M.G.F. (India) Ltd. vs Sh. Rajinder Singhal And Anr.
2003 Latest Caselaw 870 Del

JUDGMENT

H.R. Malhotra, J.

1. This is a petition under Section 20 of the Arbitration Act 1940 seeking reference of disputes to the Arbitrator as named in the Lease Agreement dated 11th December,1991. The facts as emerged in the petition are that the petitioner company purchased one Ashok Leyland Diesel engine at the instance of respondent No. 1 from M/s Sudhir Engineering Company on 2nd November,1991 for a consideration of Rs. 3,64,000.

2. The said equipment i.e. Ashok Leyland Diesel Engine complete with 125 KVA alternator and all standard accessories were leased out to respondent No.1 and in consideration thereof a lease agreement dated 11.12.1991 was executed between the petitioner and the respondent No.1. The respondent No.2 stood as guarantor for respondent No.1. The said equipment was given to the respondent No.1 for a period of three years starting from 11.12.1991.

3. Respondent No.1 was to make payment of lease rentals at the rate of Rs. 12,600/- per month for 35 months besides payment of insurance and other incidental charges. According to the petitioner the total value of the lease agreement was Rs. 4,52,000/-.

4. It was agreed in the lease agreement that in case the respondent No.1 made default in payment of lease charges, the petitioner shall be entitled to terminate the lease agreement and exercise the right to retake possession of the said equipment and also claim by way of liquidated damages the arrears of monthly lease charges. Amongst the terms as stated above various other terms formed part of that lease agreement which are not necessary to reproduce here for the sake of repetition.

5. It is the case of the petitioner that after taking the said equipment by the respondent No.1, he committed breaches of the terms and conditions of the lease agreement and had only made a payment of Rs. 28,500/- and not the rest. According to the petitioner a sum of Rs. 4,23,500/- is due from respondent no.1 and respondent No.2 besides other amounts detailed in para 9 of the petition.

6. The petitioner has filed this petition under Section 20 of the Arbitration Act, 1940 because of their being arbitration clause in the lease agreement as contained in Clause 39 (a) of the said agreement.

7. This petition was filed on 1st May, 1997, not under the new Act i.e. The Arbitration and Conciliation Act, 1996, but under the old Arbitration Act, 1940. The petitioner while filing the petition under the old Act has assigned reasons stating in para 1 of the petition that the present petition is maintainable under the Arbitration Act, 1940 in view of the provisions of Section 85 and Section 21 of the new Act i.e. Arbitration and Conciliation Act, 1996. It has further been stated that the arbitral proceedings in respect of the disputes between the parties had commenced in the year 1995 i.e. before coming into force the new act and therefore according to the petitioner, the present petition is maintainable under the old Arbitration Act, 1940.

8. The petition is contested by the respondent. Detailed reply to the petition has been filed by them refuting the maintainability of the petition under the old Act besides denying the claim of the petitioner, it being barred by time.

9. As regards the first objection of the respondent about maintainability of the petition, it is stated in the reply that since the Indian Arbitration Act, 1940 has been repealed by Section 85 of the Ordinance and is no longer part of the statute and therefore no petition is entertainable or maintainable under the provisions of the old Act after the new Arbitration and Conciliation Act, 1996 came into force.

10. On the pleadings of the parties, the following issues were framed:

1. Whether the petition under the Indian Arbitration Act, 1940 is not maintainable?

2. Whether the petition is barred by time?

3. If Issues No. 1 and 2 are decided against the respondent, whether the matter is not liable to be referred to arbitration? If so to what effect?

4. Relief.

11. The Court while framing issues also observed that the perusal of the pleadings show that no evidence shall require for deciding the above issues and therefore posted the matter for arguments.

12. I have heard learned counsel for both the parties at length. I have also gone through the pleadings carefully as also provisions of Sections 21 and 85 of the Arbitration and Conciliation Act, 1996. Issue wise findings are as under:-

ISSUE No.1

13. This is a primary issue on which the fate of the petition shall rest. This being a legal issue the Court will have to look into the provisions of Section 21 and 85 of the Arbitration and Conciliation Act, 1996. It is also essential to look into the arbitration clause as contained in the lease agreement particularly Clause 39(a). Section 85 reads as under:

''85. REPEAL AND SAVING:- (1) The Arbitration (Protocal 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.''

14. Reading of this provision makes it clear that notwithstanding the repeal of Arbitration Act, 1940, the provisions of the said enactment shall apply in relation to arbitral proceedings which commenced before this Act came into force unless otherwise agreed by the parties. In other words commencement of arbitral proceedings before the new Act came into force is essential for the purpose of applying the old Act. In order to find out as to when arbitral proceedings shall be taken to have commenced, the Court has to look to the provisions of Section 21 which deals with this object. Section 21 is reproduced hereinunder:

''21. COMMENCEMENT OF ARBITRAL PROCEEDINGS - Unless otherwise agreed by the parties, the arabitral 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.''

