# MILK FOOD LTD v. MIS. GMC ICE CREAM (P) LTD

- **Citation:** [2004] 3 S.C.R. 854
- **Court:** Supreme Court of India
- **Decided:** 2004-04-05
- **Bench:** V.N. Khare, S.B. Sinha, S.H. Kapadia
- **Source:** https://unisonlegal.in/judgment/supreme-court-of-india/milk-food-ltd-v-mis-gmc-ice-cream-p-ltd-19889
- **Pages:** 55

## Headnote

Arbitration Act, 1940; Sections 3, 8, 33, 34, 37(3)/Arbilralion and
Conciliation Act, 1996; Sections 21, 43 (I) & (2) and 85/limilalion Act, 1963.
C
Agreement between the Supplier and the Manufacturer-Arbitration
Clause-Dispute-Sui I for permanent injunction filed by the manufacturerApp/ication for stay of suit filed by the supplier-Al/owing the application,
trial Court stayed the suit directing lo refer the dispute to Arbitrator-Appeal
dismissed by first appellate Court-On revision, High Court referred the dispute
D to Arbitral Tribunal-Arbitration proceedings initiated by Tribunal as per
provisions of 1996 Ae1-Challenged by the supplier on ground that 1940 Act
H'as applicable-Rejected by the Tribunal holding that 1996 Act was rightly
applied-High Court holding that since the disputes were referred to arbitration
when new Act already came into force and both the parties gave clear consent
to refer the matter to Arbitrator, new Act could be applied
E
Held Per majority:
Commencement of arbitration proceeding depends upon terms of the
agreement/various factors/purposes ii seeks lo achieve-Issuance of no/ice is
necesswy under both the Acts for invoking provision of law for arbitration of
F dispute-Notice has to be interpreted broadly-A Notice of Arbitration is the
first essential step towards making of appointment of Arbitrator/ArbitratorsTheir appointment by the Court not mandato1y-Service of Notice by one
party to another for appointment of an Arbitrator indicative of deemed
commencement of arbitration proceeding/or the purpose of/imitation-Hence,
G notice for appointment of an Arbitrator/Arbitrators would be relevant for
determining commencement of the arbitration proceeding-However, change
in constitution of the arbitral Tribunal irrelevant-Repealing provisions under
the 1996 Act makes 1940 Act applicable in respect of the arbitral proceeding
commenced le/ore the new Act came into force-Since arbitral proceedings
already commenced, procedure laid down under the old Act would be
H
854
)
J.
(
'r
MILK FOOD LTD. v. GMC ICE CREAM (P) LTD.
855
applicable-However. since the proceeding before the Arbitrators not stayed A
and they had entered into 1he reference, proceedings need not be re-openedArbitrators may proceed to give award-Parties may proceed in terms of the
old Act after filing of the Award in the Cou;·t.
Arbitration agreement-Invoking of-It may be invoked by a party
to a dispute not exclusively by claimant.
Commencemenl of an arbitration proceeding-Meaning of-Section 21
must be read with Section 85(2)(a) of the New Act to construe its meaningconstruing so service of notice for appointment of Arbitrator/Arbitrators
determines the commencement of arbitral proceeding.
Words and Phrases:
'Commencement of an arbitration proceeding' and 'Commencement of
proceeding before an Arbitrator-Distinction between-Discussed.
Held: Per minority:
Construcrion of transitional provisions under Section 85(2)(a) of the
new Act must depend upon its own terms-Not to be cons/rued on the basis
B
c
D
of provision under Section 21 of the Act-Notice to concur is an essential
step-However, date of constitution of arbitral tribunal and charging them
with authority would determine commencement of arbilral proceedings-Since E
for all practical purposes arbitration proceeding commenced when the 1996
Act came into force, the proceedings would be governed by the provisions of
the 1996 Act.
Words and Phrases:
'Reference' as under Section 48 of the 1940 Act, vis-a-vis
'commencement' as per Section_ 85(2)(a) of 1996 Act-Meaning of in the
context of Section 21 of the 1996 Act-Discussed.
