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IN THE HIGH COURT OF JUDICATURE AT BOMBAY
NAGPUR BENCH, NAGPUR.
LETTERS PATENT APPEAL NOS. 212/08 & 213/08
(1) LETTERS PATENT APPEAL NO. 212 OF 2008
M/s. Sandip Industries, a
partnership concern, duly registered
under the Indian Partnership Act,
having its registered office at No.7,
Kurunji Street, Bharati Nagar, RK
Nagar, Ariyankuppam, Pondicherry-
605007; through its Power of
Attorney Holder Mr. R.S. Gargig
S/o Shiv Kumar Garg, r/o 47, 3rd
Cross, Ananda Ranga Pillai Nagar,
Pondicherry-605008. .... APPELLANT.
....Versus....
1. M/s. Superpack, A division of
Bajaj Steel Industries Limited,
Imambada Road, Nagpur,
2. Shri Ashok Chandak, Arbitrator
appointed, aged - Major, Occupation:
Chartered Accountant, Registered
Office at - 205, Ghatate Chambers,
Panchsheel Square, Nagpur-12. .... RESPONDENTS.
(2) LETTERS PATENT APPEAL NO. 213 OF 2008
M/s. Jalan Industrial Corporation, a
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partnership concern, duly registered
under the Indian Partnership Act,
having its registered office at Todi
Corner, 32, Ezra Street, 7th Floor,
Kolkata; through its Power of
Attorney Holder Mr. R.S. Garg
S/o Shiv Kumar Garg, r/o 47, 3rd
Cross, Ananda Ranga Pillai Nagar,
Pondicherry-605008. .... APPELLANT.
....Versus....
1. M/s. Superpack, A division of
Bajaj Steel Industries Limited,
Imambada Road, Nagpur,
2. Shri Ashok Chandak, Arbitrator
appointed, aged - Major, Occupation:
Chartered Accountant, Registered
Office at - 205, Ghatate Chambers,
Panchsheel Square, Nagpur-12. .... RESPONDENTS.
Mr. R.S. Sundaram, learned Counsel for the appellants,
Mr. Shyam Dewani, learned Counsel for respondent no.1.
CORAM: ANOOP V. MOHTA & C.L. PANGARKAR, JJ.
DATED: JULY 8, 2008.
JUDGMENT (PER ANOOP V. MOHTA, J.)
These are the appeals under Clause 15 of the Letters Patent Act
whereby a challenge is made to a common order passed by the Single Judge of
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this Court in Writ Petition No. 3559/07 & 3563/07 dated 3.4.2008, that
resulted into confirmation of the order passed by the Arbitrator whereby an
application under Section 16(1) of the Arbitration & Conciliation Act, 1996
(“Arbitration Act” for short) has been rejected by holding that there exists an
arbitration clause in the agreement and the matter need not be referred to the
Civil Court for any such decision; the appointment of the Arbitrator is as per
agreement and lastly, the Arbitrator has jurisdiction to decide the present
dispute between the parties.
1)
The appellant, therefore, preferred Writ Petition No 3559/07. On
identical circumstances, there is another Writ Petition No. 3563/07 filed by the
appellant in Letters Patent Appeal No. 213/08. As the issues involved are
common and as the impugned judgment passed by the learned Single Judge is
also common, we are disposing of these two appeals together.
2) The basic clauses of agreement/agreements dated 21.4.2005 are as
under :-
“12.1 Clause-G :- It is also hereby agreed between the
representatives and the principal that in case, and if any, dispute or
difference arises between them in relation to and in connection with,
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4this agreement or about any of its term or its interpretation, than the
said dispute will be referred to the sole arbitrator appointed by the
Principal and the venue of arbitration will be only at Nagpur. The
decision of the sole arbitrator will be binding on the representative
and the principal.
12.2 Clause-H-Jurisdiction :- The parties hereto
unconditionally and irrevocably agree to submit to the exclusive
jurisdiction of the competent court in Nagpur only with regard to any
question or any matter arising out of this agreement and any other
document that may be executed by the parties hereto or any of them
in pursuance hereof or assign herefrom.”
3) Section 16 as relevant of Arbitration Act is reproduced as under :-
“16. Competence of arbitral tribunal to rule on its
jurisdiction:-
1) The arbitral tribunal may rule on its own jurisdiction, including
ruling on any objections with respect to the existence or validity
of the arbitration agreement, and for that purpose, —
a) an arbitration clause which forms part of a contract shall be
treated as an agreement independent of the other terms of the
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5contract; and
b) a decision by the arbitral tribunal that the contract is null
and void shall not entail ipso jure the invalidity of the
arbitration clause.
