Hon'ble Dilip Gupta, J (By Justice Ferdino Inacio Rebello, C.J.) A learned Division Bench of this Court noted a conflict of views in two Division Bench judgments of this Court, namely, Corporation of India Vs. Karnail Singh, 1987 (1) AWC 10, and Union of India Vs. Mohamad Usman, AIR 1965 Alld. 269. In Karnail Singh (supra), the Division Bench has taken a view that an appeal under Section 39 (1) (iv) of the Indian Arbitration Act, 1940 (hereinafter referred to as the 'Act') can only be filed after the Court has appointed the person to whom the reference is to be made and has actually made an order referring the dispute to such person, and not earlier. Whereas, another Division Bench in Mohamad Usman (supra), had taken a view that when the plaintiff's application under Section 20 of the Act is allowed, then such an order is clearly an order directing filing of the arbitration agreement and, thus, it is covered under Section 39 (1) (iv) of the Act and, as such, the appeal is competent. The learned Division Bench, therefore, to resolve the controversy, by order dated 10th April, 2001 referred the following question for determination by a larger Bench, which reads as under:-
"Whether in the facts and circumstances of the case, this Appeal is maintainable."
2. The undisputed facts of the case are that the learned Civil Judge (Senior Division), Bijnor, by order dated 27.07.2000 accepted the application of the respondent herein filed under Section 20 of the Act and directed the parties to disclose the name of an Arbitrator so that the dispute can be referred to the said Arbitrator. Thereafter, by order dated 06.09.2000, the learned Civil Judge appointed Shri R.A. Rajwanshi, Chartered Engineer as the sole Arbitrator. An appeal was preferred by the appellants on 03.11.2000, challenging the order dated 27.07.2000. Admittedly, the order dated 06.09.2000 was not the subject matter of challenge in the appeal.
3. At the hearing of this appeal, on behalf of the appellants, learned counsel submits that the view taken in Mohamad Usman (supra) would be the correct view. It is submitted, considering the language and purport of Section 20 read with Section 39 of the Act, as amended by the State of U.P., the first aspect which the Court has to consider is as to whether there is dispute or difference between the parties which can be referred to an Arbitrator. The second aspect which the Court has to consider is to nominate the Arbitrator to resolve the dispute if the Court arrives at the conclusion that there is an arbitral dispute. So far as the first part is concerned, it is submitted that it is a judicial determination and, as regards the second part, it is merely a ministerial act and, therefore, it was open to the appellants herein to file an appeal under Section 39 of the Act against the order dated 27.07.2000.
On the other hand, on behalf of the respondents, learned counsel submits that from a proper reading of Section 20 of the Act, it would be clear that an appeal can be filed only after the Arbitrator is appointed and not before, and to that extent, the view taken by the Division Bench in the case of Karnail Singh (supra) would be the correct view.
4. To correctly understand the issue, it may be necessary to refer to the two provisions of the Act, namely, Section 20 and Section 39, as amended in the State of Uttar Pradesh by the U.P. Civil Laws Reforms and Amendment Act, 1976 (U.P. Act No. 57 of 1976) with effect from 01.01.1977. Section 20 of the Act, reads as under:-
"20. Application to the Court for making reference:
(1)Where a person has entered into an agreement before the institution of any suit, with respect to the subject matter of the agreement or any part of it, and where a difference has arisen to which the agreement applies, they or any of them instead of proceeding under Chapter II, may apply to a Court having jurisdiction in the matter to which the agreement relates, that a reference be made according to agreement.
(2)The application shall be in writing and shall be numbered and registered as a suit between one or more of the parties interested or claiming to be interested as plaintiff or plaintiffs and the remainder as defendant or defendants, if the application has been presented by all the parties, or, if otherwise between the applicant as the plaintiff and the other parties as defendants.
(3)On such application being made, the Court shall direct notice thereof to be given to all parties to the agreement other than the applicants, requiring them to show cause within the time specified in the notice why reference in accordance with the agreement should not be made.
(4)Where no sufficient cause is shown, the Court shall make an order of reference to the arbitrator appointed by the parties whether in the agreement or otherwise or where the parties cannot agree upon an arbitrator to an arbitrator appointed by the Court.
(5)Thereafter the arbitration shall proceed in accordance with, and shall be governed by the other provisions of this Act so far as they can be made applicable.
Explanation: Where an arbitration agreement provides for reference to a person by name or designation, the fact that the arbitrator or umpire so named or designated is an employee of or in otherwise connected with one of the parties shall not by itself be deemed to be a reason for not referring the matter to the arbitrator or the umpire so named or designated."
Similarly, Section 39 of the Act reads as under:-
"39. Appealable orders. (1) An appeal shall lie from the following orders passed under this Act and from none others to the Court authorized by law to hear appeals from original decree of the court passing the order:-
An order -
(i)superseding an arbitration;
(ii)on an award stated in the form of a special case;
(iii)modifying or correcting an award;
(iv)under Section 20, making or refusing to make a reference;
(v)staying or refusing to stay legal proceedings where there is an arbitration agreement.
(vi)setting aside or refusing to set aside an award;
Provided that the provisions of this Section shall not apply to any order passed by a Small Cause Court.
