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2013 (4) TMI 387

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..... he Contract Act, 1957 would show that both kinds of agreements i.e. agreements which restrict the period of limitation within which claims could be referred, as also agreements which extinguish the right of a party to prefer a claim or discharges any party from any liability under a contract on expiry of a specified period, are void to that extent. Before the amendment of Section 28 in 1997, the agreements reducing the period of limitation were distinguished from those which did not limit the time within which a party might enforce his rights, but which provided for a release or forfeiture of rights, if no suit was brought within the period stipulated in the agreement and the latter class of agreements, being outside the scope of the section, were held to be binding between the parties. Thus, in National Insurance Co. Ltd. v. Sujir Ganesh Nayak & Co. (1997 (3) TMI 568 - SUPREME COURT), the Supreme Court drew a clear distinction between an agreement which curtails the period of limitation and an agreement which provides for forfeiture or waiver of the right itself, if no action is commenced within the period stipulated by the agreement. The first was held to be void as offending .....

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..... n prescribed under clause 24.1 of the Contract putting fetters upon the party to arbitrate their claim is inconsequential. Accordingly, the impugned order deciding preliminary issue cannot sustain and the same is set aside. Appeal is allowed. Learned Arbitral Tribunal is requested to entertain the claims of the petitioner and decide the same on merits in accordance with law. - OMP No.790/2012 - - - Dated:- 2-4-2013 - Manmohan Singh,J For the Petitioner : Mr. Chetan Sharma, Sr. Adv. with Mr. Aljo K. Joseph and Mr. Amith Gupta, Advs. For the Respondent : Mr. Sandeep Sethi, Sr. Adv. with Mr.A. P. Vinod, Adv. JUDGMENT 1. By this order, I shall dispose of OMP No.790/2012 filed by the petitioner assailing the impugned order dated 20th August, 2011 passed by the Arbitral Tribunal by preferring an appeal under Section 37(2) of the Arbitration and Conciliation Act, 1996 (hereinafter referred to as the Act‟). 2. The brief facts of the case are that the petitioner and the respondent entered into a contract agreement dated 5th January, 2004 for the widening/ four laning and strengthening of the existing 2 lane carriageway of NH-47, including the bridges from Vytil .....

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..... 07 denied the said allegations of fundamental breaches of contract and contended that it had not committed any breach and on the contrary alleged acts or omissions on the part of the petitioner including the omission to constitute DRB even after acceptance of the letter for the grant of EOT has lead to breaches. The respondent further alleged that despite several requests from the claimant regarding the disputes and differences, it was the employer who was in default and breach of the contract and therefore, it was constrained to invoke the Arbitration clause i.e. clause 24.2 of the contract in view of the Employer to nominate DRB. 7. Thereafter, the parties agreed for constitution of DRB and the claimant filed its statement of the claim before the DRB in April 2008. In addition to the dispute stated above, the respondent also raised a claim regarding the fundamental breach of contract conditions by the Employer in refusing to certify its bill in IPC 18. The claim was filed before the DRB for pending payments and towards loss and damages totaling to a value of Rs. 119.29 crores. 8. The petitioner submitted its reply to the statement of claim before the DRB and prayed for reject .....

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..... im. In the said statement of defence, the petitioner also raised certain disputes which as per the respondent in the rejoinder fall outside the purview of arbitration as the petitioner did not follow the procedure contained in clause 24.1 which mandated the petitioner to issue notice prior to invoking arbitration which could have entitled the petitioner to arbitrate the said dispute. 12. After the completion of pleadings, issues were framed out of which the two issues were framed as preliminary issues. The said issues related to entitlement of the petitioner to raise the dispute in reply and also the entitlement of the petitioner to raise the counter claim without following the scheme of clause 24.1 of the agreement as it provided that the recommendations of the DRB shall become final unless notice is issued to challenge the same through arbitration within 14 days of the receipt of the said recommendations. The said two issues are reproduced hereinafter: Whether the respondents/petitioner herein are entitled to seek settlement of disputes under clause 24.2 before this Arbitral Tribunal in so far as the recommendations of DRB in respect of such disputes have become final and bin .....

