TaxTMI 
TaxTMI 
2005 (10) TMI 495
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....y the Constitution Bench in Konkan Railway Corporation Ltd. and Anr. v. Rani Construction Pvt. Ltd. has taken the view that it is purely an administrative function, that it is neither judicial nor quasi-judicial and the Chief Justice or his nominee performing the function under Section 11(6) of the Act, cannot decide any contentious issue between the parties. The correctness of the said view is questioned in these appeals. 2. Arbitration in India was earlier governed by the Indian Arbitration Act, 1859 with limited application and the Second Schedule to the Code of Civil Procedure, 1908. Then came the Arbitration Act, 1940. Section 8 of that Act conferred power on the Court to appoint an arbitrator on an application made in that behalf. Section 20 conferred a wider jurisdiction on the Court for directing the filing of the arbitration agreement and the appointment of an arbitrator. Section 21 conferred a power on the Court in a pending suit, on the agreement of parties, to refer the differences between them for arbitration in terms of the Act. The Act provided for the filing of the award in court, for the making of a motion by either of the parties to make the award a rule of court....
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....ceeded with an arbitration, without stating his objections referred to in the section, without undue delay. Section 5 indicates the extent of judicial intervention. It says that notwithstanding anything contained in any other law for the time being in force, in matters governed by Part I, no judicial authority shall intervene except where so provided in Part I. The expression 'judicial authority' is not defined. So, it has to be Page 1800 understood as taking in the courts or any other judicial fora. Section 7 defines an arbitration agreement and insists that it must be in writing and also explains when an arbitration agreement could be said to be in writing. Section 8 confers power on a judicial authority before whom an action is brought in a matter which is the subject of an arbitration agreement, to refer the dispute to arbitration, if a party applies for the same. Section 9 deals with the power of the Court to pass interim orders and the power to give interim protection in appropriate cases. It gives a right to a party, before or during arbitral proceedings or at any time after the making of the arbitral arbitral award but before its enforcement in terms of Section 36 o....
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....n (4), or sub-Section (5), or sub-Section (6) of Section 11. Sub- Section (8) enjoins the Chief Justice or the person or institution designated by Page 1801 him to keep in mind the qualifications required for an arbitrator by the agreement of the parties, and other considerations as are likely to secure the appointment of an independent and impartial arbitrator. Sub-Section (9) deals with the power of the Chief Justice of India or a person or institution designated by him to appoint the sole or the third arbitrator in an international commercial arbitration. Sub- Section (10) deals with Chief Justice's power to make a scheme for dealing with matters entrusted to him by sub-Section (4) or sub-Section (5) or sub- Section (6) of Section 11. Sub-Section (11) deals with the respective jurisdiction of Chief Justices of different High Courts who are approached with requests regarding the same dispute and specifies as to who should entertain such a request. Sub-Section 12 clause (a) clarifies that in relation to international arbitration, the reference in the relevant sub- sections to the 'Chief Justice' would mean the 'Chief Justice of India'. Clause (b) indicates that....
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....ady referred to the right of appeal available under Section 37(2) of the Act, on the Tribunal accepting a plea that it does not have jurisdiction or when the arbitral tribunal accepts a plea that it is exceeding the scope of its authority. Page 1802 No second appeal is contemplated, but right to approach the Supreme Court is saved. Chapter X deals with miscellaneous matters. Section 43 makes the Limitation Act, 1963 applicable to proceedings under the Act as it applies to proceedings in Court. 7. We will first consider the question, as we see it. On a plain understanding of the relevant provisions of the Act, it is seen that in a case where there is an arbitration agreement, a dispute has arisen and one of the parties had invoked the agreed procedure for appointment of an arbitrator and the other party has not cooperated, the party seeking an arbitration, could approach the Chief Justice of the High Court if it is an internal arbitration or of the Supreme Court if it is an international arbitration to have an arbitrator or arbitral tribunal appointed. The Chief Justice, when so requested, could appoint an arbitrator or arbitral tribunal depending on the nature of the agreement bet....
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....nditions for exercise of the power have been fulfilled and if an arbitrator is to be appointed, who is the fit person, in terms of the provision. Section 11(7) makes his decision on the matters entrusted to him, final. 9. The very scheme, if it involves an adjudicatory process, restricts the power of the Chief Justice to designate, by excluding the designation of a non-judicial institution or a non-judicial authority to perform the functions. For, under our dispensation, no judicial or quasi-judicial decision can be rendered by an institution if it is not a judicial authority, court or a quasi-judicial tribunal. This aspect is dealt with later while dealing with the right to designate under Section 11(6) and the scope of that designation. 10. The appointment of an arbitrator against the opposition of one of the parties on the ground that the Chief Justice had no jurisdiction or on the ground that there was no arbitration agreement, or on the ground that there was no dispute subsisting which was capable of being arbitrated upon or that the conditions for exercise of power under Section 11(6) of the Act do not exist or that the qualification contemplated for the arbitrator by the p....
