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2009 DIGILAW 1526 (BOM)

H. Candolkar v. Union of India

2009-11-16

R.M.SAVANT

body2009
ORAL JUDGMENT R.M. Savant, J.- This petition filed under Articles 226 and 227 of the Constitution of India takes exception to the order dated 20.9.2001, passed by the learned Additional Civil Judge, Senior Division, Panaji in Special Execution application No. 36/2000/B, by which order the said application filed by the petitioner came to be dismissed. 2. The factual matrix giving rise to the filing of the above petition is as follows : The petitioner was awarded the contract of 6 Nos. Type-B and 6 Nos. Type C staff quarters at Ratnagiri by the Executive Engineer, Postal Civil Division, Nasik road. The estimated value of the said work was Rs. 33,26,878,47. The said work order came to be issued on 3.10.1992. The respondents herein rescinded the said contract on 21.4.1993 on the ground that the petitioner was not proceeding with the work with due diligence. On such rescission, the petitioner by his letter dated 23.7.1994 raised seven claims totally amounting to Rs.6,61,000/- plus interest at 21% from 21.4.1994. By the said letter the petitioner called upon the Executive Engineer to pay all the amounts within 15 days of the said claim and that on his failure to do so, the disputes or the differences will be considered to have arisen between the parties. By his letter dated 10.8.1994, the Executive Engineer disputed the claim made by the petitioner. The Superintending Engineer in turn, by his letter dated 5.9.1994 claimed compensation of Rs. 2,04.929.30 from the petitioner allegedly under clause 2 of the said contract. The petitioner by his letter of the next date i.e. 6.9.1994 called upon the Executive Engineer to appoint a suitable person to be the sole Arbitrator within a period of 15 days, from the date of receipt of the said letter to refer the matter for adjudication and settlement of the disputes and differences that have arisen between the parties. The said letter of the petitioner was received by the Executive Engineer on 12.9.1994. However, the Executive Engineer failed to appoint an Arbitrator as demanded by the petitioner. Though no action was taken in respect of the appointment of the arbitrator, the petitioner was informed that if the amount is not paid, the same would be recovered from the petitioner's security deposit under clause 25 of the Contract. However, the Executive Engineer failed to appoint an Arbitrator as demanded by the petitioner. Though no action was taken in respect of the appointment of the arbitrator, the petitioner was informed that if the amount is not paid, the same would be recovered from the petitioner's security deposit under clause 25 of the Contract. The petitioner by letter dated 28.9.1994 which was in response of the said letter denied any liability to pay any compensation. 3. The petitioner thereafter filed Special Civil Suit No. 208/1994/A in the Court of the Civil Judge, Division, Panaji under Section 8 r /w Section 20 of the Arbitration Act, 1940. This was done by the petitioner on 18.11.1994. In the said suit an order came to be passed on 30.8.1997 whereby the plaint was ordered to be returned to the petitioner for presentation in the proper Court. In terms of the said permission granted, the petitioner represented the plaint on 29.9.1997 in the Court of the Civil Judge. Senior Division, Ratnagiri and the said suit came to be registered as Civil Suit No. 213/1997. In the said suit, an order came to be passed on 15.10.1998 by the learned Civil Judge, Senior Division appointing one Shri G.R. Karandikar, retired Superintending Engineer, Irrigation Department, Goa as the Sole Arbitrator to decide the dispute between the parties. On 7.7.1999, the respondent No. 1 herein under which the postal department functions filed an application challenging the jurisdiction of the Arbitrator to enter upon the reference. The said objection was withdrawn on 30.7.1999 and the respondent No. 1 submitted to the jurisdiction of the said Arbitrator and participated in the said arbitral proceedings. The said Sole Arbitrator Shri Karandikar passed his award on 15.11.1999 for a sum of Rs. 6,32,320/- with interest thereon at 18% per annum from 21.4.1993 till payment. The petitioner thereafter in terms of the Arbitration Act 1940, applied to the Court at Ratnagiri for making the award, the Rule of the Court. The Ratnagiri Court on 22.5.2000, passed a decree making the award, the Rule of the Court. The respondents thereafter on 8.8.2000 paid an amount of Rs. 13,80,083/- towards the amount due under the said Award. Under the said Award the actual amount due was Rs. 15,77,917/- as per the petitioner. The Ratnagiri Court on 22.5.2000, passed a decree making the award, the Rule of the Court. The respondents thereafter on 8.8.2000 paid an amount of Rs. 13,80,083/- towards the amount due under the said Award. Under the said Award the actual amount due was Rs. 15,77,917/- as per the petitioner. Since the decree was not satisfied fully, the petitioner applied to the Ratnagiri Court to transfer the decree to the Panaji Court, so that the balance of the amount could be recovered by