Ltd. Vs. M/S GMC Ice Cream (P) Ltd  Insc 229 (5 April 2004)
& S.B. Sinha.
W I T
H Civil APPEAL NOS.9673-74 OF 2003 S.B. SINHA, J :
of certain provisions of the Arbitration Act, 1940 and the Arbitration and
Conciliation Act, 1996 (for short '1940 Act' and '1996 Act' respectively) is in
question in these appeals which arise out of a judgment and order dated
13.10.1998 passed by a learned Single Judge of the Delhi High Court in O.M.P.
No. 94 of 1998 and a judgment dated 17.2.2003 passed by a five-Judge Bench of
the said Court in L.P.A. No.492 of 2002 holding that the said appeal was not
parties hereto entered into an agreement on or about 7.4.1992 in terms whereof
the first respondent herein was to manufacture and pack in its factory a wide
range of ice cream for and on behalf of the appellant. The said agreement was
to remain valid for a period of five years.
the said contract contained an arbitration agreement being clause 20 thereof
which is as under:
case of any dispute or any difference arising at any time between the Company
and the Manufacturer as to the construction, meaning or effect of this
Agreement or any clause or thing contained therein or the rights and liabilities
of the Company or the Manufacturer hereunder in relation to the premises, shall
be referred to a single arbitrator, in case the parties can agree upon one, and
failing such Agreement, to two arbitrators one to be appointed by either party
and in case of disagreement between the two arbitrators aforesaid and in so far
as and to the extent that they disagree to, an umpire to be appointed by the
said two arbitrators before they enter upon the reference.
such arbitration proceedings shall be in accordance with and subject to the
provisions of the Arbitrator Act, 1940, or any statutory modification or
reenactment." The contention of the appellant was that the first
respondent herein did not fulfill its contractual obligations. It was also contended
and two Demand Drafts sent by it for a sum of Rs. Five lakhs each which were
required to be sent in the year 1992 were in fact sent on 7.5.1995 and the same
contention of the first respondent, on the other hand, was that in terms of the
agreement between the parties that an additional plant as per the
specifications thereof for manufacture of ice cream was installed; but despite
the same the appellant failed to supply the base materials for packing ice
first respondent herein apprehending that the appellant herein would cause
disturbance in the manufacture and supply of ice cream filed a suit in the
Court of Munsif 1st, Gaya which was marked as Title Suit No.40 of 1995, wherein
a decree for permanent injunction restraining the appellant from causing any
disturbance in manufacture and supply of ice cream according to specifications
given by the appellant was sought for. The appellant herein, however, having
regard to the arbitration agreement entered into by and between the parties
filed an application under Section 34 of the Arbitration Act, 1940 for stay of
the suit. By reason of an order dated 3.8.1995, the learned Munsif allowed the
said application filed by the appellant herein and directed stay of the suit
holding that it was a fit case in which the application under Section 34 of the
Act should be allowed. It was further directed :
the request the application dated 17.7.95 filed on behalf of the defendant nos.
1 to 3 is allowed. I stay the further proceeding of the suit and in the
meantime the matter be referred to the arbitration. Put up on 4.9.1995."
Pursuant to or in furtherance of the said direction, the appellant herein sent
a notice on 14.9.1995 to the first respondent herein and its Managing Director
appointing Shri H.L. Agrawal, a former Chief Justice of the Orissa High Court
as its arbitrator. It was further stated therein that if the respondents intend
to agree to appoint Shri H.L. Agrawal as arbitrator to settle the dispute, it
may give its consent thereto forthwith failing which it may also appoint its
arbitrator in terms of clause 20 of the agreement so that the dispute be
settled at the earliest.
controversy as regard service of the said notice on the respondent has been raised
which would be dealt with a little later.
complete the narration of facts, we may notice that the said order dated
3.8.1995 was appealed against by the first respondent before the 2nd Additional
District Judge, Gaya and by an order dated 13.3.1996, the 2nd Additional District
Judge, Gaya in Misc. Appeal No.7 of 1995 (30/95) dismissed the same. Aggrieved
by and dissatisfied with the said judgment and order the first respondent
herein filed a revision application before the Patna High Court which was
marked as C.R. No.1020 of 1996. The said civil revision application was
disposed of by an order dated 6.5.1997 in the following terms :
this court parties have agreed that the dispute between them may be referred,
as per the agreement to Arbitrators chosen by the parties. The plaintiff had
chosen Shri Ujday Sinha, a retired judge of this court and Senior Advocate of
the Supreme Court, while the defendants have chosen Shri Hari Lal Agrawal,
Senior Advocate of the Supreme Court, a former judge of this Court and Chief
Justice of Orissa High Court as Arbitrators. The dispute between the parties is
referred to arbitrator.
that the learned Arbitrators will dispose of the arbitration proceeding within
three months of the entering the reference.
copy of this order be sent to both Shri Hari Lal Agarwal at his address Nageshwar
Colony, Boring Road, Patna-1 and Shri Uday Sinha at his Patna address 308, Patliputra Colony, Patna." It would appear that by
reason of the said order merely the constitution of the arbitral Tribunal had
been changed but the dispute sought to be resolved in the arbitration
proceeding was not formulated therein. The appellant appointed Respondent No.4,
Shri Agrawal, whereas the first respondent appointed Respondent No.3, Shri Uday
Sinha, as their arbitrators. Respondent No.2, Shri A.B. Rohtagi was appointed
by the learned arbitrators as the third arbitrator, which according to the
appellant, was without its knowledge and consent.
appellant having found that the learned arbitrators were proceeding under the
1996 Act filed an application seeking directions and the clarifications raising
a contention that the provisions of the 1940 Act were applicable. The matter
was heard by the learned Arbitrators and by an order dated 6.4.1998, the
majority of the arbitrators held that the 1996 Act shall apply holding :
consent order dated 6.5.1997 is the beginning of the arbitral proceedings. Anything
said or done before that date is of no consequence.
the new Act applies. This is our conclusion." One of the learned
arbitrators Shri H.L. Agrawal, however, in his dissenting opinion held :
do not agree with him that an Arbitration commences when the dispute is
referred to the arbitrator and he enters upon the reference.
37(3) of the old Act categorically lays down that "when one party serves
on the other, a notice requiring the other to appoint an Arbitrator", an
Arbitration is deemed to commence. It does not mandate the notice only by the
claimant. The notice may be by either of the parties. In my considered opinion
the notice dated 14.4.1995 issued by the Respondent to the claimant triggered
off the commencement of the arbitration proceeding. Nothing has been shown that
there was any agreement between the parties to the contrary. There cannot be
one commencement for the limitation purposes and another for an arbitration
proceeding." Questioning the said order of the learned arbitrators, an
application was filed by the appellant herein purported to be under Section 33
of the 1940 Act in the High Court of Delhi which was marked as O.M.P. No.94 of
1998. A learned Single Judge of the High Court held :
According to Section 21 of the Arbitration and Conciliation Act, 1996, unless
otherwise agreed by the parties, the arbitral proceedings commences on the date
of which a request for that dispute is referred to arbitration. The Act
postulates a notice by a claimant to the respondent calling upon him to appoint
an arbitrator for the settlement and it cannot be the other way round.
respondent would ask for the appointment of an arbitrator when he has no
dispute to refer (unless the respondent would be a counter claimant).
case he has disputes to refer, then the respondent would become the claimant.
