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2005 DIGILAW 3068 (RAJ)

State of Rajasthan v. Navbharat Buildcone Private Limited

2005-11-21

PRAKASH TATIA

body2005
Judgment 1. At the request of the learned Counsel for the parties, all the appeals have been heard finally and decided by this common Judgment . 2. In these four appeals, the only question involved is that whether in the facts of the case, the proceedings would be governed by the provision of the Arbitration and Conciliation Act, 1996 (for short “the Act of 1996”). or the Arbitration Act, 1940 (for short “the Act of 1940”). The purpose would be served by narrating facts of S.B. Civil Misc. Appeal No. 796/2003 because the dispute arose between the parties before coming into force of the Act of 1996 and at the time when the Act of 1940 was in force. The Arbitrator was appointed by the order of the Court under the provisions of the Act of 1940. The award was passed after coming into force of the Act of 1996. In all the four cases, the Arbitrator submitted the award before the District Court, upon which all the cases were registered and both the parties suo motu appeared before the civil Court. The Contractor-respondent submitted an application before the Court of District Judge under Section 14(2) of the Act of 1940 with a prayer that the award passed by the Arbitrator may be made rule of the Court. The appellant-State submitted objection before the District Judge against making the award rule of the Court raising several objections. At this stage the Contractor submitted an application under Sections 34 and 36 of the Act of 1996 stating between that since the award was passed after coming into force of the Act of 1996 and the Act of 1940 has been repealed, therefore, the proceedings shall be governed by the provisions of the Act of 1996. Therefore, there is no need of making the award rule of the Court and that the award itself is executable. The respondent-Contractor prayed that warrant for recovery of the amount may be issued instead of making the award rule of the Court. This application of the Contractor-respondent was opposed by the appellant-State by filing reply with a plea that the proceedings shall be governed by the Act of 1940 and not by the Act of 1996. The respondent-Contractor prayed that warrant for recovery of the amount may be issued instead of making the award rule of the Court. This application of the Contractor-respondent was opposed by the appellant-State by filing reply with a plea that the proceedings shall be governed by the Act of 1940 and not by the Act of 1996. The learned District Judge after hearing arguments and after considering various Judgment s, by separate orders dated 26.05.2003 held that the proceedings shall be governed by the new Act, i.e., Arbitration and Conciliation Act, 1996 and not by the Arbitration Act, 1940. The Court below also held that no ground is made out for setting aside of the award under Section 34(2) of the Act of 1996. The learned District Judge also held that since the proceedings are governed by the Act of 1996, therefore, the award became executable on its making by the Arbitrator. Against this impugned orders of the civil Court dated 26.05.2003, the appellant-State preferred these appeals. 3. According to the learned Counsel for the appellant-State, it is clear from the facts of the case (S.B. Civil Misc. Appeal No. 796/2003) that application for appointing Arbitrator was submitted under the Act of 1940 on 04.08.1988. The learned District Judge appointed the Arbitrator by order dated 010.1990 who was subsequently changed by the order dated 310.1995 and the present Arbitrator was appointed. The present Arbitrator passed four awards on 15.03.2001 of Rs. 1,05,35,263/-, Rs. 1,01,95,668/-, Rs. 1,08,92,385/-and of Rs. 72,16,269/-. The respondent-Contractor himself submitted applications under Section 14(2) of the Act of 1940 for making award rule of the Court and it was never the case of the respondent-Contractor, either before the Arbitrator or even before the civil Court that the proceedings shall be governed by the Act of 1996. Not only this, the Contractor himself tried to obtain the order from the Court for making the award rule of the Court and when the objections were filed by the appellant-State, in reply only, it is stated that the award itself is executable under the Act of 1996. The learned Counsel for the appellant relied upon Judgment s of the Honble Supreme Court delivered in the cases of Milkfood Limited vs. G.M.C Ice Cream (P) Ltd., 2004 (7) SCC 288 , U.P. State Sugar Corporation Ltd. vs. Jain Construction Co. & Anr., 2004 (7) SCC 332 ;; Neeraj Nunjal & Ors. The learned Counsel for the appellant relied upon Judgment s of the Honble Supreme Court delivered in the cases of Milkfood Limited vs. G.M.C Ice Cream (P) Ltd., 2004 (7) SCC 288 , U.P. State Sugar Corporation Ltd. vs. Jain Construction Co. & Anr., 2004 (7) SCC 332 ;; Neeraj Nunjal & Ors. (III) vs. Atul Grover & Anr. 2005 (5) SCC 404 , in which the earlier decision of the Honble Supreme Court delivered in the case of Thyssen Stahlunion G.M.B.H vs. Steel Authority of India Ltd., reported in 1999 (9) SCC 334 , was considered and according to the learned Counsel for the appellant, the arbitration proceedings once commenced under the provisions of the Act of 1940, can be decided only under the provisions of the Act of 1940 as the Act of 1940 has been saved by Section 85(2)(a) of the Act of 1996 for this purpose only. It is also submitted that same condition No. 23 relied upon by the Contractor, was the condition for consideration in the cases decided by the Honble Apex Court, wherein Honble the Apex Court held that agreement providing for being governed by the new enactment is a valid condition but at the same time after interpreting Section 85(2)(a) held that once the proceedings commenced under the Act of 1940, it will not be governed automatically by the Act of 1996. It is also submitted that the award once passed under the old Act, can be enforced under the old act and in the same way, can be made enforceable under the old Act and in this case, the award was passed under the old Act which is clear from the Act of the parties as well as by the fact that the Arbitrator himself submitted the award in the civil Court, obviously for making the award rule of the Court under the provisions of the Act of 1940. 