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TMI Blog1955 (9) TMI 15X X X X Extracts X X X X X X X X Extracts X X X X ..... on had established a market or exchange for effecting forward transactions inter alia in silver pieces. Consistently with the articles of association, bye-laws were framed to regulate the transactions effected by members of the association in the said exchange in respect of several commodities including silver pieces. In about January, 1945, a syndicate of five persons was formed for dealing in silver pieces. On or about 5th February, 1948, according to the respondent one Lawjibai as representing the said syndicate had instructed the respondent to purchase 6,615 tukdas of silver from the market and accordingly the respondent did make the said purchase for and on behalf and as an agent of the said syndicate. Thereafter one Chandulal Ravjibhai and one Kishan Gopal Bagdi instructed the respondent to allot and assign the said 6,615 pieces of silver to four parties in the proportion mentioned by them. 3,000 pieces were allotted to Messrs. Radhakishan Shivkisan; 1,298 pieces to Messrs. Jotram Kedarnath; 1,817 pieces to Messrs. M. Gulamali Abdullhusein; and 500 pieces to the appellant. The rate at which these 500 pieces were allotted to the appellant was Rs. 160-14-6 per 100 tolas. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ot impressed by this argument. He relied upon the conduct of the appellant in that he appeared before the Lavad Committees for more than two years, took a chance of the decision of the Lavad Committee going in his favour, and when he found that the award was passed against him, he chose to raise these technical objections. In the opinion of the learned Judge, this conduct showed acquiescence on the part of the appellant and it was not, therefore, open to him to raise these technicalities against the validity of the award at that stage. That is why the learned Judge rejected the appellant's prayer for setting aside the award. In the present appeal Mr. K.T. Desai, for the appellant, has argued that even a superficial examination of the irregular procedure adopted by the Lavad Committees in dealing with the dispute would show that the committees were guilty of enormous delay and he contended, that, if ever there was a case where a request for extension of time should not be granted, it would be in the present case. It is true that the proceedings before the arbitrators have taken place in a very leisurely manner; and the constitution of the committees that actually heard these dispu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he Arbitration Act. Section 2 of the Arbitration Act requires that the arbitration agreement must be made in writing. If the contract which gives rise to a dispute between the parties is itself reduced to writing and it includes an arbitration agreement, there is no difficulty in holding that the requirements of section 2 of the Arbitration Act are complied with. If the contract between the parties is reduced to writing and makes the terms of the contract subject to the provisions of the articles of association, there is no difficulty in holding that the articles of association themselves are thereby made part of the contract, and if the articles provide for an arbitration agreement, the dispute between the parties arising from such a contract must be referred to arbitration. This position also cannot be disputed. In the present case, however, the alleged contract was not reduced to writing and the case for the respondent is that, though the contract is oral, it is nevertheless subject to the articles of association because under section 21 of the Companies Act, the articles of association must be taken to constitute an agreement in writing between the appellant and the respondent ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... levant articles of association and bye-laws which were produced before the learned trial Judge. At the fag end of the hearing, however, Mr. M.V. Desai, for the respondent invited our attention to the fact that the articles of association which have been filed with the Registrar of Societies appear to have been adopted in English and he sought to base his argument on the words used in the relevant articles of association in a copy of the said articles of association. In dealing with this point, we will refer both to the English translation supplied to the learned Judge below and to the English version on which Mr. M.V. Desai relied at the end of the hearing of the appeal. But in doing so, it is necessary to remember that the arbitration agreement must, even on the case of the respondent, primarily reside in the articles of association. It is true that under article 91 the board has been given power to frame and pass such bye-laws as they consider in the interest of and conducive to the objects of the chamber or any of them, "and they may at any time and from time to time rescind, alter or add to any of the bye-laws". But the bye-laws must be consistent with the articles of associa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e settled first by arbitration without resorting to a court of law." The English version of the articles of association, which, according to Mr. M.V. Desai, has been filed with the Registrar of Societies, sets out article 20( a ) as follows: "It shall be compulsory for every member in the first instance to have all claims and disputes arising out of or in course of all dealings and transactions in gold, silver, seeds, wheat, sarafi business and hundi chithis between himself and any other member settled by arbitration and without recourse to law subject to the bye-laws that may from time to time be made and in force or in the absence of such bye-laws such rules as the board from time to time prescribe." In construing this article Mr. M.V. Desai has asked us to bear in mind one of the objects for which the East India Chamber of Commerce Ltd. has been established. Clause 3( a ) of the memorandum of association provides that one of the objects for which the chamber has been established was to "remove all causes of friction between merchants inter se and between them and their constituents." Clause 3( g ) likewise provides: "In case