2) A plea that the arbitral tribunal does not have jurisdiction shall
be raised not later than the submission of the statement of
defence; however, a party shall not be precluded from raising
such a plea merely because that he has appointed, or participated
in the appointment of an arbitrator,
3) A plea that the arbitral tribunal is exceeding the scope of its
authority shall be raised as soon as the matter alleged to be
beyond the scope of its authority is raised during the arbitral
proceedings,
4) The arbitral tribunal may, in either of the cases referred to in
sub-section (2) of sub-section (3), admit a later plea if it
considers the delay justified.
5) The arbitral tribunal shall decide on a plea referred to in sub-
section (2) or sub-section (3) and, where the arbitral tribunal
takes a decision rejecting the plea, continue with the arbitral
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proceedings and make an arbitral award.
6) A party aggrieved by such an arbitral award may make an
application for setting aside such an arbitral award in accordance
with section 34.”
4) A Constitutional Bench of the Apex Court in SBP & Co. .vs. Patel
Engineering Limited & another reported in AIR 2006 SC 450, while dealing
with Section 11(6) & (7) and Section 16 of the Arbitration Act has observed as
under :-
“19. Section 16 is said to be the recognition of the
principle of Kompetenz-Komopetenz. The fact that the arbitral
tribunal has the competence to rule on its own jurisdiction and to
define the contours of its jurisdiction, only means that when such
issues arise before it, the Tribunal can and possibly, ought to
decide them. This can happen when the parties have gone to the
arbitral tribunal without recourse to Section 8 or 11 of the Act.
But where the jurisdictional issues are decided under these
Sections, before a reference is made, Section 16 cannot be held to
empower the arbitral tribunal to ignore the decision given by the
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7judicial authority or the Chief Justice before the reference to it was
made. The competence to decide does not enable the arbitral
tribunal to get over the finality conferred on an order passed prior
to its entering upon the reference by the very statute that creates
it……..”
5) A minority view in so far as interpretation and scope of Section 16
of the Arbitration Act, agreeing with the above scope and provisions of Section
16 of the Arbitration Act is as under :-
“94. Now, let us consider Section 16 of the Act. This
section is new and did not find place in the old Act of 1940. Sub-
section (1) of that section enables the Arbitral Tribunal to rule on
its own jurisdiction. It further provides that the jurisdiction of the
tribunal includes ruling on any objections with respect to existence
or validity of the arbitration agreement. Sub-sections (2), (3) and
(4) lay down procedure of raising plea as to the jurisdiction of the
Arbitral Tribunal and entertaining such plea. Sub-section (5)
mandates that the Arbitral Tribunal ‘shall decide’ such plea and,
‘where the arbitral tribunal takes a decision rejecting the plea,
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continue with the arbitration proceedings and make an arbitral
award’. Sub-section (6) is equally important and expressly enacts
that a party aggrieved by arbitral award may invoke Section 34 of
the Act for setting aside such award. The provision appears to
have been made to prevent dilatory tactics and abuse of immediate
right to approach the Court. If an aggrieved party has right to
move the Court, it would not have been possible to preclude the
Court from granting stay or interim relief which would bring the
arbitration proceedings to a grinding halt.
ig The provisions of
Section 16(6) read with Section 5 now make the legal position
clear, unambiguous and free from doubt.
95. Section 16(1) incorporates the well-known doctrine
of Kompetenz-Kompetenz or competence de la competence. It
recognises and enshrines an important principle that initially and
primarily, it is for the Arbitral Tribunal itself to determine whether
it has jurisdiction in the matter, subject of course, to ultimate
Court-control. It is thus a rule of chronological priority.
Kompetenz-Kompetenz is a widely accepted feature of modern
international arbitration, and allows the Arbitral Tribunal to decide
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its own jurisdiction including ruling on any objections with respect
to the existence or validity of the arbitration agreement, subject to
final review by a competent court of law i.e. subject to Section 34
of the Act.
96. Chitty on Contract (1999 edn.; p.802) explains the
principle thus :
English law has always taken the view that the arbitral
tribunal cannot be the final adjudication of its own jurisdiction.
