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Parwani Builders v. Western Coalfields Limited And Others
Factual and Procedural Background
The parties entered into a civil construction contract on 7 March 1990 containing an arbitration clause. When disputes arose, the appellant invoked the clause and, after the respondent failed to appoint an arbitrator, filed three applications under Section 20 of the Arbitration Act, 1940 (“1940 Act”) before the Civil Judge, Senior Division, Nagpur. An arbitrator (Shri S.S. Rao) was appointed, and an award was rendered on 22 July 1999 (corrected on 27 August 1999, received by the respondent on 30 August 1999). Time for making the award had been validly enlarged under Section 28(2) of the 1940 Act.
The respondents, believing the Arbitration and Conciliation Act, 1996 (“1996 Act”) applied, filed three applications under Section 34 of that Act in the District Court, together with applications to condone delay. Realising the error, they sought to amend their petitions to invoke Section 30 of the 1940 Act, but the District Judge rejected the amendments and refused to condone delay (order dated 13 July 2001). On writ petitions, the Nagpur Bench of the Bombay High Court (11 December 2003) held that the 1940 Act governed the proceedings, set aside the District Judge’s orders, and remitted the matter.
Legal Issues Presented
- Whether arbitral proceedings that commenced before the 1996 Act came into force continue to be governed by the 1940 Act.
- Whether the parties, by their subsequent conduct, had agreed under Section 85(2)(b) of the 1996 Act to apply the 1996 Act instead.
- Whether the High Court erred in setting aside the District Judge’s refusal to treat the Section 34 petitions as applications under Section 30 of the 1940 Act.
Arguments of the Parties
Appellant’s Arguments
- The respondents themselves invoked the 1996 Act and should be bound by that choice.
- By conduct, the parties must be deemed to have agreed under Section 85(2)(b) of the 1996 Act that the 1996 Act would govern the dispute.
- The District Judge correctly refused the amendment because the petitions were originally framed only under the 1996 Act.
The opinion does not contain a detailed account of the respondents’ legal arguments.
Table of Precedents Cited
| Precedent | Rule or Principle Cited For | Application by the Court |
|---|---|---|
| Milkfood Ltd. v. GMC Ice Cream (P) Ltd., (2004) 7 SCC 288 | Section 85(2)(a) of the 1996 Act saves arbitral proceedings that commenced before the 1996 Act; such proceedings remain governed by the 1940 Act. | Relied upon to hold that arbitral proceedings initiated through Section 20 applications in 1991 are governed by the 1940 Act. |
| U.P. State Sugar Corpn. Ltd. v. Jain Construction Co., (2004) 7 SCC 332 | Reaffirms that commencement of arbitration before 1996 triggers application of the 1940 Act. | Cited as further authority supporting continued application of the 1940 Act to pre-1996 disputes. |
| Neeraj Munjal (3) v. Atul Grover, (2005) 5 SCC 404 | Holds that inadvertent reference to the 1996 Act does not displace the governing 1940 Act when proceedings began earlier. | Used to reject the appellant’s contention that the parties’ conduct shifted the governing law to the 1996 Act. |
| Shetty’s Constructions, (1998) 5 SCC 599 | Section 21 of the 1996 Act must guide interpretation of “commencement” under Section 85(2)(a). | Quoted within Milkfood to demonstrate consistent judicial approach to determining commencement of arbitral proceedings. |
Court's Reasoning and Analysis
The Supreme Court first reaffirmed the principle, articulated in Milkfood and the subsequent cases cited, that if arbitral proceedings commenced before the 1996 Act, the 1940 Act continues to govern. The Court observed that:
- The appellant itself had invoked Section 20 of the 1940 Act, and the trial court had exercised powers under Section 28(2) of that Act to extend time, demonstrating that both parties operated throughout under the 1940 regime.
- No evidence showed any agreement under Section 85(2)(b) of the 1996 Act to adopt the new Act’s procedures.
- Consequently, the District Judge’s treatment of the matter under the 1996 Act was unsustainable, and the High Court was correct to so hold.
Nevertheless, in the interests of justice and efficiency, the Supreme Court directed that the respondents’ erroneously-filed Section 34 applications be treated as applications under Section 30 of the 1940 Act, thereby preserving their right to challenge the award without further procedural delay.
