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2010 DIGILAW 220 (JK)

Sood and Sood v. Union of India (UOI)

2010-04-23

SUNIL HALI

body2010
ORDER Sunil Hali, J. 1. Construction of OTM accommodation at Kupwara, Srinagar was allotted to the Petitioner vide agreement CA No. CESZ-6/89-90. Due to the militancy in Kashmir valley, there was delay in execution of work as a result of which, the said contract was cancelled vide letter No. 180258/159/E8 dt. 15th of Jan 1991. On account of this cancellation of the contract, dispute was raised by the Petitioner by invoking Clause 70 of IAFW-2249. Having failed to persuade the Respondents to refer the matter to the arbitrator, Petitioner sought intervention of this Court by filing a petition under Section 20 of the J. & K. Arbitration Act, Svt. 2002, bearing AA No. 89/92. 2. On notice being issued by this Court, objections were filed by the Respondents to the above petition filed by the Petitioner. It was contended in the objections that the recovery against the Petitioner was raised on account of his failure to execute the work allotted to him. The claim raised by the Petitioner was denied by the Respondents. 3. It be noted that on 17th of Nov. 1995, counsel for the Respondents made a statement that some arbitrator has been appointed by the department in terms of the agreement. Vide order dt. 9th of Dec. 1998, this Court observed that the Respondents had not taken the Court into confidence as to whether the arbitrator has been appointed or not. It was only on 19th of May 1999, that the then learned Counsel appearing for Respondents filed a communication dated 24th of April 1999, informing the Court that arbitrator has been appointed. 4. Vide order dt. 2nd of June 1999, this Court while disposing of the petition under Section 20, referred to above, observed that the Respondents could during the pendency of the proceedings before the Court appoint an arbitrator under the agreement. Regarding the plea of the Petitioner that the matter was to be dealt with under the old Act, the Court left the same to be decided by the arbitrator. The arbitrator on entering into reference passed an award against the Petitioner on 9th of Nov. 2001, and vide communication impugned dt. 6th Dec. 2001, Petitioner was directed to deposit an amount of Rs. 13,84,913.35 along with 10% interest up-to the date of payment in Govt. Treasury by 15th of Jan 2002. The arbitrator on entering into reference passed an award against the Petitioner on 9th of Nov. 2001, and vide communication impugned dt. 6th Dec. 2001, Petitioner was directed to deposit an amount of Rs. 13,84,913.35 along with 10% interest up-to the date of payment in Govt. Treasury by 15th of Jan 2002. It is this communication issued by the Respondents which is being challenged in the present petition under Section 34 of the Jammu and Kashmir Arbitration and Conciliation Act, 1997 (hereininafter referred to as the new Act) read with Sections 30 and 33 of the J. & K. Arbitration Act, Svt. 2002 (hereinafter called the old Act). 5. The main ground taken in this petition is that the arbitral proceedings were initiated in the year 1992, when petition under Section 20 of the old Act was filed before this Court and, as such, the award was to be made in accordance with the provisions of the old Act. It is contended that the procedure for making award rule of the Court had to be done under the old Act which provides that notice under Section 14 of the said Act had to be issued to the parties. In nutshell, the contention of the Petitioner is that in order to execute the award as a decree, the procedure envisaged under the old Act regarding issuance of notice in terms of Section 14, has not been adopted in the present case, and therefore, the award is not capable of being executed. 6. On the other hand, the stand of the Respondents is that in terms of the reference made by this Court, the arbitrator was required to determine under which Act, the proceedings would be initiated. It is stated that no plea was taken by the Petitioner before the arbitrator that the proceedings have to be taken under the old Act. Other objection raised by the Respondents is that the arbitrator was appointed in the year 1999, by invoking the provisions of the agreement and not by the intervention of the Court, and as such, the new Act would apply. In nutshell, the objection raised is that the date of reference to the arbitrator would be relevant to determine the question as to which Act would apply. 7. I have heard learned Counsel for the parties and perused the record. 8. In nutshell, the objection raised is that the date of reference to the arbitrator would be relevant to determine the question as to which Act would apply. 7. I have heard learned Counsel for the parties and perused the record. 8. In order to understand the controversy raised in this petition, the expression "initiation of arbitration proceedings" is required to be interpreted. Section 21 of the new Act defines when the arbitral proceedings are said to be initiated. The date of request for dispute to be referred to the arbitrator will be an indicator to the fact that the arbitral proceedings have been commenced. 