Good Value Engineers vs M.M.S. Nanda
2001 Latest Caselaw 1700 Del

JUDGMENT

V.S. Aggarwal, J.

1. The short question that seeks an answer is as to whether in the facts of the case in hand the provisions of the Arbitration Act, 1940 or the Arbitration and Conciliation Act, 1996 would apply.

2. This question arises on basis of the facts that on 22.11.1995, M/s. Good Value Engineers (for short "the applicant") submitted, by notice to the Engineer-in-Chief, Kashmir House, Rajaji Marg, New Delhi, seeking that in face of the disputes, arbitrator should be appointed. The arbitrator was appointed and Notice had been issued by the arbitrator in December 1996. The award has been pronounced on 4.11.1997. Needless to point that the Arbitration and Conciliation Act, 1996 came into force on 16.8.1996. Earlier to that, the President had promulgated the Arbitration and Conciliation Ordinance on 16.1.1996. With effect from 16.1.1996, the Arbitration Act, 1940 had been repealed.

3. It is on the strength of these facts that it had been urged in terms that since notice to appoint the arbitrator had been issued on 22.11.1995, therefore, the arbitral proceedings had started from that date onwards and consequently, the provisions of the Arbitration Act, 1940 would continue to apply. On the contrary, as is apparent from the nature of the pleas referred to above, the submission advanced was that since the arbitrator was appointed after coming into force of the Arbitration and Conciliation Act, 1996, and even award had been pronounced after the repeal of the Arbitration Act, 1940 and coming into force of the Arbitration and Conciliation Act, 1996. Therefore, the present proceedings necessarily can not be governed by the Arbitration Act, 1940.

4. Before mentioning into these controversies, it deserves a mention that on behalf of the Union of India, an objection had been raised that the arbitral proceedings under the Arbitration act, 1940 were illegal and without jurisdiction because the Arbitration and Conciliation Act, 1996 had come into force. So far as this particular contention is concerned, it has to be taken note of and ignored. The reason being that all admissions in law will not bind. It is purely a question of law, to be gone into as to whether the provisions of the Arbitration Act, 1940 have to apply or the Arbitration and Conciliation Act, 1996. What the Union of India contended, was repelled and what is now being argued is to be contrary by either side. Irrespective of that, once the legal question has cropped up, anything so pleaded to the contrary, will not bind on question of law. With this back/drop, one can conveniently refer to the relevant provisions of law.

5. Section 21 of the Arbitration and Conciliation Act, 1996, in its stark brevity reads:

21. Commencement of arbitral proceedings.--Unless otherwise agreed by the parties, the arbitral proceedings in respect of a particular dispute commence on the date on which a request for that dispute to be referred to arbitration is received by the respondent.

Perusal of the same clearly shows that arbitral proceedings would be deemed to have commenced when a request for the dispute to be referred to the arbitration is received by the respondent/either side. But it is subject to the rider that if it is otherwise agreed between the parties then the arbitral proceedings would commence, as had been agreed between the parties. While repealing the Arbitration Act, 1940 and other relevant provisions, Section 85 of the Arbitration and Conciliation Act, 1996 provides as under:

Repeal and saving - (1) The Arbitration (Protocol and Convention) Act, 1937 (6 of 1937), the Arbitration Act, 1940 (10 of 1940) and the Foreign Awards (Recognition and Enforcement) Act, 1961 (45 of 1961) are hereby repealed.

(2) Notwithstanding such repeal-

(a) The provisions of the said enactments shall apply in relation to arbitral proceedings which commenced before this Act came into force unless otherwise agreed by the parties but this Act shall apply in relation to arbitral proceedings which commenced on or after this Act comes into force;

(b) all rules made and notifications published, under the said enactments shall, to the extent to which they are not repugnant to this Act, be deemed respectively to have been made or issued under this Act.

6. A conjoint reading of Section 21 and Section 85 of the Arbitration and Conciliation Act, 1996 clearly shows that unless otherwise agreed between the parties, the provisions of the Arbitration Act, 1940 shall apply in relation to the arbitral proceedings, which commenced before coming into force of the Arbitration and Conciliation Act, 1996.

7. Attention of the Court had been drawn towards the agreement between the parties pertaining to the arbitration and the same is being reproduced below for the sake of brevity:

70. Arbitration.--All disputes, between the parties to the Contract (other than those for which the decision of the C.W.E. or any other person is by the Contract expressed to be final and binding) shall, after written notice by either party to the Contract to the other of them, be referred to the sole arbitration of an Engineer Officer to be appointed by the authority mentioned in the tender documents.

Unless both parties agree in writing such reference shall not take place until after the completion or alleged completion of the Works or termination or determination of the Contract under Condition Nos. 55, 56 and 57 hereof.

