Bombay High Court

The Bombay Gas Co. Ltd. vs Parmeshwar Mittal & Others on 1

August, 1997

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 :---

"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, 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."

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 as per the Arbitration and Conciliation Act, 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 foot 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 to
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 in view 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, counsel for the respondents, the
operation of this order is stayed for a period of four weeks.