Case: M/S.Thyssen Stahl union Gmbh Vs. Steel Authority Of India

1. The Facts :These three appeals raise three different questions relating to the construction and interpretation of Section 85 of the Arbitration and Conciliation Act, 1996 (the `new Act for short) which contains repeal and saving provision of the three Acts, namely, the Arbitration (Protocol and Convention) Act, 1937, the Arbitration Act, 1940 (the `old Act for short) and the Foreign Awards (Recognition and Enforcement) Act, 1961 (the `Foreign Awards Act for short)2. This Section 85 of the new Act we reproduce at the outset :85. Repeal and saving. - (1) The Arbitration (Protocol and Convention) Act, 1937 (6 of 1937), the Arbitration Act, 1940 (10 of 1940) and the Foreign Awards (Recognition and Enforcement) Act, 1961 (45 of 1961) are hereby repealed(a) the provisions of the said enactments shall apply in relation to arbitral proceedings which commenced before this Act came into force unless otherwise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 to 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.. In the case of Thyssen Stahlunion GMBH (CA No. 6036 of 1998) the contract for sale and purchase of prime cold rolled mild steel sheets in coils contains arbitration agreement. Relevant Clauses are as under :E 12 : LEGAL INTERPRETATION12.1 This contract shall be governed and construed in accordance with the Laws of India for the time being in force12.2 To interpret all commercial terms and abbreviations used herein which have not been otherwise defined, the rules of INCOTERMS 1990 shall be appliedCLAUSE 13 : SETTLEMENT OF DISPUTESAll disputes or differences whatsoever between the parties hereto arising out of or relating to the construction, meaning or operation or effect of this contract or the breach thereof shall unless amicably settled between the parties hereto; be settled by arbitration in accordance with the Rules of Conciliation and Arbitration of the International Chamber of Commerce (ICC), Paris, France by a sole Arbitrator appointed by the Chairman of the Arbitral Tribunal of the Court of Arbitration of ICC and the Award made in pursuance thereof shall be binding on both the parties. The venue for the arbitration proceedings shall be New Delhi, India.4. Disputes and differences having arisen, the arbitration proceedings commenced on September 14, 1995 under the old Act. On this date request for arbitration was made to the ICC under the arbitration clause in the contract. Mr. Cecil Abraham of the Malaysian Bar was appointed sole arbitrator on November 15, 1995. Terms of reference in the arbitration were finalised on May 13, 1996. Hearing before the sole arbitrator took place from January 7, 1997 till January 28, 1997. Award was given on September 24, 1997. By this time on January 25, 1996 the new Act had come into force. On October 13, 1997 Thyssen filed a petition in the Delhi High Court under Sections 14 and 17 of the old Act for making the award rule of court (Arbitration Suit No. 352-A/97). While these proceedings were pending in the High Court, Thyssen, on February 12, 1998, filed an application under Section 151 of the Code of Civil Procedure for stay of the proceedings. On the following day Thyssen filed an application in the High Court for execution of the award under the new Act (Execution Petition No. 47/98). The ground taken was that the arbitration proceedings had been terminated with the making of the award on September 24, 1997 and, therefore, the new Act was applicable for enforcement of the award. The respondent, Steel Authority of India Ltd. (SAIL) opposed the maintainability of the execution petition. SAIL also filed objections to the award on various grounds under the old Act. The question which arose for consideration is :r the award would be governed by the new Act for its enforcement or whether provisions of the old Act would apply ?5. A learned single Judge of the Delhi High Court by judgment dated September 21, 1998 held that proceedings would be governed by the old Act. Thyssen Stahlunion GMBH