Patna High Court
Rajan Kumar Verma And Anr. vs Sachchidanand Singh on 22 September, 2005
Equivalent citations: AIR2006PAT1, 2006(1)ARBLR559(PATNA), 2005(53)BLJR2070, AIR 2006 PATNA 1, 2006 A I H C 707, (2005) 3 BLJ 22, (2006) 1 ARBILR 559, (2006) 1 PAT LJR 251, 2005 BLJR 3 2070
ORDER S.N. Hussain, J.
1. Heard learned counsel for (he parties. The petitioners are defendants of Title Suit No. 208 of 2003, which was filed by the plaintiff-opposite party for declaration that the plaintiff was entitled to realise Rs. 50,000/- per month from the defendants-petitioners as compensation since 11 3-2003 according to the terms of agreement dated 10-3-2000 and 29-5-2001 executed by defendant No. 1 and for directing them to go on paying the compensation at the said rate each month to the plaintiff till handing over the possession of the plaintiffs portion of the apartment constructed by the defendants.
2. The defendants-petitioners are aggrieved by order dated 17-12-2004 passed in the aforesaid suit, by which learned Subordinate Judge-VIII, Patna rejected their petition filed under Section 5 read with Section 8 of Arbitration and Conciliation Act, 1996 (hereinafter referred to as the Act of 1996 for the sake of brevity) for referring the suit to the Arbitrator for final adjudication.
3. Learned counsel for the defendants' petitioners has submitted that the plaintiff-opposite party is the land owner, whereas the defendants-petitioners are the Developers and they entered into a Development Agreement on 10-3-2000 with respect to the land of the plaintiff. He has further stated that the said agreement was modified by another agreement dated 29-5-2001, which was to be part of the earlier agreement, for extension of the time of 2 and 1/2 years agreed in the previous agreement by further six months and if by that time the land owner's constructed portion is not handed over to him, then the Developer will have to pay Rs. 50,000/- per month to the land owner until such possession is given to him. The arbitration clause was included in paragraph 33 of the original agreement and it was stated that in case of any doubt or dispute between the land owner and the Developer, they would solve the said problem by appointment of an Arbitrator under the provisions of Arbitration Act, 1940 (hereinafter referred to as 'the Act of 1940' for the sake of brevity). Hence he averred that if there was any dispute or dissatisfaction the land owner should have referred the matter to an Arbitrator and there was no occasion for him to file the instant suit.
4. Learned counsel for the petitioners further submitted that even according to the case of the plaintiff-opposite party the construction works were to be completed within three years from the first agreement i.e. by 10-3-2003 and the construction was completed within the said prescribed time but due to the further demand of the land owner for additional facilities in his portion worth more than rupees one lac, possession was not taken by him. Hence he staled that there is no delay on the part of the Developer and he is not liable to pay any compensation as mentioned above. He also submitted that the Apex Court in the case of Hindustan Petroleum Corporation Ltd. v. Pinkcity Midway Petroleums has specifically held that in such cases civil Court had no jurisdiction and the matter should have been referred to the Arbitrator. Hence he submitted that: the suit in question was not maintainable and all the questions raised were to be decided in arbitration,
5. The claim of the defendants-petitioners is also that the learned Court below passed the impugned order on the frivolous assumption that since the agreement was executed on 10-3-2000 and even if the period added by modification is counted it was valid till 10-3-2003 i.e. within three years, hence its clauses were not effective after that date and were not binding upon the parties and that since the dispute arose after expiry of the said fixed period, there was no occasion for Arbitration and the civil Court had jurisdiction to decide such matters. In this connection learned counsel for the petitioners referred to Sections 5 and 8 of the Act of 1996 in which it is provided that in matters governed by that Part, no judicial authority shall intervene except where so provided in that Part of the Act and that a judicial authority before which an action is brought in a matter which is the subject of an arbitration agreement shall, if a party so applies not later than when submitting his first statement on the substance of the dispute, refer the parties to arbitration.
