AI Structured Summary
Not yet generated for this judgment
Judgment
As per Dipak Misra, J.
Keeping in view the common thread of facts and the issue of law involved in their ultimate eventuate commonality of exposition and singularity of sequitur, these appeals are heard analogously and disposed of by this common order. For the sake of clarity and convenience the factual matrix in MA No. 577/1997 is adumbrated herein.
The respondent M/s Sugal & Damani firm through partner entered into an agreement with the State of MP and Director of Small Savings and State Lotteries, Bhopal as per agreement dated 29.1.1992 for organizing and sale of four lotteries on behalf of the State of Madhya Pradesh. The agreement was initially for a period of two years with a stipulation that it was extendable by one year. While the agreement was in force an ordinance dated 18.11.1992, namely, the Madhya Pradesh Lottery Pratibandh Adyadesh, 1992 was issued which prohibited the organizing and sale of lotteries in the State of Madhya Pradesh. The said ordinance was extended by issue of a second ordinance. As is evincible the State Legislature brought into existence the MP Lottery Pratibandh Act, 1993 (Act No. 8 of 1993) which came into force 25.1.1993. We have been apprised at the Bar that constitutional validity of the ordinance and the enactment came to be assailed. Mr. Dubey, learned Deputy Advocate General for the State would contend that the said enactment has been held to be constitutionally valid. Mr. Shrivastava would say the same is sub-judice. In the case at hand needless to emphasise the said facet need not be adverted to as the same has nothing to do with the real controversy involved in these appeals.
After introduction of the ordinance and enactment as certain disputes had already arisen between the respondents and the appellant, a notice was issued to other contracting parties as well as to the Secretary (Finance), the named arbitrator as per notice 17.11.1995 making a request to refer the dispute as per Schedule to the notice. As the reference was not effected, the respondents initiated a proceeding u/s 20 of the Arbitration Act, 1940 (hereinafter referred to as the 1940 Act'') for appointment of arbitrator. It is worthnoting here that in the said proceeding Director Small Savings and State Lotteries, Bhopal and Secretary Finance have been arrayed as parties. The learned Additional District Judge came to hold that the disputes existed between the parties and by virtue of the legislation, the disputes that had cropped up do not stand nullified; that the named arbitrator has refused to arbitrate upon the disputes; and that names of certain senior counsel should be filed for appointment of arbitrator. The said order passed by the learned Additional District Judge has been called in question in these appeals u/s 39 of the Act.
We have heard Mr. P.N. Dubey, learned Deputy Advocate General for the State and Mr. Kishore Shrivastava, learned senior counsel with Mr. Kunal Thakre for the respondents.
Mr. Dubey has raised the following contentions :
(a) The arbitration having not commenced under the 1940 Act, the whole proceeding is null and void and the respondents, if so advised, have to take steps under the Provisions of Arbitration and Counciliation Act, 1996.
(b) The learned Additional District Judge has fallen into grave error by coming to hold that the disputes existed between the parties despite the fact that it was mentioned before the said Court that the respondents had been refunded the security amount, the amount covered under the bank guarantees and prize money drawn, expenses and unclaimed prize money.
(c) Assuming for the sake of argument, certain disputes existed, they should have been restricted till the agreement was in vogue as the Legislation has prohibited the trade in lottery and, therefore, the claimant respondents could not have any grievance thereafter the same having been statutory abridged.
(d) In any case it was obligatory on the part of the learned trial Judge to appoint the named arbitrator in exercise of powers conferred u/s 20 of the Act and not to call for the names from the parties since the named arbitrator has not refused to arbitrate upon the matter and further there is no ground to invoke the power as stipulated u/s 20 (v) of the Act taking recourse to the conception of "or otherwise".
Mr. Kishore Shrivastava, learned senior counsel for the respondent countering the aforesaid submissions has contended as under:
(i) The proceeding had already commenced under the 1940 Act if Sections 21 and 85 of the 1996 Act are read in a conjoint manner and hence, the 1940 Act would govern the field.
(ii) The Legislature prohibited the business of organizing and sale of lotteries but the disputes had arisen earlier as the respondents had spent a huge sum in pursuance of the agreement and that itself gave rise to cause of action for appointment of an arbitrator and, therefore, the order passed by the learned trial Judge is absolutely sound.
(iii) Whether the claim is arbitrable or not is to be decided by the arbitrator and the Courts should not adjudicate over the same as that would tantamount to exercise of jurisdiction of the arbitrator.
(iv) The learned Additional District Judge has not erred in law by calling for the names from the parties as he was convinced that the arbitrator had refused to arbitrate upon the disputes.
(v) Assuming there has been no refusal by the arbitrator but in the proceeding u/s 20, the arbitrator, namely, Secretary, Finance had contested the matter by contending, inter alia, that there was no dispute and hence; the respondents are apprehensive that the cause of justice would not be subserved if he or his successor is appointed as arbitrator.
First we shall deal with the issue whether the 1940 Act or the 1996 Act would apply to the case at hand. As has been stated earlier notices were issued to the appellants 2 and 3 to refer the matter for arbitration. Mr. Dubey made a laborious endeavour that it is not a notice for commencement of arbitration proceeding. We fail to fathom. The language in which the letter has been couched we are convinced that it was a notice to the contesting parties to refer the matter as well as to the arbitrator to arbitrate upon. In this context, we may profitably refer to Sections 21 and 85 of the 1996 Act.
The said provisions read as under:
S. 21. Commencement of arbitral proceedings. - Unless otherwise agreed by the parties, the arbitral proceedings in respect of a particular dispute commence on the date on which a request for that dispute to be referred to arbitration is received by the respondent.
