Andhra HC (Pre-Telangana)
Hemadri Cements Pvt. Ltd. vs Walchandnagar Industries Ltd. And Ors. on 1 August, 1995
Equivalent citations: 1995(3)ALT120, 1996(1)ARBLR681(AP)
Author: C.V.N. Sastri
Bench: C.V.N. Sastri
JUDGMENT P.S. Mishra, C.J.
1. The instant appeal is preferred against the judgment in W.P. Nos. 11049 and 12938 of 1990 by a learned Single Judge of this court. Facts leading to the petitioner-respondent invoking this court's jurisdiction under Article 226 of the Constitution of India are in nutshell as follows :
A dispute arose between the petitioner-respondent and the appellant herein in course of the execution of a contract for sale of cement manufacturing machinery. In accordance with the arbitration Clause 12(2) of the agreement the parties, nominated their respective arbitrators and the arbitrators appointed the umpire. The arbitrators, however, gave an award on 2.2.1987 granting to the petitioner-respondent Rs. 17,74,858/- together with interest of Rs. 3,05,000/-. They, however, gave no reasons to support their award. The petitioner-respondent filed O.S. No. 249 of 1987 in the court of Additional Chief Judge (Temporary), Hyderabad, under Section 14(2) of the Arbitration Act (for short 'the Act') to make the award rule of the court. The appellant filed O.S. No. 387 of 1987 re-numbered as O.P. No. 41 of 1988 under Section 33 of the Act, read with Section 30 thereof. The learned Additional Chief Judge, however, delivered an ex parte judgment on 8.11.1988 which was set aside, however, in I.A. No. 453 of 1988 at the instance of the appellant on 1.2.1989. A civil revision against the said order in I.A. No. 453 of 1988 was also dismissed on 24.11.1989. While the award thus, was pending in the City Civil Court, A.P. Amendment Act 1 of 1990 came into force with effect from 19.2.1990. The amendments in Sections 14 and 17 of the Act introduced a proviso to Section 14(1) and three provisions to Section 17 of the Act. The relevant provisions after amendment read as follows :
(1) '14. (1). When the arbitrator or umpire have made their award, they shall sign and shall give notice in writing to the parties of the making and signing thereof and of the amount of fees and charges payable in respect of the arbitration and award.
Provided that the arbitrator or umpire shall give reasons for any award made under this Section and no award shall be valid unless reasons therefore are given as aforesaid."
(2) '17. "Where the court sees no cause to remit the award or any of the matters referred to arbitration for reconsideration or to set aside the award, the court shall, after the time for making an application to set aside the award has expired, or such application having been made, after refusing it, proceed to pronounce judgment according to the award, and upon the judgment so pronounced a decree shall follow, and no appeal shall lie from such decree except on the ground that it is in excess of, or not otherwise in accordance with the award.
Provided that where an award pending in the court at the commencement of the Arbitration (Andhra Pradesh Amendment) Act, 1990 or an award filed in the court, thereafter, does not contain reasons therefore as required by the proviso to Sub-section (1) of Section 14 the court shall not proceed to pronounce the judgment according to the award, but shall remit the award to the arbitrators or the umpire for giving reasons therefore as required by the said proviso and thereupon the arbitrator or umpire, shall within thirty days from the date of remittance of the award to them by the court give reasons for the award and file the same in the court.
Provided further that on the application of the arbitrators or the umpire and for reasons to be recorded in writing, it shall be competent for the court, to extend the period of thirty days aforesaid for a further period not exceeding fifteen days :
Provided also that where an award pending in the court as aforesaid does not contain any reasons and there is no possibility to remit the award to the arbitrator or panel of arbitrators or umpire due to their incapacity, negligence, refusal to act or death, the court shall set aside the award and direct the parties to initiate fresh arbitration in accordance with the terms of the agreement."
