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Mahipatlal Patel v. Chief Engineer And Another
Factual and Procedural Background
The appellant filed an application under Section 11 of the Arbitration and Conciliation Act, 1996 (“the Act”) before the Chief Justice of the Orissa High Court, seeking appointment of an arbitrator pursuant to Clause 50 of a works contract with the State Government. Clause 50 provided for reference of disputes to a three-member “Arbitration Tribunal” constituted by the State Government under the repealed Arbitration Act, 1940.
By order dated 20 May 2005, the Chief Justice rejected the application, holding that:
- Section 85 of the 1996 Act preserved the applicability of the 1940 Act, and
- In view of Clause 50, the dispute had to be taken to the State-constituted Arbitration Tribunal rather than through the Section 11 route.
The appellant obtained special leave. Upon grant of leave, the Supreme Court heard the appeal and considered the continued existence of the Arbitration Tribunal referred to in Clause 50.
Legal Issues Presented
- Whether, in light of Section 85 of the Arbitration and Conciliation Act, 1996, disputes arising under a contract executed after repeal of the 1940 Act must still be referred to an Arbitration Tribunal constituted under the 1940 Act.
- Whether the High Court, in the absence of such a Tribunal, is empowered under Section 11 of the 1996 Act to appoint an arbitrator.
Arguments of the Parties
The opinion does not contain a detailed account of the parties' legal arguments.
Table of Precedents Cited
| Precedent | Rule or Principle Cited For | Application by the Court |
|---|---|---|
| Unnamed order of the Orissa High Court on the existence of the State Arbitration Tribunal | Held that the Arbitration Tribunal constituted under the Arbitration Act, 1940 no longer exists to adjudicate disputes arising from contracts executed after repeal of the 1940 Act. | The Supreme Court relied on this order to conclude that no such Tribunal exists, thereby necessitating appointment of an arbitrator under Section 11 of the 1996 Act. |
Court's Reasoning and Analysis
The Supreme Court scrutinised Section 85 of the 1996 Act, which repeals the 1937, 1940 and 1961 arbitration enactments but preserves their applicability to arbitral proceedings that commenced before the 1996 Act came into force. The Court observed that:
- The contract in issue was executed after the 1996 Act commenced; therefore, arbitral proceedings would commence only under the new Act unless the parties had otherwise agreed.
- Clause 50’s reference to a State Arbitration Tribunal presupposes the continued existence of that Tribunal. However, the earlier Orissa High Court order—accepted by both parties and unchallenged—establishes that the Tribunal created under the 1940 Act has ceased to exist.
- Because the Tribunal is non-existent, the forum contemplated by Clause 50 cannot operate. Consequently, insisting on reference to that Tribunal would defeat the parties’ intention to have their disputes arbitrated.
- Section 11 of the 1996 Act empowers the High Court to appoint an arbitrator where the agreed procedure fails. The non-existence of the Tribunal constitutes such failure.
Accordingly, the impugned order was found unsustainable. The Supreme Court set it aside and directed the High Court to decide the Section 11 application on the merits.
Holding and Implications
APPEAL ALLOWED; IMPUGNED ORDER SET ASIDE.
Direct Effect: The matter is remitted to the Orissa High Court with a mandate to decide the Section 11 application within three months of receiving the Supreme Court’s order.
Broader Implications: The decision underscores that where an arbitral forum designated in a contract no longer exists, courts may invoke Section 11 of the 1996 Act to appoint an arbitrator, ensuring that arbitration agreements remain enforceable despite institutional changes wrought by statutory repeal.
Order
1. Leave granted.
2. This appeal is directed against an order passed by the Chief Justice of the High Court of Orissa at Cuttack dated 20-5-2005 on an application under Section 11 of the Arbitration and Conciliation Act, 1996 (in short “the Act”) for appointment of an arbitrator and for referring the dispute between the parties to him for adjudication.
