Maxtead & Co (1893 1 Q H 405.), where Lord Esher, M. R., said, referring to both the above mentioned Acts "Now, the provisions of both these Acts as to referring back the decision of an arbitrator for reconsideration had their origin in the following reason, as has been frequently pointed out; previously to 1854 there had been in many cases submis sions to arbitration containing a clause authorising reference back to the arbitrators; while in other cases there had been no such clause in the submission; and it had been decided that, in the absence of such a clause in the submission, the Court could not refer back the award, but where there was such a clause the award could be referred back, although only on certain specified grounds. The effect of both these Acts is to treat all submissions to arbitration (whether made by consent or compulsorily) as though they contained a clause giving the Court power to refer back the award to the arbit rator or umpire, and we must, therefore, consider the present arbitration as though it had been an old arbitration‑that is to say prior to 1854‑and the submission had contained such a clause." The true reason of the rule which prevented the Courts before 1854 from referring back the award to the arbitrator was that an agreement of reference was construed as granting the arbit rator an authority to decide only once in the absence of an agreement to the contrary. Provisions in the two Acts enabling the Court to remit an award were regarded as importing a clause to this effect into every agreement. This jurisdiction was a discretionary jurisdiction and it extended to all cases where the award was found defective. Sections 10 and 11 of the Arbitration Act of 1889 run:‑ "10. (1) In all cases of reference to arbitration the Court or a judge may from time to time remit the matters referred, or any of them, to the reconsideration of the arbitrators or umpire. (2) Where an award is remitted, the arbitrators or umpire shall, unless the order otherwise directs, make their awards within three months after the date of the order." "11. (1) Where an arbitrator or umpire has mis-conducted himself the Court may remove him. (2) Where an arbitrator or umpire has mis-conducted him self or an arbitration or award has been improperly procured, the Court may set the award aside." The result of this provision was that in all cases where the Court found the award invalid it could either set aside the award or remit it for reconsideration to the arbitrator. That is the law of England even today and in the 1952 edition of Russel on Arbitration we find it stated :‑ "The Court has a general discretion to remit an award to the reconsideration of the arbitrator or umpire. This discre tion is in general exercisable upon substantially the same grounds as will justify the setting aside of an award." (P. 263). On the next page we find that misconduct of the arbitrator is one of the grounds of remission of an award. So it should be clear that setting aside and remission were alternative remedies and the Court could in the same circumstances either set aside the‑award or remit it. If the Court simply set it aside without remitting it the result would be that there could be no further arbitration in the matter. An order of Court remitting the award was a condition precedent to the arbitrator taking any further action in the matter. In fact he himself became functus officio after making the first award and any power that he possessed for making a second award was derived solely from the order of Court. At page 266 of Russel we find the follow ing statement with respect to section 10 of the Act of 1889 (now it is section 22 of the Act of 1950) :‑ "The power conferred by the section is exercisable where the arbitrator is functus officio, for when he has made his award he his functus officio. He may have power to snake several awards, but even in such cases he may be functus officio in respect of the matters submitted to him ill which lie has awarded." The effect of‑an order setting aside the award without more was completely to supersede the arbitration but there was no need to say it was superseded because in fact it had already come to an end by the award and could only be revived by an Order of Court. The proposition that an arbitrator becomes functus officio once he has made an award is well established ill England vide Russel on Arbitration (1952 Edition) pp. 147, 266 and

298. Mordue v. Palmer (40 L J Ch. 8), Brooke v. Mitchell (55 R R 699), and re Stringer & Rilay Brothers ((1901) 1 X 8 105). Any authority to reconsider can be derived only from‑an order of Court. Tile arbitrator's own authority comes to an end once he gives a decision. I have already stated that the Indian Arbitration Act of 1899, which applied to Presidency Towns and some other places, takes after the English Act of 1889. The corresponding sections of this Act which relate to the remission of an award are sections 13 and 14, which run :‑ "13. (1) The Court may, from time to time, remit the award to the reconsideration of the arbitrators or umpire: (2) Where an award is remitted under subsection (1), the arbitrators or umpire shall, unless the Court otherwise directs, makes a fresh award within three months after the date of the order remitting the award." "