15. A reading of the provision makes it abundant clear that the arbitral proceedings in respect of a particular dispute shall be taken to have commenced on the date a request for that dispute to be referred to arbitration is received by the respondent.

16. Now applying the ratio of these two provisions on the case in hand. The petitioner categorically stated in first para of the petition that the arbitral proceedings in respect of the disputes between the parties commenced much before the time when new Act came into force. The petitioner has referred to two registered A/D notices, one dated 4th November,1995 and another dated 7th November,1995 wherein a request was made to the respondent to refer the disputes to Arbitrator in terms of Clause 39(a) of the Lease Agreement.

17. While replying to this para of the petition, the respondent did not dispute about the receipt of such notices. True, the respondent has denied about the commencement of the arbitral proceedings in respect of the disputes but did not make specific denial about the receipt of two legal notices referred to above whereas the petitioner placed on record copies of these two notices as Annexures 7 and 8 and also corresponding postal receipts of A/D covers. There being no denial on the part of the respondent on the aspect of having received these notices, it is taken that the respondents did receive these notices. Perusal of these notices establishes the fact that in both these notices the petitioner while claiming the amount due from the respondent had a so invoked arbitration clause. True, partly provisions of Sections 21 and 85 of the Arbitration and Conciliation Act, 1996 supports the case of the petitioner yet there is another aspect of the matter which needs further scrutiny to reach the conclusion after the new Act would apply to the case or the provisions of old Act. Perusal of the provisions of Section 85 of the new Act with the provisions of the old enactment shall apply in relation to arbitral proceedings which commenced before this Act came into force but if there was an agreement between the parties to the contrary then Of course new Act shall come into play. It is thus manifest that agreement if any arrived at between the parties about the applicability of the new Act or the old Act shall be given precedent over the provisions of Section 85. Emphasis thus has been laid on the words ''unless otherwise provided by the parties''. Similar words appear in the provisions of Section 21 of the New Act. Let us now read the agreement containing abitration clause as provided in Clause 39(a). It reads as under:

''39-A - All disputes, differences and/or claims arising out of this Agreement shall be settled by arbitration in accordance with the provisions of the Indian Arbitration Ac t 1940 of any statutory amendments thereof and shall be referred to the sole arbitration of Shri Inderjit Gulati, Advocate, Delhi or in case of his death, refusal, neglect, incapability to act as an arbitrator to the sole arbitration of Shri D.L. Bhargava, Advocate, Delhi. The reference to the arbitrator shall be within the clauses, terms and conditions of this agreement. The Award given by the arbitrator shall be final and binding on both the parties.''

18. Execution of this agreement is not denied by the parties. It is thus evident that parties to the suit have expressely agreed to refer their disputes in accordance with the provisions of the Indian Arbitration Act 1940 or any statutory amendment thereof. I find support for recording this finding from well known two cases namely ''Thysson case'' and also another landmark judgment known as ''Rani Construction case''. Their Lordships while taking assistance of ''Rani Construction case'' and also while in corporating the expression ''unless otherwise agreed'' observed that ''the parties were clear in their mind that it would be the old Act or any statutory modification or re-enactment of that Act which would govern the arbitration and that parties could anticipate that the new enactment may come into operation at the time the dispute arise. Their Lordships further held that ''When the agreement uses the expression unless otherwise agreed and law in force it does give an option to the party to agree when the new Act would apply to the pending arbitration proceedings''. That agreement can be entered into even before the new Act come into force and it cannot be said that agreement has to be entered into only after the coming into force the new Act.

19. While placing reliance on the judgments referred to above and also another judgment reported in 2001 (VII) Apex Decision Delhi 546 titled as Bhai Sardar Singh and others vs. DDA which authority also applies to the facts of the present case.

I am of the considered opinion that although arbitral proceedings have commenced before the enactment of the new suit yet parties had expressely agreed that their disputes shall be either governed by the old Act or in case new enactment comes into force then provisions of those new enactment would govern their case. This being the legal preposition, the petition as filed by the petitioner under the old Act is not maintainable and has to be dismissed.

20. This issue is decided accordingly.

21.This issue need not be taken up for decision of this Court more particularly when parties may resort to provisions of the new Act of course subject to the legal remedy available to them, any observation made on this issue shall be detrimental to their interest. Therefore this Court does not propose to give any finding on this issue as it shall be domain and prerogative of the Arbitrator to deal with this aspect.

22. In view of the what has been discussed above, the petition is liable to be dismissed. The matter is not required to be referred to the arbitration. Dismissed as such. No order as to costs.