3. By the impugned order, the Chief Justice of the High Court on consideration of Clause 50 of the agreement entered into by the parties which provides for arbitration and in view of Section 85 of the Act, held that no appointment could be made under Section 11 of the Act and further held that the appellant in terms of Clause 50 of the agreement had to approach the Arbitration Tribunal and, accordingly, the application for appointment of arbitrator was rejected. Feeling aggrieved, the appellant has come up by way of a special leave petition which on grant of leave was heard in the presence of the learned counsel for the parties.
4. The core question involved in this appeal relates to the interpretation of Section 85 of the Act. In order to appreciate the question, it is appropriate to refer to Section 85 of the Act which runs as under:
“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.”
5. The High Court, by the impugned order, while interpreting Section 85 of the Act has given a construction to the language of Section 85 of the Act and held that the provisions of the repealed Act of 1940 would apply in the present case.
6. Before we proceed further, we may consider the arbitration clause as entered into by the parties in the agreement. Clause 50 of the agreement contains provisions for arbitration which provides, inter alia, that except as otherwise provided in the contract, all questions and disputes relating to the meaning of the specifications, designs, drawings and instructions mentioned thereinbefore and as to the quality of the workmanship or materials used in the work, or as to any other question, claim, right, matter or thing whatsoever in any way arising out of or relating to the contract, designs, drawings, specifications, estimates, instructions, orders of these conditions concerning the work or the execution or failure to execute the same with or arising during the progress of the work after completion of or abandonment thereof shall be referred to the arbitration by the Arbitration Tribunal constituted by the State Government which shall consist of three members of whom one shall be chosen from among the officers belonging to Orissa Superior Judicial Service (Senior Branch), one from Engineers in the active service of the Government not below the rank of a Superintending Engineer and the remaining member shall be chosen from officers belonging to the Orissa Finance Service not below the rank of Class I officer.
7. It was held by the High Court in the impugned order that in view of Clause 50 of the agreement, it was only the Arbitration Tribunal before which the disputes and differences could be referred and, therefore, no appointment could be made under Section 11 of the Act.
8. The High Court in the impugned order while rejecting the application for appointment of an arbitrator under Section 11 of the Act further held that Arbitration Clause 50 clearly provides that if the contractor did not make any payment for arbitration in respect of any claim in writing within ninety days after receiving intimation from the Government that the bill was ready for payment, that claim of the contractor shall be deemed to have been waived and absolutely barred and the Government shall be discharged and released of all the liability under the contract in respect of such claim.
9. Having heard the learned counsel for the parties and after considering the impugned order rejecting the application for appointment of arbitrator and the provisions under Section 85 of the Act and Clause 50 of the agreement in detail, we are of the view that the order of the High Court is not sustainable in law. An order of the Orissa High Court on the question of existence of an Arbitration Tribunal was brought to our notice by the learned counsel for the parties from which it clearly appears that the Arbitration Tribunal created under the Arbitration Act, 1940 does not exist for deciding the disputes which had arisen out of an agreement entered into after the Arbitration Act, 1940 was repealed. Accordingly, it has been held that the Arbitration Tribunal set up by the Arbitration Act, 1940 does not exist as on date and the present dispute between the parties cannot be referred to the said Tribunal, which is not in existence in the eye of the law. It has also been accepted by the learned counsel for the parties that against this order of the High Court, no appeal was filed or steps taken by either of the parties, that is to say, that it has now been accepted that there is no existence of any Arbitration Tribunal. On the basis of the aforesaid judgment of the Chief Justice of the High Court, it has been accepted that no Arbitration Tribunal is in existence. Therefore, without going into the merits and in view of the aforesaid decision of the Orissa High Court, we are of the view that in the absence of existence of any Arbitration Tribunal, it is only for the High Court to exercise its power under Section 11 of the Act to appoint an arbitrator to go into the disputes and differences between the parties. Accordingly, we set aside the order of the High Court.
10. We now request the High Court to decide the application under Section 11 of the Act on merits. It is expected that the said application shall be decided and disposed of within three months from the date of supply of a copy of this order to it. This appeal is thus allowed to the extent indicated above. There will be no order as to costs.
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