2002 (7) TMI 814 - HC - Companies Law

Court Upholds Arbitration Act Retroactive Application

The court ruled in favor of applying the Arbitration and Conciliation Act, 1996 to disputes arising after its enactment, even if the arbitration agreement ... - Issues Involved:1. Applicability of the Arbitration and Conciliation Act, 1996 (new Act) vs. Arbitration Act, 1940 (old Act).2. Validity of arbitration agreements and the arbitrator's jurisdiction.3. Dissolution of partnership firms and the arbitrator's power to adjudicate on dissolution.4. Allegations of fraud and misrepresentation concerning the Modification Deed dated 1 April 1997.5. Maintainability of applications under Sections 8 and 11 of the new Act.Detailed Analysis:1. Applicability of the Arbitration and Conciliation Act, 1996 (new Act) vs. Arbitration Act, 1940 (old Act):The court determined that the new Act applies to all disputes raised after its enactment on 25 January 1996, even if the arbitration agreement was initially made under the old Act. The arbitration clause in the partnership deed dated 1 July 1961 was invoked after the new Act came into force, making the provisions of the new Act applicable. The objection that the application under Section 11 is not maintainable due to the old Act was rejected.2. Validity of arbitration agreements and the arbitrator's jurisdiction:The court emphasized that under Section 11 of the new Act, the Chief Justice or his designate cannot entertain or decide issues regarding the existence, validity, or scope of the arbitration agreement. These issues are to be left to the arbitrator as per Section 16 of the new Act, which grants the arbitrator wide jurisdiction to rule on such matters.3. Dissolution of partnership firms and the arbitrator's power to adjudicate on dissolution:The court noted that the arbitration clauses in the partnership deeds are broad and encompass all matters related to the firm, its affairs, and its partners. Consequently, the arbitrator is competent to decide on the dissolution of the partnership, including on just and equitable grounds. The court referenced the Supreme Court's decision in V.H. Patel & Co. v. Hirubhai Himabhai Patel, which supports the arbitrator's power to dissolve a partnership if the arbitration clause covers all matters of difference between the partners.4. Allegations of fraud and misrepresentation concerning the Modification Deed dated 1 April 1997:The court held that allegations of fraud and misrepresentation, which form the basis for challenging the validity of the Modification Deed, fall within the scope of the arbitration agreement. The arbitrator is competent to adjudicate on these issues as they pertain to the partnership's affairs and disputes arising from the partnership deeds.5. Maintainability of applications under Sections 8 and 11 of the new Act:The court clarified that Section 8 of the new Act mandates the referral of parties to arbitration if the matter before the court is subject to an arbitration agreement. The objections raised by RN, including the arbitrator's jurisdiction to dissolve the firm and adjudicate on fraud allegations, do not preclude the court from referring the matter to arbitration. The court cited the Supreme Court's decision in Kalpana Kothari v. Sudha Yadav, which underscores the mandatory nature of Section 8 and the comprehensive scope of the new Act in referring disputes to arbitration.Conclusion:The court allowed AA No. 122/2000 and IA No. 7010/2000, appointing Dr. Justice A.S. Anand, former Chief Justice of India, as the sole arbitrator to resolve the disputes arising from the partnership deeds. The court disposed of Suit No. 1084/2000 and related interim applications, directing that interim orders remain in effect until the arbitrator makes and publishes the award. The court's decision ensures that all contentious issues, including those related to the dissolution of the partnership and allegations of fraud, are to be decided by the arbitrator.