F
The question which arose for consideration in these appeals was as G
to whether the provisions of Arbitration Act, 194.0 or the Arbitration and
Conciliation Act, 1996 would apply to the facts and circumstances of the
cases and in this connection interpretation of certain provisions of the Acts
was also required to be examined by this Court.
It was contended by the appellant-sup

## Text

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A
MILK FOOD LTD.
v.
MIS. GMC ICE CREAM (P) LTD.
APRIL 5, 2004
B
[V.N. KHARE, CJ., S.B. SINHA AND S.H. KAPADIA, JJ.]
Arbitration Act, 1940; Sections 3, 8, 33, 34, 37(3)/Arbilralion and
Conciliation Act, 1996; Sections 21, 43 (I) & (2) and 85/limilalion Act, 1963.
C
Agreement between the Supplier and the Manufacturer-Arbitration
Clause-Dispute-Sui I for permanent injunction filed by the manufacturerApp/ication for stay of suit filed by the supplier-Al/owing the application,
trial Court stayed the suit directing lo refer the dispute to Arbitrator-Appeal
dismissed by first appellate Court-On revision, High Court referred the dispute
D to Arbitral Tribunal-Arbitration proceedings initiated by Tribunal as per
provisions of 1996 Ae1-Challenged by the supplier on ground that 1940 Act
H'as applicable-Rejected by the Tribunal holding that 1996 Act was rightly
applied-High Court holding that since the disputes were referred to arbitration
when new Act already came into force and both the parties gave clear consent
to refer the matter to Arbitrator, new Act could be applied
E
Held Per majority:
Commencement of arbitration proceeding depends upon terms of the
agreement/various factors/purposes ii seeks lo achieve-Issuance of no/ice is
necesswy under both the Acts for invoking provision of law for arbitration of
F dispute-Notice has to be interpreted broadly-A Notice of Arbitration is the
first essential step towards making of appointment of Arbitrator/ArbitratorsTheir appointment by the Court not mandato1y-Service of Notice by one
party to another for appointment of an Arbitrator indicative of deemed
commencement of arbitration proceeding/or the purpose of/imitation-Hence,
G notice for appointment of an Arbitrator/Arbitrators would be relevant for
determining commencement of the arbitration proceeding-However, change
in constitution of the arbitral Tribunal irrelevant-Repealing provisions under
the 1996 Act makes 1940 Act applicable in respect of the arbitral proceeding
commenced le/ore the new Act came into force-Since arbitral proceedings
already commenced, procedure laid down under the old Act would be
H
854
)
J.
(
'r
MILK FOOD LTD. v. GMC ICE CREAM (P) LTD.
855
applicable-However. since the proceeding before the Arbitrators not stayed A
and they had entered into 1he reference, proceedings need not be re-openedArbitrators may proceed to give award-Parties may proceed in terms of the
old Act after filing of the Award in the Cou;·t.
Arbitration agreement-Invoking of-It may be invoked by a party
to a dispute not exclusively by claimant.
Commencemenl of an arbitration proceeding-Meaning of-Section 21
must be read with Section 85(2)(a) of the New Act to construe its meaningconstruing so service of notice for appointment of Arbitrator/Arbitrators
determines the commencement of arbitral proceeding.
Words and Phrases:
'Commencement of an arbitration proceeding' and 'Commencement of
proceeding before an Arbitrator-Distinction between-Discussed.
Held: Per minority:
Construcrion of transitional provisions under Section 85(2)(a) of the
new Act must depend upon its own terms-Not to be cons/rued on the basis
B
c
D
of provision under Section 21 of the Act-Notice to concur is an essential
step-However, date of constitution of arbitral tribunal and charging them
with authority would determine commencement of arbilral proceedings-Since E
for all practical purposes arbitration proceeding commenced when the 1996
Act came into force, the proceedings would be governed by the provisions of
the 1996 Act.
Words and Phrases:
'Reference' as under Section 48 of the 1940 Act, vis-a-vis
'commencement' as per Section_ 85(2)(a) of 1996 Act-Meaning of in the
context of Section 21 of the 1996 Act-Discussed.
