1 IN THE HIGH COURT OF JUDICATURE FOR RAJASTHAN AT JODHPUR. JUDGMENT (1) S.B. Civil Misc. Appeal No.1124/2005 State of Rajasthan Vs. M/s Chandi & Company through District Collector,Banswara & anr. (2) S.B. Civil Misc. Appeal No.1187/2005 State of Rajasthan Vs. M/s Chandi & Company through District Collector,Banswara & anr. Under Section 39 of the Arbitration Act, 1940 against the order dated 23.2.2005 passed by the learned District Judge, Banswara in Civil Misc. Cases No.15/1997 & 16/1997. Date of Judgment: October 25 ,2005. PRESENT HON'BLE MR. PRAKASH TATIA,J REPORTABLE Mr. N.M. Lodha, Addl. Advocate General with Mr. H.R.Soni, Addl. Govt.Advocate for the appellants. Mr. L.R. Mehta, Senior Advocate with Mr. M.Trivedi and Mr. M.R.Mehta for the respondent. BY THE COURT: In view of the fact that the facts are not in dispute and only point of law is involved, facts in short will serve the purpose. 2 The works contract was awarded to the respondent-Company by the Department of Mahi Bajaj Sagar Project, Banswara, a wing of the Irrigation Department of the State of Rajasthan. Because of some dispute, the contractor submitted two separate petitions under Section 20 of the Arbitration Act, 1940 (for short 'the Act of 1940') on 16.12.1989 and 14.3.1990 before the court of District Judge. By the order of the court, arbitrator was appointed and the learned arbitrator passed the two separate awards on 12.3.1997. The said awards were submitted by the learned arbitrator before the court of learned District Judge, Banswara on 13.3.1997. The learned District Judge issued notices to the contractor as well as to the State. The notices were served upon the State on 29.3.1997. The contractor submitted an application under Section 17 of the Act of 1940 and prayed that the award be made rule of the court, whereas the State submitted objections under Sections 30 and 33 of the Act of 1940 with application under Section 5 of the Limitation Act. In reply to the contractor's application under Section 17 of the Act of 1940 as well as in the application under Section 5 Limitation Act, the State submitted that proceedings of arbitration completed under the Act of 1940 but since the award was passed after coming into force of the Arbitration and Conciliation Act, 1996 (for short 'the Act of 1996'), therefore, the proceedings after the award are governed by the Act of 1996 and in view of the fact that under the Act 3 of 1996, objection can be filed within period of 90 days instead of within 30 days as provided under the Act of 1940, therefore, the State's objection against the award is within period of limitation. The State also pleaded that in case the court reaches to the conclusion that the proceedings will be governed by the Act of 1940 then the delay in filing the objection may be condoned. The trial court vide order dated 31.7.1997, proceeded to decide the State's applications filed under Section 5 Limitation Act and while deciding the applications, the trial court observed in its order dated 31.7.1997 that it is not in dispute that the arbitration proceedings were completed and the award was passed under the old Act, therefore, amended Arbitration Act (New Act) will not apply. After recording this position, the trial court in its order dated 31.7.1997 held that State has filed the objection petition after expiry of the limitation for filing the objection petition under the old Act of 1940 and the State failed to disclose sufficient cause for not filing the objection within limitation, therefore, delay in filing the objection cannot be condoned. The trial court, therefore, dismissed the State's application under Section 5 Limitation Act vide order dated 31.7.1997. Against this order of rejection of the application under Section 5 Limitation Act, the State preferred two separate appeals in both the matters which were registered as S.B.Civil Misc. Appeals No.597/97 and 4 598/97. Both these appeals were allowed by the order of this Court dated 30.7.2002 and this Court condoned the delay in filing the objection petition by the State. The matter was remanded back to the learned District Judge. In the backdrop of these facts, the matters came up for consideration on merits before the learned District Judge. The learned District Judge again rejected the State's objections against the award by two separate impugned orders dated 23.2.2005. This time the learned court below reconsidered the issue of applicability of Act of 1940 and Act of 1996 and took a view just contrary to the view taken while deciding application u/s 5 Limitation Act and held that in view of the clause (23)(3) of the contract, the provisions of the Act of 1996 will govern the proceedings and the matter would not be governed by the Act of 1940. The trial court observed that the specific condition no.23 (3) in contract is an agreement of the parties that the parties shall be governed by the enactment which may be in force subsequent to their entering into the agreement and that agreement may be in supersession of the of the Act of 1940. The learned trial court also considered various judgments of the Hon'ble Supreme Court including the judgment delivered in the case of Thyseen v. Steel Authority of India (AIR 1999 SC 3923). The trial court held that the present proceeding shall be 5 governed by the Act of 1996 and the State failed to prove any ground under any clause of the Section 34 on the basis of which the award can be set aside. Therefore, the court below dismissed the objection petitions filed by the State-appellant by order dated 23.3.2005. Hence these two appeals. The question involved in these appeals is whether the court below was right in holding that the arbitration proceedings before the court