Holding and Implications
APPEAL ALLOWED TO A LIMITED EXTENT. The Court upheld the High Court’s view that the 1940 Act applies but directed:
- The District Judge shall transmit the records to the Small Cause Court, Nagpur, where the award should have been filed.
- The respondents’ petitions, originally under Section 34 of the 1996 Act, are to be treated as applications under Section 30 of the 1940 Act.
- The appellant may contest both delay-condonation and merits; the Small Cause Court shall decide all objections pursuant to the 1940 Act within four months.
- Parties shall bear their own costs.
Implications: The decision reinforces the settled rule that arbitral proceedings commenced before the 1996 Act remain under the 1940 Act unless the parties expressly agree otherwise. It provides a pragmatic solution by converting mis-labelled petitions rather than dismissing them, but sets no new legal precedent beyond applying existing case law.
Order
1. Leave granted. The applicability of the Arbitration Act, 1940 (the 1940 Act) or the Arbitration and Conciliation Act, 1996 (the 1996 Act) is in question in this appeal which arises out of a judgment and order dated 11-12-2003 passed by the High Court of Judicature of Bombay, Nagpur Bench, Nagpur in WPs Nos. 4351, 4352 and 4394 of 2003.
2. The parties hereto entered into a contract on 7-3-1990, in terms whereof the appellant was entrusted with civil construction works. Disputes and differences having arisen between the parties, the appellant invoked the arbitration clause and requested the first respondent herein to appoint a sole arbitrator in terms of the arbitration agreement. As the said request was not acceded to, the appellant filed three applications under Section 20 of the 1940 Act bearing Suits Nos. 741, 742 and 743 of 1991 in the Court of the Civil Judge, Senior Division, Nagpur. One Shri S.S Rao, Retired Chief Engineer (Civil) was appointed as an arbitrator therein. An award was made on 22-7-1999. The said award was said to have been corrected by the arbitrator on or about 27-8-1999 and a copy thereof was received by the respondent on 30-8-1999.
3. It is not in dispute that applications for enlarging the time for making the award in terms of sub-section (2) of Section 28 of the 1940 Act were filed and allowed.
4. The respondents, however evidently under a mistaken belief that the 1996 Act would be applicable in the case, filed three applications before the District Judge purported to be under Section 34 of the 1996 Act along with an application for condonation of delay in each of the three matters. However, realising their mistake that the applications under Section 34 of the 1996 Act were not maintainable, applications for amendment of the said petition were filed praying therein that the same may be treated to be applications under Section 30 of the 1940 Act.
5. The learned District Judge, however, rejected the said applications for amendment by an order dated 13-7-2001. The learned District Judge, however, refused to condone the delay in filing the applications under Section 34 of the 1996 Act whereagainst the respondents moved the Nagpur Bench of the Bombay High Court by filing writ petitions marked as WPs Nos. 4351, 4352 and 4394 of 2003. By reason of the impugned judgment, the said writ petitions have been allowed holding that as the arbitral proceedings commenced under the old Act, they would continue to be governed thereby and not by the 1996 Act. It was directed:
“In this view of the matter, it is clear that the findings of the learned Additional District Judge are not sustainable. In the circumstances, I find that the impugned order is not sustainable in law in the sense that it could not have been decided under the 1996 Act. The impugned order is, therefore, set aside.”
