Holding

The arbitration proceedings commenced before the 1996 Act came into force, so the Arbitration Act, 1940 governs, but the arbitrators may continue to render the award without reopening the proceedings.

Summary

Milk Food Ltd. entered into a contract with GMC Ice Cream (P) Ltd. containing an arbitration clause that referred disputes to arbitration under the Arbitration Act, 1940 or any statutory modification. A suit for injunction was filed, and Milk Food obtained a stay under Section 34 of the 1940 Act. The parties later agreed to refer the dispute to arbitrators, and a consent order on 6 May 1997 constituted the arbitral tribunal. The question arose whether the arbitration proceedings, having begun before the Arbitration and Conciliation Act, 1996 came into force, should be governed by the 1940 Act or the 1996 Act. The Supreme Court held that the proceedings commenced when the notice for appointment of an arbitrator was served on 14 September 1995, i.e., before the 1996 Act, so the 1940 Act applies, but the award may still be rendered without reopening the arbitration. Consequently, the appeal by Milk Food was allowed, overturning the High Court’s view that the 1996 Act applied, while related appeals were dismissed.

Issues considered

The appropriate statute governing the arbitration – Arbitration Act, 1940 or Arbitration and Conciliation Act, 1996.
When does an arbitration proceeding commence for the purpose of Section 85(2)(a) of the 1996 Act and limitation periods.
Whether the notice of appointment dated 14 September 1995 constitutes the commencement of arbitration.
Whether a change in the composition of the arbitral tribunal affects the commencement date.
Whether the award can be made under the 1940 Act despite the later applicability of the 1996 Act.

Legislation cited

Arbitration Act, 1940s. 3, s. 33, s. 34, s. 37(3), s. 8
Arbitration and Conciliation Act, 1996s. 21, s. 43(1), s. 43(2), s. 85
Limitation Act, 1963

Subjects

arbitrationcommencement of arbitrationArbitration Act 1940Arbitration and Conciliation Act 1996Section 85(2)(a)limitation periodtransitional provisionsnotice of arbitration

Judgment

)

J.
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-SuiI for permanent injunction filed by the manufacturer-
App/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/Arbitrators-
Their appointment by the Court not mandato1y-Service of Notice by one
party to another for appointment of an Arbitrator indicative of deemed
commencement ofarbitration 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
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-opened-
Arbitrators 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. B

Commencemenl of an arbitration proceeding-Meaning of-Section 21
must be read with Section 85(2)(a) of the New Act to construe its meaning-
construing so service of notice for appointment of Arbitrator/Arbitrators
determines the commencement of arbitral proceeding.
c
Words and Phrases:

'Commencement of an arbitration proceeding' and 'Commencement of
proceeding before an Arbitrator-Distinction between-Discussed.

Held: Per minority: D

Construcrion of transitional provisions under Section 85(2)(a) of the
'r new Act must depend upon its own terms-Not to be cons/rued on the basis
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:
F
'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.

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/):

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
F 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
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.
D
Arbitration and Dispute Resolution Practice by Bernstein, Fourth
y
Edition, p.80; Russell on Arbitration, 22nd Edition, p. I 66, referred to.

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
commences only for the purpose of limitation upon issuance of a notice B
:(
and for no other purpose. The statute does not say so. A court of law must
not lose sight of the doctrine of 'stare decisis'.
·4

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,
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 Stahlunion GMBH v. Slee! Authority of India Ltd., 1199919 SCC
B 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
c 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
D 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
E 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
F 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
G
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,
H 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
meanings in different contexts. Hence, while interpreting Section 85(2)(a) D
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
chosen by the parties as per the agreement. A consent order was F
.),
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
2003.

From the Judgment and Order dated 13. I0.98 of the Delhi High Com1
in O.M.P. No. 94 of 1998.

B WITH

C.A. Nos. 9673-74 of 2003.
l"
Harish N. Salve, B.K. Sood and Ms. Indra Sawhney for the Appellant.

c for theR.K. Jain, Chandra Shekhar, Neeraj Shekhar and Ambhoj Kumar Sinha
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
D
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.
E
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
F agreement was to remain valid for a period of five years. Admittedly, the said it.
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
G 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
H in case of disagreement between the two arbitrators aforesaid and in
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." B
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
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. D

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 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. I020 of l 996. The said civil
revision application was disposed of by an order dated 6.5.1997 in the
following terms :
D "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
E 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.
F
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.
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 :
c
"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 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
j
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 SUPREME COURT REPORTS [2004] 3 S.C.R.

A 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
B 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
c 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
D 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
E 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
F
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."

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

H
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
870 SUPREME COURT REPORTS 12004] 3 S.CR

A The learned counsel would urge that for the purpose of determining the ...I

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. the same will have no
application whatsoever for the purpose of determining the question as to
F 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
G 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 pafl:ies. the arbitral proceeding; in respect of a particular dispute
H commence on the date Gil which a request for that dispute to be
M!LKFOOD LTD. v. GMC ICE CREAM (P) LTD. [SINHA . .I.] 871
referred to arbitration is received by the respondent." A
We may notice that Section 14 of the English Arbitration Act 1996
deals with commencement of arbitral proceedings. Sub-section (I) 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 P1rt and for the purposes
of the Limitation Act. Section 14(3) provides that in the absence of such B
agreement, the provisions contained in sub-section:; (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 C
of an arbitration proceeding 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 D
invocation of the arbitration agreement. a party thereto subject to the provisions
of the arbitration agreement may appoint an arbitrator or request the noticee
f 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 E
the pa1iies. However, when despite 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 s~b-section (2) of Section 8 of the 1940 Act, F
a legal fiction has been introduced to the effect that such an appointment by
the cou1i shall be treated to be an appointm.ent 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 proceedings would begin from the service of notice. Section
37 of the 1940 Act provides that all the provisions of the Indian Limitation G
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 H
872 SUPREME COURT REPORTS [2004] 3 S.C.R.

A 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 sub-section (3)
deals with two modes of notional or fictional commencement as distinguished
B 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 r'
Section 37 of the Act. (See Motila/ Chamaria v. Lal Chand Dugar, AIR
C (1960) Calcutta 6).