F
The question which arose for consideration in these appeals was as G
to whether the provisions of Arbitration Act, 194.0 or the Arbitration and
Conciliation Act, 1996 would apply to the facts and circumstances of the
cases and in this connection interpretation of certain provisions of the Acts
was also required to be examined by this Court.
It was contended by the appellant-supplier that since the notice H
856
SUPREME COURT REPORTS
[2004] 3 S.C.R.
A appointing the arbitrators had been served upon the respondent and in
terms thereof arbitration proceeding commenced before the new Act came
into force, the 1940 Act would be applicable; and that meaning of the
expression "initiation of the proceedings" in the 1996 Act as understood
in common parlance should be applied.
B
Respondent-manufacturer submitted that since the arbitrators had
already entered into the reference, this Court could not interfere with the
impugned judgment in exercise of its jurisdiction under Article 136 of the
Constitution of India; that an arbitration proceeding must be held to be
initiated when a claim petition is field by the claimant before the arbitrator;
C that for the purpose of determining the point of time of commencement of
arbitration proceeding, the Tribunal mtist be constituted; that the
arbitration proceedings commence when the arbitrator enters into
reference; that in any event arbitration proceeding commenced when the
dispute was referred by the High Court and not prior thereto; that in terms
of clause 20 of the agreement new Act would apply; and that Section 37 of
D the 1940 Act defines commencement of the proceeding for the purpose of
period of limitation and not for any other purpose.
Allowing the main appeal and dismissing the connected appeals, the
Court
E
HELD: Per Sinha, J., (for himself 11ml CJ/):
F
I. 1 The expression "shall be deemed to be commenced" under
Section 37(3) of the Arbitration Act, 1940 indicates that 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. The commencement ·
of an arbitration proceeding for the purpose of applicability of the
G provisions of the Indian Limitation Act is of great significance. Even
Section 43(1) of the Arbitration and Conciliation Act, 1996 provides that
the Limitation Act 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 an arbitration shall be deemed to have
commenced on the date referred to in Section 21 of the 1996 Act. For the
H purpose of applying the provisions of Chapter II of the 1940 Act or for
y
MILKFOOD LTD." GMC ICE CREAM (Pl LTD.
857
the purpose of Section 21 of the 1996 Act, it is necessary to issue/serve a A
request/notice to the respondent indicating that the claimant seeks
arbitration of the dispute. A notice upon the arbitrator so as to enable
him to enter into a reference or to make an award within the stipulated
period has nothing to do with the notice served by a party to an agreement
to another invoking the arbitration clause and by appainting an arbitrator.
For the purpose of the Limitation Act an arbitration is deemed to have B
commenced when one party to the arbitration agreement serves on the
other a notice requiring the appointment of an arbitrator. Issuance of
notice is required to be interpreted broadly not only for the purpose of
limitation but also for other purposes. 1872-B-F; 872-H; 873-A-B; 876-EI
Motilal Chamaria v. Lal Chand Dugar, AIR (1960) Cakutta 6, C
approved.
Al/ianz Versicherungs AG v. Fortuna Co. Inc., (1999) 2 All ER 625;
Vosnoc Ltd. v. [ransglobal Projects Ltd., (1998) I WLR 101 and Nea Agrex,
v. Baltic Shipping, 119761 2 Lloyd's Rep. 47, referred to.
Arbitration and Dispute Resolution Practice by Bernstein, Fourth
Edition, p.80; Russell on Arbitration, 22nd Edition, p. I 66, referred to.
D
1.2. The date when arbitration proceedings commence would
depend upon various factors and the purposes which it seeks to achieve. E
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. 1873-CI
International Tank and Pipe S.A.K. v. Kuwait Aviation Fuelling Co.
K.S.C., (19751 Lloyd's Rep. 8, referred to.
1.3, The date of commencement of an arbitration also affects the F
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 proceedings, the law of the
contract must govern, and the law of the procedure will only govern
thereafter. 1873-D!