feeling aggrieved filed this appeal.. In the case of Western Shipbreaking Corporation (CA No. 4928 of 1997) under Memorandum of Agreement dated November, 4, 1994 M/s. Clareheaven Ltd. agreed to sell to Western Shipbreaking Corporation a ship M.V.K. Kaldera. Clause (19) of the Memorandum of Agreement contained arbitration clause which is as under :If any dispute should arise in connection with the interpretation in fulfillment of this contract, same shall be decided by arbitration in the city of London, U.K. with English law to apply and shall be referred to a single arbitrator to be appointed by the parties hereto. If the parties cannot agree on the appointment of the single arbitrator, the dispute shall be settled by three arbitrators, each party appointing one arbitrator the third being appointed by London Maritime Arbitration (sic) Association in LondonIf one party fails to appoint an arbitrator either or by way of substitution for two weeks after the other party having appointed his arbitrator has sent the party making default notice by mail, cable or telex to make the appointment, London Maritime Arbitration (sic) Association shall after application from the party having appointed his arbitrator also appoint on behalf of the party making defaultThe Award rendered by, the arbitrators shall be final binding upon the parties and may if necessary be enforced by any court or any other competent authority in the same manner as a document in the court of justice.. Arbitration proceedings in this case were held in United Kingdom prior to the enforcement of the new Act. The award was made on February 25, 1996 in London. The question which arises for consideration is :Whether the award is governed by the provisions of the new Act for its enforcement or by the Foreign Awards Act ?. A learned single Judge of the Gujarat High Court by the impugned judgment dated April 21, 1997 held that the new Act would be applicable. Western Shipbreaking Corporation is aggrieved and filed appeal against that judgment (CA 4928/97)9. In the case of M/s. Rani Constructions Pvt. Ltd. (CA No. 61 of 1999) under the contract which was for the construction of certain works of the Himachal Pradesh State Electricity Board, there was an arbitration agreement contained in clause 25 which, in relevant part, is as under :Subject to the provisions of the contract to the contrary as aforesaid, the provisions of the Indian Arbitration Act, 1940 or any statutory modification or re-enactment thereof and the rules made thereunder and for the time being in force shall apply to all arbitration proceedings under this clause.. Disputes having arisen, these were referred to the sole arbitrator on December 4, 1993. The arbitrator gave his award on February 23, 1996 after the new Act had come into force. On account of difference of opinion in two judgments of the Himachal Pradesh High Court, both rendered by single Judges, as to whether it is old or new Act will apply, a learned single Judge of the High Court referred the following question to a larger Bench :Whether the agreement referred to in Section 85(2)(a) of the Act of 1996 for the purpose of applicability of the said Act to the pending arbitral proceedings which had already commenced under the Act of 1940 is one necessarily to be entered into after the commencement of the Act of 1996 or any clause to that effect in an agreement already entered into between the parties before the enforcement of the Act of 1996 would sufficient for that purpose ?. Reference question does not appear to have been happily worded. What it means is that when clause (a) of Section 85(2) of the new Act uses the expression unless otherwise agreed by he parties can the parties agree for the applicability of the new Act before the new Act comes into force or they have necessarily to agree only after the new Act comes into force12. The Division Bench of the High Court by the impugned judgment dated 16, 1998 held that clause 25 of the agreement does not admit of interpretation that this case is governed by Act of 1996.

