National Project Construction ... vs Royal Construction Company Pvt. ...
2003 Latest Caselaw 329 Del

JUDGMENT

R.C. Jain, J.

1. Once again we are called upon to answer the question "Whether the provisions of the Indian Arbitration Act 1940 or Indian Arbitration and Conciliation Act 1996 would govern the present proceedings? This petition under Section 34 of the Indian Arbitration and Conciliation Act 1996 Act has been filed by the petitioner M/s National Project Construction Corporation Ltd. seeking setting aside of the arbitral award 10.8.02 passed by the sole Arbitrator Mr. R.P. Billimoria.

2. Undisputed being in a narrow compass are that parties entered into an agreement dated 10.8.02 in which M/s Royal Construction Company Pvt. Ltd. had undertaken the execution of certain construction work of the petitioner herein. The said contract contained are Arbitration Agreement in Clause 62 which reads as under:

" ARBITRATION

" Except where otherwise provided in the contract all questions and disputes relating to the meaning of the specification, designs, drawings and instructions and conditions herein mentioned and as to the quality of workmanship or materials used on the work or as to any other question, claim, right, matter or thing whatsoever in any way arising out of or relating to the contract, designs, drawings, specifications, estimates, instructions, orders on these conditions or otherwise concerning the works, or the execution or failure to execute the same whether arising during the progress of the work or after the completion or abandonment thereof, shall be referred to the Sole Arbitration of the person appointed by the Chairman and Managing Director of National Projects Construction Corporation Limited acting as such at the time of dispute. Subject to the aforesaid, the provisions of the Indian Arbitration Act, 1940 or any statutory modification or reenactment thereof and the rules made there under and for the time being in force shall apply to the arbitration proceedings under this clause. The Indian Laws will be applicable for determining the rights and liabilities by the Arbitrator under this Agreement. Settlement of all disputes arising under this Agreement will be subject to the Territorial Jurisdiction of Delhi."

3. Disputes arose between the parties, hence the claimant invoked the aforesaid arbitration clause and Mr. Justice P.N. Bhagwati, former Chief Justice of India was appointed as sole Arbitrator in the first instance but the said Arbitrator resigned and, thereafter Mr. R.P. Billimoria was appointed as Sole Arbitrator in his place. The claims and counter claims were filed before the Arbitrator during February and June 1992 respectively and after protracted proceedings and hearings, the above named Arbitrator rendered the present award awarding certain amounts in Dirahms in favor of the contractor. Aggrieved by the same, the corporation has filed the present petition inter alia challenging the award on a variety of grounds.

4. The petition is contested by the respondent/contractor by filing reply, raising preliminary objection about the maintainability of the present petition mainly on the premise that the corporation is not entitled to invoke the provisions of Section 34 of the 1996 Act and it is the provisions of 1940 Act which should dispose of the award filed by the Sole Arbitrator. It is also pointed out that the respondent/contractor has already filed a petition under Section 14 and 17 of 1940 Act which is pending before a different Bench praying for making the said award a rule of the court and passing a decree in terms of the award. In the said proceedings, the petitioner-corporation has been noticed and have filed their objections under Section 30 and 33 of 1940 Act inter alia challenging the maintainability of the petition under Section 14 and 17 and alleging that the 1996 Act applies to the proceedings.

5. I have heard Mr. R. Venktaramani, Sr. Advocate for the petitioner-corporation and Mr. R. K. Kapoor learned counsel for the respondent/contractor and have given my anxious consideration to their respective submissions.

6. In support of their respective contentions, both sides placed reliance upon the Apex court decision in the case of Thyssen stahlunion GMBH vs. Steel Authority of India Ltd. (1999) SCC 334. In addition learned counsel for the petitioner-corporation has also placed reliance on a Single Bench decision of this Court in the case of Housing and Urban Development Corporation vs. DSA Engineers (Bombay) and Ors. 2002 (1) Arb. LR 384 (Delhi). The foremost question which needs to be considered is about the effect of Section 85 of 1996 Act will be on the present petition. The said Section reads 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 enactment 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."

7. Undisputably, in the case in hand the Arbitration Agreement between the parties was executed much prior to the enforcement of the 1996 Act, the request for invoking the Arbitration Agreement was also made and the Arbitrator entered upon the reference some time in the year 1991 and the Arbitral proceedings continued from 1991 to 2002 when they culminated into the award dated 10.8.02. Mr. R. Venktaramani learned counsel for the petitioner-corporation has vehemently urged that in view of the special agreement in the case in hand and more particularly the clause " subject to the aforesaid provisions of the Arbitration Act 1940 or any statutory modifications or being enactment thereafter of the rules made there under and for the time being enforcement shall be informed to the Arbitration Proceedings in this Clause" , it is the 1996 Act which should govern the present proceedings. In this connection he has invited the attention of this Court to various findings and observations as contained in paragraphs 21, 28, 35 and 38 of the Thyssen's judgment. In the said case the Supreme Court has more fully considered the question about the applicability of the 1996 Act under different situations and has enunciated the following general principles for determination as to whether the old Act or the new Act which should apply to particular principle. The principles being as under:

For the reasons to follow, we hold:

(1) The provisions of the old Act (Arbitration Act, 1940) shall apply in relation to arbitral proceedings which have commenced before the coming into force of the new Act (the Arbitration and Conciliation Act, 1996)

(2) The phrase "in relation to arbitral proceedings" cannot be given a narrow meaning to mean only pendency of the arbitration proceedings before the arbitrator. It would cover not only proceedings before the court and any proceedings which are required to be taken under the old Act for the award becoming a decree under Section 1740 thereof and also appeal arising there under.

(3) In cases where arbitral proceedings have commenced before the coming into force of the new Act and are pending before the arbitrator, it is open to the parties to agree that the new Act be applicable to such arbitral proceedings and they can so agree even before the coming into force of the new Act.