The majority order correctly held that no defendant will save limitation for
the claimant or the plaintiff. In view of this finding, the notice dated
14.9.1995 cannot be construed as a notice calling upon to initiate the
agreement dated 7th
April, 1992 contemplates
that such arbitration proceedings shall be in accordance with and subject to
the provisions of the Arbitration Act, 1940 or any statutory modification or
reenactment. In 1992, when the agreement was entered into the parties could not
visualise the 1996 Act but in the relevant clause 20 of the agreement,
foundation of any statutory modification or reenactment has been laid down.
When the parties by consent before the High Court agree to refer the dispute to
the arbitration in that event parties have to be governed by 1996 Act.
conclusion is consistent even with the underlying intention of the parties
according to clause 20 of the Agreement.
Logically, it has to be concluded that the arbitration proceedings begin when
the disputes are referred for the arbitration. In the instant case, the
disputes were referred for arbitration by the order of the High Court only on
6.5.1997. The parties have therefore, to be governed by the provisions of 1996
petitioner was aware of the third arbitration from the very beginning and it
has to be assumed that the petitioner by necessary implication gave consent for
referring the disputes to the arbitration. All this happened after the 1996 Act
came in force, therefore, only the 1996 Act has to be made applicable in this
most vital and important circumstances of this case is that on 6.5.1997, both
the parties gave a clear consent to refer this matter to the arbitration before
the High Court of Patna.
parties by agreement gave a good bye to all other proceedings and on 6.5.97,
agreed for reference of their disputes to the arbitrator. The sanctity of the
undertaking given to the court by the parties has to be maintained. No one can
be permitted to breach or flout the undertaking in this manner." An appeal
preferred thereagainst was dismissed by a five-Judge Bench, as being not
Salve, learned Senior Counsel appearing on behalf of the appellant, would
submit that having regard to the fact that the notice appointing arbitrator had
been served upon the respondent in terms whereof the arbitration proceeding
commenced and in that view of the matter the 1940 Act shall be applicable in
the instant case. Referring to Sections 21 and 85 of the 1996 Act, Mr. Salve would
urge that there are well-known expressions in the arbitral proceedings, being
"commencement of the arbitration proceeding", "continuance of
arbitration proceedings", "entering into reference" which in
different context would carry different meanings. The Parliament, however, in
the 1996 Act having chosen to use the expression 'initiation of the
proceedings', the meaning thereof as is understood in common parlance should be
applied. Strong reliance in this connection has been placed on a decision of the
Queen's Bench Division Bench in Charles M. Willie & Co. (Shipping) Ltd. vs.
Ocean Laser Shipping Ltd. [(1999) 1 Lloyd's Rep.225].
Salve would submit that there appears to be some conflict in the decision of
the two-Judge Benches of this Court as regard construction of the arbitration
agreement, as contained in clause 20 thereof, referred to hereinbefore vis-`-vis
the applicability of the 1996 Act. In this connection, our attention has been
drawn to a decision of this Court in N.S. Nayak & Sons etc. vs. State of Goa
etc. [(2003) 6 SCC 56] wherein allegedly a different note has been struck from
an earlier view expressed in Delhi Transport Corporation Ltd. vs. Rose
Advertising [(2003) 6 SCC 36].
R.K. Jain, learned senior counsel appearing on behalf of the respondent, on the
other hand, would urge that having regard to the purport and object of the 1996
Act, as also in view of the fact that the arbitrators had already entered into
the reference, this Court may not interfere with the impugned judgment in
exercise of its jurisdiction under Article 136 of the Constitution of India.
Strong reliance in this behalf has been placed Chandra Singh and Others vs.
State of Rajasthan and Another [(2003) 6 SCC 545]. The learned counsel would
next contend that a proceeding commences in the court of law when a plaint is
filed and if the said analogy is applied, an arbitration proceeding must be
held to be initiated when a claim petition is filed by the claimant before the
arbitrator as before a proceeding is initiated before a court or tribunal, the
existence thereof would be a condition precedent for initiation of proceeding.
learned counsel would urge that for the purpose of determining the point of
time 'when an arbitration proceeding commences', the arbitral tribunal must be
constituted. Reliance in this connection has been placed on Secretary to the
Government of Orissa and Another vs. Sarbeswar Rout [(1989) 4 SCC 578].
learned counsel would further submit that an arbitrator enters into a reference
when he applies his mind to the disputes and differences between the parties
and not prior thereto. Alternatively, it was submitted that the proceeding
commences when the arbitrator enters into reference. Reliance in this behalf
has been placed on Sumitomo Heavy Industries Ltd. vs. ONGC Ltd. and Others
[(1998) 1 SCC 305].
argued that in any event the starting point for the purpose of commencement of
arbitration proceeding would be when the dispute was referred by the High Court
i.e. on 6.5.1997 and not prior thereto.
Jain would further urge that in any event, as the parties had agreed in terms
of clause 20 of the contract that all such arbitration proceedings shall be in
accordance with and subject to the provisions of the Arbitration Act, 1940 or
any statutory modification or re-enactment thereof, they must be deemed to have
agreed that the new Act shall apply. Strong reliance has been placed on Thyssen
Stahlunion GMBH vs. Steel Authority of India Ltd. [(1999) 9 SCC 334], Delhi
Transport Corporation Ltd. (supra) and N.S. Nayak (supra).
Jain would also urge that the decision of this Court in N.S. Nayak (supra)
cannot be said to have struck a different note from its earlier decision.
Section 37 of the 1940 Act, the learned counsel would contend, being for the
purpose of commencement of the period of limitation, the same will have no
application whatsoever for the purpose of determining the question as to
whether the 1940 Act will apply or the 1996 Act.
of the relevant statutory provisions :
37(3) of the 1940 Act provides that the arbitration proceeding commences when
one party to the arbitration agreement serves on the other parties thereto a
notice requiring the appointment of an arbitrator.
21 of the 1996 Act is as under :
Commencement of arbitral proceedings.-Unless otherwise agreed by 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." We may notice that Section 14 of the English
Arbitration Act 1996 deals with commencement of arbitral proceedings.
Sub-section (1) of Section 14 provides that the parties are free to agree when
arbitral proceedings are to be regarded as commenced for the purpose of this
Part and for the purposes of the Limitation Act. Section 14(3) provides that in
the absence of such agreement, the provisions contained in sub-sections (3) to
(5) shall apply.
the 1940 Act and the English Arbitration Act place emphasis on service of the
notice by one party on the other party or parties requiring him or them to
submit the matter to arbitration rather than receipt of the request by the
respondent from the claimant to refer the dispute to arbitration. Commencement
of an arbitration proceedings for certain purposes is of significance.
Arbitration proceedings under the 1940 Act may be initiated with the
intervention of the court or without its intervention. When arbitration
proceeding is initiated without intervention of a Court, Chapter II thereof
would apply. When there exists an arbitration agreement the resolution of
disputes and differences between the parties are to be made in terms thereof.
For the purpose of invocation of the arbitration agreement, a party thereto
subject to the provisions of the arbitration agreement may appoint an
arbitrator or request the noticee to appoint an arbitrator in terms thereof. In
the event, an arbitrator is appointed by a party, which is not opposed by the
other side, the arbitrator may enter into the reference and proceed to resolve
the disputes and differences between the parties. However, when despite service
of notice, as envisaged in sub-section (1) of Section 8 of the 1940 Act, the
appointment is not made within fifteen clear days after service of notice, the
Court may, on the application of the party who gave the notice and after giving
the other parties an opportunity of being heard, appoint an arbitrator or
arbitrators or umpire, as the case may be. By reason of sub-section (2) of
Section 8 of the 1940 Act, a legal fiction has been introduced to the effect
that such an appointment by the court shall be treated to be an appointment
made by consent of all parties.