below are governed by the Act of 1996 and not by the Act of 1940. The learned counsel for the appellants vehemently submitted that it is not in dispute that the arbitration proceedings commenced before coming into force of the Act of 1996 and the award was passed after coming into force of the Act of 1996. Following the procedure as provided in the Act of 1940,the learned arbitrator submitted awards in the District Court and upon which the respondent-contractor itself submitted application under Section 17 of the Act of 1940 and prayed that the award may be made rule of the court. It was never the case of respondent-contractor that the Act of 1996 will govern the procedure, therefore, there is no need for making the award rule of the court. The appellant-State's applications under Section 5 Limitation Act were opposed by the contractor on the ground of limitation under the Act of 6 1940 only and the respondent-contractor successfully got the rejection of appellant's application under Section 5 Limitation Act by taking a plea that objections filed by the appellant-State are barred by time as per the provisions of the Act of 1940. The District Court also after holding that proceedings are governed by the Act of 1940, rejected appellant's application under Section 5 Limitation Act and rejected the appellant's objection petition itself. Against this, the appeals were preferred by the State which were allowed by the High Court and the applications under Section 5 of the Limitation Act were allowed by the High Court and, therefore, the matter was remanded to the trial court for deciding the case on merit. The High Court condoned the delay simply because the proceedings were under the Act of 1940. In these circumstances, by no stretch of imagination, it can be said that parties agreed for application of Act of 1996 where arbitration proceedings commenced under the Act of 1940 and award was passed under the Act of 1940 and the proceedings were initiated before the District Court under the Act of 1940 and were accepted under the Act of 1940, not only by the respondent-contractor but by the District Court itself under the provisions of the Act of 1940. Not only above but the learned District Judge, relying upon those very applications, rejected the petitioner-State's applications under Section 5 of the Limitation Act, by order dated 31.7.1997 after holding that that the proceedings are 7 governed by the Act of 1996 but now the same application and reply of petitioner-State have been made basis for holding that there is agreement of parties for application of the Act of 1996, hence the order is illegal and perverse. The learned counsel for the appellants further vehemently submitted that the appellant-State never gave its consent nor it agreed for application of the Act of 1996. The appellant-State only submitted their contentions in the application based on legal opinion that since the award was passed after coming into force of the Act of 1996, therefore, subsequent proceedings will be governed by the Act of 1996. Since the legal position was not clear, therefore, the appellant-State very specifically pleaded that in case the court reaches to the conclusion that the Act of 1940 would govern the proceeding before the District Court then the delay in filing the objections may be condoned. The court below itself rejected the petitioner's plea that the Act of 1996 will apply and the petitioner did not press his this plea and got the order of condonation of delay in appeal from High Court, then the trial court was wrong in observing that the petitioner agreed for application of the Act of 1996. Therefore, after the order of the District Court on application under Section 5 of the Limitation Act taking a view that proceedings will be governed by the Act of 1940 and after the decision 8 of this Court dated 30.7.2002, neither the court had jurisdiction to apply the Act of 1996 nor the respondent-contractor was justified in submitting that the provisions of the Act 1940 will not apply and the Act of 1996 will apply. Apart from it, according to the learned counsel for the appellants, under the sub-clause (a) if sub-section (2) of Section 85 of the Act of 1996, the parties may agree for application of the Act of 1996 for arbitral proceedings, but according to the learned counsel for the appellants, that agreement of the parties can be before commencement of the arbitral proceedings. The learned counsel for the appellants also submitted that even if for application of the Act of 1996 can be, at any time, even then also agreement of parties for application of the Act of 1996 can be when arbitral proceedings are pending and consent of parties after termination of arbitral proceedings can not make the Act of 1996 applicable and as per Section 32, the arbitration proceeding terminates by when final arbitral award is made. Therefore, the alleged consent for application of the Act of 1996 which in fact is not there, is of no consequence. Rebutting, the learned counsel for the respondent-contractor vehemently submitted that a specific condition No.23(3) has been 9 incorporated in the agreement under which both the parties agreed that the dispute between the parties will be referred to the arbitrator. The parties were conscious that in future there may be statutory amendments/modifications and even there may be possibility of re- enactment of law relating to arbitration and, therefore, they agreed that the matter will not only be governed by the Act of 1940 but in case law is amended or even re-enacted then the arbitral proceeding will be taken under amended law or under re-enactment. In view of this clear contract between the parties, the parties are governed by the Act