Annual Arbitration Review 2018

Purushottam S/o Tulsiram Badwaik v. Anil & Ors.

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Citation: Civil Appeal No.4664 of 2018

Coram: Uday Umesh Lalit, Arun Mishra

Date: 2ndMay, 2018

Overview:

The Supreme Court observed that even if an arbitration agreement entered into after the 1996 Act had come into force were to make a reference to the applicable provisions of those under the 1940 Act, these references would not be considered and only the 1996 Act would be referred to. Moreover, the Court also held that an incorrect reference regarding the applicability of the 1940 Act would by itself not invalidate the entire arbitration agreement.

Facts:

The two parties entered into a partnership agreement which contained an arbitration clause which made references to the 1940 Act even though the agreement itself was entered into post the enforcement of the 1996 Act. When a dispute arose and a civil revision appeal was filed in the Bombay High Court, the Court was of the opinion that the agreement referred to the 1940 Act even though it was entered into after the 1996 Act came into existence. It further opined that there existed a bar against an agreement which applied the 1940 Act even after the commencement of the 1996 Act.

Issue:

Where would the reference to the 1940 Act would invalidate the entire arbitration agreement?

Judgement:

In this case, the Court held that the High Court had erred in its decision to not refer the dispute for arbitration simply because the agreement referred to the 1940 Act even though the agreement was entered into after the commencement of the 1996 Act. The Court relied on the judgement in MMTC Limited[1]in order to emphasize that the objective of the Act was to encourage alterative means of dispute resolution and to discourage litigation. The Court also interpreted Section 7[2]and Section 85[3]of the 1996 Act in order to establish that an incorrect reference or recital to the 1940 Act would not render the entire agreement to be invalid.

Conclusion:

The Court in the present case analysed the objective of the Arbitration and Conciliation Act which is to promote alternative means of dispute resolution. Due to this, the Court held that an incorrect reference to the 1940 Act was by itself not severe enough to render the entire arbitration agreement invalid.

[1]MMTC Limited vs. Sterlite Industries (India) Ltd. (1996) 6 SCC 716

[2]Arbitration and Conciliation Act, 1996 (India)

[3]Arbitration and Conciliation Act, 1996 (India)

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