14. Where an arbitrator or umpire has mis-conducted himself, or an arbitration or award has been improperly pro cured, the Court may set aside the award." It will be observed that the provisions are similar to those of the English Act of 1889. So that it may safely be said that so far as places governed by the Arbitration Act of 1899 are concerned, the law as it stood till 1940 when the new Arbitration Act was passed, was that the power of an arbit rator came to an end by the making of the award and it was only where the Court referred a case back to him that he could deal further with the matter. Apart from the section relating to remission there is no provision in the Act for sending the case to the arbitrator for a second decision. The position in places not governed by the Indian Arbit ration Act was the same though more clearly expressed. The provision relating to arbitration which governed the whole of India, except the Presidency Towns and a few other places notified by Provincial Governments, was the Code of Civil Procedure first enacted in 1859, sections 323 and 324 of which run :‑ "

323. In any of the following cases the Court shall have power to remit the award, or any of the matters referred to arbitration, to the reconsideration of the same arbitrator or arbitrators, or umpire, upon such terms as it may think proper (that is to say):‑ If the award has left undetermined some of the matters referred to arbitration, or if it determine matters not referred to arbitration. If the award is so indefinite as to be incapable of execution. If an objection to the legality of the award is apparent upon the face of the award." "

324. No award shall be liable to be set aside except on the ground of corruption or misconduct of the arbitrator or umpire. Any application to set aside an award shall be made within ten days after the same has been submitted to the Court." Whereas under the Arbitration Act of 1899 the Court could remit the award in any case, grounds of remission were limited in the enactment so that the discretion to remit the award could be exercised only in the three cases referred to in section

323. In the Code of Civil Procedure of 1882 the section relating to remission, that is section 323, was reproduced in the new section

520. The provision with respect to setting aside was amplified in section

521. The sections run :‑ "

520. The Court may remit the award or any matter referred to arbitration to the reconsideration of the same arbitrators or umpire, upon such terms as it thinks fit‑ (a) where the award has left undetermined any of the matters referred to arbitration, or where it determines any matter not referred to arbitration ; (b) where the award is so indefinite as to be incapable of execution ; (e) where an objection to the legality of the award is apparent upon the face of it." "

521. An award remitted under section 520 becomes void oil the refusal of the arbitrators or umpire to reconsider it. But no award shall be set aside except on one of the follow ing grounds (namely):‑ (a) corruption or misconduct of the arbitrator or umpire; (b) either party having been guilty of fraudulent conceal ment of any matter which he ought to have disclosed or of wilfully misleading or deceiving the arbitrator or umpire; (c) the award having been made after the issue of an order by the Court superseding the arbitration and restoring the suit ; and no award shall be valid unless made within the period allowed by the Court ". Then came the Act of 1908. The corresponding provisions of Schedule II are paragraphs 14 and 15, which run :‑ "

14. The Court may remit the award or any matter referred to arbitration to the reconsideration of the same arbitrator or umpire, upon such terms as it thinks fit,‑ (a) where the award has left undetermined any of the matters referred to arbitration, or where it determines any matter not referred to arbitration, unless such matter can be separated without affecting the determination of the matters referred;, (b) where the award is so indefinite as to be incapable of execution; (c) where an objection to the legality of the award is apparent upon the face of it." "15. (1) An award remitted under paragraph 14 becomes void on failure of the arbitrator or umpire to reconsider it. But no award shall be set aside except on one of the follow ing grounds, namely:-- (a) corruption or misconduct of the arbitrator or umpire (b) either party having been guilty of fraudulent conceal ment of any matter which he ought to have disclosed or of wilfully misleading or deceiving the arbitrator or umpire; (c) the award having been made after the issue of an order by the Court superseding the arbitration and proceeding with the suit or after the expiration of the period allowed by the Court, or being otherwise invalid. (2) Where an award becomes void or is set aside under clause (1), the Court shall make an order superseding the arbitration and in such case shall proceed with the suit." While the provisions relating to remission and setting aside the same there is an addition in paragraph 15 which I regard as of importance for the purpose of my argu ment and that is sub‑paragraph (2) of paragraph

