JUDGMENT
Jaspal Singh J.
1. This petition under section 3 of the Foreign Awards (Recognition and Enforcement) Act, 1961, is proving to be quite thorny. It has witnessed a lot of fire-works even on the question as to whether I should frame issues or not and that if I should, what those issues should be. And, as if all this was not enough, they expect me to pass a speaking order too.
2. As we all know, issues are framed to shorten the arena of dispute and to ascertain and pinpoint where the two sides differ so that no party to the suit is taken by surprise. Since the court should not determine an issue which does not arise on the pleadings, it is essential for the right decision of a case that appropriate issues are framed. The general principle of law seems to be that issues arise when a material proposition of fact or law is affirmed by one party and denied by the other and that there must be a distinct issue for each material proposition of law or fact affirmed by one party and denied by the other. One thing more. It is primarily the duty of the judge to frame the issues in the case.
3. The position in law being what has generally been noticed above, let me now proceed to first unfold the facts.
4. One Mr. D. P. Barua, who was an executive in the employment of ITC Ltd., entered into a so-called co-operation agreement dated September 11, 1990, purportedly on behalf of ITC Ltd. to purchase the shares held by one Mr. C. L. Anand and his associates in the company known as Toshiba Anand Batteries Ltd. ITC Ltd. claims that Mr. D. P. Barua was never authorised by it to enter into the agreement, that it was never placed before the board of director of the company, that it would not have been sanctioned even otherwise it being against its interests and that on February 19, 1991, the board of directors of ITC Ltd. had recorded that the agreement was ultra vires and not binding on it. It further claims that even after the so-called agreement, negotiations had continued and that consequently the said agreement could not be taken to be a concluded contract and, in any case, the said agreement was given a go-by by the parties and was never acted upon and that even otherwise it was illegal and void being against the laws of the land.
5. It appears that the agreement aforesaid contains an arbitration clause as well and that taking advantage of the same, Mr. C. L. Anand has taken steps for initiation of arbitration proceedings by approaching the International Chamber of Commerce. Hence the petition by ITC Ltd. under section 33 of the Arbitration Act challenging the existence and validity of the agreement and the arbitration clause.
6. In response to the petition an application has been moved by respondent No. 1, Mr. C. L. Anand, under section 3 of the Foreign Awards (Recognition and Enforcement) Act, 1961 (hereinafter called “the Act”), alleging that the agreement had been validly entered into, that it had been ratified and acted upon by the petitioner and further that it is estopped from challenging its validity, effect and existence as also the arbitration clause and is bound by the same and that in any case the International Court of Arbitration can go into the pleas concerning the existence or validity of the agreement to arbitrate.
7. The battle-lines are thus clearly drawn. While the petitioner ITC Ltd. challenges the validity, effect and existence of the agreement as also the arbitration clause on the ground that Mr. Barua had no authority, that it was rejected by the board of directors who never acted upon and was even otherwise null and void and not binding on it, the applicant, Mr. C. L. Anand, refutes all this.
8. During the arguments, it was suggested that as the International Court of Arbitration itself can go into the pleas concerning the existence or validity of the agreement to arbitrate, I should rather refrain from looking into these questions.
9. As pointed out by the Supreme Court in Renusagar Power Co. Ltd. v. General Electric Co. , the scheme that emerges on a combined reading of sections 3 and 7 of the Foreign Awards Act clearly contemplates that questions of existence, validity or effect (scope) of the arbitration agreement itself, in cases where such agreement is wide enough to include within its ambit such questions, may be decided by the arbitrators initially but their determination is subject to the decision of the court and such decision of the court can be had either before the arbitration proceedings commence or during their pendency, if the matter is decided in a section 3 petition or can be had under section 7 after the award is made and filed in the court and is sought to be enforced by a party thereto. It has further been observed therein that in a section 3 petition the court has to decide the question of the arbitrator’s jurisdiction and such decision will be conclusive and binding on the arbitrator. This being the position I am not inclined to decline to decide the dispute involved.
10. A few more things need to be noticed. Section 3 of the Act makes it obligatory upon the court to pass the order staying the legal proceedings commenced by a party to the agreement if the conditions therein are fulfillled. And, what are those conditions ? The Supreme Court in Renusagar Power Co. Ltd.’s case, , enumerates them for us. They are (page 1182) :
“(i) there must be an agreement to which article II of the convention set forth in the Schedule applies. (It is not disputed that this is so in the instant case);
(ii) a party to that agreement must commence legal proceedings against another party thereto. (It is again not disputed that Renusagar and G.E.C. are the two parties to the arbitration agreement and that Renusagar has commenced legal proceedings against G.E.C. by filing Suit No. 832 of 1982);
(iii) the legal proceedings must be “in respect of any matter agreed to be referred to arbitration” in such agreement. (The question whether this condition is fulfillled here needs to be decided);
(iv) the application for stay must be made before filing the written statement or taking any other step in the legal proceedings. (Admittedly this condition is fulfillled);
(v) the court has to be satisfied that the agreement is valid, operative and capable of being performed; this relates to the satisfaction about the “existence and validity” of the arbitration agreement. (In the instant case these questions do not arise);
(vi) the court has to be satisfied that there are disputes between the parties with regard to the matters agreed to be referred; this relates to effect (scope) of the arbitration agreement touching the issue of hbitrability of the claims. [It will have to be dealt with while considering the satisfaction of condition (iii) above.]”
11. As would be borne out from the above, the petitioner, I.T.C. Ltd., has urged that condition (v) is not satisfied while the applicant denies it. It has thus become necessary for me to give decision and since disputed questions of law and fact have been raised hence the need to frame issues.
12. As per Mr. Sanghi if at all the issues need to be framed I should proceed to frame only one issue, namely :-
(1) Whether there is a valid subsisting arbitration agreement between the parties ?
13. As noticed by me in the introductory part of this order the court must frame a distinct issue for each material proposition of law or fact affirmed by one party and denied by the other. This is what Order 14 of the Code of Civil Procedure requires. However, while dealing with a section 3 petition, it would not be each and every proposition of law or fact arising on the pleadings which would need framing of an issue. The court has to confine itself to the conditions required to be fulfillled for invoking section 3 and thus whatever be the range of the pleadings, the issues to be framed would be relevant to and limited by the said conditions :
Keeping in view what has been noticed by me above, I frame the following issues :
1. Whether there is a valid subsisting arbitration agreement ? Onus on the applicant.
2. Whether D. P. Barua had the authority to enter into arbitration agreement. If so, to what effect ? Onus on the applicant.
3. What is the effect of the rejection of the agreement by the board of directors of I.T.C. Ltd. Onus on the petitioner-company.
4. Whether the agreement dated 11th September, 1990, had been given a go-by by the parties and was never acted upon by them ? If so, to what effect ? Onus on the petitioner-company.
5. Whether the agreement dated 11 September, 1990, was not a concluded contract. If so, to what effect ? Onus on the petitioner-company.
6. Whether non-compliance with the provisions of section 372 of the Companies Act, 1956, and of other laws of India render the agreement dated 11th September, 1990, of no effect, null and void and not binding on I.T.C. Limited ? Onus on the petitioner-company.
7. Relief.
14. The appeal [?] is disposed of in the above terms. There shall, however, be no order as to costs.