9. Under the old Act, the arbitration proceedings may be initiated with the intervention of the Court or without intervention. When the proceedings are initiated without the intervention of the Court, Section 8 of Chapter II thereof would apply. Section 8 of the said Act contemplates three situations: (i) Where the consent of both the parties is required for appointment of an arbitrator and the consent has not been arrived at; (ii) Where on account of the arbitrator or umpire refusing to act or dies, the parties to the arbitrator do not supply the vacancy; and (iii) Where the parties or the arbitrators are required to appoint the umpire and do not appoint him. 10. In that eventuality, on application being filed before the Court, the Court may appoint the arbitrator or umpire, as the case may be. The direction of the Court appointing such an arbitrator would be construed to be an appointment with the consent of the parties. Filing of an application before the Court has to be preceded by a notice by any of the party to the other party to concur with the appointment or appointments or in supplying the vacancy. The notice for appointing an arbitrator is contemplated by Section 8 of the old Act. 11. Under Section 20, which forms Chapter III of the old Act, any one of the parties to the agreement may instead of proceeding under Chapter II, file a petition under Section 20 for directing the other party to file agreement in the Court and on sufficient cause being shown, make a reference to the arbitrator appointed by the parties, or, where the parties cannot agree, appoint an arbitrator by the Court. 12. 12. The import of the provisions, noticed above, clearly reveals that how the arbitral proceedings are stated to be initiated/commenced. Under the new Act, once a request is made for reference to the arbitrator, the proceedings are deemed to be initiated. Under the old Act, there are two methods of seeking reference to the arbitrator; one under Section 20 and other under Section 8. Section 8 of the old Act, as indicated above, contemplates issuance of a notice by a party desirous of referring the matter to the arbitrator whereas Section 20 contemplates that once petition is filed under the said Section, a notice is required to be sent to the Respondent to show cause why the arbitration agreement may not be filed. The old Act does not contemplate serving of a notice, independent of what has been contemplated under Sections 8 and 20 of the Act. 13. The service of notice has to be under-stood in the context of aforementioned provisions as they alone cover the matter when reference is sought to the arbitrator. In the present case, petition under Section 20 of the old Act was filed in the year 1992. A notice under Sub-section (3) of Section 20 of the said Act, was issued to the Respondents for filing agreement in the Court. During the pendency of the proceedings before the Court, the Respondents appointed an arbitrator in the year 1999 by invoking the provisions of the Agreement. The question that arises for determination is as to whether it is the date of filing of the petition under Section 20 or the date on which reference has been made to the arbitrator that would determine as to which of the Act would apply. 14. The question that arises for determination is as to whether it is the date of filing of the petition under Section 20 or the date on which reference has been made to the arbitrator that would determine as to which of the Act would apply. 14. Contention of the learned Counsel for the Petitioner in this regard can be summarized as follows: (a) that petition under Section 20 stood filed in this Court under the old Act, which would be construed as a notice for making reference to the arbitrator on account of dispute having been arisen; (b) that the date on which arbitrator has been appointed, would not be relevant for the purposes of commencement of arbitral proceedings and it would always be from the date when the notice has been served on the other party; (c) that appointment of an arbitrator by the Respondents in the year 1999 would not be construed as the date on which arbitral proceedings have been initiated but only be a step towards the appointment of an arbitrator under the old Act by filing petition under Section 20; (d) That since the arbitral proceedings were initiated under the old Act, the award has to be enforced by invoking the provisions of the said Act and not the new Act. (e) that the award having not made rule of the Court under Section 17 of the old Act, the same cannot be enforced and executed. 15. Contentions of the Respondents are: (a) that the arbitrator was not appointed under Section 20(4) of the old Act but the said appointment was made by the Respondents after invoking the provisions of the new Act in the year 1999. Any reference to the application of the old Act cannot be considered as the arbitral proceedings were initiated in the year 1999, and, as such, by application of Section 68 of the new Act, the arbitration proceedings had to be concluded under the new Act only: (b) that even if it is assumed that the proceedings were initiated under the old Act, even then, the commencement of the arbitral proceedings would be deemed to have been initiated when one party to the agreement serves on the other party, the notice requiring appointment of an arbitrator. It is contended that no such notice was issued to the Respondents by the Petitioner. It is contended that no such notice was issued to the Respondents by the Petitioner. (c) that all-along the Petitioner did not raise any objection regarding the applicability of the old Act and the proceedings having conducted under the new Act. 16. The controversy involved is within a very narrow compass. The sole point to be determined is as to when the arbitral proceedings would be deemed to have been initiated and whether the old Act or the new Act is applicable. 