The commencement of an arbitration proceeding for the purpose of
applicability of the provisions of the 1.ndian Limitation Act is of great
significance. Even Section 43( I) of the 1996 Act provides that the Limitation
Act, 1963 shall apply to the arbitration as it applies to proceedings in court.
D 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
E 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
p 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
G arbitration agreements which are 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 c_alled upon to act by 11otice in writing from any party to the ....
arbitration agreement or within such extended time as the Court may allow.
H A notice upon the arbitrator so as to enable him to enter into a reference or
MILKFOOD LTD. v. GMC ICE CREAM (P) LTD. [SINHA, .I.] 873
to make an award within the stipulated period, therefore, has nothing to do A
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 B
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 C
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 D
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. (See
International Tank and Pipe S.A.K. v. Kuwait Aviation Fuelling Co. K.S.C.,
(1975] Lloyd's Rep. 8)
E
Section 14(3) & (5) of the English Arbitration Act, 1996 would also
show that commencement of arbitral proceedings 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 F
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 G
& Willan ("HFW") solicitors to Roussos enquiring about an engine stoppage
in January, I 988. 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 H
874 SUPREME COURT REPORTS 1200-l] 3 S.C.R.

A 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.
B Newcomb was 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
C 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.

D By letter dated May 21, 1992 lo Mr. Kazantzis with copies to HFW and
Mr. Newcomb. SAC disputed the validity of t:1e appointment on behalf of
Ocean Laser and stated i111er a!ia that Wiilie had no contract and consequently
there was no agreement to arbitrate, witn Ocean Laser. SAC's reaction to the •
appointment by Ocean Laser of Mr. Kazantzis went answered.
E On Nov. 5. 1993 Roussos and Ocean Laser served points of claim on
Willie. SAC protested in their letter thnt ·

... 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
F 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 infer alia :
G ... The Memorandum of Agreement states ... that G Roussos Sons SA ... or
company to be nominated hereafter called the '"Buyer'" have today bought
Motor Ve,sel .. CELTIC J\f\1BASSADOR'".

For this reason we appointed Mr. Kazantzis as our Clients' Arbitrator
H both on behalfofG Roussos Sons SA and on behalf of Ocean Laser Shipping
MILKFOOO LTD. v. GMC ICE CREAM (P) LTD. [SINHA . .I.] 875
) ..
Limited. The points of Claim further provide that the first claimant i.e. G A
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. v. 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 B
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
c
moment, I express the view that even a direct application of the 1980
Act, and a fortiori an application by way of analogy, does not exclude
the possibility of showing that arbitration has been commenced by
means other than a notice requiring appointment or agreement of an
arbitrator. I asked Mr. Nolan when an arbitrati0n which no one would D
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 not 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 E
jurisdiction on the ground of the absence of a Limitation Act notice.
For my part, I would preier 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. VolkswagenwerkA.G., [1970) l Lloyd's Rep. F
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 "l require the difference between us
to be submitted to arbitration" should be regarded as such a request: G
indeed the hypothesis under consideration appears as 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, 1 do not see why such an appointment should not
b.e regarded as in every sense a commencement of arbitration. H
876 SUPREME COURT REPORTS [2004) 3 S.C.R.

A 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
B
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 to appoint his arbitrator as marking the
c 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 ifthe view I have just expressed
is wrong, then it would to my mind amply demonstrate why it is
D 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."
E
Requirement of the Jaw :

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 v. Fortuna Co. Inc., (1999) 2 All ER625 and Vosnoc Ltd v. Transglobal
p Projects Ltd., (1998) I WLR to I].

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:

G "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
H
MILKFOOD LTD. v. GMC ICE CREAM (P) LTD. [SINHA, .I.] 877
s.14. Its effect is as follows: A
(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
(b) Where the tribunal is to be appointed by the parties, the arbitral
proceedings in respect of a matter or dispute commence when
Party A si:rves 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
(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 v. Baltic D
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 E
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
F

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 G
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.
H
878 SUPREME COURT REPORTS [2004 I 3 S.C.R.

A 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
B commencing arbitration set out in the subsections. The 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."
c
'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
D 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
E charged with authority 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 a~bitrator would be
different than the procedure required to be followed under the 1996 Act.
F 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
regards the procedure under the one Act or the other is required to be followed.
G It is only in that limited sense the expression ·commencement of an arbitration'
qua ·a notice of arbitration' assumes significance.

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

The importance of the expression 'commencement of the arbitration
H proceeding• arises having regard to Section 85 of the 1996 Act, which reads
MILKFOOD LTD. v. GMC ICE CREAM (P) LTD. [SINHA. J.] 879
thus : A
"85. Repeal and saving.-(!) The Arbitration (Protocol and Convention)
Act, 1937 (6of1937), the Arbitration Act, 1940 (10of1940) and the
Foreign_ Awards (Recognition and Enforcement) Act, 1961 (45 of
1961) are hereby repealed.
B
(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 C
after this act comes into force;
(b) aft 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."
D
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 appli.:able 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 E
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 F
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 : . G
In Shetty 's Constructions Co. Pvt. Ltd. v. Konkan Railway Construction
and Anr., (1998) 5 SCC 599, it was held :

"A 1nere look at sub-section (2)(a) of Section 85 shows that despite
the repeal of Arbitration Act, 1940, the provisions of the said enactment H
880 SUPREME COURT REPORTS [2004) 3 S.C.R.
...
I

A shall be applicable in relation to arbitration proceedings which have
commenced prior to the coming into force of the new Act. The new
Act came into force on 26-1-1996. The question therefore, arises
whether on that date the arbitration proceedings in the present four
suits had commenced or not. For resolving this controversy we may
turn to Section 21 of the new Act which lays down that unless
B 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
c 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
D 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 t
they had to be decided under the old Act of 1940. This preliminary
objection, therefore, is answered by holding that these four suits will
E 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
F
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
G 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
H
MILKf'OOD LTD. v. GMC ICE CREAM (Pl LTD. [SINHA . .I.) 881

Section 30 of the old Act could be substituted by Section 34 of the A
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 :
B
"... 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 C
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 D
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 E
(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 F
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 G
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 85(2)(a)
unworkable. Section 85(2)(a) provides for a dividing line dependent H
882 SUPREME COURT REPORTS [2004] 3 S.C.R.