which is in force at the relevant time. In this case, the award was passed after the coming into force the Act of 1996 and the parties agreement for being governed by the Act of 1996 is also the basis on which the Act of 1996 can be applied. Under the Act of 1996, for this purpose,after keeping the provision of the Act of 1940 alive, specific provision has been made in the Act of 1996 by enacting sub-clause (a) of sub-section (2) of Section 85 of the Act of 1996. The learned counsel for the respondent also submitted that the appellant-State in their application under Section 5 Limitation Act as well as in their reply to the respondent-contractor's application under Section 17 of the Act of 1940 clearly admitted that the proceedings shall be governed by the Act of 1996 and not by the Act of 1940. This was taken note of by the trial court (at page 8 of the impugned orders of the trial court dated 10 23.2.2005) and from the conduct of the respondent also it is clear that they themselves agreed to be governed by the Act of 1996 and the trial court recorded that both the parties are in agreement that the Act of 1996 will apply for deciding the objection of appellant against the award. I considered the submissions of learned counsel for the parties. Both the learned counsels relied upon the judgments of the Hon'ble Apex Court, and the law in detail has been considered by the Hon'ble Supreme Court in the cases of (1) N.S. Nayak & Sons vs. State of Goa ( (2003) 6 SCC 56), (2) Milkfood Ltd. vs. GMC Ice Cream (P) Ltd. ((2004) 7 SCC 288) and Neeraj Munjal and others (III) vs. Atul Grover and another ( (2005) 5 SCC 404). In the earlier judgment in the case of Thyseen Stahlunion Gmbh v. Steel Authority of India Ltd. ( (1999) 9 SCC 334), Hon'ble the Apex Court held that the the parties can agree to applicability of the 1996 Act even before the 1996 Act came into force and when the 1940 Act was still in force. This view has been reiterated in subsequent judgments of the Hon'ble Supreme Court, therefore, the condition no.23 (3) of the terms and conditions which is agreement of the parties to be governed by the any new law, is a valid condition and both the parties 11 are bound by this clause of the contract, which is as under:- “Subject as aforesaid the provisions of the Arbitration Act, 1940 or any statutory modification or re-enactment there of and rules made reunder and for the time being in force shall apply to the arbitration proceeding under this clause.” While interpreting Section 85(2)(a) of the Act 1996, Hon'ble the Apex Court in the case of Thyseen(supra) held that in view of Section 85 (2)(a) ,(1) provisions of the old Act shall apply in relation to arbitral proceedings which commenced before the new Act came into force “unless otherwise agreed by the parties”, and (2) new Act shall apply in relation to arbitral proceeding which commenced on or after the new Act came into force. Hon'ble the Apex Court in Thyseen case held that first limb can further be bifurcated into two; (a) provisions of the old Act shall apply in relation to arbitral proceedings commenced before the new Act came into force, and (b) the old Act will not apply in such cases where the parties agree that it will not apply in relation to arbitral proceedings which commenced before the new Act came into force. In Thyseen case, the arbitral proceedings commenced on 14.9.1995 under the Arbitration Act, 1940. Award was passed on 24.9.1997 which is after coming into force of the Act of 1996. On 13.10.1997, Thyseen filed a petition in the Delhi High Court under Sections 14 and 17 of the old Act for making the award rule of the court. While above proceeding were 12 pending in the High Court, Thyseen on 12.2.1998, filed an application under Section 151, C.P.C. for stay of the proceedings. On the following day, Thyseen filed an application in the High Court for execution of the award under the new Act. The ground taken by Thyseen was that arbitral proceedings had been terminated with the making of the award on 24.9.1997 and, therefore, the new Act was applicable for enforcement of the award. This application was opposed by the Steel Authority of India and, therefore, the question arose for consideration was whether the award would be governed by the new Act for its enforcement or whether the provisions of the old Act would apply. The learned Single Judge of the High Court held that proceedings would be governed by the old Act. Thyseen challenged the judgment of the High Court before the Hon'ble Apex Court. Hon'ble Apex Court in above facts situation held that the provisions of the old Arbitration Act, 1940 shall apply in relation to arbitral proceeding which have commenced before the coming into force of the new Act of 1996. So the enforcement of the award has to be examined on the touch stone of the proceedings held under the old Act. In above case, there was no claim of consent of both the parties to be governed by the Act of 1996 and it was plain and simple case of dispute about the applicability of the Act of 1940 or Act of 1996 in a 13 matter where the arbitral proceedings commenced when the Act of 1940 was in force terminated by making the award after coming into force of the Act of 1996. Ratio decidendi in Thyseen case is that if award is made under the Act of 1940 even after repeal of the Act of 1940 and when the Act of 1996 came into force then award can be enforced under the provisions of the Act of 1940 only and cannot be enforced in terms of provisions of the Act of 1996. In this case there was no plea that the parties ever agreed for application of Act of 1996, therefore, the case is of no help for deciding the controversy though it is relevant because it declared that provisions