2. The Act, (Central Act No. X of 1940), to consolidate and amend the law relating to arbitration, envisages a written agreement to submit present or future differences to arbitration, whether an arbitrator is named therein or not, called 'arbitration agreement' for arbitration without or with intervention of a court and provides for signing and filing of the award by arbitrators or umpire before a court at the request of any party to the arbitration agreement or any person claiming under such party or if so directed by the court and upon payment of the fees and charges due in respect of the arbitration and award and of the costs and charges of filing the award, and recognises the court's power to remit the award from time to time for reconsideration of the arbitrators or umpire (Section 16) or for modifying or correcting the award (Section 15) and to give judgment in terms of the award where the court sees no cause to remit the award or any of the matters referred to arbitration or to set aside the award. The court's power to set aside the award is limited to the grounds specified under Section 30 of the Act. Pursuant to the amendment, the Civil Court remitted the matter to the arbitrators on 3.7.1990 to give reasons for the award. However, the arbitrator nominated by the appellant refused to act and it seems another person was appointed in his place on 26.7.1990. At this stage the petitioner-respondent filed W.P. No. 11049 of 1990. The learned Single Judge has held that, "Thus the intention of the legislature is to give effect to the intention of the parties in respect of award passed prior to 19.2.1990 and to make the passing of reasoned awards after 19.2.1990 irrespective of intention of parties ......... No doubt, the first proviso to Section 17 is not happily worded. The expression "as required by proviso to sub-sections (1) of Section 14" gives rise to difficulty and ambiguity. The draftsman must have used these words by way of description of the awards which requires reasons to be given. As already seen, even awards passed before amendment had to contain reasons if the agreement contemplates reasons to be given. On the other hand, if this, expression is extended to cover all awards, it will amount to giving retrospective effect to proviso to Section 14(1) which the Legislature itself did not give. "The learned Single Judge accordingly has held in the case of the appellant as follows :
"In the instant case, as it is the admitted case of the parties that the agreement did not provide for reasons in the award, applying the above principles, I hold that award passed on 2.2.1987, before commencement of the amendment Act i.e., 19.2.1990, is valid even though reasons were not given and neither proviso to Section 14(1) not first proviso to Section 17 applies to such award. In view of this, I need not go into the question of vires of two provisions. No other point is urged by the learned counsel for the petitioner. Accordingly, the writ petition is allowed."
3. Before we deal with the contentions of the learned counsel for the parties, we propose to notice the fundamental principles which courts bear in mind in considering the ambit and reach of a provision of law and the distinctions they maintain between statutes effecting rights and those effecting merely procedure. Some quotations from the courts of other countries and authors on the subject of procedural and substantive laws etc., are found in a recent judgment of the Supreme Court in the case of C.W.T. v. Sharvan Kumar Swarup & Sons . Notable quotations are from Maxwell v. Murphy ((1957) 96 CLR 61), in which drawing upon the words of Lord Justice Mellish in Republic of Costa Rica v. Erlanger ((1876) 3 CHD 62, 69), it is said :
"No suitor has any vested interest in the course of procedure, nor any right to complain, if during the litigation the procedure is changed, provided, of courts, that no injustice is done."
Black's Law Dictionary (Sixth Edn. P. 1203) has indicated the distinction between substantive law and procedural provisions in these words :
"As a general rule, laws which fix duties, establish rights and responsibilities among and for persons, natural or otherwise, are 'substantive laws' in character, while those which merely prescribe the manner in which such rights and responsibilities may be exercised and enforced in a court are 'procedural laws.' In Salmond's Jurisprudence (Twelfth Edn. P. 462) the distinction between substantive law and law of procedure is indicated in the following words :
"....... The law of procedure may be definded as that branch of the law which governs the process of litigation. It is the law of actions just quod ad actiones pertinet-using the term action in a wide sense to include all legal proceedings, civil or criminal. All the residue is substantive law, and relates, not to the process of litigation, but to its purposes and subject matter."
In Izhar Ahmad Khan v. Union of India , it is observed :
"The division of law into two broad categories of substantive law and procedural law is well known. Broadly stated, whereas substantive law defined and provides for rights, duties and liabilities, it is the function of the procedural law to deal with the application of substantive law to particular cases and it goes without saying that the Law of Evidence is a part of the law of procedure."
In C.W.T. v. Sharvan Kumar Swarup & Sons (supra), the Supreme Court has stated.
