1970 (10) TMI 78 - SC - Companies Law

Summary

Issues Involved:
1. Validity of arbitration clause and appointment of arbitrator.
2. Interpretation of Sections 8(1) and 20(4) of the Indian Arbitration Act, 1940.
3. Intention of parties regarding the appointment of a substitute arbitrator.

Issue-Wise Detailed Analysis:

1. Validity of Arbitration Clause and Appointment of Arbitrator:
The appellants entered into agreements with the Union of India to tap Resin Blazes and supply them to a Turpentine Factory. These agreements included an arbitration clause stating that any disputes would be referred to the Judicial Commissioner, Himachal Pradesh. When disputes arose, the appellants requested arbitration by the Judicial Commissioner, who declined to act. The appellants then moved the Senior Sub Judge to appoint another arbitrator, which was opposed by the respondents. The Sub Judge dismissed the applications, and the Judicial Commissioner upheld this decision, concluding that no reference could be made to anyone other than the named authority.

2. Interpretation of Sections 8(1) and 20(4) of the Indian Arbitration Act, 1940:
The court examined Sections 8(1) and 20(4) to determine if a new arbitrator could be appointed. Section 8(1) allows the court to appoint an arbitrator if the original arbitrator refuses to act, is incapable, or dies, provided the agreement does not show an intention not to fill the vacancy. Section 20(4) is a procedural provision enabling the court to order the agreement to be filed and appoint an arbitrator if the parties cannot agree.

3. Intention of Parties Regarding the Appointment of a Substitute Arbitrator:
The court analyzed whether the agreements indicated an intention not to supply the vacancy. It was noted that the Judicial Commissioner was not appointed for any specialized knowledge but because he was a high judicial officer. The language of Section 8(1)(b) presumes that the parties intended to supply the vacancy unless explicitly stated otherwise. The court found no indication in the agreements that the parties intended not to fill the vacancy if the Judicial Commissioner refused to act.

Judgment Analysis:
The court referred to several precedents, including:
- Governor General in Council v. Associated Live Stock Farm (India) Ltd.: The court held that in the absence of an agreement not to fill the vacancy, the vacancy could be supplied.
- Union of India v. Raj Narain Misra: The court reiterated that an arbitration agreement does not become infructuous due to a vacancy.
- Fertilizer Corporation of India Ltd. v. Domestic Engg. Installation: The court outlined the options available under Section 20(4) for appointing an arbitrator.
- Chief Engineer, Buildings and Roads, Jaipur v. Harbans Singh: Distinguished based on specific facts indicating an intention not to fill the vacancy.
- Bharat Construction Company Ltd. v. Union of India: Emphasized that the agreement must show an intention not to supply the vacancy.
- Isherdass Sahni and Bros. v. Union of India: Highlighted the judicial conflict on this issue but did not set a binding precedent.

Conclusion:
The court concluded that the agreements did not show an intention not to supply the vacancy. Therefore, the orders of the subordinate judge and the Judicial Commissioner were set aside. The cases were remitted to the trial court to appoint a new arbitrator in place of the Judicial Commissioner, Himachal Pradesh. The respondents were ordered to pay the costs of the appellants in all courts.