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.... (3) lays down that 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. When the Tribunal decides these two questions, namely, the question of jurisdiction and the question of exceeding the scope of Page 1804 authority or either of them, the same is open to immediate challenge in an appeal, when the objection is upheld and only in an appeal against the final award, when the objection is overruled. Sub-section (5) enjoins that if the arbitral tribunal overrules the objections under sub-section (2) or sub-section (3), it should continue with the arbitral proceedings and make an arbitral award. Sub-section (6) provides that a party aggrieved by such an arbitral award overruling the plea on lack of jurisdiction and the exceeding of the scope of authority, may make an application on these grounds for setting aside the award in accordance with Section 34 of the Act. The question, in the context of Sub-Section (7) of Section 11 is, what is the scope of the right conferred on the arbitral tribunal to rule upon its own jurisdiction and the e....
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....district and includes the High Court in exercise of its ordinary original civil jurisdiction. The principal civil court of original jurisdiction is normally the District Court. The High Courts in India exercising ordinary original civil jurisdiction are not too many. So in most of the States the concerned court would be the District Court. Obviously, the Parliament did not want to confer the power on the District Court, to entertain a request for appointing an arbitrator or for constituting an arbitral tribunal under Section 11 of the Act. It has to be noted that under Section 9 of the Act, the District Court or the High Page 1805 Court exercising original jurisdiction, has the power to make interim orders prior to, during or even post arbitration. It has also the power to entertain a challenge to the award that may ultimately be made. The framers of the statute must certainly be taken to have been conscious of the definition of 'court' in the Act. It is easily possible to contemplate that they did not want the power under Section 11 to be conferred on the District Court or the High Court exercising original jurisdiction. The intention apparently was to confer the power on ....
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....owers the Additional District Magistrate can also exercise and who can create other officers equal to himself for the purpose of the Eviction Act." In Mukri Gopalan v. Cheppilat Puthanpurayil Aboobacker this Court after quoting the above passage from the Central Talkies Ltd., Kanpur v. Dwarka Prasad, Page 1806 applied the test to come to the conclusion that when Section 18 of the Kerala Buildings (Lease and Rent Control) Act, 1965 constituted the District Judge as an appellate authority under that Act, it was a case where the authority was being conferred on District Judges who constituted a class and, therefore, the appellate authority could not be considered to be persona designata. What can be gathered from P. Ramanatha Aiyar's Advanced Law Lexicon, 3rd Edition, 2005, is that "persona designata" is a person selected to act in his private capacity and not in his capacity as a judge. He is a person pointed out or described as an individual as opposed to a person ascertained as a member of a class or as filling a particular character. It is also seen that one of the tests to be applied is to see whether the person concerned could exercise the power only so long as he holds off....
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....hed. Thus, the judicial authority is entitled to, has to and bound to decide the jurisdictional issue raised before it, before making or declining to make a reference. Section 11 only covers another situation. Where one of the parties has refused to act in terms of the arbitration agreement, the other party moves the Chief Justice under Section 11 of the Act to have an arbitrator appointed and the first party objects, it would be incongruous to hold that the Chief Justice cannot decide the question of his own jurisdiction to appoint an arbitrator when in a parallel situation, the judicial authority can do so. Obviously, the highest judicial authority has to decide that question and his competence to decide cannot be questioned. If it is held that the Chief Justice has no right or duty to decide the question or cannot decide the question, it will lead to an anomalous situation in that a judicial authority under Section 8 can decide, but not a Chief Justice under Section 11, though the nature of the objection is the same and the consequence of accepting the objection in one case and rejecting it in the other, is also the same, namely, sending the parties to arbitration. The interpret....
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....garding the conferment of the power cannot be said to be conclusive or significant in the circumstances. Observations of this Court in paragraphs 389 and 391 in Supreme Court Advocates on Record Association v. Union of India support the argument that the expression chief justice is used in the sense of collectivity of judges of the Supreme Court and the High Courts respectively. 17. It is true that the power under Section 11(6) of the Act is not conferred on the Supreme Court or on the High Court, but it is conferred on the Chief Justice of India or the Chief Justice of the High Court. One possible reason for specifying the authority as the Chief Justice, could be that if it were merely the conferment of the power on the High Court, or the Supreme Court, the matter would be governed by the normal procedure of that Court, including the right of appeal and the Parliament obviously wanted to avoid that situation, since one of the objects was to restrict the interference by Courts in the arbitral process. Therefore, the power was conferred on the highest judicial authority in the country and in the State in their capacities as Chief Justices. They have been conferred the power or the ....