G
Charles M. Willie & Co. (Shipping) Ltd. v. Ocean Laser Shipping Ltd.,
(1999) 1 Lloyd's Rep. 225 and Nea Agrex SA. v. Baltic Shipping Co. Ltd.,
(1976) 2 Lloyd's Re. 47, referred to.
l.4. 'Commencement of an arbitration proceeding' and H
858
SUPREME COURT REPORTS
[2004] 3 S.CR.
A '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 comm~ncement 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
B making of a default appointment in terms of Chapter II of the 1940 Act.
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 as
C 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. Sub-section (1) of Section
D 85 of the 1996 Act repealed the 1940 Act. Sub-section (2) of Section 85,
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 although may be construed to be laying down
a provision for the purpose of the 1996 Act but the same must be given
E 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
F proceeding. [878-C-G; 879-D-F[
Shetty's Constructions Co. Pvt. ltd v. Konkan Railway Construction and
Anr., (1998] 5 SCC 599, relied on.
Fuerst Day Lawson ltd. v. Jindal Exports Ltd., [2001( 6 SCC 356 and
G Rani Constructions (P) ltd. v. H.P. SEE, C.A. No. 61 of 1999, referred to.
Thyssen St ah/union GMBH v. Steel Authority of India ltd., [ 1999[ 9 SCC
334, distinguished.
1.5. The Court has to interpret the repeal and savings clauses in such
H a manner so as to give a pragmatic and purposive meaning thereto. It is
>-.
MILKFOOD LTD. v. GMC ICE CREAM (P) LTD.
859
one thing to say that commencement of arbitration proceedings is A
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 B
commences only for the purpose of limitation upon issuance of a notice
:(
and for no other purpose. The statute does not say so. A court of law must
·4
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. 1889-A-B; DI
c
Shetty 's Constructions Co. Pvt. ltd. v. Konkan Railway Construction and
Anr., 119981 5 SCC 599, relied on.
1.6. This Court has repeatedly applied the meaning given to the
expression 'commencement of the arbitral proceeding' as contained in D
Section 21 of the 1996 Act for the purpose of applicability of the 1940 Act
having regard to Section 85(2)(a) thereof. Following the same meaning in
.,
the present case, it can be said that the date of service of a notice for
appointment of an arbitrator would be the relevant date for the purpose
of commencement of the arbitration proceeding. However, the change in
the constitution of the arbitral tribunal is irrelevant for the purpose of E
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 proceedings. 1889-E; G-H; 890-Al
F
..
2.1. The different intention of the Parliament found by this Court
in the case of Thyssen evidently has no application in the domestic award
although it has application in relation to a foreign award. However,
Thyssen itself is an authority for the proposition that in relation to a
·\
domestic arbitration proceeding, commencement thereof shall coincide G
with service of request/notice. 1883-F-GI
State of West Bengal v. Amritlal Chatterjee, JT (2003) Supp. I SC 308
= 120031 10 SCC 572 and Shelly's Constructions Co. Pvt. ltd. v. Konkan
Railway Construction and Anr., 119981 5 SCC 599, relied on.
H
860
SUPREME COURT REPORTS
[2004] 3 S.C. R.
A
Secrelary lo the Government of Orissa and Anr. v. Sarbeswar Rolll,
B
c
D
E
F
G
H
119891 4 SCC 578; Sumitomo Heavy Industries Ltd. v. ONGC Ltd. and Ors.,
119981 I SCC 305 and Jupitor Chit Fund (P) Ltd. v. Shiv Narain Mehla
(Dead) by Lrs. and Ors., 120001 3 SCC 364, referred to.
Thyssen Stahl union GMBH v. Slee! Authority of India Ltd., 1199919 SCC
334, distinguished.
2.2. The Court 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. 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 proceedings commence. Such commencement of arbitration
proceedings although in terms of Section 37 of the Act is for the purpose
of limitation but it in effect and substance wili also be the purpose for
determinirig as to whether the 1940 Act or the 1996 Act would apply.
