http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 1 of 32  

CASE NO.: Appeal (civil)  9672 of 2003

PETITIONER: Milkfood Ltd.

RESPONDENT: M/s GMC Ice Cream (P) Ltd.

DATE OF JUDGMENT: 05/04/2004

BENCH: CJI & S.B. Sinha.

JUDGMENT: J U D G M E N T

W I T H

Civil APPEAL NOS.9673-74 OF 2003

S.B. SINHA, J :

       Interpretation of certain provisions of the Arbitration  Act, 1940 and the Arbitration and Conciliation Act, 1996  (for short ’1940 Act’ and ’1996 Act’ respectively) is in  question in these appeals which arise out of a judgment and  order dated 13.10.1998 passed by a learned Single Judge of  the Delhi High Court in O.M.P. No. 94 of 1998 and a judgment  dated 17.2.2003 passed by a five-Judge Bench of the said  Court in L.P.A. No.492 of 2002 holding that the said appeal  was not maintainable.   

FACTUAL BACKGROUND :

       The parties hereto entered into an agreement on or  about 7.4.1992 in terms whereof the first respondent herein  was to manufacture and pack in its factory a wide range of  ice cream for and on behalf of the appellant.  The said  agreement was to remain valid for a period of five years.  Admittedly, the said contract contained an arbitration  agreement being clause 20 thereof which is as under :

"In case of any dispute or any  difference arising at any time between  the Company and the Manufacturer as to  the construction, meaning or effect of  this Agreement or any clause or thing  contained therein or the rights and  liabilities of the Company or the  Manufacturer hereunder in relation to  the premises, shall be referred to a  single arbitrator, in case the parties  can agree upon one, and failing such  Agreement, to two arbitrators one to be  appointed by either party and in case of  disagreement between the two arbitrators  aforesaid and in so far as and to the  extent that they disagree to, an umpire  to be appointed by the said two  arbitrators before they enter upon the  reference.

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 2 of 32  

All such arbitration proceedings shall  be in accordance with and subject to the  provisions of the Arbitrator Act, 1940,  or any statutory modification or  reenactment."

       The contention of the appellant was that the first  respondent herein did not fulfill its contractual  obligations.  It was also contended and two Demand Drafts  sent by it for a sum of Rs. Five lakhs each which were  required to be sent in the year 1992 were in fact sent on  7.5.1995 and the same were returned.   

The contention of the first respondent, on the other  hand, was that in terms of the agreement between the parties  that an additional plant as per the specifications thereof  for manufacture of ice cream was installed; but despite the  same the appellant failed to supply the base materials for  packing ice cream.   

The first respondent herein apprehending that the  appellant herein would cause disturbance in the manufacture  and supply of ice cream filed a suit in the Court of Munsif  1st, Gaya which was marked as Title Suit No.40 of 1995,  wherein a decree for permanent injunction restraining the  appellant from causing any disturbance in manufacture and  supply of ice cream according to specifications given by the  appellant was sought for. The appellant herein, however,  having regard to the arbitration agreement entered into by  and between the parties filed an application under Section  34 of the Arbitration Act, 1940 for stay of the suit.  By  reason of an order dated 3.8.1995, the learned Munsif  allowed the said application filed by the appellant herein  and directed stay of the suit holding that it was a fit case  in which the application under Section 34 of the Act should  be allowed.  It was further directed :

"On the request the application dated  17.7.95 filed on behalf of the defendant  nos. 1 to 3 is allowed.  I stay the  further proceeding of the suit and in  the meantime the matter be referred to  the arbitration.  Put up on 4.9.1995."         Pursuant to or in furtherance of the said direction,  the appellant herein sent a notice on 14.9.1995 to the first  respondent herein and its Managing Director appointing Shri  H.L. Agrawal, a former Chief Justice of the Orissa High  Court as its arbitrator.  It was further stated therein that  if the respondents intend to agree to appoint Shri H.L.  Agrawal as arbitrator to settle the dispute, it may give its  consent thereto forthwith failing which it may also appoint  its arbitrator in terms of clause 20 of the agreement so  that the dispute be settled at the earliest.   

       Some controversy as regard service of the said notice  on the respondent has been raised which would be dealt with  a little later.

       To complete the narration of facts, we may notice that  the said order dated 3.8.1995 was appealed against by the  first respondent before the 2nd Additional District Judge,  Gaya and by an order dated 13.3.1996, the 2nd Additional

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 3 of 32  

District Judge, Gaya in Misc. Appeal No.7 of 1995 (30/95)  dismissed the same.  Aggrieved by and dissatisfied with the  said judgment and order the first respondent herein filed a  revision application before the Patna High Court which was  marked as C.R. No.1020 of 1996.  The said civil revision  application was disposed of by an order dated 6.5.1997 in  the following terms :

"Before this court parties have agreed  that the dispute between them may be  referred, as per the agreement to  Arbitrators chosen by the parties.  The  plaintiff had chosen Shri Ujday Sinha, a  retired judge of this court and Senior  Advocate of the Supreme Court, while the  defendants have chosen Shri Hari Lal  Agrawal, Senior Advocate of the Supreme  Court, a former judge of this Court and  Chief Justice of Orissa High Court as  Arbitrators.  The dispute between the  parties is referred to arbitrator.   

       I hope that the learned Arbitrators  will dispose of the arbitration  proceeding within three months of the  entering the reference.

       Let a copy of this order be sent to  both Shri Hari Lal Agarwal at his  address Nageshwar Colony, Boring Road,  Patna-1 and Shri Uday Sinha at his Patna  address 308, Patliputra Colony, Patna."

       It would appear that by reason of the said order merely  the constitution of the arbitral Tribunal had been changed  but the dispute sought to be resolved in the arbitration  proceeding was not formulated therein.  The appellant  appointed Respondent No.4, Shri Agrawal, whereas the first  respondent appointed Respondent No.3, Shri Uday Sinha, as  their arbitrators.  Respondent No.2, Shri A.B. Rohtagi was  appointed by the learned arbitrators as the third  arbitrator, which according to the appellant, was without  its knowledge and consent.

       The appellant having found that the learned arbitrators  were proceeding under the 1996 Act filed an application  seeking directions and the clarifications raising a  contention that the provisions of the 1940 Act were  applicable.  The matter was heard by the learned Arbitrators  and by an order dated 6.4.1998, the majority of the  arbitrators held that the 1996 Act shall apply holding :   

"the consent order dated 6.5.1997 is  the beginning of the arbitral  proceedings.  Anything said or done  before that date is of no consequence.   Therefore the new Act applies.  This is  our conclusion."

       One of the learned arbitrators Shri H.L. Agrawal,  however, in his dissenting opinion held :

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 4 of 32  

"I do not agree with him that an  Arbitration commences when the dispute  is referred to the arbitrator and he  enters upon the reference.   

Section 37(3) of the old Act  categorically lays down that "when one  party serves on the other, a notice  requiring the other to appoint an  Arbitrator", an Arbitration is deemed  to commence.  It does not mandate the  notice only by the claimant.  The notice  may be by either of the parties.  In my  considered opinion the notice dated  14.4.1995 issued by the Respondent to  the claimant triggered off the  commencement of the arbitration  proceeding.  Nothing has been shown that  there was any agreement between the  parties to the contrary.  There cannot  be one commencement for the limitation  purposes and another for an arbitration  proceeding."