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....t covered by the arbitration clause, or that the Court which was approached had no jurisdiction to pass any order in terms of Section 9 of the Act, that Court has necessarily to decide whether it has jurisdiction, whether there is an arbitration agreement which is valid in law and whether the dispute sought to be raised is covered by that agreement. There is no indication in the Act that the powers of the Court are curtailed on these aspects. On the other hand, Section 9 insists that once approached in that behalf, "the Court shall have the same power for making orders as it has for the purpose of and in relation to any proceeding before it". Surely, when a matter is entrusted to a Civil Court in the ordinary hierarchy of Courts without anything more, the procedure of that Court would govern the adjudication [See R.M.A.R.A. Adaikappa Chettiar and Anr. v. R. Chandrasekhara Thevar (AIR 1948 P.C. 12)] 19. Section 16 is said to be the recognition of the principle of Kompetenz - Kompetenz. 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 c....
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....g an arbitrator or arbitrators. It is seen that the question was not discussed as such, since the court in that case was not concerned with the interpretation of Section 11 of the Act. The view as above was quoted with approval in Ador Samia Private Limited v. Peekay Holdings Limited and Ors. and nothing further was said about the question. In other words, the question as to the nature of the order to be passed by the Chief Justice when moved under Section 11(6) of the Act, was not discussed or decided upon. 21. In Wellington Associates Ltd. v. Kirit Mehta it was contended before the designated Judge that what was relied on by the applicant was not an arbitration clause. The applicant contended that the Chief Justice of India or the designate Judge cannot decide that question and only the arbitrator can decide the question in view of Section 16 of the Act. The designated Judge held that Section 16 did not exclude the jurisdiction of the Chief Justice of India or the designated Judge to decide the question of the existence of an arbitration clause. After considering the relevant aspects, the learned Judge held: "I am of the view that in cases where --- to start with - there is a ....
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....r his nominee to appoint an arbitrator, the curtailment of the power of the court in the matter of interference, the expanding jurisdiction of the arbitrator in course of the arbitral proceeding, and above all the main objective, namely, the confidence of the international market for speedy disposal of their disputes, the character and status of an order appointing an arbitrator by the Chief Justice or his nominee under Section 11(6) has to be decided upon. If it is held that an order under Section 11(6) is a judicial or quasi-judicial order then the said order would be amenable to judicial intervention and any reluctant party may frustrate the entire purpose of the Act by adopting dilatory tactics in approaching a court of law even against an order of appointment of an arbitrator. Such an interpretation has to be avoided in order to achieve the basic objective for which the country has enacted the Act of 1996 adopting the UNCITRAL Model." 23. The Court proceeded to say that if it were to be held that the order passed was purely administrative in nature, that would facilitate the achieving of the object of the Act, namely, quickly setting in motion the process of arbitration. Grea....
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....ly to aid the constitution of the arbitral tribunal immediately and the legislature having consciously chosen to confer the power on the Chief Justice and not on the court, it was apparent that the order was an administrative order. With respect, it has to be pointed out that this Court did not discus or consider the nature of the power that the Chief Justice is called upon to exercise. Merely because the main purpose was the constitution of an arbitral tribunal, it could not be taken that the exercise of power is an administrative power. While constituting an arbitral tribunal, on the scheme of the Act, the Chief Justice has to consider whether he as the Chief Justice has jurisdiction in relation to the contract, whether there was an arbitration agreement in terms of Section 7 of the Act and whether the person before him with the request, is a party to the arbitration agreement. On coming to a conclusion on these aspects, he has to enquire whether the conditions for exercise of his power under Section 11(6) of the Act exist in the case and only on being satisfied in that behalf, he could appoint an arbitrator or an arbitral tribunal on the basis of the request. It is difficult to ....
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....ok Hurra v. Ashok Hurra and Anr.. 26. In Nimet Resourcs Inc. and Anr. v. Essar Steels Ltd. the question of existence or otherwise of an arbitration agreement between the parties was itself held to be referable to the arbitrator since the order proceeded on the basis that the power under Section 11(6) was merely administrative. 27. The correctness of the decision in Konkan Railway Corporation Ltd. v. Mehul Construction Co. (supra) was doubted in Konkan Railway Cooperation Ltd. v. Rani Construction Pvt. Ltd. The reconsideration was recommended on the ground that the Act did not take away the power of the Court to decide preliminary issues notwithstanding the arbitrator's competence to decide such issues including whether particular matters were "excepted matters", or whether an arbitration agreement existed or whether there was a dispute in terms of the agreement. It was noticed that in other countries where UNCITRAL model was being followed, the court could decide such issues judicially and need not mechanically appoint an arbitrator. There were situations where preliminary issues would have to be decided by the court rather than by the arbitrator. If the order of the Chief Ju....
