Equivalent Citation: 1998(5)ALT398, 1998(2)ARBLR544(AP)
IN THE HIGH COURT OF ANDHRA PRADESH AT HYDERABAD
CRP No. 531 of 1996
Decided On: 31.08.1998

Appellants: Zaheer Bin Saleh
Vs.
Respondent: Mohan and Mohan Financers and Ors.

Hon'ble Judge:
R. Bayapu Reddy, J.

Counsels:
For Appellant/Petitioner/Plaintiff: Mr. Milind G. Gokhale, Adv.

For Respondents/Defendant: Mr. E.V. Raja Rao, Adv.

Subject: Arbitration

Acts/Rules/Orders:
Arbitration Act, 1940 - Sections 14(1), 15, 16, 17, 20, 30, 30(1), 32 and 33; Arbitration Act, 1990 - Sections 14 to 17; Limitation Act, 1963 - Schedule - Article 119; Limitation Act, 1908 - Schedule - Article 158

Cases Referred:
M/s. Vallabh Pitte v. Narsingdas, AIR 1963 Bom. 157; S.S. Gruhaniraman Sanstha v. Shree Ram Construction Co., AIR 1981 Bom. 260; Om Prakash v. Union of India, AIR 1963 All. 242; Saha & Co. v. Ishar Singh, AIR 1956 Cal. 321; Devendra Singh v. Kalyan Singh, AIR 1978 Raj. 134; A.R. Savkur v. Amritlal Kalidas, AIR 1954 Bom. 293; Madan Lal v. Sunder Lal, AIR 1967 SC 1233

Case Note:

Arbitration - objection to arbitration agreement Sections 14 (1), 15, 16, 17, 20, 30, 30 (1), 32 and 33 of Arbitration Act, 1940 and Article 119 of Schedule to Limitation Act, 1963 Trial Court decreed suit filed under Sections 14 to 17 having accepted legality and validity of arbitration award and made it rule of Court revision questioning such decree and judgment passed by Lower Court simply on account of denial of existence of arbitration agreement by one party Arbitrator cannot lose his jurisdiction to enter into arbitration whether award that might be submitted by Arbitrator is to be considered as nullity on ground of non-existence of arbitration agreement can be decided only by Court on application to be filed under Section 33 by aggrieved party petitioner did not file any separate application under Section 33 Court cannot suo motu consider such contention of petitioner and grant any relief even if written statement filed in suit is considered as petition under Section 33 it is beyond limitation period of 30 days prescribed by Article 119 revision petition dismissed.

ORDER

1. This revision is filed by the first defendant in O.S. No. 419/92 on the file of the Vth Additional Judge, City Civil Court, Hyderabad questioning the decree and judgment dated 31-8-1995 by which the suit was decreed thereby making the award of the arbitrator dated 17-3-1992 a rule of the Court.

2. The first respondent herein is the plaintiff in O.S.No. 419/92 and he filed the said suit against the present revision petitioner, who was the first defendant and also against the defendants 2 to 4 who are the respondents 2 to 4 herein and against the fifth defendant who is the arbitrator and who is shown as fifth respondent in this revision petition. The contention of the plaintiff, which is a finance company is that the first defendant obtained a loan of Rs.90.000/- by hypothecating a lorry on 23-11-1990 in its favour and the defendants 2 to 4 stood as guarantors for the said loan that the defendants executed a hire purchase agreement in favour of the plaintiff, that there is an arbitration clause in the said agreement as per which the disputes that arise between the parties to the agreement had to be referred to an arbitrator for settlement that as disputes arose regarding discharge of the loan amount as per the hire purchase agreement the fifth defendant was named as arbitrator and the dispute was referred to him by the plaintiff for settlement, that the arbitrator subsequently passed award dated 17-3-1992 and notice under Section 14(1) of the Arbitration Act was issued to all the parties and the said notice was served on the plaintiff on 17-3-1992 and that therefore the suit was filed under Sections 14 to 17 of the Arbitration Act, 1990 requesting the Court to direct the Arbitrator to file the award into the Court and to make it a rule of the Court. The first defendant contested the suit mainly contending that he did not execute any hire purchase agreement in favour of the plaintiff and such an agreement is a fabricated document that the arbitrator has therefore no jurisdiction to enter into reference and pass award and such award passed by him is a nullity and that the suit shall therefore be dismissed. No oral or documentary evidence was adduced before the trial Court on behalf of either party. The award was filed into the Court by the arbitrator who is the fifth defendant in the suit along with the enclosures, and on the basis of such material and after hearing both sides the learned Vth Additional Judge, City Civil Court, Hyderabad decreed the suit having accepted the legality and validity of the award and made it a rule of the Court. Questioning such decree and judgment passed by the lower Court the present revision is filed by the first defendant.

