2004 Supreme(SC) 424

2004(3) Supreme 151
Supreme Court of India
(From Delhi High Court)
V.N. Khare, CJI., S.B. Sinha & S.H. Kapadia, JJ.
Milkfood Ltd. -Appellant
versus
M/s. GMC Ice Cream (P) Ltd. -Respondent
Civil Appeal No. 9672 of 2003
With
C.A. Nos. 9673-74 of 2003
Decided on 5-4-2004
Counsel for the Parties :
For the Appellant : Harish N. Salve, Sr. Advocate, B.K. Sood, Ms. Indra Sawhney, Advocates.
For the Respondent : R.K. Jain, Chandra Shekhar, Sr. Advocates, Neeraj Shekhar and Ambhoj Kumar Sinha, Advocates.

Important point
Service of notice in terms of Chapter II of the Arbitration Act, 1940 shall set the ball in motion whereafter only the arbitration proceeding commences.

Headnote:Arbitration Act, 1940-Sections 3, 8, 34 and 37-Arbitration and Conciliation Act, 1996-Sections 21, 43, 85(2)(a)-Interpretation of-Parties entered into an agreement in terms whereof the 1st respondent was to manufacture and pack in its factory, ice creams for and on behalf of appellant-Agreement was to remain valid for a period of five years-Contract contained an arbitration agreement-Disputes between parties-1st respondent apprehending that appellant would cause disturbance in manufacture and supply of ice cream filed a Title Suit-Appellant having regard to arbitration agreement filed application under Section 34, Arbitration Act, 1940 for stay of suit-Application allowed directing stay of suit-Appellant sent a notice on 14-9-1995 to 1st respondent appointing an arbitrator - 1st respondent ­appointed respondent 3 and appellant appointed respondent 4 as their arbitrators-Appellant having found that arbitrators were proceeding under 1996 Act filed an application seeking directions alleging that provisions of 1940 Act were applicable-Majority of the arbitrators held that 1996 Act shall apply-Order challenged-When the arbitral proceedings would be deemed to have commenced.

       Held : Majority Judgment [ S.B. Sinha, J. for V.N. Khare, CJI and for himself]

       So far as the Arbitral Proceeding is concerned, service of notice in terms of Chapter II of the 1940 Act shall set the ball in motion whereafter only the arbitration proceeding commences. Such commencement of arbitration proceeding although in terms of Section 37 of the Act is for the purpose of limitation but it in effect and substance will also be the purpose for determining as to whether the 1940 Act or the 1996 Act would apply. It is relevant to note that it is not mandatory to approach the court for appointment of an arbitrator in terms of Sub-Section (2) of Section 8 of the 1940 Act. If the other party thereto does not concur to the arbitrator already appointed or nominate his own arbitrator in a given case, it is legally permissible for the arbitrator so nominated by one party to proceed with the reference and make an award in accordance with law. However, in terms of Sub-Section (2) of Section 8 only a legal fiction has been created in terms whereof an arbitrator appointed by the Court shall be deemed to have been nominated by both the parties to the arbitration proceedings. (Para 67)

       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 in 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 relation 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 same 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. (Para 71)

       In this case, the learned Munsif by an order dated 7.8.1995 i.e. before the 1996 Act came into force not only stayed further proceedings of the suit but also directed that in the meanwhile the matter be referred to arbitration. The matter was referred to arbitration as soon as the notice dated 14.9.1995 was issued and served on the other side. (Para 74)

       It may be true that before the High Court apart from Shri H.L. Agrawal, Shri Uday Sinha also came to be appointed; but the change in the constitution of the arbitral tribunal is irrelevant for the purpose of determining the question as to when the arbitration proceeding commenced within the meaning of Section 21 of the 1996 Act. The purported reference of the dispute to the arbitrator was merely a reference to new arbitral tribunal which concept is separate and distinct from that of commencement of arbitration proceeding. (Para 74)

       The arbitrators, therefore, have also not held that notice dated 14.9.1995 was not served upon the respondent but merely proceeded on the basis that the same would be relevant for the purpose of determining the question as to when the arbitral proceeding shall commence. In fact it does not appear that such a question was raised either before the arbitrators or before the High Court. The respondent, therefore, cannot be permitted to raise the same before us for the first time. (Para 80)

       For the reasons aforementioned, we are of the view that in this case, the 1940 Act shall apply and not the 1996 Act. However, it is accepted at the Bar that the learned arbitrators had already entered into the reference. The proceedings before the arbitrators were not stayed. Only making of the award was stayed. In that view of the matter, in the peculiar facts and circumstances of this case, we are of the opinion that although the old Act would apply, the entire arbitral proceedings need not be reopened and the arbitrators may proceed to give their award. The award shall be filed in the court having jurisdiction whereafter the parties may proceed in terms of the old Act. We hope and trust that the award shall be made and all the legal proceedings shall come to an end at an early date and preferably within a period of four months from the date of the communication of this order. This order has been passed in the interest of justice and in the peculiar facts and circumstances of this case. (Para 90)

       Minority Judgment [S.H. Kapadia, J.]

       A bare reading of section 21 of the 1996 Act indicates that arbitral proceedings in respect of a dispute commences on the date on which request to refer such dispute to arbitration is received by the respondent, unless otherwise agreed by the parties. Section 21 is similar to section 14 of the English Arbitration Act 1996 which provides that parties are free to agree as to when an arbitration is to be regarded as commencing both under the Arbitration Act 1996 and for limitation purposes. (Para 104)

       In the present matter, one is concerned with transitional provision, i.e. section 85(2)(a) which enacts as to how the statute will operate on the facts and circumstances existing on the date it comes into force and, therefore, the construction of such a provision must depend upon its own terms and not on the basis of section 21. (Para 105)

       In the light of what is stated above, I now refer to the facts of the present case. The parties entered into an agreement on 7.4.1992 which contained an arbitration clause 20, which inter alia stated that in the case of dispute between the parties arising in relation to the contract, the dispute shall be referred to a single arbitrator, in case both sides agree upon one such arbitrator and failing such agreement, the dispute shall stand referred to two arbitrators, one to be appointed by the either party, and in case of disagreement, between the two arbitrators, the dispute was to be referred to an umpire to be appointed by the two arbitrators. Before entering upon the reference under clause 20 quoted above, all such arbitration proceedings were to be governed by the provisions of the Arbitration Act, 1940 or under any statutory re-enactment. This clause is similar to the one considered by this Court in the case of Delhi Transport Corporation Ltd. (supra). On the strength of the agreement dated 7.4.1992, the respondent herein filed title suit No. 40 of 1995 for injunction and in the said suit, the appellant herein applied for stay under section 34 of the 1940 Act. Suffice it to state that on 6.5.1997, when the matter came up before the High Court, the parties agreed that all disputes between them may be referred to arbitrators chosen by the parties as per the agreement. A consent order was accordingly passed on that day by the High Court referring the dispute to the arbitrators. Therefore, for all practical purposes, the arbitration commenced on 6.5.1997, by which time the 1996 Act had come into force. In the circumstances, I am in agreement with the majority decision of the arbitrators that the proceedings in the present case would be governed by the provisions of the 1996 Act. For above reasons, I respectfully dissent from the opinion of Sinha, J. (Paras 111 & 112)