Full Judgment Text
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CASE NO.:
Appeal (civil) 5880-5889 of 1997
Appeal (civil) 713-714 of 1999
Appeal (civil) 715 of 1999
Appeal (civil) 716 of 1999
Appeal (civil) 2037-2040 of 1999
Appeal (civil) 2041 of 1999
Appeal (civil) 2042-2044 of 1999
Appeal (civil) 4311 of 1999
Appeal (civil) 4312 of 1999
Appeal (civil) 4324 of 1999
Appeal (civil) 4356 of 1999
Appeal (civil) 7304 of 1999
Appeal (civil) 73066-09 of 1999
PETITIONER:
M/S KONKAN RAILWAY CORPN. LTD. & ANR.
Vs.
RESPONDENT:
M/S RANI CONSTRUCTION PVT. LTD.
DATE OF JUDGMENT: 14/10/2000
BENCH:
K.G.Balakrishnaan, M.J.Rao
JUDGMENT:
D E R
L.....I.........T.......T.......T.......T.......T.......T..J
M.JAGANNADHA RAO,J.
Learned Solicitor General of India Sri Harish
Salve, appearing for the appellants, has submitted
that
the order dated 4.7.97 of the learned Chief Justice of
the Bombay High Court, under section 11 of the
Arbitration and Conciliation Act, 1996 on the
preliminary issues is a Judicial order and, on facts,
is
liable to be set aside under Article 136 of the
Constitution of India. It is contended that, even if
it
is to be treated as administrative in nature, it is
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amenable to Article 136.
The learned Chief Justice in his order dated
4.7.97 held that inasmuch as the appellant-company
failed to appoint Arbitrators as required under the
arbitration clause, the appellants should be compelled
to furnish a panel of names of arbitrators to the
respondent-contractors and one name should be
suggested
by the appellants. The learned Chief Justice had also
rejected the plea of the appellants that no reference
be
made as the matters were ’excepted matters’ and held
that the question whether the claims related to
’excepted matters’ or not was also to be decided by
the
arbitrators after recording evidence and verifying the
facts. Learned Solicitor General contends that such
an
order of the Chief Justice deciding rights preliminary
points cannot be characterised as an administrative
order.
Appellant is confronted with the three Judge Bench
in Konkan Railway Corporation Ltd. vs. M/s Mehul
Construction Co. [2000 (6) SCALE 71] which has held
that
no appeal is maintainable under Article 136 against
such
an order passed by the Chief Justice directing
appointment of arbitrators under section 11 inasmuch
as
such orders are administrative in nature even if they
contain reasons and decision on certain preliminary
issues raised by the parties at the stage of
appointment
of arbitrator.
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It is pointed out by the learned Solicitor General
of India that the above judgment requires
reconsideration. Counsel pointed out that initially
in
Sundaram Finance Ltd. vs. NEPC India Ltd. [1999 (2)
SCC
479] in a case which arose under section 9 (and not
under section 11), a passing observation was made by
Kirpal, J. (in para 12) that under section 11 the
Chief
Justice or his nominee would not be passing a judicial
order. That was by way of obiter. Later on, in Ador
Samia Private Ltd. vs. Peekay Holdings Limited &
Others
[1999 (8) SCC 572], a Bench consisting of Majmudar and
Mohapatra, JJ. held that against an order under
section
11 passed by the Chief Justice, no application for
special leave could be filed under Article 136
inasmuch
as the order was an administrative order and the Bench
relied upon the observations of Kirpal, J. in
Sundaram
Finance Ltd.. The Bench also referred to the judgment
of the Constitution Bench in Indo-China Steam
Navigation
Co. Ltd. vs. Jasjit Singh [AIR 1964 SC 1140 : 1964
(6)
SCR 594 (at 603) which held that a purely
administrative
order or executive order was not amenable to Article
136. However, it appears that a Bench presided over
by
Majmudar, J. referred the question as to the nature
of
the order to a three Judge Bench in Konkan Railway Co.
Limited. The three Judge Bench took the view (see
2000
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(6) SCALE 71) that no special leave petition could be
filed under Article 136 against the order passed by
the
Chief Justice or his nominee under section 11.
According to the learned Solicitor General, this view
of
the three Judge Bench requires reconsideration.