4. The learned Counsel for the appellant also tried to assail the impugned orders on merit and also challenged the award of interest but they are not relevant before it is decided whether the proceedings are governed by the Act of 1940 or the Act of 1996. 5. Mr. 4. The learned Counsel for the appellant also tried to assail the impugned orders on merit and also challenged the award of interest but they are not relevant before it is decided whether the proceedings are governed by the Act of 1940 or the Act of 1996. 5. Mr. Mool Chand Luhadia, party in person, appearing on behalf of the respondent vehemently submitted that in view of the decision given by the Honble Apex Court delivered in the case of Thyssen Stahlunion GMBH (Supra), the condition No. 23 in the agreement for application of the new enactment is a valid and binding condition and that binds the parties to the agreement. By this condition, both the parties gave their consent for application of the Act of 1996 though before the Act of 1996 came into force. It is aslo submitted that even if the respondent submitted application for making the award rule of the Court before the civil Court, that does not mean that by this act of the respondent, that act will apply which in fact, legally cannot be applied for the arbitration proceedings. 6. Respondent relied upon the Judgment of the Honble Supreme Court delivered in the case of Thyssen Stahlunion GMBH (Supra), as well as the Judgment s delivered in the cases of State of U.P. vs. Harish Chandra & Co. 1998 (2) Arb.L.R. 716 and the Judgment of the Calcutta High Court delivered in the case of Anil Kumar Banerjee vs. Indian Oil Corporation 2005 (3) Arb.LR 155 (Cal.) DB and decision of this Court delivered in the case of Alim & Co. vs. The State of Rajasthan 1998 (Suppl) Arb.LR 67, in support of his pleas and submitted that in above cases, the High Courts held that the Act of 1996 will apply in fact circumstances which are also the fact situation in these cases. It is also submitted that the rate of interest cannot be reduced by the Court when the Arbitrator has passed the award for interest. The learned Counsel for the respondent also relied upon number of Judgment s of the Delhi High Court, namely, (1) Sukumar Chand Jain vs. Delhi Development Authority & Anr., 2003 (1) Arb. LR 174 (Del.) (2) Housing and Urban Development Corporation vs. D.S.A. Engineers Bombay & Ors., 2002 (1) Arb. The learned Counsel for the respondent also relied upon number of Judgment s of the Delhi High Court, namely, (1) Sukumar Chand Jain vs. Delhi Development Authority & Anr., 2003 (1) Arb. LR 174 (Del.) (2) Housing and Urban Development Corporation vs. D.S.A. Engineers Bombay & Ors., 2002 (1) Arb. LR 384 (Del.) (3) B.K. Vashisth vs. East International Ltd. & Anr., 2002 (1) Arb.LR 392 (Del.) and the Judgment of the Honble Supreme Court reported in the case of Delhi Transport Corporation Ltd. vs. Rose Advertising, 2003 (2) Arb.LR 1 SC. 7. I considered the arguments of the learned Counsel for the parties and perused the facts of the case. 8. The issue which is involved in these appeals was also the issue involved in the appeals of S.B. Civil Misc. Appeal No. 1124/2005, State of Rajasthan through District Collector, Banswara & Anr. vs. M/s & Company and connected appeal decided by me by Judgment dated 210.2005. After considering the earlier Judgment s on issue, this Court held that inspite of condition being governed by any new enactment for arbitral proceedings, the parties may agree for applicability of the Act of 1996 but despite the condition 23, the Act of 1996 cannot be made applicable unless the parties cautiously agree during arbitral proceedings for applicability of the Act of 1996 where the arbitral proceedings have already been commenced when the Act of 1940 was in force. Neither the condition 23 provides that the arbitral proceedings initiated under the Act of 1940 shall automatically be governed by the new enactment. It provides only for initiation of the proceedings which may be under the Act which is prevailing at the time of accrual of the cause of action. Once the proceedings commenced under the statutory provisions in force, the proceedings have been saved by Section 85(2)(a) of the Act of 1996 with specific provision of applicability of the Act of 1940 for the proceedings which have commenced before coming into force of the Act of 1996. Honble the Apex Court, in the case of N.S. Nayak & Sons. vs. State of Goa, 2003 (6) SCC 56 in Para No. 8 held that 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 operation. Honble the Apex Court, in the case of N.S. Nayak & Sons. vs. State of Goa, 2003 (6) SCC 56 in Para No. 8 held that 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 operation. Honble the Apex Court also held that when the award is passed under the old Act, the remedy of filing appeal or petition will be governed by the Act of 1940 and further the award can be enforced only under the old Act. The agreement between the parties referred above cannot be stressed to mean that the proceedings which were continued under the Act of 1940 shall with the coming into force of the Act of 1996 shall be governed by the Act of 1996 automatically and without consent of the parties. 9. In view of the detailed reasons given in the case of State of Rajasthan vs. M/s Chandi & Company (Supra), it is held that the Court below was wrong in holding that the Act of 1996 would govern the proceedings and consequently, committed serious error of law in considering objections of the appellant under the Act of 1996. 10. Consequently, all the appeals are allowed. The impugned orders dated 26.05.2003 passed by the learned Additional District Judge, Dungarpur are set aside. Since, the Court below held that no case is made out by the appellant-State for setting aside the award under Section 34(2) of the Act of 1996, which is found to be wrong, therefore, the matter is remanded back to the Court below for deciding objection on merit. Both the parties are directed to remain present before the Court below on 112.2005.