3. Heard both the Counsel.

4. It is seen from a perusal of the material on record including the grounds of revision that the dispute was referred by the plaintiff to the fifth respondent who is the arbitrator for settlement as per the arbitration clause contained in the hire purchase agreement dated 23-11-1990 said to have been executed by the first defendant (revision petitioner) as well as the defendants 2 to 4 as guarantors in favour of the plaintiff. After the dispute was referred to the Arbitrator by the plaintiff and after he filed the claim statement, the Arbitrator issued a notice to the Revision petitioner requiring him to submit his counter-statement. The revision petitioner thereupon addressed a letter dated 30-12-1991 to the Arbitrator stating that he did not execute any Hire Purchase Agreement in favour of the plaintiff and the said agreement is a fabricated document and as such the Arbitrator has no jurisdiction to conduct arbitration proceedings. The revision petitioner subsequently did not participate in the arbitration proceedings conducted by the Arbitrator. The Arbitrator, however, enquired into the matter by referring to the claim statement filed by the plaintiff and the documents produced before him and came to the conclusion that there was an Hire Purchase Agreement which contains arbitration clause and that an amount of Rs. 1,02,500/- will have to be paid by the revision petitioner to the plaintiff and the award dated 17-3-1992 was accordingly passed. On receipt of notice issued by the Arbitrator about the passing of the award, the plaintiff filed the suit before the lower Court requesting the Court to direct the Arbitrator to file the award into Court and pass a decree making the award a rule of Court. The contention of the learned Counsel for the revision petitioner (first defendant) is that inasmuch as the revision petitioner has specifically denied the very execution of the Hire Purchase Agreement, which is said to contain the arbitration clause, the very existence of the agreement is in dispute, that the Arbitrator has, therefore, no jurisdiction to enter into arbitration when the very execution of the agreement containing the arbitration, clause is denied and the award passed by the Arbitrator under such circumstances is a nullity and that, therefore, the award cannot be made a rule of Court. But such contention of the learned Counsel for the revision petitioner cannot be accepted. Even though the revision petitioner has denied the existence of the Hire Purchase Agreement under which the dispute was referred to the Arbitrator for decision, the arbitrator cannot be said to be without jurisdiction to conduct the arbitration proceedings. It is only for the Court, on an appropriate petition to be filed by the aggrieved party under Section 33 of the Arbitration Act, 1940, that the validity of the Award that might be passed by the Arbitrator on the ground of non-existence of the arbitration agreement, can be decided. In the decision reported in M/s. Vallabh Pitte v. Narsingdas, MANU/MH/0034/1963, it is observed that the jurisdiction of the arbitrators to decide the question of existence of the agreement is not wholly taken away by a mere denial of its existence by one party, that the arbitrators may consider the question of jurisdiction, not to give a final and binding judgment on that question, but only in order to determine what course they should adopt, that they may in a case hold that they have no jurisdiction and direct the party who affirms the jurisdiction to obtain a decision of the Court under the Arbitration Act and that if they are, however, satisfied that they have got jurisdiction, they may proceed with the Arbitration and make their Award. It is further observed in para 15.