       Questioning the said order of the learned arbitrators,  an application was filed by the appellant herein purported  to be under Section 33 of the 1940 Act in the High Court of  Delhi which was marked as O.M.P. No.94 of 1998.  A learned  Single Judge of the High Court held :

"a)     According to Section 21 of the  Arbitration and Conciliation Act, 1996,  unless otherwise agreed by the parties,  the arbitral proceedings commences on  the date of which a request for that  dispute is referred to arbitration.  The  Act postulates a notice by a claimant to  the respondent calling upon him to  appoint an arbitrator for the settlement  and it cannot be the other way round.   No respondent would ask for the  appointment of an arbitrator when he has  no dispute to refer (unless the  respondent would be a counter claimant).   In case he has disputes to refer, then  the respondent would become the  claimant.  The majority order correctly  held that no defendant will save  limitation for the claimant or the  plaintiff.  In view of this finding, the  notice dated 14.9.1995 cannot be  construed as a notice calling upon to  initiate the arbitration proceedings.

b)      The agreement dated 7th April,  1992 contemplates that such arbitration  proceedings shall be in accordance with  and subject to the provisions of the  Arbitration Act, 1940 or any statutory  modification or reenactment.  In 1992,  when the agreement was entered into the

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 5 of 32  

parties could not visualise the 1996 Act  but in the relevant clause 20 of the  agreement, foundation of any statutory  modification or reenactment has been  laid down.  When the parties by consent  before the High Court agree to refer the  dispute to the arbitration in that event  parties have to be governed by 1996 Act.   This conclusion is consistent even with  the underlying intention of the parties  according to clause 20 of the Agreement.

c)      Logically, it has to be concluded  that the arbitration proceedings begin  when the disputes are referred for the  arbitration.  In the instant case, the  disputes were referred for arbitration  by the order of the High Court only on  6.5.1997.  The parties have therefore,  to be governed by the provisions of 1996  Act.

d)      The petitioner was aware of the  third arbitration from the very  beginning and it has to be assumed that  the petitioner by necessary implication  gave consent for referring the disputes  to the arbitration.  All this happened  after the 1996 Act came in force,  therefore, only the 1996 Act has to be  made applicable in this case.

   e)      The most vital and important  circumstances of this case is that on  6.5.1997, both the parties gave a clear  consent to refer this matter to the  arbitration before the High Court of  Patna.

       The parties by agreement gave a  good bye to all other proceedings and on  6.5.97, agreed for reference of their  disputes to the arbitrator.  The  sanctity of the undertaking given to the  court by the parties has to be  maintained.  No one can be permitted to  breach or flout the undertaking in this  manner."

       An appeal preferred thereagainst was dismissed by a  five-Judge Bench, as being not maintainable.

SUBMISSIONS :

       Mr. Harish Salve, learned Senior Counsel appearing on  behalf of the appellant, would submit that having regard to  the fact that the notice appointing arbitrator had been  served upon the respondent in terms whereof the arbitration  proceeding commenced and in that view of the matter the 1940  Act shall be applicable in the instant case.  Referring to  Sections 21 and 85 of the 1996 Act, Mr. Salve would urge  that there are well-known expressions in the arbitral

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 6 of 32  

proceedings, being "commencement of the arbitration  proceeding", "continuance of arbitration proceedings",  "entering into reference" which in different context would  carry different meanings.  The Parliament, however, in the  1996 Act having chosen to use the expression ’initiation of  the proceedings’, the meaning thereof as is understood in  common parlance should be applied.  Strong reliance in this  connection has been placed on a decision of the Queen’s  Bench Division Bench in Charles M. Willie & Co. (Shipping)  Ltd. vs. Ocean Laser Shipping Ltd. [(1999) 1 Lloyd’s  Rep.225].

       Mr. Salve would submit that there appears to be some  conflict in the decision of the two-Judge Benches of this  Court as regard construction of the arbitration agreement,  as contained in clause 20 thereof, referred to hereinbefore  vis-‘-vis the applicability of the 1996 Act.  In this  connection, our attention has been drawn to a decision of  this Court in N.S. Nayak & Sons etc. vs. State of Goa etc.  [(2003) 6 SCC 56] wherein allegedly a different note has  been struck from an earlier view expressed in Delhi  Transport Corporation Ltd. vs. Rose Advertising [(2003) 6  SCC 36].         Mr. R.K. Jain, learned senior counsel appearing on  behalf of the respondent, on the other hand, would urge that  having regard to the purport and object of the 1996 Act, as  also in view of the fact that the arbitrators had already  entered into the reference, this Court may not interfere  with the impugned judgment in exercise of its jurisdiction  under Article 136 of the Constitution of India.  Strong  reliance in this behalf has been placed Chandra Singh and  Others vs. State of Rajasthan and Another [(2003) 6 SCC  545].  The learned counsel would next contend that a  proceeding commences in the court of law when a plaint is  filed and if the said analogy is applied, an arbitration  proceeding must be held to be initiated when a claim  petition is filed by the claimant before the arbitrator as  before a proceeding is initiated before a court or tribunal,  the existence thereof would be a condition precedent for  initiation of proceeding.            

       The learned counsel would urge that for the purpose of  determining the point of time ’when an arbitration  proceeding commences’, the arbitral tribunal must be  constituted.  Reliance in this connection has been placed on  Secretary to the Government of Orissa and Another vs.  Sarbeswar Rout [(1989) 4 SCC 578].   

       The learned counsel would further submit that an  arbitrator enters into a reference when he applies his mind  to the disputes and differences between the parties and not  prior thereto.  Alternatively, it was submitted that the  proceeding commences when the arbitrator enters into  reference. Reliance in this behalf has been placed on  Sumitomo Heavy Industries Ltd. vs. ONGC Ltd. and Others  [(1998) 1 SCC 305].   

It was argued that in any event the starting point for  the purpose of commencement of arbitration proceeding would  be when the dispute was referred by the High Court i.e. on  6.5.1997 and not prior thereto.          Mr. Jain would further urge that in any event, as the  parties had agreed in terms of clause 20 of the contract  that all such arbitration proceedings shall be in accordance

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 7 of 32  

with and subject to the provisions of the Arbitration Act,  1940 or any statutory modification or re-enactment thereof,  they must be deemed to have agreed that the new Act shall  apply.  Strong reliance has been placed on   Thyssen Stahlunion GMBH vs. Steel Authority of India Ltd.  [(1999) 9 SCC 334], Delhi Transport Corporation Ltd. (supra)  and N.S. Nayak (supra).   

       Mr. Jain would also urge that the decision of this  Court in N.S. Nayak (supra) cannot be said to have struck a  different note from its earlier decision.  Section 37 of the  1940 Act, the learned counsel would contend, being for the  purpose of commencement of the period of limitation, the  same will have no application whatsoever for the purpose of  determining the question as to whether the 1940 Act will  apply or the 1996 Act.

Analysis of the relevant statutory provisions :

       Section 37(3) of the 1940 Act provides that the  arbitration proceeding commences when one party to the  arbitration agreement serves on the other parties thereto a  notice requiring the appointment of an arbitrator.   

Section 21 of the 1996 Act is as under :

"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."

We may notice that Section 14 of the English  Arbitration Act 1996 deals with commencement of arbitral  proceedings.  Sub-section (1) of Section 14 provides that  the parties are free to agree when arbitral proceedings are  to be regarded as commenced for the purpose of this Part and  for the purposes of the Limitation Act.  Section 14(3)  provides that in the absence of such agreement, the  provisions contained in sub-sections (3) to (5) shall apply.   Both the 1940 Act and the English Arbitration Act place  emphasis on service of the notice by one party on the other  party or parties requiring him or them to submit the matter  to arbitration rather than receipt of the request by the  respondent from the claimant to refer the dispute to  arbitration.  Commencement of an arbitration proceedings for  certain purposes is of significance.  Arbitration  proceedings under the 1940 Act may be initiated with the  intervention of the court or without its intervention.  When  arbitration proceeding is initiated without intervention of  a Court, Chapter II thereof would apply.  When there exists  an arbitration agreement the resolution of disputes and  differences between the parties are to be made in terms  thereof.  For the purpose of invocation of the arbitration  agreement, a party thereto subject to the provisions of the  arbitration agreement may appoint an arbitrator or request  the noticee to appoint an arbitrator in terms thereof.  In  the event, an arbitrator is appointed by a party, which is  not opposed by the other side, the arbitrator may enter into  the reference and proceed to resolve the disputes and  differences between the parties.  However, when despite

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 8 of 32  

service of notice, as envisaged in sub-section (1) of  Section 8 of the 1940 Act, the appointment is not made  within fifteen clear days after service of notice, the Court  may, on the application of the party who gave the notice and  after giving the other parties an opportunity of being  heard, appoint an arbitrator or arbitrators or umpire, as  the case may be.  By reason of sub-section (2) of Section 8  of the 1940 Act, a legal fiction has been introduced to the  effect that such an appointment by the court shall be  treated to be an appointment made by consent of all parties.   Section 8, therefore, implies that where an appointment is  not made with the intervention of the court but with the  consent of the parties, the initiation of the arbitration  proceeding would begin from the service of notice.  Section  37 of the 1940 Act provides that all the provisions of the  Indian Limitation Act, 1908 shall apply to arbitrations and  for the purpose of the said section as also the Indian  Limitation Act, 1908, an arbitration shall be deemed to be  commenced when one party to the arbitration agreement serves  on the other parties thereto a notice requiring the  appointment of an arbitrator or where the agreement provides  that the reference shall be to a person named or designated  in the agreement, requiring that the difference be submitted  to the person so named or designated.  

