AI Drafter 
TaxTMI 
TaxTMI 
TaxTMI 
2018 (5) TMI 328
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....ith the provisions of Indian Arbitration Act, 1940, and the decision of the Arbitrator shall be final and binding on all the partners." 4. The appellant had also executed a registered Power of Attorney on 28.12.2006 in favour of the partners. In April 2014 the respondents filed Special Civil Suit No.16 of 2014 in the Court of Civil Judge, Senior Division, Bhandara for declaration, damages, accounts and permanent injunction against the appellant. Soon after receipt of the notice, the appellant preferred an application under Section 8 of 1996 Act to refer the dispute to arbitration in view of aforesaid clause 15 in the Partnership Agreement. The matter was contested. The Trial Court rejected said application by its order dated 05.01.2015. It was held that aforesaid clause 15 was vague, that there was no reference as to who should be the arbitrator, that there was no mention about selection of the arbitrator and that the dispute did not form subject matter of agreement within the meaning of Section 8 of 1996 Act. 5. The matter was carried further by the appellant by filing Civil Revision Application No.88 of 2015 in the High Court. The High Court took the view that the relevant ....
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....ted that the question as to whether 1996 Act or 1940 Act would govern the relationship between the parties was so fundamental that mistakes in that behalf would invalidate the entire arbitration clause and as such the courts below were justified in rejecting the submissions advanced by the appellant. 8. In the present case though the Partnership Agreement was entered into after 1996 Act had come into force, the relevant clause made reference to "arbitration in accordance with the provisions of Indian Arbitration Act, 1940". It is not the case of the respondent that the agreement between the parties suffered from any infirmity on account of fraud, coercion, undue influence or misrepresentation. What is however projected is that the reference to arbitration in terms of 1940 Act was such a fundamental mistake that it would invalidate the entire arbitration clause and as such there could not be any reference to arbitration at all. 9. The term "Arbitration Agreement" has been defined in Section 7 of 1996 Act as under :- "7. Arbitration agreement. - (1) In this Part, "arbitration agreement" means an agreement by the parties to submit to arbitration all or certain disputes ....
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....ts shall, to the extend to which they are not repugnant to this Act, be deemed respectively to have been made or issued under this Act." 11. Sub-section (1) of Section 85 repealed three enactments including 1940 Act. 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. 12. In M.M.T.C. Limited v. Sterlite Industries (India) Ltd. (1996) 6 SCC 716, the arbitration agreement was of a date prior to the commencement of 1996 Act. The commencement of arbitral proceedings was however after 1996 Act had come into force and as such it was held by this Court in paragraph 11 that the provisions of 1996 Act would apply. Further, the arbitration clause contemplated appointment of two arbitrators and a question also arose whether the appointment ....
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....uch inconsistency between Section 10 of the New Act and the corresponding provision in the 1940 Act, both being substantially the same. The learned counsel contended that the provisions of the New Act must be construed to promote the object of implementing the scheme of alternative dispute resolution; and the New Act must be construed to enable the enforcement of the earlier arbitration agreements. It was urged that each of the parties having nominated its arbitrator, the third arbitrator was required to be appointed according to Section 11(3) and the failure to do so attracts the consequential results under the New Act. The learned counsel contended that the provision for the number of arbitrators is a machinery provision and does not affect the validity of the arbitration agreement which is to be determined according to Section 7 of the New Act. 8. Sub-section (3) of Section 7 requires an arbitration agreement to be in writing and sub-section (4) describes the kind of that writing. There is nothing in Section 7 to indicate the requirement of the number of arbitrators as a part of the arbitration agreement. Thus the validity of an arbitration agreement does not depend on ....
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....itrator as required by Section 11(4) (b) of the New Act. Since the procedure prescribed in Section 11(3) has not been followed the further consequences provided in Section 11 must follow. 13. Accordingly, we direct that the Chief Justice of the High Court is to appoint the third arbitrator under Section 11(4)(b) of the New Act in view of the failure of the two appointed arbitrators to appoint the third arbitrator within thirty days from the date of their appointments. Direction given by the Chief Justice of the High Court is substituted to this effect." 13. The arbitration clause in MMTC Ltd. (supra) contemplated an appointment process which was not strictly in tune with the provisions of 1996 Act and the agreement was:- "the provisions of the Indian Arbitration Act and Rules made thereunder shall apply for proceedings". The reference was thus to the provisions of 1940 Act. The reading of the decision shows that what was found crucial was date of commencement of the arbitral proceedings and if such commencement was after 1996 Act had come into force, the provisions that would govern the situation were held to be that of 1996 Act. The appointment process was also directe....
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....ad come into force. Thus the fact situation in all three matters was clear that the commencement of arbitral proceedings was much before 1996 Act came into force. Therefore, on the strength of Section 85(2)(a) of 1996 Act, it was held that the provisions of the repealed enactments including 1940 Act would continue to apply in relation to such arbitral proceedings. The conclusions are clear from paragraphs 29 and 42 of said decision. 15. However, the High Court has placed reliance on certain observations in paragraph 35 of Thyssen (supra). In our view the observations have been quoted and relied upon by the High Court completely out of context. What this Court considered in paragraph 35 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 ....