8, therefore, implies that where an appointment is not made with the
intervention of the court but with the consent of the parties, the initiation
of the arbitration proceeding would begin from the service of notice. Section
37 of the 1940 Act provides that all the provisions of the Indian Limitation
Act, 1908 shall apply to arbitrations and for the purpose of the said section
as also the Indian Limitation Act, 1908, 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 or where
the agreement provides that the reference shall be to a person named or
designated in the agreement, requiring that the difference be submitted to the
person so named or designated.
37(3) of the Arbitration Act, 1940 is not exhaustive. The expression
"shall be deemed to be commenced" indicates that the sub-section (3)
deals with two modes of notional or fictional commencement as distinguished
from factual commencement. It is, thus, possible to conceive cases where an
arbitration can be said to have commenced under circumstances not contemplated
by the sub-section. Too much stress also cannot be laid on Rule 3 of the First
Schedule of the 1940 Act in interpreting Sub-Section (3) of Dugar, AIR 1960 Calcutta 6) The commencement of an
arbitration proceeding for the purpose of applicability of the provisions of
the Indian Limitation Act is of great significance. Even Section 43(1) of the
1996 Act provides that the Limitation Act, 1963 shall apply to the arbitration
as it applies to proceedings in court. Sub-section (2) thereof provides that
for the purpose of the said section and the Limitation Act, 1963, an
arbitration shall be deemed to have commenced on the date referred to in
21 of the Model Law which was modelled on Article 3 of the UNCITRAL Arbitration
Rules had been adopted for the purpose of drafting Section 21 of the 1996 Act.
3 of the 1996 Act provides for as to when a request can be said to have been
received by the respondent. Thus, whether for the purpose of applying the
provisions of Chapter II of the 1940 Act or for the purpose of Section 21 of
the 1996 Act, what is necessary is to issue/serve a request/notice to the
respondent indicating that the claimant seeks arbitration of the dispute.
3 of the 1940 Act provides that an arbitration agreement, unless a different
intention is expressed therein, shall be deemed to include the provisions set
out in the First Schedule in so far as they are applicable to the reference.
The First Schedule, therefore, contains implied conditions of arbitration
agreements which are applicable to the reference and not for any other purpose.
(3) of the First Schedule envisages that the arbitrators shall make their award
within four months after entering on the reference or after having called upon
act by notice in writing from any party to the arbitration agreement or within
such extended time as the Court may allow. A notice upon the arbitrator so as
to enable him to enter into a reference or to make an award within the
stipulated period, therefore, has nothing to do with the notice served by a
party to an agreement to another invoking the arbitration clause and by
appointing an arbitrator.
the purpose of the Limitation Act an arbitration is deemed to have commenced
when one party to the arbitration agreement serves on the other a notice
requiring the appointment of an arbitrator. This indeed is relatable to the
other purposes also, as, for example, see Section 29(2) of English Arbitration
date when arbitration proceeding commences would depend upon various factors
and the purposes which it seeks to achieve. It may be for the purpose of
attracting the Limitation Act or for the purpose of time bar clauses or for the
rules applicable therefor, as, for example, the rules of the International
Chambers of Commerce.
date of commencement of an arbitration also affects the position under the
conflict of laws when the proper law of the contract is one law and the law of
the arbitral procedure is another, for then, up to the date of commencement of
the arbitration proceeding, the law of the contract must govern, and the law of
the procedure will only govern thereafter. (See International Tank and Pipe
S.A.K.8) Section 14(3) & (5) of the English Arbitration Act, 1996 would
also show that commencement of arbitral proceeding is not only for the purpose
of limitation but also for the purpose of considering a case when the parties
by their contract agree that the arbitration must be commenced within a
specified time, failing which the right to arbitration, or indeed the claim
itself, is apt to be barred. Determination of time elements in an arbitration
is provided for in Section 21 of the 1996 Act clearly indicating as to when
such arbitration has officially begun.
M. Willie & Co. (supra) :
On November 21, 1990 Willie received a letter from
Holman Fenwick & Willan ("HFW") solicitors to Roussos enquiring
about an engine stoppage in January, 1988.
developed in which Roussos alleged that Willie had been in breach of the MOA
because at the time of delivery the vessel was suffering from average damage
affecting class which led to engine breakdown in May, 1987 and January, 1988
(and again after delivery) and which had not been reported to class. Swinnerton
Ashley Claydon ("SAC") were involved in that correspondence as
solicitors to Willie.
March. 12, 1992 HFW telexed SAC to invite Willie to agree on the appointment of
a single arbitrator but in the event on Apr. 3, 1992 HFW appointed Mr. Kazantzis as
Roussos' arbitrator and on Apr. 6, 1992
Mr. Newcomb was appointed as Willie's arbitrator.
May. 20, 1992 HFW telexed Mr. Kazantzis with copies to Mr. Newcomb and SAC
stating inter alia :
refer to our correspondence...appointing you as arbitrator on behalf of G
Roussos Sons SA...
should be grateful if...you would also accept appointment as arbitrator again
in respect of all disputes arising under the...MOA with Charles M Willie and Co
(Shipping) Limited on behalf of Ocean Laser Shipping Ltd.
letter dated May 21,
1992 to Mr. Kazantzis
with copies to HFW and Mr. Newcomb, SAC disputed the validity of the
appointment on behalf of Ocean Laser and stated inter alia that Willie had no
contract and consequently there was no agreement to arbitrate, with Ocean
Laser. SAC's reaction to the appointment by Ocean Laser of Mr. Kazantzis went
On Nov. 5, 1993 Roussos and Ocean Laser served
points of claim on Willie. SAC protested in their letter that - ...neither we
nor our clients had any idea as to the identity of Ocean Laser and...there was
no agreement to arbitrate with that company...no explanation is offered in the
points of claim as to the alleged involvement of Ocean Laser and we can see no
basis at all for this party to be included as a claimant...
responded to that letter by a letter dated Nov. 12, 1993 which stated inter alia :
Memorandum of Agreement states...that G Roussos Sons SA...or company to be
nominated hereafter called the "Buyer" have today bought Motor Vessel
this reason we appointed Mr. Kazantzis as our Clients' Arbitrator both on
behalf of G Roussos Sons SA and on behalf of Ocean Laser Shipping Limited. The
points of Claim further provide that the first claimant i.e. G Roussos Sons SA
on its own behalf and/or on behalf of Ocean Laser Shipping Limited as Buyers
agreed to purchase the vessel...
Rix following the decision in Nea Agrex S.A. vs. Baltic Shipping Co. Ltd.
[(1976) 2 Lloyd's Re. 47] and while pointing out the difference between Section
27(3) of the 1939 Act and Section 34(3) of the 1980 Act on the one hand and the
UNCITRAL Model Law and the English Law, on the other as regard difference in
approach between them insofar as in terms of the English law something more
must be done than to request that the matter be referred to arbitration, held :
shall consider the facts relevant to that submission below. For the moment, I
express the view that even a direct an application of the 1980 Act, and a
fortiori an application by way of analogy, does not exclude the possibility of
showing that arbitration has been commenced by means other than a notice
requiring appointment or agreement of an arbitrator. I asked Mr. Nolan when an
arbitration which no one would dispute was under way had been commenced in the
absence of such a notice. His answer was to say that arbitration had commenced
at latest when the respondent appointed or agreed in the appointment of an
arbitrator; but no because of the Limitation Act, but because the respondent
was then estopped from denying that he had submitted the relevant dispute to
arbitration or from disputing the tribunal's jurisdiction on the ground of the
absence of a Limitation Act notice. For my part, I would prefer a more direct
approach and say that a claimant had commenced arbitration, at any rate in a
two or three arbitrator situation, by appointing his own arbitrator. On the
authority of Tradax Eport S.A. v. Volkswagenwerk A.G.,  1 Lloyd's Rep.
