PURUSHOTTAM S/O TULSIRAM BADWAIK versus ANIL & ORS.
[2018] 4 S.C.R. 347, Supreme Court of India, 2018
Outcome: Appeal(s) allowed (Granted)
Segment: Issues
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PURUSHOTTAM S/O TULSIRAM BADWAIK
v.
ANIL & ORS.
(Civil Appeal No. 4664 of 2018)
MAY 02, 2018
 [ARUN MISHRA AND UDAY UMESH LALIT, JJ.]
Arbitration and Conciliation Act, 1996 – s.85(2)(a) –
Partnership Agreement dtd. 9.11.2005 between the appellant and
respondents – Though, the said agreement was entered into after
the 1996 Act had come into force, the relevant clause stated
arbitration to be in accordance with the provisions of the 1940 Act
– Respondents filed civil suit inter alia for injunction against the
appellant – Appellant filed application u/s.8 of the 1996 Act to refer
the dispute to arbitration – Trial Court as also High Court rejected
the application – Issue as to applicability of the 1996 Act vis-a-vis
1940 Act  – On appeal, held: What is material for the purposes of
the applicability of 1996 Act is the agreement between the parties
to refer the disputes to arbitration – In the instant case,
basic requirements for an “arbitration agreement” are satisfied – If
there be such an arbitration agreement which satisfies the
requirements of s.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 – In terms of s.85(2)(a) of the 1996
Act,  the governing provisions in respect of arbitral
proceedings
which had not commenced before the 1996 Act had come into force
would be those of 1996 Act alone – An incorrect reference or recital
regarding applicability of 1940 Act would not render the
entire arbitration agreement invalid – Judgment of High Court is
set aside – Arbitration Act, 1940.
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Allowing the appeal, the Court
HELD: 1.1 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 exchange
of communication as well. These requirements as stipulated in
Section 7, Arbitration and Conciliation Act, 1996 are certainly
satisfied in the present matter. Sub-section (1) of Section 85 of
the 1996 Act repealed three enactments including Indian
Arbitration Act, 1940.  Sub-section (2) stipulates inter alia that
notwithstanding such repeal, the repealed enactment namely 1940
Act would continue to apply in relation to arbitral proceedings
which had commenced before 1996 Act came into force unless
the parties were to agree otherwise.  The second limb of first
clause of said sub-section (2) further stipulates that
notwithstanding such repeal the provisions of 1996 Act would
apply in relation to arbitral proceedings which commenced on or
after 1996 Act came into force. [Paras 10, 11][354-B-C, G-H;
355-A]
1.2  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.  [Para 13][358-E]
1.3 The High Court had placed reliance on certain
observations in paragraph 35 of Thyssen case. However, the
observations were quoted and relied upon by the High Court
completely out of context. What this Court considered in
paragraph 35 of the said case was a possibility that in terms of
Section 85(2)(a) of 1996 Act even when the proceedings had
commenced under 1940 Act, the parties could still agree on the
applicability of the 1996 Act. What this Court thereafter stated
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was the position in law that if the arbitral proceedings had not
commenced before 1996 Act came into force, the parties could
not by their agreement agree on the applicability of 1940 Act.
The idea was to emphasize that if the arbitral proceedings had
not commenced as on the day when 1996 Act came into force,
any subsequent commencement of arbitral proceedings had to
be in terms of 1996 Act. These observations do not in any way
suggest that, “if the arbitral proceedings had not commenced
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 that there can be no arbitration
at all.  [Para 15][359-E-H]
1.4 The correct approach, would be in promoting the object
of implementing the scheme of alternative dispute resolution. It
would be farfetched to come to the conclusion that there could
be no arbitration at all. 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 discernible from
the arbitration agreement to refer the disputes to arbitration.
