M/S. Amarchand Lalitkumar vs Shree Ambica Jute Mills Ltd

Rewritten Version Notice: This is a rewritten version of the original judgment.

Court: supreme-court

Case Number: Civil Appeal No. 640 of 1961

Decision Date: 3 May 1962

Coram: S.K. Das, M. Hidayatullah, J.C. Shah

In this case the Supreme Court of India considered a dispute between M/S Amarchand Lalitkumar, the petitioner, and Shree Ambica Jute Mills Ltd, the respondent. The judgment was delivered on 3 May 1962. The case was reported in 1966 AIR 1036 and in 1963 SCR (2) 953, and it is also cited as R 1992 SC 188 (5). The bench that heard the matter consisted of S.K. Das, M. Hidayatullah and J.C. Shah. The matter arose under the Arbitration Act of 1940, specifically sections 5 and 34, and involved the question of whether a periodic fluctuation in the price of raw jute could amount to an emergency justifying the revocation of an arbitrator’s authority. The relevant procedural guidance was drawn from paragraph 11 of Chapter IX of the Working Manual of the East India Jute and Hessian Exchange, which refers to emergencies in the context of raw‑jute scarcity and speculative price spikes. The appellant, identified as the sellers of raw jute, had entered into forward contracts with the respondent, a jute mill, for the supply of raw jute. These contracts were transferable specific‑delivery contracts that were executed on the standard printed forms of the East India Jute & Hessian Exchange Ltd. The Exchange was an association recognised under the Forward Contracts (Regulation) Act, 1912, and the contracts were therefore governed by the rules and bye‑laws made by the Exchange. Those rules provided that any dispute arising under the contracts should be referred to the arbitration tribunal of either the Bengal Chamber of Commerce and Industry or the Indian Chamber of Commerce in Calcutta. The appellants failed to deliver the contracted quantity of raw jute within the period specified in the guarantee clauses of the contracts. Consequently, the respondents exercised the option provided in the Exchange rules, cancelled the contracts, and demanded from the appellants the difference between the contract price and the prevailing market price on the dates of cancellation. The appellants denied liability for that price difference and consequently applied for arbitration. Thereafter the appellants applied to the High Court under section 5 of the Arbitration Act, 1940, seeking to revoke the authority of the arbitrator appointed under the Exchange rules. The High Court examined the situation described in paragraph 11 of Chapter IX of the Working Manual, which suggested that an emergency might exist when raw jute is scarce, speculation drives the price up abnormally, and the buyers and sellers find themselves on opposing sides. The Manual further indicated that if the majority of arbitrators on the panel of the Bengal Chamber of Commerce and Industry were connected with the buyers—namely the jute mills—such arbitrators could be disqualified from acting impartially. The High Court, however, found that no such emergent condition had been proved. It held that ordinary, periodic fluctuations in the price of raw jute did not meet the definition of an emergency under paragraph 11 of the Manual, because those fluctuations were anticipated and had been contemplated by the parties when they entered into the forward contracts. The Court explained that an emergency must be abnormal and unforeseeable, and therefore the present case did not demonstrate a conflict of interest sufficient to disqualify the arbitrators as

The Court observed that merely possessing practical knowledge of the ordinary market fluctuations did not render a panel of arbitrators incapable of acting impartially. Both sections 5 and 34 of the Arbitration Act were intended to achieve the same purpose, namely to prevent arbitration, but they differed in timing: an application under section 5 could be made before any court proceedings had begun, whereas an application under section 34 could be filed after court proceedings were already underway. The Court further stressed that it would not lightly exercise its discretion to grant leave for revoking an arbitrator’s authority. Before doing so, the Court must be satisfied that a substantial miscarriage would otherwise occur if a party were forced to remain with a tribunal of its own choosing simply because it feared an adverse decision. In reaching its decision, the Court must rely on one of five recognized grounds: (i) excess of jurisdiction or refusal to act within jurisdiction by the arbitrator, (ii) misconduct of the arbitrator, (iii) disqualification of the arbitrator, (iv) charges of fraud, or (v) the existence of exceptional circumstances. In the present matters, the Court found no exceptional circumstances that would justify concluding that the arbitrator was biased because of a conflicting class interest. Earlier authorities such as Balabux Agarwala v. Lachminarain Jute Mfg. Co. Ltd. (1947) 51 C.W.N. 863, Tolaram Nathmull v. Birla Jute Manufacturing Co. Ltd. (1948) 2 Cal. 171, Dwarkadas Co. v. Keshardeo Bubna (1948) 1 Cal. 190 and Bhuwalka Bros. Ltd. v. Petechand Murlidhar (1951) 2 Cal. 115 were distinguished. The Court also held that the contractual provision allowing buyers additional time beyond the one‑month period prescribed in paragraph 7(c) of Chapter IX of the Working Manual for delivering a letter of authority did not materially conflict with that provision. Likewise, the absence of the phrase “without any difference on both sides” in the buying notes, a phrase that appeared in the selling notes, did not affect the parties’ rights.