Reasoning:
34. Section 85(2)(a) of the new Act is in two limbs : (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 proceedings which commenced on or after the new Act came into force. First limb can further be bifurcated into two : (a) Provisions of old Act shall apply in relation to arbitral proceedings commenced before the new Act came into force and (b) 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. The expression in relation to is of widest import as held by various decisions of this Court in M/s. Doypack Systems Pvt. Ltd. [1988] 2 SCC 299 ; Mansukhlal Dhanraj Jain & On. [1995] 2 SCC; M/s. Dhanrajamal Gobindram [1961] 3 SCR 1020  and Naveen Chemicals Mfg. and Ors. [1993] 4 SCC 320 . This expression in relation to has to be given full effect to, particularly when read in conjunction with the word the provisions of the old Act. That would mean that the old Act will apply to whole gambit of arbitration culminating in the enforcement of the award. If it was not so, only the word to could have sufficed and when the legislature has used the expression in relation to, a proper meaning has to be given. This expression does not admit of restrictive meaning. First limb of Section 85(2)(a) is not a limited saving clause. It saves not only the proceedings pending at the time of commencement of the new Act but also the provisions of the old Act for enforcement of the award under that Act.35. The contention that if it is accepted that the expression in relation to arbitral proceedings would include proceedings for the enforcement of the award as well, the second limb of Section 85(2)(a) would become superfluous. We do not think that would be so. The second limb also takes into account the arbitration agreement entered into under the old Act when the arbitral proceedings commenced after the coming into force of the new Act. Reference in this connection be made to a decision of this Court in MMTC Ltd. v. Sterlite Industries (India) Ltd. (1996) 6 SCC7 16 where this Court held that validity of an arbitration agreement did not depend on the number of arbitrators specified in Section 7 of the new Act and that the number of arbitrators is dealt with separately under Section 10 of that Act which is a part of machinery provision for working of the arbitration agreement. In this case the question which came up for decision was the effect of the new Act on the arbitration agreement made prior to the commencement of the new Act which provided for appointment of one arbitrator by each of the parties who shall appoint an umpire before proceeding with the reference. The agreement was entered into on December 14, 1993 before the coming into force of the new Act. Section 10 of the new Act provides that parties are free to determine the number of arbitrators, provided that such number shall not be an even number. Further failing the determination of odd number of arbitrators, the arbitral tribunal shall consist of a sole arbitrator. This Court upheld the validity of the arbitration agreement dated December 14, 1993 and directed the Chief Justice of the High Court concerned to appoint the third arbitrator under Section 11(4)(b) of the new Act in view of the failure of the two appointed arbitrators to appoint the third arbitrator. In this case it may be noticed that the respondent had invoked arbitration clause in the agreement by letter dated January 19, 1996 which was received by the appellant on January 31, 1996. The arbitral proceedings would, therefore, commence under Section 21 of the new Act on January 31, 1996 as by that time new Act had come into force.36. In this view of the matter, Section 6 of the General Clauses Act would be inapplicable. It is, therefore, not necessary for us to examine if any right to enforce the award under the old Act accrued to a party when arbitral proceedings had commenced before the coming into force of the new Act and the SAIL (CA 6036/98) had acquired a right to challenge the award made under the old Act and there would be corresponding right with the Thyssen to enforce the award under the old Act.37. Present day the courts tend to adopt purposive approach while interpreting the statute which repeals the old law and for that purpose to take into account the objects and reasons which led to the enacting of the new Act. We have seen above this approach was adopted by this Court in MMTC Ltd.s case (1996) 6 SCC7 16 . Provisions of both the Acts, old and new are very different and it has been so observed in Sundaram Finance Ltd.s case [1999] 1 SCR 89 . In that case, this Court also said that provisions of the new Act have to be interpreted and construed independently and that in fact reference to old Act may actually lead to the misconstruction of the provisions of the new Act, The Court said that it will be more relevant, while construing the provisions of the new Act, to refer to the UNCITRAL Model Law rather than the old Act. In the case of Kuwait Minister of Public Works v. Sir Frederick Snow and Partners (1984) 1 ALL ER 733 HL the award was given before Kuwait became party to the New York Convention recognised by Order in Council in England. House of Lords held that though a foreign award could be enforced in England under the (U.K.) Arbitration Act, 1975 as when the proceedings for enforcement of the award