       Section 37(3) of the Arbitration Act, 1940 is not  exhaustive.  The expression "shall be deemed to be  commenced" indicates that the sub-section (3) deals with two  modes of notional or fictional commencement as distinguished  from factual commencement.  It is, thus, possible to conceive  cases where an arbitration can be said to have commenced  under circumstances not contemplated by the sub-section.  Too  much stress also cannot be laid on Rule 3 of the First  Schedule of the 1940 Act in interpreting Sub-Section (3) of  Section 37 of the Act.  (See Motilal Chamaria Vs. Lal Chand  Dugar, AIR 1960 Calcutta 6)

The commencement of an arbitration proceeding for the  purpose of applicability of the provisions of the Indian  Limitation Act is of great significance.  Even Section 43(1)  of the 1996 Act provides  that the Limitation Act, 1963  shall apply to the arbitration as it applies to proceedings  in court.  Sub-section (2) thereof provides that for the  purpose of the said section and the Limitation Act, 1963, an  arbitration shall be deemed to have commenced on the date  referred to in section 21.  

Article 21 of the Model Law which was modelled on  Article 3 of the UNCITRAL Arbitration Rules had been adopted  for the purpose of drafting Section 21 of the 1996 Act.   Section 3 of the 1996 Act provides for as to when a request  can be said to have been received by the respondent.  Thus,  whether for the purpose of applying the provisions of  Chapter II of the 1940 Act or for the purpose of Section 21  of the 1996 Act, what is necessary is to issue/serve a  request/notice to the respondent indicating that the  claimant seeks arbitration of the dispute.

Section 3 of the 1940 Act provides that an arbitration  agreement, unless a different intention is expressed  therein, shall be deemed to include the provisions set out  in the First Schedule in so far as they are applicable to  the reference.  The First Schedule, therefore, contains  implied conditions of arbitration agreements which are

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 9 of 32  

applicable to the reference and not for any other purpose.   Clause (3) of the First Schedule envisages that the  arbitrators shall make their award within four months after  entering on the reference or after having called upon act by  notice in writing from any party to the arbitration  agreement  or within such extended time as the Court may  allow.  A notice upon the arbitrator so as to enable him to  enter into a reference or to make an award within the  stipulated period, therefore, has nothing to do with the  notice served by a party to an agreement to another invoking  the arbitration clause and by appointing an arbitrator.   

For the purpose of the Limitation Act an arbitration is  deemed to have commenced when one party to the arbitration  agreement serves on the other a notice requiring the  appointment of an arbitrator.  This indeed is relatable to  the other purposes also, as, for example, see Section 29(2)  of English Arbitration Act, 1950.

       The date when arbitration proceeding commences would  depend upon various factors and the purposes which it seeks  to achieve.  It may be for the purpose of attracting the  Limitation Act or for the purpose of time bar clauses or for  the rules applicable therefor, as, for example, the rules of  the International Chambers of Commerce.   

       The date of commencement of an arbitration also affects  the position under the conflict of laws when the proper law  of the contract is one law and the law of the arbitral  procedure is another, for then, up to the date of  commencement of the arbitration proceeding, the law of the  contract must govern, and the law of the procedure will only  govern thereafter.  (See International Tank and Pipe S.A.K.  Vs. Kuwait Aviation Fuelling Co. K.S.C. [1975] Lloyd’s Rep.  8)

Section 14(3) & (5) of the English Arbitration Act,  1996 would also show that commencement of arbitral  proceeding is not only for the purpose of limitation but  also for the purpose of considering a case when the parties  by their contract agree that the arbitration must be  commenced within a specified time, failing which the right  to arbitration, or indeed the claim itself, is apt to be  barred.  Determination of time elements in an arbitration is  provided for in Section 21 of the 1996 Act clearly  indicating as to when such arbitration has officially begun.

Charles M. Willie & Co. (supra) :

On November 21, 1990 Willie received  a letter from  Holman Fenwick & Willan ("HFW") solicitors to Roussos  enquiring about an engine stoppage in January, 1988.   Correspondence developed in which Roussos alleged that  Willie had been in breach of the MOA because at the time of  delivery the vessel was suffering from average damage  affecting class which led to engine breakdown in May, 1987  and January, 1988 (and again after delivery) and which had  not been reported to class.  Swinnerton Ashley Claydon  ("SAC") were involved in that correspondence as solicitors  to Willie.

       On March. 12, 1992 HFW telexed SAC to invite Willie to  agree on the appointment of a single arbitrator but in the  event on Apr. 3, 1992 HFW appointed Mr. Kazantzis as  Roussos’ arbitrator and on Apr. 6, 1992 Mr. Newcomb was

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 10 of 32  

appointed as Willie’s arbitrator.           On  May. 20, 1992 HFW telexed Mr. Kazantzis with copies  to Mr. Newcomb and SAC stating inter alia :

       We  refer to our correspondence...appointing you as  arbitrator on behalf of G Roussos Sons SA...

       We should be grateful if...you would also accept  appointment as arbitrator again in respect of all disputes  arising under the...MOA with Charles M Willie and Co  (Shipping) Limited on behalf of Ocean Laser Shipping Ltd.

       By letter dated May 21, 1992 to Mr. Kazantzis with  copies to HFW and Mr. Newcomb, SAC disputed the validity of  the appointment on behalf of Ocean Laser and stated inter  alia that Willie had no contract and consequently there was  no agreement to arbitrate, with Ocean Laser.  SAC’s reaction  to the appointment by Ocean Laser of Mr. Kazantzis went  answered.

       On Nov. 5, 1993 Roussos and Ocean Laser served points  of claim on Willie.  SAC protested in their letter that -

       ...neither we nor our clients had any idea as to the  identity of Ocean Laser and...there was no agreement to  arbitrate with that company...no explanation is offered in  the points of claim as to the alleged involvement of Ocean  Laser and we can see no basis at all for this party to be  included as a claimant...

       HFW responded to that letter by a letter dated Nov. 12,  1993 which stated inter alia :

       ...The Memorandum of Agreement states...that G Roussos  Sons SA...or company to be nominated hereafter called the  "Buyer" have today bought Motor Vessel "CELTIC  AMBASSADOR".   

       For this reason we appointed Mr. Kazantzis as our  Clients’ Arbitrator both on behalf of G Roussos Sons SA and  on behalf of Ocean Laser Shipping Limited.  The points of  Claim further provide that the first claimant i.e. G Roussos  Sons SA on its own behalf and/or on behalf of Ocean Laser  Shipping Limited as Buyers agreed to purchase the vessel...

Justice Rix following the decision in Nea Agrex S.A.  vs. Baltic Shipping Co. Ltd. [(1976) 2 Lloyd’s Re. 47] and  while pointing out the difference between Section 27(3) of  the 1939 Act and Section 34(3) of the 1980 Act on the one  hand and the UNCITRAL Model Law and the English Law, on the  other as regard difference in approach between them insofar  as in terms of the English law something more must be done  than to request that the matter be referred to arbitration,  held :

"I shall consider the facts relevant to  that submission below.  For the moment,  I express the view that even a direct an  application of the 1980 Act, and a  fortiori an application by way of  analogy, does not exclude the  possibility of showing that arbitration

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 11 of 32  

has been commenced by means other than a  notice requiring appointment or  agreement of an arbitrator.  I asked Mr.  Nolan when an arbitration which no one  would dispute was under way had been  commenced in the absence of such a  notice.  His answer was to say that  arbitration had commenced at latest when  the respondent appointed or agreed in  the appointment of an arbitrator; but no  because of the Limitation Act, but  because the respondent was then estopped  from denying that he had submitted the  relevant dispute to arbitration or from  disputing the tribunal’s jurisdiction on  the ground of the absence of a  Limitation Act notice.  For my part, I  would prefer a more direct approach and  say that a claimant had commenced  arbitration, at any rate in a two or  three arbitrator situation, by  appointing his own arbitrator.  On the  authority of Tradax Eport S.A. v.  Volkswagenwerk A.G., [1970] 1 Lloyd’s  Rep. 62; [1970] 1 Q.B. 537 such  appointment  requires the consent of the  arbitrator to act as such and in  addition notification of his appointment  to the respondent.  In my view such  notification can be regarded as an  implied request to the respondent to  appoint his own arbitrator, just as Lord  Denning had said that "I require the  difference between us to be submitted to  arbitration" should be regarded as such  a request: indeed the hypothesis under  consideration appears as an a fortiori  case.  But whether that be so or not,  where the claimant has actually  completed the appointment of his own  arbitrator by notifying the respondent  party, I do not see why such an  appointment should not be regarded as in  every sense a commencement of  arbitration.