62;  1 Q.B. 537 such appointment requires the consent of the arbitrator
to act as such and in addition notification of his appointment to the
respondent. In my view such notification can be regarded as an implied request
to the respondent to appoint his own arbitrator, just as Lord Denning had said
that "I require the difference between us to be submitted to
arbitration" should be regarded as such a request: indeed the hypothesis
under consideration appears as an a fortiori case. But whether that be so or not,
where the claimant has actually completed the appointment of his own arbitrator
by notifying the respondent party, I do not see why such an appointment should
not be regarded as in every sense a commencement of arbitration.
the 1939 Act the language was "shall be deemed to be commenced" and
under the 1980 Act this phrase had become "shall be treated as being
commenced". I have suggested above that the alteration appears to be an
attempt to get away from a word which had led to a difference of views in Nea Agrex,
but that it is difficult to say what the effect of the change was intended to
be. I am inclined to think that this language still allows an arbitration to be
commenced in other ways. The implication is that the arbitration shall be
treated as being commenced, even if it had not in fact been commenced. In
ordinary language one would not or at least might not regard the mere request
to another party to appoint his arbitrator as marking the commencement of an
arbitration. Hence the need for statutory language making it so. But I do not
see why the appointment of a claimant's arbitrator has to be
"treated" as the commencement of an arbitration, when it is, in my
judgment, simply that. It seems to me, however, that I do not have to decide
the point. But if the view I have just expressed is wrong, then it would to my
mind amply demonstrate why it is necessary to permit what Lord Denning and Lord
Justice Goff called an implied request: a rule for the commencement of
arbitration which could not encompass the notification to a respondent that a
claimant had appointed his own arbitrator would seem to me to be lacking in
realism." Requirement of the law :
of notice is required to be interpreted broadly not only for the purpose of
limitation but also for other purposes [See Allianz Versicherungs AG vs.
Fortuna Co. Inc. - (1999) 2 All ER 625 and Vosnoc Ltd. vs. Transglobal Projects
Ltd. (1998) 1 WLR 101].
Bernstein's Handbook of Arbitration and Dispute Resolution Practice, Fourth
Edition under the heading 'When are arbitral proceedings commenced?' at page
80, it is stated:
Party autonomy and the default provisions: In accordance with the principle of
party autonomy, the parties are free to agree on what is to be regarded as
commencing arbitral proceedings. If there is no such agreement, then there are
specific requirements in the Act. A little more is needed than simply for the
claimant to serve a request for arbitration on the respondent. The relevant
section of the Act is s.14. Its effect is as follows:
Where the tribunal is named or designated in the arbitration agreement, a
written notice by party A to party B requiring the latter to submit to the
named or designated person a particular matter or dispute starts arbitral
proceedings in connection with that matter or dispute.
Where the tribunal is to be appointed by the parties, the arbitral proceedings
in respect of a matter or dispute commence when Party A serves on Party B a
written notice requiring the latter to appoint an arbitrator or agree on the
appointment of an arbitrator in respect of the matter or dispute.
Finally, where the tribunal is to be appointed by a third party, arbitral
proceedings commence in respect of a dispute or matter where Party A or Party B
requests the third party to make an appointment in respect of that dispute or
matter." The learned author referring to the decision of Nea "2-200.
Well prior to the enacting of the Act, the Court of Appeal heard the case of Nea
Agrex v Baltic Shipping (The "Agios Lazaros")  2 Lloyd's Rep.
The notice simply stated "please advise your proposals in order to settle
this matter, or name your arbitrators".
thus offered arbitration as an option, and as it happened the relevant
arbitration clause called for arbitration by a sole arbitrator and not by a
panel of three. By various routs, all three judges concluded that the notice
was a good notice. Effectively, the court looked at the underlying intention of
the party serving the notice.
The "Agios Lazaros" exemplifies the appropriate approach for a court
that is addressing this matter under the Act. It is therefore suggested that it
will continue to be referred to, even though it has been said that in
construing s. 14 reference should only be made to the cases that precede the
Act in situations where the Act does not cover the point, or such reference is
otherwise necessary." The author hoped that Section 14 of the English
Arbitration Act, 1996 has not introduced a more restrictive regime than that which
obtained under the old legislation.
Russell on Arbitration, 22nd edition, page 166, the law is stated in the
Notice of arbitration pursuant to section 14. The "notice" referred
to in section 14(3) to (5) of the Arbitration Act 1996 must be in writing and
its contents must comply with the requirements for commencing arbitration set
out in the subsections. The requirements of section 14 will be interpreted
broadly and flexibly. Prior to the Arbitration Act 1996 there were a number of
cases which addressed the form of notice to be given in order to commence
arbitration for the purposes of section 34(3) of the Limitation Act.
line of authority has been superseded by section 14." 'Commencement of an
arbitration proceeding' and 'commencement of a proceeding before an arbitrator'
are two different expressions and carry different meanings.
notice of arbitration or the commencement of an arbitration may not bear the
same meaning, as different dates may be specified for commencement of
arbitration for different purposes. What matters is the context in which the
expressions are used. A notice of arbitration is the first essential step
towards the making of a default appointment in terms of Chapter II of the
Arbitration Act, 1940. Although at that point of time, no person or group of
persons charged with anyauthority to determine the matters in dispute, it may
not be necessary for us to consider the practical sense of the term as the said
expression has been used for a certain purpose including the purpose of
following statutory procedures required therefor. If the provisions of the 1940
Act applies, the procedure for appointment of an arbitrator would be different
than the procedure required to be followed under the 1996 Act.
regard to the provisions contained in Section 21 of the 1996 Act as also the
common parlance meaning is given to the expression 'commencement of an
arbitration' which admittedly for certain purpose starts with a notice of
arbitration, is required to be interpreted which would be determinative as
regard the procedure under the one Act or the other is required to be followed.
It is only in that limited sense the expression 'commencement of an
arbitration' qua 'a notice of arbitration' assumes significance.
21 vis-`-vis Section 85(2)(a) of 1996 Act :
importance of the expression 'commencement of the arbitration proceeding'
arises having regard to Section 85 of the 1996 Act, which reads thus :
Repeal and saving.-
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.
Notwithstanding such repeal, -
the provisions of the said enactments shall apply in relation to arbitral
proceedings which commenced before this Act came into force unless otherwise
agreed by the parties but this Act shall apply in relation to arbitral
proceedings which commenced on or after this act comes into force;
rules made and notifications published, under the said enactments shall, to the
extent to which they are not repugnant to this Act, be deemed respectively to
have been made or issued under this Act." Sub-section (1) of Section 85 of
the 1996 Act repealed the 1940 Act (10 of 1940). Sub-section (2), however,
notwithstanding such repeal makes the 1940 Act applicable in relation to
arbitral proceedings which commenced before the said Act came into force.
