TMI Blog2018 (5) TMI 328X X X X Extracts X X X X X X X X Extracts X X X X ..... the agreement entered into before 1996 Act came into force was in terms of 1940 Act and if the arbitral proceedings had not commenced before 1996 Act came into force, the provisions of 1996 Act alone would govern the situation. The reference to “Indian Arbitration Act” or to “arbitration under 1940 Act” in such cases would be of no consequence and the matter would still be governed under 1996 Act. Would it then make any difference if in an agreement entered into after 1996 Act, the reference made by the parties in the agreement was to arbitration in terms of 1940 Act. The High Court was not right in observing that there could be no arbitration at all in the present case - even if an arbitration agreement entered into after 1996 Act had come into force were to make a reference to the applicable provisions of those under Indian Arbitration Act or 1940 Act, such stipulation would be of no consequence and the matter must be governed under provisions of 1996 Act. An incorrect reference or recital regarding applicability of 1940 Act would not render the entire arbitration agreement invalid. The matter will have to be dealt with by the trial court in terms of Section 8 of 1996 Act ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t) although the Partnership Agreement was entered into much after the enactment of 1996 Act. Relying on portion of para 35 of the decision of this Court in Thyssen Stahlunion GMBH v. Steel Authority of India Ltd. (1999) 9 SCC 334 and on the decision of a learned Single Judge of the Patna High Court in Rajan Kumar Verma and anr. v. Sachchidanand Singh AIR 2006 Patna 1, the High Court observed in paragraphs 6 and 7 as under :- The Supreme Court in Thyssen Stahlunion GMBH (supra) has observed in paragraph 35 of its judgment as under: 35. Parties can agree to the applicability of the new Act even before the new Act comes into force and when the old Act is still holding the field. There is nothing in the language of Section 85(2)(a) which bars the parties from so agreeing. There is, however, a bar that they cannot agree to the applicability of the old Act after the new Act has come into force when arbitral proceedings under the old Act have not commenced though the arbitral agreement was under the old Act. From aforesaid observations of the Supreme Court, it can be seen that if the arbitration proceedings had not been commenced under the Act of 1 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e in the form of an arbitration clause in a contract or in the form of a separate agreement. (3) An arbitration agreement shall be in writing. (4) An arbitration agreement is in writing if it is contained in (a) a document signed by the parties; (b) an exchange of letters, telex telegrams or other means of telecommunication (including communication through electronic means) which provide a record of the agreement; or (c) an exchange of statements of claim and defence in which the existence of the agreement is alleged by one party and not denied by the other. (5) The reference in a contract to a document containing an arbitration clause constitutes an arbitration agreement if the contract is in writing and the reference is such as to make the arbitration clause part of the contract. 10. Thus the basic requirements for an arbitration agreement are (a) an agreement between the parties to submit to arbitration all or certain disputes which have arisen or which may arise in future in respect of a defined legal relationship; (b) such an arbitration agreement shall be in writing. The second requirement can be discernible from the documents or ex ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ereunder for ready reference: 1. The point involved for decision is, the effect of the Arbitration and Conciliation Act, 1996 (for short New Act ) in the present case on the arbitration agreement made prior to the commencement of the New Act. Clause VII of the agreement dated 14-12-1993 between the parties is, as under: VII. In the event of any question or dispute arising under or out of or relating to the construction, meaning and operation or effect of this agreement or breach thereof, the matter in dispute shall be referred to arbitrator. Both the parties shall nominate one arbitrator each and the arbitrators shall appoint an umpire before proceeding with the reference . The decision of arbitrators or in the event of their not agreeing the decision of the umpire will be final and binding on the parties. The provisions of the Indian Arbitration Act and Rules made thereunder shall apply for proceedings. The arbitrators or the umpire, as the case may be, shall be entitled with the consent of the parties to enlarge the time, from time to time, for making the award. The arbitrators/umpire shall give a reasoned award. The venue of the arbitration shall be Bombay. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... fore, clear that an arbitration agreement specifying an even number of arbitrators cannot be a ground to render the arbitration agreement invalid under the New Act as contended by the learned Attorney General. 10. The arbitration clause provides that each party shall nominate one arbitrator and the two arbitrators shall then appoint an umpire before proceeding with the reference. The arbitration agreement is valid as it satisfies the requirement of Section 7 of the New Act. Section 11(3) requires the two arbitrators to appoint the third arbitrator or the umpire. There can be no doubt that the arbitration agreement in the present case accords with the implied condition contained in para 2 of the First Schedule to the Arbitration Act, 1940 requiring the two arbitrators, one each appointed by the two sides, to appoint an umpire not later than one month from the latest date of their respective appointments. 11. The question is whether there is anything in the New Act to make such an agreement unenforceable? We do not find any such indication in the New Act. There is no dispute that the arbitral proceeding in the present case commenced after the New Act came into force an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that 1996 Act must be so construed to enable the enforcement of the earlier arbitration agreement. Logically, even if in a given case, reference to arbitration in the agreement entered into before 1996 Act came into force was in terms of 1940 Act and if the arbitral proceedings had not commenced before 1996 Act came into force, the provisions of 1996 Act alone would govern the situation. The reference to Indian Arbitration Act or to arbitration under 1940 Act in such cases would be of no consequence and the matter would still be governed under 1996 Act. Would it then make any difference if in an agreement entered into after 1996 Act, the reference made by the parties in the agreement was to arbitration in terms of 1940 Act. 14. In Thyssen (supra) three appeals were considered together. In the first of those three appeals, the arbitral proceedings had commenced on 14.09.1995 under 1940 Act and the award was given by the sole arbitrator on 24.09.1997. A petition was filed under Sections 14 and 17 of 1940 Act on 13.10.1997 for making the award rule of the Court. In these proceedings an application was moved submitting that 1996 Act having come into force on 25.01.1996, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d under the Act of 1940 till the Act of 1996 came into force, the same could not be commenced thereafter . All that these observations indicate is that in such cases there cannot be applicability of 1940 Act and not, and we repeat, that there can be no arbitration at all. 16. The correct approach, according to us, would be in promoting the object of implementing the scheme of alternative dispute resolution as was rightly submitted in MMTC Ltd . (Supra). It would be farfetched to come to the conclusion that there could be no arbitration at all. As is clear from MMTC Ltd. (Supra) what is material for the purposes of the applicability of 1996 Act is the agreement between the parties to refer the disputes to arbitration. If there be such an arbitration agreement which satisfies the requirements of Section 7 of 1996 Act, and if no arbitral proceeding had commenced before 1996 Act came into force, the matter would be completely governed by the provisions of 1996 Act. Any reference to 1940 Act in the arbitration agreement would be of no consequence and the matter would be referred to arbitration only in terms of 1996 Act consistent with the basic intent of the parties as disce ..... X X X X Extracts X X X X X X X X Extracts X X X X
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