"Procedural law, generally speaking, is applicable to pending cases, No. suitor can be said to have a vested right in procedure. It must, however, be noted that a provision can be partly substantive and partly procedural."
4. In Lakshmi Narayan Guin v. Niranjan Modak , a Bench of the Supreme Court had the occasion to consider the amendments to the West Bengal Premises Tenancy Act after the trial Court had decreed the suit and had found that the respondent was a tenant of the appellants and that the appellants were entitled to possession and to recover the arrears of rent. The first appellate court had dismissed the appeal but the second appellate court i.e., the High Court allowed the appeal on the ground that the amendment required to set aside the decree of the trial Court and dismiss the suit. The amendment extended to the area of the premises involved in the proceeding provided that no order or decree for the recovery of possession of any premises shall be made by any court in a landlord's suit against the tenant except on certain enumerated grounds. One of the arguments before the court was that any decree which had been passed in favour of the landlord before the extension of the said provision to the area of the premises was final and was not affected by the amendement. The Supreme Court has said upon this the following :
".......... Does the decree here refer to the decree of the trial court or, where an appeal has been preferred, to the appellate decree ? Plainly reference is intended to the decree which disposes of the suit finally. It is well settled that when a trial court decrees a suit and the decree is challenged by a competent appeal, the appeal is considered as a continuation of the suit, and when the appellate decree affirms, modifies or reverses the decree on the merits, the trial court decree is said in law to merge in the appellate decree, and it is the appellate decree which rules."
Supreme Court in this judgment also considered the contention whether the said provision could be invoked where the suit was instituted before the Act came into force and observed as follows :
"........ In the instant case, the suit was instituted long before the Act was extended to Memari. Sub-section (1) of Section 13 directs the court not to make any order or decree for possession, subject, of course, to the statutory exceptions. The legislative command in effect deprives the court of its unqualified jurisdiction to make such order or decree. It is true that when the suit was instituted the court possessed such jurisdiction and could pass a decree for possession. But it was divested of that jurisdiction when the Act was brought into force. The language of the sub-section makes that abundantly clear, and regard must be had to its object."
A reference is made in this judgment to an earlier judgment of the Supreme Court in Mst. Rafiquennesa v. Lalbahadur Chetri , in which on an interpretation of Clause (a) of sub-section (1) of the Assam Non-Agricultural Urban Areas Tenancy Act, 1955, which prohibited the eviction of tenant, the Supreme Court said that the statutory provisions came into play for the protection of the tenants even at the appellate stage. Several judgments are cited and it is pointed out with reference to a quotation from a judgment of the Supreme Court in the case of Dayawati v. Inderjit .
"If the new law speaks in language which, expressly or by clear intendment, takes in even pending matters, the court of trial as well as the court of appeal must have regard to an intention so expressed, and the court of appeal may give effect to such a law even after the judgment of the court of first instance."
5. In State Bank of Hyderabad v. Advath Sakru (FB), a Full Bench of this court considered regarding applicability of Section 21A of the Banking Regulation Act, 1949 to questions, inter alia, whether it applies to transactions, which were entered into prior to its commencement even though suits were instituted subsequent thereto, to transactions entered into after the commencement of Central Act (1 of 1984), to suits which were pending on the date of commencement of Central Act (1 of 1984), to suits which were instituted and in which decrees were passed before the commencement of the Act to suits, instituted after the commencement of the Act irrespective of the date of transaction and whether it made any difference if the loan was an agricultural and not commercial loan. The court's answers to the above, however, are not very relevant for us except that the Full Bench has considered various aspects of the applicability of enforceability of a certain bar or prohibition to the jurisdiction of the court in cases where a suit is pending adjudication, a decree is passed in the suit but is pending in appeal and a suit which has been finally disposed of after all the appeals including the appeal in the Supreme Court and besides the judgment of the Supreme Court in Lakshmi Narayan Guin v. Niranjan Modal (supra) considered several other judgments of the courts including the Supreme Court to finally say that irrespective of the fact that a decree was passed and affirmed in first appeal and in case second appeal is filed challenging the same, in view of the fact that the appeal is nothing but a re-hearing of the suit and continuation of the suit, the prohibition equally applies to the first appellate court or even to the second appellate court. The Full Bench's opinion is found in these words :
"Having regard to the above discussion, it is clear that a distinction must be drawn between the cases where the provision contained a mandate to the court not to give relief and divests the court of its jurisdiction to give relief and the cases where no such mandate is imposed against the court, but a power to re-open on satisfaction of certain conditions is conferred on the court. In the former case, all pending matters irrespective of the fact whether they are pending before the trial court, appellate court or second appellate court, the prohibition must be made applicable to every court till a finality is reached in the proceedings. In such a case, assuming that vested rights are accrued to the persons earlier, the intention of the Parliament was to put off even the vested rights and that will be the necessary implication. That means the vested rights are also taken away by necessary implication. This distinction was also drawn by the learned Judges of the Supreme Court in Darshan Singh's case AIR 1991 SC 1954 referred to supra on the ground that those cases were not dealing with a mandate given to a court and whether the jurisdiction of the court to give relief is divested."