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..... in nature. It has been argued by Mr. Sharma that therefore the learned Arbitral Tribunal ought to have entertained the claims of the petitioner even though the said claims were not preferred as per the strict adherence of clause 24.1. In order to substantiate his submissions, Mr. Sharma relied upon the judgment passed by this court in the case of National Highways Authority of India vs. M/s Backbone Projects Limited decided in case of OMP 687/2009 on 6th May, 2011 wherein the learned Single Judge of this court considered the similarly worded clause in the arbitration agreement wherein petitioner was one of the parties and arrived at the conclusion that the said stipulation of 14 days period under the agreement is unreasonably harsh as it restricts the right of the party to arbitrate and as such is directory and not mandatory. Mr. Sharma also relied upon the judgments passed by other learned Single Judges of this court in the cases of Hindustan Construction Corporation vs. Delhi Development Authority, 77(1999) DLT 165, J.K. Anand vs. Delhi Development Authority, 2001 (59) DRJ 380 and National Highway Authority of India vs. Backbone Projects Limited (supra) 7wherein similar views .....

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..... as under: a) Firstly, Mr. Sethi, learned Senior counsel for the respondent argued that the appeal filed by the petitioner is not maintainable in view of the explicit wordings of Section 37 of the Act. It has been argued by Mr. Sethi that none of two eventualities prescribed under Section 37 have arisen in the present case which enable the petitioner to approach this court under Section 37 (2) of the Act. It has been argued that respondent has never raised any plea on jurisdiction of the tribunal under Section 16 of the Act nor such plea has ever been accepted. In fact there is no question of jurisdiction which had ever arisen in the instant case. Therefore, this court should not proceed to entertain the present appeal. b) Mr. Sethi taking his submission further argued that the learned Arbitral Tribunal has not entertained the claims after interpreting the agreement and clauses contained therein which is a matter of merits. It has been argued that the said aspects of declining to entertain the claims cannot be construed to be an objection on the jurisdiction but it is a matter on merits. Mr. Sethi contended that the said decision is an interim order which can be challenged by th .....

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..... s completely misplaced. e) Mr. Sethi argued that the learned Arbitral Tribunal has rightly ordered that in view of failure to comply with the agreed procedure by the petitioner, the claims raised by the petitioner before the tribunal fall beyond the scope of arbitration. In view of the afore noted submissions, Mr. Sethi submitted that the appeal filed by the petitioner is also liable to be dismissed on merits as well. 19. I have gone through the appeal filed by the petitioner along with the documents filed therewith. I have also read over the impugned order passed by the learned Arbitral Tribunal and have given my careful consideration to submissions advanced by the learned counsel for the parties at the bar and in the written submission. I shall now proceed to discuss the various aspects arising in the instant appeal one by one. 20. The first question which needs an examination is as to whether the appeal under Section 37 (2) of the Act is maintainable in the case of present nature. The said question needs consideration as in view of the learned counsel for the respondent the impugned order is in the form of award which decides two preliminary issues and thus the same shal .....

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..... ly or in the alternative can be raised along with the filing of the statement of the defence. But, the said plea should be raised not later than the submission of the statement of defence. Thus, there is no requirement as such upon the plain reading of Section 16 (2) of the Act to raise the plea of the lack of jurisdiction separately b) Likewise, a plea that the Arbitral Tribunal is exceeding the scope of the authority shall be raised as soon as the matter is alleged to be beyond the scope of the authority as per Section 16 (3). c) Section 37 (2) (a) provides that the appeal shall lie to the court only under some limited eventualities. The said eventualities are prescribed in the said Section under which clause (a) which has concern with Section 16 clearly states that accepting the plea referred to in sub Section (2) or sub-section (3) of Section 16 is one of such eventualities. Therefore, the immediate sequitur which follows from the reading of Section 37 (2) (a) is that the appeal is maintainable against the orders accepting the plea of lack of jurisdiction of the Arbitral Tribunal as per Section 16 (2) or in the alternative against the acceptance of the plea that the tribuna .....

