Writ Petition NO. 67 of 1999

6th August, 1999

Petitioner Counsel: Shri. K. H. DESHPANDE, Sr. Counsel with Shri. R. K. DESHPANDE
Respondent Counsel: S/Shri. J. T. GILDA, S. G. LONEY,Shri. A. C. DHARMADHIKARI

Cases Cited:
M/s. Sundaram Finance Ltd. Vs. M/s. NEPC India Ltd., AIR 1999 SC 565 [Para 5]
AIR 1999 Madras 29 [Para 8]
AIR 1999 Bombay 118 [Para 16]

JUDGMENT

JUDGMENT :- Rule. Heard forthwith by consent.

2. The petitioner-Firm is carrying on construction activity and undertakes contract of construction of dams, etc. The respondents No. 1 Vidarbha Irrigation Development Corporation, Amravati is an instrumentality of the State Government. Tenders were issued by the Respondent No. 1 for different works to be carried out at upper Wardha Project, Amravati and separate contracts were entered into and separate work orders were issued in respect of each work. The execution of work accordingly started in all the cases. Sometimes in September 1996 after the substantial work was completed, the respondent No. 1 was called upon by various letters to decide the claims in respect of each contract. However, all the claims were rejected by the Respondent No. 1. The petitioner thereupon expressed his intention by forwarding a communication to the Chief Engineer in respect of each work for referring the dispute to the Arbitrator as per the clause of the agreement. The Chief Engineer having rejected this request, the petitioner vide separate letter dated 10-12-1997 in respect of each of such work proposed names of three Arbitrators with request to select anyone and to appoint him as sole Arbitrator within 15 days as per the agreement. No response having been given to these letters by the Respondent No.1, the petitioner was constrained to inform the Chief Engineer of the Respondent No. 1 that as per provision in the contract the respondent No. 2 (Shri D. P. Shirke) is appointed as sole Arbitrator out of the three names proposed earlier. Accordingly the petitioner forwarded separate statements of claims to the Arbitrator in respect of each work.

3. Surprisingly, thereafter the Respondent No.1 instead of complying with the letter approached the District Court, Amravati and filed different applications registered as MJC Nos. 12/98, 13/98, 14/98, 15/98, 16/98, 17/98 and 18/98. The Respondent No. 1 raised preliminary objection about the maintainability of the proceedings before the sole Arbitrator in respect of each of the agreement and for dismissing the proceedings before the Arbitrator. It was also requested that pending the proceedings before the learned 2nd Additional District Judge, Amravati, the Respondent No. 2 be restrained from conducting the arbitration proceedings. The learned 2nd Additional District Judge having issued the orders restraining the Respondent No. 2 from conducting the arbitration proceedings, the petitioner has filed these petitions. As the issues involved are pure questions of law, no written submissions are filed.

4. I have heard the arguments of the learned Counsel appearing for the parties at length and I am satisfied that in view of the provisions of the Arbitration & Conciliation Act, 1996, the respondent's applications to the District Court seeking the declaration and the consequential order of injunction against respondent no. 2 are not maintainable.

5. In order to consider the material issue as to whether the proceedings initiated before the learned 2nd Additional District Judge were maintainable under the provisions of 1996 Act, it is necessary to refer to certain provisions as well as the scheme of the Act and the policy changes brought about in respect of arbitration proceedings by the introduction of this Act in place of Arbitration Act, 1940. The 1996 Act has repealed the Arbitration Act of 1940 (10 of 1940), the Arbitration (Protocol and Convention) Act, 1937 (6 of 1937) and the Foreign Awards (Recognition and Enforcement) Act, 1961 (45 of 1961). The Act was initially introduced by way of Arbitration and Conciliation (Third) ordinance, 1996 (27 of 1996) which consequently came to be repealed after the promulgation of 1996 Act. The 1996 Act is an adoption (with certain modifications) of the Model Arbitration Law framed by the United Nations Commission on International Trade Law (UNCITRAL) for use both in the domestic and international arbitration. It also incorporates certain provisions of the Arbitration (Protocol and Convention) Act as well as Foreign Awards (Recognition and Enforcement) Act which have been repealed. The 1996 Act has introduced drastic changes in the Arbitration Law prevailing earlier in respect of domestic arbitration. In place of the word "Arbitrator" the Act has for the first time used the terminology "Arbitral Tribunal". In view of the drastic change in policy, it is better to refer to the UNCITRAL Model and not to rely on provisions of the old Act. This view has been expressed by the Apex Court in a recent Judgment reported in AIR 1999 SC 565 - M/s. Sundaram Finance Ltd. Vs. M/s. NEPC India Ltd. While reversing the judgment of the Madras High Court, the Apex Court has laid down that the 1996 Act is very different from Arbitration Act of 1940. The provisions of this Act have, therefore, to be interpreted and construed independently and in fact reference to 1940 Act may actually lead to misconstruction.