A on "commencement of arbitral procee!lings" 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
B 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). 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
C award.] and Section 21 falling in.Part-I of the new Act makes 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,
D 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 t_hat a different
E 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
th": Foreign Awards Act." . '
In Fuerst Day Lawson ltd. v. Jindal Exports Ltd., [2001] 6 SCC 356,
F a distinction was again made between enforceability of a foreign award and
a ddmestic arbitration stating Section 85(2)(a) provides for a dividing line
dependent on 'commencement of arbitral proceedings' wl]ich expression would
necessarily refer to Section 21 of the new Act. This Court noticed the decision
in Rani Constructions (P) ltd. v. H.P. SEB, C.A. No. 61 of 1999, wherei~
it was held:
G
"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 coiicerned only with recognition and
enforcement of the foreign awards and do not contain provisions for
the conduct of arbitral proceedings which ~ould, of necessity, have
H
MILKFOOD LTD. v. GMC ICE CREAM (P) LTD. (SINHA, J.) 883
taken place in a foreign country. The provisions of Section 85(2)(a) 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 B
·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, [i 998] 5 SCC 599. Section 2(2)
read with Section 2(7) and Section 21 falling in Part I of the new Act
makes it clear that these provisions would apply when the place of
arbitration is in India i:e. only in domestic proceedings. There is no C
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 D
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 havy that award enforced under E
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. F
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 G
proceeding, commencement thereof shall conincide with service of request/
n6tice.

It may be true that inThyssen (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 we intend to deal with this aspect of the matter H
·separately.
I
I
.4.

884 SUPREME COURT REPORTS [2004) 3 S.C.R.

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

"Thyssen Stahlunion GMBH v. Steel Authority of India ltd., (1999)
B 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)

I. The provisions of the old Act (Arbitration Act, 1940) shall
apply in relation to arbitral proceedings which have commenced
c 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
D proceedings pending before the ar'Jitrator but would also .:over
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."
E 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 (I) of
F 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
G 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 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 :

H "The said rule was enacted for a different purpose. The words
MILKFOOD LTD. v. GMC ICE CREAM (P) LTD. [SINHA, J.] 885
\

"' employed therein are "entering on the reference". In Hari Shankar A
Lal v. Shambhunath Prasad and Ors., [ 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.
B
Ru le 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 C
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 D
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 E
decisions of this Court cited at the Bar.

In Fertilizer Corporation of India Limited v. Mis 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 F
i 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 ar.bitrator named in
the agreement. G
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 111 has, thus, no application in such a case.

In Sarbeswar Rout (supra), this Court was concerned with award of H
886 SUPREME COURT REPORTS [2004] 3 SC.R.

A 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-a-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
B 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
C with a case where the parties to the contract belonged to two different countries.
Considering the applicability of the curial law vis-a-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
D the award.

In Jupitor Chit Fund (P) Ltd v. Shiv Narain Mehta (Dead) by Lrs. and
Ors. (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
E 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.
F 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
G Parliament enacted the 1940 Act, it was not in its contemplation that 56 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
H proceedings in court. For the purpose of invoking the doctrine of /is pendens,
-~.

MILKFOOD LTD. v. GMC ICE CREAM (P) LTD. [SINHA, J] 887

section 1.4 of the Limitation Act, 1963 and for other purposes presentation of A
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 commencement of arbitration proceeding although in terms
of Section 37 of the /\ct is, for the purpose of limitat;on but it in effect and
substance will also be the purpose. for determining as· to whether the 1940 B
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. !f 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 C
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,
D
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 E
. time when the proceedings commenced were and still remains ready and
. willing to do so for the proper conduct of the arbitration. The Court, th·erefore,
while pas.sing 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. Althouglr under Section 34 of the F
1940 Act, the Court itself does not make a reference to an arbitrator but the
very purpose 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 i:nake a reference.
(See Bhaila! Manila! v. Amrat/al Lallubhai Shah, AIR (1963) Guj 141, G
Dinabandhu v. Dtirga 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 v.
A.K Ghosh, AIR (1975) Cal 227).

THE UNCITRAL Model Rules of Arbitration vi$-a-vis provision of H
888 SUPREME COURT REPORTS [2004] 3 S.C.R.

A Section 14 of the English Arbitration Act, 1996 must be construed having ..,·
regard to the decisions of the English Cou1ts 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
B 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
't· •
defines the moment of the commencement of arbitral proceedings. In the
Arbitration and Conciliation Act, 1996 by P. Chandrasekhara Rao, it is stated:
c "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 detennining the
D 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.
E 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)."
F
~.
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
G 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
H wherefor also necessity of reference to Section 21 would arise. The court is
MILKFOOD LTD. r. GMC ICE CREAM (P) LTD. [SINHA. J] 889

to interpret the repeal and savings clauses in such a manner so as to give a A
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 th~ context in which the B
same is used; but it would be a totally different thing to say that the arbitration
proceedings commences only for the purpose of limit.1tion 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 C
interpretation of Section 85(2)(a) of the Act. There is no reason, even if two
views are possible to make a departure 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 D
decisis'. A view which has been holding the field for a long time should not
be disturbed only because another view is possible.
i
Keeping in view the fact that in all the decisions, referred to herein before,
this Court has applied the meaning given to the expression 'commencement E
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 proceedings.
F
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.
G
It may be true that before the High Court apart from Shri H.L. Agrawal,
Shri Uday Sinlrn 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 H
arbitrator was merely a reference to new arbitral tribunal which concept is
890 SUPREME COURT REPORTS [2004] J S.C.R.

A 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·
B 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
C 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 Seaion
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
D 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
of the appellant was that such an injunction should not be granted. The
E 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
F 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.
G Furthermore, having regard to Section 21 of the 1996 Act, the meaning to the
expression 'commencement of the arbitration proceeding' as cqntained in
Section 21 must be interpreted in the same m.anner.