"Whenever mere is a dispute as to the existence of a contract of arbitration, the parties may choose to adopt one or the other of the following courses : (1) The party affirming the existence of the contract of arbitration may approach the Court to have it determined either under Section 31 and 32 read together, or approach the Court under Section 20 and request that the agreement be filed and that the matter be referred to arbitration, (2) He may not necessarily follow the same course. He may follow the procedure of Chapter II and refer the matter to arbitration according to the contract calling upon the party denying the existence of the contract of arbitration to appoint his own arbitrator who may if he so chooses deny the jurisdiction of the arbitrator and appear under protest or he may, if he so chooses refuse to appear before the arbitrator at his own risk. He may if he so chooses approach the Court under Section 33 and have it declared mat there is in fact no arbitration agreement in existence and obtain stay of the proceedings of the arbitrators. (4) He may not even adopt that procedure but may wait and take a chance of a decision in his favour and when an application is made to make a decree in terms of the award challenge the validity of the award on the ground that there was in fact no valid and existing contract of arbitration. We do not see any reason why either of the parties should be confined only to one mode of remedy. In a case where a question is raised that there is no arbitration agreement, the Court is bound to decide it and make its decree in accordance with the said decision. In the last case, which we have cited above, if the Court holds in favour of the contending defendant, then it must declare the award invalid and not binding and allow the petition. It must, however, try the issue as to whether or not there was an arbitration agreement which entitled the arbitrator to decide the disputes between the parties."

5. It is clear from such observations that simply on account of the denial of the existence of the agreement by one party, the Arbitrator cannot lose his jurisdiction to enter into arbitration and that whether the award that might be submitted by the Arbitrator is to be considered as a nullity on the ground of non-existence of the arbitration agreement, can be decided only by the Court on an application to be filed under Section 33 of the Arbitration Act by the aggrieved party who denies the existence of such agreement. Therefore, the above said contention of the learned Counsel for the revision petitioner that the Arbitrator acted without jurisdiction when the existence of the arbitration agreement was denied by the revision petitioner, cannot be accepted. Such contention regarding the jurisdiction of the Arbitrator on account of the denial of the existence of the agreement and regarding the validity of the Award passed by the Arbitrator under such circumstances, can be considered only by the Court on an application filed under Section 33 of the Arbitration Act.

6. Section 33 of the Arbitration Act provides that any party to an arbitration agreement or any person claiming under him desiring to challenge the existence or validity of an arbitration agreement or an award or to have the effect of either determined, shall apply to the Court and the Court shall decide the question. In the decision of the Bombay High Court reported in S.S. Gruhaniraman Sanstha v. Shree Ram Construction Co., MANU/MH/0326/1981, it is observed that where the ground for setting aside the award falls under any of the clauses under Section 30, it is incumbent on the person challenging the award to make an application within the time prescribed under Article 119 of the Limitation Act, 1963, and if no such application is made, the Court has no power to set aside the award suo motu. It is further observed that clause (c) of Section 30 covers all forms of validity including a nullity of reference. In the decision reported in Om Prakash v. Union of India, MANU/UP/0070/1963, it is observed, while referring to the provisions of Section 30 and Section 33 of the Arbitration Act, that an award can be set aside under Section 30 on the ground that the original reference was defective or invalid; that the phrase "otherwise invalid" used in Section 30 (I) is wide enough to include an award which is invalid on account of some defect in the reference itself and need not be restricted to invalidity arising out of arbitration proceedings alone. It is further observed in the said decision at para 15 as follows:

"It is thus significant to note that those very crucial words "existence, effect or validity" have been repeated in Section 33 and this is tlie only section which authorises a party to make an application. We are, therefore, satisfied that Section 33 is the only Section under which a party has been given the right to apply to the Court to challenge either the agreement or the award. The scheme of the Act, therefore, is that after the award has been filed, a party is permitted to make an application under this section to bring all kinds of defects to the notice of the Court and the Court will give such reliefs as it thinks fit either under Section 15 or Section 16 or even under Section 30 of the Act. If an award has not been made and a party wants to challenge the validity of the agreement or of reference, then, of course, the Court will merely give a suitable declaration."