were initiated in England Kuwait had become party to the Convention. It negatived the contention that on the date the award was given Kuwait was not party to the New York Convention.39. Section 85(2)(a) is the saving clause. It exempts the old Act from complete obliteration so far as pending arbitration proceedings are concerned. That would include saving of whole of the old Act up till the time of the enforcement of the award. This Section 85(2)(a) prevents the accrued right under the old Act from being affected. Saving provision preserves the existing right accrued under the old Act. There is a presumption that Legislature does not intend to limit or take away vested rights unless the language clearly points to the contrary. It is correct that the new Act is a remedial statute and, therefore, Section 85(2)(a) calls for strict construction, it being a repealing provision. But then as stated above where one interpretation would produce an unjust or an inconvenient result and another would not have those effects, there is then also a presumption in favour of the latter.40. Enforcement of the award, therefore, has to be examined on the touchstone of the proceedings held under the old Act.41. Various decisions have been cited before us to show as to what is a mere right and what is right accrued or acquired. We have to examine this question with reference to the provisions of Section 6 of the General Clauses Act if it could be said that when the arbitral proceedings have commenced under the old Act, a party has acquired a right to have the award given thereafter enforced under the old Act.43. Principles enunciated in the judgments show as to when a right accrues to a party under the repealed Act. It is not necessary that for the right to accrue that legal proceedings must be pending when the new Act comes into force. 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 parties against whom award is given after arbitral proceedings have been held under the old Act though 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. Structure of both the Acts is different. When arbitral proceedings commenced under the old Act it would be in the mind of everybody, i.e., arbitrators and the parties that the award given should not fall foul of Sections 30 and 32 of the old Act. Nobody at that time could have thought that Section 30 of the old Act could be substituted by Section 34 of the new Act. As a matter of fact appellant Thyssen in Civil Appeal No. 6036/98 itself understood that the old Act would apply when it approached the High Court under Sections 14 and 17 of the old Act for making the award rule of the Court. It was only later on that it changed the stand and now took the position that new Act would apply and for that purpose filed an application for execution of the award. By that time limitation to set aside the award under the new Act had elapsed. Appellant itself led the respondent SAIL in believing that the old Act would apply. SAIL had filed objections to the award under Section 30 of the old Act after notice for filing of the award was received by it on the application filed by the Thyssen under Sections 14 and 17 of the old Act. We have been informed that numerous such matters are pending all over the country where the award in similar circumstances is sought to be enforced or set aside under the provisions of the old Act. We, therefore, cannot adopt a construction which would lead to such anomalous situations where the party seeking to have the award set aside finds himself without any remedy. We are, therefore, of the opinion that it would be the provisions of the old Act that would apply to the enforcement of the award in the case of Civil Appeal No. 6036 of 1998. Any other construction on the Section 85(2)(a) would only lead to the confusion and hardship. This construction put by us is consistent with the wording of Section 85(2)(a) using the terms provision and in relation to arbitral proceedings which would mean that once the arbitral proceedings commenced under the old Act it would be the old Act which would apply for enforcing the award as well.44. Because of the view of Section 85(2)(a) of the new Act which we have taken, it is not necessary for us to consider difference in the repealing provisions as contained in Section 48 of the old Act and Section 85 of the new Act. We may, however, note that under Section 48 of the old Act concept is of reference while under the new Act it is commencement. Section 2(e) of the old Act defines reference. Then under Section 48 the word used is to, and under Section 85(2)(a) the expression is in relation to. It, therefore, also appears that it is not quite relevant to consider the provision of Section 48 of the old Act to interpret Section 85(2)(a).46. 