Service of Notice :

H 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/
MILKFOOD LTD. v. GMC ICE CREAM (P) LTD. [SINHA . .I.] 891

clarification before the arbitrators, inter a/ia, contended : A
"I 0. 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. B
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 C
the disputes, the provisions of Indian Arbitration Act, 1940 alone
would be appli.cable and proceedings shall not be governed by
the provisions of Indian Arbitrati~n & 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 D
be caused to any party during the course .of arbitration
JJroceedings."

The statements made in paras IO and 11 had been traversed bi the·
respondent thus :
E
"6. That the submissions made in para nos. I0 and 11 'of the petition
under reply are not tenable and havr. ~een made to delay the
proceedings. The new Act is applicable as the old one is repealed
and only the arbitratio.n proceeding, which commenced before
the coming of the. new Act was saved."
F
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 b) the respondent, not by the G
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 uriless the arbitrator calls upon him to do so? No respondent H
892 SUPREME COURT REPORTS [200·1] 3 S.C.R.

A 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.
B
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
c 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
D dispute. And if 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
E 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 elated 14.9.1995
was not served upon the respondent but merely proceeded on the basis that
F 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.

G 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
H modification or re-enactment."
MILKFOOD LTD. v. GMC ICECREAM(P) LTD. [SINHA, JJ 893
In Thyssen (supra), the court held that the parties can agree to the A
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 B
under :

"CLAUSE 12: LEGAL INTERPRETATION

I2.1 This contract shall be governed and construed in accordance
with the Laws of India for the time being in force. C
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
D
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 arbitration in
accordance with the Rules of Conciliation and Arbitration of the E
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."
F
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 G
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
H
894 SUPREME COURT REPORTS [2004] 3 S.C.R.

A the parties therein shows that the parties acted under the 1996 Act.
Even the arbitrator proceeded on that understan.ding 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
B 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."
c
It is one thing to say that ~he parties agree to take recourse to the
procedure of the I 996 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,
D 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 adoptin'g a
different procedure laid down under the 1996 Act would not arise.

·Jt is not a case where lilre Delhi Transport Corporatio.n Limited (supra)
E , 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 proceedings with the understandi.ng · and belief that the
proceedings are governed under the 1996 Act. In the award itself the arbitrator
F 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
G emphasis thereon observed :
"Further, the part ofth.e 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
H proceedings have commenced under the old Act, they should be
-~.
MILKFOOD LTD. i·. GMC ICE CREAM (l'I LTD. [SINHA JI 895
.' ,. conducted under the new Act as soon as the new Act comes into A
operation. Hence, in the proceed.ings 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 :
B
"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. C
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 D
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 E
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 F
learned counsel. for the appellant."

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

"The aforesaid di~cussion only deals with the contention that parties G
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 H
896 SUPREME COURT REPORTS [2004] 3 S.C.R.

otherwise agreed''. The Court held that such agreement could be .., '
A
entered inlo even before coming into force of the new Act. However,
it nowhere lays down that in a pending arbitra/ proceeding, which
was being conducted as per the procedure prescribed under the old
Act, the parties have option of changing the procedure."

B (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 :
c 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 circuinstances
D of this case, we are of the opinion that although the old Act \\ould 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 olJ Act. We
hope and trust that the award shall be made and all the legal proceedings
E shall come to an end at an early date and preferably within a period of four
months from the date of communication of this order. This order has been
passed in the interest of justice and in the peculiar facts and circumstances
of th is case.

We are, however, of the opinion that the High Court of Delhi has
F 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.

KAPADIA, J. The question for consideration in the present appeals
is - as to whether the Arbitration Act, 1940 (hereinafter referred to as "the
G 1940 Act") would apply in the facts and circumstances of the case or whether
the case will have to be dealt with under the Arbitration & Conciliation Act,
1996 (hereinafter referred to as "the 1996 Act")?

Briefly, the facts of the case are as follows. The pa1ties hereto entered
G into an agreement on 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
•
I

MILKFOOD LTD. v. GMC ICE CREAM (P) LTD. [KAPADIA . .I.] 897
t,.
on behalf of the appellant. The agreement was to remain val id for five years. A
Admittedly, the contract contained an arbitration agreement being clause 20
thereof which is as under:

"In the 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 B
therein or the rights and liabilities of the Company or the Manufacturer
·'1 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 C
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 D
modification or re-enactment."

On the strength of this agreement dated 7.4.1992, the respondent herein
filed title suit No.40 of 1995 on 20.5.1995 for an injunction restraining the
appellant herein from disturbing manufacture and supply of ice cream. In the
said suit, the appellant applied for stay of suit vide application dated 17. 7.1995 E
under section 34 of the 1940 Act. By order dated 3.8.1995, the trial Court
stayed the suit. Being aggrieved, the respondent herein filed an application
before Additional District Judge, Gaya, which was dismissed on 13.3.1996.
Aggrieved. the respondent herein carried the matter in revision to the High
Court which was disposed of on 6.5.1997 in terms of the following order:
F
''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 has chosen Shri Uday Sinha, a retired judge of
this court and Senior Advocate of the Supreme Court, while the
defence have chosen Shri Hari Lal Agarwal, Senior Advocate of the
Supreme Court, a fonner judge of this court and Chief Justice of G
Orissa High Court as arbitrators. The dispute between the parties is
referred to arbitrators.