The High Court was not right in observing that there could be no
arbitration at all in the present case. In situations where the
relevant clause made reference to the applicability of “the
provisions of  the Indian Arbitration Act and Rules made
thereunder”, on the strength of Section 85(2)(a) the governing
provisions in respect of arbitral proceedings which had not
commenced before 1996 had come into force would be those of
1996 Act alone. On the same reasoning 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
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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.  Such stipulation will have to be read in the
light of Section 85 of 1996 Act and principles governing such
relationship have to be under and in tune with 1996 Act. The
requirements of “arbitration agreement” as stipulated in Section
7 of 1996 Act stand completely satisfied in the present matter
nor was there any suggestion that the agreement stood vitiated
on account of any circumstances in the realm of undue influence,
fraud, coercion or misrepresentation. In the circumstances, the
attempt must be to sub-serve the intent of the parties to resolve
the disputes by alternative disputes resolution mechanism. The
High Court was, therefore, completely in error. The matter will
have to be dealt with by the trial court in terms of Section 8 of
1996 Act. [Paras 16, 17 and 19][360-A-H; 361-C]
Thyssen Stahlunion GMBH v. Steel Authority of India
Ltd. (1999) 9 SCC 334 : [1999] 3 Suppl. SCR 461 –
distinguished.
M.M.T.C. Limited  v. Sterlite Industries (India) Ltd.
(1996) 6 SCC 716 : [1996] 8 Suppl.  SCR  676 – relied
on.
Rajan Kumar Verma and Anr. v. Sachchidanand Singh
AIR 2006 Patna 1 – not approved.
Kunhayammed and Others v. State of Kerala and
Another (2000) 6 SCC 359 : [2000] 1 Suppl. SCR
538 ; Indian Oil Corporation Ltd.
v. State of  Bihar &
Ors. (1986) 4 SCC 146 : [1986] 3 SCR 553 – referred
to.
Case Law Reference
[1999] 3 Suppl. SCR 461
distinguished
 Para 5
AIR 2006 Patna 1
not approved
 Para 5
[1996] 8 Suppl. SCR  676
relied on
 Para 12
[2000] 1 Suppl. SCR  538
referred to
 Para 18
[1986] 3 SCR 553
referred to
 Para 18
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CIVIL APPELLATE JURISDICTION :  Civil Appeal No. 4664
of 2018.
From the Judgment and Order dated 10.12.2015 of the High Court
of Judicature at Bombay at Nagpur in Civil Revision Application No. 88
of 2015.
Chirag M. Shroff, Ms. Neha Sangwan, Ms. Sanjana Nangia, Advs
for the Appellant.
Amol Nirmalkumar Suryawanshi, Adv for the Respondent.
The Judgment of the Court was delivered by
UDAY UMESH LALIT, J. 1. Leave granted.
2. Rejection of application preferred by the appellant under Section
8 of the Arbitration and Conciliation Act, 1996 (“1996 Act” for short) as
affirmed by the High Court of Bombay at Nagpur by its judgment and
order dated 10.12.2015 in Civil Revision Application No.88 of 2015, is
under challenge in this appeal.
3. The appellant and the respondents had entered into a Partnership
Agreement dated 09.11.2005.  Clause 15 of said Partnership Agreement
was as under:
“15)  That in case of any dispute between the partners as regards
interpretation of this Deed or any other matter connected with
the partnership business, the same shall be referred to for arbitration
in accordance with the provisions of Indian Arbitration Act, 1940,
and the decision of the Arbitrator shall be final and binding on all
the partners.”
4. The appellant had also executed a registered Power of Attorney
on 28.12.2006 in favour of the partners.  In April 2014 the respondents
filed Special Civil Suit No.16 of 2014 in the Court of Civil Judge, Senior
Division, Bhandara for
declaration, damages, accounts and permanent
injunction against the appellant.  Soon after receipt of the notice, the
appellant preferred an application under Section 8 of 1996 Act to refer
the dispute to arbitration in view of aforesaid clause 15 in the Partnership
Agreement.  The matter was contested.  The Trial Court rejected said
application by its order dated 05.01.2015.  It was held that aforesaid
clause 15 was vague, that there was no reference as to who should be
the arbitrator, that there was no mention about selection of the arbitrator
and that the dispute did not form subject matter of agreement within the
meaning of Section 8 of 1996 Act.