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..... cannot be said that for the purposes of raising the plea under Section 16 (2), the wordings lack of jurisdiction must be used in order to ascertain whether such plea is actually taken or not. If the plea taken in the statement of the defence is of the nature which raises a question that the agreement prescribes a mode and manner in which the claims are to be considered as arbitrable and beyond the same the claims are not to be considered by the tribunal or shall be treated as barred is thus a sufficient objection going into the root of the matter affecting the jurisdiction of the tribunal to consider and adjudicate the said claim though the word jurisdiction may not be used specifically in the said plea. 25. I have already examined from the plain reading of Section 16 (2) read with Section 37 (2) as to what sort of orders are appealable and what kind of objections can be categorized as jurisdictional in nature. The courts in India have also rendered consistent view that the pleas that the claims would fall outside the scope of arbitration is a kind of jurisdictional objection and is plea under Section 16 (2) and thus the appeal against the said order is maintainable. 26. In th .....

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..... er Section 16 (2). In the words of the learned Single Judge, it has been observed thus:- In this case the foremost question which arises for consideration is whether the arbitrator could have made the impugned order on the application of the respondent under Section 16 of the Act holding that certain counter-claims cannot be entertained and adjudicated upon because those are pre-mature and are outside the ambit of the expression "dispute". The answer to this will depend on the answer of another question as to whether controversy in regard to the non-entertainability of counter-claims is a jurisdictional issue within the meaning of Section 16 of the Act and if it is not so at what stage the Arbitrator could consider this question? To find the answer we must refer to the provisions of Section 16 and 37 of the Act which are to the following effect: (Emphasis Supplied) .Mr. Valmiki Mehta, urged that the application moved by the respondent under Section 16 of the Act which has been disposed of by the impugned order does not fall under the purview of Section 16 of the Act. In this connection he claimed parity between the provisions of Section 16 of the 1996 Act with that of S .....

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..... rbitral Tribunal which goes into the root of the matter. The refusal of the tribunal to entertain such claim or counter claim without deciding the claim on merits amounts to refusing to exercise jurisdiction on the subject matter and when done at the behest of the one party to the arbitration, the same may lead to acceptance of plea of lack of the jurisdiction to entertain the claim which squarely falls within the ambit of Section 16 (2) of the Act. The same view what has been expressed by the learned Single Judge of this court in National Institute Of Banking (supra) has been found favour by Division Bench of Bombay High Court in the case of Ganesh Benzoplast Ltd., a Company registered under the Companies Act Vs. Saf Yeast Company Ltd., a Company registered under the Companies Act, 2007 (4) ArbLR 385 (Bom.), wherein Division Bench though was deciding the appeal under Section 34 of the Act but also examined the question whether the refusal of the tribunal to entertain a claim by holding that the same is beyond the scope of arbitration is an order under Section 16 of the Act or not. Answering the question in affirmative, the Division Bench observed thus: Obviously therefore, ev .....

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..... above in his contentions. 27. Let me now examine as to whether such objection exists in the form of plea or not. This can be seen as under: a) The reading of the impugned order reveals that the petitioner before this Court, NHAI which was the respondent before the Arbitral Tribunal has raised some additional claims in reply to the claims of the claimant/respondent herein, the respondent also raised a counter claim. There has been a categorical contention of the counsel for the claimant which has been recorded that the respondent therein/petitioner herein has never issued the notice of intention to commence arbitration as such not complied with the agreed procedure and thus the respondent has been barred from raising the claim or any dispute. It has been argued by the respondent herein and claimant therein that the recommendation of the DRB qua the petitioner herein has become final and thus the petitioner is estopped from making its claims before the Arbitral Tribunal. These contentions were recorded in the preliminary Issue No.1 for which the findings are returned by the learned Arbitral Tribunal. The contentions recorded therein clearly indicate that the objection was raised .....

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..... the same by the Arbitral Tribunal by upholding the said objection and refusal to entertain the claims of the petitioner clearly fulfills the provisions of Section 16 (2) of the Act. Therefore, the impugned order clearly accepts the plea of Section 16 (2) of the Act. The appeal is therefore maintainable under the provisions of Section 37 (2) (a) of the Act. 28. It is now time to examine another submission of learned Senior counsel for the respondent Mr. Sethi which is that the Arbitral Tribunal has decided the preliminary issue and as such it is a partial award being decision on merits which would not fall within the ambit of Section 16 and therefore the appeal is not maintainable. It has been also been argued that the said award can be challenged along with the other decision on other issues under Section 34 of the Act. As per Mr. Sethi the instant case is squarely covered by the judgment passed by the learned Single Judge of this court in NTPC v. Siemens (supra). I do not find merit in the contention of Mr. Sethi, learned Senior counsel for the respondent and also find that the judgment of NTPC is distinguishable for manifold following reasons below: a) Firstly, it is necessa .....