I hope that the learned Arbitrators will dispose of the arbitration
proceedings within three months of the entering the reference.''
H
898 Slll'REME COURT REPORTS (2004] 3 S.C.R.
'I '
A The above order is a consent order by which application for stay of the
suit stood disposed of. Pursuant to the consent order. the arbitrators nominated
by the respective parties in turn appointed an umpire. On 19.8.1997, the
parties were asked to appear. The respondent was called upon to file statement
of claim. An issue arose for determination at that stage as to which of the two
Acts applied to the arbitration. On behalf of the appellant it was submitted
B that application under section 34 of the 1940 Act constituted a request to
refer the matter to the arbitration and consequently the request marked the
commencement of the arbitration proceedings. This argument was rejected
... '
by the arbitrators on the ground that a proceeding under section 34 of the
1940 Act was essentially a defence to the suit and it did not amount to
c referring a claim to arbitration. It was further held that the arbitration
commenced in the present case when the claim was referred to the arbitrators
on 6.5.1997. In this connection, reliance was placed on the provisions of
section 85(2)(a) of the 1996 Act. 1t was further held that the order dated
6.5.1997 was a consent order and consequently, the arbitration proceedings
commenced only after the said order which was passed after the new Act
D came into force. At this stage, it may be pointed out that in the course of
hearing before the arbitrators and before the decision could be given on the
above question, the appellant herein filed an application before the arbitrators
dated 7.3 .1998 enclosing notice dated 14. 9.1995 served by the appellant on
the respondent herein whereby the appellant had appointed Mr. H.L. Aggarwal
E as their arbitrator and by which notice, the respondent herein was called upon
to appoinl their own arbitrator in terms of clause 20 quoted above. In the
application dated 7.3.1998, the appellant submitted that in view of the above
notice dated 14.9.1995, the arbitration proceedings had commenced under
the 1940 Act. By majority decision, the arbitrators took the view that the said
notice dated 14.9.1995 did not make any difference to the question of ~

F commencement of the arbitral proceedings in view of the provisions of section ;...

85(2)(a) of the 1996 Act as there was a clear and explicit agreement between
the parties recorded in the consent order dated 6.5.1997. It was held that in
relation to arbitration proceedings which commenced before the I996 Act,
parties were free to agree as to when arbitration proceedings are to be regarded
G as commenced for the purposes of section 85(2)(a) of the 1996 Act and since

~
there was such an agreement in the consent order dated 6.5.1997, the arbitration
proceedings had commenced under the 1996 Act. It was further held that by ~~

I
order dated 6.5.1997 passed by the High Court, the arbitration was set in
motion by the parties when they 110111 inated their respective arbitrators and
the Court ordered that the dispute between the parties be referred to the
H
MILKFOOD LTD. 1·. GMC ICE CREAtvt (P) LTD. [KAPADIA . .!.] 899

",. arbitrators and that the arbitration proceedings be disposed of within three A
months of entering upon the reference. It was held that arbitration commenced
when there was a completely constituted arbitration Tribunal to decide the
dispute, which on facts took place only after the 1996 Act commenced. It
was further held that the notice dated 14.9.1995 served by the appellant was
a non-staiter and that such a notice did not commence arbitral proceedings
in terms of section 85(2) of the 1996 Act. Consequently, by majority decision, B
it was held that the consent order dated 6.5.1997 marked the commencement

.' ..,. of the arbitral proceedings and, therefore, the 1996 Act was applicable .

One of the learned arbitrators, Mr. H.L. Aggarwal in his dissenting
opinion held that the arbitration proceedings commenced in the present case
when the notice dated 14.9.1995 was issued by the appellant to ti1e respondent.
c
In this connection, he placed reliance on section 37(3) of the 1940 Act.
Questioning the majority decision of the arbitrators, the appellant herein
moved an application under section 33 of the 1940 Act in the High Court.
A learned single Judge of the High Court held that in the present case the
disputes were referred to for arbitration only on 6.5.1997 and, therefore, the D
parties have to be governed by the provisions of the 1996 Act. The Letters
Patent Appeal preferred therefrom was also dismissed by a five-Judge Bench
of the High Court as not maintainabk.

Mr. Harish Salve, learned senior counsel appearing on behalf of the
appellant submitted that having regard to the fact that the notice appointing E
the arbitrator had been served by the appellant upon the respondent as far
back as 14.9.1995 in terms whereof the arbitration proceedings commenced,
the 1940 Act was applicable in the instant case. Referring to section 21 and
section 85 (2) (a) ofthe 1996 Act, it was urged that there are well known
expressions in arbitral proceedings being "commencement of the arbitration F
f proceedings", "continuance of arbitration proceedings", "entering into
reference", which in different context could carry different meanings. The
""' Parliament however in the 1996 Act has chosen to use the expression
"commencement of arbitral proceedings", in section 21 the meaning thereof
as is understood in common parlance should be applied. Strong reliance in
this connection was placed on the decision of Queen's Bench Division in G
Charles M. Willie & Co. (Shipping) Ltd v. Ocean Laser Shipping Ltd, ( 1999)
./ 1 Lloyds Law Report 225] .
~-- ......

Learned counsel for the appellant further submitted that there was a
conflict in the decision of the two-Judge Benches of this Court as regards the
H

j
900 SUPREf\IE COURT REPORTS !~004J 3 S.C.R.
-
A construction of the arbitration agreement as contained in clause 20 thereof
1 i.H1-ris the appli.:ability of the 1996 Act. In this connection. my attention

was drawn to the decision of this Coult in the case NS. Nayak and Ors. v.
Stub! of <Jou, [2003] 6 SCC 56. wherein allegedly a different note has been
struck from an earlier d10cisio11 of this Co mt in Delhi Transport Corporation
Ltd v. Rose Adrertising. (2003] 6 SCC 36.
B
Per contra, Mr. R.K. Jain, learned senior counsel appearing on behalf
of the respondent urged that having regard to the object of 1996 Act. as also
in view of the fact that the arbitrators had already entered into the reference
pursuant to the consent order dated 6.5.1997, this Court may not interfere
l' 1' itli the impugned judgment in exercise of jurisdiction under Altic le 136 of
thl' Constitution. Strong reliance was placed on the judgment of this Coult in
the case Chandra Singh v. State of Rajasthan, (2003] 6 SCC 545.

It was next contended that a proceeding commences in the Coult of law
when a plaint is filed and by analogy an arbitration proceeding must be held
O to be initiated when a claim petition is filed hy the claimant before the
arbitrator; that before a proceeding is said to be initiated before a Court or
Tribunal, the existence of such Tribunal was a condition precedent for initiation
of proceedings. The learned counsel, therefore, contended that for purposes
of detem1ining the point of time ''when an arbitration proceeding commences'',
an arbitral Tribunal must be constituted. Reliance in this connection was
F pla;,.ed Jn the judgment of this Court in the case of Secy. to Government of
Uri.1';J v. Sarbesll'ar Rout, repolted in (1989] 4 SCC 578. It was further
submitted that an arbitrator enters into a reference when he applies his mind
lo the differences and disputes between the palties and not prior thereto.
Alternatively, it was submitted that the proceeding commences when the
F arbitrator enters upon the reference. Reliance was placed on the judgment of
this Coult in the case Sumitomo Heavy Industries ltd. v. ONGC ltd. repolted
in (1998] I SCC 305. It was further submitted that in any event, the starting
point for commencement of the arbitration proceedings would be when the
dispute was referred to by the High Court on 6.5.1997 and not prior thereto.

