*THE HONOURABLE SMT. JUSTICE T.MEENA KUMARI AND THE HON'BLE MR. JUSTICE NALLA BHUMA NARAYAN RAO +CIVIL MISC. APPEAL No. 2582 OF 2002 %14-10-2009 # The Hyderabad Stock Exchange Limited, Rep. By its Chairman Sri H.N. Rathi 3-6-275, Himayatnagar, Hyderabad. ….Appellant Vs. $ M/s. Kaveri Projects Limited, Rep. By its Managing Director, Regd. Office 7th Floor Swapnalok Complex, SD Road, Secunderabad and another …. Respondents !Counsel for the Appellants: Sri N.Subba Reddy Counsel for the Respondents No.1: Sri S. Ravi Counsel for the Respondents No.2: None <Gist : >Head Note: ? Cases referred: 1. 2000(1) Arb. LR 326 (Calcutta) IN THE HIGH COURT OF JUDICATURE, ANDHRA PRADESH AT HYDERABAD WEDNESDAY, THE FOURTEENTH DAY OF OCTOBER, TWO THOUSAND AND NINE PRESENT THE HON'BLE MRS JUSTICE T.MEENA KUMARI AND THE HON'BLE MR JUSTICE NALLA BHUMA NARAYAN RAO C.M.A. NO. 2582 OF 2002 Between: The Hyderabad Stock Exchange Limited, Rep. By its Chairman Sri H.N. Rathi 3-6-275, Himayatnagar, Hyderabad. ..... APPELLANT AND M/s. Kaveri Projects Limited, Rep. By its Managing Director, Regd. Office 7th Floor Swapnalok Complex, SD Road, Secunderabad and another .....RESPONDENTs THE HON'BLE SMT. JUSTICE T.MEENA KUMARI AND THE HON'BLE MR JUSTICE NALLA BHUMA NARAYAN RAO C.M.A. NO. 2582 OF 2002 ORAL JUDGMENT: (per the Hon’ble Smt. Justice T.Meena Kumari) This appeal is directed against the order dated 24.06.2002 passed in O.P. No. 301 of 1999 by the learned III Addl. Chief Judge, City Civil Court, Hyderabad, dismissing the petition filed under Sec.34 of the Arbitration and Conciliation Act, 1996, seeking to set aside the Award dated 02.11.1998 passed by the second respondent herein. The facts, in brief, which necessitates the disposal of this appeal are that the first respondent herein entered into contract with the appellant vide agreement dated 17.01.1995 for construction of left bank and covering of cut out for ground floor, trading hall and other RCC works in the existing structure and upper floors at Door No.6- 3-654/A, Somajiguda, Hyderabad. Among other conditions mentioned therein, clause 4 of the agreement entitles the parties to refer the matter to the sole named arbitrator viz., the second respondent herein. As such, in view of the disputes that arose between the parties, the first respondent referred the matter to the second respondent – sole arbitrator, who after conducting enquiry passed an Award on 02.11.1998, allowing the claims. Aggrieved by the said Award, the appellant herein filed the above O.P. under Sec. 34 of the Arbitration and Conciliation Act, 1996 (for brevity the Act) seeking to set aside the Award dated 02.11.1998, inter alia contending that since the first respondent had completed the work only on 30.11.1995 and in view of the Arbitration Clause in the agreement stipulating only one month from the date of completion of the work for reference to the named Arbitrator, the reference is categorically time barred inasmuch as, admittedly, the representation was made for arbitration only on 9.1.1996. It was further contended that the second respondent ought not to have travelled beyond the scope of reference and terms of the contract and passed the Award. The court below, on appreciation and consideration of the material placed before him, dismissed the O.P. observing that the contentions sought to be raised cannot be the substratum under Sec.34 of the Act to set aside the award. Aggrieved by the said dismissal, the petitioner in the above O.P. is in appeal before this court. Mr. N.Subba Reddy, learned Senior Counsel appearing for the appellant contends that though both the parties to the arbitration have agreed to follow the procedure contemplated under the provisions of the Act, 1940, but since the sole Arbitrator had already been appointed by representation dated 09.01.1996 before the commencement of the Act, 1996, which came in effect from 22.08.1996, the Arbitrator ought to have chosen to proceed under the Act and, therefore, the order impugned is liable to be set aside. He also contends that no application for the appointment of Arbitrator as contemplated under Sec. 11 of the Act, 1996, is filed by the parties. It is further contended that the court below ought to have held that the claim is time barred inasmuch as even as per the first respondent, the works were completed only on 30.11.1995 and representation for the appointment of the Arbitrator was made only on 09.01.1996, which is directly in contrast with clause 4 of the Agreement, which stipulates that the reference to the arbitration shall be made by the parties within one month