Case: Milkfood Ltd Vs. M/S. Gmc Ice Cream (P) Ltd

2. The parties hereto entered into an agreement on or about 7.4.1992 in terms whereof the first respondent herein was to manufacture and pack in its factory a wide range of ice cream for and on behalf of the appellant. The said agreement was to remain valid for a period of five years. Admittedly, the said contract contained an arbitration agreement being Clause 20 thereof which is asThe contention of the appellant was that the first respondent herein did not fulfil its contractual obligations. It was also contended and two Demand Drafts sent by it for a sum of Rs. five lakhs each which were required to be sent in the year 1992 were in fact sent on 7.5.1995 and the same were returned.4. The contention of the first respondent, on the other hand, was that in terms of the agreement between the parties that an additional plant as per the specifications thereof for manufacture of ice cream was installed, but despite the same the appellant failed to supply the base materials for packing ice cream.5. The first respondent herein apprehending that the appellant herein would cause disturbance in the manufacture and supply of ice cream filed a suit in the Court of Munsif 1st, Gaya which was marked as Title Suit No. 40 of 1995, wherein a decree for permanent injunction restraining the appellant from causing any disturbance in manufacture and supply of ice cream according to specifications given by the appellant was sought for. The appellant herein, however, having regard to the arbitration agreement entered into by and between the parties filed an application under Section 34 of the Arbitration Act, 1940 for stay of the suit. By reason of an order dated 3.8.1995, the learned Munsif allowed the said application filed by the appellant herein and directed stay of the suit holding that it was a fit case in which the application under Section 34 of the Act should be allowed. It was furtherthe request the application dated 17.7.1995 filed on behalf of the defendant Nos. 1 to 3 is allowed. I stay the further proceeding of the suit and in the meantime the matter be referred to the arbitration. Put up on 4.9.1995.Pursuant to or in furtherance of the said direction, the appellant herein sent a notice on 14.9.1995 to the first respondent herein and its Managing Director appointing Shri H.L. Agrawal, a former Chief Justice of the Orissa High Court as its Arbitrator. It was further stated therein that if the respondents intend to agree to appoint Shri H.L. Agrawal as Arbitrator to settle the dispute, it may give its consent thereto forthwith failing which it may also appoint its Arbitrator in terms of Clause 20 of the agreement so that the dispute be settled at the earliest.7. Some controversy as regard service of the said notice on the respondent has been raised which would be dealt with a little later.8. To complete the narration of facts, we may notice that the said order dated 3.8.1995 was appealed against by the first respondent before the 2nd Additional District Judge, Gaya and by an order dated 13.3.1996, the 2nd Additional District Judge, Gaya in Misc. Appeal No. 7 of 1995 (30/95) dismissed the same. Aggrieved by and dissatisfied with the said judgment and order the first respondent herein filed a revision application before the Patna High Court which was marked as C.R. No. 1020 of 1996. The said civil revision application was disposed of by an order dated 6.5.1997 in the followingthis Court parties have agreed that the dispute between them may be referred, as per the agreement to Arbitrators chosen by the parties. The plaintiff had chosen Shri Uday Sinha, a retired Judge of this Court and Senior Advocate of the Supreme Court, while the defendants have chosen Shri Hari Lal Agrawal, Senior Advocate of the Supreme Court, a former Judge of this Court and Chief Justice of Orissa High Court as Arbitrators. The dispute between the parties is referred to Arbitrators.I hope that the learned Arbitrators will disposeof the arbitrationproceeding within three months of the entering the reference.Let a copy of this order be sent to both Shri Hari Lal Agrawal at his address Nageshwar Colony, Boring Road,and Shri Uday Sinha at his Patna address 308, Patliputra Colony, Patna.It would appear that by reason of the said order merely the constitution of the Arbitral Tribunal had been changed but the dispute sought to be resolved in the arbitration proceeding was not formulated therein. The appellant appointed respondent No. 4, Shri Agrawal, whereas the first respondent appointed