State of Goa Represented by Executive Engineer, Works Division V (Aip), Irrigation Department Vs. Chinna Nachimuthu Constructions, Engineers and Contractors - Court Judgment

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arbitration - ex-parte award - section 34 of the arbitration and conciliation act, 1996(act) - respondent filed suit for appointment of arbitrator - arbitrator appointed - petitioner raised objection about jurisdiction - arbitrator rejected petitioner's objection and passed ex-parte award in respondent's favour - appeal - rejected - hence, present petition - petitioner contended that award was not passéd within prescribed period defined in old act - held, parties to arbitration had not agreed to be proceeded as per new act - ex- parte award set aside - parties are at liberty to take action as per their convenience - petition allowed - code of criminal procedure, 1973 [c.a. no. 2/1974]. section 41: [ swatanter kumar, cj, smt ranjana desai & d.b. bhosale, jj] arrest of accused - held, a police officer or a person empowered to arrest may arrest a person without intervention of the court subject to the limitations specified under the provisions of the code. the provisions of section 41 of the code provides for arrest by a police officer without an order from a magistrate and without a warrant. a distinct and different power under section 44 of the code empowers the magistrate to arrest or order any person to arrest the offender. under section 44 of the code, that power is vested in the court of the magistrate when an offence is committed in his presence. if the legislature has taken care of providing such specific power under section 44 of the code, then there could be no reason for such a power not to be specified under the provisions of chapter xii of the code. in terms of section 41, a police officer may arrest a person without a warrant or order from the magistrate for any or all of the conditions specified in that provision. language of this provision clearly suggested that the police officer can arrest a person without an order from the magistrate. thus, there appears to be no reason why on the strength of section 156(3) of the code, any restriction should be read into the power specifically granted by the legislature to the police officer. of course, freedom of investigation is the essence of these provisions but in order to suppress the mischief it is sufficiently indicated under different provisions of the code that the arresting officer should exercise his power or discretion judiciously and should be free of motive. some kind of inbuilt safeguard is available to the accused in the cases where the magistrate directs investigation under section 156 (3) of the code by taking recourse to the provisions of section 438 of the code by approaching the court of session or the high court for such relief. thus, during the course of investigation of a criminal case, an accused is not remediless and that would further buttress the above view. [jagannath singh v dr. ajay upadyay & anr 2006 cri lj 4274; 2006 (5) air bom r held per incuriam]. - in the present case, the arbitration proceedings clearly commenced before coming into force of the new act and the parties had already entered into an agreement that the new act would be made applicable. 88. it is not a case where like delhi transport corporation limited (supra), the parties went for arbitration with a clear understanding and belief that the proceedings were being conducted under the 1996 act. the appellant, in fact, applied to the arbitrator that he had become functus officio since he had failed to deliver the award within the time stipulated and the respondent had opposed this request.s.a. bobde, j.1. this is an appeal by the government of goa against order dated 29.10.1999 passed by the addl. district judge, north goa, panaji rejecting the appellant's application under section 34 of the arbitration and conciliation act, 1996 for setting aside the ex parte award of the sole arbitrator, dated 29.6.1998. the arbitrator has awarded to the respondent a sum of rs. 60,03,866/-with interest at the rate of 18 % p.a. from 26.9.88 till the date of the award.2. the appellant-state awarded the work of construction of an overflow and non-overflow masonry dam across guleli nallah at anjunem village, sattari taluka on 2.2.1978. the contract agreement dated 8.2.78 contained the arbitration clause in clause 25. the relevant portion reads as follows:subject as aforesaid, the provisions 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 the clause.3. the arbitration proceedings commenced on 26.9.88 when the respondent invoked the arbitration clause listing its claims of revision of rates for the work executed beyond 1.1.1985. the appointment of mr. b.r. naique as arbitrator was objected to by the respondent.4. the respondent then filed a special civil suit no. 40/89/a under the provisions of section 20 of the arbitration act, 1940 (hereinafter referred to as 'the old act') for appointment of an arbitrator. on 23.2.1996, the civil judge allowed the application and appointed mr. j.s. pinto as the sole arbitrator. on 4.7.1996, the arbitrator issued notices. time of 4 months was granted to submit their statements of claim. the award was not made within four months i.e. by 3.1.1996 as contemplated by section 3 read with schedule i of the old act. it, however, appears that during the course of site inspection it was agreed by the parties and the arbitrator that the award would be made by 31.8.97. no award was made even by this date. hence, the appellant-state