after completion of the entire work. Thus, the order and decree passed by the court below is not in consonance with the agreed terms and conditions of the agreement and, hence, the same is liable to be set aside. Per contra, Mr. S.Ravi, learned Senior Counsel appearing for the first respondent has vehemently contended that as Sec. 85(2)(a) saves the procedure contemplated under the Act, 1996, the Arbitrator has rightly entered into reference under the Act, 1940 and, as such, the procedure adopted by the Arbitrator is valid and the objection raised by the learned Senior counsel on behalf of the appellant cannot be sustained. He further submits that the claim made by the first respondent is well within time. Adverting to the preliminary objection raised by the learned counsel for the appellant with reference to the procedure to be followed, we deem it appropriate to deal with the same at the outset. Since the above said submission revolves round Sec. 11 and Sec. 85 of the Act, 1996, it is apt to reproduce the same, for a better understanding. Section 11 of the Act, 1996 reads: Appointment of arbitrators: (1) A person of any nationality maybe an arbitrator, unless otherwise agreed by the parties. (2) Subject to sub-Section (6), the parties are free to agree on a procedure for appointing the arbitrator or arbitrators. (3) Failing any agreement referred to in sub-section (2), in an arbitration with three arbitrators, each party shall appoint one arbitrator, and the two appointed arbitrators shall appoint the third arbitrator who shall act as the presiding arbitrator. (4) If the appointment procedure in sub-section (3) applies and – (a) a party fails to appoint an arbitrator within thirty days from the receipt of a request to do so from the other party; or (b) the two appointed arbitrators fail to agree on their arbitrator within thirty day from the date of their appointment, the appointment shall be made, upon request of a party, by the Chief Justice or any person or institution designated by him. (5) Failing any agreement referred to in Sub-section (2), in an arbitration with a sole arbitrator, if the parties fail to agree on the arbitrator within thirty days from receipt of a request by one party from the other party to so agree the appointment shall be made, upon request of a party, by the Chief Justice or any person or institution designated by him. (6) Where, under an appointment procedure agreed upon by the parties – (a) a party fails to act as required under that procedure; or (c) the parties, or the two appointed arbitrators, fail to reach an agreement expected of them under that procedure; or (c) a person, including an institution, fails to perform any function entrusted to him or it under that procedure; a party may request the Chief Justice or any person or institution designated by him to take the necessary measure, unless the agreement on the appointment procedure provides other means for securing the appointment. (7) A decision on a matter entrusted by Sub-Section (4) or sub-Section (5) or sub-Section (6) to the Chief Justice or the person or institution designated by him is final. (8) The chief Justice or the person or institution designated by him, in appointing an arbitrator, shall have due regard to (a) any qualifications required of the arbitrator by the agreement of the parties; and (b) other considerations as are likely to secure the appointment of an independent and impartial arbitrator. Section 85 reads: (1) The Arbitration (Protocol and Convention) Act, 1937 the Arbitration Act, 1940 and the Foreign Awards (Recognition and Enforcement) Act, 1961 are hereby repealed. (2) Notwithstanding such repeal – (a) the provisions of the said enactment shall apply in relation to arbitration proceedings which commenced before this Act came into force unless otherwise agreed by the parties but this Act shall apply in relation to arbitral proceedings which commenced on or after this Act came into force. (b) …………. Admittedly, for appointment of the Arbitrator representation for the first time was made by the first respondent on 09.01.1996. Section 11(1) of the Act, 1996 provides that a person of any nationality can be appointed as an arbitrator, unless otherwise agreed by the parties. In terms of Sec. 11(2), the parties are free to agree on a procedure for appointing the arbitrator or arbitrators, and if three arbitrators are to be appointed, each party shall appoint one arbitrator and the two appointed arbitrators shall appoint the third arbitrator, who shall act as the presiding arbitrator. Sub-Section (6) of Sec. 11 deals