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IN THE HIGH COURT OF BOMBAY
A.P. Shah, J.
The Bombay Gas Co. Ltd. ..... Petitioner.
Versus
Parmeshwar Mittal others ..... Respondents.
Arbitration Petition No. 220 of 1996, decided on 1-8-1997.
Advocates appeared :
Rohit Kapadia with D.J. Khambatta i/by Bachubhai Munim Co., for petitioner.
D.R. Zaiwala with N.G. Thakkar and T.G. Vora i/by Kirit N. Damania Co., for respondents.
Sections 21 and 34-Arbitration and conciliation Act, 1996, Sections 8 and 85-Applicability of new Act of 1996, Arbitration proceedings-Mere filing of application under Section 34 cannot be said that proceedings commenced within meaning of Section 21 of Act, 1940- Thus when proceedings had not commenced when new Act of 1996 came into force, provisions of new Act would apply. The Section 21 lays down the principle that where any party to an arbitration agreement commences a legal proceeding against any other party to the agreement in respect of the matter agreed to be referred and other party to such legal proceedings may apply for stay of the proceedings. On such application being made if the Court is satisfied that there is no sufficient reason why the matter should not be referred to in accordance with the arbitration agreement and the conduct of the applicant has not been blameworthy, the Court may make an order staying the proceedings. Thus the Section confers discretionary power on the Court to grant stay of suit is refused when there are impediments to arbitration or when the party does not come in time or fails to comply with the provisions of the section. Having regards to the nature and scope of Section, it is difficult to hood that mere filing of an application for stay of the proceedings would amount to commencement of arbitral proceedings. It is true that an application under Section 34 implies readiness and willingness of the party to go for arbitration, but it cannot be equated with a notice under Section 21 which constitutes commencement of arbitral proceedings. It is pertinent to note that the power to grant stay under Section 34 is essentially a discretionary power and the Court may refuse the application for various reasons. Therefore, mere filing of an application under Section 34 cannot amount to commencement of arbitral proceedings.
Sections 34-General Clauses Act, 1897, Section 6--Arbitration and Conciliation Act, 1996, Sections 8 and 85-Applicability of vested right-Stay application under old Act-Proceeding supposed to he initiated-Section 6 of general clauses saving such right-Held-Section 34 of old Act given discretionary powers where as Section 8 of New Act is obligatory-Vested right without notice under Section 21 not applicable-Only application for stay under old Act does not create any right.
Section 34-General Clauses Act, 1897, Section -Arbitration and Conciliation Act, 1996, Sections 8 and 85-Applicability of vested rights-Stay application under old Act-Proceeding supposed to be initiated-Section 6 of General clauses saving such rights-Held-Section 34 of old Act given discretionary powers whereas Section 8 of New Act is obligatory-Vested rights without notice under Section 21 not applicable-Only application for stay under old Act. does not create any right.- The provisions of the new Act in Courts opinion clearly demonstrate a contrary intention. Section 8 of the new Act makes a complete departure from the old provisions which only provided for stay of the suit in the discretion of the suit. Section 8 on the other hand makes it mandatory for the Court to render the parties to arbitration. The element of discretion is thus completely taken away. While Section 34 required that the party making the application was ready and willing to do all things necessary to the proper conduct of the arbitration both at the time when judicial proceedings were commenced and when the application was made. There is no such requirement under Section 8 of the new Act. This by necessary implication the right, if any, under 34 of the old Act is not saved under the provisions of the new Act.
Section 8-Dispute as to fabrication of record-Whether can be referred to arbitration-Held, yes.
Section 8--Fabrication of records-For reference to arbitration-Challenged-Ground-Opposite party guilty of fraud-Matter not to be referred to arbitration-Held-Alleged fraud-Party can approach Criminal Court or Civil Court-Arbitration can not be denied on such grounds.-Coming then to second ground of defence, the respondents have alleged that the petitioner has fabricated the record and, therefore, the dispute should not be referred to the Arbitrator. It is contended that the action of the respondents amounts to a criminal offence and such as issue cannot be referred to Arbitration. The argument is without any merit, In the first place in view of the mandatory nature of Section 8, the argument cannot be accepted. In any event, it is settled position of law that it is the person against whom fraud is alleged has an option to have the matter decided by the civil court. Merely because the respondents have made allegations of fabrication of record against the petitioner, the dispute cannot taken out of arbitration.