6. The basic change that has been introduced is a policy change of encouraging the practice of approaching to "arbitral tribunal". The question before the Apex Court was whether under Section 9 of the 1996 Act the Court has jurisdiction to pass interim orders even before the arbitral proceedings commenced and even before the Arbitrator is appointed. After referring to Section 20 of the Arbitration Act, 1940, the Apex Court has observed in para 13 :

" The position under the Arbitration Act, 1940 was that a party could commence proceedings in Court by moving an application under Section 20 for appointment of an arbitrator and simultaneously it could move an application for interim relief under the Second Schedule read with section 41(b) of the 1940 Act. The 1996 Act does not contain a provision similar to Section 20 of the 1940 Act. Nor is Section 9 or Section 17 similar to Section 41(c) and the Second Schedule to the 1940 Act. Section 8 of the new Act is not in pari materia with Section 20 of the 1940 Act. It is only if an action which is pending before the Court that a party applies that the matter is the subject of an arbitration agreement does the Court get jurisdiction to refer the parties to arbitration. The said provision does not contemplate, unlike Section 20 of the 1940 Act, a party applying to a Court for appointing an arbitrator when no matter is pending before the Court. Under the 1996 Act appointment of arbitrator/s is made as per the provision of Section 11 which does not require the Court to pass a judicial order appointing arbitrator/s. The High Court was, therefore, wrong in referring to these provisions of the 1940 Act while interpreting Section 9 of the new Act."

7. Section 7 defines Arbitration agreement. A reference to Section 8 shows that when a party to a proceeding before any judicial authority shows that the matter is subject of an arbitration agreement, the judicial authority shall, if a party so applies not later than when submitting his first statement on the substance of the dispute, refer the parties to arbitration. Thus, there is a mandate that the judicial authority shall, on the aforesaid condition, refer the dispute to arbitration. Sub-section (3) makes it clear that notwithstanding that an application made is under sub-section (1) and that issue is pending before the judicial authority, an arbitration may be commenced or continued and an arbitral award made, which clearly shows that pendency of proceedings before the judicial authority is not in any way to be construed as an hinderance to the commencement, continuation and finalisation of the proceedings before the Arbitrator.

8. The main thrust of the argument of the learned Counsel for the respondent was on Section 9. A perusal of the said Section clearly shows that a party may, before or during arbitral proceedings or at any time after the making of the arbitral award but before it is informed in accordance with Section 36, apply to the Court for certain reliefs. Sub-section (ii) refers to an interim measure of protection in respect of any of the matters stated therein and the learned Counsel relied on sub clause (e) which is to the effect that :

"(e) such other interim measure of protection as may appear to the Court to be just and convenient."

Reading this sub clause (e) along with section 9(ii), it is obvious that this is an interim measure pending or even before commencement of the arbitral proceedings which obviously means that the party applying for an interim relief under Section 9 either intends to or has already approached the arbitrator or has otherwise received notice for appointment of arbitrator. The language of the Section clearly shows that it was not the intention of the Legislature that the party should under this Section approach the Civil Court with a view to seeking an order of restraining the Arbitrator from commencement of the proceedings. If a party does not even intend to take resort to arbitral proceedings then it is difficult to accept that such a party can approach any Court for any interim measure, much less, for seeking relief that the arbitration proceedings be quashed and as an interregnum, the arbitrator be directed not to proceed with the same. In fact, before the Apex Court, in the judgment cited supra, the issue was whether even before commencement of the arbitral proceedings a party could apply to the Court under Section 9. The Madras High Court (AIR 1999, Madras, 29) had taken a view that :

"In the instant case no effort was made by the Respondent to have an arbitrator appointed or to resolve the dispute or claim. So long as there is no proceedings under the Act to resolve the case, Section 9 of the Act cannot be invoked or for interim relief. The plea that it can be invoked without any pending arbitration proceedings would not be tenable and cannot be accepted."

9. Reversing this, the Apex Court referred to the words "before or during the arbitral proceedings" as appearing in Section 9 and held that the word "before" is not to be treated as redundant and a party to arbitration proceedings can approach the Court for an interim relief not only during the arbitration proceedings but even before the commencement thereof. In para 20 the Apex Court has clearly pointed out the position under Section 9 of the 1996 Act and a reading of the observations of the Apex Court would clearly show that the reliance placed on the judgment of the Apex Court by the respondents is not justified and observations in this para go against the respondents' claim.