1886-G-H; 887-A-BI
2.3. Before a suit is stayed in terms of Section 34 of the 1940 Act
the Court must be satisfied that there is no sufficient reason why "he matter
should not be referred to arbitration in accordance with the arbitration
agreement and that the aprlicant was at the time when the proceedings
were commenced and still remains ready and willing to do so for the
proper conduct of the arbitration. 'l'he Court while passing an order in
terms of Section 34 of the 1940 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. Aithough 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. 1887-D-FI
Bhailal Manila/ v. Amratlal Lallubhai Shah, AIR (1963) Guj 141 and
Dinabandhu v. Durga Prasad Jana, AIR (1919) Cal 479 and Stale of West
Bengal v. A.K. Ghosh, AIR (1975) Cal 227, approved.
Arbitration and Concilialion Act, 1996 by P. Chandrasekhara Rao,
referred to.
.,
,.. .
...
)<
....
··-;
.,
MILKFOOD LTD. v. GMC ICE CREAM (P) LTD.
861
3. t. In the instant case there had been a dispute between the parties. A
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 B
party to a dispute and not only by a person who has a claim against the
other. The arbitration agreement was invoked by the appellant, 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
arbitrator, having regard to the scope and purport of the reference would
be entitled to determine the dispute. It is irrelevant as to whether the C
appellant had any mondary claim against the respondent or not. The
arbitrators and consequently Single Judge of the High Court 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 would D
not be indicative of the commencement of the arbitral proceeding which
must be construed having regard to Section 21 of the 1996 Act. (890-8-F)
3.2. The arbitrators did not hold that the notice was not served upon
the respondent but merely proceeded on the basis that the same would be E
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 this Court for the first time. (892-Fl
I
F
"
3.3. In the present case, the parties did not agree to any change in
the procedure before the arbitrator and at the first opportunity the
appellant filed an application for a direction or clarification that the
proceeding under the 1940 Act would apply. If the arbitral proceedings
commenced for the purpose of the applicability of the 1940 Act, the
question of adopting a different procedure laid down under the 1996 Act G
would not arise. Hence, the 1940 Act shall apply and not the 1996 Act.
However, the arbitrators had already entered into the reference and
proceedings before them were not stayed but only making of the award
was stayed. Thus, in the peculiar facts and circumstances of this case,
although the old Act would apply, the entire arbitral proceedings need H
862
SUPREME COURT REPORTS
[200.J] 3 S.C.R.
A 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. This order has been passed in the
interest of justice and in the peculiar facts and circumstances of this case.
However, High Court has rightly held that the letters patent appeal was
B not maintainable. 1893-G; 894-D; 896-C-FI
N.S. Nayak & Sons etc. v. State of Goa elc., 120031 6 SCC 56, relied
on.
Delhi Transport Corporation ltd v. Rose Advertising, 120031 6 SCC
C 36 and Thyssen Stahlunion GMBH v. Steel Authority of India ltd., 119991 9
sec 334, distinguished.
Per KAPADIA, J. (disse11ti11g):
1.1. Arbitral proceedings in respect of a dispute commences on the
date on which request to refer such dispute to arbitration is received by
D the respondent, unless otherwise agreed by the parties. [902-E I
Russell on Arbitration, XX// Ed. P. 165, referred to.
1.2. In the present matter one is concerned with transitional provision
as under Section 85(2)(a) of the 1996 Act which enacts as to how the statute
E will operate on the facts and circumstances existing on the date it comes
into force and, therefore, the construction of such a provision must depend
upon its own terms and not on the basis of Section 21 of the Act. One
cannot confine the concept of 'commencement' under Section 85(2)(a) only
to Section 21 of the 1996 Act.
F
There was no single conclusive test to determine commencement. In
a case, where it was necessary to consider whether one party had taken
sufficient steps for setting arbitration in motion, the court has to consider
the date of setting up of arbitral tribunal. In the matter involving the scope
of reference the test of the state of-dispute was relevant. Therefore, the
G expression "commencement of arbitration proceedings' had different
meanings in various contexts. Although notice to concur is an essential
step, arbitration proceedings cannot be said to have commenced in
practical sense till tribunal charged with authority stood duly constituted.