respondent No. 3, Shri Uday Sinha, as their Arbitrators. Respondent No. 2, Shri A.B. Rohtagi was appointed by the learned Arbitrators as the third Arbitrator, which according to the appellant, was without its knowledge and consent.10. The appellant having found that the learned Arbitrators were proceeding under the 1996 Act filed an application seeking directions and the clarifications raising a contention that the provisions of the 1940 Act were applicable. The matter was heard by the learned Arbitrators and by an order dated 6.4.1996, the majority of the Arbitrators held that the 1996 Act shall applyconsent order dated 6.5.1997 is the beginning of the arbitral proceedings. Anything said or done before that date is of no consequence. Therefore the new Act applies. This is our conclusion.One of the learned Arbitrators Shri H.L. Agrawal, however, in his dissenting opiniondo not agree with him that an arbitration commences when the dispute is referred to the Arbitrator and he enters upon the reference.Section 37(3) of the old Act categorically lays down thatone party serves on the other, a notice requiring the other to appoint anan arbitration is deemed to commence. It does not mandate the notice only by the claimant. The notice may be by either of the parties. In my considered opinion the notice dated 14.4.1995 issued by the respondent to the claimant triggered off the commencementof the arbitrationproceeding. Nothing has been shown that there was any agreement between the parties to the contrary. There cannot be one commencement for the limitation purposes and another for2. Questioning the said order of the learned Arbitrators, an application was filed by the appellant herein purported to be under Section 33 of the 1940 Act in the High Court of Delhi which was marked as O.M.P. No. 94 of 1998. A learned Single Judge of the High CourtAccording to Section 21 of the Arbitration and Conciliation Act, 1996, unless otherwise agreed by the parties, the arbitral proceeding commences on the date of which a request for that dispute is referred to arbitration. The Act postulates a notice by a claimant to the respondent calling upon him to appoint an Arbitrator for the settlement and it cannot be the other way round. No respondent would ask for the appointment of an Arbitrator when he has no dispute to refer (unless the respondent would be a counter claimant). In case he has disputes to refer, then the respondent would become the claimant. The majority order correctly held that no defendant will save limitation for the claimant or the plaintiff. In view of this finding, the notice dated 14.9.1995 cannot be construed as a notice calling upon to initiateb) The agreement dated 7th April, 1992 contemplates that such arbitration proceedings shall be in accordance with and subject to the provisions of the Arbitration Act, 1940 or any statutory modification orIn 1992, when the agreement was entered into the parties could not visualise the 1996 Act but in the relevant Clause 20 of the agreement, foundation of any statutory modification orhas been laid down. When the parties by consent before the High Court agree to refer the dispute to the arbitration in that event parties have to be governed by 1996 Act. This conclusion is consistent even with the underlying intention of the parties according to Clause 20 of the agreement.(c) Logically, it has to be concluded thatthe arbitration proceedingsbegin when the disputes are referred for the arbitration. In the instant case, the disputes were referred for arbitration by the order of the High Court only on 6.5.1997. The parties have, therefore, to be governed by the provisions of 1996 Act.(d) The petitioner was aware of the third arbitration from the very beginning and it has to be assumed that the petitioner by necessary implication gave consent for referring the disputes to the arbitration. All this happened after the 1996 Act came in force, therefore, only the 1996 Act has to be made applicable in this case.(e) The most vital and important circumstances of this case is that on 6.5.1997, both the parties gave a clear consent to refer this matter to the arbitration before the High Court of Patna.The parties by agreement gave a good bye to all other proceedings and on 6.5.1997, agreed for reference of their disputes to the Arbitrator. The sanctity of the undertaking given to the Court by the parties has to be maintained. No one can be permitted to breach or flout the undertaking in this manner.An appeal preferred thereagainst was dismissed by aBench, as being not maintainable.