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..... findings which are returned on merits of the controversy. In the instant case, preliminary issue No. 1 has been decided wherein on the fair reading of the clause 24 of the agreement, it has been observed by the tribunal that as the petitioner has been unable to raise the dispute timely before the tribunal as such not entitle to raise the said disputes and claims before the Tribunal by operation of clause 24. The said finding of the Arbitral Tribunal is only confined to aspect that the disputes referred to it are not arbitrable and cannot be termed as final adjudication of the disputes between the parties. Therefore, the mere fact that the said impugned order is termed as an award would really not make any difference unless in substance, the said decision making is an award within the meaning of the Act. c) Thirdly, it is also not correct to say that the said order can be challenged under the provisions of Section 34 of the Act. This is due to the reason that Section 34 (2) (iv) of the Act only provides a ground that the award passed by the Tribunal decides disputes which are not falling within the terms of submissions of arbitration or contains matters outside the scope of the a .....

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..... ection 37(2)(a) of the Act on the premises that by the impugned dispensation the Arbitral Tribunal has not decided the issue of jurisdiction as envisaged by Section 16 of the Act and not the least in the negative but has, in fact, assumed and exercised the jurisdiction and adjudicated upon the counter-claims of the NTPC finally on merits. Mr. DeepankarGupta, learned senior counsel representing the respondent/SAG has argued that the pleas which can be taken under Sections 16(2) and 16(3) of the Act are pleas regarding the Arbitral Tribunal's jurisdiction and they do not concern the merits of the controversy between the parties. There appears to be no quarrel with this proposition because Section 16(2) of the Act stipulates that such a plea shall be taken not later than the submission of the statement of defense (i.e., before the Arbitral Tribunal considers the merits of a dispute. Section 16(3) stipulates that a plea that the Arbitral Tribunal is exceeding the scope of its authority shall be raised as soon as the matter alleged to be beyond the scope of its authority is raised during the Arbitral proceedings. In other words, such a plea should be confined to the Arbitral Tribunal's .....

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..... as a package deal. 4.61 What then follows is a series of specific agreements clearly recorded as such and thereby settling the disputes which then existed. And by paragraph 15 there was express confirmation by both parties. that there were no other issues to be resolved in first and third contracts. 4.62 Paragraph 16 made the agreements subject to approval by the NTPC management and as already noted that approval was given by the Respondent's letter of 5th May 2000 and confirmed by the Claimant by its letter of 10th May 2000. 4.63 A number of objections to the binding nature of the Agreement of 6th/7th April, 2000 were taken by the Respondent. None of them have nay merit at all. There are no particulars pleaded in support of the contention that the agreement was procured by deception or by duress. It is plain from the terms of the Respondent's letter of 5th May 2000 that the Respondent fully intended that the Agreement, which it o doubt considered to be to its benefit, would be contractually binding. The letter is only explicable on that basis. It is simply not open to the Respondent to argue otherwise. 4.64 In those circumstances it is clear that the Claimant's argumen .....

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..... rbitral reference or barred by limitation, but also the admissibility of the said counter-claims on merits on the premises that all claims of the NTPC including the counter-claims stood already settled in terms of the MoM dated 6th and 7th April, 2000 and no dispute remained pending between the parties in terms of Clause 15.0 of the said MoM, except in regard to the claim of the SAG for damages on account of delay. (Emphasis Supplied) From the mere reading of the aforequoted observations of the learned Single Judge in the case of NTPC (supra), it is manifest that the learned Single Judge in the said case did not entertain the appeal under Section 37 (2) as the decision in the said case was in the nature of the partial award on merits which was not limited to the aspect of decision on the plea of lack of jurisdiction but also rejected the counter claims as non- admissible due to the settlement arrived between the parties which made the same as decision on merits. The decision on merits became the major reason which weighed the mind of the learned Single Judge while not entertaining the appeal under Section 37 and rightly so when as the appeal under Section 37 (2) (a) is confine .....