       Under the 1939 Act the language was  "shall be deemed to be commenced" and  under the 1980 Act this phrase had  become "shall be treated as being  commenced".  I have suggested above  that the alteration appears to be an  attempt to get away from a word which  had led to a difference of views in Nea  Agrex, but that it is difficult to say  what the effect of the change was  intended to be.  I am inclined to think  that this language still allows an  arbitration to be commenced in other  ways.  The implication is that the  arbitration shall be treated  as being  commenced, even if it had not in fact  been commenced.  In ordinary language  one would not or at least might not  regard the mere request to another party

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 12 of 32  

to appoint his arbitrator as marking the  commencement of an arbitration.  Hence  the need for statutory language making  it so.  But I do not see  why the  appointment of a claimant’s arbitrator  has to be "treated" as the  commencement of an arbitration, when it  is, in my judgment, simply that.  It  seems to me, however, that I do not have  to decide the point.  But if the view I  have just expressed is wrong, then it  would to my mind amply demonstrate why  it is necessary to permit what Lord  Denning and Lord Justice Goff called an  implied request: a rule for the  commencement of arbitration which could  not encompass the notification to a  respondent that a claimant had appointed  his own arbitrator would seem to me to  be lacking in realism."                          

Requirement of  the law :

       Issuance of notice is required to be interpreted  broadly not only for the purpose of limitation but also for  other purposes [See Allianz Versicherungs AG vs. Fortuna Co.  Inc. - (1999) 2 All ER 625 and  Vosnoc Ltd. vs. Transglobal  Projects Ltd.  (1998) 1 WLR 101].

In Bernstein’s Handbook of Arbitration and Dispute  Resolution Practice, Fourth Edition under the heading ’When  are arbitral proceedings commenced?’ at page 80, it is  stated:

"2-196 Party autonomy and the default  provisions: In accordance with the  principle of party autonomy, the parties  are free to agree on what is to be  regarded as commencing arbitral  proceedings.  If there is no such  agreement, then there are specific  requirements in the Act.  A little more  is needed than simply for the claimant  to serve a request for arbitration on  the respondent.  The relevant section of  the Act is s.14.  Its effect is as  follows:

(a)     Where the tribunal is named or  designated in the arbitration  agreement, a written notice by  party A to party B requiring the  latter to submit to the named or  designated person a particular  matter or dispute starts  arbitral proceedings in  connection with that matter or  dispute. (b)     Where the tribunal is to be  appointed by the parties, the  arbitral proceedings in respect  of a matter or dispute commence

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 13 of 32  

when Party A serves on Party B a  written notice requiring the  latter to appoint an arbitrator  or agree on the appointment of  an arbitrator in respect of the  matter or dispute. (c)     Finally, where the tribunal is  to be appointed by a third  party, arbitral proceedings  commence in respect of a dispute  or matter where Party A or Party  B requests the third party to  make an appointment in respect  of that dispute or matter."

       The learned author referring to the decision of Nea  Agrex Vs. Baltic Shipping [1976] 2 Lloyd’s Rep. 47 states:

"2-200. Well prior to the enacting of  the Act, the Court of Appeal heard the  case of Nea Agrex v Baltic Shipping (The  "Agios Lazaros") [1976] 2 Lloyd’s Rep.  47.  The notice simply stated "please  advise your proposals in order to settle  this matter, or name your arbitrators".   It thus offered arbitration as an  option, and as it happened the relevant  arbitration clause called for  arbitration by a sole arbitrator and not  by a panel of three.  By various routs,  all three judges concluded that the  notice was a good notice.  Effectively,  the court looked at the underlying  intention of the party serving the  notice.

2-201. The "Agios Lazaros" exemplifies  the appropriate approach for a court  that is addressing this matter under the  Act.  It is therefore suggested that it  will continue to be referred to, even  though it has been said that in  construing s. 14 reference should only  be made to the cases that precede the  Act in situations where the Act does not  cover the point, or such reference is  otherwise necessary."

       The author hoped that Section 14 of the English  Arbitration Act, 1996 has not introduced a more restrictive  regime than that which obtained under the old legislation.

       In Russell on Arbitration, 22nd edition, page 166,  the law is stated in the following terms:

"5-027: Notice of arbitration pursuant  to section 14. The "notice" referred  to in section 14(3) to (5) of the  Arbitration Act 1996 must be in writing  and its contents must comply with the  requirements for commencing arbitration  set out in the subsections.  The

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 14 of 32  

requirements of section 14 will be  interpreted broadly and flexibly.  Prior  to the Arbitration Act 1996 there were a  number of cases which addressed the form  of notice to be given in order to  commence arbitration for the purposes of  section 34(3) of the Limitation Act.   This line of authority has been  superseded by section 14."

’Commencement of an arbitration proceeding’ and  ’commencement of a proceeding before an arbitrator’ are two  different expressions and carry different meanings.   

       A notice of arbitration or the commencement of an  arbitration may not bear the same meaning, as different  dates may be specified for commencement of arbitration for  different purposes.  What matters is the context in which  the expressions are used.  A notice of arbitration is the  first essential step towards the making of a default  appointment in terms of Chapter II of the Arbitration Act,  1940. Although at that point of time, no person or group of  persons charged with anyauthority to determine the matters  in dispute, it may not be necessary for us to consider the  practical sense of the term as the said expression has been  used for a certain purpose including the purpose of  following statutory procedures required therefor.  If the  provisions of the 1940 Act applies, the procedure for  appointment of an arbitrator would be different than the  procedure required to be followed under the 1996 Act.   Having regard to the provisions contained in Section 21 of  the 1996 Act as also the common parlance meaning is given to  the expression ’commencement of an arbitration’ which  admittedly for certain purpose starts with a notice of  arbitration, is required to be interpreted which would be  determinative as regard the procedure under the one Act or  the other is required to be followed.  It is only in that  limited sense the expression ’commencement of an  arbitration’ qua ’a notice of arbitration’ assumes  significance.   

Section 21 vis-‘-vis Section 85(2)(a) of 1996 Act :  

       The importance of the expression ’commencement of the  arbitration proceeding’  arises having regard to Section 85  of the 1996 Act, which reads thus :

"85. Repeal and saving.-(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.

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 15 of 32  

(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."

Sub-section (1) of Section 85 of the 1996 Act repealed  the 1940 Act (10 of 1940).  Sub-section (2), however,  notwithstanding such repeal makes the 1940 Act applicable in  relation to arbitral proceedings which commenced before the  said Act came into force.

Section 21 of the 1996 Act, as noticed hereinbefore,  provides as to when the arbitral proceedings would be deemed  to have commenced.  Section 21 although may be construed to  be laying down  a provision for the purpose of the said Act  but the same must be given its full effect having regard to  the fact that the repeal and saving clause is also contained  therein.  Section 21 of the Act must, therefore, be  construed having regard to Section 85(2)(a) of the 1996 Act.   Once it is so construed, indisputably the service of notice  and/or issuance of request for appointment of an arbitrator  in terms of the arbitration agreement must be held to be  determinative of the commencement of the arbitral  proceeding.   