15. It provides that when an award is set aside the Court shall make an order superseding the arbitration. I do not regard this as a new provision or as departure from the Arbitration Act of 1899. To me it is clear that this amendment stated expressly what was already established law. The Court could, when it found the award defective, either set it aside or (in specified cases) remit it. If it did not remit it there was an end of the arbitra tion proceedings. The words added in 1908 simply stated the legal effect of setting aside in express words. Previous to 1908 it had not been regarded necessary to state this just as in the English Act of 1889 there was no provision saying that setting aside would amount to supersession of arbitration. Although paragraphs 14 and 15 in terms apply only to arbitrations in pending suits, by virtue of paragraph 19 the same provisions apply to arbitration agreements filed in Court. So that with respect to places governed by the Code of Civil Procedure there cannot be the slightest doubt that when an award was set aside the arbitration terminated. The principle that an arbitrator became functus officio after making an award had been adopted in a number of Indian cases. In Parshottamdas v. Kekhushru (35 Bom. L R 1101), it was observed:‑ "The doctrine that the arbitrator's power comes to an end with his making and publishing the award has been so strictly applied that when the arbitrator made his award on a rough piece of paper, and then with the consent of the parties wrote out his award on stamped paper, it was held that the latter award was void and could not be validated by the consent of parties". , In Ramji Ram v. Salig Ram (11 I C 481), Sir Ashutosh Mookerjee said:‑ "In support of the second objection taken by the defend ants, it leas been argued that as soon as the Arbitrators signed the joint memorandum on the 25th September 1904, their authority came to an end, and they could not resib from the conclusion they had deliberately and unanimously adopted: In support of this proposition, reference has been made to the cases of Hanfree v. Bromley (8 R R 491), Trew v. Burton (2 L J Ex. 236) and Brooke v. Mitchell (55 R R 699). Now, it may be conceded, that when the arbitrator has made or, as it is said in some cases, made and published his award as a completed instrument his power is wholly at an end. He has exhausted his authority, he is thoroughly functus officio, he can do nothing more in reference to the arbitration 'or the subject matter. He cannot re‑open the case or make a new supplemental award nor alter or amend the award already made nor file addi tional explanatory alternative or amending documents. What he has done must stand or fall without further aid or assis tance from him, he can neither' support nor impeach it. Bayne v. Morris" (P. 486). Chhati Lal v. Ram Chariter Sahu and others (A I R 1941 Pat. 215) also sub scribes the same proposition. In Mst. Parbatti v. Mst. Durga Devi (A I R 1928 Lah. 170), the question as to whether a second award can be made after the first has been set aside arose directly for deter mination. The decision oil this point is reproduced in head note (c) which runs :‑ "The proposition of law is firmly established that an arbitrator becomes functus officio as soon as he delivers the award : Mordue v. Palmer ((1870) 6 Ch. 22), and Brooke v. Mitchell (9 L J Ex. 269). I L R 38 All. 83 and A I R 1921 Pat. 161, foil. It is also beyond question that an arbitrator's authority once exhausted is not resuscitated by the award being set aside or becoming otherwise void, so as to enable him to make a fresh award 35 P R 1884 and 67 P R 1886 dist." In Satish Chandri Bose and others v. Paliram Agarwala (A I R 1921 Pat. 161), the learned Subordinate judge, who was dealing with the arbitration proceeding, having set aside the first award suo moto directed the arbitrators to make a fresh award. The case was taken in revision to the High Court. The learned judges pointed out the distinction between setting aside and remitting and held that once an award had been set aside the arbitration came to an end. They said :‑‑ "The Court in considering the award, found that there was an objection to the legality of the award apparent upon the fact of it and that it was invalid. It was open, therefore, to he Court either to remit the award under para. 14 or to set aside the award under paragraph

