Selected Marbles Home And Ors. vs Arun Kumar Kamal Kumar And Ors.
2004 Latest Caselaw 1255 Del

JUDGMENT

R.C. Jain, J.

1. Once again we are called upon to determine an important question. The question is ''whether the provisions of Arbitration Act, 1940 (hereinafter referred to as '' old Act'') or that of Arbitration and Conciliation Act, 1996 (referred to as ''new Act'') would govern the proceedings for the enforcement of an award which has been rendered after the enforcement of the new Act w.e.f 25.1.1996 though the reference to arbitration was made and arbitral proceedings were conducted under the provisions of the old Ac? Depending upon the outcome of this, the next question would be - what is the effect of clause 11 appearing in the arbitration agreement.

2. The germane facts which gave rise to the above questions are in a narrow compass. Vide an order dated 18.9.1995 passed in Suit No.3708/1991 under Section 20 of the old Act, this Court appointed Mr.Justice (Retd.) Charanjit Talwar as the sole arbitrator to adjudicate upon the disputes and differences which have arisen between the parties. The sole arbitrator entered upon the reference and proceeded with the arbitration, made and published his award dated 16.3.1998. Pursuant to an application made under Section 14 read with Section 17 of the old Act, the arbitrator filed his award dated 16.3.1998 in the Court. Notice of filing of the award was issued to the parties inviting objections and the respondents have filed their objections under Section 30 and 33 of the old Act against the said award and prayed that the award be set aside on the grounds mentioned in the said objections. The objections filed on behalf of the respondents are being contested by the petitioners and a detailed reply has been filed thereby controverting the objections. As the matter was receiving consideration of this Court, the Hon'ble Supreme Court rendered a judgment in the case of Thyssen Stahlunion GMBH Vs. Steel Authority of India Ltd, and based on the said decision, counsel for the petitioners made a submission to the Court on 17.9.2001 that the objections filed by the respondents under the old Act were not maintainable in view of clause 11 of the agreement between the parties.

3. I have heard Mr.G.L.Rawal, learned senior counsel representing the petitioners and Mr.Rakesh Khanna, learned counsel representing the respondents at length and have given my thoughtful consideration to their respective submissions. The answer to the question in this case largely depends upon the interpretation of clause 11 of the agreement which is to the following effect:

"11. That any dispute arising between the parties hereto shall be referred to an arbitrator, to be appointed with the mutual consent of the parties hereto and his AWARD shall be final as under the Arbitration Act, enforced on that date."

4. On the strength of the above clause as also the Supreme Court decision in Thyssen's case (supra), Mr.G.L.Rawal has strongly urged that though the reference was made and arbitral proceedings were conducted under the old Act, still in view of the above agreement and in accordance with the repeal and saving clause contained in Section 85(2) of the new Act, the impugned award shall be governed by the provisions of the new Act and consequently, the objections filed by the respondents under Sections 30 and 33 of the old Act are not maintainable and are liable to be dismissed. As against this, the submission from the other side is that as the arbitration proceedings in the case in hand were commenced under the provisions of the old Act, the said Act will apply to the whole gamut of the arbitration proceedings including those for enforcement of the award as well as in regard to the appeal arising there from. In support of his contention, learned counsel has placed heavy reliance on the following Supreme Court decisions:

i) N.S.Nayak and Sons Vs. State of Goa, ;

ii) ONGC Vs. Saw Pipes Ltd, ; and

iii) Milkfood Ltd. Vs. M/s GMC Ice Cream (O) Ltd., .

Reliance has also been placed on a Division Bench judgment of this Court in the case of FA(OS) 93/2002, title Delhi Development Authority Vs. Bhai Sardar Singh and Sons, decided on 20.4.2004

5. Section 85 of the New Act deals with the repeal and savings and is in the following terms:

"85. 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 n 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.''

6. The interpretation and effect of the above provision came up for consideration of the Apex Court in the case of Thyssen's case (supra). In that case the parties entered into a contract for sale and purchase of prime cold rolled mild steel sheets in coils, which contained an arbitration agreement which was to the following effect:

"Settlement of disputes All disputes or differences whatsoever between the parties hereto arising out of or relating to the construction, meaning or operation or effect of this contract or the breach thereof shall unless amicably settled between the parties hereto, be settledy arbitration in accordance with the Rules of Conciliation and Arbitration of the International Chamber of Commerce (ICC), Paris, France by a sole arbitrator appointed by the Chairman of the Arbitral Tribunal of the Court of Arbitration of ICC and the award made in pursuance thereof shall be binding on both the parties. The venue for the arbitration proceedings shall be New Delhi, India."