The final decision as per the substantive jurisdiction of the tribunal
rests with the Court. However, there is no reason why the tribunal
should not have the power, subject to review by the Court, to rule
on its own jurisdiction. Indeed such a power (often referred to as
the principle of “Kompetenz-Kompetenz” has been generally
recognised in other legal systems. It had also been recognised by
English Law before the 1986 Act, but Section 30 of the Act put this
on a statutory basis. Unless otherwise agreed by the parties, the
arbitral tribunal may rule on its substantiative jurisdiction that is,
as to (a) whether there is valid arbitration agreement; (b) whether
the tribunal is properly constituted; and (c) what matters have
been submitted to arbitration in accordance with the arbitration
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agreement. Any such ruling may be challenged by any arbitral
process of appeal or review or in accordance with the provisions of
Part I of the Act, notably by an application under Section 32 or by
a challenge to the award under Section 67 (emphasis supplied).
Alan Redfern and Martin Hunter in their work on “Law
and Practice of International Commercial Arbitration”, (4th edn.),
(para 5-34) also said :
When any question is raised as to the jurisdiction of the
Arbitral Tribunal, a two stage procedure is followed. At the first
stage, if one of the parties raises ‘one or more pleas concerning the
existence, validity or scope of the agreement to arbitrate, the ICC’s
Court must satisfy itself of the prima facie existence of such an
agreement (ICC Arbitration Rules 6(2). If it is satisfied that such
an agreement exists, the ICC’s Court must allow the arbitration to
proceed so that, at the second stage, any decision as to the
jurisdiction of the Arbitral Tribunal shall be taken by the Arbitral
Tribunal itself…………
From a practical standpoint, the rule is intended to
ensure that a party cannot succeed in delaying the arbitral
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proceedings by alleging that the arbitration agreement is invalid or
non-existent. Such delay is avoided by allowing the arbitrators to
rule on this issue themselves, subject to subsequent review by the
Courts, and by inviting the Courts to refrain from intervening until
the award has been made. Nevertheless, the interests of parties
with legitimate claims concerning the invalidity of the arbitration
agreement are not unduly prejudiced, because they will be able to
bring those claims before the arbitrators themselves and, should
the arbitrators choose to reject them, before the Courts thereafter.
The competence-competence rule thus concerns not
only the positive, but also the negative effects of the arbitration
agreement.”
98. In the instant case; according to the majority,
Section 16(1) only makes explicit what is even otherwise implicit,
namely, that the tribunal has the jurisdiction to rule its own
jurisdiction, ‘including ruling on any objections with respect to the
existence or validity of the arbitration agreement’.
109. As already indicated by me earlier, sub-section (1)
of Section 16 does not merely enable the Arbitral Tribunal to rule
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on its own jurisdiction, but requires it to continue arbitral
proceedings and pass an arbitral award. (Sub-setion (5) It allows
the aggrieved party to make an application for setting aside the
award in accordance with Section 34. (Sub-section (6). Thus, in
my judgment, Section 16 can be described as ‘self-contained Code’
as regards the challenge to the jurisdiction of Arbitral Tribunal. As
per the scheme envisaged by Parliament, once the Arbitral Tribunal
rules that it has jurisdiction, it will proceed to decide the matter on
merits and make an award.
ig Parliament has also provided the
remedy to the aggrieved party by enacting that he may make an
application under Section 34 of the Act. In the circumstances, the
proceedings cannot be allowed to be arrested or interference
permitted during the pendency of arbitration proceedings.”
6) Even prior to this, the Supreme Court in M.S. Commercial & others
.vs. Calicut Engineering Works Limited (2004) 10 SCC 656, while
considering Section 16(5) and Section 34 of the Arbitration Act, in para 5
observed as follows :-
“5. Once the arbitrator had taken a decision that there
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13was an arbitration agreement, then by virtue of sub-section (5) of
Section 16 of the Arbitration and Conciliation Act, the arbitrator
was bound to continue with the arbitration proceedings and make
an arbitral award. The only right that the petitioners now had was
to challenge the award under Section 34 of the Act after it is made.
Once the arbitrator gave his decision, it was not open to the
petitioners to ask for cross-examination of the expert or at that
stage lead evidence of any other expert. The stage for doing that
had passed. As prior to the decision of the arbitrator they never
applied for cross-examination, they could not do so after the
decision. This would not even be a ground of challenge under
Section 34 of the Act. However, we clarify that the above will not
mean that whilst challenging the arbitral award, if so challenged,
the petitioners cannot challenge the order rejecting their earlier
application, if in law they are entitled to do so.”