6. In G. C. Kanungo v. State of Orissa (1995 (3) Scale 104), the Supreme Court has dealt with the validity of Section 1-A introduced to Arbitration Act Section 41-A (applicable to State of Orissa). It is clearly laid down by the Supreme Court in this case that (1) It is open to a State Legislature to legislate on the same subject of arbitration in that it lies within its field of legislation falling in an entry in the concurrent list (Entry 13 of List III i.e. the Concurrent List of VII Schedule to the Constitution) and when a particular State Legislature has made a law or act on that subject for making it applicable to its State, all that it becomes necessary to validate such law is to obtain the assent of the President by receiving it for his consideration. When such assent is obtained, the provisions of the State Law or Act so enacted prevails in the State concerned, notwithstanding its repugnancy to an earlier Parliamentary enactment made on the subject. (2) The legislature, as a body, cannot be accused of having passed a law extraneous purpose. If no reasons are stated as appear from the provisions enacted by it. Its reasons for passing a law are those that are stated in the Objects and Reasons, Even assuming that the executive, in a given case, has an ulterior motive in moving a legislation, that motive cannot render the passing of the law mala fide. This kind of 'transferred malice' is unknown in the filed of legislation (See K. Nagaraj and others v. State of Andhra Pradesh . (3) An award is a decision of an arbitrator/arbitrators or umpire by way of arbitral dispute. When the award is presented to the court for making it a rule of court, the court does not adjudicate the cause as a dispute before it. Award is presented to the court for obtaining super-added seal of the court to make it enforceable against the other party through the machinery of court. The judgment and decree rendered by the Civil Court in respect of an award is merely to super add its seal thereon for making such award enforceable through the mechanism available with it for enforcement of its own judgments and decrees. (4) Since the awards do not get merged in judgments and decrees of courts so as to make them the decisions of courts, the power exercise by the civil courts are not their judicial power exercised in rendering judgments and decrees as Civil Courts exercise their powers vested in them for resolving the disputes between parties. An Amendment Act which nullifies the judgments and decrees of courts by which awards are made Rules of court, cannot be regarded as that enacted by the State Legislature encroaching upon the judicial power of a State exercisable under our Constitution by courts as sentinels of Rule of law, a basic feature of our Constitution. The Supreme Court, however, in the said case has held that the Special Arbitration Tribunal created by the Orissa Government in accordance with the 1984 Amendment Act was to adjudicate upon or decide the disputes referred to them under that Act by making reasoned awards. The power of deciding the disputes conferred upon those Special Tribunals was not conferred upon them by the parties to the disputes. Instead such power had been conferred upon them by the State under the provisions of 1984 Amendment Act. Such Arbitration Tribunals had to make the reasoned awards because they were enjoined to do so under that Amendment Act itself .......... and finally (5) that the Special Arbitration Tribunal exercised judicial power of the State conferred upon them by an enactment of the State Legislature and the 1991 Amendment Act which sought to nullify the adjudication by the Special Tribunal was unconstitutional as it encroached upon the judicial power of the State which it vested in the Judicial Tribunal.
7. Seen in the light of the principles mentioned above, it is difficult to approve the reasons assigned by the learned Single Judge for his views as well as the views expressed by him on the State amendments aforequoted.