with the agreed procedure for appointment of the arbitrators by the parties and if a party fails to act as required under that procedure; or the parties, or the two appointed arbitrators, fail to reach an agreement expected of them under that procedure or a person, including an institution, fails to perform any function entrusted to him or it under that procedure; the party may request the Chief Justice or any person or institution designated by him to take necessary measure, unless the agreement on the appointment procedure provides other means for securing the appointment. In the backdrop of this legal position, the question that arises for consideration is on what date the arbitral proceedings can be taken to have commenced. As seen above, Section 85(2)(a) categorically says that the provisions of the Arbitration Act, 1940, apply in relation to the arbitral proceedings which commenced before the Act, 1996 came into force unless otherwise agreed by the parties but the provisions of the Act, 1996 shall apply in relation to the arbitral proceedings which commenced on or after the Act comes into force. Since the parties to the agreement have consented that they shall be governed by the provisions of the Act, 1996, Sec. 85(2)(a) of the Act, 1996, it saves the procedure adopted by the named sole arbitrator. In the factual context, it is apposite to reproduce Clause 4 of the Agreement entered between the parties, which reads as under: “…If any dispute or difference arise between the parties hereto in relation to or in connection with this agreement, the same shall be referred to the Arbitrator of Sri Raj Kumar Malpani, basher Bagh, Hyderabad, as a sole Arbitrator and the provisions of the Indian Arbitration Act, 1940, shall apply. The decision so given shall be final and binding upon the parties. The said reference to the arbitration shall be made by the parties within one month, after the completion of the entire work..” With regard to the applicability of the Act, 1996 it is apposite to refer to the finding of the Calcutta High Court in a decision Union of India and another (E.Rly) Vs. Monoranjan Mondal and others([1]), which held that if the arbitral proceedings as contemplated under the Arbitration Act, 1940 had commenced before the coming into force of 1996 Act, in terms of Section 85 thereof, the Act 1996 will have no application and the provisions of the Arbitration Act, 1940 will have applicability, but if the proceedings in terms of and as contemplated under the Arbitration Act, 1940 had not commenced before the coming into force of 1996 Act, undoubtedly, 1996 Act would apply. The admitted facts are that the representation for the arbitration was made for the first time on 09.01.1996 and the claim application was filed on 04.05.1996 and the named sole arbitrator, according to the learned counsel for the first respondent, has commenced the arbitral proceedings during the interregnum of 09.01.1996 and 04.05.1996. The Act, 1996 has come into force with effect from 22.08.1996. As seen from Clause 4 of the Agreement, though the parties have agreed under the Agreement dated 17.01.1995 that the provisions of the Act, 1940 shall govern the field, yet they have agreed before the named sole arbitrator that they shall proceed as per the provisions of the Act, 1996. The sole named arbitrator had already entered the arbitral proceedings during the interregnum of 09.01.1996 and 04.05.1996 and followed the procedure laid down under the Act, 1996 and passed an Award. Admittedly, after the named sole arbitrator entered the reference, no application for appointment of arbitrator or arbitrators had been made by the parties to the proceedings in terms of Sec. 11 of the Act, 1996, to the Chief Justice and the proceedings under the Act continued till the Award is passed. Since the sole named arbitrator has entered upon the reference under the provisions of the Act and since both the parties have consented before the named sole arbitrator that they shall be governed by the Act, 1996, it is has to be observed that by virtue of the agreement between the parties, Sec. 11 of the Act, 1996 is not applicable. As the appeal has to be allowed on the preliminary objection, we do not propose to deal with the other aspects involved in the award impugned. For the reasons stated above, the appeal deserves to be allowed and is accordingly allowed setting aside the order impugned. No order as to costs. ________________ T.Meena Kumari, J. ________________________ Nalla Bhuma Narayan Rao, J October 14, 2009 MAS. LR Copy to be marked [1] 2000(1) Arb. LR 326 (Calcutta)