of mutual disputes arising between merch ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er member of the chamber for settlement of such disputes." Looking at articles (20) ( a ), 21( a ) and 21( b ), it would be noticed that the obligation to refer all disputes to arbitration is imposed by article 20( a ). Article 21( a ) deals with the composition of the Lavad Committee and defines its powers, and article 21( b ) contains a general admonition to members of the association not to take legal proceedings against any other member for settlement of disputes which under the relevant articles of association and bye-laws have to be referred to arbitration. Before the learned Judge below, reliance has been placed by the respondent only on article 20( a ), and we think, rightly. An arbitration agreement as required by section 2 of the Arbitration Act can be said to reside only in article 2o( a ) which deals with the obligation of members. It cannot be said to reside in either article 21( a ) or in article 21( b ) because the topic which these two articles are intended to cover is not one of the obligations of members at all. It is, therefore, necessary to consider carefully the terms of article 20( a ). Under this article, all claims and disputes arising out of or in cour ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... at helps reference to arbitration of a domestic tribunal appointed by the association. But having carefully considered article 20( a ), we are unable to hold that the relevant words used in this article can reasonably yield the meaning which has been assigned to it by the learned Judge below. In our opinion, so far as this article is concerned, a dispute as to the existence of the transaction or dealing itself is not covered by it and no obligation has been imposed upon any member to refer such a dispute to the arbitration of the Lavad Committee provided for by the bye-laws. It may be useful at this stage to refer to some judicial decisions in cases where a similar question has been considered. Heyman v. Darwins Ltd. [1942] A.C. 356 , is the first decision to which we propose to refer. In. this case, an arbitration clause in a contract which referred to differences or disputes "in respect of" or "with regard to" or "under the contract" was construed by the House of Lords. The question which was raised for decision before the House of Lords was whether a plea that the contract had been frustrated could be said to fall within the purview of the arbitration clause. In decidin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ween the words 'arising out of and the words 'in relation to' in that bye-law it is not easy to make out, but in my opinion disputes between parties in relation to a contract the very factum of which is denied are not disputes which the arbitrators have jurisdiction to decide. In other words, the arbitrators have no jurisdiction to decide whether in fact the contracts were or were not entered into." It is significant that the question as to the jurisdiction of arbitrators was raised before Mr. Justice WADIA by reference to the words used in a bye-law of the East India Cotton Association Ltd. and Mr. Justice WADIA held that the material words used in the said bye-law did not confer any jurisdiction on the arbitrators to deal with and decide the dispute as to the factum of the contract itself. In Shriram Hanutram v. Mohanlal and Co. AIR 1940 Bom. 93, Mr. Justice KANIA had to decide a similar question arising on a contract between two parties, and in discussing the point Mr. Justice Kania has cited with approval the observations of Mr. Justice WADIA to which I have just referred. In Ghelabhai Mahasukhram v. Keshavdev Madanlal AIR 1949 Bom. 343 , CHAGLA C.J. and COYA ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Desai contends, that, in our opinion, cannot be said to constitute an arbitration agreement within the meaning of section 2 of the Arbitration Act. Article 21( a ) clearly does not purport to impose an obligation on the members. The obligation has already been imposed by article 20( a ) and article 21( a ) proceeds to take the subsequent step of defining and describing the powers of the arbitration committee. If in describing the powers of the arbitration committee, words of wider denotation are used, they cannot, in our opinion, widen the scope of article 20( a ) itself. An obligation to refer a dispute even in regard to the existence or factum of a contract itself cannot, in our opinion, be legitimately imposed upon a member in this indirect way and by implication. That is why we are not impressed by the argument urged before us by Mr. M.V. Desai that article 21( a ) should be held to construe an arbitration agreement between the parties and it should be so construed as to include even a dispute as to the existence of the contract itself. What we have said about article 21( a ) applies with greater force to article 21( b ). This article mentions that all disputes shall be sett ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ard at one meeting, or that the very same members of the arbitration committee or of the board were not present at all the meetings or that the members of the arbitration committee or of the board who had given the final award were not present at all meetings in which the hearing of the said dispute was taken up or the appeal heard, shall not be allowed to be raised against the decision of the arbitration committee or the board." This bye-law has no material bearing on the question with which we are dealing at this stage. The last bye-law on which Mr. M.V. Desai has laid considerable emphasis is bye-law 92 which prohibts the hearing of certain disputes. There was some dispute about the correctness of the translation of this bye-law, but ultimately both the learned counsel agreed to the translation of the material bye-law 92( b ) as it is reproduced below. The whole bye-law 92 reads as follows: "92.