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5. The matter was carried further by the appellant by filing Civil
Revision Application No.88 of 2015 in the High Court.  The High Court
took the view that the relevant clause indicated agreement between the
parties to refer the disputes to arbitration as per provisions of the Indian
Arbitration Act, 1940, (1940 Act, for short) 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.1 and on the decision
of a learned Single Judge of the Patna High Court in Rajan Kumar
Verma and anr. v. Sachchidanand Singh2, 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 1940 till the Act of 1996 came into force, same could
not be commenced thereafter.  It has further been observed that
there is a bar to agree to the applicability of the Act of 1940 after
the Act of 1996 has come into force.
Similar view taken in Rajan Kumar Verma (supra) by learned
Single Judge of the Patna High Court stands upheld in view of
rejection of the challenge thereto before the Supreme Court.”
The High Court thus rejected the challenge and dismissed said
Civil Revision by its judgment under appeal.
6. In support of this appeal, Mr. Chirag M. Shroff, learned Advocate
submitted :-
1 (1999) 9 SCC 334
2 AIR 2006 Patna 1
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(a) The reference to the 1940 Act in the partnership deed dated
09.11.2005 has to be necessarily referred to Arbitration process,
as prevalent on the date of signing of the Agreement.
(b) The mention of 1940 Act will not defeat the intention of the
parties to go for arbitration as a dispute resolution mechanism.
7. On the other hand, Mr. Amol Nirmalkumar Suryawanshi, learned
Advocate appearing for the respondent submitted that the question as to
whether 1996 Act or 1940 Act would govern the relationship between
the parties was so fundamental that mistakes in that behalf would
invalidate the entire arbitration clause and as such the courts below were
justified in rejecting the submissions advanced by the appellant.
8. In the present case though the Partnership Agreement was
entered into after 1996 Act had come into force, the relevant clause
made reference to “arbitration in accordance with the provisions of Indian
Arbitration Act, 1940”.  It is not the case of the respondent that the
agreement between the parties suffered from any infirmity on account
of fraud, coercion, undue influence or misrepresentation.  What is however
projected is that the reference to arbitration in terms of 1940 Act was
such a fundamental mistake that it would invalidate the entire arbitration
clause and as such there could not be any reference to arbitration at all.
9. The term “Arbitration Agreement” has been defined in Section
7 of 1996 Act as under :-
“7.  Arbitration
agreement. – (1)  In this Part, “arbitration
agreement” means an agreement by the parties to submit to
arbitration all or certain disputes which have arisen or which may
arise between them in respect of a defined legal relationship,
whether contractual or not.
(2)  An arbitration agreement may be 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
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[UDAY UMESH LALIT, J.]
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(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 exchange of communication as well.   These requirements as stipulated
in Section 7 are certainly satisfied in the present matter.  The question
however remains is whether reference to 1940 Act in the agreement
would have any bearing.  At this stage, we may consider the provisions
of Section 85 of 1996 Act which Section is to the following effect:
“85. Repeal and savings – (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.
(2) Notwithstanding such repeal, -
(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 extend to which they are not repugnant to
this Act, be deemed respectively to have been made or issued
under this Act.”
11. Sub-section (1) of Section 85 repealed three enactments
including 1940 Act.  Sub-section (2) stipulates inter alia that
notwithstanding such repeal, the repealed enactment namely 1940 Act
would continue to apply in relation to arbitral proceedings which had
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commenced before 1996 Act came into force unless the parties were to
agree otherwise.  The second limb of first clause of said sub-section (2)
further stipulates that notwithstanding such repeal the provisions of 1996
Act would apply in relation to arbitral proceedings which commenced
on or after 1996 Act came into force.
12. In M.M.T.C. Limited v. Sterlite Industries (India) Ltd.3,
the arbitration agreement was of a date prior to the commencement of
1996 Act.  The commencement of arbitral proceedings was however
after 1996 Act had come into force and as such it was held by this Court
in paragraph 11 that the provisions of 1996 Act would apply.  Further, the
arbitration clause contemplated appointment of two arbitrators and a
question also arose whether the appointment of arbitrators had to be in
tune with the clause in question or in terms of the provisions of 1996
Act.  Paragraph Nos.1, 4, 5, 8, 10, 11, 12, and 13 of said decision are
quoted hereunder 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.”
   (emphasis supplied)
3 (1996) 6 SCC 716
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[UDAY UMESH LALIT, J.]