21 of the 1996 Act, as noticed hereinbefore, provides as to when the arbitral
proceedings would be deemed to have commenced. Section 21 although may be
construed to be laying down a provision for the purpose of the said Act but the
same must be given its full effect having regard to the fact that the repeal
and saving clause is also contained therein. Section 21 of the Act must,
therefore, be construed having regard to Section 85(2)(a) of the 1996 Act.
it is so construed, indisputably the service of notice and/or issuance of
request for appointment of an arbitrator in terms of the arbitration agreement
must be held to be determinative of the commencement of the arbitral
laws on the point :
Constructions Co. Pvt. Ltd. vs. Konkan Railway Construction and Another [(1998)
5 SCC 599], it was held :
mere look at sub-section (2)(a) of Section 85 shows that despite the repeal of
Arbitration Act, 1940, the provisions of the said enactment shall be applicable
in relation to arbitration proceedings which have commenced prior to the coming
into force of the new Act.
new Act came into force on 26-1- 1996. The question therefore, arises whether
on that date the arbitration proceedings in the present four suits had
commenced or not. For resolving this controversy we may turn to Section 21 of
the new Act which lays down that unless otherwise agreed to between the
parties, the arbitration suit in respect of arbitration dispute commenced on
the date on which the request for referring the dispute for arbitration is
received by the respondents. Therefore, it must be found out whether the
requests by the petitioner for referring the disputes for arbitration were
moved for consideration of the respondents on and after 26-1-1996 or prior
thereto. If such requests were made prior to that date, then on a conjoint
reading of Section 21 and Section 85(2)(a) of the new Act, it must be held that
these proceedings will be governed by the old Act. As seen from the aforenoted
factual matrix, it at once becomes obvious that the demand for referring the
disputes for arbitration was made by the petitioners in all these cases months
before 26-1-1996, in March and April 1995 and in fact thereafter all the four
arbitration suits were filed on 24-8- 1995. These suits were obviously filed
prior to 26-1-1996 and hence they had to be decided under the old Act of 1940.
preliminary objection, therefore, is answered by holding that these four suits
will be governed by the Arbitration Act, 1940 and that is how the High Court in
the impugned judgments has impliedly treated them." In Thyssen Stahlunion
GMBH (supra), this Court was concerned with the enforcement of a valid award.
Therein it was categorically held :
is not necessary that for the right to accrue that legal proceedings must be pending
when the new Act comes into force. To have the award enforced when arbitral
proceedings commenced under the old Act under that very Act is certainly an
accrued right. Consequences for the parties against whom award is given after
arbitral proceedings have been held under the old Act though given after the
coming into force of the new Act, would be quite grave if it is debarred from
challenging the award under the provisions of the old Act.
of both the Acts is different.
arbitral proceedings commenced under the old Act it would be in the mind of
everybody, i.e., arbitrators and the parties that the award given should not
fall foul of Sections 30 and 32 of the old Act. Nobody at that time could have
thought that Section 30 of the old Act could be substituted by Section 34 of
the new Act..." Having said so, this Court in relation to a foreign award
made in terms of the Foreign Awards Act and the Arbitration (Protocol and
Convention) Act struck a different note, stating :
the Foreign Awards Act does not contain any provision for arbitral proceedings
it is difficult to agree to the argument that in spite of that the
applicability of the Foreign Awards Act is saved by virtue of Section 85(2)(a).
matter of fact if we examine the provisions of the Foreign Awards Act and the
new Act there is not much difference for the enforcement of the foreign award.
Under the Foreign Awards Act when the court is satisfied that the foreign award
is enforceable under that Act the court shall order the award to be filed and
shall proceed to pronounce judgment accordingly and upon the judgment so
pronounced a decree shall follow.
7 and 8 of the Foreign Awards Act respectively prescribe the conditions for
enforcement of a foreign award and the evidence to be produced by the party
applying for its enforcement.
definition of foreign award is the same in both the enactments. Sections 48 and
47 of the new Act correspond to Sections 7 and 8 respectively of the Foreign
Awards Act. While Section 49 of the new Act states that where the court is
satisfied that the foreign award is enforceable under this Chapter (Chapter I,
Part II, relating to New York Convention Awards) the award is deemed to be a
decree of that court. The only difference, therefore, appears to be that while
under the Foreign Awards Act a decree follows, under the new Act the foreign
award is already stamped as the decree. Thus if provisions of the Foreign
Awards Act and the new Act relating to enforcement of the foreign award are
juxtaposed there would appear to be hardly any difference.
a bare reading of the Foreign Awards Act and the Arbitration (Protocol and
Convention) Act, 1937 would show that these two enactments are concerned only
with recognition and enforcement of the foreign awards and do not contain
provisions for the conduct of arbitral proceedings which would, of necessity,
have taken place in a foreign country. The provisions of Section 85(2)(a) in so
far these apply to the Foreign Awards Act and 1937 Act, would appear to be
quite superfluous. Literal interpretation would render Section 85(2)(a)
unworkable. Section 85(2)(a) provides for a dividing line dependent on
"commencement of arbitral proceedings" which expression would
necessarily refer to Section 21 [21. Commencement of arbitral proceedings. -
Unless otherwise agreed by 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."] of the new
Court has relied on this Section as to when arbitral proceedings commence in
the case of Shetty's Construction Co. (P). Ltd. v. Konkan Railway Construction,
1998(5) SCC 599. Section 2(2) [2(2) This Part shall apply where the place of
arbitration is in India.] read with Section 2(7) [2(7) An arbitral award made
under this Part shall be considered as a domestic award.] and Section 21
falling in Part-I of the new Act make it clear that these provisions would
apply when the place of arbitration is in India, i.e., only in domestic
proceedings. There is no corresponding provision anywhere in the new Act with
reference to foreign arbitral proceedings to hold as to what is to be treated
as "date of commencement" in those foreing proceedings. We would,
therefore, hold that on proper construction of Section 85(2)(a) the provision
of this sub-section must be confined to the old Act only. Once having held so
it could be said that Section 6 of the General Clauses Act would come into play
and the foreign award would be enforced under the Foreign Awards Act. But then
it is quite apparent that a different intention does appear that there is no
right that could be said to have been acquired by a party when arbitral
proceedings are held in a place resulting in a foreign award to have that award
enforced under the Foreign Awards Act." [(2001) 6 SCC 356], a distinction
was again made between enforceability of a foreign award and a domestic
arbitration stating Section 85(2)(a) provides for a dividing line dependent on
'commencement of arbitral proceedings' which expression would necessarily refer
to Section 21 of the new Act. This Court noticed the decision in Rani
Again a bare reading of the Foreign Awards Act and the Arbitration (Protocol
and Convention) Act, 1937 would show that these two enactments are concerned
only with recognition and enforcement of the foreign awards and do not contain
provisions for the conduct of arbitral proceedings which would, of necessity,
have taken place in a foreign country. The provisions of Section 85(2)(a)
insofar these apply to the Foreign Awards Act and the 1937 Act, would appear to
be quite superfluous. A literal interpretation would render Section 85(2)(a)
unworkable. Section 85(2)(a) provides for a dividing line dependent on
'commencement of arbitral proceedings' which expression would necessarily refer
to Section 21 of the new Act. This Court has relied on this section as to when
arbitral proceedings commence in the case of Shetty's Constructions Co. (P)
Ltd. v. Konkan Rly. Construction ((1998) 5 SCC 599).