the petitioner by following the procedure as laid down under Order 21 of the Civil Procedure Code by attachment and sale of the immoveable properties of the Assistant Engineer, Postal Civil Sub Division, Porvorim. The Ratnagiri Court passed an order on 25.7.2000 transferring the decree to the Panaji Court for execution. The petitioner thereafter, filed an application on 17.10.2000 being special Execution application No. 36/2000/B in Panaji Court for execution of the remaining part of the decree. The respondents herein filed reply on 10.7.2001 objecting to the Execution application. The principle, ground on which the execution was objected to by the respondents was that the appointment of the Arbitrator by the Ratnagiri Court was without jurisdiction in terms of the new Act and therefore, the decree passed by the Ratnagiri Court making the award of the Arbitrator the rule of the Court was a nullity. 4. The said Execution application came up for consideration before the Executing Court. The Executing Court proceeded on the admitted facts. The Executing Court has observed that the date of commencement of Arbitration proceedings was 6.9.1994 i.e. the date on which the petitioner had called upon the judgment debtor to refer the dispute to arbitration, the date of appointment of Arbitrator being 15.10.1998, the date of the award of the Arbitrator being 15.11.1998 and the date of the decree being 22.5.2000. The Executing Court has observed that the date of commencement of Arbitration proceedings was 6.9.1994 i.e. the date on which the petitioner had called upon the judgment debtor to refer the dispute to arbitration, the date of appointment of Arbitrator being 15.10.1998, the date of the award of the Arbitrator being 15.11.1998 and the date of the decree being 22.5.2000. However, in view of the Clause 25 of the agreement between the parties which inter alia provides that the provisions of Arbitration Act 1940 or any statutory modification or a re-enactment thereof or the rules made thereunder and for the time being in force shall apply to the arbitration proceedings that would be initiated under clause 25 of the agreement and since the arbitration and Conciliation Act 1996 came into force from 24.1.1996, the Executing Court held that in terms of the Arbitration agreement between the parties, the provisions of the new Act shall apply to the arbitration proceedings. The Executing Court further held that in view of the agreement between the parties, the proceedings ought to have continued under a the new Act and therefore, the award and the decree made under the old Act that had already been repealed was a nullity. 5. The Executing Court relied upon the judgment of this Court in the case of Reshma Construction v. State of Goa, 1998 (1) Goa Law Times 311 and the judgment of the Apex Court in 1999 (9) Supreme Court Cases 334 in the matter of Thyssen Stahlunion GMBH v. Steel Authority of India Ltd. Relying upon the aforesaid judgments, the Executing Court held that the award and the decree passed under the Old Act was a nullity, in view of the agreement between the parties as contained in clause 25 of the said agreement. The Executing Court therefore, held that the decree passed being a nullity, the same could not be enforced by the Court. The Executing Court therefore, dismissed the said execution proceedings. 6. The question that arises, is whether the arbitration proceedings which commenced under the Old Act can be culminated under the said Act or resort is to be had, to the Arbitration and Conciliation Act 1996 i.e. the new Act. The Executing Court therefore, dismissed the said execution proceedings. 6. The question that arises, is whether the arbitration proceedings which commenced under the Old Act can be culminated under the said Act or resort is to be had, to the Arbitration and Conciliation Act 1996 i.e. the new Act. The Executing Court on the basis of the judgment of this Court in Reshma Construction and Thyssen Stahl union GMBH (supra) held that since the appointment of the arbitrator was made and the award and decree was passed under the Old Act which has already been repealed and in view of the agreement between the parties, the proceedings ought to have continued under the new Act, in view of clause 25 and therefore, the award and the decree passed are a nullity and cannot be enforced. 7. I have heard the learned Counsel for the parties. Shri Ramani for the petitioner and Shri Ferreira, learned Assistant Solicitor General for the respondent No.1. 8. On behalf of the petitioner, it was submitted by learned Counsel Shri Ramani that the issue as to when the arbitration proceedings are said to have commenced and if commenced under the Old Act, whether they could be continued under the Old Act, even if after the new Act, has come into force is no more res integra and is covered by the judgment of the Apex Court reported in 2004 (7) Supreme Court Cases 288 in the matter of Milkfood Ltd. v. GMC Ice Cream (P) Ltd. It is further submitted by the learned Counsel Shri Ramani that the judgment in Thyssen Stahlunion's case (supra) has been considered by the Apex Court in the case of Milkfood Ltd. The learned Counsel submitted that though there was a dissenting note by one of the learned Judges who constituted the bench. the majority view on consideration of the legal position was that if the arbitration proceedings have been commenced under the Old Act, then they could be culminated under the said Old Act, even if after the new Act has come into force. Relying upon the said judgment, it is the submission of Shri Ramani, that the issue in the petition is covered by the said judgment. On behalf of the respondents the learned Assistant Solicitor a General did not seriously dispute the said position. 