15. There is, in my view, a clear distinction in the Code between remitting an award and setting aside an award. You may remit an award if it is alive and is in existence ; but it is impossible to remit that which is set aside. This is at the root of the principle, recognized by the Code, that if you remit the award, you can only remit it to the same arbitrators, and that, if you set aside the award, you must make an order superseding the arbitration. Now the learned judge most distinctly set aside the award; that is to say, he acted under paragraph

15. It cannot be argued that he intended to remit the award, but that he used the wrong phraseology. Had he intended to do so, he could hardly have referred the matter to a new arbitrator altogether. He, therefore, acted under para graph 15, which provides that where an award is set aside the Court shall make an Order superseding the arbitration. No doubt paragraph 15 further provides that in such case the Court shall proceed with the suit, but that provision cannot apply to the proceedings under the order of reference made by the Court under paragraph 17, for the simplest of all reasons that there is no suit which can be proceeded with. But, in my opinion, it was obligatory on the Court, in setting aside the award, to make an order superseding the arbitra tion." (P.162). I have dealt with the matter in some detail in order to establish that the proposition that the authority of the arbitra tor comes to an end with making the award and is not revived by its being set aside did not admit of any doubt before the passing of the Act of 1940. My object in doing is to show that a slight amendment of the relevant provision in 1940 was not intended to have the effect of altering the law. As stated above, paragraph 15 of Schedule II of the Code of Civil Proce dure of 1908 had provided that when an award was set aside the Court was to supersede the arbitration and the word used was 'shall'. The corresponding provision in the Arbitration Act of 1940 is section 19 which runs :‑ "