The judgment concerned civil appellate jurisdiction. Civil Appeal No. 640 of 1961 was filed by special leave against the judgment and order dated 14 September 1961 of the Calcutta High Court in Matter No. 44 of 1961. The appeal was heard together with Civil Appeals Nos. 173 to 175 of 1962, each also filed by special leave against judgments and orders dated 14 September and 21 September 1961 of the Calcutta High Court in Matters Nos. 149, 258 and 162 of 1961. Counsel for the appellants in Appeal 640 of 1961 included the Attorney General of India and senior advocates. Counsel for the respondent in that appeal comprised a team of senior lawyers. Separate counsel teams represented the parties in Appeals 173, 174 and 175 of 1962, both for appellants and respondents, with each team listed by name in the record. The Court’s decision addressed the applicability of the arbitration provisions and the absence of any exceptional circumstances justifying the removal of the arbitrators in the cases before it.

In this case, four appeals, each granted special leave by this Court, were heard together because they raise the same questions of law and fact, and the judgment rendered here will apply to all of them. In the High Court of Calcutta, during the period from February to July 1961, approximately 170 applications were filed by sellers of raw jute. The principal relief sought in those applications was the revocation of the authority of an arbitrator who had been appointed under various contracts that the applicants had entered into with the respondents. Except for a few isolated cases, the respondents were jute‑mill companies that purchased raw jute and manufactured finished products. The central controversy arising from those applications was addressed by the High Court in its judgment dated 14 September 1961, in the application titled Ram Kumar Chhotaria v. Titaghur Jute Factory Co. Ltd., Matter No. 20 of 1961. Certain additional points that emerged in a few other applications were considered in separate judgments. The High Court observed in its decision in Ram Kumar Chhotaria v. Titaghur Jute Factory Co. Ltd. that the only relief actually pressed at the hearing was leave to revoke the authority of the appointed arbitrator under section 5 of the Arbitration Act, 1940 (Act 10 of 1940), which states that “the authority of an appointed arbitrator or umpire shall not be revocable except with the leave of the Court, unless a contrary intention is expressed in the arbitration agreement.” The Court now proceeds to set out the circumstances in which the applications sought leave to revoke the arbitrator’s authority and, in doing so, will recount in some detail the facts alleged in the application of M/s Amarchand Lalitkumar, a firm registered under the Indian Partnership Act and carrying on business in Calcutta, which firm is the appellant in Civil Appeal No. 640 of 1961. Because the facts are similar, they will not be repeated for the other three appeals, but any special facts or points raised in those appeals will be referred to as necessary. On 22 April 1960, M/s Amarchand Lalitkumar, hereafter referred to as the appellant, entered into contract No. 1786 with Shree Ambica Jute Mills Ltd., the respondent in Civil Appeal No. 640 of 1961, whereby the appellant agreed to sell and the respondent agreed to purchase ten thousand maunds of middle and bottom jute at a specified price. The contract was negotiated by the brokerage firm M/s A. M. Mair & Co. (Private) Ltd., and was executed in the standard printed form prescribed by the East India Jute & Hessian Exchange Ltd. (the “Exchange”), and was subject to the rules and bylaws made by the Exchange. The contract was a forward

In this case the contract was a transferable specific‑delivery contract for raw jute and it contained a guarantee clause that required shipment or dispatch within the months of August and September 1960. Under the provisions of the Forward Contracts (Regulation) Act 1952 (Act 74 of 1952) and the notifications issued by the Central Government pursuant to that Act, forward contracts for the sale or purchase of raw jute within the city of Calcutta – which for the purposes of the Act includes the municipal limits of Calcutta, the Port of Calcutta and the districts of 24 Parganas, Nadia, Howrah and Hooghly – could be executed only between members of a recognised association or through a member of such an association. The East India Jute & Hessian Exchange was a recognised association within the meaning of the statute. The Act authorised recognised associations to formulate bye‑laws for the regulation and control of forward contracts, provided that such bye‑laws received prior approval from the Central Government. Accordingly, the Exchange framed bye‑laws governing transferable specific‑delivery contracts in raw jute; these bye‑laws are set out in Chapter IX of the Working Manual issued by the Exchange.