1903-C; 903-E; 904-H; 905-A-BI
H
NS. Nayak and Ors."· State of Goa, 120031 6 SCC 56, relied on.
MILKl:OOD LTD. 1·. GMC ICE CREAM (I') I.TD.
863
>
"Thyssen Srahlunion GMBH v. Steel Authority of India Ltd .. 119991 9 A
sec 334, referred to .
..
Charle.i M. IVi!lie & Co. (Shipping) ltd. v. Ocean laser Shipping ltd.,
(1999) I Lloyd's Rep. 225, referred to.
Principles of Statu/01)1 Interpretation by G.P. Singh 8th Ed. P. 188, B
referred to.
,.-.,
Commercial Arbitration" (2nd Edition, p. 169) by Mustill & Boyd,
referred to.
l.3. The question in the present case concerns interpretation of c
transitional provisions; that Section 85(2)(a) of the 1996 Act emphasizes
the concept of "commencement" whereas Section 48 of the 1940 Act
emphasized the concept of "reference"; that Section 85(2)(a) provides for
implied repeal; that the scheme of 1940 Act is different from the 1996 Act;
that the word "reference" in Section 48 of the old Act had different D
meanings in different contexts. Hence, while interpreting Section 85(2)(a)
in the context of the question raised in this appeal, one cannot only rely
,,
on Section 21 of the 1996 Act. The parties entered into an agreement on
7.4.1992 which contained an arbitration clause. Before entering upon the
reference under the clause, the arbitration proceedings were to be
governed by the provisions of the Arbitration Act, 1940 or under any E
statutory re-enactment. On the strength of the agreement, the respondent
filed a title suit for injunction and in the said suit, the appellant applied
for stay under Section 34 of the 1940 Act. Suffice it to state that on
6.5.1997, when the matter came up before the High Court, the parties
agreed that all disputes between them may be referred to arbitrators
F
chosen by the parties as per the agreement. A consent order was
.),
accordingly passed on that day by the High Court referring the dispute
to the arbitrators. Hence, for all practical purposes, the arbitration
commenced on the same day, by which time the 1996 Act had come into
force. In the cireumstances, the majority derision of the arbitrators that
the proceedings in the present case would be governed by the provisions G
of the 1996 Act cannot be found fault with. 1907-C-D; 907-F-H; 908-AI
Delhi Transport Corpora/ion ltd. v. Rose Advertising, 120031 6 SCC
36 and Union of India v. Mahindra Supply Company, AIR (1962) SC 256,
relied on.
H
864
SUPREME COURT REPORTS
[2004] 3 S.C.R.
A
CIVIL APPELLATE JURISDICTION : Civil Appeal No. 9672 of
B
c
D
E
F
G
H
2003.
From the Judgment and Order dated 13. I 0.98 of the Delhi High Com1
in O.M.P. No. 94 of 1998.
WITH
C.A. Nos. 9673-74 of 2003.
Harish N. Salve, B.K. Sood and Ms. Indra Sawhney for the Appellant.
R.K. Jain, Chandra Shekhar, Neeraj Shekhar and Ambhoj Kumar Sinha
for the Respondent.
The Judgments of the Court were delivered by
S.B. SINHA, J. Interpretation of certain provisions of the Arbitration
Act, 1940 and the Arbitration and Conciliation Act, 1996 (for short 'the 1940
Act' and 'the 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
l"
' .,
it.
MILKFOOD LTD. v. GMC ICE CREAM (P) LTD. [SINHA. J.]
865
so far as and to the extent that they disagree to, an umpire to be A
appointed by the said two arbitrators before they enter upon the
reference.
All such arbitration proceedings shall be in accordance with and subject
to the provisions of the Arbitration Act, 1940, or any statutory
modification or reenactment."
The contention of the appellant was that the first respondent herein did
, -o(
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
B
returned.
