Sub-section (1) of Section 85 of the Arbitration and Conciliation Act, 1996 repealed three enactments including the Arbitration Act, 1940. Sub-section (2) stipulates, inter alia, that notwithstanding such repeal, the repealed enactment, namely, the 1940 Act would continue to apply in relation to arbitral proceedings which had commenced before the 1996 Act came into force unless the parties were to agree otherwise. The second limb of first clause of said sub-section (2) further stipulates that notwithstanding such repeal, the provisions of the 1996 Act would apply in relation to arbitral proceedings which commenced on or after the 1996 Act came into force.
As is clear from MMTC Ltd. v. Sterlite Industries (India) Ltd., (1996) 6 SCC 716, what is material for the purposes of the applicability of the 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 the 1996 Act, and if no arbitral proceeding had commenced before the 1996 Act came into force, the matter would be completely governed by the provisions of the 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 the 1996 Act consistent with the basic intent of the parties as discernible from the arbitration agreement to refer the disputes to arbitration.
In situations where the relevant clause made reference to the applicability of “the provisions of the Indian Arbitration Act and Rules made thereunder” as was the case in MMTC Ltd. v. Sterlite Industries (India) Ltd., (1996) 6 SCC 716, on the strength of Section 85(2)(a) the governing provisions in respect of arbitral proceedings which had not commenced before 1996 Act had come into force would be those of the 1996 Act alone. On the same reasoning 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 Indian Arbitration Act or the 1940 Act, such stipulation would be of no consequence and the matter must be governed under the provisions of the 1996 Act. An incorrect reference or recital regarding applicability of the 1940 Act would not render the entire arbitration agreement invalid. Such stipulation will have to be read in the light of Section 85 of the 1996 Act and the principles governing such relationship have to be under and in tune with the 1996 Act. Purushottam v. Anil, (2018) 8 SCC 95.