7) The Division Bench of Bombay High Court also in BASF Styrenics
Private Limited .vs. Offshore Industrial Construction Pvt. Ltd. reported in
AIR 2002 BOMBAY 289 while dealing with the provisions of Sections 16 & 17
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of the Arbitration Act observed in paras 10 & 11 as under :-
“10. In our considered opinion, therefore, the scheme of
the Act is clear, and it is that if the arbitral Tribunal holds that it
has jurisdiction, such an order cannot be said to be illegal or
without jurisdiction at that stage, inasmuch as the competent
Legislature has conferred the power on arbitral Tribunal “to rule on
its own jurisdiction”. Hence, such an order can be challenged only
in the manner laid down in sub-sections (5) and (6) of S. 16, viz.
after the arbitration proceedings are over and the award is made.
If, on the other hand, it holds that it has no jurisdiction, an order
can be challenged under sub-section (2) of Section 37 of the Act.
11. Our attention in this connection, was invited by the
learned counsel for respondent No.1 to a decision of the Supreme
Court in Babar Ali .vs. Union of India (2002) 2 SCC 178. In that
case, the constitutional validity of sub-section (5) of Section 16 of
the Act was challenged on the ground that the appeal is provided
only after passing of an award, and if a party is deprived of right of
appeal on the ground that the Arbitrator has no jurisdiction, such a
provision would be ultra vires. The Court, however, observed that
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15judicial review is available for challenging the award in accordance
with the procedure laid down in the Act, and only because the
question of jurisdiction of the Arbitrator is required to be
considered after the award is passed, and not at any penultimate
stage before an appropriate Court, it would not be a ground for
submitting that such an order is not subject to any judicial scrutiny.
Accordingly, the Special Leave Petition filed by the appellant came
to be dismissed.”
8)
Subsequently, the Supreme Court in McDermott International
Inc. .vs. Burn Standard Co. Ltd. and others, reported in (2006) 11 SCC 181
while dealing with Sections 16, 34 & 37 has observed in para 51 as under :-
“51. After the 1996 Act came into force, under Section 16 of the
Act the party questioning the jurisdiction of the arbitrator has an
obligation to raise the said question before the arbitrator. Such a
question of jurisdiction could be raised if it is beyond the scope of
his authority. It was required to be raised during arbitration
proceedings or soon after initiation thereof. The jurisdictional
question is required to be determined as a preliminary ground. A
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16decision taken thereupon by the arbitrator would be the subject-
matter of challenge under Section 34 of the Act. In the event the
arbitrator opined that he had no jurisdiction in relation thereto an
appeal thereagainst was provided for under Section 37 of the
Act.”
The said principle has further been reiterated by Apex Court in National
Thermal Power Corporation Limited .vs. Siemens Atkeingesellschaft
reported in (2007) 4 SCC 451.
9)
Therefore, taking overall view of the scheme of Section 16, one
thing is very clear that Arbitrator has power to decide the applications with
regard to the existence of arbitration agreement and objection in respect of
jurisdiction. The Arbitrator having once taken decision and rejected the
objection with regard to the jurisdiction & observed further that there is
existence of arbitration agreement between the parties and proceed
accordingly, such order cannot be challenged except the remedy as available
under Section 34 and or Section 37 of the Arbitration Act as referred above.
10) The appellant/petitioner in both these matters against the order
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passed by the Arbitrator preferred separate two Writ Petitions by invoking
Article 226 of the Constitution of India.
11) The learned Single Judge after considering the rival contentions and
the scheme of the Arbitration Act rightly upheld preliminary objection as raised
by the respondent as to the maintainability of Writ Petition against such order
passed by the Arbitrator.
12} Another important facet is Section 5 of the Arbitration Act which is
reproduced as under :-
“S. 5 Extent of judicial intervention.– Notwithstanding
anything contained in any other law for the time being in force, in
matters governed by this Part, no judicial authority shall intervene
except where so provided in this Part.”
13} It is clear that Section 5 applies to the matters governed by Part I.
Section 16 is part of this Part. The opening non-obstante clause therein clearly
indicates that it overrides provisions in any other statute. As a result, judicial
intervention is permissible only where it is specifically provided for in this part
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(Shri Subhalaxmi Fabrics .vs. Chandralal Barodia/Manu/SC/0231/2005;
(2005) 10 SCC 704. The principal object of Section 5 is to promote and
encourage resolution of disputes expeditiously and less expensively. Especially
when there is an arbitration agreement, the Court’s intervention should be
minimal. (T. Anand Gajapatty Raju .vs. PVG Raju AIR 2000 SC 1886).