19. Where an award has become void under subsec tion (3) of section 16 or has been set aside, the Court may by order supersede the reference and shall thereupon order that the arbitration agreement shall cease to have effect with respect to the difference referred". The word 'may' has been substituted for the word 'shall' and it may give rise to an argument that now there was a dis cretion vested in the Court to supersede the arbitration or not, and that if it made no order superseding the arbitration the result would be that the reference would subsist and a second award could be made. I have consulted the Statement of Objects and Reasons to see whether there was any intention to make an amendment in the existing law. The following is the clause which refers to section 19 :‑ "Clause 19 provides that where an award becomes void or is set aside, the Court may supersede the reference and order that the agreement shall cease to have effect with respect to the particular difference referred. The clause generalises the provisions of paragraph 15 (2) of the Second Schedule to the Code". The intention as stated here was only ,to generalise the provision in paragraph 15 of Schedule II and not to alter it. However, as some objection may be taken to the use of this document as an aid to interpretation, I would rather not base any conclusion upon it. I have no doubt that there is no intention to make a change in the law. If there was really an intention to make so big a change on a question of principle, we should expect clearer words. Maxwell in his Interpretation of Statute (1948 Edition), while discussing presumptions which are given effect to in construing statutes says :‑ "One of these presumption is that the Legislature does not intend to make any substantial alteration in the law beyond what it explicitly declares, either in express terms or by clear implication". Here the law as it stood in 1940 was beyond any doubt. Excepting the Presidency towns and a few other places the enactment applicable was the Code of Civil Procedure of 1908 and that provided in express words that the setting aside of an award was to be an end of the arbitration proceedings. Our Arbitration Act of 1899 followed the English Act of 1889 and there had been numerous cases in England and India holding that on the making of an award the arbitrator became functus officio. The Legislature is presumed to be aware of the inter pretation adopted by the Courts. If there was any intention to vary an established principle, it should have been made plain. The reason of the rule that an arbitrator became functus officio on making an award was that an agreement of reference only envisages one decision by the arbitrator and that for a second decision there must be an agreement between the parties. The Legislature interfered with the agreement to this extent that it assumed in it the grant of power to a Court to A remit the award for consideration. Two kinds of provisions were inserted in the Arbitration Acts, one empowering the Court to set aside the award, and the other to remit it, so that if it did not exercise the discretion to remit the arbitrator received no authority to give a new award, his authority on the agreement having been exhausted. The English Act of 1889 and the Indian Act of 1899 made no provision for super session for truly there was need of supersession of an arbitra tion which had already terminated and which the Court had only a power to revive by an order of remission. If there was no order of remission, the proceedings remained closed as they were. Such was the established legal position when para graph‑15 of Schedule II was enacted and when this paragraph said "the Court shall make an order superseding the arbitra tion" it was only providing for a formal order which declared the termination of the arbitration and not an order which put an end to a subsisting reference. Section 19 of the Act of 1940 only refers to such formal order and does not imply that an order for supersession is necessary to end the arbitrator's authority. Any other interpretation would be inconsistent with the provision relating to remission. The proposition that on an award being set aside the jurisdiction of the arbitrator to give a new award automatically comes into being would not only render the provision relating to remission redundant but would be in direct conflict with section 16, for the grounds of remis sion are limited. It is not in every case when the award is found defective that the Court can remit it. This means that except in the three classes of cases referred to in section 16, even the Court has no power to ask the arbitrator to readju dicate upon the matter. I have already referred to Russel on Arbitration for showing that in England remission of awards or matters under reference are ordered in the same cases in which awards can be set aside. So there is power either to set aside or to remit and it is meaningless to say that every setting aside implies a remission. Our Arbitration Act allows remission only in particular cases and clearly implies that in other cases no further proceedings can be taken. By an award the arbitrator exhausts his authority. Law gives to the Court power to refer the matter back to the arbitrator in certain cases. But then, as already stated, the arbitrator derives his authority from the order of Court. Another important argument in favour of this proposition is that the Arbitration Act makes no provision for a reference to the arbitrator in cases the award is set aside. If this was the intention it would be clearly expressed: Rather there could possibly be no such intention as long as the Code of Civil Procedure of 1908 was in force on account of the clear words used in paragraph 15 and there is no introduction of any new provision in the Arbitration Act of 1940 from which it may be inferred that there is an intention to change the law in this respect and that now on a setting aside the Court can make a second reference to the arbitrator. There is another aspect of the matter. Under paragraph 3 of Schedule to the present Act of 1940, an award must be delivered within four months of entering on reference unless time is extended by Court. The arbitrator had entered on the reference when he began the proceedings of the first award by recording the statements of parties and the second award was made much beyond the period of limitation. The general con sideration, that in cases where an award is set aside, the second award would ordinarily be delivered beyond time is an argu ment in favour of the proposition that a second award without: an order from Court is not intended. Even when the Court remits an award there is a further period within which the arbitrator must give his second award. This, period was three months in the Arbitration Act of 1899 and now depends) on the discretion of Court, but a period must be fixed and an award beyond that period would be void. If even iii case of remission a period is fixed it is not reasonable to suppose that when an award is set aside there would be no time limit. But that would be the result if we accept the proposition that by the mere setting aside of an award the arbitrator regains juris diction to arbitrate. Also this appeal can even be decided on the ground that the second award is not within four months c the time when the arbitrator entered on the reference an, there is no order of extension by Court. The arbitrator entered on the reference at least when he began proceedings in the presence of both parties for the purpose of giving the first award. It may be stated that both parties had appeared before him but he had not given proper notice of the subsequent date of hearing. This appeal succeeds and the award is set aside. Parties will bear their own costs throughout. K. M. A. Appeal accepted.