In the instance case, the dispute resolution clause of the agreement referred to arbitration as per the provisions of the Indian Arbitration Act 1940. The Partnership Agreement between the appellant and respondent was entered into after the enactment of the Arbitration and Conciliation Act 1996 which repealed the 1940 Act. The Trial Court had rejected the application under Section 8 of the 1996 Act stating that the arbitration clause was vague and the dispute did not form a part of the subject matter of the Partnership Agreement which was in dispute. The Revision Application filed before the Nagpur Bench of the Bombay High Court also dismissed the appeal stating that the dispute resolution clause gave reference to the 1940 Act and further gave reference to the judgment given by the Supreme Court in the Thyssen Stahlunion GMBH case. The primary question of law to be answered was whether mere reference to the 1940 Act would render an arbitration agreement invalid?
The Bench consisting of Justice Arun Mishra and Justice UU Lalit opined that the High Court had made an incorrect interpretation of the Thyssen judgment as it was held that if the arbitration proceedings had not commenced before the 1996 Act came into existence, the parties cannot proceed with the agreement under the provisions of the 1940 Act. The Bench made the following observation:
“These observations do not in any way suggest that, “if the arbitral proceedings had not commenced under the Act of 1940 till the Act of 1996 came into force, the same could not be commenced thereafter”. All that these observations indicate is that in such cases there cannot be applicability of 1940 Act and not, and we repeat, that there can be no arbitration at all”
Furthermore, concluding on its decision for the present appeal, the Bench submitted conclusively as to the incorrect reference to the 1940 Act with reference to the case in MMTC Ltd as follows,
“………..On the same reasoning even if an arbitration agreement entered into after 1996 Act had come into force were to make a reference to the applicable provisions of those under Indian Arbitration Act or 1940 Act, such stipulation would be of no consequence and the matter must be governed under provisions of 1996 Act. An incorrect reference or recital regarding applicability of 1940 Act would not render the entire arbitration agreement invalid.”
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