(Vineet Saran and Aniruddha Bose, JJ.)
Sharma Enterprises _________________________________ Appellant;
v.
N.B.C.C. (India) Ltd. _______________________________ Respondent.
Civil Appeal Nos………….. of 2021 (Arising out of SLP(C) Nos. 249-250 of 2018), decided on December 15, 2021
The Order of the court was delivered by
Order
1. Leave granted.
2. These appeals arise out of Arbitration proceedings. The dispute arose in the year 1992 and three decades have passed, the matter is still pending.
3. Briefly stated, the facts of this case are that on 11.01.1991, the appellant was awarded contract for undertaking the work for cladding and flooring at Vashi railway station, New Mumbai (then New Bombay) by the respondent for a total amount of over rupees 9.5 crores approximately. A notice for termination of the contract was issued by the respondent to the appellant contractor on 08.06.1992 and thereafter on 22.09.1992, the respondent terminated the contract and encashed the bank guarantee of the appellant.
4. The appellant, thereafter, invoked the arbitration clause and requested the respondent for appointment of an Arbitrator. On the failure of the respondent to appoint an Arbitrator, the appellant filed a suit under Section 20 of the Arbitration Act, 1940 (for short ‘1940 Act’) before the Delhi High Court for appointment of an independent Arbitrator to decide the disputes and the claims of the appellant.
5. In the suit filed under Section 20 of the 1940 Act, the High Court did not accept the appointment of Mr. Daljeet Singh and vide Order dated 02.12.1997 appointed Justice G.C. Jain (Retd.) as sole Arbitrator. On the death of Justice (Retd.) G.C. Jain, Justice Satpal (Retd.) was appointed as sole Arbitrator on 09.09.1998 by the High Court of Delhi in place of Justice (Retd.) G.C. Jain (since deceased).
6. A Review Petition was filed by the respondent (NBCC) for recall of the Order dated 09.09.1998. An appeal was also filed by the same party i.e., the respondent, challenging legality of the order dated 02.12.1997 before the High Court of Delhi. That appeal was allowed by the High Court by an order passed on 09.07.1999. This order was assailed before this Court by the petitioner by filing a petition for special leave to appeal [SLP (Civil) No. 12823/1999]. The High Court’s order allowing the appeal was set aside and it was left open for the respondent to pursue the Review Petition. The Review Petition, however, was withdrawn thereafter and the Delhi High Court directed that the arbitration shall be proceeded with before Justice Satpal. The proceedings thus continued before Justice Satpal and an application was filed by the respondent for taking on record the counter claims of the respondent which was dismissed by the Arbitrator on 16.03.2002 on the ground that the counter claims were not a part of the reference.
7. On 07.02.2003, the respondent NBCC requested the Chairman-cum-Managing Director to appoint an Arbitrator for reference of their counter claims to Arbitration and consequently the Chairman-cum-Managing Director of the respondent (NBCC), vide letter dated 18.02.2003, appointed Mr. A.K. Gupta, Deputy General Manager of the NBCC as the Sole Arbitrator.
8. On 12.09.2005, Justice Satpal, Sole Arbitrator made and published his award on the claims of the appellant. In the meanwhile, the appellant challenged appointment of Mr. A.K. Gupta, as a Sole Arbitrator to decide the counter claims of the respondent before a learned Single Judge of the Delhi High Court. By a judgment delivered on 20.08.2008, the said petition filed by the appellant under Section 14 and 15 of the Arbitration and Conciliation Act, 1996 (for short ‘1996 Act’) was dismissed with the following observations:
“The present case does not fall in the exceptional category where power under Section 14 of the Act to terminate the mandate of the arbitrator can be invoked. It is appropriate to leave the question to be decided by the arbitral tribunal.”
9. The said order was passed by the learned Single Judge on the specific submission of the counsel for the respondent who had urged that the said question should be taken up before the Arbitrator under Section 16 of the ‘1996 Act’ and ought not to be entertained in the petition filed under Sections 14 and 15 of the ‘1996 Act’. In the meantime, on 12.09.2005, Justice Satpal made and published the award on the claims of the appellant. This award was challenged by the respondent under Sections 30 and 33 of the 1940 Act. The award made by Justice Satpal was set aside by this Court and Justice R.C. Chopra (retd.) was appointed as arbitrator to decide the claims and counterclaims of the parties. The appointment of A.K. Gupta was also cancelled. These facts have been recorded in the judgment under appeal.
10. Thereafter the sole Arbitrator, Justice R.C. Chopra (Retd.), by an Award dated 28.07.2016, awarded a sum of Rs. 53,28,098/-, alongwith interest, in favour of the appellant, which was out of the claim of the appellant of over 9.5 crores.