G Learned counsel for the respondent contended 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 with and subject to the provisions of the
1940 Act or any statutory modifications or re-enactment thereof, they must
be deemed !o have agreed that new Act shall apply. Strong reliance has been
placed on the judgment of th is Court in the case of Thyssen Stahlunion
H
MILKFOOD LTD. r. GMC ICE CREAM (P) LlD. jKAPADIA. .1.l 90 I

GMBH v. Steel Awhority offndia Lid.• reported in [1999] 9 sec 334. Delhi A
Transport Corporation Ltd (supra) and NS Nayak (supra). Lastly, it was
submitted that section 37 of the 1940 Act, being for the purposes of
commencement of the period of limitation, had no application whatsoever for
the purposes of determining the question as to whether the 1940 Act will
apply or the 1996 Act will apply.
B
I may now notice the provisions of the 1940 Act. Section 2 defines
arbitration agreement to mean a written agreement to submit present or future
'> ~
dispute to the arbitration, whether an arbitrator is named therein or not.
'
Section 2(e) defines "reference" to mean reference to arbitration. Therefore,
the term "arbitration agreement" is different from the tenn "reference". "An
agreement to refer" and "a reference" are two separate transactions while an
c
arbitration agreement is only a contract to refer, reference is delegation of
authority to a named arbitrator. Section 8 confers power upon the Court to
appoint arbitrator where the parties concurred in the appointment of an
arbitrator. In such a case, after the Court appointed an arbitrator, it is the
parties who referred the dispute to him. On the other hand, section 20 enabled D
a party to apply for filing of the arbitration agreement in the Court and that
section empowered the Court to make an order of reference to the arbitrator
appointed by the parties and in the absence of such appointment, the Court
was empowered to make an order of reference to the arbitrator appointed by
it. In other words, under section 20, unlike section 8, it is the Court which
referred the dispute. In the case of Fertilizer Corporation of India Limited v.
E
Mis Domestic Engineering fnstaffation, reported in AIR (1970) Allahabad
31, it has been held that under section 20(4), three courses were open to the
Court. After the arbitration agreement was ordered to be filed, the Court shall
proceed to make reference, firstly to the arbitrator appointed by the parties
in the agreement, secondly to the arbitrator not named in the agreement but F
with regard to whom the parties agreed otherwise, and thirdly when the
pa1iies did not agree upon an arbitrator, to an arbitrator appointed by itself.
This difference between Sections 8 and 20 was important as under section 48
of the 1940 Act, it was provided that the Act shall not apply to any reference
pending at the commencement of the said Act, to which the law in force
immediately prior to the commencement shall continue to apply G
notwithstanding any repeal effected by the Act. Section 48 was a transitory
'~ provision in which the emphasis was on "reference". Section 48 of the 1940
Act which corresponded to Section 25 of the English Arbitration Act 1899
was a subject of debate in larger number of matters as different dates for
different stages of arbitration proceedings were provided for. H
902 SUPREME COURT REPORTS [2004] 3 S.C.R.

A Since transitory provision is to be interpreted in the light of facts and
circumstances existing on the date the new Act coming into force. section 21
and 85(2) of the 1996 Act are quoted below:

"21. Commencement of arbitral proceedings. Unless otherwise agreed
by the paities. the arbitral proceedings in respect of a particular dispute
B commence on the date on which a request for that dispute to be
referred to arbitration is received by the respondent.

85. Repeal and savings. (1) ..... .. ~ (
'
(2) Notwithstanding such repeal,
c (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;
D (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."

E A bare reading of section 21 of the 1996 Act indicates that arbitral
proceedings in respect of a dispute commences on the date on which request
to refer such dispute to arbitration is received by the respondent, unless
otherwise agreed by the parties. Section 21 is similar to section 14 of the
English Arbitration Act 1996 which provides that parties are free to agree as
to when an arbitration is to be regarded as commencing both under the
F Arbitration Act 1996 and for limitation purposes. In the absence of such
agreement, Section 14 of that Act applies. Russell on Arbitration, [XXll Ed.
Page 165] says as follows:-

"Commencement for limitation purposes. The parties are free to agree
when an arbitration is to be regarded as commencing both under the Arbitration
G Act 1996 and for limitation purposes. In the absence of agreement the
provisions of Section 14 of the Arbitration Act 1996 apply. Under that Section
an arbitration is treated as being commenced when a notice in writing is
served on the other party requiring him to agree to the appointment of an
arbi,rator or, if the parties are each to make an appointment, requiring him
H to appoint an arbitrator. The party giving the notice does not have to have
I
~

MILKFOOD LTD. r. GMC ICE CREAM (Pl LTD. [KAPADIA . .I] 903
already appointed his own arbitrator. Where, however, the arbitration A
agreement specifies the person to be appointed as arbitrator, the arbitration
is treated as being commenced when a notice in writing is served on the other
party requiring him to submit the dispute to that person. Finally, ifthe arbitrator
is to be appointed by someone other than a pai1y to the arbitration proceedings,
such as an arbitral institution, the arbitration is trea~~d d~ being commenced
when notice in writing is given to that other person requesting him to make B
the appointment. It is prudent to send to the responuent a copy of the notice
addressed to the person requested to make the appointment as this may avoid
arguments about when the notice was given."