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4. The contention of the learned Attorney General on behalf of
the appellant is that an arbitration agreement providing for the
appointment of an even number of arbitrators is not a valid
agreement because of Section 10(1) of the New Act; and,
therefore, the only remedy in such a case is by a suit and not by
arbitration. For this reason, he urged, that sub-section (2) of Section
10 is not attracted since there is no failure to determine the number
of arbitrators according to sub-section (1). Another argument of
the learned Attorney General was that Section 10 is a departure
from para 2 of the First Schedule of the Arbitration Act, 1940 (for
short the 1940 Act), which reads as under:
“2. If the reference is to an even number of arbitrators the
arbitrators shall appoint an umpire not later than one month
from the latest date of their respective appointments.”
5. In reply Shri Dave, learned counsel for the respondent,
contended that there is no such inconsistency between Section 10
of the New Act and the corresponding provision in the 1940 Act,
both being substantially the same. The learned counsel contended
that the provisions of the New Act must be construed to promote
the object of implementing the scheme of alternative dispute
resolution; and the New Act must be construed to enable the
enforcement of the earlier arbitration agreements. It was urged
that each of the parties having nominated its arbitrator, the third
arbitrator was required to be appointed according to Section 11(3)
and the failure to do so attracts the consequential results under
the New Act. The learned counsel contended that the provision
for the number of arbitrators is a machinery provision and does
not affect the validity of the arbitration agreement which is to be
determined according to Section 7 of the New Act.
8. Sub-section (3) of Section 7 requires an arbitration agreement
to be in writing and sub-section (4) describes the kind of that
writing. There is nothing in Section 7 to indicate the requirement
of the number of arbitrators as a part of the arbitration agreement.
Thus the validity of an arbitration agreement does not depend on
the number of arbitrators specified therein. The number of
arbitrators is dealt with separately in Section 10 which is a part of
machinery provision for the working of the arbitration agreement.
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It is, therefore, 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 and, therefore, the New Act applies. In view of
the term in the arbitration agreement that the two arbitrators would
appoint the umpire or the third arbitrator before proceeding with
the reference, the requirement of sub-section (1) of Section 10 is
satisfied and sub-section (2)
thereof has no application. As earlier
stated the agreement satisfies the requirement of Section 7 of the
Act and, therefore, is a valid arbitration agreement. The
appointment of arbitrators must, therefore, be governed by Section
11 of the New Act.
12. In view of the fact that each of the two parties have appointed
their own arbitrators, namely, Justice M.N. Chandurkar (Retd.),
and Justice S.P. Sapra (Retd.), Section 11(3) was attracted and
the two appointed arbitrators were required to appoint a third
arbitrator to act as the presiding arbitrator, failing which the Chief
Justice of the High Court or any person or institution designated
by him would be required to appoint the third arbitrator as required
by Section 11(4)(b) of the New Act. Since the procedure
prescribed in Section 11(3) has not been followed the further
consequences provided in Section 11 must follow.
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13. Accordingly, we direct that the Chief Justice of the High Court
is 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 within thirty days from the date of their
appointments. Direction given by the Chief Justice of the High
Court is substituted to this effect.”
13. The arbitration clause in MMTC Ltd. (supra) contemplated
an appointment process which was not strictly in tune with the provisions
of 1996 Act and the agreement was:- “the provisions of the Indian
Arbitration Act and Rules made thereunder shall apply for proceedings”.
The reference was thus to the provisions of 1940 Act.  The reading of
the decision shows that what was found crucial was date of
commencement of the arbitral proceedings and if such commencement
was after 1996 Act had come into force, the provisions that would govern
the situation were held to be that of 1996 Act.  The appointment process
was also directed to be in tune with 1996 Act.  What was found to be
fundamental was whether there was an arbitration agreement in writing
in terms of Section 7 of 1996 Act.  The acceptance of submission in
paragraph 5 would further show 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, it would be applicable in
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respect of enforcement of the award.  In the context of these facts, the
question which arose for consideration was whether the award would
be governed by 1996 Act for its enforcement or whether provisions of
the 1940 Act would apply.   In the second matter, the arbitral proceedings
were held in the United Kingdom prior to the enforcement of 1996 Act
and the award was made on 25.02.1996 in London and the question
which arose was whether the award was governed by the provisions of
1996 Act for its enforcement or by the Foreign Awards Act.  In the third
matter the reference to the sole arbitrator was on 04.12.1993 and the
award was given by the arbitrator on 23.02.1996 i.e. after 1996 Act had
come into force.  The question that was framed in the third matter was,
when Clause (a) of Section 85(2) of 1996 Act used the expression “unless
otherwise agreed  by the parties” could the parties agree for the
applicability of 1996 Act even before 1996 Act had come into force.
