Amitava Lala, J. - (1.) THIS appeal has been preferred by the State of U.P. under Section 39 of the Arbitration Act, 1940 (hereinafter in short called as the 'Act, 1940') challenging the judgement and order dated 20th February, 2001 passed by the learned District Judge, Bulandshahar in Original Suit No. 6 of 2000 (State of U.P. Vs. Allied Construction) under Section 34 of the Arbitration and Conciliation Act, 1996 (hereinafter called as the 'Act, 1996'). By the order impugned the Court below dismissed the application for setting aside the arbitral award dated 08th May, 1998 passed by one Sri K.K. Sahanan, Chief Engineer, Irrigation Department, U.P.
(2.) THE State-appellant has already acted upon the award by paying the principal sum, so determined by the arbitrator, to the respondent-contractor but raised a dispute with regard to interest. As per the award, rate of interest for the pre-reference period is fixed @ 15% per annum, whereas for the pendente lite and subsequent period is fixed @ 18% per annum. At the initial stage when the appeal was not open for hearing, a prayer was made by the State appellant to reduce the rate of interest though as per Section 31 (7)(b) of the Act, 1996, a sum directed to be paid by an arbitral award shall, unless the award otherwise directs, carry interest @ 18% per annum from the date of the award till the date of payment. However, without prejudice to the rights and contentions of the parties at that stage, we had called upon the respondent-contractor whether he is ready and willing to compromise with the State by accepting any reduced rate of interest or not, to which it agreed. Time has been granted to the State accordingly. Hearing of the appeal was postponed for a considerable period but the State never come forward with any proposal, on the contrary, wanted to contest the cause without any settlement, as a result whereof we have called upon the parties to make their respective submissions. The moot point as argued by the State appellant is whether the proceeding which continued before the arbitrator under the Act, 1996 as per the agreement between the parties in accordance with Section 85 (2) (a) of the Act, 1996 is binding upon the parties only for the arbitration proceedings before the arbitrator or also for the proceedings before the Court arising out of said proceeding.
(3.) ACCORDING to the appellant, the arbitration proceeding commenced on 03rd March, 1995/25th March, 1995 i.e. prior to coming of the Act, 1996 in force. Therefore, as per Section 21 read with Section 85 of the Act, 1996 arbitration proceeding will be governed by the Act, 1940. The arbitration clause as referred to in Clause 52 of the general conditions of the contract speaks that the arbitration shall be conducted in accordance with the provision of the Act, 1940, or any statutory modification thereof. The decision of the arbitrator shall be final and binding on the parties thereto. Such arbitration clause of the agreement is as follows: "52. ARBITRATION : All the disputes or differences in respect of which the decision has not been final and conclusive shall be referred for arbitration to a sole arbitrator appointed as follows. Within thirty days of receipt of notice from the contractor of his intention to refer the dispute to arbitration the Chief Engineer, Irrigation Department shall send to the contractor a list of three officers of the rank of Superintending Engineer or higher, who have not been connected with the work under this contract. The contractor shall within fifteen days of receipt of this list- select and communicate to the Chief Engineer the name of one officer from the list who shall then be appointed as the sole arbitrator. If contractor fails to communicate his selection of name, within the stipulated period, the Chief Engineer shall without delay select one officer from the list and appoint him as the sole arbitrator. If the Chief Engineer fails to send such a list within thirty days, as stipulated, the contractor shall send a similar list to the Chief Engineer within fifteen days. The Chief Engineer shall then select one officer from the list and appoint him as the sole arbitrator within fifteen days. If the Chief Engineer fails to do so the contractor shall communicate to the Chief Engineer the name of one officer from the list, who shall then be the sole arbitrator. The arbitration shall be conducted in accordance with the provision of the Indian Arbitration Act, 1940, or any statutory modification thereof. The decision of the arbitrator shall be final and binding on the parties thereto. ......" Both the sections, being Sections 21 and 85 of the Act, 1996, are quoted hereunder: "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." "85. Repeal and saving.-- (1) The Arbitration (Protocol and Convention) Act, 1937 (6 of 1937), the Arbitration Act, 1940 (10 of 1940) and the Foreign Awards (Recognition and Enforcement) Act, 1961 (45 of 1961) are hereby repealed. (2) Notwithstanding such repeal,-- (a) the provisions of the said enactments shall apply in relation to arbitral proceedings which commenced before this Act came into force unless otherwise agreed by the parties but this Act shall apply in relation to arbitral proceedings which commenced on or after this Act comes in force; (b) all rules made and notifications published, under the said enactments shall, to the extent to which they are not repugnant to this Act, be deemed respectively to have been made or issued under this Act." According to the respondent, factually the Chief Engineer of the appellant authority appointed one Sri Raj Pal Singh, as sole arbitrator, on 25th March, 1993 under Clause 52 of the general conditions of contract. Said Sri Raj Pal Singh did not enter into reference, consequently the contractor had filed an application under Section 8 (1) (b) of the Act, 1940 before the appropriate Court when such appointment was made only on 05th August, 1997 i.e. after commencement of the Act, 1996. Hence, it is needless to mention that commencement of the arbitration proceeding is hit by Section 21 read with Section 85 of the Act, 1996.;