2003 (12) TMI 593 - SC - Companies Law

Whether the proceedings in which an impugned award has come to be made, are governed by the 1940 Act or the 1996 Act ? Whether the appropriate court for the purpose of challenging the said award or seeking modification of the said award is this Court, being the court which appointed the arbitrator or an appropriate court as contemplated under Section 34 of the 1996 Act read with section 2(e) of the said Act which contemplates said court to be the principal civil court of original jurisdiction? Held that - As noticed from the mandatory language of section 34 of the 1996 Act, that an award, when challenged under section 34 within the time stipulated therein, becomes unexecutable. There is no discretion left with the court to pass any interlocutory order in regard to the said award except to adjudicate on the correctness of the claim made by the applicant therein. Therefore, that being the legislative intent, any direction from us contrary to that, also becomes impermissible. On facts of this case, there being no exceptional situation which would compel us to ignore such statutory provision, and to use our jurisdiction under Article 142, we restrain ourselves from passing any such order, as prayed for by the applicant. However, we do notice that this automatic suspension of the execution of the award, the moment an application challenging the said award is filed under section 34 of the Act leaving no discretion in the court to put the parties on terms, in our opinion, defeats the very objective of the alternate dispute resolution system to which arbitration belongs. We do find that there is a recommendation made by the concerned Ministry to the Parliament to amend section 34 with a proposal to empower the civil court to pass suitable interim orders in such cases. In view of the urgency of such amendment, we sincerely hope that necessary steps would be taken by the authorities concerned at the earliest to bring about the required change in law. Thus this application fails and the same is dismissed with a direction to the applicant to file its objections to the award before the court concerned and if the same are filed within 30 days from today, the delay in regard to the filing of the objections as contemplated under section 34 of the 1996 Act shall be condoned by the said court since the time consumed was in bona fide prosecution of the application in a wrong forum.

Summary

Issues:
1. Applicability of the Arbitration Act, 1940 or the Arbitration & Conciliation Act, 1996 to the proceedings.
2. Jurisdiction for challenging or seeking modification of the award.

Issue 1: Applicability of the Arbitration Act, 1940 or the Arbitration & Conciliation Act, 1996 to the proceedings:

The case involved a dispute regarding the applicable law governing the arbitration proceedings and the subsequent award. The primary contention was whether the proceedings, initiated prior to the enactment of the Arbitration & Conciliation Act, 1996, should be governed by the provisions of the Arbitration Act, 1940. The applicant argued that since the dispute and the agreement to arbitrate were pre-1996 Act, all further proceedings should be under the 1940 Act, necessitating any modification application to be filed before the court appointing the arbitrator. However, the respondent, who was the appellant in the original case, had already filed objections under the 1996 Act, indicating their stance on the applicable law.

The court noted that the parties had consented to conducting the arbitration proceedings under the 1996 Act, even though the dispute arose before its enactment, as permitted by Section 85(2)(a) of the 1996 Act. The applicant's reliance on previous judgments was deemed irrelevant as the court had not retained control over the arbitration process, and the arbitrator had autonomy over the proceedings. Therefore, it was established that the 1996 Act governed the proceedings, and the application under the 1940 Act was not maintainable before the court.

Issue 2: Jurisdiction for challenging or seeking modification of the award:

The court deliberated on the appropriate forum for challenging or seeking modification of the award. It was emphasized that under Section 34 of the 1996 Act, the jurisdiction to entertain such applications lay with the principal civil court of original jurisdiction, not the court appointing the arbitrator. Despite the applicant's plea for expedited resolution due to the prolonged dispute, the court upheld the statutory provisions, highlighting that the 1996 Act provided a specific remedy under Section 34, precluding the exercise of jurisdiction under Article 142 of the Constitution.

The court acknowledged the automatic suspension of award execution upon challenge under Section 34, expressing concerns about the lack of discretion for interim orders, which could hinder the alternate dispute resolution system. While the court refrained from issuing any contrary directions, it urged legislative action to empower civil courts to pass suitable interim orders in such cases, emphasizing the need for amendments to address this issue promptly.

Ultimately, the application was dismissed, directing the applicant to file objections to the award before the appropriate court within a specified timeline, with the court expressing hope for legislative amendments to improve the arbitration framework.

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