Court's reasoning:
57. The different intention of the Parliament found by the Bench in Thyssen (supra), evidently has no application in the domestic award although it has application in relation to a foreign award. Thyssen (supra), therefore, itself is an authority for the proposition that in relation to a domestic arbitration proceeding, commencement thereof shall conincide with service of request/notice.While interpreting a judgment this Court must pin point its attention to the ratio thereof. A Court of law must not lose sight of the doctrine of ‘stareA view which has been holding the field for a long time should not be disturbed only because another view is possible.74.Keeping in view the fact that in all the decisions, referred to hereinbefore, this Court has applied the meaning given to the expression ‘commencement of the arbitralas contained in Section 21 of the 1996 Act for the purpose of applicability of the 1940 Act having regard to Section 85(2)(a) thereof, we have no hesitation in holding that in this case also, service of a notice for appointment of an Arbitrator would be the relevant date for the purpose of commencementproceeding.75. In this case, the learned Munsif by an order dated 7.8.1995 i.e. before the 1996 Act came into force not only stayed further proceedings of the suit but also directed that in the meanwhile the matter be referred to arbitration. The matter was referred to arbitration as soon as the notice dated 14.9.1995 was issued and served on the other side.76. It may be true that before the High Court apart from Shri H.L. Agrawal, Shri Uday Sinha also came to be appointed; but the change in the constitution of the Arbitral Tribunal is irrelevant for the purpose of determining the question as to when the arbitration proceeding commenced within the meaning of Section 21 of the 1996 Act. The purported reference of the dispute to the Arbitrator was merely a reference to new Arbitral Tribunal which concept is separate and distinct from that of commencement of arbitration proceeding.The Arbitrators, therefore, have also not held that notice dated 14.9.1995 was not served upon the respondent but merely proceeded on the basis that the same would be relevant for the purpose of determining the question as to when the arbitral proceeding shall commence. In fact it does not appear that such a question was raised either before the Arbitrators or before the High Court. The respondent, therefore, cannot be permitted to raise the same before us for the first time.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.It is one thing to say that the parties agree to take recoruse to the procedure of the 1996 Act relying on or on the basis of tenor of the agreement as regard applicability of the statutory modification orof the 1940 Act but it is another thing to say, as has been held by the High Court, that the same by itself is a pointer to the fact that the appellant had agreed thereto. If the arbitral proceedings commenced for the purpose of the applicability of the 1940 Act in September, 1995, the question of adopting a different procedure laid down under the 1996 Act would not arise.89. It is not a case where like Delhi Transport Corporation (supra) limited, the parties went for arbitration with a clear understanding and belief that the proceedings were being conducted under the 1996 Act. Therein the appointment of Arbitrator was made under the new Act, the parties participated in the arbitration proceeding with the understanding and belief that the proceedings are governed under the 1996 Act. In the award itself the Arbitrator noted thatparties submitted claims before me under the Arbitration and Conciliation Act,and he purported to have made its award in terms thereof. In that situation(3) of para 22 of Thyssen (supra), was held to be applicable. Shah, J. who was a party in Thyssen (supra), as also Delhi Transport Corporation (supra), in N.S. Nayak (supra), however, noticed the distinctive features in Thyssenthe reasons aforementioned, we are of the view that in this case, the 1940 Act shall apply and not the 1996 Act. However, it is accepted at the Bar that the learned Arbitrators had already entered into the reference. The proceedings before the Arbitrators were not stayed. Only making of the award was stayed. In that view of the matter, in the peculiar facts and circumstances of this case, we are of the opinion that although the old Act would apply, the entire arbitral proceedings need not be reopened and the Arbitrators may proceed to give their award. The award shall be filed in the Court having jurisdiction whereafter the parties may proceed in terms of the old Act. We hope and trust that the award shall be made and all the legal proceedings shall come to an end at an early date and preferably within a period of four months from the date of the communication of this order. This order has been passed in the interest of justice and in the peculiar facts and circumstances of this case.93. We are, however, of the opinion that the High Court of Delhi has rightly held that the letters patent appeal was not maintainable. Civil Appeal No. 9672 of 2003 is, therefore, allowed and Civil Appeal Nos.of 2003 are dismissed. No costs.