Provided that in the event of abandonment of the Works or cancellation of the Contract under Condition Nos. 52, 53 or 54 hereof, such reference shall not take place until alternative arrangements have been finalised by the Government to get the Works completed by or through any other Contractor or Contractors or Agency or Agencies.

Provided always that commencement or continuance of any arbitration proceeding hereunder or otherwise shall not in any manner, militate against the Government's right of recovery from the contractor as provided in Condition 67 hereof.

If the Arbitrator so appointed resigns his appointment or vacates his office or is unable or unwilling to act due to any reason whatsoever, the authority appointing him may appoint a new Arbitrator to act in his place.

The Arbitrator shall be deemed to have entered on the reference on the date he issues notice to both the parties, asking them to submit to him their statement of the case and pleadings in defense.

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8. Reliance with strength was placed on the fact that it had been agreed that the arbitrator shall be deemed to have entered on the reference on the date he issued notice to both the parties asking them to submit to him their statements. However, this particular plea necessarily has to be stated to be rejected. There is a basic difference in when the arbitrator is deemed to have entered the reference or when in terms of Section 21 of the Act arbitral proceedings commences. The arbitral proceedings necessarily would commence earlier and arbitrator would enter into the reference much later. Consequently, this part of the agreement will not come in the way of the court in proceeding or in other words to conclude that in fact the arbitral proceedings commenced on the arbitrator having issued the notice. The agreement was only confined to when the arbitrator shall be deemed to have entered the reference.

9. In that event, it was further urged that under Section 37 of the Arbitration Act, 1940, the arbitration shall be deemed to be commenced when one party to the agreement serves a notice on the other. Sub-sections (1), (2) and (3) of Section 37 of the Arbitration Act, 1940 read as under:-

37. Limitations.--(1) All the provisions of the Indian Limitation Act, 1908 (9 of 1908), shall apply to arbitration as they apply to proceedings in Court.

(2) Notwithstanding any term in an arbitration agreement to the effect that no cause of action shall accrue in respect of any matter required the agreement to be referred until an award is made under the agreement, a cause of action shall, for the purpose of limitation, be deemed to have accrued in respect of any such matter at the time when it would have accrued but for that term in the agreement.

(3) For the purposes of this section and of the Indian Limitation Act, 1908 (9 of 1908), an arbitration shall be deemed to be commenced when one party to the arbitration agreement serves on the other parties thereto a notice requiring the appointment of an arbitrator, or where the arbitration agreement provides that the reference shall be to a person named or designated in the agreement requiring that the difference be submitted to the person so named or designated.

10. Even in this regard, the said plea necessarily has to fail. Reasons are obvious and not far to fetch. The scope of sub-Section (3) to Section 37 is confined with respect to the period of limitation that is why the legislature drafted "For the purposes of this section and of the Indian Limitation Act". In other words, it is only for the purposes of limitation that arbitration shall be deemed to have commenced when one party serves notice on the other. In this view of the matter, Section 37 of the 1940 Act has no role to play.

11. Learned counsel for the applicant had drawn the attention of the Court towards the Division Bench decision of this Court in the case of ROSE ADVERTISING v. DELHI TRANSPORT CORPORATION . The true ratio of the decision of the Division Bench would only be known from the facts of the case before the Division Bench. In that case, on 9.1.1995 a request was made by Rose Advertising to settle the disputes or to get those settled by appointment of an arbitrator. On 16.1.1996 a Petition under Section 20 of the Arbitration Act, 1940 was filed. It was informed that on 4.7.1996 an arbitrator had already been appointed and the petition had become infructuous. The claims were filed after coming into force of Arbitration and Conciliation Act, 1996 and necessarily the award was also pronounced thereafter. The Division Bench held that subsequently the provisions of Arbitration and Conciliation Act, 1996 would come into play. While dealing with the question, the Division Bench held:

As per the settled law, arbitration proceedings under the Arbitration Act, 1940 commented only when the Arbitrator indicated his willingness to act as such and not on any date prior thereto. Therefore, as on the day when the claimant/appellant had sought reference by filing a petition under Section 20 of the Arbitration Act, 1940, namely 16.1.1996 it could not have been said on that date that since the claimant/appellant had on 9.1.1995 or 29.11.1995 made a demand for appointment of an Arbitrator, the arbitration proceedings had commenced on that date. Since Section 21 of the 1996 Act was not in force on that day. Till 1996 Act came into force, arbitration proceedings had not commenced since till that date parties were governed since till that date parties were governed by the Arbitration Act, 1040. Appointment of Arbitrator was made only on 4.7.1996 when 1996 Act had come into force. The Arbitrator also seems to have conducted the proceedings under the 1996 Act. The parties also had expressed their intention in their claims and replies that the proceedings were under the 1996 Act. Intention of the parties was also clear that proceedings were being conducted by the Arbitrator under the 1996 Act. Therefore, in our view, learned Single Judge was not justified in holding that the proceedings would be governed by the Arbitration Act, 1940.