6. Learned counsel for the petitioners also averred that the petitioners appeared and filed their written statement along with petition for referring the matter to the Arbitrator under the aforesaid provision of Section 8 of the Act of 1996, which was rejected by the impugned order, although there is no finding that there is no arbitration clause and hence if there is such a clause, then the matter has to be referred to the Arbitrator, as no such limitation of time was prescribed in the agreement in question. He further submitted that the assumption of the learned Court below on which it passed the impugned order is absolutely frivolous as it. was only after the expiry of the period fixed in the agreement that any of the party could raise the question with regard to non-compliance of any term of the agreement within the time prescribed and before the expiry of the said period neither any cause of action arose, nor any party could have any reason to go for arbitration as it would have been premature,
7. Learned counsel for the petitioners also averred that Section 85 of the Act of 1996 specifically provided that the provisions of the Act of 1940 shall apply in relation to arbitral proceeding which commenced before the Act of 1996 came into force unless otherwise agreed by the parties, but the Act of I 996 shall apply in relation to arbitral proceeding which commenced on or after this Act came into force. Hence he stated that the arbitration clause in the agreement in question for preferring the dispute for arbitration under the Act of 1940 was valid and proper as there is not much difference in the two Acts with respect to arbitration and the intention of the parties was clear to refer the matter to the Arbitrator in case of any doubt or dispute. He further submitted that Sections 32 to 36 of the Act of 1940 specifically provided bar to suits contesting arbitration agreement and the power to stay such illegal proceedings and the effect, of illegal proceedings of arbitration. Hence, according to him, there is no escape from the clause for arbitration as both the parties agreeing to it had signed the agreement, and the provision of bar to any such suit is present in both the Acts of 1940 and 1996, hence such matters cannot be decided in a civil suit. In this connection he relied upon a decision of the Hon'ble Apex Court in the case of Thyssen Stahlunion GMBH v. Steel Authority of India Ltd. . He thus submitted that in these circumstances, the impugned order of the learned Court below is illegal, arbitrary and perverse and is fit to be set aside.
8. On the other hand, learned counsel for the plaintiff-opposite party has submitted that, the Act of 1940 was repealed by Section 85 of the Act of 1996 and according to the said section the Act of 1940 can be made applicable only to those proceedings, which were pending from before the said repeal and that too when both the parties agreed to it, but in the instant case admittedly the agreement in question was executed in the year 2000 i.e. much after coming into force of the Act of 1996. He further submitted that clause 33 of the said agreement specifically provided for Arbitration under the provision of Arbitration Act, 1.940, which having been repealed much earlier in 1996 itself there existed no legal, valid or effective clause of arbitration in the agreement in question.
9. Learned counsel for the opposite party further stated that were the Act of 1940 was repealed nothing of it remains and becomes non-existent and the words "unless otherwise agreed by the parties" used in Section 85 of the Act of 1996 was with respect to applicability of the Act of 1996 to the proceeding pending from before and not with respect to the applicability of the Act of 1940 to a proceeding on the basis of agreement entered into much after the Act of 1996 came into force. In the said circumstances, he again averred that the Act of 1940 having been repealed, no arbitration can be done on its basis and hence the arbitration Clause 33 of the agreement was clearly inoperative, ineffective and non-existent and the civil Court cannot legally create a new agreement for arbitration as per the new Act of 1996 and hence in substance the impugned order of the learned Court below is correct and suffers from no jurisdictional error. He, thus, submitted that in such circumstances, there is no occasion for this Court to interfere in the impugned order as has been held by the Hon'ble Apex Court in the case of The Managing Director (MIG), Hindustan Aeronautics Ltd., Balanagar, Hyderabad v. Ajit Prasad Tarway .
10. Considered the arguments raised by the parties, the materials on record as well as the provisions of law including the case laws. The Arbitration Act, 1940 came into force on the 1st day of July, 1940 and it continued to be effective till the Arbitration and Conciliation Act, 1996 came into force on 22-8-1996 vide G.S.R. 375(E). The enactment of this Act of 1996 was felt expedient by the lawmakers to make a comprehensive law respecting arbitration and conciliation taking into account the Model Law and Rules on Commercial Arbitration by the United Nations Commission on International Trade Law (UNCITRAL) in the year 1985, for the establishment of a unified legal framework for the fair and efficient, settlement, of disputes arising in commercial relations.
11. It is also apparent that due to subsequent developments at national and international levels it was found expedient to bring into existence a new enactment substantially different from the earlier Act of 1940, specially with regard to the matters of arbitration and conciliation. Section 3 of the Act of 1940 provided that an arbitration agreement, unless a different, intention is expressed therein, shall be deemed to include the provisions of reference to arbitration, whereas Section 8 of the said old Act of 1940 provided that, in cases where an agreement, provided reference to arbitration by the consent of the parties, but they could not concur in the appointment of any Arbitrator and where an appointed arbitrator neglects or refuses or becomes incapable or dies, the Court had the powers to appoint an Arbitrator only in such circumstances. But in the new Act, namely. Arbitration and Conciliation Act, 1996 the extent of judicial intervention was very clearly defined in Section 5 which provided that notwithstanding anything contained in any other law for the time being in force, in matters governing arbitration, no judicial authority shall Intervene except where so provided. Further more, by Section 8 of the new Act of 1996 it was also provided that a judicial authority before which an action is brought in a matter which is the subject of an arbitration agreement shall, if a party so applies not later than when submitting his first statement on the substance of the dispute, refer the parties to arbitration.
12. From reading of the aforesaid provisions of law and also from comparing the provisions of the new Act of 1996 with provisions of the old Act of 1940, it is quite apparent that as per the earlier enactment even when there was no provision for reference to arbitration in any agreement, it shall be deemed to include the said provision, if no different intention is expressed in that agreement, bill in the new Act the judicial authority has been barred from intervening in such matters except where the provision for reference to Arbitration is expressly provided in the agreement. Furthermore, in the earlier enactment of 1940 the power of Court to appoint Arbitrator was limited to a few instances only but in the new Act of 1996 the power of judicial authority was widened and the Courts were empowered to refer the parties to Arbitration, in all circumstances, with the only rider that an arbitration clause is included in the agreement.