( a )Disputes relating to souda which have been effected after the bazaar has been closed will not be heard. ( b )Disputes in connection with a souda having been effected, or with regard to difference in rates, or in the matter of havalas, complaints as regards such disputes ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mbiguous and on a fair and reasonable construction they seem to yield only one meaning it is impossible to hold that they should be given a wider meaning because bye-law 92( b ) seems to be based on the said wider construction of article 20( a ). It is for the court to construe article 20( a ), and if the court comes to the conclusion that article 20( a ) does not impose an obligation on members to refer their disputes as to the existence of the alleged contract itself to arbitration, then it would be a valid argument to urge that the framers of bye-law 92( b ) seem to have adopted a different construction of article 20( a ). That is why it may perhaps be necessary to construe bye-law 92( b ) by assuming that the limitation of two months which has been prescribed has reference to cases where by independent mutual agreement between members a dispute as to the existence of a contract is intended by them to be taken to the Lavad Committee and in such a case this bye-law provides that such a dispute should be taken to the Lavad Committee within two months after the dispute arises. The position, therefore, is that, in our opinion, the material article which has to be construed is arti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ition, the order passed by the learned Judge below must be set aside on this ground alone. An award has been made by a committee which had no jurisdiction to deal with an essential part of the dispute between the parties, and so the whole of the award must be set aside. In this view of the matter, it would really not be necessary to consider the larger question of law as to whether an arbitration agreement as required by section 2 of the Arbitration Act, can reside in the articles of association. However, since this question has been argued before us at some length, we propose to indicate very briefly the nature and extent of the difference of judicial views expressed on this point and our own conclusion on it. Under section 2 of the Arbitration Act an arbitration agreement is defined as meaning a written agreement to submit present or future differences to arbitration, whether an arbitrator is named therein or not. The substantive provisions of the Arbitration Act cannot be invoked and a dispute between two parties cannot be taken to arbitration unless the said dispute is governed by an arbitration agreement thus defined. The appellant and the respondent are members of the Eas ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t of such commercial dealings must be referred to arbitration. Both of them have agreed that all disputes arising in respect of transactions between them shall be referred to arbitration and this agreement would govern all transactions between them, whether or not at the time of entering into them they specifically referred to this arbitration agreement. On the other hand, if in construing the provisions of section 21, sub-section (1), we bear in mind the scheme of the Act and the purpose which the said section is directly intended to serve, it may become relevant to give effect to the last clause in section 21, sub-section (1), which provides that the covenant between the members inter se is to observe all the provisions of the memorandum and of the articles and nothing more. On this alternative view, the articles of association cannot be said to constitute a contract between members inter se in respect of their rights outside what may be regarded as their company relationship, and as such they cannot purport to regulate their rights arising out of commercial transactions with which the company or other members of the company would not be concerned. On this construction of t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... added that, where there are mutual promises between parties to an agreement which amount to consideration moving from each to others, the terms in the document can be enforced by and against each party. It is true that in this particular case the dispute had arisen in respect of the business of the company. But the observations made by Mr. Justice Gentle seem to suggest that, when section 21, sub-section (1), constitutes the articles into a contract between members inter se, that contract is supported by the consideration of mutual promises made by one member to the other and as such all the terms in the contract can be enforced by and against each party. That is the view which Mr. Justice BHAGWATI took in Mohanlal's case ( supra ). The learned Judge held that in commercial transactions entered into between members of an association whose articles of association provide for compulsory arbitration of disputes arising between them in respect of such transactions, it would not be open to any member to contend that any particular transaction between him and another member is not governed by the arbitration clause contained in the articles. The inclusion of the arbitration clause in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... al, in respect of commodities like silver which are within the purview of the chamber itself, they do so with the full knowledge and consciousness that the contracts are made subject to the terms of the articles of association. The fact that the contract is made orally and no reference to the articles of association is expressly made at the time of such a contract would not, in our opinion, justify the inference that the members had agreed that the articles of association should not govern the said contracts. Besides, on the alternative view that the articles constitute a contract between the members, but the rights and obligations from such a contract are confined only to disputes arising between them from their company relationship as such, it would not be easy to imagine cases of any dispute between members to which the articles can apply. All the private transactions between the members inter se would be excluded from the operation of the articles on this view and disputes between members inter se to which the articles can apply would be very few, if any at all. In other words, it may, with respect, be pointed out that the main object of including an arbitration agreement ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... te