12. Perusal of the cited decision clearly shows that what found favor with the Division Bench, was the fact that parties had expressed their intention in their claims and replies that proceedings were under the Arbitration and Conciliation Act, 1996. The proceedings were also conducted by the arbitrator under the Arbitration and Conciliation Act, 1996. Therefore, the abovenoted findings came into being. In the present case in hand, there is nothing to indicate that parties had expressed their intention in their claims or replies that proceedings were to be conducted under the Arbitration and Conciliation Act, 1996 or they expressed their intention likewise. Therefore, the cited decision in the case of Rose Advertising (supra) will not apply.

13. More close to the facts of the present case, is the decision of the Supreme Court in the case of SHETTY'S CONSTRUCTIONS CO. PVT. LTD. v. KONKAN RAILWAY CONSTRUCTION AND ANR. . Herein, a demand for appointment of arbitrator had been made in the year 1994. A suit was filed on 24.8.95, invoking the jurisdiction of the Court under Sections 8 and 20 of the 1940 Act. This demand had been rejected on 25.7.1995 and another suit was filed on 24.8.1995, invoking Sections 8 and 20 of the Arbitration Act, 1940. On these facts, the matter came up for consideration before the Supreme Court. The suits had been filed before coming into force of the Arbitration and Conciliation Act, 1996. The Supreme Court had gone into the scope of Section 85 read with Section 21 of the Arbitration and Conciliation Act, 1996. It was held that since the demand for appointment of the arbitrator was made before coming into force of the new Act i.e. Arbitration and Conciliation Act, 1996, the proceedings would be governed by the Arbitration Act, 1940. In paragraph 4, it was held:-

4. A mere look to Sub-section (2)(a) of Section 85 shows that despite the repeal of Arbitration Act, 1940, the provisions of the said enactment shall be applicable in relation to arbitration proceedings which have commenced prior to the coming into force of the new Act. The new Act came into force on 26.1.1996. The question, therefore, arises whether on that date the arbitration proceedings in the present four suits had commenced or nor. For resolving this controversy we may turn to Section 21 of the new Act which lays down that unless otherwise agreed to between the parties, the arbitration suit in respect of arbitration dispute commenced on the date on which the request for referring the disputes for arbitration is received by the respondents. Therefore, it must be found out whether the requests by the petitioner for referring the disputes for arbitration were moved for consideration of the respondents on and after 26.1.1996 or prior thereto......"

Thus it was held that provisions of the Act of 1940 will apply.

14. In identical terms, is the decision rendered by the Supreme Court in the case of THYSSEN STAHLUNTON GMBH v. STEEL AUTHORITY OF INDIA LTD., . The Supreme Court, in the cited case, was concerned with number of appeals but in the matter where the demand had been made for the appointment of the arbitrator before coming into force of the Arbitration and Conciliation Act, 1996. The Supreme Court had answered:

.....We are, therefore, of the opinion that it would be the provisions of the old Act that would apply to the enforcement of the award in the case of Civil Appeal No. 6036 of 1998. Any other construction on the Section 85(2)(a) would only lead to the confusion and hardship. This construction put by us is consistent with the wording of S.85(2)(a) using the terms "provision" and "in relation to arbitral proceedings" which would mean that once the arbitral proceedings commenced under the old Act it would be the old Act which apply for enforcing the Award as well.

15. Identical indeed is the position herein. Under Section 21 of the Arbitration and Conciliation Act, 1996, the Arbitral proceedings commences hen a request for the dispute to be referred to the Arbitration is received by the respondent. Once the arbitral proceedings had commenced before the Arbitration and Conciliation Act, 1996, then the Arbitration Act, 1940 would continue to apply, keeping in view the strict provisions of Sub-section (1) to Section 85 of the Arbitration and Conciliation Act, 1996. In the present case, vide the notice issued in November 1995 such a request had been made. Thus, arbitral proceedings had commenced before coming into force of the Arbitration and Conciliation Act, 1996. There is nothing to show on the record that there was any agreement to the contrary to indicate that the parties wanted the Arbitration and Conciliation Act, 1996 to apply and the net result would be that in the absence of contract to the contrary, it is the provisions of the Arbitration Act, 1940, that would govern.

16. As a result thereto, it must be held that the matter has to be examined in light of the Arbitration Act, 1940.

17. List it for arguments on the pending objections on 14.2.2002.