6. The controversy as to whether the 1940 Act or the 1996 Act would apply wherein the arbitral proceeding commenced prior to coming into force of the 1996 Act came to be considered by a three-Judge Bench of this Court in Milkfood Ltd. v. GMC Ice Cream (P) Ltd. (2004) 7 SCC 288 wherein it was held:
“70. Section 85 of the 1996 Act repeals the 1940 Act. Sub-section (2) of Section 85 provides for a non obstante clause. Clause (a) of the said sub-section provides for saving clause stating that the provisions of the said enactments shall apply in relation to arbitral proceedings which commenced before the said Act came into force. Thus, those arbitral proceedings which were commenced before coming into force of the 1996 Act are saved and the provisions of the 1996 Act would apply in relation to arbitral proceedings which commenced on or after the said Act came into force. Even for the said limited purpose, it is necessary to find out as to what is meant by commencement of arbitral proceedings for the purpose of the 1996 Act wherefor also necessity of reference to Section 21 would arise. The court is to interpret the repeal and savings clauses in such a manner so as to give a pragmatic and purposive meaning thereto. It is one thing to say that commencement of arbitration proceedings is dependent upon the facts of each case as that would be subject to the agreement between the parties. It is also another thing to say that the expression ‘commencement of arbitration proceedings’ must be understood having regard to the context in which the same is used; but it would be a totally different thing to say that the arbitration proceedings commence only for the purpose of limitation upon issuance of a notice and for no other purpose. The statute does not say so. Even the case laws do not suggest the same. On the contrary, the decisions of this Court operating in the field beginning from Shetty's Constructions (1998) 5 SCC 599 are ad idem to the effect that Section 21 must be taken recourse to for the purpose of interpretation of Section 85(2)(a) of the Act. There is no reason, even if two views are possible, to make a departure from the decisions of this Court as referred to hereinbefore.”
7. In view of the fact that therein it was categorically held that when the proceeding was started, the 1940 Act was applicable and not the 1996 Act, arbitral proceedings were held to be governed by the former. The said decision has been followed by a Division Bench of this Court in U.P State Sugar Corpn. Ltd. v. Jain Construction Co. (2004) 7 SCC 332 wherein it was held:
“9. The only question which survives for consideration is the applicability of the 1996 Act to the facts of the present case. Disputes and differences between the parties arose in the year 1991. The respondent filed an application under Section 20 of the 1940 Act on 1-5-1991. It invoked the arbitration agreement as contained in clause 34 of the contract. The arbitral proceeding was, therefore, set in motion. In terms of Section 21 of the 1996 Act, the arbitral proceedings in respect of a particular dispute commences on a date on which the request for that dispute to be referred to arbitration was received by the respondent.”
8. Furthermore, in Neeraj Munjal (3) v. Atul Grover (2005) 5 SCC 404 it was held:
“15. We, therefore, are clearly of the opinion that the provisions contained in the 1940 Act would govern the proceedings arising out of the award and not the 1996 Act. Reference to the 1996 Act was a mere inadvertence on the part of this Court. The learned Single Judge of the High Court was also not correct in holding that as no leave to challenge the award was granted by this Court, the appellants could not avail of the remedies provided for under the 1940 Act.”
9. Mr S. Muralidhar, learned counsel appearing on behalf of the appellant submitted that the respondents themselves proceeded on the basis that the 1996 Act would apply. The High Court failed to notice, Mr Muralidhar would urge, that the learned District Judge has rightly opined that the application for amendment could not have been allowed by him. In any event, in this case, the parties must be held to have agreed by their conduct in terms of Section 85(2)(b) of the 1996 Act, that the 1996 Act only would apply.
10. We do not agree with the aforementioned contentions. There is nothing on record to show that the procedures laid down in the 1940 Act were not applicable or before the arbitrator the parties agreed that the provisions of the 1996 Act shall apply.
11. The appellants filed applications under Section 20 of the 1940 Act. The said applications were allowed. The Court also exercised its discretionary jurisdiction under Section 28(2) of the 1940 Act in enlarging the period for making the award. The parties, therefore, had at all material times proceeded on the premise that the 1940 Act would apply.
12. However, although, we are of the opinion that in the facts and circumstances of this case, the High Court's judgment cannot be found fault with but interest of justice would be subserved if the applications filed by the respondents herein purported to be under Section 34 of the 1996 Act, are treated to be applications under Section 30 of the 1940 Act.
13. The District Judge, Nagpur shall transmit the records to the Small Cause Court, Nagpur in which court the awards ought to have been filed. It would be open to the appellant herein to file an objection to the respondents' application for condonation of delay as also the objections under Section 30 of the 1940 Act. The respective contentions of the parties shall be considered on merit by the learned Small Cause Court which are available to them in terms of the 1940 Act.
14. Keeping in view the fact that the arbitral award has been made as far back on 22-7-1999, we would request the court to dispose of the matter as expeditiously as possible, preferably within a period of four months from the date of receipt of a copy of this order.
15. This appeal is allowed to the aforementioned extent. The parties shall pay and bear their own costs.
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