Thus the fact situation in all three matters was clear that the
commencement of arbitral proceedings was much before 1996 Act came
into force.  Therefore, on the strength of Section 85(2)(a) of 1996 Act, it
was held that the provisions of the repealed enactments including 1940
Act would continue to apply in relation to such arbitral proceedings.
The conclusions are clear from paragraphs 29 and 42 of said decision.
15. However, the High Court has placed reliance on certain
observations in
paragraph 35 of Thyssen (supra).  In our view the
observations have been quoted and relied upon by the High Court
completely out of context.  What this Court considered in paragraph 35
was a possibility that in terms of Section 85(2)(a) of 1996 Act even
when the proceedings had commenced under 1940 Act, the parties could
still agree on the applicability of the 1996 Act.   What this Court thereafter
stated was the position in law that if the arbitral proceedings had not
commenced before 1996 Act came into force, the parties could not by
their agreement agree on the applicability of 1940 Act.  The idea was to
emphasize that if the arbitral proceedings had not commenced as on the
day when 1996 Act came into force, any subsequent commencement of
arbitral proceedings had to be in terms of 1996 Act.  These observations
do not in any way suggest that, “if the arbitral proceedings had not
commenced 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.
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 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
discernible from the arbitration agreement to refer the disputes to
arbitration.
17. Viewed thus, the High Court was not right in observing that
there could be no arbitration at all in the present case.  In situations
where the relevant clause made reference to the applicability of “the
provisions of  the Indian Arbitration Act and Rules made thereunder” as
was the case in MMTC Ltd. (Supra), on the strength of Section 85(2)(a)
the governing provisions in respect of arbitral proceedings which had
not commenced before  1996
had came into force would be those of
1996 Act alone.  On the same reasoning 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.  Such stipulation will have to be
read in the light of Section 85 of 1996 Act and in our view, principles
governing such relationship have to be under and in tune with 1996 Act.
As observed earlier, the requirements of “arbitration agreement”  as
stipulated in Section 7 of 1996 Act stand completely satisfied in the present
matter nor has there been any suggestion that the agreement stood vitiated
on account of any circumstances in the realm of undue influence, fraud,
coercion or misrepresentation. In the circumstances, the attempt must
be to sub-serve the intent of the parties to resolve the disputes by
alternative disputes resolution mechanism. The High Court was,
therefore, completely in error.
A
B
C
D
E
F
G
H
361
 18. We must also hold that the view taken by the learned Single
Judge of the Patna High Court in Rajan Kumar Verma (Supra) is required
to be seen in the light of the present decision. Said judgment of the
learned Single Judge had not noted the decision of this Court in MMTC
Ltd. (Supra).  Summary dismissal of SLP(C) No.25036 of 2005 vide
order dated 14.12.2005 by this Court would not mean affirmation of the
view taken by the learned Single Judge insofar as declaration of law is
concerned4.
19. We therefore set aside the judgment and order passed by the
High Court and accept the appeal preferred by the appellant. The matter
will have to be dealt with by the trial court in terms of Section 8 of 1996
Act.  The parties shall appear before the trial court on 14th May, 2018
for effectuating the arbitration agreement.
20. The appeal stands allowed in aforesaid terms. No costs.
Divya Pandey
  Appeal allowed.
 4 See Kunhayammed and others v. State of Kerala and another (2000) 6 SCC 359
para 27 Indian Oil Corporation Ltd.  v. State of  Bihar & Ors. (1986) 4 SCC 146 paras
6 to 10
PURUSHOTTAM S/O TULSIRAM BADWAIK v. ANIL & ORS.
[UDAY UMESH LALIT, J.]