of old Act of 1940 can be applied to cases decided under old Act for the purpose of giving effect to the award passed after coming into force of Act of 1996. Thyseen case was considered by the Hon'ble in the case of N.S.Nayak (supra). In N.S. Nayak case also, Section 85(2)(a) was under consideration. In S.N. Nayak's case, Hon'ble Apex Court in para no.8 held that it nowhere provides that once the arbitral proceedings have commenced under the old Act, they should be conducted under the new Act as soon as the new Act comes into operation. Therefore, it is clear that in the pending arbitral proceedings, the Act of 1996 cannot be made applicable automatically on or from coming into force of the Act of 1996. In N.S. Nayak case, thereafter, in the same para, Hon'ble Apex 14 Court held as under:- “Hence, in the proceedings where the award is passed under the old Act, the remedy of filing appeal or petition for setting aside the said award would be as per the provisions of the old Act.” Thereby, the Hon'ble Apex Court finally declared that when the award is passed under the old Act, remedy of filing appeal or petition will be governed by the Act of 1940. In para no.9, in N.S.Nayak case, Hon'ble the Apex Court noticed that in Thyseen case the Hon'ble Apex Court has specifically held that once the arbitral proceedings commenced under the old Act then the award can be enforced only under the old Act. The relevant portion from Thyseen case quoted in the N.S.Nayak case is also relevant to decide the controversy in these appeals, which reads:- “To have the award enforced when arbitral proceedings commenced under the old Act under that very Act is certainly an accrued right. Consequences for the party against whom award is given after arbitral proceedings have been held under the old Act through given after the coming into force of the new Act, would be quite grave if it is debarred from challenging the award under the provisions of the old Act.” 15 Therefore, in view of the above, once the award is passed under the old Act, it can be enforced under the old Act. The same provision came up for consideration before the Hon'ble Apex Court in the case of Milk Food Ltd. (supra), wherein again Thyseen case and large number of judgments of the Hon'ble Supreme Court were considered. In para 66 of the judgment of Milk Food Ltd., Hon'ble the Apex Court considered the question of applicability of the Act of 1940 and the Act of 1996. Hon'ble the Apex Court held as under:- “So far as the arbitral proceeding is concerned, service of notice in terms of Chapter II of the 1940 Act shall set the ball in motion where after only the arbitration proceeding commences. Such commencement of arbitration proceeding although in terms of Section 37 of the Act is for the purpose of limitation but it in effect and substance will also be the purpose for determining as to whether the 1940 Act or the 1996 Act would apply.” In view of the above also, it is clear that the commencement of the arbitral proceedings initially govern the applicability of the Act of 1940 and exception is under Section 85(1) of the Act of 1996. In this case also applicability of Act of 1996 upon consent of the parties was not the issue involved and, therefore, in the Milk Food Ltd. case also the question about time by which the parties can agree for applicability of the Act of 1996 was also not decided by the Apex Court which is 16 clear from the observations of the Hon'ble Apex Court in para no.83 of the Milk Food Ltd. case, which reads as under:- “The Court proceeded on the basis that such a change in the procedure before the arbitrator is permissible if the parties agree that the new Act be applicable to the arbitral proceeding when the same is pending before the arbitrator. We are not concerned in the present case with the situation where the parties agree to change in the procedure before the arbitrator. In fact, they did not and, as noticed at the first opportunity, the appellant filed an application for a direction or clarification that the proceeding under the 1940 Act would apply.” In the recent judgment of the Hon'ble Supreme Court delivered in the case of Neeraj Munjal(supra), again the same question was under consideration, whether the 1996 Act or 1940 Act, on facts, applicable. In this case also, the dispute referred to the arbitrator was of before coming into force of 1996 Act and the award was made subsequent to the date of commencement of the Act of 1996. In Neeraj Nunjal case, in fact even the parties did not proceed on the basis that the 1996 Act will govern the arbitral proceedings. In such circumstances the court held that the proceedings arising out of the award would be governed by the provisions of the 1940 Act and not by the provisions of 1996 Act. Hon'ble the Apex Court in case of Neeraj Nunjal also held to the extent that even the Supreme Court did not have any jurisdiction to direct that 17 the award should be enforced in terms of the provisions of the 1996 Act which was not applicable and also held that it also could not have deprived the parties from a remedy which is otherwise available to them under the law. In Neeraj Nunjal case, Hon'ble the Apex Court declared that a court of law has no jurisdiction to direct a matter to be governed by one statue when provisions of another statute are applicable. It is clear from the case law discussed above that in none of the case there was plea of consent of parties for application of the Act of 1996. Therefore, the question survives for determination is that whether the parties can give consent for applicability of the Act of 1996 for arbitral proceedings commenced before the Act of 1996 came into force and if the parties can give consent for