Learned Solicitor General submits that, it is now
well-settled in several countries, where the UNCITRAL
model has been adopted and where the arbitrator also
is
permitted to decide questions as to the existence of
the
arbitration clause or validity of the agreement - that
the Court can decide certain preliminary disputes
which
are raised before it at or before the appointment of
arbitrators - such as disputes relating to existence
of
the arbitration agreement or a question as to the very
existence of a ’dispute’ or as to whether the items of
disputes fell within ’excepted’ matters or whether an
arbitrator could be appointed where the invocation of
the clause by one party was beyond the prescribed
period
in which one has to ask the otherside to appoint an
arbitrator, etc. It is true that under section 16(1)
of
the new Act, the arbitrator is now empowered to decide
his own jurisdiction including any objection as to the
existence or validity of the agreement and for that
purpose the arbitration clause is deemed to be
independent of the main contract (called Kompetenz-
Kompetenz principle). Counsel contends that, it may
be
that in situations where the matter has straightway
gone
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before an arbitrator by act of parties without
intervention of Court, the arbitrator is now
statutorily empowered to decide these basic questions
also. But when a case comes before judicial authority
and the defendant pleads that there is an arbitration
clause (see section 8 of the new Act) or where, on
account of the non-appointment of an arbitrator, the
Court is approached for appointment of an arbitrator
(see section 11), - the Court can decide these
preliminary issues judicially and need not
mechanically
appoint an arbitrator under section 11 in such cases.
The power of the Court has not been taken away by the
new Act. It is contended, that this is still the law
in
all countries where the UNCITRAL model has been
adopted.
In all such cases, the order of the court or the Chief
Justice (or his nominee) will be a ’judicial’ one and
not an administrative order. It is pointed out that
the
UNCITRAL Model Law, in fact, uses the words ’Court or
other authority’ in Article 6 and Article 11. See in
this connection Article II(3) of the New York
Convention, Article 4(1) Geneva Protocol, Article 8 of
the Model Law and section 9 of the English Act of
1996.
We may note that in para 5.49 (pp.273-274) of ’Law
and Practice of International Commercial Arbitration’
by
Alan Redfern and Martin Hunter (3rd Ed.) (1999), it is
stated, in relation to the procedure adopted now in
various countries following the UNCITRAL model as
follows:
"The third course of action is for the respondent to
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ignore the arbitral tribunal and to go to Court to resolve
the issue of jurisdiction. There are various ways in which
this may be done. The respondent may, for example, seek an
injunction or similar remedy to restrain the arbitral
tribunal from proceeding. Or the respondent may seek a
declaration to the effect that the arbitral tribunal does
not have jurisdiction in respect of the particular claim or
claims put forward by the claimant-for instance, on the
basis that there was no valid arbitration agreement. Or,
again by way of example, the respondent may take the
offensive and commence litigation in respect of the matters
in dispute. The claimant in the arbitration would
presumably defend such a challenge to the jurisdiction of
the arbitral tribunal by seeking to have the arbitration
agreement enforced. This would be a straightforward matter
of reliance upon Article II of the New York Convention (such
as section 9 of the English 1996 Act) or a similar provision
of the law governing arbitration at the seat of the
arbitration (as in Article 8 of the Model Law). The
relevant national Court must decide whether the arbitration
agreement is null and void, inoperative or incapable of
being performed; if it is not, the parties will be referred
to arbitration."
(See also para 5.51 which deals with a ’combined
approach’).
In several countries, the negative effects of the
’Kompetenz-Kompetenz’ principle, conferring powers on
the arbitrator, has been considered.
In this connection, there is an exhaustive and
detailed discussion of this aspect in ’Fouchard,
Gaillard Goldman on International Arbitration) (1999)
(para 672 to 682) (pages 407-413), referring to the
post-UNCITRAL case-law in France, Austria, Sweden,
Belgium, Netherlands, USA etc. to the effect that if
the
Court is first seized of these preliminary issues
before
appointment of arbitrator, - even in cases where the
arbitrator, under the statute, is empowered to decide
these questions - the Court can and will decide these
issues first rather than permit the arbitrator to
decide
them. The experience of the various Courts in these
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countries where the UNCITRAL model had been adopted
long
ago is a matter for consideration in India, where we
have recently adopted the model.
In France, in Caprodag vs. Dame Bohin (1995 Rev.
Arb. 617) the Court of Appeal has held recently that
the
arbitrators can decide these questions in cases where
the Court is not seized with these questions earlier.
This is also so under the 1961 European Convention.
Where, however, the matter straightway goes before the
arbitrator by act of parties and the arbitrators are
first seized of these problems, they can decide but
their decisions will still be subject to the decision
of
the Court. Reference is made by the authors (Fouchard
etc.) to the US cases in Comptek Telecom Inc vs. IVD
Corp. (1995 US Dist. Lexis 11876) (W.D.N.Y Aug. 1,
1995)
(10. Intnl Arb. Rep. 1) SMG Swedish Machine Group
vs.
