HIGH COURT OF HIMACHAL PRADESH AT SHIMLA OSA No. : 38 of 2001 Reserved on: 23.7.2008. Decided on: 25.7.2008. M/s Aggarwal & Co. ……… Appellant. Versus State of H.P. ………Respondent. Coram: The Hon’ble Mr.Justice Deepak Gupta, Judge. The Hon’ble Mr.Justice V.K. Ahuja, Judge. Whether approved for reporting? Yes. For the appellant: Mr.J.S. Bhogal, Senior Advocate, with Mr.Suneet Goel, Advocate. For the respondent: Mr.R.M. Bisht and Mr.Rajesh Mandhotra, Deputy Advocate Generals. Per V.K. Ahuja, J.: This is an appeal filed by the appellant under Section 37 of Arbitration and Conciliation Act, 1996 against the judgment passed by the learned Single Judge of this Court, dated 24.9.2001. Briefly stated the facts of the case are that the plaintiff, a contractor, had entered into an agreement with the defendant for the execution of the work relating to augmentation of the Urban Water Supply Scheme to Nahan, which was numbered as 45 of 1993-94. It was further alleged by the appellant that since a dispute arose in between the parties, the matter was referred to arbitration of S.E. (Arbitration), HPPWD, Solan, who entered into a reference on 20.8.1997 and passed the award on 13.8.1999, which was sent to the court in ___________ 1.Whether reporters of Local papers may be allowed to see the judgment? Yes. accordance with the provisions of Section 14 of Indian Arbitration Act, 1940 to be made the rule of the court. It was alleged that since the proceedings were to be governed by the Arbitration and Conciliation Act, 1996, the award was not required to be made the rule of the court. Objections to the award were filed under Section 30 and 33 of the Indian Arbitration Act, 1940 by respondent, which were contested by the appellant and objections in regard to their maintainability were also taken by the appellant. It was submitted during the course of arguments that a preliminary objection regarding the validity of the proceedings before the Arbitrator was raised by the respondent and the learned Single Judge, vide his impugned judgment, held that since the provisions of the new Act had come into force but the arbitration proceedings were conducted under the old Act with the consent of the parties and the Arbitrator announced the award and sent the same to the court for making it rule of the Court and therefore, the award is illegal, invalid and incapable of being made the rule of the court. Being aggrieved by the judgment passed by the learned Single Judge, the present appeal has been filed by the appellant. A notice of the appeal was issued to the respondent. We have heard the learned counsel for the parties and have gone through the record of the case. The submissions made by the learned counsel for the appellant were that the proceedings had commenced before the Arbitrator before the new Act came into force and, therefore, the award passed by the Arbitrator is liable to be set aside since the Arbitrator was required to conduct the proceedings in accordance with the new Act. It was also submitted that there would not be any change in the adjudication of claims preferred by both the parties but the only difference was that in case objections are filed to the award, these were to be considered as to whether under the old Act of 1940 or under the provisions of the new Act of 1996 and, therefore, the court was required to dispose of these objections in the light of the provisions of the Act applicable to the facts of the case but the award was not required to be remitted to the Arbitrator for reconsideration and as such the impugned judgment is liable to be set aside. The Arbitration and Conciliation Act, 1996 came into force w.e.f. 22nd August, 1996. According to the assertions made by the petitioner, the first Arbitrator was appointed by name on 4.5.1995. The second Arbitrator was appointed by designation on 11.8.1997. The third Arbitrator assumed the office of Arbitrator-cum-S.E., HPPWD, Solan on 24.6.1998 and thereafter the proceedings commenced before the Arbitrator who gave the award on 13.8.1999, which was forwarded to the Registrar of this Court for making the same rule of the Court. These facts have not been disputed during the course of arguments also. It is, therefore, clear that the first Arbitrator had been appointed prior to 22nd August, 1996 when the new Act came into force. It has also not been disputed that no proceedings were conducted by the first Arbitrator and the proceedings commenced after 1997 only when the new Act had already come into force. The question to be considered is as to when the proceedings can be held to have commenced before the Arbitrator, whether on his original appointment prior to coming into force of the new Act or when the Arbitrator entered into reference after 1997 when the new Arbitrator was appointed. This is the only question to be considered by this Court and then only it can be held as to whether the objections are to be decided under the provisions of the old Act of 1940 or the new Act of 1996. As already mentioned above, there is no change in adjudication of claims before the Arbitrator, who had conducted the proceedings as prescribed under the provisions of the old Act or the new Act for which there was no change but the manner in which the objections are to be decided has changed since earlier the award was required to be made the rule of the Court under the provisions of the old Act and under Section 30 of the Act, the grounds for setting aside the award were that the Arbitrator or Umpire has mis-conducted himself or the proceedings or the arbitration proceedings have become invalid under Section 35 or the award has been improperly procured or is otherwise invalid, as provided under Section 30 of the Arbitration Act, 1940. However, under the new Act of 1996, the award is not required to be made the rule of the Court and under the provisions of Section 34 of the Act, the arbitral award may be set aside by the court if the award is in conflict with the ‘Public Policy’ of India as laid down under Section 34 of the Arbitration and Conciliation Act, 1996. Coming to the findings of the learned Single Judge, he had referred to the provisions of Section 85 of the new Act, sub clauses 2(a) and 2(b) of