XXX XXX XXX
S. 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.
In the case of Shetty''s Constructions Co. Pvt. Ltd. Vs. Konkan Railway Construction and Another, a two - Judge Bench of the Apex Court has held thus :
A mere look to sub-section (2) (a) of Section 85 shows that despite the repeal of Arbitration Act, 1940, the provisions of the said enactment shall be applicable in relation to arbitration proceedings which have commenced prior to the coming into force of the new Act. The new act came into force on 26.1.1996. The question therefore, arises whether on that date the arbitration proceedings in the present four suits had commenced or not. For resolving this controversy we may turn to Section 21 of the new Act which lays down that unless otherwise agreed to between the parties, the arbitration suit in respect of arbitration dispute commenced on the date on which the request for referring the dispute for arbitration is received by the respondents. Therefore, it must be found out whether the requests by the petitioner for referring the dispute for arbitration were moved for consideration of the respondents on and after 26.1.1996 or prior thereto. If such requests were made prior to that date, then on a cojoint reading of Section 21 and Section 85 (2) (a) of the new Act, it must be held that these proceedings will be governed by the old Act. As seen from the aforenoted factual matrix, it at once becomes obvious that the demand for referring the disputes for arbitration was made by the petitioners in all these cases months before 26.1.1996, in March and April, 1995 and in fact thereafter all the four arbitration suits were filed on 24.8.1995. These suits were obviously filed prior to 26.1.1996 and hence, they had to be decided under the Old Act of 1940. This preliminary objection, therefore, is answered by holding that these four suits will be governed by the Arbitration Act, 1940 and that is how the High Court in the impugned judgments has impliedly treated them.
If the aforesaid enunciation of law is applied to the case at hand we have no scintilla of doubt that the proceeding had commenced under the 1940 Act and the provisions of the said Act would govern the field.
The second issue that emerges for consideration is that the learned Additional District Judge should have thrown the suit overboard on the ground that nothing remained to be arbitrated upon as the Ordinance had been issued. Mr. Shrivastava has put forth that the Legislation might have prohibited the trade but prior to that steps had been taken and a huge amount had been spent and investment had been done and hence, the claimants respondents have a claim to put forth. The learned counsel has commended us to the decision rendered in the case of Damodar Valley Corporation Vs. K.K. Kar, wherein the Apex Court has expressed the view that the question whether the termination was valid or not and whether damages were recoverable for such wrongful termination did not affect the arbitration clause, or the right of the respondent to invoke it for appointment of an arbitrator. True it is, the said decision was rendered in the context of termination of contract. Whether the dispute is tenable or not, barred by limitation or not, otherwise entertainable or not, in our considered view, have to be adjudicated by the arbitrator and not by Courts.
The next aspect that emerges for consideration is whether the Court below should have come to hold that there is refusal by the Secretary, Finance to arbitrate upon and called for the names from both the parties. Mr. Shrivastava has read out paragraph 15 of the judgment passed by the learned trial Judge to highlight that notice was sent to the arbitrator but he had refused to arbitrate. He has invited our attention to certain documents which have been filed before the learned trial Judge to show that there was some kind of telephonic conversation with the Secretary, Finance. On a perusal of the documents we are not inclined to accept the submission of Mr. Shrivastava that the arbitrator had refused to arbitrate upon.
The next spectrum is whether the concept of "otherwise" as envisaged u/s 20 of the Act would get attracted to the case at hand. Submission of Mr. Shrivastava is that when the parties cannot agree for appointment of a named arbitrator it is obligatory on the part of the Court to appoint an arbitrator. We see no substance in the aforesaid submission, for a named arbitrator has to be appointed unless otherwise other circumstances exist. The spacious submission of Mr. Shrivastava is not acceptable that whenever parties cannot agree a third party should be appointed as arbitrator.
Now the question that emerges for consideration is whether in the obtaining factual matrix Secretary Finance should be appointed as arbitrator or someone else. We may hasten to clarify that we have negatived the submission of Mr. Shrivastava that if the parties disagree a third arbitrator should be appointed. The said submission does not commend acceptance. The learned senior counsel has submitted that there are special features in the case at hand where court should invoke the jurisdiction to appoint someone else as arbitrator. The learned counsel has drawn our attention to the written statement filed by the respondents before the Court below. On a perusal of the same it is evincible that the Secretary, Finance who was arrayed as respondent No. 3 had joined the other respondents whereas he would have been well advised not to contest the matter. A view has been expressed by the Secretary, Finance. True it is, the arbitration agreement postulates that the Secretary, Finance or his successor would arbitrate. The personality would change but a departmental view has been expressed in the written statement. In view of the aforesaid we are inclined to think that someone else should be appointed as arbitrator. We may clarify that we have not commented on any other aspect of the named arbitrator but we have only taken note of the fact that he had contested the matter as an adversary. In view of the aforesaid we set aside the order of the learned Additional District Judge calling for the names. We think it is a fit case where a third party arbitrator should be appointed, and accordingly we appoint Principal Secretary (Law) as the arbitrator. Learned arbitrator would be well advised to act in accordance with the parameters of the 1940 Act and proceed with the matter as per law. We may further observe that we have not expressed any opinion with regard to arbitrability of the claims or any other aspect relating to arbitration.
In the result, the appeals are partly allowed. The direction of the learned Additional District Judge calling for the names from the parties is set aside and Principal Secretary (Law) is appointed as the arbitrator to arbitrate the dispute. Needless to emphasise parties are at liberty to put forth their claims as per law. The learned Additional District Judge is directed to refer the dispute that was annexed with the plaint filed u/s 20 of the Act to the learned arbitrator. There shall be no order as to costs.