Swedish Machine Group Inc (1991 US Dist. Lexis 780)
holding that if the Court is seized of these issues
first, it had better decide them. The position is the
same under Swedish Law in the 1999 Arbitration Act
(Sec
2, para 1). The authors (Fouchard etc.) refer (p.409)
to the Belgium Law (Art. 1679, para 1 of the Judicial
Code), the 1986 Netherlands Arbitration Act (Act 1022
(1) of the Code of Civil Procedure), the 1987 Swiss
Private International Law Statute (Art 7) - all
stating
that the arbitrators shall decide these issues except
where the Court is seized of these issues at an
earlier
stage. The Swiss case law, the 1996 English
Arbitration
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Act are also referred to. In para 676, the Authors
say
"As a result, and although it was at one time
relatively isolated, the rule found in French law and in the
1961 European Convention has recently gained substantial
acceptance."
In para 678, under the heading ’Policy
Considerations’,
it is stated that if matter has not gone straight to
the
arbitrators but has come initially before the Court,
the
Court can decide these preliminary issues and this
saves
(i) time and (ii) costs of arbitration. It is said:
"The approach whereby the Courts seized of the merits
of the case are entitled to rule immediately on the
existence and validity of the arbitration agreement arguably
leads to a certain degree of time and cost avoidance. It
may prevent parties having to wait several months, or in
some cases, years, before knowing the final outcome of the
dispute regarding jurisdiction - it will often take long for
the arbitrators and then the Courts to reach their
decisions."
In a very recent case in Azov Shipping Co. Vs.
Baltic Shipping Co. ( 1999(1) LL LR 68), which arose
under the 1996 Act, the parties had first gone before
the arbitrator on the preliminary question of
jurisdiction, the matter was argued for three days to
ascertain whether or not there was a contract with the
respondent and the arbitrator held that the respondent
before him was a party to the contract. The matter
then
came under Section 67 before the Court. The Court
observed that this was perhaps a case where the
parties
could have straight come first before the Court for
determination on this issue and that would have saved
costs and time. ( The English Act permits parties to
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take consent or by consent of the arbitrator, to go to
Court on jurisdictional issues). Rix J said (p.70):
"This was perhaps a case where the parties might well
have come to Court, either by agreement or upon an
application from the one side or the other, for the Court to
determine issues of jurisdiction, on the ground that it was
likely to produce substantial savings in cost and that there
was good reason why the matter should be decided by the
Court."
[ See also ’A Practical Approach to Arbitration Law by
Keren Tweeddale and Andrew Tweeddale’(1999)(at p.79)]
It is, therefore, contended that the Chief Justice
or his nominee, is, therefore, entitled to decide
these
issues notwithstanding the arbitrator’s ’competence’
to
decide these issues and if there is a decision, the
order deciding rights of parties cannot be
’administrative’ but can only be a judicial order
amenable to Article 136.
As to the nature of the order to be passed under
section 7 of the International Arbitration Act which
deals with reference of disputes falling under the
Convention to arbitration, the Federal Court of
Australia (New South Wales) in its judgment dated
30.6.97 held:
"Each of these determinations which may arise under
section 7 of the Act, calls for the exercised by the Court
of judicial power."
(See Hi-Fert Pty. Ltd. vs. Kiukiang Maritime
Carriers
reported in Vol. XXIII - 1998, Year Book of
Commercial
Arbitration of ICCA p. 606 at p.612).
The learned Solicitor General of India Sri Salve
has also contended that under section 11 the Chief
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Justice (or his nominee) has now replaced the
jurisdiction of the Court under section 8 of the old
Arbitration Act, 1940. More or less, the same powers
are now conferred on the Chief Justice and this has
been
done only to enthuse more confidence among the
litigants
in the person who is appointed as arbitrator. The
District Court has been previously performing judicial
functions under Section 8 of the Arbitration Act, 1940
and even now the Chief Justice performs only judicial
functions. The UNCITRAL MODEL law, (on which the 1996
Act is modeled) and several statutes passed in various
countries on the UNCITRAL model use the word ’Court’
and
do not use the word ’Chief Justice’. It is contended
that merely because the word ’Chief Justice’ (or his
nominee) is now used in the new Indian Act, the order
of
the Chief Justice (or his nominee) cannot be treated
as
an administrative order. The order does not relate to
administrative functions of the Chief Justice of India
or of the Chief Justice of the High Court -such as
those
concerning the internal administration of the Supreme
Court or High Court or of the Subordinate Judiciary,
as
the case may be. On the other hand, the order
judicially decides preliminary issues raised by two
contracting litigating parties. Such an order cannot
be
said to be administrative in nature. That is the
contention.
