Bombay High Court
The Bombay Gas Co. Ltd. vs Parmeshwar Mittal & Others on 1 August, 1997
Equivalent citations: 1998(2)BOMCR25, AIR 1998 BOMBAY 118, 1997 (30) ARBI LR 271, (1998) 1 CIVLJ 601, (1997) 3 MAH LJ 863, (1997) 30 ARBILR 271, (1998) 2 BOM CR 25
Author: A.P. Shah
Bench: A.P. Shah
ORDER A.P. Shah, J.
1. This petition is filed under section 8 of the Arbitration and Conciliation Ordinance, 1996 for referring the parties to arbitration for resolution of disputes and differences that have arisen between them.
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 root 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 Act, 1940
(ii) The Arbitration (Protocol and Convention) Act, 1937
(iii) The Foreign Awards (Recognition and Enforcement) Act, 1961.
These three statutes held the field of arbitration law in India till January 1996 when all three statutes were repealed by the Ordinance. The 1996 Ordinance in its Statement of Objects and Reasons stated inter alia that it sought to consolidate and amend the law relating to domestic arbitration, international commercial arbitration, enforcement of foreign arbitral awards and to define the law relating to conciliation, taking into account the model Law and Rules adopted by the United Nations Commission on International Trade Law (UNCITRAL).
6. Section 85 of the Ordinance by which the 1937 Act, the Arbitration Act of 1940 and the 1961 Act were repealed, provides :---
"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 arbitration proceedings which commenced before the Ordinance came into force unless otherwise agreed by the parties but this Ordinance shall apply in relation to arbitral proceedings which commenced on or after this Ordinance comes into force.
(b) all rules made and notifications published under the said enactments shall, to the extent to which they are not repugnant to this Ordinance, be deemed respectively to have been made or issued under this Ordinance."
7. Now the argument of Mr. Zaiwala, learned Counsel for the respondents, is that under section 85 of the new Act even though the old Act has been repealed, the provisions of the old Act would continue to apply in relation to arbitral proceedings which have commenced before the Arbitration and Conciliation Ordinance came into force. He submits that an application under section 34 for stay of the suit is in effect an application for enforcement of the arbitration agreement. He submits that arbitral proceedings, therefore, commenced in September, 1995 when notice of motion under section 34 of the old Act was filed by the petitioner. He submits that section 34 of the old Act would thus continue to apply and section 8 of the new Act would have no application and would not apply. He also submits that on a proper interpretation of section 8 of the new Act it would be seen that the new Act would apply only to the suits which are filed after the commencement of the Act.
8. In reply, Mr. Kapadia argues that filing of an application under section 34 of the Act of 1940 does not and cannot amount to commencement of arbitral proceedings within the meaning of section 21 of the new Act. Mr. Kapadia points out that under section 21 of the new Act arbitral proceedings deemed to commence from the date on which a request or notice to refer the dispute to arbitration is received. He argues that even under section 37(3) of the old Act it was provided that the arbitration proceedings deemed to be commenced when one party to the arbitration agreement served on the other party a notice requiring appointment of an Arbitrator. He points out that admittedly no such notice was served and, therefore, arbitral proceedings cannot be said to have commenced under the said Act. He submits that section 85 of the Act makes it abundantly clear that the provisions of the old Act would apply only to cases where arbitral proceedings have commenced before the commencement of the Ordinance.
9. The short question which falls for determination is whether in the facts of the present case arbitral proceedings can be said to be commenced before the Ordinance came into force. Section 21 of the Ordinance provides that in the absence of agreement between the parties the arbitral proceedings in respect of a particular dispute commence on the date on which a request for that dispute to be referred to arbitration is received by the respondent. Section 37(3) of the Arbitration Act, 1940 contains a similar provision which provides that an arbitration shall be deemed to be commenced when one party to the arbitration agreement serves on the other parties thereto a notice requiring the appointment of an arbitrator. There is no dispute that the petitioner had not given a notice to the respondents within the meaning of section 21. In the absence of such notice, it is not possible to hold that the arbitral proceedings have commenced as provided under section 21 or section 37(3) of the old Act. But an argument is advanced that making of an application under section 34 amounts to giving a notice within the meaning of section 21 as mere filing of such an application implies that the party is ready and willing to go for arbitration. Reliance is placed on an unreported decision of the Special Court (Variava, J.) in Misc. Application No. 413 of 1995 in Misc. Petition No. 58 of 1995 decided on 9th October, 1996, wherein the learned Judge has expressed a view that by making an application under section 34 of the old Act, a party was showing his readiness and willingness to go for arbitration and therefore such an application amounts to commencement of arbitral proceedings.