Sections 8 and 85-See Arbitration Act, 1940, Section 24.
Sections 85, 2(b), 8 and 21-Proceeding under Arbitrator Act-Application of new Act-Ground-As application for stay is as per Act of 1940 ; would amount to commencement of old Act only-Held, Section 34 is for stay which is courts discretionary power-Not amounting to notice under old Act-Proceeding still not commenced.-It is true that an application under Section 34 implies readiness and willingness of the party to go for arbitration, but it cannot be equated with a notice under Section 21 which constitutes commencement of arbitral proceedings. It is pertinent to note that the power to grant stay under Section 34 is essentially a discretionary power and the Court may refuse the application under Section 34 cannot amount commencement of arbitral proceedings. In Courts opinion, unless there is a notice given by the party to other side for referring the dispute to arbitration, arbitral proceedings cannot be said to be commenced within the meaning of Section 21 of the Act.
General Clauses Act, 1897
Section 6-See Arbitration Act, 1940, Section 34.
2.By an agreement dated 23rd December, 1986 between the petitioner and the respondents and two memoranda of understanding, the parties agreed to carry on the business in partnership in the firm name and style of M/s. Gas Property Developers as a single venture undertaking upon the terms and conditions mentioned in the agreement. The agreement contains an arbitration Clause and the same is reproduced hereunder :---
"23. If at anytime a dispute shall arise among the parties hereto concerning the interpretation of this agreement or anything contained herein, or in connection therewith or any of the rights, duties, obligations or liabilities of the parties hereunder, or with respect to the performance thereof, such dispute shall, failing mutual agreement to settle it in any other way, be finally resolved among the parties by arbitration proceedings conducted in accordance with the provisions of Indian Arbitration Act, 1940 or any statutory modification or re-enactment thereof for the time being in force. Such arbitration shall be held at Bombay."
3.It seems that disputes and differences have arisen between the parties in connection with the agreement dated 23rd December, 1986. The respondents have filed Suit No. 4430 of 1994 claiming various declarations and injunctions. In that suit, the petitioner filed Notice of Motion bearing No. 852 of 1995 for stay of the suit under section 34 of the Indian Arbitration Act, 1940. During the pendency of these proceedings, the Arbitration and Conciliation Ordinance, 1996 was brought into force on 25th January, 1996. Under section 8 of the Ordinance, where there is an existing arbitration agreement, the Court is required to refer the parties to arbitration. In pursuance of these provisions, the petitioner has filed the present petition for reference to arbitration. It may be stated that the said Arbitration and Conciliation Ordinance, 1996 has since become an Act of Parliament viz. Arbitration and Conciliation Act, 1996 (Act 26 of 1996).
4.The respondents have opposed the petition mainly on two grounds. It is first contended that the petitioner having invoked the provisions of the Indian Arbitration Act, 1940 before the Ordinance came into force, is not entitled to invoke the provisions of the Ordinance. It is contended that the proceedings which have commenced under the Arbitration Act, 1940 are saved and protected by the Arbitration and Conciliation Act, 1996 and therefore any proceedings relating to the dispute which have been raised by the petitioner can be adopted under the Arbitration Act, 1940 only. In that behalf, reliance is placed on section 85 of the Ordinance. Secondly, it is contended that in Notice of Motion No. 852 of 1995 the petitioner has filed an affidavit of one Vontibent Manjunath Kamath, Personal Assistant to the Chairman of petitioner, wherein it is alleged that on 2nd April, 1994 on the instructions of Chairman of the petitioner he delivered a letter dated 31st March, 1994 addressed to the respondent No. 1 in his office in Mittal Towers, Nariman Point, Mumbai. It is contended that no such letter was received by the respondent No. 1 and the said letter as well as the alleged acknowledgment at the foot of the said letter were fabricated and the petitioner was trying to rely upon the fabricated documents in support of the alleged claim that the firm was agreed to be dissolved. It is contended that such an issue about fabrication of a document can be decided in accordance with law and not by arbitration.
5.Prior to the Ordinance separate statutory provisions dealt with domestic and international commercial arbitrations. As on 25th January, 1996, the law on arbitration in India was contained in three enactments, namely :---
(i) The Arbitration
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