The terms and conditions prescribed by those bye‑laws stipulate that every claim or dispute arising out of or in connection with a transferable specific‑delivery contract in raw jute must be referred to arbitration. The arbitration is to be conducted by the Tribunal of Arbitration of either the Bengal Chamber of Commerce and Industry or the Indian Chamber of Commerce in Calcutta, in accordance with the arbitration rules framed by the respective chambers. In the appeals that came before this Court, some contracts provided for arbitration by the Bengal Chamber of Commerce and Industry while others designated the Indian Chamber of Commerce in Calcutta. The procedural rules of the two chambers for constituting their Tribunals of Arbitration are substantially similar; any material difference that may be relevant to the present judgment will be addressed later.

Paragraph 11 of Chapter IX of the Working Manual of the Exchange contains specific provisions dealing with unavoidable delays in the supply of jute by sellers. To understand the principal dispute between the parties, the relevant portion of that paragraph is reproduced below: “11. (a) In the case of jute and in the event of seller being prevented or delayed in carrying out their obligations under the contract by the occurrence of fire, strikes, riots, political or communal disturbances, hartals and or civil ‘Commotions, breakdown of public transport services, suspension of bookings, they shall give immediate intimation thereof to buyers. The sellers' and buyers' rights shall thereupon be as follows: (i) On the sellers producing satisfactory evidence of the prevention or delay, they shall be granted an extension of time for delivering not exceeding thirty days from due date of all penalties. (ii) If the contract is not implemented within the extended period referred to in clause (i) above, buyers shall thereafter be entitled to exercise any one of the following options: (1) cancelling the contract, (2) buying against sellers in the open market on the day on which the option is declared and charging them any difference, (3) of …”

The contract provision required the seller to inform the buyer immediately if a fire, strike, riot, political or communal disturbance, hartal, civil commotion, breakdown of public transport, or suspension of bookings prevented or delayed performance. Once such notice was given, the seller could obtain an extension of up to thirty days from the original delivery date, provided the seller produced satisfactory evidence of the cause of delay. If the seller still failed to deliver within the extended period, the buyer was entitled to exercise one of three options: (i) cancel the contract; (ii) purchase the goods on the open market on the day the option was exercised and recover any price difference; or (iii) cancel the contract and recover the difference between the contract price and the market price on the day the option was declared. The seller was required to inform the buyer whether the goods would be shipped within the extended period. If the seller indicated inability to ship within that time, the buyer could exercise the option on the fifth working day after receiving such notice and had to inform the seller. In the absence of any notice from the seller, it was deemed that the goods had not been shipped, and the buyer could exercise the option on the fifth working day after the extended deadline expired and also had to notify the seller.

In the present dispute, the appellant argued that, at the relevant time, extraordinary conditions had arisen in the raw‑jute trade that prevented it from supplying the raw jute required by the contract within the period specified in the guarantee clause. The respondent, by a letter dated 10 October 1960, invoked the contractual option, cancelled the contract, and demanded payment of the difference between the contract price and the market price prevailing on the date of cancellation. The appellant denied any liability to pay that difference. Consequently, the respondent sought arbitration before the Tribunal of Arbitration constituted under the rules of the Bengal Chamber of Commerce and Industry. The Registrar of the Chamber addressed a letter to the appellant stating that arbitration case No. 10 of 1961 would be heard by the Tribunal on a specified date, a date that was later extended. Before the Tribunal could render a decision, applications were filed in the High Court seeking to revoke the authority of the appointed arbitrator.