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. Arbitration clause in the contract in the case of Rani Constructions (Civil Appeal 61 of 1999) uses the expression for the time being in force meaning thereby that provision of that Act would apply to the arbitration proceedings which will be in force at the relevant time when arbitration proceedings are held. We have been referred to two decisions - one of Bombay High Court and the other of Madhya Pradesh High Court on the interpretation of the expression for the time being in force and we agree with them that the expression aforementioned not only refers to the law in force at the time the arbitration agreement was entered into but also to any law that may be in force for the conduct of arbitration proceedings, which would also include the enforcement of the award as well. Expression unless otherwise agreed as appearing in Section 85(2)(a) of the new Act would clearly apply in the case of Rani Construction in Civil Appeal No. 61 of 1999. Parties were clear in their minds that it would be the old Act or any statutory modification or re-enactment of that Act which would govern the arbitration. We accept the submission of the appellant Rani Construction that parties could anticipate that the new enactment may come into operation at the time the disputes arise. We have seen Section 28 of the Contract Act. It is difficult for us to comprehend that arbitration agreement could be said to be in restraint of legal proceedings. There is no substance in the submission of respondent that parties could not have agreed to the application of the new Act till they knew the provisions thereof and that would mean that any such agreement as mentioned in the arbitration clause could be entered into only after the new Act had come into force. When the agreement uses the expressions unless otherwise agreed and law in force it does give option to the parties to agree that new Act would apply to the pending arbitration proceedings. That agreement can be entered into even before the new Act comes into force and it cannot be said that agreement has to be entered into only after coming into force of the new Act.48. The Court held that these terms in the clause disclosed that the parties had agreed to be governed by the law which was in force at the time of execution of the arbitration agreement as well as by any further statutory changes that may be brought about in such law. This is how the High Court considered the issue before it:Considering the scheme of the Act, harmonious reading of the said provision contained in Sub-section (2) of Section 85 thereof would disclose that the reference otherwise agreed necessarily refers to the intention of the parties as regards the procedure to be followed in the matter of arbitration proceedings and not to the time factor as regards execution of the agreements. It provides that though the law provides that the provisions of the old Act would continue to apply to the pending proceedings by virtue of the said saving clause in Section 85, it simultaneously provides that the parties can agree to the contrary. Such a provision leaving it to the discretion of the parties to the proceedings to decide about the procedure to be followed - other in terms of the new Act or the old Act - is certainly in consonance with the scheme of the Act, whereunder most of the provisions of the new Act, the procedure regarding various stages of the arbitration proceedings is made subject to the agreement to the contrary between the parties, thereby giving ample freedom to the parties to decide about the procedure to be followed in such proceedings; being so, it is but natural that the legislature in its wisdom has left it to the option of the parties in the pending proceedings to choose the procedure for such pending proceedings. The reference otherwise agreed by the parties in Section 85(2)(c) of the new Act, therefore, would include an agreement already entered into between the parties even prior to enforcement of the new Act as also the agreement entered into after enforcement of the new Act. Such a conclusion is but natural since the expression otherwise agreed do not refer to the time factor but refers to the intention of the parties regarding applicability of the provisions of the new or old Act.We agree with the High Court on interpretation put to the arbitration clause in the contract.49. Section 28 of the Contract Act contains provision regarding agreements in the restraint of legal proceedings. Exception 1 to Section 28 of the Contract Act does not render illegal a contract by which the parties agree that any future dispute shall be referred to arbitration. That being so parties can also agree that the provisions of the arbitration law existing at that time would apply to the arbitral proceedings. It is not necessary for the parties to know what law will be in force at the time of the conduct of arbitration proceedings. They can always agree that provisions that are in force at the relevant time would apply. In this view of the matter, if the parties have agreed that at the relevant time provisions of law as existing at that time would apply, there cannot be any objection to that. Thus construing the Clause 25, in Rani Constructions (CA 61/99) new Act will apply.50. Foreign Awards Act gives the party right to enforce the foreign award under that Act, But before that right is exercised Foreign Awards Act has been repealed. It cannot, therefore, be said that any right had accrued to the party for him to claim to enforce the foreign award under the Foreign Awards Act. After the repeal of the Foreign Awards Act a foreign award can now be enforced under the new Act on the basis of the provisions contained in Part II of the new Act depending whether it is a New York Convention Award or Geneva Convention Award. It is