2(2) read with Section 2(7) and Section 21 falling in Part I of the new Act
make it clear that these provisions would apply when the place of arbitration
is in India i.e. only in domestic proceedings. There is no correspondent
provision anywhere in the new Act with reference to foreign arbitral
proceedings to hold as to what is to be treated as 'date of commencement' in
those foreign proceedings. We would, therefore, hold that on a proper
construction of Section 85(2)(a) the provision of this sub- section must be
confined to the old Act only. Once having held so it could be said that Section
6 of the General Clauses Act would come into play and the foreign award would
be enforced under the Foreign Awards Act. But then it is quite apparent that a
different intention does appear that there is no right that could be said to
have been acquired by a party when arbitral proceedings are held in a place
resulting in a foreign award to have that award enforced under the Foreign
Awards Act." Thyssen (supra) is itself an authority for the proposition
that where a foreign award is to be executed which is itself a decree, there
Section 85(2)(a) will have no application whereas it will have in relation to a
domestic arbitration proceedings.
different intention of the Parliament found by the Bench in Thyssen (supra),
evidently has no application in the domestic award although it has application
in relation to a foreign award. Thyssen (supra), therefore, itself is an
authority for the proposition that in relation to a domestic arbitration
proceeding, commencement thereof shall conincide with service of
be true that in Thyssen (supra), this Court held that the parties may consent
to the procedure laid down under the 1996 Act even before the same came into
force but we intend to deal with this aspect of the matter separately.
question was clearly answered by a Bench of this Court in which two of us were
parties in State of West Bengal vs. Amritlal Chatterjee [JT 2003(Supp.1) SC
308] = [(2003) (10) SCC 572]. This Court followed Shetty Construction and held
that Thyssen (supra) has no application stating :
Stahlunion GMBH vs. Steel Authority of India Ltd. (1999) 9 SCC 334) which was
passionately relied upon by the learned Senior Counsel for the appellant, has,
in our view, no application to the facts of the present case. The Bench concluded
: (SCC p.368, para 22)
The provisions of the old Act (Arbitration Act, 1940) shall apply in relation
to arbitral proceedings which have commenced before the coming into force of
the new Act (Arbitration and Conciliation Act, 1996).
phrase 'in relation to arbitral proceedings' cannot be given a narrow meaning
to mean only pendency of the arbitration proceedings before the arbitrator.
would cover not only proceeding pending before the arbitrator but would also
cover the proceedings before the court and any proceedings which are required
to be taken under the old Act for the award becoming a decree under Section 17
thereof and also appeal arising thereunder." There cannot be any doubt
that invoking the arbitration clause by a party and appointment of arbitrator
pursuant thereto and in furtherance thereof are proceedings which are required
to be taken under the 1940 Act. Such steps are necessary in terms of Chapter II
thereof as is evident from the fact that even in terms of sub-section (1) of
Section 20 of the Act, an application thereunder would be maintainable by a person
who does not intend to proceed under chapter II praying for filing of
arbitration agreement in court." Noticing that in Thyssen (supra) this
Court was concerned with the enforcement of a foreign award and despite
noticing paras 41 and 42 thereof that in respect of a foreign award, the
purpose of making an award rule of court i.e. a decree has been dispensed with,
rejecting the contention raised therein that the words "in relation to
arbitral proceedings" which commenced for the purpose of the 1940 Act must
be given the same meaning as contained in Rule 3 of the First Schedule appended
thereto, it was held :
said rule was enacted for a different purpose. The words employed therein are
"entering on the reference". In Hari Shankar Lal vs. Shambhunath Prasad
and Others [(1962) 2 SCR 720 whereupon Mr. Ray rlied upon, a four-judge bench
of this Court held that the words "entering on the reference"
occurring in the said rule are not synonymous with the words "to act"
which are more comprehensive and of a wider import.
of the First Schedule to the 1940 Act imposes a duty on the arbitrators to make
their award within one or other of the three alternative periods mentioned
therein." This Court in Amritlal Chatterjee (supra) categorically held
that Rule 3 of the First Schedule gives a cause of action for removal or
appointment of a new arbitrator in terms of Sections 11 and 12 of the 1940 Act
words "commencement of the arbitration proceedings" have not been
defined in the 1940 Act. They have to be given their ordinary meaning having
regard to the provisions contained in Chapter II thereof.
section 85(2)(a) of the new Act may have to be construed keeping in view the
provisions contained in section 21 of the new Act." Keeping in mind the
aforementioned principle, we may notice the other decisions of this Court cited
at the Bar.
Fertilizer Corporation of India Limited vs. M/s Domestic Engineering
Installation [AIR 1970 Allahabad 31], the Allahabad High Court was concerned with
three different courses open to a court while passing an order under Section
20(4) of the 1940 Act. The question which precisely arose therein was as to
whether the plaintiff could be permitted to contend that the arbitrator named
in the agreement had since then incapacitated himself from acting as an
arbitrator between the parties and that, therefore, the plaintiff had the right
to urge that reference be not made to the arbitrator named in the agreement.
other hand, when a suit is stayed, the parties are required to refer their
disputes in terms of Chapter II of the Act. The procedure, laid down in Chapter
III has, thus, no application in such a case.
Rout (supra), this Court was concerned with award of interest pendente lite
which was not permissible, though interest for the period prior to the
commencement of arbitration proceeding was permissible where the Interest Act,
1978 applied. Drawing an analogy of commencement of legal provisions vis-`-vis
applicability of the provisions of the Interest Act, this Court said for the
said purpose filing of a plaint would be the date on which the suit would be
instituted for the purpose of grant of interest. There is no reason as to why a
different approach shall be applied in an arbitration proceeding. It was held
that as soon as the arbitrator indicates his willingness to act as such, the
proceeding must be held to have commenced.
Sumitomo Heavy Industries Ltd. (supra), this Court was concerned with a case
where the parties to the contract belonged to two different countries.
Considering the applicability of the curial law vis-`-vis the law of the
country governing the arbitration agreement, this Court was called upon to
determine the question as to when a proceeding before the arbitrator commences.
This Court answered the same saying that the proceeding before the arbitrator
commences when he enters upon the reference and conclude with making of the
Chit Fund (P) Ltd. vs. Shiv Narain Mehta (Dead) by Lrs. And Others [(2000) 3
SCC 364], this Court was concerned with the construction of sub-section (5) of
Section 37 of the 1940 Act as in that case no notice was issued to the
respondent by the appellant. It was held that for the purpose of applicability
of sub-section (5) of Section 37 of the Act fictional meaning given to the
phrase "commencement of an arbitration" as contained in sub- section
(3) thereof shall have to be applied. As no notice had been served the court
held that the reference to the arbitration itself was not proper and, thus, the
period of limitation for filing the suit should not be excluded.
of 1940 Act or 1996 Act :
of Arbitration proceeding for the purpose of limitation or otherwise is of
great significance. If a proceeding commences, the same becomes relevant for
many purposes including that of limitation. When the Parliament enacted the
1940 Act, it was not in its contemplation that 46 years later it would re-enact
the same. The Court, therefore, while taking recourse to the interpretative
process must notice the scheme of the concerned legislations for the purpose of
finding out the purport of the expression - 'commencement of arbitration
proceeding'. In terms of Section 37 of the 1940 Act, law of limitation will be
applicable to arbitrators as it applies to proceedings in court. For the
purpose of invoking the doctrine of lis pendens, section 14 of the Limitation
Act, 1963 and for other purposes presentation of plaint would be the date when
a legal proceeding starts. 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
34 of the Arbitration Act, 1940 speaks of power to stay legal proceeding where
there is an arbitration agreement. Before a suit is stayed in terms of Section
34 of the Act the Court must be satisfied that there is no sufficient reason
why the matter should not be referred to arbitration in accordance with the
arbitration agreement and that the applicant was at the time when the
proceedings commenced were and still remains ready and willing to do so for the
proper conduct of the arbitration. The Court, therefore, while passing an order
in terms of Section 34 of the Act must satisfy that there exists a 'dispute'
between the parties within the meaning of the provisions of arbitration
agreement and such dispute should be referred to arbitration in accordance with
the arbitration agreement.
under Section 34 of the 1940 Act, the Court itself does not make a reference to
an arbitrator but the very purposes for which the suit is stayed is that the
parties may take recourse to the provisions contained in the arbitration
agreement. A reference is made to the arbitrator in terms of the arbitration
agreement to make a AIR 1919 Cal 479).
suit is stayed by the Court the other provisions of the Arbitration Act may be
taken recourse to by the Cal 227).