In the Full Bench decision of Calcutta High Court reported in Saha & Co. v. Ishar Singh, MANU/WB/0107/1956, it was observed (Per Majority) that the Arbitration Act contemplate that all applications challenging an award must be made under Section 33 irrespective of the ground of challenge and that there must be applications for setting aside the award except in cases where the existence of an award in fact is challenged. It is further observed that the non-existence or invalidity of the reference can be a ground of an application under Section 33 for setting aside an award passed on such invalid or non-existent reference. It is also observed in the said decision that the Arbitration Act does not distinguish between an application for setting aside an award and an application for the adjudgment of an award to be a nullity and does not contemplate that an application of the former kind should be made under Section 30 of the Act and an application of the latter kind should be under Section 33 of the Act. The said view was followed in the decision of the Rajasthan High Court reported in Devendra Singh v. Kalyan Singh, MANU/RH/0025/1978, and also by the Bombay High Court in the decision reported in A.R. Savkur v. Amritlal Kalidas, MANU/MH/0083/1954, wherein it is observed that the only proper interpretation to be given to Section 17 of the Arbitration Act is that it contemplates all applications to set aside the award, and all applications to set aside the award are to be filed under Section 33 and not under Section 30, that Section 30 does not deal with applications to set aside an award at all and it deals with the powers of the Court when an application is made to set aside the award and that when a Court wants to decide what is the right of a party to apply to set aside the award and what procedure he should follow, then the Court has got to turn to Section 33 only. It is further observed in the said decision of the Bombay High Court that what the Arbitration Act contemplates is that if an award is on the file of the Court, unless steps are taken to have that award set aside, a certain definite result must follow and that definite result is the result indicated in Section 17 and that, therefore, it is not open to a party to assume that an award which has been filed and in respect of which a notice has been served upon him is a nullity, and he must go to Court and get it set aside by filing an application under Section 33 of the Act. It is also observed in the said decision that the Arbitration Act contemplates only one application to set aside the award and it is under Section 33 of the Act and that for such an application, Article 158 of the Limitation Act, 1908 (Article 119 of the present Limitation Act) applies. Article 119 of the Limitation Act contemplates that an application for setting aside of an award under the Arbitration Act shall be filed within 30 days from the date of receipt of the notice by a party about the filing of award. In the decision of the Supreme Court reported in Madan Lal v. Sunder Lal, MANU/SC/0346/1967, also it is observed that if a party wants an award to be set aside on any of the grounds mentioned in Section 30, it must apply within 30 days of the date of notice of filing of the award as provided under Article 158 of the Limitation Act, 1908 (Article 119 of the New Limitation Act) and that if no such application is made, the award cannot be set aside on any of the grounds specified in Section 30 of the Act.

7. In the present case, the notice was issued to the revision petitioner by the Arbitrator soon after the passing of the award intimating him about the passing of such award. After the suit was filed by the first respondent on 13-4-1992, summons were issued to the revision petitioner (first defendant in the suit) and such notice was served on him and an Advocate filed Vakalath on his behalf on 8-7-1992 and subsequently filed his written statement into Court only on 8-2-1995 specifying his objections regarding the award, contending that the award is nullity as there was no arbitration agreement. It is an admitted fact that he did not file any separate application under Section 33 of the Act for questioning the validity of the award on the ground that there was no arbitration agreement executed by him or on any other grounds. The Court cannot suo motu consider such contention of the revision petitioner and grant any relief as already stated above. Even if it is to be said tliat the written statement filed by the revision petitioner in the suit containing his objections, is to be considered as a petition under Section 33 of the Arbitration Act, it is to be seen that such objections were not taken within the period of limitation of 30 days as contemplated under Article 119 of the Limitation Act, as the written statement was filed only on 8-2-1995, which is more than 2-1/2 years after summons were served on him in the suit and after Vakalath was filed on his behalf by his Advocate. Therefore even on such ground also, no relief can be granted to the revision petitioner in the above said suit. In view of all these circumstances, the decree and Judgment of the lower Court making the award a rule of Court cannot be interfered with.

8. In the result, the revision petition is dismissed. No costs.