irrespective of the fact when the arbitral proceedings commenced in a foreign jurisdiction. Since no right has accrued Section 6 of the General Clauses Act would not apply.51. In the very natural of the provisions of Foreign Awards Act it is not possible to agree to the submissions that Section 85(2)(a) of the new Act would keep that Act alive for the purpose of enforcement of a foreign award given after the date of commencement of the new Act though arbitral proceedings in foreign land had commenced prior to that. It is correct that Section 85(2)(a) uses the words the said enactments which would include all the three Acts, i.e., the old Act, Foreign Awards Act and the Arbitration (Protocol and Convention) Act, 1937. Foreign Awards Act and even the 1937 Act contain provisions only for the enforcement of the foreign award and not for the arbitral proceedings. Arbitral proceedings and enforcement of the award are two separate stages in the whole process of arbitration. When the Foreign Awards Act does not contain any provision for arbitral proceedings it is difficult to agree to the argument that in spite of that the applicability of the Foreign Awards Act is saved by virtue of Section 85(2)(a). As a matter of fact if we examine the provisions of Foreign Awards Act and the new Act there is not much difference for the enforcement of the foreign award. Under the Foreign Awards Act when the court is satisfied that the foreign award is enforceable under that Act the court shall order the award to be filed and shall proceed to pronounce judgment accordingly and upon the judgment so pronounced a decree shall follow. Sections 7 and 8 of the Foreign Awards Act respectively prescribe the conditions for enforcement of a foreign award and the evidence to be produced by the party applying for its enforcement. Definition of foreign award is same in both the enactments. Sections 48 and 47 of the new Act correspond to Sections 7 and 8 respectively of the Foreign Awards Act. While Section 49 of the new Act states that where the court is satisfied that the foreign award is enforceable under this Chapter (Chapter I, Part II, relating to New York Convention Awards) the award is deemed to be decree of that court. The only difference, therefore, appears to be that while under the Foreign Awards Act a decree follows, under the new Act foreign award is already stamped as the decree. Thus if provisions of the Foreign Awards Act and the new Act relating to enforcement of the foreign award are juxtaposed there would appear to be hardly any difference.52. Again a bare reading of the Foreign Awards Act and the Arbitration (Protocol and Convention) Act, 1937 would show that these two enactments are concerned only with recognition and enforcement of the foreign awards and do not contain provisions for the conduct of arbitral proceedings which would, of necessity, have taken place in a foreign country. The provisions of Section 85(2)(a) in so far these apply to the Foreign Awards Act and 1937 Act, would appear to be quite superfluous. Literal interpretation would render Section 85(2)(a) unworkable. Section 85(2)(a) provides for a dividing line dependent on commencement of arbitral proceedings which expression would necessarily refer to Section 2110 of the new Act. This Court has relied on this Section as to when arbitral proceedings commence in the case of Shettys Construction Co. P. Ltd. v. Konkan Railway Construction AIR 1999 SC 1535 . Section 2(2)11 read with Section 2(7)12 and Section 21 falling in Part-I of the new Act make it clear that these provisions would apply when the place of arbitration is in India, i.e., only in domestic proceedings. There is no corresponding provision anywhere in the new Act with reference to foreign arbitral proceedings to hold as to what is to be treated as date of commencement in those foreign proceedings. We would, therefore, hold that on proper construction of Section 85(2)(a) the provision of this sub-section must be confined to the old Act only. Once having held so it could be said that Section 6 of the General Clauses Act would come into play and foreign award would be enforced under the Foreign Awards Act. But then it is quite apparent that a different intention does appear that there is no right that could be said to have been acquired by a party when arbitral proceedings are held in a place resulting in a foreign award to have that award enforced under the Foreign Awards Act.53. We, therefore, hold that the award given on September 24, 1997 in the case of Thyssen Stahlunion GMBH v. Steel Authority of India Ltd. AIR 1999 SC 3923 when the arbitral proceedings commenced before the Arbitration and Conciliation Act, 1996 came into force on 22nd August 1996, would be enforced under the provisions of Arbitration Act, 1940. We also hold that Clause 25 containing the arbitration agreement in the case of Rani Constructions Pvt. Ltd. v. Himachal Pradesh State Electricity Board Civil Appeal No. 61 of 1999 does admit of interpretation that the case is governed by the provisions of the Arbitration and Conciliation Act, 1996. We further hold that the foreign award given in the case of Western Shipbreaking Corporation v. Clareheaven Ltd. (1997) 3 GLR 1984  would be governed by the provisions of the Arbitration and Conciliation Act, 1996.