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..... ill, therefore, decide the fate of the present appeal is whether the impugned dispensation dated 31st July, 2002 rendered by the Arbitral Tribunal can be said to be an order passed by the Arbitral Tribunal accepting the plea within the meaning of sub-section (2) or (3) of Section 16 of the Act. Mr. Deepankar Gupta, Senior Counsel representing the SAG has argued, and rightly so, that the pleas, which can be taken under sub-section (2) or (3) of Section 16 of the Act are pleas regarding the Arbitral Tribunal's jurisdiction and they do not concern the merits of the controversy between the parties. A bare reading of sub-sections (2) and (3) of Section 16 of the Act would make it manifest that these provisions are to be invoked when a plea is taken by a party that the Arbitral Tribunal does not have jurisdiction or is exceeding the scope of its authority. Such pleas are required to be considered and answered by the Arbitral Tribunal provided the same have been raised not later than the submissions or the statements of the defense. In other words, such a plea has necessarily to be confined to the Arbitral Tribunal's competence to decide what is placed before it and not the merits of the .....

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..... d scope of the provisions of Section 16 and Section 37 of the Act, is clearly of the view that the impugned dispensation dated 31.7.2002 rendered by the Arbitral Tribunal cannot by any stretch be said to be an order passed by the Tribunal either under the provisions of Section 16 or Section 16 of the Act and in any case deciding the question of jurisdiction in the negative which will fall within the ambit of appealable orders within the meaning of Section 37 of the Act. In the opinion of this Court, the impugned Partial Award is nothing but an Award or interim Award deciding the counter claims of the NTPC finally on merits. This Court, therefore, must hold that the present appeal filed by the NTPC against such a Partial Award under the provisions of Section 37 of the Act is mis-conceived and is not maintainable. (Emphasis Supplied) From the reading of the above noted observations, it is beyond the cavil of doubt that in NTPC(supra), the learned Single Judge declared that the award rendered on merits is not covered within the ambit of Section 16 (2) of the Act. On the contrary, in the instant case, I have arrived at the finding that the impugned order confines itself to the bounds .....

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..... harma, learned Senior counsel for the petitioner relied upon the judgments passed by this Court in the case of Hindustan Construction Corporation v. Delhi Development Authority, 77(1999) DLT 165, J.K. Anand v. Delhi Development Authority, 2001 (59) DRJ 380 and National Highway Authority of India v. Backbone Projects Limited (supra) where such views are taken by the court wherein learned Single Judges of this court were of the view that the clause which puts an impediment upon the parties to approach the Arbitral Tribunal by curtailing the time to present claims which ordinarily is lesser leads to restraint on legal proceedings and as such are unreasonable under the law. Therefore, the said arbitration clauses are directory in nature. 33. Per contra, Mr. Sethi, learned Senior counsel for the respondent argued that the agreed procedure under the agreement ought to have been followed by the petitioner. The said clause 24.1 nowhere puts any limits on the exercise of the right to arbitrate but rather extinguishes the right to arbitrate itself. Thus, the said clause 24.1 is not violative of Section 28 of the Contract Act. 34. Mr. Sethi relied upon the judgment passed in the case of H .....

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..... he claim on merits and clause (b) of Section 28 of the Contract Act keeps the right of the contractor to claim the amount which was due to him alive irrespective of clause 25 in the agreement, the application is allowed (Emphasis Supplied). 38. Besides the views of the two learned Single Judges in the case of J.K. Anand (supra) and Hindustan Construction Company (supra), another learned Single Judge of this court has taken similar view in the case where National High Authority of India was a party to the proceedings and the arbitration clause contained in the agreement was more or less similarly worded by observing that the operation of the said clause is directory and not mandatory. In NHAI v. Backbone Projects Limited (supra) the learned Single Judge while deciding OMP 687/2009 observed thus after noting the arbitration clause: Clauses 24 and 25 of the General Conditions of Contract, and Clause 3 of the Special Conditions of Contract read as follows:- 24. Disputes 24.1 If the Contractor believes that a decision taken by the Engineer was either outside the authority given to the Engineer by the Contract or that the decision was wrongly taken, the decision shall be referr .....

