Purushottam S/O Tulsiram Badwaik vs Anil & Ors.

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 Sub-section (1) of Section 85 of the 1996 Act repealed three enactments including Indian Arbitration Act, 1940. Sub-section (2) stipulates inter alia that notwithstanding such repeal, the repealed enactment namely 1940 Act would continue to apply in relation to arbitral proceedings which had commenced before 1996 Act came into force unless the parties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 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 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.