9. Relying upon the said judgment, it is the submission of Shri Ramani, that the issue in the petition is covered by the said judgment. On behalf of the respondents the learned Assistant Solicitor a General did not seriously dispute the said position. 9. It would therefore be relevant to consider the facts in the case of Milkfood Ltd. (supra). In the said case of Milkfood Ltd. the arbitration clause was in similar terms as clauses 25 in the instant case. The said clause reads as follows : "In 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 of 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 proceeding, to two arbitrators, one to be appointed by either party and in case of disagreement between the two arbitrators aforesaid and insofar 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. 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." 10. In terms of the said arbitration clause, a notice was sent by the appellant i.e. Milkfood Ltd. on 14.9.1995 to the first respondent and its Managing Director appointing Shri H.L. Agarwal, the former Chief Justice of Orissa High Court as its arbitrator. It was further stated in the said notice that if the respondents intend to agree to appoint Shri Agarwal as the Arbitrator, to settle the dispute, they may give their consent forthwith, failing which they may also appoint their arbitrator in terms of clause 20 of the agreement so that the dispute be settled at the earliest. It appears that the matter regarding the appointment of the Arbitrator in the said case ultimately reached the High Court of Delhi before whom the parties agreed to the appointment of three arbitrators. The arbitration thereafter commenced. It appears that the matter regarding the appointment of the Arbitrator in the said case ultimately reached the High Court of Delhi before whom the parties agreed to the appointment of three arbitrators. The arbitration thereafter commenced. The appellant Milkfood Ltd. having found that the learned arbitrators were proceeding under the 1996 Act filed an application seeking directions and clarifications raising a contention that the provisions of 1940 Act were applicable. The matter was heard by the learned Arbitrators and by order dated 6.4.1998. the majority of the Arbitrators held that 1996 Act would apply as the consent order dated 6.5.1997 passed by the High Court was the beginning of the arbitral proceedings. However, one of the arbitrators dissented from the same who held that according to him arbitration proceedings commenced from 14.9.1995 when the notice was given by Milkfood Ltd. appointing Shri Agarwal as its nominee. The said decision of the said majority of the arbitrators was challenged by the appellant Milk food before a learned Single Judge of the Delhi High Court. The learned Single Judge held that the notice dated 14.9.1995 cannot be constructed as a notice calling upon to a commence arbitration proceedings and that logically it has to be concluded that arbitration proceedings begin when the disputes are referred for arbitration on 6.5.1997. The parties would therefore, have to be governed by the provisions of the 1996 Act. Aggrieved by the order passed by the learned Single Judge, Milkfood Ltd. filed an appeal which was placed before a Five Judge Bench of the Delhi High Court, which was dismissed. The matter was thereafter carried to the Apex Court. The principal submission before the Apex Court on behalf of the appellant Milkfood Ltd., was that having regard to the fact that the notice appointing arbitrator had been served upon the respondent on 14.9.1995 in the terms whereof the arbitration proceedings commenced and therefore, the 1940 Act would be applicable. The said submission was advanced referring to Sections 21 and 85 of the 1996 Act wherein the expressions "initiation of the arbitral proceedings" and "commencement of the arbitration proceedings" find a place. 11. The said submission was advanced referring to Sections 21 and 85 of the 1996 Act wherein the expressions "initiation of the arbitral proceedings" and "commencement of the arbitration proceedings" find a place. 11. On the other hand, the submission on behalf of the respondent in the said case was that since the proceedings commence 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 proceedings. It was further contended on behalf of the respondent that since 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. Reliance was sought to be placed by the respondent on the judgment of Thyssen Stahlunion's case (supra) amongst other judgments. 