which read as under: “(a) the provisions of the said enactments shall apply in relation to arbitral proceedings which commenced before this Act came into force unless otherwise agreed by the parties but this Act shall apply in relation arbitral proceedings which commenced on or after this Act comes into force. (b) all rules made and notifications published, under the said enactments 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. It was observed by the learned Single Judge that the provisions of the old Act shall apply in relation to arbitral proceedings which commenced before the new Act came into force unless otherwise agreed to by the parties. The learned Single Judge had referred to the decision in Rani Constructions Case as well as to the decision in Thyssen Stahlunion Gmbh v. Steel Authority of India Ltd. and two others, {(1999) 9 SCC 344}. After referring to these decisions, the learned Single Judge held as under: “In view of the above legal position, the arbitral proceedings in the case in hand were to be conducted in accordance with the provisions of the new Act. The parties and the arbitrator were alive to the situation that the new Act had come into force at the material time, however, the Arbitrator proceeded to conduct the arbitral proceedings under the old Act after obtaining the consent of the parties and announced the award under the old Act and as a result, sent it to the Court to make it a rule of the Court……………”. Thus, it was finally concluded that in view of the above findings and the facts and circumstances of the case, particularly, the procedural illegality committed in conducting the arbitral proceedings, the award was remitted to the Arbitrator for reconsideration in accordance with law. It is not disputed that when the new Arbitrator started conducting the proceedings, the new Act had already come into force. However, the question for consideration is as to when the reference can be said to have been made to the Arbitrator, when he was firstly appointed, when no proceedings were held by the first Arbitrator or the date on which the new Arbitrator was appointed and he conducted the proceedings after the coming into force of the new Act. The learned counsel for the appellant had relied upon the latest decision of the Apex Court in Milk Food Ltd. v. GMC Ice Cream (P) Ltd., (2004) 7 Supreme Court Cases 288, wherein this question was directly considered by the Apex Court as to when it can be considered that the arbitration proceedings had commenced. A reference was made to the decision in Thyssen Stahlunion case (supra) and various other decisions. It was observed by their Lordships that under the Arbitration Act, 1940, an arbitration is deemed to have commenced when one party to the arbitration agreement serves on the other a notice requiring the appointment of an Arbitrator. However, the 1940 Act was repealed by Section 85(1) of 1996 Act. It was held by their Lordships as under: “Notwithstanding such repeal sub-section (2) of Section 85 makes the 1940 Act applicable in relation to arbitral proceedings which commenced before the said Act came into force. Applying 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 and having regard to Section 85(2)(a) thereof, it is held 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. As that date was prior to the enforcement of the 1996 Act, the 1940 Act would apply.” It was held that change in constitution of arbitral Tribunal is irrelevant for determining when arbitration proceedings commenced within the meaning of Section 21 of the new Act. It was also observed while considering the commencement of arbitration proceedings under the 1940 Act that arbitration shall be deemed to have commenced when a notice requiring appointment of an Arbitrator is sent by one party to the other. Once the arbitral proceedings commenced under the 1940 Act, the question of adopting a different procedure under the 1996 Act would not arise. A reference was also made to the provisions of Section 21 of the Arbitration and Conciliation Act, 1996, which reads as under: “21. Commencement of arbitral proceedings. - Unless otherwise agreed by the parties, the arbitral proceedings in respect of a particular dispute commence on the date on which a request for that dispute to be referred to arbitration is received by the respondent.” From the above discussion it is clear that once the Arbitrator had been appointed before the new Act came into force, he has to follow the procedure prescribed under the old Act of 1940 even though no proceedings may have been held by him prior to the date when the new Act came into force on 22nd August, 1996. The provisions of Arbitration Act, 1940 as well as of 1996 were considered by one of us (brother Mr.Justice Deepak Gupta, J.) in M/s Cosmo Ferrites Ltd. v. M/s Himachal Builders, Latest HLJ 2006 (HP) 1305, who had also referred to the decision in Milk Food case (supra) and other decisions. In that case also, the parties had served notice requiring the appointment of Arbitrators, but had also appointed the Arbitrators and as such it was observed that there can be no dispute with regard to the fact that the arbitration proceedings had commenced under the old Act. It follows from the above discussion that the proceedings were required to be conducted under the provisions of the old Act until and unless the parties agreed otherwise and, therefore, there can be no doubt that the award passed by the Arbitrator cannot be set aside due to any procedural illegality, which was not there. Therefore, the judgment passed by the learned Single Judge holding that the award is remitted to the Arbitrator for reconsideration is not sustainable in the eyes of law and the said order is set aside. The proceedings were required to be conducted in accordance with the provisions of the old Act and the objections filed accordingly are to be considered under the provisions of the old Act. The case is, therefore, remanded back to the learned Single Judge, who shall decide the objections in accordance with law under the provisions of the old Act, 1940. The appeal is accepted and stands disposed of accordingly. (Deepak Gupta), Judge. July 25, 2008. (V.K. Ahuja), (TILAK) Judge.