11. The respondent-NBCC filed a petition under Section 14 of the ‘1940 Act’ seeking direction to Arbitrator to file the award before the Court. The appellant in turn filed an execution petition under Section 36 of the ‘1996 Act’ on 19.12.2016.
12. The petition of the respondent filed under Section 14 of the 1940 Act was dismissed by the Delhi High Court vide order dated 16.03.2017 holding that it would be the ‘1996 Act’ which would be applicable in the present case and not the ‘1940 Act’. By a separate order of the same date passed in the execution petition filed by the appellant, the Delhi High Court directed the respondent NBCC to deposit the decreed amount within 12 weeks.
13. Challenging both the orders dated 16.03.2017 passed by the learned Single Judge of the Delhi High Court, the respondent-NBCC filed two separate appeals before the Division Bench of the Delhi High Court. Both the appeals of the respondent have been allowed by a common Judgment dated 18.05.2017, the challenge of which is before us.
14. The submission of learned counsel for the appellant is that in the facts of the present case, it would be the ‘1996 Act’ which would be applicable, more particularly because the respondent Corporation has itself admitted such position. It is contented that before the learned Single Judge, in proceedings filed by the appellant under Section 14/15 of the ‘1996 Act’, the counsel for the respondent has submitted that the appellant herein could take all such pleas before the Arbitrator under Section 16 of the ‘1996 Act’. As such the ‘1996 Act’ would govern the proceedings of the Arbitration, because the parties would be deemed to have agreed that the ‘1996 Act’ would be applicable to the Arbitration proceedings. In support of his submission, learned counsel relied on certain decisions, which shall be considered later in this judgment. It is further submitted that since the respondent has invoked its claim (counter claims) by way of application which was dismissed by the Arbitrator on 16.03.2002, the same ‘1996 Act’ would be applicable as the initiation of the claim or proceedings of claim of the respondent was in the year 2002 which was after the ‘1996 Act’ came into force.
15. Per contra, learned counsel for the respondent has contended that since the initial proceedings had been initiated prior to ‘1996 Act’, having become operational, and initial appointment of the Arbitrator was made by the Chairman-cum-Managing Director which was prior to the coming into force of the ‘1996 Act’, it would be the ‘1940 Act’ which would be applicable in the present case. It is also submitted that it is wrong to state that the counter claims of the respondent were registered for the first time in the year 2002, as the appointment of the Arbitrator in the year 1993 was for the claims of the appellant as well as the counter claims of the respondent.
16. It has also been submitted that the appointment of Justice R. C. Chopra (Retd.) vide Order dated 03.08.2011 of this Court was in fact in continuation of the appointment of Justice Satpal who has passed the Award which was challenged before this Court.
17. We have heard Ms. Anusuya Salwan alongwith Mr. Bankim Garg and Mr. Chaitanya Bansal, learned counsel appearing for the appellant as well as Mr. Nagarkatti Kartik Uday, learned counsel appearing for the respondent at length and perused the record.
18. The relevant Sections of the ‘1996 Act’ are extracted below :
14. Failure or impossibility to act.—
(1) The mandate of an arbitrator shall terminate if—
(a) he becomes de jure or de facto unable to perform his functions or for other reasons fails to act without undue delay; and
(b) he withdraws from his office or the parties agree to the termination of his mandate.
(2) If a controversy remains concerning any of the grounds referred to inclause (a) of sub-section (1), a party may, unless otherwise agreed by the parties, apply to the Court to decide on the termination of the mandate.
(3) If, under this section or sub-section (3) of section 13, an arbitrator withdraws from his office or a party agrees to the termination of the mandate of an arbitrator, it shall not imply acceptance of the validity of any ground referred to in this section or sub-section (3) of section 12.
15. Termination of mandate and substitution of arbitrator.—
(1) In addition to the circumstances referred to in section 13 or section 14, the mandate of an arbitrator shall terminate—
(a) where he withdraws from office for any reason; or
(b) by or pursuant to agreement of the parties.
(2) Where the mandate of an arbitrator terminates, a substitute arbitrator shall be appointed according to the rules that were applicable to the appointment of the arbitrator being replaced.
(3) Unless otherwise agreed by the parties, where an arbitrator is replaced under subsection (2), any hearings previously held may be repeated at the discretion of the arbitral tribunal.
(4) Unless otherwise agreed by the parties, an order or ruling of the arbitral tribunal made prior to the replacement of an arbitrator under this section shall not be invalid solely because there has been a change in the composition of the arbitral tribunal.
16. Competence of arbitral tribunal to rule on its jurisdiction.—
(1) The arbitral tribunal may rule on its own jurisdiction, including ruling on any objections with respect to the existence or validity of the arbitration agreement, and for that purpose,—
(a) an arbitration clause which forms part of a contract shall be treated as an agreement independent of the other terms of the contract; and
(b) a decision by the arbitral tribunal that the contract is null and void shall not entail ipso jure the invalidity of the arbitration clause.