17. In order to understand this controversy, reference is required to be made to Section 68 of the new Act, which deals with the repeal and saving clause. The said Section reads as under: 68. Repeal and saving.-- (1) The Arbitration Act, Samvat 2002 is repealed. (2) Notwithstanding such repeal.-- (a) the provisions of the said enactment shall apply in relation to arbitral proceedings which commenced before this Act came into force unless otherwise agreed by the parties but Act shall apply in relation to arbitral proceedings which commenced on or after this Act comes into force. (b) all rules made and notification published under the said enactment 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. 18. Following is the import of the afore-mentioned provision: (i) that the old Act shall apply in relation to the arbitration proceedings which commenced before the new Act came into force; (ii) that unless agreed to by the parties would only mean the matter relating to the procedure to be followed by the arbitrator and not the procedure before the Court which is governed by the statutory provision which the parties have no right to change. (iii) that the arbitral proceedings would encompass the whole gambit of arbitration culminated in the enforcement of the award and would not only include the proceedings before the Arbitrator. 19. Applying this priciple to the present case, it can safely be stated that the expression "in relation to" has to be given wide amplitude which would mean that the Act will apply to the whole gambit of arbitration culminated in the award and this would mean the proceedings which are before the arbitrator and the Court. 19. Applying this priciple to the present case, it can safely be stated that the expression "in relation to" has to be given wide amplitude which would mean that the Act will apply to the whole gambit of arbitration culminated in the award and this would mean the proceedings which are before the arbitrator and the Court. The principle underlined here-in-above is that once the proceedings have been initiated under the old Act, then under that very Act, a right is accrued to the parties and the award is required to be executed under the said Act only. 20. An application for setting aside the award or making it rule of the Court even if made under the new Act cannot be sustained as the award is sought to be enforced in which the proceedings were initiated under the old Act, and therefore, all the rights which accrued would be under the said Act. Right to contest the genuineness of the award initiated under the old Act has to be judged under the same Act. Once it is found on fact that the arbitral proceedings were initiated under the old Act, then, the award is required to be enforced under that Act. 21. As to when the arbitral proceedings are deemed to have been initiated is other aspect involved in this case. Is it the date of initiation of the proceedings for making reference to the arbitrator or on the date when the matter is referred to the arbitrator? This issue is no longer res-integra as to when the arbitral proceedings are stated to have been initiated. The expression "in relation to arbitral proceedings", as indicated above, would not mean only the pendency of proceedings before the arbitrator but before the Court which are required to be taken for the purposes of enforcing the award. This view has been taken by the Supreme Court in the case reported as N.S. Nayak & Sons v. State of Goa (2003) 6 SCC 56. 22. Therefore, it can be safely held that the arbitral proceedings would be deemed to have been initiated once the notice for referring the dispute to the arbitrator is made. In this regard, reliance can be placed on the judgment of the Supreme Court reported as Shetty's Constructions Co. Pvt. Ltd. v. Konkan Railway Construction and Anr. 22. Therefore, it can be safely held that the arbitral proceedings would be deemed to have been initiated once the notice for referring the dispute to the arbitrator is made. In this regard, reliance can be placed on the judgment of the Supreme Court reported as Shetty's Constructions Co. Pvt. Ltd. v. Konkan Railway Construction and Anr. (1998) 5 SCC 599 : AIR 1999 SC 1535 : 1998 AIR SCW 4004. 23. Now, referring to the contention raised by the counsel for the Respondents that no notice has been served by the Petitioner for making reference to the arbitrator, as such, the arbitral proceedings would be deemed to have been initiated only after reference was made to the arbitrator in the year 1999. 24. It is also contended that no reference in terms of Clause (4) of Section 20 of the old Act has been made in the present case, and the Respondents have invoked the provisions of the agreement for appointing the sole arbitrator. In nutshell, it is stated that since no notice was given by the Petitioner nor any request was made for referring the matter, it cannot be said that the arbitral proceedings have been initiated under the old Act. 25. As already stated here-in-above, the mode provided under the new Act for initiating arbitral proceedings is under Section 21 of 1997 Act and under Sections 8 and 20 of the old Act. What is contemplated under the new Act is a request by the claimant against the Respondents for referring the dispute to the arbitrator and under the old Act, notice is required to be given under Section 8 of Chapter II by the aggrieved party and under Section 20 of the old Act, notice is given by the Court for filing agreement in the Court. The expression "party" used in the old Act is relatable to the provisions under which the proceedings have been initiated. The