a general contract containing an arbitration clause and all contracts of the kind just described would attract the provisions of such arbitration clause. The position in respect of oral contracts made between one member and another would, on this view, not be materially different from the position of contracts which are made expressly subject to the articles of association. What is expressly mentioned in this latter class of contracts can be said to be included in all similar contracts by necessary implication having regard to the articles of association which constitute a general contract between one member and another. Though we have reached this conclusion, we must confess to a feeling of diffidence because the question involved is not free from difficulties and the answers given to this question by eminent judges are, as I have already mentiond, not easy to reconcile. I would now refer to some of the English decisions bearing on this point. Section 20 of the English Companies Act in general corresponds to section 21 of the Indian Companies Act. In Pritchard's case ( supra ) MELLISH L.J. has taken the view that in themselves the articles of association are simply a co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... " LORD MACNAGHTEN, who had delivered a separate judgment did not accept this view. "If directors, being duly authorized in that behalf," observed LORD MACNAGHTEN, "invite persons to take shares on certain terms varying the rights of members inter se, acceptance of the invitation must, I think, establish a contractual relation between the members themselves." The position, therefore, is that the view taken by LORD HERSCHELL, under which articles of association do not confer upon a member any right as between himself and any member beyond that which the contract with the company gives, was not shared by LORD HERSCHELL'S other colleagues, and by necessary implication it has been dissented from in the majority decision. In Salmon v. Quin Axtens Ltd. [1909] 1 Ch. 311 FARWELL L.J. expressed his concurrence with the view taken by STIRLING J. in Wood v. Odessa Waterworks Co. [1889] 42 Ch. D 636 but he added that the statement of the law set out by STIRLING J. was accurate "subject to his observation, that it may well be that the court would enforce the covenant as between individual shareholders in most cases." In Hickman v. Kent or Romney Marsh Sheep Breeders' Associati ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... spute had arisen from a contract of sale for Rs. 5,000 cotton flour bags by the defendant to the plaintiff. Both the parties were members of the United Kingdom Jute Goods Association Ltd. The arbitration agreement on which stay was claimed was based on one of the rules of the association which had provided that all disputes arising out of transaction connected with the trade shall be referred to arbitration. On the face of it, the transaction which had given rise to the dispute was not connected with the trade of the association at all and that really was enough to dispose of the matter. Indeed MACKINNON L.J. based his decision on two grounds: first, that the two parties were not members although each had a director, who was a member of the association, and, secondly, that the contract, being for cotton bags, was not connected with jute goods. Scott L.J., however, purported to put the decision on a larger ground. Referring to the rule providing for compulsory arbitration the learned Judge observed that "It may well be even as between ordinary members of a company who are also in the nominal way shareholders, that section 20 adjusts their legal relations inter se in the same way a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... view thus expressed by LORD HERSCHELL accords with the well-established principle that it is for the company, save in exceptional cases, to sue for a breach of the articles (page 29). Buckley, in his Companies Acts, has observed: "As regards the rights of members inter se, if the articles do constitute a contract between them, the rights arising out of such contract can ordinarily only be enforced through the company; and the correct view is; semble, that stated by LORD HERSCHELL in Welton v. Saffery [1897] AC 299 at 305 , namely, the articles constitute a contract between each member and the company, and there is no contract in terms between the individual members of the company; but the articles do not, any the less, in my opinion, regulate their rights inter se. Such rights can only be enforced by or against a member through the company or through the liquidators representing the company; but I think that no member has, as between himself and another member, any rights beyond that which the contract with the company gives, (page 53). Thus it would be seen that the view which we have taken is inconsistent with the view expressed by eminent text-writers. We wo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... udge may have taken a different view. In Patel Bros. v. Shree Meenakshi Mills Ltd. AIR 1942 Bom. 289 , BEAUMONT C.J., who delivered the judgment of the Bench, agreed with RANGNEKAR J.'s observations in Fazallally's case ( supra ), and held that the parties would normally be entitled to the united judgment of the board, and if a dispute was entertained by a fluctuating body of the board that introduced a serious infirmity in the decision. But it would be noticed that in stating his conclusion the learned Chief Justice has observed: "In the absence of consent, I think, the rule is that the tribunal, which has commenced the appeal, must continue, and if any member is obliged to withdraw, and the parties are not willing to go on before the remaining members, then a fresh board must be constituted." In other words, if there is a rule or a bye-law of the association specifically providing for the hearing of the dispute by a fluctuating body of arbitrators then the plea that the same arbitrators have not heard the dispute would not invalidate the award. We must, therefore, hold that the infirmity in the award on which Mr. K.T. Desai relied cannot invalidate the award because by ..... X X X X Extracts X X X X X X X X Extracts X X X X
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