UNCITRAL Model Rules of Arbitration vis-`-vis provision of Section 14 of the
English Arbitration Act, 1996 must be construed having regard to the decisions
of the English Courts as also this Court which addressed the form of notice to
be given in order to commence the arbitration for the purpose of Section 34(3)
of the Limitation Act. By reason of Section 14, merely the form of notice and
strict adherence thereto has become redundant, as now in terms of section 14 of
the Arbitration Act there is otherwise no specific requirement as to the form
of notice subject to any contract operating in the field. [See Paras 5-020,
5-027 and 5-028 of Russel on Arbitration, 22nd Edn.]. Section 21 of the 1996
Act must be construed accordingly. It defines the moment of the commencement of
arbitral proceedings. In the Arbitration and Conciliation Act, 1996 by P. Chandrasekhara
Rao, it is stated :
21 defines the moment of the commencement of arbitral proceedings.
gives freedom to the parties to agree on the date of commencement of arbitral
proceedings. For instance, in the case of arbitration administered by an
arbitration institution, they may agree to abide by the arbitration rules of that
institution for determining the point of time at which the arbitral proceedings
can be said to have commenced. Unless otherwise agreed by 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 3 is relevant on the question as to when a request can
be said to have been received by the respondent. The request made to the
respondent should clearly indicate that the claimant seeks arbitration of the
21 is of direct relevance in connection with the running of periods of
limitation under Section 43 and the savings provision in section
85(2)(a)." Section 85 of the 1996 Act repeals the 1940 Act. Sub- section
(2) of Section 85 provides for a non-obstante 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.
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. On the contrary the decisions of this Court operating in the field
beginning from Shetty Construction (supra) are ad idem to the effect that
Section 21 must be taken recourse to for the purpose of interpretation of
Section 85(2)(a) of the Act. There is no reason, even if two views are possible
to make a departure from the decisions of this Court as referred to
interpreting a judgment this Court must pin point its attention to the ratio
thereof. A court of law must not lose sight of the doctrine of 'stare decisis'.
A view which has been holding the field for a long time should not be disturbed
only because another view is possible.
in view the fact that in all the decisions, referred to hereinbefore, this
Court has applied the meaning given to the expression 'commencement of the
arbitral proceeding' as contained in Section 21 of the 1996 Act for the purpose
of applicability of the 1940 Act having regard to Section 85(2)(a) thereof, we
have no hesitation in holding that in this case also, service of a notice for
appointment of an arbitrator would be the relevant date for the purpose of
commencement of the arbitration proceeding.
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.
matter was referred to arbitration as soon as the notice dated 14.9.1995 was
issued and served on the other side.
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.
necessary that the appellant must be the claimant :
learned Single Judge of the High Court has proceeded on the premise that the
appellant was not a claimant. The parties were ad idem that there had been a
dispute between them. Only as a result of the dispute and on an apprehension
consequent thereupon the suit for injunction was filed. The question is
required to be gone into even in the suit as to which of the parties thereto
was in breach of the contract. Such a dispute necessarily fell within the
purview of the arbitration agreement. The arbitration agreement can be invoked
by a party to a dispute and not only by a person who has a claim against the
law does not say that only a party who has a monetary claim may invoke the
arbitration agreement. The arbitration agreement was invoked by the appellant
by filing an application under Section 34 of the Arbitration Act pursuant
whereto or in furtherance whereof the proceeding of the suit was stayed and the
matter was directed to be referred to the arbitrator.
question as to whether in the facts and circumstances of this case an order for
permanent injunction should be granted or not was itself a dispute within the
meaning of the arbitration agreement. Evidently the stand of the appellant was
that such an injunction should not be granted. The arbitrator, having regard to
the scope and purport of the reference would be entitled to determine the said
dispute. It is, therefore, irrelevant as to whether the appellant had any
monetary claim against the respondent or not. The arbitrators and consequently
the learned Single Judge, therefore, posed a wrong question unto themselves
that no defendant will save limitation for the claimant or the plaintiff and,
thus, misdirected themselves in law.
reference to the two arbitrators nominated by the parties although changed
constitution of the arbitral tribunal but the same, it will bear repetition to
state, would not be indicative of the commencement of the arbitral proceeding
which must be construed having regard to Section 21 of the 1996 Act. Furthermore,
having regard to Section 21 of the 1996 Act, the meaning to the expression
'commencement of the arbitration proceeding' as contained in Section 21 must be
interpreted in the same manner.
of Notice :
Jain had raised a question that the notice dated 14.9.1995 had not been served
before the arbitrators. The appellant in its application for
direction/clarification before the arbitrators, inter alia, contended :
It is submitted that appointment of Ld. Arbitrators as such is in pursuance of
said orders only and, therefore, the disputes referred in August, 1995 as such
have come up for adjudication before Ld.
The Arbitration & Conciliation Act, 1996 came into being w.e.f. 25th January 1996, by which date orders referring
dispute between the parties already stood passed.
is submitted that in view of the said facts and circumstances, it is the
respectful submission of Second Party that while deciding the disputes, the
provisions of Indian Arbitration Act, 1940 alone would be applicable and
proceedings shall not be governed by the provisions of Indian Arbitration &
Conciliation Act, 1996."
The present application has been made by the Second Party at the first
available opportunity before even submitting reply to the copy of statement of
claim, with a view that no prejudice should be caused to any party during the
course of arbitration proceedings." The statements made in paras 10 and 11
had been traversed by the respondent thus :
That the submissions made in para nos.10 and 11 of the petition under reply are
not tenable and have been made to delay the proceedings. The new Act is
applicable as the old one is repealed and only the arbitration proceeding,
which commenced before the coming of the new Act was saved." The
contention of the appellant to the effect that the appointment of the learned
arbitrators had been made in pursuance of the order of the learned Munsif has,
therefore, not been disputed. The majority of the learned Arbitrators held :
notice dated 14.9.1995 was served by the respondent. Not by the claimant.
this notice is worthless. It was a non-starter. The notice contemplated is a
notice by a claimant to the respondent calling upon him to appoint arbitrator
for the settlement of the dispute raised in the notice by the claimant. Why
should a respondent appoint an arbitrator unless the arbitrator calls upon him
to do so? No respondent will be anxious to appoint an arbitrator unless the
claimant first appoints the arbitrator. No defendant will save limitation for a
plaintiff by giving notice unless he himself is a counter-claimant. It is
always the claimant (a plaintiff) who gives notice for appointment of the
arbitrator because he invokes the arbitration clause and has a dispute, unless
the defendant respondent is also a counter claimant.
claimant communicates to the respondent the nature of the dispute he has with
him and seeks resolution by arbitration. The notice contemplated in Section
37(3) is a notice of a claim.
the notice it must be clear that a claim is being made by the claimant against
the respondent. The claim must be set out in the notice in sufficient detail.