Case laws on the point :

In Shetty’s Constructions Co. Pvt. Ltd. vs. Konkan  Railway Construction and Another [(1998) 5 SCC 599], it was  held :

"A mere look at 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

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 16 of 32  

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 disputes  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 conjoint 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."

In Thyssen Stahlunion GMBH (supra), this Court was  concerned with the enforcement of a valid award.   Therein  it was categorically held :

"...It is not necessary that for the  right to accrue that legal proceedings  must be pending when the new Act comes  into force. To have the award enforced  when arbitral proceedings commenced  under the old Act under that very Act is  certainly an accrued right. Consequences  for the parties against whom award is  given after arbitral proceedings have  been held under the old Act though given  after the coming into force of the new  Act, would be quite grave if it is  debarred from challenging the award  under the provisions of the old Act.  Structure of both the Acts is different.  When arbitral proceedings commenced  under the old Act it would be in the  mind of everybody, i.e., arbitrators and  the parties that the award given should  not fall foul of Sections 30 and 32 of  the old Act. Nobody at that time could  have thought that Section 30 of the old  Act could be substituted by Section 34

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 17 of 32  

of the new Act..."                  

Having said so, this Court in relation to a foreign  award made in terms of the Foreign Awards Act and the  Arbitration (Protocol and Convention) Act struck a different  note, stating :

"...When the Foreign Awards Act does  not contain any provision for arbitral  proceedings it is difficult to agree to  the argument that in spite of that the  applicability of the Foreign Awards Act  is saved by virtue of Section 85(2)(a).  As a matter of fact if we examine the  provisions of the Foreign Awards Act and  the new Act there is not much difference  for the enforcement of the foreign  award. Under the Foreign Awards Act when  the court is satisfied that the foreign  award is enforceable under that Act the  court shall order the award to be filed  and shall proceed to pronounce judgment  accordingly and upon the judgment so  pronounced a decree shall follow.  Sections 7 and 8 of the Foreign Awards  Act respectively prescribe the  conditions for enforcement of a foreign  award and the evidence to be produced by  the party applying for its enforcement.  The definition of foreign award is the  same in both the enactments. Sections 48  and 47 of the new Act correspond to  Sections 7 and 8 respectively of the  Foreign Awards Act. While Section 49 of  the new Act states that where the court  is satisfied that the foreign award is  enforceable under this Chapter (Chapter  I, Part II, relating to New York  Convention Awards) the award is deemed  to be a decree of that court. The only  difference, therefore, appears to be  that while under the Foreign Awards Act  a decree follows, under the new Act the  foreign award is already stamped as the  decree. Thus if provisions of the  Foreign Awards Act and the new Act  relating to enforcement of the foreign  award are juxtaposed there would appear  to be hardly any difference.   Again a bare reading of the  Foreign Awards Act and the Arbitration  (Protocol and Convention) Act, 1937  would show that these two enactments are  concerned only with recognition and  enforcement of the foreign awards and do  not contain provisions for the conduct  of arbitral proceedings which would, of  necessity, have taken place in a foreign  country. The provisions of Section  85(2)(a) in so far these apply to the  Foreign Awards Act and 1937 Act, would  appear to be quite superfluous. Literal  interpretation would render Section

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 18 of 32  

85(2)(a) unworkable. Section 85(2)(a)  provides for a dividing line dependent  on "commencement of arbitral  proceedings" which expression would  necessarily refer to Section 21 [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."] of the new Act.  This Court has relied on this Section as  to when arbitral proceedings commence in  the case of Shetty’s Construction Co. P.  Ltd. v. Konkan Railway Construction,  1998(5) SCC 599. Section 2(2) [2(2) This  Part shall apply where the place of  arbitration is in India.] read with  Section 2(7) [2(7) An arbitral award  made under this Part shall be considered  as a domestic award.] and Section 21  falling in Part-I of the new Act make it  clear that these provisions would apply  when the place of arbitration is in  India, i.e., only in domestic  proceedings. There is no corresponding  provision anywhere in the new Act with  reference to foreign arbitral  proceedings to hold as to what is to be  treated as "date of commencement" in  those foreing proceedings. We would,  therefore, hold that on proper  construction of Section 85(2)(a) the  provision of this sub-section must be  confined to the old Act only. Once  having held so it could be said that  Section 6 of the General Clauses Act  would come into play and the foreign  award would be enforced under the  Foreign Awards Act. But then it is quite  apparent that a different intention does  appear that there is no right that could  be said to have been acquired by a party  when arbitral proceedings are held in a  place resulting in a foreign award to  have that award enforced under the  Foreign Awards Act."                   

       In Fuerst Day Lawson Ltd. Vs. Jindal Exports Ltd.  [(2001) 6 SCC 356], a distinction was again made between  enforceability of a foreign award and a domestic arbitration  stating Section 85(2)(a) provides for a dividing line  dependent on ’commencement of arbitral proceedings’ which  expression would necessarily refer to Section 21 of the new  Act.  This Court noticed the decision in Rani Constructions  (P) Ltd. Vs. H.P. SEB, C.A. No. 61 of 1999, wherein it was  held: "41. Again a bare reading of the  Foreign Awards Act and the Arbitration  (Protocol and Convention) Act, 1937  would show that these two enactments are  concerned only with recognition and  enforcement of the foreign awards and do

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 19 of 32  

not contain provisions for the conduct  of arbitral proceedings which would, of  necessity, have taken place in a foreign  country. The provisions of Section  85(2)(a) insofar these apply to the  Foreign Awards Act and the 1937 Act,  would appear to be quite superfluous. A  literal interpretation would render  Section 85(2)(a) unworkable. Section  85(2)(a) provides for a dividing line  dependent on ’commencement of arbitral  proceedings’ which expression would  necessarily refer to Section 21 of the  new Act. This Court has relied on this  section as to when arbitral proceedings  commence in the case of Shetty’s  Constructions Co. (P) Ltd. v. Konkan  Rly. Construction ((1998) 5 SCC 599).  Section 2(2) read with Section 2(7) and  Section 21 falling in Part I of the new  Act make it clear that these provisions  would apply when the place of  arbitration is in India i.e. only in  domestic proceedings. There is no  correspondent provision anywhere in the  new Act with reference to foreign  arbitral proceedings to hold as to what  is to be treated as ’date of  commencement’ in those foreign  proceedings. We would, therefore, hold  that on a proper construction of Section  85(2)(a) the provision of this sub- section must be confined to the old Act  only. Once having held so it could be  said that Section 6 of the General  Clauses Act would come into play and the  foreign award would be enforced under  the Foreign Awards Act. But then it is  quite apparent that a different  intention does appear that there is no  right that could be said to have been  acquired by a party when arbitral  proceedings are held in a place  resulting in a foreign award to have  that award enforced under the Foreign  Awards Act."  Thyssen (supra) is itself an authority for the  proposition that where a foreign award is to be executed  which is itself a decree, there Section 85(2)(a) will have  no application whereas it will have in relation to a  domestic arbitration proceedings.

The different intention of the Parliament found by the  Bench  in  Thyssen (supra), evidently has no application in  the domestic award although it has application in relation  to a foreign award.  Thyssen (supra), therefore, itself is  an authority for the proposition that in relation to a  domestic arbitration proceeding, commencement thereof shall  conincide with service of request/notice.

It may be true that in Thyssen (supra), this Court held  that the parties may consent to the procedure laid down  under the 1996 Act even before the same came into force but

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 20 of 32  

we intend to deal with this aspect of the matter separately.

The question was clearly answered by a Bench  of this  Court in which two of us were parties in State of West  Bengal vs. Amritlal Chatterjee [JT 2003(Supp.1) SC 308] =  [(2003) (10) SCC 572].  This Court followed Shetty  Construction and held that Thyssen (supra) has no  application stating :

"Thyssen Stahlunion GMBH vs. Steel  Authority of India Ltd. (1999) 9 SCC  334) which was passionately relied upon  by the learned Senior Counsel for the  appellant, has, in our view, no  application to the facts of the present  case.  The Bench concluded : (SCC p.368,  para 22)

"1.  The provisions of the old Act  (Arbitration Act, 1940) shall apply  in relation to arbitral proceedings  which have commenced before the  coming into force of the new Act  (Arbitration and Conciliation Act,  1996).