The appellant, in paragraph 11 of its petition, described the emergency circumstances it claimed existed. It alleged that a combination of raw‑jute scarcity and speculative trading caused an abnormal surge in raw‑jute prices, creating an emergency in the jute trade, particularly affecting future contracts. The appellant further contended that the emergency placed buyers and sellers of raw jute in opposing camps and that the majority of arbitrators on the Tribunal were either directly or indirectly associated with the jute mills, which were all purchasers of raw jute. In paragraphs 21, 22, and 23 of the petition, the appellant maintained that when the parties entered into the contract they could not have foreseen an exceptional situation such as that which occurred during September–October 1960, and that the arbitrators of the Tribunal were connected with the buyers, thereby raising concerns about their impartiality.

The Court noted that the arbitrators appointed from the Bengal Chamber of Commerce and Industry were alleged to be disqualified from acting because each of them was connected with the buyers of raw jute, and there existed a strong probability that they would be biased in favour of those buyers. Accordingly, the appellant claimed that it reasonably feared that the arbitrators would be unable to function as impartial and disinterested judges. In paragraph 33 of the petition, the appellant set out its submission that the interests of the sellers of raw jute were in conflict with the interests of the buyers of raw jute. It further asserted that, as a result of the events that had occurred, the sellers had organised themselves into one group while the buyers had formed another group. The appellant described the Indian Jute Mills Association as being dominated by the buyers and said that the Indian Jute Mills Association exercised control over the Chamber and over its arbitrator. It added that the Association maintained the view that the contracts in question had not been frustrated and that the Association had also formed an opinion on the disputes between the buyers and the sellers of raw jute. On the basis of these allegations, the appellant prayed that the authority of the arbitrator appointed under section 5 of the Arbitration Act, 1940, should be revoked. The respondent opposed the application and denied the appellant’s allegations both with respect to the factual circumstances said to constitute an emergency and with respect to the alleged reasonable apprehension of bias in the appointed arbitration tribunal. The Court recalled that, as previously stated, the principal controversy before the High Court concerned two questions: first, whether an emergent condition existed in the jute trade and industry at the relevant time that had divided the sellers and buyers of raw jute into two opposing camps; and second, assuming that such opposing camps were proved to exist, whether that fact would justify the revocation of the appointed arbitrator’s authority. The learned judge who heard the applications first examined the legal position in England and in India on the revocation of an arbitrator’s authority. After addressing the legal position, the judge turned to the facts of the present case and held that no emergent condition had been proved that would justify revoking the authority of the appointed arbitrator. The judge expressed his conclusion in the following words: “In my opinion, the allegations about the buyers and sellers in raw jute being thrown into conflicting camps by the operation of emergent circumstances or above reasonable apprehension of bias in the minds of the sellers that they will not get justice from the persons whose names appear on the list of the panel of arbitrators of the Bengal Chamber of Commerce and Industry are unsubstantial.” Accordingly, the applications were dismissed with costs. The Court observed that, as a matter of logical sequence, the factual question of whether any such emergent condition existed in the jute trade should be addressed first.

The appellants argued that at the relevant time an emergent condition in the jute trade had split sellers and buyers of raw jute into opposing camps, creating a reasonable apprehension that the appointed arbitrator would not deliver a fair decision. The Court explained that only if the factual issue were decided in favour of the appellants would it be necessary to examine the applicable legal position. Consequently, the Court asked what specific circumstances the appellants relied upon to substantiate their claim of an emergent condition that divided the market participants.

The Court noted that on 18 October 1960 the Jute Exchange issued a press note stating that, because emergent conditions were prevailing in the jute trade, the Director of the Exchange had periodically imposed various control measures on trading in future contracts in raw jute and had undertaken a review of the trading position in transferable specific delivery contracts. The Court further observed that on 31 October 1960 the Exchange issued a notice directing that trading in transferable specific delivery contracts in raw jute must be registered with the Exchange. In the petitions seeking revocation of the arbitrator’s authority, the appellants relied also on newspaper reports and news items. The Court held that such newspaper reports could not establish any fact beyond what unnamed sources had said, and therefore they were not admissible evidence of an emergency or of its nature. At most, the reports indicated market rumours of a shortfall in jute production, a shortage of raw jute from Pakistan, the sealing of certain looms in the rails, and a reduction in working hours. The affidavits filed by the appellants failed to demonstrate a failure of the jute crop in Bengal, Bihar, or Assam, nor did they show that jute had become unavailable from its normal sources or that a crisis had arisen that split buyers and sellers into opposing camps. The Court remarked that, like any commodity traded in a tight market, the jute trade—especially the futures segment—is highly sensitive and reacts promptly to any stimulus, including temporary supply‑demand imbalances, which is a normal feature of such markets. Because there was no evidence of price fluctuations in raw jute during the period in question except for the disparity between contract rates and market rates alleged by the respondents, the Court permitted the parties to submit rates quoted by authorised brokers for various jute varieties from April 1960 to August. These figures show