(4) The new Act would be applicable in relation to arbitral proceedings which commenced on or after the new Act comes into force.

(5) Once the arbitral proceedings have commenced, it cannot be stated that the right to be governed by the old Act for enforcement of the award was an inchoate right. It was certainly a right accrued. It is not imperative that for right to accrue to have the award enforced under the old Act some legal proceedings for its enforcement must be pending under that Act at the time of the new Act came into force.

(6) If a narrow meaning of the phrase "in relation to arbitral proceedings" is to be accepted, it is likely to create a great deal of confusion with regard to the conduct of arbitral proceedings are vastly with reference to the conduct of arbitral proceedings. An interpretation which leads to unjust and inconvenient results cannot be accepted

(7) A foreign award given after the commencement of the new Act can be enforced only under the new Act. There is no vested right to have the foreign award enforced under the Foreign Awards Act {Foreign Awards (Recognition and Enforcement) Act, 1961."

8. On the facts of the Thyssen stahlunion GMBH vs. Steel Authority of India Ltd. case that the arbitration proceedings have commenced on 14.9.95 under the Old Act on which date the request for arbitration was made to ICC under the arbitration clause an Arbitrator was appointed on 15.11.95, the terms of reference in the Arbitration were finalised on 13.5.96, hearing before the sole Arbitrator took place from 7.1.97 till 28.1.97 and the award was rendered on 24.9.97 by which time the 1996 Act had came into force, the Supreme Court held that it were the provisions of 1940 Act which would govern the further proceedings in regard to the challenge of the said award in the Court rather then the provisions of the 1996 Act.

9. In the case of Rani Construction (P) Ltd. (CA No. 61 of 1999) the arbitration agreement contained in Clause 25 was noted by the Supreme Court as under:

" Subject to the provisions of the contract to the contrary as aforesaid, the provisions of the Indian Arbitration Act, 1940 or any statutory modification or re-enactment thereof and the rules made there under and for the time being in force shall apply to all arbitration proceedings under this Clause"

Disputes having arisen, the same were referred to the sole Arbitrator on 4.12.93 and the arbitrator gave his award on 23.2.96 after the new Act had came into force. On account of the difference of opinion on the question as to whether the old or the new Act will apply in two judgments of the Himachal Pradesh High Court, the learned Single Judge of the High Court referred the question to larger bench seeking its opinion as to the meaning and intent of the expression "unless otherwise agreed by the parties" appearing in Clause (a) of Section 85(2) of the new Act and can the parties agree for the applicability of the new Act even before the new Act came into force or they had necessarily to agree only when the new Act came into force? The Division Bench of the Himachal Pradesh High Court on the strength of the above referred clause (25) held that the agreement did not admit of interpretation that the case was governed by the Act of 1996.

10. The Supreme Court on a consideration of the provisions of Section 85(2)(a) of the 1996 Act held that the parties can agree to the applicability of the 1996 Act even before the said Act came into force and when the 1940 Act was still in force. Further that it would not be a restraint of legal proceedings under the Contract Act. The exception 1 to Section 28 of Contract Act permitted the parties to agree with the law " for the time being in force" which means law as existed at the relevant time when the arbitration proceedings would apply. Yet another interpretation given to the said section was that parties cannot agree to be governed by the old Act when the 1996 Act had come into force and the proceedings had not commenced, though the arbitration agreement was under the old Act. On the strength of this reasoning, the Supreme Court in the case of Rani Construction (P) Ltd. using the expression "for the time being in force" has interpreted so as to mean that the provisions of that Act would apply to the arbitration proceedings which would be in force at the relevant time when the arbitration proceedings are held. The expression " for the time being in force" not only refers to the law enforced at the time the arbitration agreement was entered into but also to any law that may be enforced at the time of the conduct of arbitration proceedings, which would also include proceedings for the enforcement of the award as well. Accordingly the court held that the expression " unless otherwise agreed" as appeared in Section 85(2)(a) of the new Act would clearly apply in the case of Rani Construction (P) Ltd.

11. A similar question arose before the Single Bench of this Court in the case of Housing and Urban Development Corporation vs. DSA Engineers (Bombay) and Ors. 2002 (1) Arb. LR 384 (Delhi). In that case Clause 91.4 of the Agreement dated 10.7.92 contained an Arbitration Clause which reads as under:

"Subject as aforesaid, the provisions of Arbitration Act, 1940 or any other statutory and modification or re-enactment thereof and rule made there under shall apply to the arbitration proceedings under this clause."

In that case the arbitral proceedings commenced before the enforcement of the 1996 Act but the Award was rendered after the enforcement of the said Act. Following the principle laid down by the Supreme Court in the Thyssen's case and more particularly in the case of Rani Construction (P) Ltd., the learned Single Judge held that after the enforcement of the new Act, the parties were governed by the new Act and not by the old Act of 1940.

Material language/expression" subject to the aforesaid, the provisions of the Indian Arbitration Act, 1940, or any statutory modification or re-enactment thereof and the rules made there under and for the time being in force shall apply to the arbitration proceedings" under this Clause are para-materia with the language appearing in the agreement between the parties in the case of Rani Construction )P) Ltd. and in the case of Housing and Urban Development Corporation vs. DSA Engineers (Bombay) and Ors. Accordingly giving the same meaning and interpretation to the provisions of Section 85(2)(a) of the 1996 Act the inescapable conclusion would be that it is the 1996 Act which would govern the present proceedings. Accordingly, the objection of the respondent that the present petition under Section 34 of the 1996 Act is not maintainable is therefore liable to be rejected and is accordingly rejected. The petition assailing the award of the Arbitrator and for setting aside the same will now be considered and disposed of on merits.