On May 2, 2018, the Supreme Court of India passed a judgment in the matter of Purushottam Vs. Anil and Ors. (SLP (Civil) No. 14589 of 2016).

Issue

Whether there is a bar to the application of 1940 Act after the 1996 Act came into force?

Facts in brief

The Appellant and the Respondents had entered into a Partnership Agreement dated November 9, 2005. Clause 15 of said Partnership Agreement was as under: “15) That in case of any dispute between the partners as regards interpretation of this Deed or any other matter connected with the partnership business, the same shall be referred to for arbitration in accordance with the provisions of Indian Arbitration Act, 1940, and the decision of the Arbitrator shall be final and binding on all the partners.”

The Appellant filed an application under Section 8 of the Arbitration and Conciliation Act, 1996. The Trial Court rejected said application by its order dated January 5, 2015. It was held that aforesaid Clause 15 was vague, that there was no reference as to who should be the arbitrator, that there was no mention about selection of the arbitrator and that the dispute did not form subject matter of agreement within the meaning of Section 8 of 1996 Act. 

The Appellant thereafter, filed a Civil Revision Application at the High Court wherein it was observed that there is a bar to agree to the applicability of the Act of 1940 after the Act of 1996 has come into force. 

Judgement

The Supreme Court held that “It would be farfetched to come to the conclusion that there could be no arbitration at all. What is material for the purposes of the applicability of 1996 Act is the agreement between the parties to refer the disputes to arbitration. If there be such an arbitration agreement which satisfies the requirements of Section 7 of 1996 Act, and if no arbitral proceeding had commenced before 1996 Act came into force, the matter would be completely governed by the provisions of 1996 Act. Any reference to 1940 Act in the arbitration agreement would be of no consequence and the matter would be referred to arbitration only in terms of 1996 Act consistent with the basic intent of the parties as discernible from the arbitration agreement to refer the disputes to arbitration.”