In the present matter, one is concerned with transitional provision, i.e. C
section 85(2)(a) which enacts as to how the statute 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 (see Principles of Statutory lnterpre/ation by G. P.
Singh 8th Ed. Page 188). In Thyssen 's case (supra), Section 48 of the old Act
and Section 85(2)(a) of the 1996 Act came for consideration. It has been held D
by this Court that there is a material difference between section 48 of the
1940 Act, which emphasized the concept of "reference" vis-a-vis section
y
85(2)(a) of the 1996 Act which emphasizes the concept of"commencemenf';
that there is a material difference in the scheme of two Acts; that the expi;ession
"in relation to" appearing in Section 85(2)(a) refers to different stages of E
arbitration proceedings under the old Act; and lastly that Section 85(2)(a)
provides for Iimited repeal of the 1940 Act. therefore, I am of the view that
one cannot confine the concept of 'commencement' under Section 85(2)(a)
only to Section 21 of the 1996 Act which inter a/ia provides for
commencement of arbitral proceedings-from the date on which a request to
refer a particular dispute is received by the respondent. In this connection, I F
may usefully quote commentary on "Commercial Arbitration" (2nd Edition,
page 169) by Mustil/ & Boyd which reads as under:

"It is common to use expressions such as 'a notice of arbitration'
or 'the commencement of an arbitration' as if they had the same
meaning for all purposes, in the context of all the various possible G
types of agreement to arbitrate. This is misleading. for when enquiring
whether SU fficient steps have been taken to set an arbitration in train,
the answer may depend on the reason why the question is being
asked. There are several different reasons why it may matter when
the arbitration has begun. Of these, the following are probably the H
I
~

904 SllPREME COURT REPORTS [200-1] 3 S.CR.

A most important.

First, the question may be whether. at a given moment. there is
any person or group of persons with jurisdiction to make an award.
and power to give directions and make rulings in the course of the
reference. For this purpose, what is being considered is whether the
B arbitration has reached the stage where there is a completely constituted
arbitral tribunal.

Second, the problem may relate to the jurisdiction of the arbitrator.
Thus, if there is a general reference of disputes the scope of the
reference will be determined by the state of the disputes at the moment
C when the arbitration was begun. Disputes arising thereafter must be
the subject of a separate arbitration, unless brought within the existing
reference by consent.

Third, the purpose of the enquiry may be to ascertain whether the
claimant has taken such steps as may be prescribed by statute or
D contract for the purpose of preventing his claim from being time
barred.

Finally, it may be necessary to consider whether one party has
taken sufficient steps towards setting the arbitration in motion to give
him certain procedural advantages in the appointment of the tribunal:
E either as a preliminary to appointing his own nominee as sole arbitrator.
or at least by way of preventing the other party from exercising his
statutory right to make, or procure. a nomination in default.

It is plain that expressions such as 'the commencement of the
arbitration' must have different meanings in these various contexts.
F For example, the giving of a notice to concur in the appointment of
a sole arbitrator is sufficient to prevent time from running under the
Limitation Act 1980; and it is also an essential first step towards the
making ofa default appointment under section IO(a) of the Arbitration
Act. But the arbitration has not at this stage 'commenced' in any
practical sense, since there is no person or group of persons charged
G
with any authority to determine the matters in dispute."

Therefore, the position in law is that before the English Arbitration Act
1996, the expression "commencement of arbitration proceedings" depended
upon the facts of each case. There was no single co~clusive test to determine
H "commencement". In a case, where it was necessary to consider whether one
MILKFOOD LTD. r. GMC ICE CREAM (P) I.TD. [KAPADIA . .I.] 905

I_,. party had taken sufficient steps for setting arbitration in motion, the cou11 has A
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 expression "commencement of arbitration proceedings" had different
meanings in various contexts. The learned authors have further observed that
although notice to concur is an essential step, arbitr'tio .. proceedings cannot
be said to have commenced in practical sense till tribunal charged with B
authority stood duly constituted. It is for this reason tha: English Arbitration
Act 1996 now provides under Section 14 that commencement will take place
from the date when notice to concur is served. This view is supported by the
judgment of the division bench of this Court in Delhi Transport Corporation
Ltd. (supra), in which a similar question was raised. In that matter, the parties C
had entered into an agreement on 15.1.1993 for display of advertisement on
OTC buses in Delhi. The agreement was for a period of three years
commencing from 15.1.1993. The agreement contained an arbitration clause.
Disputes arose between the parties. A request was made by the contractor on
9.1.1995 for appointment of arbitrator to settle the disputes. This was followed
by another letter dated 26.11.1995 containing a similar request. On 16.1.1996, D
he filed a petition under section 20 of the 1940 Act. The counsel appearing
for OTC made a statement in the court on 19.7.1996 that an arbitrator had
been appointed on 4. 7.1996 as per the agreement. The petition became
infructuous in view of that statement. The arbitrator conducted the proceedings
and made an award on 6.10.1998. To enforce the award, the contractor filed E
an application under 1996 Act. The OTC contested that application on the
ground that the 1996 Act was not applicable and, therefore, the execution
petition was not maintainable. The contention of the OTC before the High
Court was that the proceedings had commenced under the old Act. This
objection was upheld by the learn~d single Judge based on the view that the
arbitration proceedings had commenced on the date when request for F
appointment of arbitrator was made which was prior to 16.8.1996 when the
new Act came into force. The contractor went in appeal. The division bench
of the !iigh Court found on facts that the parties went for arbitration with
clear understanding that the proceedings would be conducted under the new
Act, particularly when the appointment of arbitrator was made after the new G
Act had come into force and particularly when the pa11ies had participated in
the arbitration proceedings with the understanding that the proceedings would
be governed by the new Act. Hence, the High Court decided the matter in
favour of the contractor. Aggrieved, the DTC came in appeal to this Court.
This Court found on facts that the arbitration clause, which is identical to the
clause in the present case, showed that the parties had agreed to be governed H
906 SUPREME COlJRT REPORTS [2004\ 3 S.C.R.

A by the law in force at the relevant time and such arbitration clauses were ..,_,
recognised under the new Act. This Cou11 fu1ther found from the conduct of
the arbitration proceedings and the participation of the parties therein that the
parties had agreed to proceed under the 1996 Act and, accordingly, this Cou1t
upheld the judgment of the division bench of the High Court. In my view the
said judgment applies to the present case. The point to be noted is that while
B construing Section 85(2) of the 1996 Act. which is a transitional provision,
the terms of the arbitration clause and the conduct of the parties were taken
into account. Therefore, interpretation of Section 85(2)(a) cannot be confined
to section 21 of the 1996 Act. However. in cases where the new Act is ~ '
applicable one has to go by section 21 and in which case arbitration
C proceedings will commence from the date when request is received by the
respondent for referring the dispute to arbitration, unless the parties have
agreed to the contrary.