In its consideration of the evidence, the Court observed that the market for raw jute routinely experienced fluctuations; at times prices rose steadily, at other times they fell, and occasionally the movements were abrupt in either direction. To illustrate this pattern, the Court referred to the price behaviour of the variety known as Assam Bottom Jute during the delivery period that most contracts covered, namely August 1960 through January 1961. In August 1960 the price per maund increased gradually from Rs 35 – to about Rs 40. The upward trend continued in September, reaching roughly Rs 43, and persisted into October when the price climbed to about Rs 54. Mid‑November, however, the market recorded a decline. By January 1961 the price rose again and this increase lasted until March. Afterwards, in April a further decline set in, which continued through July 1961. The Court noted that the same sort of oscillations could be seen in other jute varieties, for example the Pakistan‑N.C. cuttings. It emphasized that a trader dealing in future contracts must necessarily factor these inevitable rises and falls into the decision‑making process when entering into contracts. Accordingly, the Court expressed difficulty in accepting the contention that such ordinary market movements created an “emergent condition” that would split buyers and sellers into opposing camps. The Court further stated that the determination of whether a seller was entitled to an extension of time, given the prevailing circumstances, was a matter for the appointed arbitrator, who, possessing practical experience of the customary fluctuations in the jute trade, would be best placed to assess the validity of such a claim. The Court found it hard to view these periodic price changes as an emergency that rendered performance of the contracts impossible or that divided the parties into conflicting groups at the relevant time. The judgment also recorded that the Indian Jute Mills Association was a powerful body of jute‑mill owners, affiliated with the Bengal Chamber of Commerce and Industry, and that it was alleged the two organisations operated from the same premises and pursued a common trade policy. It was pointed out that many members of the arbitration panel of the Behgal Chamber of Commerce and Industry were directly or indirectly connected with the jute mills. The relevant rules of the Bengal Chamber of Commerce and Industry prescribed that the Tribunal should be composed of members, their assistants, and other persons who, from time to time, served on the panel of the Special Advisory Board of the Indian Jute Mills Association, as selected by the Registrar. In contrast, the rules of the Indian Chamber of Commerce, Calcutta, allowed an unrestricted selection, directing the Registrar to appoint, as far as possible, individuals possessing practical knowledge of the subject matter of the contract and to avoid appointing anyone who, in the Registrar’s knowledge, would be unsuitable to act as an arbitrator in the particular matter.

The Court observed that the governing rule required the Registrar to select an arbitrator who possessed practical knowledge of the contract or contracts that were the subject of the dispute, and that the Registrar was expressly prohibited from appointing any individual whom he knew, for any reason, to be unsuitable to act as an arbitrator in the particular matter. In the present appeal, the appellant in Civil Appeal No 640 drew the Court’s attention to a letter written by his solicitor to the Registrar of the Bengal Chamber of Commerce and Industry seeking the names of the arbitrators who were to hear the cases. The Registrar replied that it was not the practice of the Tribunal to disclose the names of the arbitrators, but he did provide a classification of arbitrators for some of the cases. That classification revealed that one of the arbitrators was a representative of a jute mill and that the other was a jute broker or baler. After considering all of these circumstances, the Court stated that it could not accept the appellant’s allegation that there existed a reasonable apprehension of bias rooted in a conflict of interest between buyers and sellers arising from a rise in prices. The Court endorsed the High Court’s observation that it was inaccurate to describe the applicants as solely sellers of raw jute and not buyers; rather, the applicants were businesspersons engaged in trade in Calcutta, many of whom likely operated buying agencies in the countryside. These persons had to purchase jute from other sources and then sell the material to shippers, balers, and jute mills. The Court further explained that jute mills normally bought raw jute, processed it into manufactured products, and sold those products, while balers and shippers bought raw jute, pressed and baled it, and then sold the baled jute. At the opposite end of the commercial chain were the jute growers who acted only as sellers, but a significant number of participants were both buyers and sellers of jute or jute goods. Such dual‑role participants necessarily observed market trends when entering contracts, and unless an unforeseeable emergency had occurred, it was impossible to conclude that there was a clash of interests between buyers and sellers that would prevent an arbitrator with ordinary market experience from deciding fairly and impartially on the sellers’ claim for an extension of time or other relief.