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 extent to which they are not repugnant to this Act, be deemed respectively to have been made or issued under this Act.
19. Arbitration proceedings are meant to conclude expeditiously so that the relief to the parties therein is granted at the earliest, unlike suit proceedings which take much longer, with elaborate procedures to be followed. In the present case, these Arbitration proceedings have been pending for nearly three decades. The facts, as narrated above, would go to show that the Arbitration proceedings had been initiated by the appellant in the year 1993, which was before coming into force of ‘1996 Act’. However, what is to be considered is whether the provisions of Section 85 of the ‘1996 Act’ would be attracted in the present case and whether there was any formal or implied agreement between the parties in regard to the applicability of the ‘1996 Act’.
20. As we have already indicated, the matter had reached this Court earlier also when, after setting aside the Award passed by the earlier Arbitrator Justice Satpal, a new innings or fresh arbitration was started by Justice R.C. Chopra (Retd.) as sole Arbitrator.
21. The Agreement between the parties was entered into in the year 1991. The cancellation of the Contract was in the year 1992. The initiation of the Arbitration proceedings was in the year 1993. The matter remained pending and shuttling between various courts for several years. In between, what is relevant is that when the appointment of Mr. A.K. Gupta, Deputy General Manager of the NBCC, for dealing with the counter claims of the respondent was challenged by the appellant before the High Court under Sections 14 and 15 of the ‘1996 Act’, where the learned counsel for the respondent had categorically stated that the pleas raised by the appellant should be taken by the appellant before the Arbitrator under Section 16 of the ‘1996 Act’. The relevant portion of the Judgment dated 20.08.2008 of the High Court of Delhi is reproduced hereunder:
“13………………… On the contrary, the counsel for the respondent urged that all the said pleas should be taken by the petitioner before the arbitrator, under Section 16 of the Act and ought not to be entertained in a petition under Sections 14 and 15 of the Act.”
22. If it had not been the intention or implied agreement of the parties that the provisions of the ‘1996 Act’ would be applicable in the present case, the respondent ought to have initially objected to the filing of the application by the appellant under Sections 14 and 15 of the ‘1996 Act’ on the ground that the provisions of the ‘1996 Act’ would not be applicable. On the contrary, the respondent itself took the stand that the pleas taken by the appellant should be raised before the Arbitrator under Section 16 of the ‘1996 Act’. The same would go to show that the applicability of the ‘1996 Act’ to the proceedings pending before the Arbitrator were impliedly agreed to between the parties. We are also satisfied that the provisions of Section 85(2) of the ‘1996 Act’ would be attracted, thereby making the provisions of ‘1996 Act’ applicable to the present proceedings.
23. In the case of Thyssen Stahlunion GMBH v. Steel Authority of India Ltd. [(1999) 9 SCC 334], it has been held :
“23. 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) the new Act shall apply in relation to arbitral proceedings which commenced on or after the new Act came into force. The 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. The expression “in relation to” is of the widest import as held by various decisions of this Court in Doypack Systems (P) Ltd. [(1988) 2 SCC 299], Mansukhlal Dhanraj Jain [(1995) 2 SCC 665], Dhanrajamal Gobindram [AIR 1961 SC 1285: (1961) 3 SCR 1020] and Navin Chemicals Mfg. [(1993) 4 SCC 320] This expression “in relation to” has to be given full effect to, particularly when read in conjunction with the words “the provisions” of the old Act. That would mean that the old Act will apply to the 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. The 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.”