party has an option under the old Act to invoke the provisions under Chapter II or Chapter III of the said Act. The expression "party" used in the old Act is relatable to the provisions under which the proceedings have been initiated. The party has an option under the old Act to invoke the provisions under Chapter II or Chapter III of the said Act. When it intends to invoke Chapter II, then a notice is required to be given by the party who wants the matter to be referred to the arbitrator and if it invokes the provisions of Section 20 under Chapter III, then, notice is required to be served by the Court in terms of Sub-section (3) of Section 20. The essential feature is that once a dispute has arisen, the party intending the matter to be referred to the arbitrator, has to inform the other party for appointment of an arbitrator. Since the party has both the options either to invoke provisions of Section 8 or 20 of the old Act, the mandate of the two provisions would determine the procedure which is required to be followed. 26. There is no provision under Section 20 of the old Act for serving a notice by the aggrieved party to the other party and the said Section envisages a notice to be issued by the Court and this as indicated above, has to be done in terms of Sub-section (3) of Section 20. This shall always be construed to be a notice issued by the party making request through the intervention of the Court. Therefore, I am not inclined to agree with the argument of the counsel for the Respondents that notice has not been served upon them by the Petitioner. 27. After having said so, it emerges that by invoking Section 20 of the old Act, notice as contemplated under the said Section has been served upon the Respondents and it shall be always deemed and construed as stated above that the arbitration proceedings have been initiated on the date, the proceedings have been initiated under Section 20. The arbitral proceedings in the present case stand initiated in the year 1992, and as such, the provisions of old Act would apply for enforcing the award and not the new Act. 28. Now the question arises as to what relief the Petitioner is entitled to. 29. It be seen that the Petitioner has been directed to deposit the amount vide order dt. 6th of Dec. 28. Now the question arises as to what relief the Petitioner is entitled to. 29. It be seen that the Petitioner has been directed to deposit the amount vide order dt. 6th of Dec. T. The Respondents have proceeded under the new Act which provides that once an award has been made, the aggrieved party has a remedy to seek setting aside of the same under Section 34 of the said Act within a period of three months from the date, the award has been delivered to it. The award is required to be enforced under Section 36 of the new Act, which provides that where time to file application for setting aside the arbitration award has expired or the application has been refused, the award shall be enforced under the Code of Civil Procedure in the same manner as it was a decree of the Court. The Respondents without taking recourse to this, have directed the Petitioner to deposit the amount before the expiry of the aforementioned period of three months. 30. Even under the Act of 1997, the award could not be enforced in the manner in which it has been done in the present case. It is also admitted that the application under Section 34/30/33 has been filed in this Court by the Petitioner on 11th of Feb. 2, which is well within the time prescribed under the new Act. Under these circumstances, the communication issued by Respondents directing the Petitioner to deposit the amount by invoking the Act of 1997, is not in accordance even with the new Act. 31. Now coming to the question as to what is the effect of finding that the arbitral award was required to be enforced under the old Act in the present proceedings. 32. It be seen that the procedure for setting aside the award under the old Act is that an application under Section 30 is required to be made within a period of 30 days from the date of service of notice of filing of the award is given to the party. This is contained in Fourth Schedule of the old Act. This is to be preceded by a notice under Section 14(1) and (2) of the said Act which requires that the award may be filed by the arbitrator in the Court which shall issue notice to the parties. This is contained in Fourth Schedule of the old Act. This is to be preceded by a notice under Section 14(1) and (2) of the said Act which requires that the award may be filed by the arbitrator in the Court which shall issue notice to the parties. The party will ask the arbitrator to file award in the Court. After the award is filed notice shall be issued to the parties by the Court. After receipt of the said notice, the party is required to file objections within 30 days under Sections 30 and 33 of the Act. 33. In the present case, the award has not been filed in the Court in accordance with Section 14(2) of the old Act, as such, it is not capable of being executed as a decree as contemplated under Section 17 of the old Act. 34. Having said so, I am of the opinion that the award cannot be executed as on today. The recovery proceedings initiated against the Petitioner on that count shall accordingly stand quashed. The Respondents, however, are at liberty to take steps as are permissible under law to seek enforcement of the award subject to just exceptions which includes question of limitation. 35. For the reasons stated above, this petition is allowed in the manner indicated above.