Case Note & Summary
The appellants entered into agreements with the Union of India under which they were allotted certain areas in a forest to tap Resin Blazes and supply the same to a Turpentine Factory. The agreements contained an arbitration clause providing that any disputes would be referred to the Judicial Commissioner, Himachal Pradesh, whose decision would be final and binding. Disputes arose over claims under the contracts. The appellants requested the respondents to refer the disputes to arbitration by the Judicial Commissioner, but the respondents declined. The appellants then filed applications under Section 20 of the Arbitration Act, 1940 before the Senior Sub Judge, District Sirmur Nihan, seeking orders to file the agreements and refer the disputes to the Judicial Commissioner. The trial court accepted the applications, directed filing of agreements, and referred the disputes to the Judicial Commissioner. The Judicial Commissioner declined to act as arbitrator. The appellants then moved the trial court to appoint another arbitrator in place of the Judicial Commissioner. The respondents opposed this prayer, contending that the arbitration clause did not provide for such substitution. The trial court accepted the respondents' contention and dismissed the applications. The appellants challenged this order in revision before the Judicial Commissioner, Himachal Pradesh, who dismissed the revisions following an earlier decision in District Co-operative Federation Ltd. v. Khub Chand, holding that no reference could be made to anyone other than the named authority. The appellants appealed to the Supreme Court by special leave. The core legal issue was whether Section 8(1)(b) of the Arbitration Act, 1940 empowered the court to appoint a substitute arbitrator when the named arbitrator refused to act and the arbitration agreement did not expressly provide for filling the vacancy. The Court held that the substantive rights of parties were contained in Section 8(1)(b) and Section 20 was only a machinery provision. It explained that before Section 8(1)(b) could operate, five conditions must be satisfied: existence of an arbitration agreement, appointment of an arbitrator, refusal or incapacity or death of the arbitrator, absence of intention in the agreement not to fill the vacancy, and failure of parties to supply the vacancy. In the present case, all conditions were satisfied except the question of whether the agreement showed an intention not to fill the vacancy. The Court emphasized that the statutory language required the agreement to show that parties intended not to supply the vacancy; silence on the matter created a presumption that the vacancy should be filled. It further held that the mere designation of the Judicial Commissioner as arbitrator by office did not indicate an intention not to fill the vacancy. The Judicial Commissioner was appointed because he was a high judicial officer, not because of any special technical knowledge; an independent and impartial person with adequate legal knowledge could perform the same function. Accordingly, the Court allowed the appeals, set aside the orders of the trial court and the Judicial Commissioner, and remitted the cases to the trial court for appointment of a new arbitrator in place of the Judicial Commissioner.
Headnote
A) Arbitration - Appointment of Arbitrator - Conditions for Court to Appoint Substitute Arbitrator - Arbitration Act, 1940, Section 8(1)(b) - Under Section 8(1)(b), court may appoint a new arbitrator when an appointed arbitrator refuses to act if there is agreement to refer, an appointed arbitrator, refusal/incapacity/death, no intention not to fill vacancy, and vacancy not supplied by parties - In the present case, the Judicial Commissioner was named as arbitrator and refused to act; the agreements did not show intention not to fill vacancy, so all conditions were satisfied - Held that the court had power to appoint another arbitrator (Page 568 E). B) Arbitration - Interpretation of Agreement - Presumption of Intention to Supply Vacancy from Silence - Arbitration Act, 1940, Section 8(1)(b) - The language of Section 8(1)(b) requires that the arbitration agreement must show that parties intended not to supply vacancy; if agreement is silent, law presumes intention to supply vacancy - The court emphasized that to take case out of Section 8(1)(b), it is not the intention to supply but intention not to supply that must be shown - Held that silence on filling vacancy did not bar court's power (Page 568 G). C) Arbitration - Designation of Office Holder as Arbitrator - No Implication of Intention Not to Fill Vacancy - Arbitration Act, 1940, Section 8(1)(b) - Mere appointment of Judicial Commissioner as arbitrator by office does not indicate that parties intended the vacancy should not be filled if he refused to act - What a Judicial Commissioner could do as arbitrator could be done by an independent and impartial person with adequate legal knowledge - Held that the designation of office holder did not exclude alternate appointment (Page 569 D). D) Arbitration - Section 20 as Machinery Provision - Substantive Rights in Section 8(1)(b) - Arbitration Act, 1940, Sections 20(4), 8(1)(b) - Section 20 is merely a machinery provision for filing agreement and making reference; the substantive rights of parties are in Section 8(1)(b) - The court clarified that the conditions for appointment under Section 8(1)(b) govern the substitution of arbitrator - Held that Section 20(4) did not independently prevent appointment (Page 568 E).
Issue of Consideration
Whether the court can appoint an arbitrator in place of the named Judicial Commissioner who refused to act, when the arbitration agreement merely designated the Judicial Commissioner and did not expressly provide for substitution, under Section 8(1)(b) of the Arbitration Act, 1940
Final Decision
The Supreme Court allowed the appeals, set aside the orders of the trial court and the Judicial Commissioner, and remitted the cases to the trial court for appointing a new arbitrator in place of the Judicial Commissioner. The Court held that all conditions of Section 8(1)(b) were satisfied and the agreement did not show intention not to fill the vacancy.
Law Points
- Under Section 8(1)(b) of Arbitration Act
- 1940
- court may appoint new arbitrator if named arbitrator refuses to act and arbitration agreement does not show intention not to fill vacancy
- silence on vacancy creates presumption of intention to supply vacancy
- mere designation of office holder as arbitrator does not imply intention not to fill vacancy
- Section 20(4) is machinery provision
- substantive rights in Section 8(1)(b)