on 24.10.1997 made an application to the arbitrator that he had become functus officio on 31.8.97 and that he had no authority to pass an award.5. on 21.12.1997, the arbitrator held that he had jurisdiction to continue with the proceedings under the new law i.e. arbitration and conciliation act, 1996; the parties having agreed that the arbitration would be governed by the arbitration act, 1940 or 'any statutory modification or reenactment thereof'. he further directed that the proceedings to continue ex parte against the appellant.6. on 29.6.1998, the arbitrator passed the award. on 18.9.1998, the arbitrator filed the award in the court of civil judge, senior division, panaji. against the award, the appellant preferred an application under section 34 of the arbitration and conciliation act, 1996 claiming that the award was illegal since arbitrator had no jurisdiction to continue with the arbitration proceedings.7. before the addl. district judge, north goa, panaji, the appellant primarily objected to the proceedings and the award on the ground that the present arbitration proceedings continued to be governed by the old act of 1940 and, therefore, the proceedings culminating in the ex parte award were vitiated since they were continued and concluded under the new act of 1996. according to the appellant, in view of section 85(2)(a) of the arbitration act, 1996, the old act of 1940 would continue to apply and that the new act would not govern the proceedings, inspite of clause 25 which is an arbitration clause. the learned addl. district judge rejected this contention, against which the appellant-state has preferred the present appeal.8. in this appeal, the main contention of the appellant is that the proceedings which were commenced under the old act by filing a suit as provided by that act were saved by section 85 of the arbitration and conciliation act, 1996 (hereinafter referred to as 'the new act') and the arbitrator could not have proceeded under the new act and passed an ex parte award. according to the appellant, even though the arbitration clause provided that any statutory modification or re-enactment of the arbitration act, 1940 would apply to the arbitration proceedings, the parties had not opted to apply the new act after it came into force and, therefore, the arbitrator could have only proceeded under the old act.9. section 85(2) reads as follows:85. repeal and savings. (1) ...(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.on a plain reading of the aforesaid provision, it is clear that the repeal is not intended to affect the arbitral proceedings which commenced before the new act came into force unless, otherwise, agreed by the parties. the term 'unless otherwise agreed by the parties' contemplates existence of an agreement to the contrary that the new act shall apply. the present case must, therefore, be examined with reference to the law on this point.10. as far as existence of the agreement to the contrary, it is clear that clause 25 agreed to by the parties in this case would constitute an agreement to the contrary. it is settled law, vide thyssen stahlunion gmbh v. steel authority of india reported in : air1999sc3923 that the provision of the old act shall apply in relation to the arbitral proceedings which have commenced before the coming into force of the new act and that the parties can agree even before coming into force of the new act, that the new act shall be applicable to such arbitral proceedings. in the present case, the arbitration proceedings clearly commenced before coming into force of the new act and the parties had already entered into an agreement that the new act would be made applicable.11. in thyssen stahlunion gmbh (supra) vide paras 46 and 47 the supreme court observed as follows:46. ....the reference 'otherwise agreed by the parties' in section 85(2)(c) of the new act, therefore, would include an agreement already entered into between the parties even prior to enforcement of the new act as also the agreement entered into after enforcement of the new act. such a conclusion is but natural since the expression 'otherwise agreed' to not refer to the time factor but refers to the intention of the parties regarding applicability of the provisions of the new or old act'. we agree with the high court on interpretation put to the arbitration clause in the contract.47. section 28 of the contract act contains provision regarding agreements in the restraint of legal proceedings. exception 1 to section 28 of the contract act does not render illegal a contract by which the parties agree that any future dispute shall be referred to arbitration. that being so parties can also agree that the provisions of the arbitration law existing at that time would apply to the arbitral proceedings. it is not necessary for the parties to know what law will be in force at the time of the conduct of arbitration proceedings. they can always agree that provisions that are in force at the relevant time would apply. in this view of the matter, if the parties have agreed that at the relevant time provisions of law as existing at the time would apply, there cannot be any objection to that. thus construing the clause 25, in rani constructions (ca 61/99) new act will apply.12. the learned advocate general, however, submitted that the clause 25 which provides that the arbitration shall be conducted under the provisions of the old act or any statutory modification or re-enactment thereof cannot be construed to mean that the arbitral proceedings should be conducted under the new act as soon