2.  The phrase ’in relation to  arbitral proceedings’ cannot be  given a narrow meaning to mean only  pendency of the arbitration  proceedings before the arbitrator.   It would cover not only proceeding  pending before the arbitrator but  would also cover the proceedings  before the  court and any  proceedings which are required to  be taken under the old Act for the  award becoming a decree under  Section 17 thereof and also appeal  arising thereunder."

There cannot be any doubt that invoking  the arbitration clause by a party and  appointment of arbitrator pursuant  thereto and in furtherance thereof are  proceedings which are required to be  taken under the 1940 Act.  Such steps  are necessary in terms of Chapter II  thereof as is evident from the fact that  even in terms of sub-section (1) of  Section 20 of the Act, an application  thereunder would be maintainable by a  person who does not intend to proceed  under chapter II praying for filing of  arbitration agreement in court."          

                 Noticing that in Thyssen (supra) this Court was  concerned with the enforcement of a foreign award and  despite noticing paras 41 and 42 thereof that in respect of  a foreign award, the purpose of making an award rule of  court i.e. a decree has been dispensed with, rejecting the  contention raised therein that the words "in relation to

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 21 of 32  

arbitral proceedings" which commenced for the purpose of  the 1940 Act must be given the same meaning as contained in  Rule 3 of the First Schedule appended thereto, it was held :  

"The said rule was enacted for a  different purpose.  The words employed  therein are "entering on the  reference".  In Hari Shankar Lal vs.  Shambhunath Prasad and Others [(1962) 2  SCR 720 whereupon Mr. Ray rlied upon, a  four-judge bench of this Court held that  the words "entering on the reference"  occurring in the said rule are not  synonymous with the words "to act"  which are more comprehensive and of a  wider import.

       Rule 3 of the First Schedule to the  1940 Act imposes a duty on the  arbitrators to make their award within  one or other of the three alternative  periods mentioned therein."

This Court in Amritlal Chatterjee (supra)   categorically held that Rule 3 of the First Schedule gives a  cause of action for removal or appointment of a new  arbitrator in terms of Sections 11 and 12 of the 1940 Act  stating :

"...The words "commencement of the  arbitration proceedings" have not been  defined in the 1940 Act.  They have to  be given their ordinary meaning having  regard to the provisions contained in  Chapter II thereof.

Furthermore, section 85(2)(a) of  the new Act may have to be construed  keeping in view the provisions contained  in section 21 of the new Act."  

Keeping in mind the aforementioned principle, we may  notice the other decisions of this Court cited at the Bar.   

       In Fertilizer Corporation of India Limited vs. M/s  Domestic Engineering Installation [AIR 1970 Allahabad 31],  the Allahabad High Court was concerned with three different  courses open to a court while passing an order under Section  20(4) of the 1940 Act.  The question which precisely arose  therein was as to whether the plaintiff could be permitted to  contend that the arbitrator named in the agreement  had since  then incapacitated himself from acting as an arbitrator  between the parties and that, therefore, the plaintiff had  the right to urge that reference be not made to the  arbitrator named in the agreement.   

On the other hand, when a suit is stayed, the parties  are required to refer their disputes in terms of Chapter II  of the Act.  The procedure, laid down in Chapter III has,

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 22 of 32  

thus, no application in such a case.                             In Sarbeswar Rout (supra), this Court was concerned  with award of interest pendente lite which was not  permissible, though interest for the period prior to the  commencement of arbitration proceeding was permissible where  the Interest Act, 1978 applied.  Drawing an analogy of  commencement of legal provisions vis-‘-vis applicability of  the provisions of the Interest Act, this Court said for the  said purpose filing of a plaint would be the date on which  the suit would be instituted for the purpose of grant of  interest.  There is no reason as to why a different approach  shall be applied in an arbitration proceeding.  It was held  that as soon as the arbitrator indicates his willingness to  act as such, the proceeding must be held to have commenced.

        In Sumitomo Heavy Industries Ltd. (supra), this Court  was concerned with a case where the parties to the contract  belonged to two different countries.  Considering the  applicability of the curial law vis-‘-vis the law of the  country governing  the arbitration agreement, this Court was  called upon to determine the question as to when a  proceeding before the arbitrator commences.  This Court  answered the same saying that the proceeding before the  arbitrator commences when he enters upon the reference and  conclude with making of the award.

In Jupitor Chit Fund (P) Ltd. vs. Shiv Narain Mehta  (Dead) by Lrs. And Others  [(2000) 3 SCC 364], this Court  was concerned with the construction of sub-section (5) of  Section 37 of the 1940 Act as in that case no notice was  issued to the respondent by the appellant.  It was held that  for the purpose of applicability of sub-section (5) of  Section 37 of the Act fictional meaning given to the phrase  "commencement of an arbitration" as contained in sub- section (3) thereof shall have to be applied.  As no notice  had been served the court held that the reference to the  arbitration itself was not proper and, thus, the period of  limitation for filing the suit should not be excluded.

Applicability of 1940 Act or 1996 Act :

       Commencement of Arbitration proceeding for the purpose  of limitation or otherwise is of great significance.  If a  proceeding commences, the same becomes relevant for many  purposes including that of limitation.  When the Parliament  enacted the 1940 Act, it was not in its contemplation that  46 years later it would re-enact the same.  The Court,  therefore, while taking recourse to the interpretative  process must notice the scheme of the concerned legislations  for the purpose of finding out the purport of the expression  - ’commencement of arbitration proceeding’.  In terms of  Section 37 of the 1940 Act, law of limitation will be  applicable to arbitrators as it applies to proceedings in  court.  For the purpose of invoking the doctrine of lis  pendens, section 14 of the Limitation Act, 1963 and for  other purposes presentation of plaint would be the date when  a legal proceeding starts.    So far as the Arbitral  Proceeding is concerned, service of notice in terms of  Chapter II of the 1940 Act shall set the ball in motion  whereafter only the arbitration proceeding commences.  Such

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 23 of 32  

commencement of arbitration proceeding although in terms of  Section 37 of the Act is for the purpose of limitation but  it in effect and substance will also be the purpose for  determining as to whether the 1940 Act or the 1996 Act would  apply.  It is relevant to note that it is not mandatory to  approach the court for appointment of an arbitrator in terms  of Sub-Section (2) of Section 8 of the 1940 Act.  If the  other party thereto does not concur to the arbitrator  already appointed or nominate his own arbitrator in a given  case, it is legally permissible for the arbitrator so  nominated by one party to proceed with the reference and  make an award in accordance with law.  However, in terms of  Sub-Section (2) of Section 8 only a legal fiction has been  created in terms whereof an arbitrator appointed by the  Court shall be deemed to have been nominated by both the  parties to the arbitration proceedings.

       Section 34 of the Arbitration Act, 1940 speaks of power  to stay legal proceeding where there is an arbitration  agreement.  Before a suit is stayed in terms of Section 34  of the Act the Court must be satisfied that there is no  sufficient reason why the matter should not be referred to  arbitration in accordance with the arbitration agreement and  that the applicant was at the time when the proceedings   commenced were and still remains ready and willing to do so  for the proper conduct of the arbitration.  The Court,  therefore, while passing an order in terms of Section 34 of  the Act must satisfy that there exists a ’dispute’ between  the parties within the meaning of the provisions of  arbitration agreement and such dispute should be referred to  arbitration in accordance with the arbitration agreement.   Although under Section 34 of the 1940 Act, the Court itself  does not make a reference to an arbitrator but the very  purposes for which the suit is stayed is that the parties  may take recourse to the provisions contained in the  arbitration agreement.  A reference is made to the  arbitrator in terms of the arbitration agreement to make a  reference.  (See Bhailal Manilal Vs. Amratlal Lallubhai  Shah, AIR 1963 Guj 141, Dinabandhu Vs. Durga Prasad Jana,  AIR 1919 Cal 479).

       Once a suit is stayed by the Court the other provisions  of the Arbitration Act may be taken recourse to by the  parties.  (See State of West Bengal Vs. A.K. Ghosh, AIR 1975  Cal 227).