8. The proviso to Section 14(1) of the Act says, (1) The arbitrator or umpire shall give reasons for any award and (2) No award shall be valid unless reasons therefore are given by the arbitrator. Previous to the amendment i.e., prior to 19.2.1990, the arbitrator or umpire could at his discretion give reasons for the award or make the award without giving any reasons. After 19.2.1990 any award for which reasons are not given by the arbitrator or umpire shall be invalid. The words "no award shall be valid unless reasons therefore are given as aforesaid" in the proviso to Section 14(1) cannot be read in isolation. "As aforesaid" are words which make this part of the proviso to read. "No award shall be valid unless the reasons therefore are given by the arbitrator or umpire. "The controversy whether it operates prospectively or shall operate retrospectively, however, is not left for conjecture by the courts. The Legislature has in Section 17 of the Act extended this Rule of invalidity of the award for which arbitrator or umpire has not given reason by the amendment to Section 17 of the Act in these words : (1) An award pending in the court at the commencement of the Amendment Act or an award filed in the court thereafter which does not contain reasons therefore as required by the proviso to sub-section (1) of Section 14 (above amendment) shall not be made the Rule of the court. The court shall not pronounce the judgment according to the award but shall remit the award to the arbitrator or the umpire for giving reasons therefore. Thereupon, the arbitrator or umpire shall within 30 days from the date of remittance of the award by the court give reasons for the award and file the same in the court. The time or period of 30 days can be extended for a further period not exceeding 15 days by the court on the application of the arbitrator or the umpire and for reasons to be recorded in writing. (2) Where there is no possibility to remit the award to the arbitrator or panel of arbitrators or umpire due to their incapacity, negligence, refusing to act or death, the court shall set aside the same and direct the parties to initiate fresh arbitration in accordance with the terms of the agreement.
9. An award, which is pending in court and is yet to be made a rule and thus the court is still to pronounce its judgment in accordance with the award, is also taken as invalid unless reasons are supplied for it by the arbitrator/arbitrators or umpire as the case may be. Before, however, the court will decline to make the award Rule of the court, it shall remit it to the arbitrators or the umpire for giving reasons. If reasons are given for the award within the stipulated time by the arbitrator or umpire, the court shall pronounce its judgment in terms of the award and make it the Rule of the court. If, however, there is no possibility to remit the award to the arbitrator or panel of arbitrators or umpire due to their incapacity, negligence, refusal to act or death, the court shall set it aside and direct partie to initiate fresh arbitration in accordance with the terms of the arbitration agreement.
10. Legislature has given a clear and specific direction and inhibited the court's jurisdiction to make the award which is pending before it whether made by the arbitrators before 19.2.1990 or thereunder a Rule of the court only after reasons therefore are provided by the arbitrator or umpire as the case may be. Once the award is made a Rule of the court, there is no appeal against it under the Arbitration Act. The appeal is provided under sub-section (1) of Section 39 against an order superseding an arbitration; on an award stated in the form of a special case; modifying or correcting an award; filing or refusing to file an arbitration agreement; staying or refusing to stay legal proceedings where there is arbitration agreement and setting aside or refusing to set aside an award only. We do not think it necessary, therefore, to consider whether the award pending in appeal under Section 39 shall be subject to the same inhibitions as the award pending in the court for being made a Rule of the court. There is some conflict whether the letters patent powers of the court are confined to the type of orders against which appeals are provided under Section 39(1) of the Act. Since we do not have such a situation in the instant case, we are not required to deal with that aspect.