(2) No second appeal shall lie from an order passed in appeal under this Section but nothing in this Section shall affect or take away any right to appeal to the Supreme Court."
If the provisions of Section 39 (1) (iv) of the Act are read in their proper context, it would be clear that an appeal would lie from an order making or refusing to make a reference. Thus, it is apparent that the appointment of an Arbitrator, by itself, is not a requirement for preferring an appeal. The appeal is in respect of a judicial determination by the Court, making or refusing to make the reference.
5. In that context, we may examine the judgment of the Supreme Court, though observed in a different context, in the case of M/s. Dhanrajamal Gobindram Vs. M/s. Shamji Kalidas & Co., AIR 1961 SC 1285. We may gainfully refer to paragraph 26 of the said judgement, which reads as under:-
"26. But the crux of the argument is that the provisions of sub-sec. (4) of S. 20 read with sub-sec. (1) , ibid., cannot apply, and the Court, after filing the agreement, will have to do nothing more with it, and this shows that S. 20 is not applicable. This argument overlooks the fact that this is a statutory arbitration governed by its own rules, and that the powers and duties of the Court in sub-sec (4) of S. 20 are of two distinct kinds. The first is the judicial function to consider whether the arbitration agreement should be filed in Court or not. That may involve dealing with objections to the existence and validity of the agreement itself. Once that is done, and the Court has decided that the agreement must be filed, the first part of its powers and duties is over. It is significant that an appeal under S. 39 lies only against the decision on this part of sub-sec. (4). Then follows a ministerial act of reference to arbitrator or arbitrators appointed by the parties. That also was perfectly possible in this case, if the parties appointed the arbitrator or arbitrators. If the parties do not agree, the Court may be required to make a decision as to who should be selected as an arbitrator, and that may be a function either judicial, or procedural, or even ministerial; but it is unnecessary to decide which it is. In the present case the parties by their agreement have placed the power of selecting an arbitrator or arbitrators (in which we include also the umpire) in the hands of the Chairman of the Board of Directors of the East India Cotton Association, Ltd., and the Court can certainly perform the ministerial act of sending the agreement to him to be dealt with by him. Once the agreement filed in Court is sent to the Chairman, the Bye-laws lay down the procedure for the Chairman and the appointed arbitrator or arbitrators to follow, and that procedure, if inconsistent with the Arbitration Act prevails. In our opinion, there is no impediment to action being taken under S. 20(4) of the Arbitration Act."
It would thus be clear as the Supreme Court has held that a construction of Section 20 (4) consists of two different orders. The first is the judicial function to consider as to whether the arbitration agreement should be filed in the Court or not. This aspect involves dealing with various objections as to existence and validity of the agreement itself. Once that is done, then follows the ministerial act of reference to the Arbitrator appointed by the parties. The Court further explained that this order depends on the facts of a case, and may be judicial, procedural or ministerial. Another ground for supporting this view is that if the Court decides not to make a reference, then the question of naming an Arbitrator will not arise and consequently no appeal will lie if the view in Karnail Singh (supra) is accepted. This will be the another reason to hold as to why an appeal would be maintainable against an order making or refusing to make a reference.
6. We may now examine the two judgements. In Karnail Singh (supra), the Court, on construction of Section 39 (1) (iv), held that the Section does not contemplate filing of an appeal before appointment of Arbitrator and that the appeal under Section 39 of the Act can only be filed when the Court has determined the Arbitrator to whom the reference is to be made and has actually made an order referring the dispute to him. On the other hand, the view taken in Mohamad Usman (supra) is that Section 20 of the Act contemplates two kinds of orders. The first would contemplate filing of the arbitration agreement and the second contemplates passing of the order appointing the Arbitrator. The Court, proceeded to hold that once the Court directs for filing of the arbitration agreement, then such an order is covered by the provisions of Section 39 (1) (iv) of the Act. It is no doubt true that on behalf of the respondents, learned counsel has sought to contend that this was before the amendment of Section 39 of the Act in the State of Uttar Pradesh. To our mind, that would make no difference, as we have already stated that the expression used in Section 39 (1) (iv) is 'making or refusing to make a reference'.
7. Considering the above and the literal language of the provisions, which is unambiguous and does not lead to any mischief or is against the intent of the legislature, there is no need to construe the language of the Section by any interpretative process, as the view taken in Mohamad Usman (supra), as explained by the Supreme Court in Dhanrajmal Gobindram (supra) is the correct view.
8. In view of the above, we are clearly of the opinion that the view taken in Mohamad Usman (supra) represents the correct view, namely, that an appeal would lie from an order where the Court decides not to make a reference or passes an order making a reference.
The reference is answered accordingly.
The matter be placed before the appropriate Bench.
26.11.2010 AHA (F.I. Rebello, C.J.) (Sunil Ambwani, J.) (Dilip Gupta, J.) Hon'ble F.I. Rebello, C.J.
Hon'ble Sunil Ambwani, J.
Hon'ble Dilip Gupta, J.
Reference answered.
For orders, see order of date passed on separate sheets.
26.11.2010 AHA (F.I. Rebello, C.J.) (Sunil Ambwani, J.) (Dilip Gupta, J.)