The Court also noted the High Court’s statistical findings that, although there were 170 applications filed, the number of distinct applicants was only 42, and that only a few of those applicants were jute mills located in West Bengal. The High Court further remarked that if one takes into account the number of jute mills situated in the districts of 24 Parganas, Howrah, Hooghly and Nadia, and adds the fact that thousands of individuals were engaged in the trade of raw jute, it is significant that merely a few dozen of them appeared before the Court between February 1961 and the end of June 1961. The High Court concluded that the difficulty, whether real or perceived, was limited to a very small number of persons and was not caused by any emergent conditions as alleged. The Court agreed with that view, acknowledging that the overall outturn of jute had indeed been lower than expected and that jute mills had consequently reduced their working hours. However, the Court emphasized that such a shortfall in jute production could not be said to have caused a sweeping upheaval in the trade that would divide buyers and sellers into sharply opposing camps. Accordingly, the Court found no reasonable basis for apprehending bias in the appointment of arbitrators under the rules of the Indian Chamber of Commerce, Calcutta, where the names and classifications of arbitrators remain undisclosed, and where the Registrar is bound not to appoint any person who, in his knowledge, would be an improper arbitrator.

The Court observed that any alleged emergency affecting the jute market was limited to only a very small number of persons and was not caused by any unforeseen conditions as claimed. It was acknowledged that the actual output of jute had been lower than expected and, consequently, jute mills had been compelled to cut back their working hours. However, this shortfall in jute production could not be said to have caused a complete disruption of the trade that would divide buyers and sellers into sharply opposing camps. The Court agreed with the view expressed earlier by the High Court on this point. Regarding the appointment of arbitrators by the Indian Chamber of Commerce, Calcutta, and the requirement in some of the appeals before this Court that such arbitrators be appointed, the Court found no basis for any reasonable apprehension. Although the names and even the classes of the arbitrators were not known, the applicable rules provide that the Registrar must not appoint any person as an arbitrator who, in his knowledge, would be unsuitable for that role. The Court therefore questioned what grounds could exist for a reasonable apprehension in these circumstances. It reiterated its earlier holding that there were no opposing camps of buyers and sellers, and even if such camps existed, the Registrar was empowered to select arbitrators who possessed practical experience of the subject matter of the contract and who were not otherwise disqualified. The Court then explained the distinction between an application made under section 5 of the Arbitration Act and one made under section 34. The difference lay in the timing of the application: when court proceedings had already been instituted, the application was made under section 34; when no court proceedings had yet commenced, the application was made under section 5. The purpose of both provisions was the same, namely, to prevent an arbitration from proceeding. Nevertheless, different considerations arise when an application seeks to set aside an award on the ground of arbitrator bias. Under an application under section 5, it is not necessary to prove that the arbitrator is actually biased; it is sufficient to demonstrate a reasonable ground for apprehending bias. However, such a reasonable ground must be established to the satisfaction of the Court that is seized of the application for leave to revoke the authority of the appointed arbitrator. The Court found that no such reasonable ground had been shown in the present appeals. Turning to the legal position, the Court stated that before it exercises its discretion to grant leave to revoke an arbitrator’s authority, it must be satisfied that a substantial miscarriage of justice would occur if the leave were refused. In exercising this power, the Court must remember that arbitration is a specific method for settling disputes, and parties who elect arbitration do so with the understanding that the arbitrator’s decision will be final on both facts and law, even if it may be inconvenient for them later.

In this case the Court observed that parties who agree to submit a dispute to arbitration accept the arbitrator, whether for better or for worse, and agree that the arbitrator’s award is final on both factual and legal questions. The Court noted that many parties choose arbitration precisely because of this finality. While exercising its discretion, the Court said it must do so with caution and only sparingly, keeping in mind that parties should not be allowed to abandon a tribunal they themselves selected simply because they fear that the arbitrator’s decision may be adverse to them. The Court referred to the authority in the sixteenth edition of Russell on Arbitration, page fifty‑four, for support of this principle.

The Court listed the grounds on which leave to revoke an arbitrator’s authority may be granted. These grounds are: (1) excess or refusal of jurisdiction by the arbitrator; (2) misconduct of the arbitrator; (3) disqualification of the arbitrator; (4) charges of fraud; and (5) exceptional cases.