C
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
D
the Court of Munsif I st, Gaya which was marked as Title Suit No.40 of 1995,
wherein a decree for permanent injunction restraining the appellant from E
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 F
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
defendant nos. I to 3 is allowed. I stay the further proceeding of the
suit and in the meantime, the matter be referred to the arbitration. Put G
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 H
866
SUPREME COURT REPORTS
[200413 S.C.R.
A 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 Jgreement so that the dispute be settled
at the earliest.
Some controversy as regard service of the said notice on the respondent
B 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 l 3 .3 .1996, the 2nd
Additional District Judge, Gaya in Misc. Appeal No.7 of 1995 (30/95)
C 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. I 020 of l 996. The said civil
revision application was disposed of by an order dated 6.5.1997 in the
following terms :
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E
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"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
defe.1dants have chosen Shri Hari Lal Agrawal, Senior Advocate of
the Supreme Court, a former judge of this Court and Chief Justice uf
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
rroceedings within three months of entering into the reference.
Let a copy of this order be sent to both Shri Hari Lal Agarwal at
his address Nageshwar Colony, Boring Road, Patna-I 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
G of the arbitral Tribunal had been changed but the dispute sought to be resolved
in the arbitration proceedings 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
H consent.
•
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MILKFOOD LTD. v. GMC ICE CREAM (P) LTD. [SINHA . .I.]
867
The appellant having found that the learned arbitrators were proceeding A
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 B
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 :
"I do not agree with him that an Arbitration commences when the
dispute is referred to the arbitrator and he enters upon the reference.
c
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 D
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 proceedings. 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 E
another for an arbitration proceedings."
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. F
JI.
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 which a request for that dispute is referred to
arbitration. The Act postulates a notice by a claimant to the respondent G
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 H
868
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SUPREME COURT REPORTS
[2004] 3 S.C.R.
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
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 frr 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 into force, therefore, only
the 1996 Act has to be made applicable in this case.
( e) The most vital and important circumstance 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
G
to be maintained. No one can be permitted to breach or flout the
undertaking in this manner."
H
An appeal preferred thereagainst was dismissed by a five-Judge Bench,
as being not maintainable.
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M!LKFOOD LTD. v. GMC ICE CREAM (P) LTD. [SINHA . .I.]
869
SUBMISSIONS :
A
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 tenns whereof the arbitration
proceedings commenced and in that view of the matter the 1940 Act shall be
applicable in the instant case. Referring to Sections 2 l and 85 of the 1996 B
Act, Mr. Salve wou Id urge that there are well-known expressions in the
arbitral proceedings, being "commencement of the arbitration proceedings",
"continuance of arbitration proceedings", "entering into reference" which in
different contexts would carry different meanings. The Parliament, however,
in the 1996 Act having chosen to use the expression 'initiation of the C
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. v. Ocean Laser Shipping Ltd., (1999) l Lloyd's Rep.225.
Mr. Salve would submit .that there appears to be some conflict in the D
decision of the two-Judge Bench of this Court as regards construction of the
arbitration agreement, as contained in clause 20 thereof, referred to
hereinbefore vis-a-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. v. State of (Joa etc., [2003] 6 SCC 56 wherein allegedly a different note
has been struck from an earlier view expressed in Delhi Transport Corporation E
Ltd. v. 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 F
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 on Chandra
Singh and Ors. v. State of Rajasthan and Anr., [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 G
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.
H
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SUPREME COURT REPORTS
12004] 3 S.CR
A
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
lo 1he Government of Orissa and Anr. v. Sarheswar Rout, [1989] 4 SCC 578.
The learned counsel would further submit that an arbitrator enters into
B 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 Hemy !11d11stries Ltd. v. ONGC Ltd.
and Ors., [1998] 1 SCC 305.
c
It was argued that in any event the starting point for the purpose of
commencement of arbitration proceedings 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
D in terms of clause 20 of the contract that all su~h arbitration proceedings shall
be in accordance 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 v. Steel Authority of India Ltd., [1999]
9 SCC 334, Delhi Transport Corporation Ltd., (supra) and NS Nayak (supra).
E
Mr. Jain would also urge that the decision of this Court in NS Nayak
(supra) cannot be .;aid 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.