as the new act comes into operation or that the proceedings are automatically converted to proceedings under the new act. he relied on certain observations of the supreme court in the case of n.s. nayak & sons v. state of goa reported in : (2003)6scc56 in which the supreme court explained the third conclusion in thyssen stahlunion gmbh which read as follows:3. in cases where arbitral proceedings have commenced before the coming into force of the new act and are pending before the arbitrator, it is open to the parties to agree that the new act be applicable to such arbitral proceedings and they can so agree even before the coming into force of the new act.13. in para 14, the supreme court has observed as follows : `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 s, 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 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.14. mr. desai, the learned senior counsel for the respondent strongly opposed the contention of the learned advocate general and submitted that the observations above are not intended to hold that there should be a fresh agreement before the arbitral tribunal to apply the procedure under the new act and the supreme court did not intend to strike a different note from thyssen stahlunion gmbh. the learned advocate general, however, brought to our notice a decision of the supreme court in milkfood ltd. v. gmc ice cream (p) ltd. reported in air 2004 sc 3145 in which the relevant facts are similar to the facts before us. the arbitration clause, clause 20 in that case, reads as follows: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.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.the supreme court held that the arbitration had commenced on 14.9.1995 when the appellant sent a notice to the first respondent appointing its own arbitrator and calling upon the respondent either to agree to the arbitrator or appoint its own arbitrator in terms of clause 20 of the agreement so that the dispute can be settled at the earliest, the date of the notice being before the coming into force of the new act i.e. 22.8.1996. it was held that the proceedings had commenced under the old act. it was contended on behalf of the respondent, as in this case, that since the parties had agreed in terms of clause 20 of the contract that all such proceedings shall be in accordance with the provisions of the old act or any statutory modification or reenactment, it must be deemed to have agreed that the new act shall apply. this was not accepted and the supreme court held that the old act shall apply and not the new act. referring to the arbitration clause, the relevant portion of which is identical to the arbitration clause in the case before us, and to the various decisions on the point, the supreme court, in paras 83, 84, 85, 86, 87, 88 and 89, has observed as follows:83. in thyseen (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 thyseen 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 interpretation12.1 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 disputesall 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 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.84. 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.85. 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....86. 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.87. 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.88. it is not a case where like delhi transport corporation limited (supra), 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 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 that the distinctive features in thyssen (supra) and 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 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 can not be taken away unless there is specific provision to the contrary. there is no such provisions 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.89. 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 of 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. in conclusion, as stated earlier, the supreme court held that the old act shall apply and not the new act.15. we find that the material facts before us are not different to those in milkfood ltd. (supra) and we see no reason to take a different view. we find that there is nothing on record to show that the parties had agreed before the arbitrator for application of the procedure under the new act and the agreement to the contrary could not be said to have operated on its own without both the parties exercising their option to be governed by the procedure under the new act.16. both the learned counsel for the parties relied on the conduct of the other side to point out how the appellant had acquiesced in the applicability of the new act and the respondent had acquiesced in the application of the procedure under the old act. however, admittedly, both the parties had not agreed to and opted for the applicability of the new act after the new act came into force. the appellant, in fact, applied to the arbitrator that he had become functus officio since he had failed to deliver the award within the time stipulated and the respondent had opposed this request. there being no agreement before the arbitrator that the procedure under the new act would apply, we do not propose to take into account the conduct of the parties for deciding the applicability of the law which should govern the arbitration.17. in this view of the matter, we set aside the ex parte award dated 29.6.1998 and leave the parties to resort to such action as may be advised in law.