13. By Section 85 of the Act of 1996, the earlier Act of 1940 was repealed and the only exception is provided in Sub-section (2) of the said Section where a proceeding which had commenced when the Act of 1940 was in force and continued even after coming into force of the new Act of 1996 and all the parties thereto agree that the old Act of 1940 shall apply to the said proceeding. But here in the instant case admittedly the agreement was of the year 2000, whereas the suit was filed in the year 2003 when the Act of 1940 had already been repealed by the new Act in 1996. Hence, any of the parties cannot take help of the exception provided in Sub-section (2) of Section 85 of the Act of 1996.
14. When an Act is repealed, it must be considered as if it had never existed and every one is stopped from taking any step in accordance thereof and no relief can legally be granted on its basis. It may also be noted that repeal is a matter of substance and not of form. Here also it is quite apparent that earlier Act of 1940 has been repealed by the legislature with a particular intention not binding the earlier enactment of 1940 to be sufficient for the purposes of law. Hence, as per the provisions of the new Act of 1996 it is not possible to agree to the submissions of the petitioner that Section 85(2)(a) of the new Act of 1996 would keep the old Act of 1940 alive for the enforcement of the agreement executed much after repeal of the old Act in 1996 and enforcement of the new Act of 1996.
15. The Hon'ble Supreme Court has held in its decision in the case of Thyssen Stahlunion GMBH (supra) that new Act of 1996 would be applicable in relation to all arbitral proceeding commenced on or after the said new Act came into force and expression "unless otherwise agreed" used in Section 85(2)(a) of the Act of 1996 cannot legally be applicable to any agreement or proceeding after the commencement of the Act, otherwise it is likely to create a great deal of confusion with regard to making reference for arbitrator.
16. It is not in dispute that the development agreement between the parties was dated 10 3-2000 which was modified by another agreement dated 29-5-2001, which was to form part of the earlier agreement and in paragraph 33 of the agreement it was provided that in case of any doubt or dispute between the Developer and the land owner with respect to the agreement the dispute/doubt would be removed by appointment of Arbitrator by both the parties under the provision of Arbitration Act, 1940 and if the parties do not agree to one Arbitrator, then both the parties appoint their own Arbitrators and the award of the said two Arbitrators would be binding upon the said parties.
17. It is, thus apparent that the said clause of the agreement provided arbitration under the provisions of the old Act of 1940 but it is also quite apparent that the said Act of 1940, having already been repealed in 1996 itself, has to be considered as if it had never existed and no proceeding or arbitration can commence or continue on its basis in a proceeding initiated much after 1996. Hence the provisions of the Act of 1940 not being enforceable, the said arbitration clause 33 in the agreement cannot legally be deemed to be enforceable. Furthermore, the civil Court cannot legally assume that the said clause in the agreement was for reference to Arbitrator under the provision of the new Act of 1996 as it had no jurisdiction to create a new agreement for arbitration as the parties had never agreed for any reference under the provisions of the hew Act of 1996, which are quite different from the provisions of the old Act of 1940.
18. Hence, in the aforesaid circumstances, arbitral ion clause 33 in the agreement between the parties is clearly ineffective as per the specific provisions of law and the learned Court below was quite justified in refusing to send the matter to the Arbitrator for arbitration. So far the dispute between the parties as to who was responsible for the delay in handing over possession of his portion to the land owner is concerned, it cannot be decided at this stage and it can only be decided after considering the evidence on record as well as the final arguments between the parties.
19. So far the assumption of the learned Court below in its impugned order with respect to the delay in filing of the suit after expiry of the period fixed in the agreement is concerned, it is made clear that neither any limitation of time is provided in law, nor has been prescribed in the agreement in question. Furthermore, the cause of action could only arise when the date fixed in the agreement for doing a work had expired and the concerned party to the agreement had not complied with the specific term of the agreement. Hence, any suit or proceeding can only be filed after expiry of the period fixed in the agreement for completing a certain work, otherwise any suit or proceeding if filed before if would clearly be premature.
20. In the said facts and circumstance, it is held that there was no occasion for the learned Court below to refer the matter to the Arbitrator and the learned Court below was quite justified in rejecting the petition filed by the defendants-petitioners for the said purpose under the provision of Section 5 read with Section 8 of the Act of 1996. However, the questions as to whether the suit was barred by the law of limitation or any other law and also as to who was responsible for the delay caused in handing over the possession to the land owner of his portion of the premises as per the agreement, has to be considered and decided at the time of final decision of the suit.
21. Accordingly, this civil revision is dismissed with the aforesaid directions/ observations.