24. The aforesaid judgment was considered in a later case, Delhi Transport Corporation Ltd. v. Rose Advertising [(2003) 6 SCC 36] and the relevant paragraphs of this Judgment is extracted below:
“2. Briefly the facts as gathered from the impugned judgment of the High Court are that the parties had entered into an agreement on 15-1-1993 regarding display of advertisements on the body of DTC buses. DTC is Delhi Transport Corporation which runs the public road transport for commuters in the city and outskirts of Delhi. The agreement was for a period of 3 years commencing from 15-1-1993 up to 14-1-1996. The agreement contained an arbitration clause. Dispute and differences arose between the parties. A request was made by the contractor on 9-1-1995 for appointment of arbitrator to settle the disputes that had arisen between the parties. This was followed by another letter dated 26-11-1995 containing a similar request. On 16-1-1996 the contractor filed in court a petition under Section 20 of the old Arbitration Act. The notice of the petition was issued to the opposite party i.e. the appellant herein. The counsel appearing for the appellant made a statement in court on 19-7-1996 that an arbitrator had already been appointed on 4-7-1996 as per the terms of the agreement. The petition thus became infructuous. The arbitrator conducted the arbitration proceedings and ultimately made an award on 6-10-1998. To enforce the award the respondent filed an application under the 1996 Act which was registered as an execution application. The appellant DTC contested the said application on grounds including maintainability of the execution petition. The question of maintainability was raised on the basis that the 1996 Act was not applicable to the proceedings and therefore execution application did not lie. The contention of the appellant before the High Court was that the proceedings had commenced under the old Act and the said Act would continue to govern the proceedings. The learned Single Judge upheld the objection regarding maintainability of the application. It was held that the Arbitration Act, 1940 continued to apply. This was based on the view that the arbitration proceedings commenced on the date when request for appointment of arbitrator was made and that was prior to the coming into force of the 1996 Act. Once the arbitration proceedings commenced, Section 85 of the 1996 Act read with Section 21 would lead to the conclusion that the old Act would continue to apply. Reliance was placed on the judgment of this Court in Thyssen Stahlunion GmbH v. Steel Authority of India Ltd. The contractor went in appeal against the said order of the learned Single Judge. The Division Bench noted in its judgment that the parties went for arbitration with clear understanding and belief that the proceedings were being conducted under the 1996 Act It was noted that the appointment of arbitrator was made after the new Act had come into force and 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 that “both the parties submitted claims before me under the Arbitration and Conciliation Act, 1996”. He concluded the award by observing:
“I further award that the advertiser shall also be entitled to future interest at the rate of 18% p.a. on all payments awarded in accordance with Section 31(7)(b) of the Arbitration and Conciliation Act, 1996 from the date of award till the date of payment.”
3. While referring to the judgment in Thyssen case the Court noted that parties can always agree that provision of law prevailing at the relevant time would apply to arbitral proceedings. The case of Rani Constructions (P) Ltd. decided in Thyssen case was held to squarely cover the present case. In view of the fact that the arbitrator was appointed after coming into force of the 1996 Act and the arbitration proceedings were conducted in pursuance of the provision of the said Act, it was held that the case would be governed by the 1996 Act. It also weighed with the High Court that the parties had expressed their intention in the arbitration proceedings to be governed by the 1996 Act. The Division Bench thus allowed the appeal and set aside the judgment of the Single Bench.”
25. In the case of National Aluminium Co. Ltd. v. Pressteel & Fabrications (P) Ltd. [(2004) 1 SCC 540], a similar question was examined and it was held:—
“6. It is an admitted fact that after the arbitrator was appointed by this Court, the parties by consent agreed before the arbitrator that the proceedings should go on under the provisions of the 1996 Act though the dispute arose prior to coming into force of this Act. Such a procedure is permissible under Section 85(2)(a) of the 1996 Act. In the normal course having agreed to this procedure, the applicant should not be permitted to raise a plea at this stage that the provisions of the 1940 Act would apply for challenging or seeking modification of the award made under the 1996 Act. But the learned counsel placed reliance on two judgments of this Court in State of M.P. v. Saith & Skelton (P) Ltd. [(1972) 1 SCC 702] and Guru Nanak Foundation v. Rattan Singh and Sons [(1981) 4 SCC 634] wherein according to the applicant, this Court entertained an award for the purpose of making it a rule of the court because it had appointed the arbitrator, hence for the purpose of making an award a rule of the court it can only be the court which appointed the arbitrator in view of the provisions of Sections 2(e) and 14(2) of the 1940 Act.”
26. The Judgment of Milkfood Ltd. v. GMC Ice Cream (P) Ltd. [(2004) 7 SCC 288] relied upon by the learned counsel for the respondent dealt with the question as to when an arbitration proceeding would commence. It was held, in the majority judgment, that if it commenced during the subsistence of the ‘1940 Act’, the proceeding would be guided by the provisions of the said Act. In this judgment also, it was, inter alia, held:
“83. 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.”
27. The ratio of this judgment, in our opinion, would not apply to the facts of this case because of special circumstances that arose after the initial arbitration had commenced. But when the question of raising counter-claim arose, the parties proceeded under the ‘1996 Act’. Ultimately, this Court appointed an arbitrator to decide both the claims and counterclaims. This changed the very character of the proceeding, which was progressing on two limbs, one under the ‘1940 Act’ and the other under the “1996 Act”. When this Court appointed Justice Chopra (retd.) to decide both the claims and the counterclaims, in substance nullifying the earlier parts of the proceedings, the 1996 Act had become operational. In such context, it would be unreasonable to proceed on the basis that the claim part would be determined under the ‘1940 Act’ and the counterclaim part would be adjudicated under the ‘1996 Act’.
28. Accordingly, for the forgoing reasons, the appeals are allowed and the impugned Judgment and Order of the Division Bench of the High Court is set aside.
29. Since the matter has been pending for nearly three decades, we request the High Court to take up the execution proceedings/petition on priority and decide the same as expeditiously as possible.
30. Pending application(s), if any, shall also stand disposed of.
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