Having examined the facts, the Court held that none of the exceptional circumstances required to disqualify the appointed arbitrator on the basis of bias due to a conflicting class interest were present in the present matters. Consequently, the Court found it unnecessary to consider the English or Indian case law that an interest known to the parties at the time of the arbitrator’s appointment does not ordinarily disqualify him, nor does a relationship between the arbitrator and the parties or the subject matter, provided the parties selected the arbitrator with that knowledge. The Court also declined to address the narrow exception that applies to arbitrators appointed to decide future disputes, or the statutory changes that have been made in English law on that point.

The Court then turned to four decisions of the Calcutta High Court that appeared to bear similarity to the cases before it. The first of these decisions is Balabux Agarwala v. Lachminarain Jute Manufacturing Co. Ltd. (1947) 51 C.W.N. 863, 875. In that case the question arose in applications under section thirty‑four of the Arbitration Act. One of the grounds raised was that persons who were interested in or connected with various jute‑mill companies were members of the Bengal Chamber of Commerce and were on the panel from which arbitrators were chosen. A circular letter was produced which showed that the arbitrators, or the firms they represented, were all buyers and therefore had an interest in seeing the points in dispute decided against the sellers. After scrutinising the allegations, the Court observed:

“For all know the tremendous rise in prices which, it is said, will prompt the arbitrators who are buyers to decide against the plaintiffs who are sellers so as to make huge profit for themselves, may well have induced the plaintiffs to make these allegations against the arbitrators or their firms so as to get out of their submission and to take their chance of winning the suit in Court and getting the benefit of that rise in prices. In my opinion the allegations …”

The Court’s passage from Balabux Agarwala illustrates the careful approach required before disturbing an arbitrator’s authority on the basis of alleged bias.

In this case the Court observed that the allegations contained in the affidavits were not of a nature that could be acted upon. The Court noted that the Bengal Chamber of Commerce had acquired a reputation for the excellence of its arbitration proceedings, and therefore it required much more specific averments of fact, properly verified, to show that in any particular case the Chamber would deny justice to any party. The Court’s comments indicated that these observations did not assist the appellants. Rather, they demonstrated that the Court must be fully satisfied before it exercises its discretion under section 5 to revoke the authority of an appointed arbitrator.

The Court then contrasted its present view with a contrary conclusion reached by the same learned Judge in Tolaram Nathmull v. Birla Jute Manufacturing Co. Ltd. (1). That earlier case also involved a stay under section 34, and one of the questions presented was whether there was sufficient reason to refuse reference of the dispute to arbitration. A specific issue in that case concerned whether “mesta” was jute within the meaning of the Jute (Price Control) Order, and whether the Jute Mills Association had issued a circular, while arbitration was pending, stating that “mesta” was not included in the Order. The Court held that, at a meeting of representatives of five associations, the view was expressed that “mesta” did not fall within the Order. In those circumstances the learned Judge said:

“In the light of these principles, the question I have to consider is whether, in the events that have happened, it will be fair to drive the plaintiff‑firm to a tribunal both the members of which are members of associations which have expressed some definite views on the question in controversy. There is, to my mind, considerable justification for the apprehension expressed by the plaintiff‑firm of probable bias of the arbitrators. I do not question the honesty and integrity of the two arbitrators, but, in the circumstances appearing in the evidence before me, it will be unfair alike to them and to plaintiff‑firm to put them in a position of conflict with their own associations. On the whole I have come to the conclusion that this is a case where circumstances exist which are calculated to bias the mind of the arbitrators and where the plaintiff‑firm may legitimately ask the Court to release it from its bargain to go to arbitration.”

The Court clarified that the decision in Tolaram Nathmull rested on the specific facts established in that case and could not aid the appellants in proving their present applications. While giving fairness to the counsel for the respondents, the Court recorded that the respondent’s counsel submitted that the decision in Tolaram Nathmull went far beyond the correct legal position endorsed in English decisions referred to by the learned Judge, but the Court deemed that issue unnecessary to decide. Ultimately, the Court held that the facts required to invoke the precedent of Tolaram Nathmull had not been established in the present proceedings.