So that the respondent knows what is being claimed against him and can prepare
his response. Like a plaint in a suit. We must treat "cause of
arbitration" in the same way as a "cause of action" would be
treated if the proceedings were in a court of law.
notice relied upon the respondent has not enumerated any dispute. And if he has
none why should he appoint an arbitrator unless the claimant calls upon him to
date on which the request for the dispute to be referred to arbitration is
received by the respondent from the claimant is the date on which arbitration
commences in respect of that particular dispute for purposes of Section 37(3)
(See Section 22 and Section 43(2) of the new Act). " 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.
clause - effect of :
inter alia reads :
such arbitration proceedings shall be in accordance with and subject to the
provisions of the Arbitration Act, 1940, or any statutory modification or
re-enactment." In Thyssen (supra), the court held that the parties can
agree to the applicability of the new Act even before the same came into force.
Relevant findings of this Court are :
the case of Thyssen Stahlunion GMBH (CA No. 6036 of 1998) the contract for sale
and purchase of prime cold rolled mild steel sheets in coils contains
arbitration agreement. Relevant Clauses are as under :
12 : LEGAL
This contract shall be governed and construed in accordance with the Laws of
India for the time being in force.
To interpret all commercial terms and abbreviations used herein which have not
been otherwise defined, the rules of "INCOTERMS 1990" shall be
13: SETTLEMENT OF
disputes or differences whatsoever between the parties hereto arising out of or
relating to the construction, meaning or operation or effect of this contract
or the breach thereof shall unless amicably settled between the parties hereto;
be settled by arbitration in accordance with the Rules of Conciliation and
Arbitration of the International Chamber of Commerce (ICC), Paris, France by a
sole Arbitrator appointed by the Chairman of the Arbitral Tribunal of the Court
of Arbitration of ICC and the Award made in pursuance thereof shall be binding
on both the parties. The venue for the arbitration proceedings shall be New Delhi, India." The court proceeded on the basis that such a change
in the procedure before the arbitrator is permissible if the parties agree that
the new Act be applicable to the arbitral proceeding when the same is pending
before the arbitrator.
not concerned in the present case with the situation where the parties agree to
change in the procedure before the arbitrator. In fact, they did not and, as
noticed at the first opportunity, the appellant filed an application for a
direction or clarification that the proceeding under the 1940 Act would apply.
Delhi Transport Corporation (supra), factually it was held :
conduct of the arbitration proceedings and the participation of the parties
therein shows that the parties acted under the 1996 Act. Even the arbitrator
proceeded on that understanding and gave his award in pursuance of the 1996
Act..." The court, thus, proceeded on the basis that such a course was
permissible in terms of sub-clause (d) of clause 25 of the agreement which was
in the following terms :
to as aforesaid, the provision of the Arbitration Act, 1940 or any statutory
modification or re-enactment thereof and the rules made thereunder and for the
time being in force shall apply to the arbitration proceedings under this
clause." It is one thing to say that the parties agree to take recourse to
the procedure of the 1996 Act relying on or on the basis of tenor of the
agreement as regard applicability of the statutory modification or reenactment
of the 1940 Act but it is another thing to say, as has been held by the High
Court, that the same by itself is a pointer to the fact that the appellant had
agreed thereto. If the arbitral proceedings commenced for the purpose of the
applicability of the 1940 Act in September 1995, the question of adopting a
different procedure laid down under the 1996 Act would not arise.
not a case where like Delhi Transport Corporation (supra) limited, the parties
went for arbitration with a clear understanding and belief that the proceedings
were being conducted under the 1996 Act. Therein the appointment of arbitrator
was made under the new Act; the parties participated in the arbitration
proceeding with the understanding and belief that the proceedings are governed
under the 1996 Act. In the award itself the arbitrator noted that "both
parties submitted claims before me under the Arbitration and Conciliation Act,
1996" and he purported to have made its award in terms thereof. In that
situation sub para 3 of para 22 of Thyssen (supra) was held to be applicable.
Shah, J. who was a party in Thyssen (supra) as also Delhi Transport Corporation
(supra) in N.S. Nayak (supra), however, noticed the distinctive features in Thyssen
(supra) and while supplying the requisite emphasis thereon observed :
the part of the arbitration clause which is quoted above also provides that the
provisions of the Arbitration Act, 1940 which were for the time being in force
were to apply to the arbitral proceedings between the parties. It nowhere
provides that once the arbitral proceedings have commenced under the old Act,
they should be conducted under the new Act as soon as the new Act comes into
in the proceedings where the award is passed under the old Act, the remedy of
filing appeal or petition for setting aside the said award would be as per the
provisions of the old Act." It was further observed :
3 only reiterates what is provided in various sections of the Arbitration Act,
which gives option to the parties to opt for the procedure as per their
agreement during the arbitral proceedings before the arbitrator. The phrase
"unless otherwise agreed by the parties" used in various sections,
namely, 17, 21, 23(3), 24(1), 25, 26, 29, 31, 85(2(a) etc. indicates that it is
open to the parties to agree otherwise. During the arbitral proceedings, right
is given to the parties to decide their own procedure.
there is an agreement between the parties with regard to the procedure to be
followed by the arbitrator, the arbitrator is required to follow the said
procedure. Reason being, the arbitrator is appointed on the basis of the
contract between the parties and is required to act as per the contract.
this would not mean that in appeal parties can contend that the appellate
procedure should be as per their agreement. The appellate procedure would be
governed as per the statutory provisions and parties have no right to change
the same. It is also settled law that the right to file an appeal is accrued
right that cannot be taken away unless there is specific provision to the
contrary. There is no such provision in the new Act. In the present cases, the
appeals were pending before the High Court under the provisions of the old Act
and, therefore, appeals are required to be decided on the basis of the
statutory provisions under the said Act. Hence, there is no substance in the
submission made by the learned counsel for the appellant." Referring to
the relevant portion of the discussions in Thyssen (supra), the learned Judge held
aforesaid discussion only deals with the contention that parties could not have
agreed to the application of the new Act till they had the knowledge about the
provisions thereof and, therefore, the agreement to the effect that to the
arbitral proceedings, the provisions of the Arbitration Act, 1940 or any
statutory modification or re- enactment thereof would be applicable, is not
valid. The Court negatived the said contention by interpreting the expression
"unless otherwise agreed".
Court held that such agreement could be entered into even before coming into
force of the new Act. However, it nowhere lays down that in a pending arbitral
proceeding, which was being conducted as per the procedure prescribed under the
old Act, the parties have option of changing the procedure." (emphasis
supplied) In NS Nayak (supra) also having regard to the fact that the
arbitrator was appointed prior to 21.8.1996, the old Act was held to be
the reasons aforementioned, we are of the view that in this case, the 1940 Act
shall apply and not the 1996 Act.
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.
are, however, of the opinion that the High Court of Delhi has rightly held that
the letters patent appeal was not maintainable. Civil Appeal No. 9672 of 2003
is, therefore, allowed and Civil Appeal Nos.9673-74 of 2003 are dismissed.