It was pointed out by the learned Solicitor
General that in this very case, the learned Chief
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Justice of the Bombay High Court had passed a judicial
order on the preliminary issues raised -and which
could
be raised at the stage anterior to the appointment of
the arbitrator. These issues had to be decided.
Other
examples are also referred to. The case in SLP(C)
No.19549 of 1999 which was heard by the three Judge
Bench (from the order of the Chief Justice, Gauhati)
alongwith Konkan Railway Corporation’s cases, (see
para
8 at p.77) is one such. But the three Judge Bench
however characterised a detailed reasoned judicial
order
of the Chief Justice, Gauhati in that SLP as an
’administrative order’ though the Chief Justice had
decided a preliminary issue concerning the existence
or
otherwise of an arbitration agreement. Learned
Solicitor
General argued that the judgment of the three Judge
Bench was not correct in stating that the Chief
Justice
of Guwahati was "not functioning" as a Court when the
said order was passed. A similar question arose in
Wellington Associates Ltd. vs. Mr. Kirit Mehta [JT
2000
(4) SC 135] (before one of us, Jagannadha Rao, J.) as
to
the existence of the arbitration clause and after
deciding about the competence of the Court and the
Kompetenz-Kompetenz principle, the issue was decided
as
a matter of law by assigning reasons and in fact, it
was
held that there was no arbitration clause at all. (Of
course, in Nimet Resources Inc. & Anr. vs. Essar
Steels
Ltd. [JT 2000 (Suppl. 1) SC 95], Rajendra Babu, J.
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while
dealing with the question of existence of the
contract,
referred to the above case in Wellington Associates
Ltd.
but felt bound by the three Judge Bench in Konkan
Railway case). In yet another case, in M/s Datar
Switchgears Ltd. Vs. Tata Finance Ltd. and
Anr.(Civil
Appeal arising out of SLP(C) No.13812 of 2000 disposed
of on 18.10.2000), a question arose whether when one
party had, on demand by the other party, appointed an
arbitrator - though beyond the period stipulated in
the
contract, - the Chief Justice (or his nominee), could,
when approached by the other party, appoint another
(sole) arbitrator. Such a question, it would be
obvious, had to be decided at that stage and could not
be left to be decided by one of the arbitrators
because
the question would be as to who among them would then
be
the ’sole’ arbitrator? It is pointed out that there
could be a variety of situations where preliminary
issues arising at the stage of Section 11 would have
to
be decided by the Chief Justice or his nominee, by a
judicial order and this would save time and
expenditure
and that this view is not inconsistent with the
UNCITRAL
Model.
It was pointed out that there is a more important
aspect of a practical nature which had to be borne in
mind. If such an order of the Chief Justice (or his
nominee) was to be treated as an administrative order,
it could be challenged before a Single Judge of the
High
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Court and then before a Division Bench and then in
this
Court under Article 136, and such a procedure would
only
delay the arbitration proceedings more than if the
order
was accepted as a Judicial order and was permitted to
be
challenged directly under Article 136. In fact, if
the
order was to be treated as administrative in nature,
even the order of the Chief Justice of India (or his
nominee) could be challenged first before a Single
Judge
of the High Court and then before a Division Bench and
then under Article 136 - rather than being treated as
a
final order of this Court. That would only delay the
proceedings further. Similarly, if the order of the
Chief Justice of the High Court or his nominee is
treated as a judicial order, there would be only one
appeal to this Court under Article 136 of the
Constitution. It was contended that the reasoning of
the
three Judge Bench, that if the order was to be treated
as an administrative order, time would be saved, -
could
thus be rendered nugatory. In practice, the
defaulting
party could drag on the matter for years at the two
stages of Article 226 proceedings even on the
preliminary issues, it is pointed out.
We are of the view that in the light of the above
contentions and material, which in our opinion have a
substantial bearing on the matter, and further
inasmuch
as this question is one arising almost constantly in a
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large number of cases in the various High Courts, it
is
desirable that this Court re-examines the matter.
We, therefore, direct the papers to be placed
before the Hon’ble Chief Justice of India for passing
appropriate orders.
......................J. [M.JAGANNADHA RAO]
NEW DELHI; ......................J. OCTOBER 19,
2000. [K.G.BALAKRISHNAN]
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IN THE SURPEME COURT OF INDIA CIVIL APPELLATE
JURISDICTION
CIVIL APPEAL NOS. 5880-5889 of 1997
M/s Konkan Railway Corpn.Ltd. and Anr. ..Appellants
versus
M/s Rani Construction Pvt.Ltd. ..Respondents
Dear Brother,
A Revised draft order in the above-mentioned
matter is being sent herewith for your favourable
consideration.
With warm regards,
Yours sincerely,