In the case of NS. Nayak (supra), this court held that even in cases of
pending arbitration proceedings the parties had an option of changing the
D procedure so as to be governed by the provisions of the 1996 Act.
In the case of Charles M. Willie & Co. (Shipping) Ltd. (supra), the facts
were as follows. By a memorandum of agreement dated April I, 1990, Charles
M. Willie & Co. (Shipping) Ltd. sold their vessel to Ocean Laser Shipping
Ltd. The MOA provided for an arbitration clause, which inter a/ia stated that
E if any dispute arises in connection with the contract, the same shall be decided
by a single arbitrator and if the parties did not agree on the appointment of
a single arbitrator, the dispute shall be settled by three arbitrators, each party
appointing one arbitrator, the third to be appointed by London Maritime
Arbitrators Association. On 21.11.1990, Willie received a letter from solicitor
F of Ocean Laser Shipping Ltd. enquiring about an engine stoppage in January,
1988. Consequently, the dispute started. On 12.3.1992, Ocean Laser Shipping
Ltd. through their solicitor invited Willie & Co. to agree on the appointment
of a single arbitrator and further stated that in the event of Willie & Co. 's
failure to nominate its arbitrator by 3.4.1992, Ocean Laser Shipping Ltd.
appointed one Mr. Kazantzis as an arbitrator. On 5.11.1993, Ocean Laser
G submitted their claim before the arbitrator. On 18.2.1994, points of defence
were filed. One of the points which arose for determination was as to when
the arbitration could be said to have commenced. Taking a clue from section
34(3) of the Limitation Act, 1980 which provided that an arbitration should
be treated as having been commenced when one patty served on the other
H party a notice requiring him to agree to the appointment of an arbitrator, it
. >'-1

MILKFOOD LTD. r. GMC ICE CREAM (Pl LTD. [KAPADIA . .!.] 907

was held by Queen's Bench that commencement took place from receipt of A
such notice. This judgment has no application to the facts of the present case.
The present case involves interpretation of transitional provisions, which was
not in issue in the said judgment. Further, the judgment of Queen's Bench
was based on provisions of Limitation Act, by analogy. Further, the judgment
of Queen's Bench was delivered under the Arbitration Act, 1996 under which
the parties are free to agree when arbitration is to be regarded as having B
commenced both under the said Act and for limitation purposes and that in
the absence of the agreement, the provisions of Section 14 of the English
Arbitration Act, 1996 were to apply.

To sum up, in this case, the question concerns interpretation of
transitional provisions; that section 85(2)(a) emphasizes the concept of C
"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 meanings in different contexts; and
for the said reasons, I am of the view that while interpreting section 85(2)(a) D
in the context of the question raised in this appeal, one cannot only rely on
Section 21 of 1996 Act.

In the light of what is stated above, I now refer to the facts of the
present case. The parties entered into an agreement on 7.4.1992 which
contained an arbitration clause 20, which inter alia stated that in the case of E
dispute between the parties arising in relation to the contract, the dispute
shall be referred to a single arbitrator, i11 case both sides agree upon one such
arbitrator and failing such agreement, the dispute shall stand referred to two
arbitrators, one to be appointed by either party, and in case of disagreement,
between the two arbitrators, the dispute was to be referred to an umpire to F
be appointed by the two arbitrators. Before entering upon the reference under
clause 20 quoted above, all such arbitration proceedings were to be governed
by provisions of the Arbitration Act, 1940 or under any statutory re-enactment.
This clause is similar to the one considered by this Court in the case of Delhi
Transport Corporation Ltd. (supra). On the strength of the agreement dated
7.4.1992, the respondent herein filed title suit No.40 of 1995 for injunction G
and in the said suit, the appellant herein 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 chosen by the parties as per the agreement. A consent
order was accordingly passed on that day by the High Court referring the H
908 SUPREME COURT REPORTS 1200-ll 3 S.C.R.

A dispute to the arbitrators. Therefore. for all practical purposes, the arbitration
commenced on 6.5.1997. by which time the 1996 Act had come into force.
In the circumstances, I am in agreement with the majority decision of the
arbitrators that the proceedings in the present case would be governed by the
provisions of the 1996 Act.

B For above reasons, I respectfully dissent from the opinion of Sinha, J.
Consequently I am of the view that this Civil Appeal ought to fail and be
dismissed with no order as to costs.

CIVIL APPEAL Nos. 9673-9674 OF 2003

C Now coming to the Civil Appeal Nos.9673-9674 of 2003, the facts
briefly are as follows. On 6.4.1998, the learned arbitrators by majority decision
took the view that in the present case the arbitration proceedings had
commenced on 6.5.1997 when a consent order was passed by the Patna High
Court and, therefore, the proceedings were governed by the 1996 Act.
Aggrieved, the appellant herein had moved the single Judge of Delhi High
D Court. By order dated 13. l 0.1998, the learned. single Judge of the High Court
was pleased to uphold the majority decision dated 6.4.1998. Being aggrieved,
the appellant ca.ried the matter in Letters Patent appeal which was dismissed
as not maintainable. Having regard to the provisions of Section 39 of the
1940 Act as interpreted by this Court in the case of Union of India v. Mahindra
E Supply Company, reported in AIR ( 1962) SC 256 second appeal, which
included Letters Patent appeal under section 39(2), was not maintainable.
Accordingly, the civil appeal Nos. 9673-74 of 2003 fail and are dismissed,

There shall be no order as to costs in all the appeals.

F ORDER

In view of the majority judgment, Civil Appeal No. 9672/2003 is
allowed.

Civil Appeal Nos. 9673-9674/2003 arc dismissed.
G
No costs.

S.K.S. C.A. No. 9672/2003 is allowed.
C.A.Nos. 9673-9674/2003 are dismissed.