11. Learned counsel for the respondent, however, has chosen to attack the amendments and submitted that the learned single Judge declined to go into the question of the validity of the amendments as he thought by reading them down and confining them to operate only propectively except in cases of awards in which agreements provided for reasons to be assigned by the arbitrators, to operate retrospectively. He has contended that the amendment by a State Legislature to a law which applied to the whole country discriminated between parties who sought arbitration in other States. The writ petitioner-respondent, according to him, is one such party who has got its activities in the State of Maharashtra and for all perposes it is resident in Maharashtra. Since the arbitration is held in the State of Andhra Pradesh because the agreement so provides/provided, it has to suffer the consequences of the amendment, otherwise, there is not invalidity in the award. It is difficult, however to comprehend any discrimination because for arbitrations in the State of Andhra Pradesh a competent Legislature has chosen to make the law which is applied to all disputes or differences in respect of matters which are within the competence of the courts in the State of Andhra Pradesh. Section 31 of the Arbitration Act makes it clear that the award has to be filed in the court has having jurisdiction in the matter to which reference relates and notwithstanding anything contained in any other law and save as otherwise provided in the Arbitration Act, all questions regarding the validity, effect or existence of an award or an arbitration agreement between the parties to the agreement or persons claiming under them is to be decided by the court in which the award under the agreement has been or may be filed and by no other court. It is in respect of matters referable to the jurisdiction of the courts in the State of Andhra Pradesh and not with reference to the parties and their residence that the law is required to be applied. It is valid in all respects of the jurisdiction of the court and so it is valid in all respects of the arbitrations within jurisdiction of the courts in the State.
12. The learned counsel for the appellant has also contended that the amendment has taken no care of the time factor involved in making the award and the pendency of the award for being made the rule of the court. The amendment has ignored altogether the fact that arbitrators, who made the award, may or may not be available at all and if those who made the award are not available to give reasons for it, the only consequence is that the award is a nullity and they have to go for a fresh award. We see the tinconvenience which may be cause to a party who has undergone the arbitration proceedings and is denied, only because arbitrators are not available to give reasons for the award, the fruits the benefits of the award. We cannot, however, see any invalidity in the amendments for the said reason. Section 47 of the Act says :
"Subject to the provisions of Section 46, and save insofar as is otherwise provided by any law for the time being in force, the provisions of this Act shall apply to all arbitrations and to all proceedings thereunder :
Provided that an arbitration award otherwise obtained may with the consent of all the parties interested be taken into consideration as a compromise or adjustment of a suit by any court before which the suit is pending."
We have already seen that judgment in terms of an award as contemplated under Section 17 of the Act is nothing but putting a seal of the court to the adjudication already done by the Arbitrator. It is not the validity of the award which depends upon the judgment and decree of the court in terms of the award, but it is the enforceability through the process of the court which depends upon the award having been made the Rule of the court. Such an award which is not made the Rule of Court has the force of a compromise contemplated under Order XXIII Rule 3 of the Code of Civil Procedure. If parties want thus to take the award by the Arbitrator which is not make a Rule of the court for any purpose, they can do so as contemplated under Section 47 of the Arbitration Act and bring the same for enforcement as adjustment or compromise under Order XXIII Rule 3 of the Code of Civil Procedure. The courts in Andhra Pradesh, however, shall not made any award a Rule of the court which is not in conformity with the requirement of Section 14 read with Section 17 as amended and for that reason nothing wrong can be found in the amendment.
13. It is not difficult for the reason of the nature of the proceeding after the award is submitted in the court that Sections 14 and 17 provide for the procedure which the Arbitrator and the Court are required to follow and the provisions which are introduced by the said amendment in the Act are only procedural in nature. They can easily be read to apply retrospective. There is no need to see the intendment when the express language of the statute makes the amendment to operative and applicable to the proceedings which are pending in court and in which proceedings the court is examining whether it should deliver judgment in terms of the award. No other ground to question the validity of the amendments has been raised before us. Learned counsel for the respondent has fairly accepted the competence of the Stage Legislature to make the amendment to Sections 14 and 17 of the Act and conceded that the amendment has been introduced after obtaining the assent of the President of India.
14. We are informed at the Bar that one of the Arbitrators has already died. It is not possible for the said reason to remit the case to the same Arbitrators. The only provision which shall be attracted in such a situation is the third proviso to Section 17 of the Act. The parties have to be directed to appoint their respective Arbitrators and initiate fresh arbitration in accordance with the terms of the agreement.
15. In the result, the appeal is allowed. The judgment and order of the learned Single Judge in W.P. No. 11049 of 1990 is set aside. With the observations and directions as above, the writ petition is dismissed, but without costs.
16. Writ Petition dismissed.