14} In Kvaerner Cementation India Limited .vs. Bajranglal Agrawal :
2001 (3) RAJ 414, ‘S.C. again noted referring to Section 16(1) & (5) of this
Act the power to rule on its own jurisdiction including any objection with
respect to the existence or validity of the arbitration agreement and further
enable the Tribunal to continue with the arbitration proceedings and make an
award where it decides to reject the plea and continue with the arbitration
proceedings and make an award. Section 16 sub-clause (5) entitles a party
aggrieved by such an award to challenge it by an application for setting it
aside. As noted already, the Arbitrator/Tribunal has the power to decide all
objections regarding the validity and existence of the arbitration agreement
coupled with the objection to the constitution of the Arbitral Tribunal as
subjected/objected by the appellant in the present case (Richi Strips & Alloys
.vs. Tata South : (2004) 13 SCC 472).
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15} The Supreme Court judgment as cited by the learned Counsel
appearing for the appellant, i.e. Gas Authority of India Limited and another
.vs. Keti Construction (I) Ltd. and others reported in 2007(5) SCC 38 in
fact reiterated the said principle with further observation that the plea
regarding jurisdiction must be raised right at the beginning so that remedial
measures may be immediately taken and time and expenses involved in
hearing of the matter may be saved on the issue of proper constitution or
lacking in jurisdiction at earliest. It is further stated that plea of lack of
jurisdiction must make out a strong case. The Supreme Court has observed
while dealing with Section 16 of the Arbitration Act that Arbitral Tribunal’s
authority under Section 16 is not confined to the width of its jurisdiction but
goes to the very root of its jurisdiction and further that the Arbitration Act
should be interpreted keeping in mind the UNCITRAL MODEL LAW and the
whole object and scheme of the Act is to secure expeditious results of disputes.
The judgment in no way supports the case of the appellants that in such case
party can agitate the issue or challenge the order of Tribunal in Civil Court
and/or in writ jurisdiction as sought to be contended and as done in the
present case. The scheme of Section 5 read with Section 16 as elaborated
above no way permits the person like the appellants as the remedy so provided
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under Arbitration Act itself is an effective or alternative efficacious remedy
under the law. Therefore, no special case is made out by the appellant to
overlook the said principle and to interfere with the order passed by the
Tribunal under Article 226 of the Constitution of India.
16} The conclusion in in SBP & Co. .vs. Patel Engineering Ltd. (supra)
with regard to Sections 16, 34 & 37 clinches the issue against the appellants,
viz.
“(vi) Once the matter reaches the Arbitral Tribunal or the sole
arbitrator, the High Court would not interfere with the orders
passed by the arbitrator or the Arbitral Tribunal during the course
of the arbitration proceedings and the parties could approach the
Court only in terms of Section 37 of the Act or in terms of Section
34 of the Act,
(ix) In a case where an Arbitral Tribunal has been constituted by
the parties without having recourse to Section 11(6) of the Act, the
Arbitral Tribunal will have the jurisdiction to decide all matters as
contemplated by Section 16 of the Act”.
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17} The order passed by the Arbitrator under Section 16, after giving
full opportunity and hearing both the parties is a judicial order. That itself is
not sufficient to interfere in writ jurisdiction under Article 226 of the
Constitution of India, as sought to be contended by the learned Counsel
appearing for the appellant, based on the decision of the Apex Court in M/s.
SBP & Company (supra), to overlook the scheme of the Arbitration Act,
especially of Section 16 read with Section 5 as elaborated above. Section 16 is
a stage where a party before the Tribunal raised a plea of jurisdiction and/or
competency. The said judgment in no way allows the parties like the appellant
to file Writ Petition against the order passed by the Arbitral Tribunal rejecting
the objection about the jurisdiction and existence of agreement. No writ can be
issued against such private Arbitral Tribunal. No public element is involved in
such private agreed commercial contract. The scheme of Arbitration Act itself
provides the remedy in such circumstances. Therefore also, the preliminary
objection as to the maintainability of Writ Petition was rightly decided against
the appellant by the learned Single Judge.
18} Therefore, taking all this into account, there is no case made out to
interfere with the reasoning given by the learned Single Judge. Both these
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Letters Patent Appeals are, therefore, dismissed.
JUDGE JUDGE.
J.
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