Letters Patent Appeal No. 212 of 2008,Letters Patent Appeal No. 213 of 2008

8th July, 2008

Petitioner Counsel: Mr. R. S. SUNDARAM
Respondent Counsel: Mr. SHYAM DEWANI

Cases Cited:
SBP & Co. Vs. Patel Engineering Ltd., 2006(1) ALL MR 156 (S.C.)=AIR 2006 SC 450 [Para 4,16,17]
M. S. Commercial Vs. Calicut Engineering Works Ltd., (2004)10 SCC 656 [Para 6]
BASF Styrenics Pvt. Ltd. Vs. Offshore Industial Construction Pvt. Ltd., 2002(2) ALL MR 910=AIR 2002 Bom. 289 [Para 7]
McDermott International Inc. Vs. Burn Standard Co. Ltd., (2006)11 SCC 181 [Para 8]
National Thermal Power Corporation Ltd.Vs. Siemens Atkeingesellschaft, 2007 ALL SCR 1160 : (2007)4 SCC 451 [Para 8]
Shri. Subhalaxmi Fabrics Vs. Chandralal Barodia, Manu/SC/0231/2005 : (2005)10 SCC 704 [Para 13]
T. Anand Gajapatty Raju Vs. PVG Raju, AIR 2000 SC 1886 [Para 13]
Kvaerner Cementation India Ltd. Vs. Bajranglal Agrawal, 2001(3) RAJ 414 [Para 14]
Richi Strips & Alloys Vs. Tata South, (2004)13 SCC 472 [Para 14]
Gas Authority of India Ltd. Vs. Keti Construction (I) Ltd., 2007 ALL SCR 2282 : 2007(5) SCC 38 [Para 15]

JUDGMENT

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 this Court in Writ Petition No.3559/07 & 3563/07 dated 03-04-2008, 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.

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 21-04-2005 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, this 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 own 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 contract; 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 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 Ltd. & another reported in AIR 2006 SC 450 : [2006(1) ALL MR 156 (S.C.)], 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 judicial 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, 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. 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-Komopetenz is a widely accepted feature of modern international arbitration, and allows the Arbitral Tribunal to decide 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-Komopetenz" 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 substantive 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 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 (emphasised 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 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 on its own jurisdiction, but requires it to continue arbitral proceedings and pass an arbitral award. (Sub-section (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. 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 or arbitration proceedings."

6. Even prior to this, the Supreme Court in M. S. Commercial & others Vs. Calicut Engineering Works Ltd., (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 was 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 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 Industial Construction Pvt. Ltd. reported in AIR 2002 BOMBAY 289 : [2002(2) ALL MR 910] while dealing with the provisions of Section 16 & 17 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 judicial 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 Section 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 decision 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 : [2007 ALL SCR 1160].

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 proceeded 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 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 (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).

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 : [2007 ALL SCR 2282] 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 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 SBP & Co. Vs. Patel Engineering Ltd., [2006(1) ALL MR 156 (S.C.)] (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 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".

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, [2006(1) ALL MR 156 (S.C.)] (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 to 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 Letters Patent Appeals are, therefore, dismissed.

Appeals dismissed.