In the case of Dwarkadas Co. v. Keshardeo Bubna (1948) 1 Cal. 190, the same learned Judge set out the principle in a concise manner. He held, and the headnote records in paragraph 4, that “The fact that members of a committee of an association of commercial men dealing in a particular commodity are themselves the arbitrators and ate also buyers and sellers of that commodity will not ordinary dispute between a particular buyer and particular seller. But extraordinary circumstance may nevertheless arise, as in the case of a commercial crisis, when the members of the association may be sharply divided into two opposing groups, as buyers in general and sellers in general as may make it improper for the committee, which may be packed with an overwhelming majority of buyers or sellers, as the case may be, to adjudicate upon a dispute between a buyer and a seller.” The Court explained that the prerequisite condition for applying this principle was not satisfied in the present matters.

The Court then referred to the decision in Bhuwalka Brothers Ltd. v. Fatechand Murlidhar (1951) 2 Cal. 115, observing that that case proceeded on different grounds, namely (1) frustration of the contract and (2) the applicability of an Ordinance to the contract under consideration. On those two grounds the learned Judge granted leave to the petitioner to revoke the authority of the appointed arbitrator. The present Court stated that it would not pass judgment on the correctness of that decision, but it was clear that the facts of the present cases were entirely distinct. Consequently, the Court concluded that, on the principal point of dispute between the parties, the High Court had arrived at a correct factual finding and there were no grounds for interference.

Having dealt with the main controversy, the Court turned to two special points raised on behalf of the appellants in Civil Appeals Nos. 174 and 175. The first point alleged that the contracts were not in accordance with law, and the second point contended that the parties were not ad idem with respect to one of the clauses. Both issues had been examined in great detail by the learned Judge of the High Court in his judgment dated 21 September 1961. Agreeing with that judgment, the present Court found it unnecessary to revisit those points in depth. Regarding the first point, the argument before the Court was based on paragraph 7(c) of the bylaws in Chapter IX of the Working Manual. That paragraph reads: “7(c) In the case of Pakistan Jute, buyers to deliver to sellers, or sellers’ nominee, letter of authority to import the Pakistan Jute or open confirmed, irrevocable Letter of Credit in terms of paragraph 8(b)(ii) within 14 working days from the commencement of the delivery period of the contract failing which there shall be free extension for delivery equal to the period of delay occurring after the 14 working days but where stipulated quantities …” The Court noted the relevance of this provision to the contractual dispute at hand.

The contract stipulated that when the jute was sold on a monthly basis, any free extension of time would be limited to the delivery for the first month only. It further required the buyers to deliver either a letter of authority or to open a confirmed irrevocable Letter of Credit within one month from the start of the delivery period. If the buyers failed to comply within that one‑month period, the sellers were authorized to exercise one of two remedies on the next working day after the month expired: (i) to cancel the contract outright, or (ii) to cancel the contract and to charge the buyers the difference, if any, between the contract price and the prevailing market price on the date of cancellation. The clause appearing in the “bought note” read: “The buyers to give letter of authority to the sellers and the sellers to open letter of credit. If the buyers fail to furnish the license up to December 1960 the contract will be deemed‑as cancelled.” The corresponding clause in the “sold note” stated: “The buyers to give letter of authority to the sellers and the sellers to open letter of credit. If the buyers fail to furnish the license up to December 1960 the contract will be deemed as cancelled without any difference on the both sides.”

The respondents argued that these clauses were not consistent with paragraph 7(c) of the bye‑laws and therefore the contracts were unlawful. The Court examined this contention and found no material conflict between paragraph 7(c) and the terms of the bought and sold notes. While paragraph 7(c) granted the buyers a one‑month period to furnish the letter of authority, the contract extended that deadline to December 1960. The Court held that this extension of time did not create a substantive inconsistency with the bye‑law provision. The second objection concerned the phrase “without any difference on both sides,” which appeared only in the sold note and not in the bought note, raising the allegation that the parties were not ad idem. The Court observed that the inclusion of this phrase made no practical difference to the parties’ rights. Both parties had clearly intended that, should the buyer fail to obtain the licence for importing Pakistan Jute within the stipulated period, the contract would be deemed cancelled and treated as non‑existent for all purposes, terminating all rights and obligations simultaneously. Consequently, the additional wording was unnecessary and did not affect the contractual consequences. On the basis of these findings, the Court concluded that the appeals lacked merit. Accordingly, the appeals were dismissed, with costs awarded and a single hearing fee imposed.