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..... be said that Clause 24.1 purports to prejudicially affect the rights of the contractor to firstly seek reference of the decision to the DRE and thereafter, if still aggrieved, to arbitration. In my view, if the prescription of the period of fourteen days under Clause 24.1 is held to be mandatory, the same would be highly unreasonable and opposed to public policy and would be hit by Section 28 of the Contract Act. As no consequence is provided which would result due to delay in seeking reference of the decision of the Engineer to the DRE, the said prescription in any event cannot be held to be mandatory. (Emphasis Supplied) 39. From the reading of the aforenoted observation, it is clear that the learned Single Judge in the case of NHAI v. Backbone (supra) has observed that the prescription as to reference of dispute within 14 days to the DRE (Dispute Resolution Expert) would be highly unjust and opposed to public policy as it would be hit by provisions of Section 28 of the Contract Act, 1872. No doubt, the observations of the learned Single Judge in NHAI (supra) were concerning the prescription about the Dispute Resolution Expert and not qua arbitration. However, there is no rea .....

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..... . Section 28 was amended by Indian Contract (Amendment) Act, 1996 (Act 1 of 1997) with effect from 8.1.1997 and the amended Section 28 reads as follows: 28. Agreements in restraint of legal proceedings, void.― Every agreement, ― (a) by which any party thereto is restricted absolutely from enforcing his rights under or in respect of any contract, by the usual legal proceedings in the ordinary tribunals, or which limits the time within which he may thus enforce his rights; or (b) which extinguishes the rights of any party thereto, or discharges any party thereto, from any liability, under or in respect of any contract on the expiry of a specified period so as to restrict any party -from enforcing his rights, is void to that extent. (Emphasis supplied) Exception 1.― Saving of contract to refer to arbitration dispute that may arise - This section shall not render illegal a contract by which two or more persons agree that any dispute which may arise between them in respect of any subject or class of subjects shall be referred to arbitration, and that only the amount awarded in such arbitration shall be recoverable in respect of the dispute so referred. Exce .....

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..... n curtailing of the period of limitation and extinction of the right itself, after the specified period, no longer exists. 44. Therefore, I do not find merit in the submission of Mr. Sethi that there lies a difference in the curtailment of the period of limitation and the extinction of the right itself. The judgment relied by the Mr. Sethi in the case of H.P. State Forest Company (Supra) was rendered in the context of the Section 28 of the Contract Act as it stood prior to the amendment. The effect of legislative amendment was never considered in the said judgment. The judgment of H.P. State Forest Company (supra) rendered by the Supreme Court merely affirms the view in the case of Sujir Nayak's case and the effect of the amendment to the statute was not considered. This has been explained by the Punjab and Haryana High Court in the case of arbitration wherein similar contention was raised and was negatived on the count of the amendment. It has been observed by Punjab and Haryana High Court that the statement made by the counsel for the petitioner in the H.P. State Forest Company (Supra) on the ground that the amendment to Section 28 has been repealed or scrapped was based on mis .....

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..... ain enactments which have become unnecessary. It invariably contains elaborate provisos. In Khuda Bux vs. Manager, Caledonian Press, AIR 1954 Calcutta 484 Chakravartti, CJ neatly brings out the purpose and scope of such Acts. The learned Chief Justice says at p. 486: Such Acts have no legislative effect, but are designed for editorial revision, being intended only to excise dead matter from the statute book and to reduce its volume. Mostly, they expurgate Amending Acts, because having imparted the amendments to the main Acts, those Acts have served their purpose and have no further reason for their existence. At times, inconsistencies are also removed by Repealing and Amending Acts. The only object of such Acts, which in England arecalled Statute Law Revision Acts, is legislative spring-cleaning and they are not intended to make any change in the law. Even so, they are guarded by saving clauses drawn with elaborate care.... It is, therefore, clear that the main object of the 1952 Act was only to strike out the unnecessary Acts and excise dead matter from the statute book in order to lighten the burden of ever increasing spate of legislation and to remove confusion from the pu .....

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