THE UNCITRAL Model Rules of Arbitration vis-‘-vis  provision of Section 14 of the English Arbitration Act, 1996  must be construed having regard to the decisions of the  English Courts as also this Court which addressed the form  of notice to be given in order to commence the arbitration  for the purpose of Section 34(3) of the Limitation Act.  By  reason of Section 14, merely the form of notice and strict  adherence thereto has become redundant, as now in terms of  section 14 of the Arbitration Act there is otherwise no  specific requirement as to the form of notice subject to any  contract operating in the field.  [See Paras 5-020, 5-027  and 5-028 of Russel on Arbitration, 22nd Edn.]. Section 21  of the 1996 Act must be construed accordingly.  It defines  the moment of the commencement of arbitral proceedings.  In  the Arbitration and Conciliation Act, 1996 by P.  Chandrasekhara Rao, it is stated :

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 24 of 32  

"Section 21 defines the moment of the  commencement of arbitral proceedings.   It gives freedom to the parties to agree  on the date of commencement of arbitral  proceedings.  For instance, in the case  of arbitration administered by an  arbitration institution, they may agree  to abide by the arbitration rules of  that institution for determining the  point of time at which the arbitral  proceedings can be said to have  commenced.  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.  Section 3 is relevant on  the question as to when a request can be  said to have been received by the  respondent.  The request made to the  respondent should clearly indicate that  the claimant seeks arbitration of the  dispute:

       Section 21 is of direct relevance  in connection with the running of  periods of limitation under Section 43  and the savings provision in section  85(2)(a)."

       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 be 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 not 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 an pragmatic and purposive meaning  thereto.  It is one thing to say that commencement of  arbitration proceedings is dependent upon the fact 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 commences 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  Construction (supra) 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

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 25 of 32  

from the decisions of this Court as referred to hereinbefore.   

While interpreting a judgment this Court must pin point  its attention to the ratio thereof.  A court of law must not  lose sight of the doctrine of ’stare decisis’.  A view which  has been holding the field for a long time should not be  disturbed only because another view is possible.    

Keeping in view the fact that in all the decisions,  referred to hereinbefore, this Court has applied the meaning  given to the expression ’commencement of the arbitral  proceeding’ as contained in Section 21 of the 1996 Act for  the purpose of applicability of the 1940 Act having regard  to Section 85(2)(a) thereof, we have no hesitation in  holding that in this case also, service of a notice for  appointment of an arbitrator would be the relevant date for  the purpose of commencement of the arbitration proceeding.   

In this case, the learned Munsif by an order dated  7.8.1995 i.e. before the 1996 Act came into force not only  stayed further proceedings of the suit but also directed  that in the meanwhile the matter be referred to arbitration.   The matter was referred to arbitration as soon as the notice  dated 14.9.1995 was issued and served on the other side.

It may be true that before the High Court apart from  Shri H.L. Agrawal, Shri Uday Sinha also came to be  appointed; but the change in the constitution of the  arbitral tribunal is irrelevant for the purpose of  determining the question as to when the arbitration  proceeding commenced within the meaning of Section 21 of the  1996 Act.  The purported reference of the dispute to the  arbitrator was merely a reference to new arbitral tribunal  which concept is separate and distinct from that of  commencement of arbitration proceeding.   

Was it necessary that the appellant must be the claimant :

The learned Single Judge of the High Court has  proceeded on the premise that the appellant was not a  claimant.  The parties were ad idem that there had been a  dispute between them.  Only as a result of the dispute and  on an apprehension consequent thereupon the suit for  injunction was filed.  The question is required to be gone  into even in the suit as to which of the parties thereto   was in breach of the contract.  Such a dispute necessarily  fell within the purview of the arbitration agreement.  The  arbitration agreement can be invoked by a party to a dispute  and not only by a person who has a claim against the other.   The law does not say that only a party who has a monetary  claim may invoke the arbitration agreement.  The arbitration  agreement was invoked by the appellant by filing an  application under Section 34 of the Arbitration Act pursuant  whereto or in furtherance whereof the proceeding of the suit  was stayed and the matter was directed to be referred to the  arbitrator.   

The question as to whether in the facts and  circumstances of this case an order for permanent injunction  should be granted or not was itself a dispute within the  meaning of the arbitration agreement.  Evidently the stand

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 26 of 32  

of the appellant was that such an injunction should not be  granted.  The arbitrator, having regard to the scope and  purport of the reference would be entitled to determine the  said dispute.  It is, therefore, irrelevant as to whether  the appellant had any monetary claim against the respondent  or not.  The arbitrators and consequently the learned Single  Judge, therefore, posed a wrong question unto themselves  that no defendant will save limitation for  the claimant or  the plaintiff and, thus, misdirected themselves in law.   Subsequent reference to the two arbitrators nominated by the  parties although changed constitution of the arbitral  tribunal but the same, it will bear repetition to state,  would not be indicative of the commencement of the arbitral  proceeding which must be construed having regard to Section  21 of the 1996 Act.  Furthermore, having regard to Section  21 of the 1996 Act, the meaning to the expression  ’commencement of the arbitration proceeding’ as contained in  Section 21 must be interpreted in the same manner.

Service of Notice :

Mr. Jain had raised a question that the notice dated  14.9.1995 had not been served before the arbitrators.  The  appellant in its application for direction/clarification  before the arbitrators, inter alia, contended :

"10.    It is submitted that appointment of  Ld. Arbitrators as such is in  pursuance of said orders only and,  therefore, the disputes referred in  August, 1995 as such have come up  for adjudication before Ld.  Arbitrators.

11.     The Arbitration & Conciliation Act,  1996 came into being w.e.f. 25th  January 1996, by which date orders  referring dispute between the  parties already stood passed.

12.     It is submitted that in view of the  said facts and circumstances, it is  the respectful submission of Second  Party that while deciding the  disputes, the provisions of Indian  Arbitration Act, 1940 alone would  be applicable and proceedings shall  not be governed by the provisions  of Indian Arbitration &  Conciliation Act, 1996."

13.     The present application has been  made by the Second Party at the  first available opportunity before  even submitting reply to the copy  of  statement of claim, with a view  that no prejudice should be caused  to any party during the course of  arbitration proceedings."

The statements made in paras 10 and 11 had been

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 27 of 32  

traversed by the respondent thus :

"6.     That the submissions made in para  nos.10 and 11 of the petition under  reply are not tenable and have been  made to delay the proceedings.  The  new Act is applicable as the old  one is repealed and only the  arbitration proceeding, which  commenced before the coming of the  new Act was saved."               

        The contention of the appellant  to the effect that the  appointment of the learned arbitrators had been made in  pursuance of the order of the learned Munsif has, therefore,  not been disputed.  The majority of the learned Arbitrators   held :

"The notice dated 14.9.1995 was served  by the respondent.  Not by the claimant.   Therefore this notice is worthless.  It  was a non-starter.  The notice  contemplated is a notice by a claimant  to the respondent calling upon him to  appoint arbitrator for the settlement of  the dispute raised in the notice by the  claimant.  Why should a respondent  appoint an arbitrator unless the  arbitrator calls upon him to do so?  No  respondent will be anxious to appoint an  arbitrator unless the claimant first  appoints the arbitrator.  No defendant  will save limitation for a plaintiff by  giving notice unless he himself is a  counter-claimant.  It is always the  claimant (a plaintiff) who gives notice  for appointment of the arbitrator  because he invokes the arbitration  clause and has a dispute, unless the  defendant respondent is also a counter  claimant.

The claimant communicates to the  respondent the nature of the dispute he  has with him and seeks resolution by  arbitration.  The notice contemplated in  Section 37(3) is a notice of a claim.   From the notice it must be clear that a  claim is being made by the claimant  against the respondent.  The claim must  be set out in the notice in sufficient  detail.  So that the respondent knows  what is being claimed against him and  can prepare his response.  Like a plaint  in a suit.  We must treat "cause of  arbitration" in the same way as a  "cause of action" would be treated if  the proceedings were in a court of law.

In the notice relied upon the respondent  has not enumerated any dispute.  And if

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 28 of 32  

he has none why should  he appoint an  arbitrator unless the claimant calls  upon him to do so.