Having regard to the above clause and considering the effect of Section 85(2), the Apex Court carved out the following principles:

1. The provisions of the old Act (Arbitration Act, 1940) shall apply in relation to arbitral proceeding 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 pending before the Arbitrator but would also cover the praceedings before the court and any proceedings which are required to be taken under the old Act for the Award becoming a decree under Section 17 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 on 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 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 matters where award is made under the old Act. Provisions for the conduct of arbitral proceedings are vastly different in both the old and new Act. Challenge of award can be 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."

7. In para 32 of the judgment, the Supreme Court further held that to have an award enforced when the arbitral proceedings commenced under the old Act is an accrued right because consequences for the party against whom the award is given after the arbitral proceedings have been held under the old Act though after the commencement of the new Act would be quite grave if it is debarred from challenging the award under the provisions of the old Act. In this connection, the Court held as under:

"32. Principles enunciated in the judgments show as to when a right accrues to a party under the repealed Act. It is not necessary that for the right to accrue legal proceedings must be pending when the new Act comes into force. To have the Awarenforced when arbitral proceedings commenced under the old Act under that very Act is certainly an accrued right. Consequences for the party against whom award is given after arbitral proceedings have been held under the old Act though given after the oming into force of the new Act, would be quite grave if it is debarred from challenging the award under the provisions of the old Act. Structure of both the Acts is different. When arbitral proceedings commenced under the old Act it would be in the min of everybody i.e. the arbitrators and the parties that the award given should not fall foul of sections 30 and 32 of the old Act. Nobody at that time could have thought that section 30 of the old Act could be substituted by section 34 of the new Act. As a matter of fact appellant Thyssen in Civil Appeal No.6036 of 1998 itself understood that the old Act would apply when it approached the High Court under sections 14 and 17 of the old Act for making the award rule of the court. It was only later on the t it changed the stand and now took the position that the new Act would apply and for that purpose filed an application for execution of the Award. By that time limitation to set aside the award under the new Act had elapsed. The appellant itself led the respondent SAIL in believing that the old Act would apply. SAIL had filed objections to the award under section 30 of the old Act after notice for filing of the award was received by it on the application filed by Thyssen under sections 14 and 17 of the old Act. We have been informed that numerous such matters are pending all over the country where the award in similar circumstances is sought to be enforced or set aside under the provisions of the old Act. We, therefore, cannot adopt a construction which would lead to such anomalous situations where the party seeking to have the Award set aside finds himself without any remedy. 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 section 85(2)(a) would only lead to confusion and hardship. This construction put by us is consistent with the wording of section 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 would apply for enforcing the award as well.''

8. The question was again considered in the case of N.S.Nayak and Sons Vs. State of Goa (supra) when the court after taking note of Thyssen's case (supra) and other judgments, held as under:

"Section 85(2)(a) of the new Act specifically provides that: (1) the provisions of the old Act shall apply in relation to arbitral proceedings which commenced on or before the new Act came into force, unless otherwise agreed to by the parties; and (2) i also provides that the new Act shall apply in relation to arbitral proceedings which commenced on or after the new Act came into force. In all these matters arbitrators were appointed prior to 25.1.1996, arbitral proceedings commenced before that date nd even the awards (except in CA NO.98 of 2002) were passed before 25.1.1996. On the basis of Section 85(2)(a) the provisions of the old Act would apply to the arbitral proceedings which commenced on or before the new Act came into force. Further, even he arbitration clause also provides that the provisions of the Arbitration Act, 1940 which were for the time being in force were to apply to the arbitral proceedings between the parties. It nowhere provides that once the arbitral proceedings have commened under the old Act, they should be conducted under the new Act as soon as the new Act comes into operation. Hence, in the proceedings where the award is passed under the old Act, the remedy of filing appeal or petition for setting aside the said award ould be as per the provisions of the old Act."

"The phrase ''unless otherwise agreed by the parties'' used in various sections of the Arbitration Act gives option to the parties to opt for the procedure as per their agreement during the arbitral proceedings before the arbitrator. So if there is an agreement between the parties with regard to the procedure to be followed by the arbitrator, the arbitrator is required to follow the said procedure. However, this would not mean that in appeal parties can contend that the appellate procedure should be as er their agreement. The appellate procedure would be governed as per the statutory provisions and parties have no right to change the same. It is also settled law that the right to file an appeal is accrued right that cannot be taken away unless there is specific provision to the contrary. There is no such provision in the new Act. In the present cases, the appeals were pending before the High Court under the provisions of the old Act and, therefore, appeals are required to be decided on the basis of the statutory provisions under the said Act.

In Thyssen case, the Supreme Court negatived the contention that parties could not have agreed to the application of the new Act till they had the knowledge about the provisions thereof and, therefore, the agreement to the effect that no arbitral proceedings, the provisions of the Arbitration Act, 1940 or any statutory modification or re-enactment thereof would be applicable, is not valid. Therefore such an agreement could be entered into even before coming into force of the new Act. But the said decisin did not lay down that in a pending arbitral proceeding, which was being conducted as per the procedure prescribed under the old Act, the parties have option of changing the procedure.''