12. The Apex Court considered the provisions of Section 21 of the 1996 Act and has held that both for the purpose of applying the provisions of 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. The Apex Court has further observed that Section 21 of the 1996 Act, as noticed provides as to when the arbitral proceedings would be deemed to have commenced. The Apex Court has observed that although Section 21 of the Act 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 as once 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 proceeding. Section 21 of the Act must, therefore. be construed having regard to Section 85(2)(a) of the 1996 Act as once 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 proceeding. The Apex Court thereafter considering the judgment in Thyseen Stahluniion's case (supra) held that Thyssen itself is an authority for the proposition that in relation to a domestic arbitration proceeding, commencement thereof shall coincide with service of request/notice of appointment of arbitrator. The Apex Court thereafter on consideration of the statutory provisions and the decisions which were cited before it has concluded in paragraph 72 as under : "Keeping in view the fact that in all the decisions, referred to herein before. 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." 13. Paragraph 86 of the said judgment is also material and is reproduced herein as under : "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 agreement as regards applicability of the statutory modification or re-enactment 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." 14. The Apex Court concluded by issuing directions as contained in paragraph 90, in the light of the factual position that was prevailing in that case, wherein Arbitrators had proceeded under the New Act and only the award was remaining to be passed in the said case. The Apex Court concluded by issuing directions as contained in paragraph 90, in the light of the factual position that was prevailing in that case, wherein Arbitrators had proceeded under the New Act and only the award was remaining to be passed in the said case. The Court in the said factual situation observed that there was no need to re-open the entire arbitral proceedings and the arbitrators may proceed to give their award. However, the Apex Court directed that the award shall be filed in the Court having jurisdiction where after the parties may proceed in terms of the Old Act. Thus the Apex Court directed that the culmination of the proceedings would be under the Old Act as also the proceedings that would lie thereafter. 15. In the instant case, it is undisputed that the notice was given by the petitioner on 6.9.1994 invoking the arbitration clause. Applying the law down by the Apex Court in Milkfood Ltd. (supra) that would be the date which would have to be considered as the date for commencement of the arbitration proceedings, in terms of the law laid down by the Apex Court, the proceedings therefore, would have to culminate a under the Old Act as also the proceedings which have to be filed thereunder. The finding of the Executing Court therefore, that the parties should have thereafter changed course and proceeded under the new Act and the proceedings continued under the Old Act are therefore, null and void, in the teeth of the judgment of the Apex Court in Milkfood's case (supra) is unsustainable. The said notice dated 6.9.1994 had been given by the petitioner much prior to coming into force of the 1996 Act and therefore as held by the Apex Court, the said date would be the date which will have to be held as the date for the purpose of commencement of the arbitration proceedings. In the said circumstances, the declaration of the award by the arbitrators, and making the said award a decree of the Court cannot be said to be illegal as held by the Executing Court and therefore the decree passed is valid and enforceable. 16. In the said circumstances, the declaration of the award by the arbitrators, and making the said award a decree of the Court cannot be said to be illegal as held by the Executing Court and therefore the decree passed is valid and enforceable. 16. Another aspect that requires to be considered is that the respondent herein had withdrawn its application objecting to the appointment of the arbitrator and had therefore submitted to the jurisdiction of the said arbitrator and thereafter participated in the proceedings before the said arbitrator. It would also be pertinent to note that the decree substantially has been satisfied as the petitioner was allowed to withdraw the amount of Rs. 13,80,038/-, which was deposited by the respondent in the Executing Court. The execution proceedings have been filed only to recover the balance amount of Rs. 1,97,879/-. In my view, the said aforesaid facts also cannot be lost sight of by this Court. However, in the light of the judgment of the Apex Court, in Milkfood Ltd. (supra), in my view, the issue as regards the date when the proceedings for arbitration are deemed to have been commenced is concluded. The impugned order dated 20.9.2001 is therefore quashed and set aside. The petition is accordingly allowed by making the Rule absolute in terms of prayer clause (a). Parties to bear their respective costs. Petition allowed.