10. A reading of para 20 clearly shows that in categorical terms the Apex Court held that Section 9 contemplates arbitration proceedings taking place between the parties. The argument of the learned Counsel that when an application under Section 9 is filed before commencement of arbitral proceedings, there has to be a manifest intention on the part of the applicants to take recourse to arbitral proceedings was accepted. The words "before or during arbitral proceedings" are required to be given full effect to. It, therefore, follows that the provisions of Section 9 cannot be availed of by the party which has no intention to approach the Arbitrator and the provisions of Section 9 cannot be used to do away with the appointment of the arbitrator and not to have resort to arbitral tribunal for resolving the dispute between the parties as provided in the agreement. The interim protection as envisaged by Section 9 is for the persons who are intending to take resort to arbitration or for those who are already parties to arbitration proceedings before the arbitral tribunal. It is also observed that, while passing such an order and in order to ensure that effective steps are taken to commence the arbitral proceedings, the Court while exercising jurisdiction under Section 9 can pass conditional order to put the applicant to such terms as it may deem fit with a view to see that effective steps are taken by the applicant for commencing the arbitral proceedings. These observations of the Apex Court in categorical terms show that the Respondent No. 1 could not have approached the Civil Court for any relief of staying the proceedings before the Arbitral tribunal. It is inconceivable that the provisions can be availed of for restraining the other party from approaching the arbitral tribunal. The provisions of Section 9 are in aid of arbitral proceedings and cannot be used in derogation of the said proceedings.

11. Section 16 of the 1996 Act provides that the arbitral tribunal has power to rule on its own jurisdiction.

12. A reference was also made to Section 34 of the 1996 Act by the learned Counsel for the respondents. However, it is sufficient to point out that the said Section is contained in Chapter VII, wherein provisions are made for taking recourse to setting aside arbitral award and the provisions have obviously no application to the issue involved in the present case.

13. The learned Counsel for the respondent no. 1 also referred to Section 11 sub clause (5) and contended that the petitioner has remedy to approach the Chief Justice with a request to appoint a sole arbitrator, whereas the respondents have no remedy.

14. I have already referred to the provisions which are newly introduced and which empower the arbitral tribunal to rule on its own jurisdiction. If the arbitral tribunal has no jurisdiction or if the arbitration clause or the agreement itself has came to an end and there does not exist any agreement as such, these objections can be raised before the arbitral tribunal i.e. before the sole arbitrator in the present case and the sole arbitrator can decide the same. The award passed by the sole arbitrator after rejecting these objections is appealable. Thus Sections 34 & 36 come into picture only after the award is passed and the reference to these provisions in the present controversy is uncalled for.

15. Sections 7, 8 and 9 under which the applications are moved are contained in Part I, Chapter I of the 1996 Act which also contains Section 5 which in categorical manner rules out intervention by any judicial authority.

"Section 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."

This Section commences with a non-obstante clause and prevents any intervention by any judicial authority except where it is so provided in this Part. Therefore, as pointed out earlier, the resort to the provisions contained in this Part i.e. Section 9 by the Respondents not being tenable at all, the Respondent No. 1 was not justified in moving the District Court for a relief that the proceedings before the arbitral tribunal or the sole arbitrator were not maintainable as the agreement had come to an end and there did not exist any valid agreement for referring the dispute between the parties to the arbitrator.

16. Fortunately this question has been recently decided by this Court in which case the facts were similar. In AIR 1999 Bombay 118 (decided by Rebello, J.), a declaration was sought by the petitioner that no dispute existed between the petitioner and the respondent no.1 arising out of the Fire Policy issued by the petitioners in favour of Respondent No. 1 on account of State Bank of India and a prayer for injunction to restrain the respondent no.2 from proceeding with the arbitration proceedings was made. After referring to the provisions of Section 5 as well as the scheme of the 1996 Act and also to the provisions of Sections 37, 25 and Section 34, this Court came to the conclusion that the grievance of the petitioner before it and the declaration sought regarding non existence of any dispute between the parties referable to arbitration and the consequent prayer for injunction were not maintainable. The argument that the petitioners would be rendered without any remedy was also advanced in that case before this Court which, however, was not required to be decided in the facts and circumstances of that case.

17. In this view of the matter, I am of the considered opinion that application of the respondent no. 1 before the learned 2nd Additional District Judge for the declaration that no dispute existed was itself not tenable and the impugned orders passed in different MJCs by the learned 2nd Additional District Judge, Amravati restraining the Respondent No. 2 from proceeding with the arbitration are not legally sustainable and the proceedings are also liable to be quashed.

18. Petitions are allowed. The order of injunction passed against the Respondent No. 2 restraining him from conducting the arbitration proceedings further is set aside and the Miscellaneous Judicial Cases No. 19/98, 13/98, 14/98, 15/98, 16/98, 17/98 & 18/98 impugned in these petitions and pending on the file of the learned 2nd Additional District Judge, Amravati are hereby quashed.

19. Rule is made absolute in the aforesaid terms. No order as to costs.

Petition allowed.