10. With respect to the learned Judge, it is not possible to agree with the view expressed by him on interpretation of section 34. Section 34 is based on section 4 of the English Act. The section 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 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 proceedings. The stay of a 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 regard to the nature and scope of section, it is difficult to hold 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 commencement of arbitral proceedings. In my 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. Section 85 clearly provided that unless arbitral proceedings have commenced before the commencement of the Act, the provisions of the new Act would apply and not the old Act. The contention of Mr. Zaiwala that the new Act has no application to pending suits cannot be accepted inview of the clear language of section 85. I have, therefore, no hesitation to hold that the present application filed under section 8 is perfectly maintainable in law.
11. Mr. Zaiwala drew my attention to an unreported judgment of the learned Single Judge of the Calcutta High Court (Ruma Pal. J.) in Matter No. 2781 of 1993 decided on 17th June 1993. In that case an application was filed under section 3 of the Foreign Awards (Recognition and Enforcement) Act, 1961, prior to the commencement of the Ordinance. A preliminary objection was raised to the maintainability of the application on the ground of the repeal of 1961 Act by the Arbitration and Conciliation Ordnance, 19896. It was argued that the Ordinance having repealed the 1961 Act the application under the said Act was no longer maintainable. It was argued that pending proceedings would lapse unless a different intention would appear in the saving clause contained in section 85. It was argued that by deliberately limiting the saving clause to the pending arbitral proceedings the intention of the Legislature was clear namely that pending legal proceedings were not saved. The learned Judge after referring to the provisions of section 6 of the General Causes Act came to the conclusion that the express language of the saving clause by itself does not determine whether the general rule under section 6 of the General Clauses Act will save pending litigation or not. All the provisions of the repealing Act will have to be considered to see whether the earlier right was intended to be and was in fact destroyed. The learned Judge noted that despite repealing the 1961 Act, Chapter I Part II of the Ordinance has substantially re-enacted the provisions thereof with some modifications. By including similar provision in section 45 of the Ordinance, it is made clear that it was not the intention to destroy the right of a petitioner under section 3 of the 1961 Act. If anything, the Ordinance has strengthened the right. It was held that there being no different intention in the Ordinance within the meaning of section 6 of the General Clauses Act the application under section 3 of the 1961 Act was maintainable.
12. There is no quarrel with the proposition laid down by the learned Judge of the Calcutta High Court. But the present case, in my opinion, stands on a completely different footing. In Calcutta case, the question was whether the application made by the party for enforcement of the arbitration Clause under section 3 of the 1961 Act will be maintainable despite the commencement of the Ordinance. The learned Judge held that by making such an application a vested right was accrued to the applicant within the meaning of section 6 and the proceedings in respect of such right were saved by virtue of that section. In the present case, the party had made an application under section 34 for stay of the proceedings. To my mind, making of such an application would not confer any vested right upon the applicant and, therefore, the question of preservation of such right under section 6 does not arise. Even assuming for the sake of argument that a right was accrued. The provisions of the new Act in my 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 refer 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. Thus by necessary implication the right, if any, under section 34 of the old Act is not saved under the provisions of the new Act.
13. 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 an issue cannot be referred to Arbitrator. 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.
14. In the result, the petition is made absolute in terms of prayer Clause (a).
"(a) that this Honourable Court may be pleased to order and direct the parties hereto to refer to arbitration the disputes and differences which have arisen between the parties hereto as stated above, including the respondents' claims raised in Suit No. 4430 of 1994 in accordance with the said arbitration agreement and the Arbitration and Conciliation Ordinance, 1996;"
On the oral request of Mr. Zaiwala, the operation of this order is stayed for a period of four weeks.