The date on which the request for the  dispute to be referred to arbitration is  received by the respondent from the  claimant is the date on which  arbitration commences in respect of that  particular  dispute for purposes of  Section 37(3) (See Section 22 and  Section 43(2) of the new Act). "  

The arbitrators, therefore, have also not held that  notice dated 14.9.1995 was not served upon the respondent  but merely proceeded on the basis that the same would be  relevant for the purpose of determining the question as to  when the arbitral proceeding shall commence.  In fact it  does not appear that such a question was raised either  before the arbitrators or before the High Court .  The  respondent, therefore, cannot be permitted to raise the same  before us for the first time.   

Arbitration clause - effect of :

       It inter alia reads :  

"...All such arbitration proceedings  shall be in accordance with and subject  to the provisions of the Arbitration  Act, 1940, or any statutory modification  or re-enactment."

       In Thyssen (supra), the court held that the parties can  agree to the applicability of the new Act even before the  same came into force. Relevant findings of this Court are :

"In the case of Thyssen Stahlunion GMBH  (CA No. 6036 of 1998) the contract for  sale and purchase of prime cold rolled  mild steel sheets in coils contains  arbitration agreement. Relevant Clauses  are as under :  "CLAUSE 12 : LEGAL INTERPRETATION  12.1 This contract shall be governed and  construed in accordance with the Laws of  India for the time being in force.  12.2 To interpret all commercial terms  and abbreviations used herein which have  not been otherwise defined, the rules of  "INCOTERMS 1990" shall be applied.  CLAUSE 13 : SETTLEMENT OF DISPUTES  All disputes or differences whatsoever  between the parties hereto arising out  of or relating to the construction,  meaning or operation or effect of this  contract or the breach thereof shall  unless amicably settled between the  parties hereto; be settled by

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 29 of 32  

arbitration in accordance with the Rules  of Conciliation and Arbitration of the  International Chamber of Commerce (ICC),  Paris, France by a sole Arbitrator  appointed by the Chairman of the  Arbitral Tribunal of the Court of  Arbitration of ICC and the Award made in  pursuance thereof shall be binding on  both the parties. The venue for the  arbitration proceedings shall be New  Delhi, India."  

       The court  proceeded on the basis that such a change in  the procedure before the arbitrator is permissible if the  parties agree that the new Act be applicable to the arbitral  proceeding when the same is pending before the arbitrator.   We are not concerned in the present case with the situation  where the parties agree to change in the procedure before  the arbitrator.  In fact, they did not and, as noticed at  the first opportunity, the appellant filed an application  for a direction or clarification that the proceeding under  the 1940 Act would apply.

       In Delhi Transport Corporation (supra),  factually it  was held :

"...The conduct of the arbitration  proceedings and the participation of the  parties therein shows that the parties  acted under the 1996 Act.  Even the  arbitrator  proceeded    on that  understanding and gave his award in  pursuance of the 1996 Act..."

The court, thus, proceeded on the basis that such a  course was permissible in terms of sub-clause (d) of clause  25 of the agreement which was in the following terms :

"Subject to as aforesaid, the provision  of the Arbitration Act, 1940 or any  statutory  modification or re-enactment  thereof and the rules made thereunder  and for the time being in force shall  apply to the arbitration proceedings  under this clause."

       It is one thing to say that the parties agree to take  recourse to the procedure of the 1996 Act relying on or on  the basis of tenor of the agreement as regard applicability  of the statutory modification or reenactment of the 1940 Act  but it is another thing to say, as has been held by the High  Court, that the same by itself is a pointer to the fact that  the appellant had agreed thereto.  If the arbitral  proceedings commenced for the purpose of the applicability  of the 1940 Act in September 1995, the question of adopting  a different procedure laid down under the 1996 Act would not  arise.

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 30 of 32  

       It is not a case where like Delhi Transport Corporation  (supra) limited, the parties went for arbitration with a  clear understanding and belief that the proceedings were  being conducted under the 1996 Act. Therein the appointment  of arbitrator was made under the new Act; the parties  participated in the arbitration proceeding with the  understanding and belief  that the proceedings are governed  under the 1996 Act.  In the award itself the arbitrator  noted that "both parties submitted claims before  me under  the Arbitration and Conciliation  Act, 1996" and he  purported to have made its award in terms thereof.  In that  situation sub para 3 of para 22 of Thyssen (supra) was held  to be applicable.  Shah, J. who was a party in Thyssen  (supra) as also Delhi Transport Corporation (supra) in N.S.  Nayak (supra), however, noticed the distinctive features in  Thyssen (supra) and while supplying the requisite emphasis  thereon observed :

"Further, the part of the arbitration  clause which is quoted above also  provides that the provisions of the  Arbitration Act, 1940 which were for the  time being in force were to apply to the  arbitral proceedings between the  parties.  It nowhere provides that once  the arbitral proceedings have commenced  under the old Act, they should be  conducted under the new Act as soon as  the new Act comes into operation.   Hence, in the proceedings where the  award is passed under the old Act, the  remedy of filing appeal or petition for  setting aside the said award would be as  per the provisions of the old Act."

It was further observed :

"Conclusion 3 only reiterates what is  provided in various sections of the  Arbitration Act, which gives option to  the parties to opt for the procedure as  per their agreement during the arbitral  proceedings before the arbitrator. The  phrase "unless otherwise agreed by the  parties" used in various sections,  namely, 17, 21, 23(3), 24(1), 25, 26,  29, 31, 85(2(a) etc. indicates that it  is open to the parties to agree  otherwise.  During the arbitral  proceedings, right is given to the  parties to decide their own procedure.   So if there is an agreement between the  parties with regard to the procedure to  be followed by the arbitrator, the  arbitrator is required to follow the  said procedure.  Reason being, the  arbitrator is appointed on the basis of  the contract between the parties and is  required to act as per the contract.   However, this would not mean that in

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 31 of 32  

appeal parties can contend that the  appellate procedure should be as per  their agreement.  The appellate  procedure would be governed as per the  statutory provisions and parties have no  right to change the same.  It is also  settled law that the right to file an  appeal is accrued right that cannot be  taken away unless there is specific  provision to the contrary.  There is no  such provision in the new Act.  In the  present cases, the appeals were pending  before the High Court under the  provisions of the old Act and,  therefore, appeals are required to be  decided on the basis of the statutory  provisions under the said Act.  Hence,  there is no substance in the submission  made by the learned counsel for the  appellant."       

                        Referring to the relevant portion of the discussions in  Thyssen (supra), the learned Judge held :

"The aforesaid discussion only deals  with the contention that parties could  not have agreed to the application of  the new Act till they had the knowledge  about the provisions thereof and,  therefore, the agreement to the effect  that to the arbitral proceedings, the  provisions of the Arbitration Act, 1940  or any statutory modification or re- enactment thereof would be applicable,  is not valid.  The Court negatived the  said contention by interpreting the  expression "unless otherwise agreed".   The Court held that such agreement could  be entered into even before coming into  force of the new Act.  However, it  nowhere lays down that in a pending  arbitral proceeding, which was being  conducted as per the procedure  prescribed under the old Act, the  parties have option of changing the  procedure."                                                                       (emphasis supplied)

In NS Nayak (supra) also having regard to the fact that  the arbitrator was appointed prior to 21.8.1996, the old Act  was held to be applicable.  

Conclusion :         For the reasons aforementioned, we are of the view that  in this case, the 1940 Act shall apply and not the 1996 Act.   However, it is accepted at the Bar that the learned  arbitrators had already entered into the reference. The  proceedings before the arbitrators were not stayed. Only  making of the award was stayed.  In that view of the matter,  in the peculiar facts and circumstances of this case, we are

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 32 of 32  

of the opinion that although the old Act would apply, the  entire arbitral proceedings need not be reopened and the  arbitrators may proceed to give their award.  The award  shall be filed in the court having jurisdiction whereafter  the parties may proceed in terms of the old Act.  We hope  and trust that the award shall be made and all the legal  proceedings shall come to an end at an early date and  preferably within a period of four months from the date of  the communication of this order.  This order has been passed  in the interest of justice and in the peculiar facts and  circumstances of this case.  

We are, however, of the opinion that the High Court of  Delhi has rightly held that the letters patent appeal was  not maintainable.  Civil Appeal No. 9672 of 2003 is,  therefore, allowed and Civil Appeal Nos.9673-74 of 2003 are  dismissed.  No costs.