9. The position has been further clarified by the Supreme Court in the judgment of Milkfood's case (supra) where it has been observed::

"65. Section 85 of the 1996 Act repeals the 1940 Act. Sub-section (2) of section 85 provides for a non-obstante clause. Clause (a) of the said sub-section provides for saving clause stating that the provisions of the said enactments shall be apply i relation to arbitral proceedings which commenced before the said Act came into force. Thus, those arbitral proceedings which were commenced before coming into force of the 1996 Act are saved and the provisions of the 1996 Act would not apply in relatio to arbitral proceedings which commenced on or after the said Act came into force. Even for the said limited purpose, it is necessary to find out as to what is meant by commencement of arbitral proceedings for the purpose of the 1996 Act wherefor also necessity of reference to section 21 would arise. The Court is to interpret the repeal and savings clauses in such a manner so as to give an pragmatic and purposive meaning thereto. It is one thing to say that commencement of arbitration proceedings is dependent upon the fact of each case as that would be subject to the agreement between the parties. It is also another thing to say that the expression 'commencement of arbitration proceedings must be understood having regard to the context in which the sae is used; but it would be a totally different thing to say that the arbitration proceedings commences only for the purpose of limitation upon issuance of a notice and for no other purpose. The statute does not say so. Even the case laws do not suggest the same. On the contrary the decisions of this Court operating in the field beginning from Shetty Construction (supra) are ad idem to the effect that section 21 must be taken recourse to for the purpose of interpretation of section 85(2)(a) of the Act. There is no reason, even if two views are possible to make a departure from the decisions of this Court as referred to hereinbefore."

"66. While interpreting a judgment this Court must pin point its attention to the ratio thereof. A court of law must not lose sight of the doctrine of 'stare decisis'. A view which has been holding the field for along time should not be disturbed only because another view is possible."

10. Bearing in mind the legal position flowing from the aforesaid decisions, it is to be seen if the arbitration agreement contained in clause 11 of the lease agreement provides for the exceptional situation which is covered by the expression ''unless otherwise agreed by the parties'' appearing in Section 85(2)(a) of the Act or not. It may be noticed at once that the arbitration clause in the present case (as extracted in the beginning of this order) is not happily worded and is somewhat vague and can be termed as unique in the sense that it is neither paramateria to the arbitration clause appearing in the Thyssen's case (supra) or Rani Construction's case (supra) or SAIL case (supra) as it does not contain any expressions ''subject as aforesaid, the provisions of the Arbitration Act, 1940, or any statutory modification or re-enactment thereof and the rules made there under and for the time will apply to the arbitration proceedings under this clause''. On the contrary, the arbitration agreement in the case in hand states ''that any dispute arising between the parties hereto shall be referred to an arbitrator; to be appointed with the mutual consent of the parties hereto and his AWARD shall be final as under the Arbitration Act, in force on that date''. Mr. awal, learned senior counsel for the petitioner wants to interpret this clause so as to mean that the enforceability of the award will be governed by the new Act because the award was rendered by the sole arbitrator after the date of enforcement of the new Act. According to him, the expression ''and his AWARD shall be final as under the Arbitration Act, in force on that date'' is separable from the earlier part of the arbitration agreement and, therefore, the provisions of the new Act would become applicable either for challenging the said award or its enforcement''. In the opinion of this Court, this interpretation cannot be accepted because the arbitration clause read and interpreted as a whole would clearly mean that all arbitral proceedings commence from the stage of appointment of an arbitrator, making of the award and its enforcement has to be governed by the Arbitration Act which was in force at the time of commencement of the arbitral proceedings. In the case in hand, the arbitral proceedings ere admittedly commenced under the provisions of the old Act and the arbitral tribunal was also constituted under the old Act. Not only this, the proceedings before the arbitrator have been conducted under the provisions of the old Act and, therefore, the award though rendered by the sole arbitrator after the enforcement of the new Act, for all intents and purposes will be deemed to have been made under the provisions of old Act. At no stage parties had agreed that provisions of new Act would apply to the arbitral proceedings. Furthermore, the petitioners themselves have filed the application under Sections 14 and 17 of the old Act for filing of the award and making it a rule of the Court and the Court issued notices to the parties inviting objections under the old Act. This would clearly show that the petitioner itself led the respondent in believing that the old Act would apply. The situation is very much identical to that as has been noted by the Supreme Court in para 32 of its judgment in Thyssens case (supra). Therefore, there is no escape from the conclusion that the new Act cannot be applied to the facts and circumstances of the present case and it is the old Act which would govern the enforcement of the impugned award in the case in hand. he question is answered accordingly. Consequently, the objections filed by the respondent under Section 30 and 33 are liable to be disposed of in accordance with law. List the matter for disposal on 18th January, 2005.