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....l fact for appointing an arbitrator on a motion under Section 11(6) of the Act, was not kept in view. A Chief Justice could appoint an arbitrator in exercise of his power only if there existed an arbitration agreement and without holding that there was an agreement, it would not be open to him to appoint an arbitrator saying that he was appointing an arbitrator since he has been moved in that behalf and the applicant before him asserts that there is an arbitration agreement. Acceptance of such an argument, with great respect, would reduce the high judicial authority entrusted with the power to appoint an arbitrator, an automaton and sub-servient to the arbitral tribunal which he himself brings into existence. Our system of law does not contemplate such a situation. 30. With great respect, it is seen that the court did not really consider the nature of the rights of the parties involved when the Chief Justice exercised the power of constituting the arbitral tribunal. The court also did not consider whether it was not necessary for the Chief Justice to satisfy himself of the existence of the facts which alone would entitle him or enable him to accede to the request for appointment o....
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.... is an arbitration agreement between the parties, that there was a live and subsisting dispute for being referred to arbitration and constitutes the tribunal as envisaged, on being satisfied of the existence of the conditions for the exercise of his power, ensuring that the arbitrator is a qualified arbitrator, that will put an end to a host of disputes between the parties, leaving the party aggrieved with a remedy of approaching this Court under Article 136 of the Constitution. That would give this Court, an opportunity of scrutinizing the decision of the Chief Justice on merits and deciding whether it calls for interference in exercise of its plenary power. Once this Court declines to interfere with the adjudication of the Chief Justice to the extent it is made, it becomes final. This reasoning is also supported by sub-section (7) of Section 11, making final, the decision of the Chief Justice on the matters decided by him while constituting the arbitral tribunal. This will leave the arbitral tribunal to decide the dispute on merits unhampered by preliminary and technical objections. In the long run, especially in the context of the judicial system in our country, this would be mo....
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....age 1817 had the power to suspend any barrister or solicitor from practicing within the jurisdiction of the court. Under Section 7 of the Supreme Court Ordinance of the Gambia, the Deputy Judge could exercise "all the judicial powers of the Judge of the Supreme Court". The question was, whether the taking of disciplinary action for professional misconduct; was a judicial power or an administrative power. The Judicial Committee of the Privy Council held that a judge exercises judicial powers not only when he is deciding suits between the parties but also when he exercises disciplinary powers which are properly appurtenant to the office of a judge. By way of illustration, Lord Dening stated "Suppose, for instance, that a judge finding that a legal practitioner had been guilty of professional misconduct in the course of a case, orders him to pay the costs, as he has undoubtedly power to do (see Myers v. Elman, per Lord Wright). That would be an exercise of the judicial powers of the judge just as much as if he committed him for contempt of court. Yet there is no difference in quality between the power to order him to pay costs and the power to suspend him or strike him off." 34. The ....
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....judicial order is that there would be two parties and a lis between them which is the subject of adjudication, as a result of that order or a decision on an issue between a proposal and an opposition. No doubt it would not be possible to describe an order passed deciding a lis between the authority that is not a judicial order but it does not follow that the absence of a lis necessarily negatives the order being judicial. Even viewed from this narrow standpoint, it is possible to hold that there was a lis before the Company Judge which he decided by passing the order. On the one hand were the claims of the highest bidder who put forward the contention that he had satisfied the requirements laid down for the acceptance of his bid and was consequently entitled to have the sale in his favour confirmed, particularly so as he was supported in this behalf by the Official Liquidators. On the other hand, there was the first respondent and the large body of unsecured creditors whose interests, even if they were not represented by the first respondent, the court was bound to protect. If the sale of which confirmation was sought was characterized by any deviation subject to which the sale was....
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....ome to an end. There have been cases where the appointment of an arbitrator has been sought, after the parties had settled the accounts and the concerned party had certified that he had no further claims against the other contracting party. In other words, there have been occasions when dead claims are sought to be resurrected. There have been cases where assertions are made of the existence of arbitration agreements when, in fact, such existence is strongly disputed by the other side who appears on issuance of notice. Controversies are also raised as to whether the claim that is sought to be put forward comes within the purview of the concerned arbitration clause at all. The Chief Justice has necessarily to apply his mind to these aspects before coming to a conclusion one way or the other and before proceeding to appoint an arbitrator or declining to appoint an arbitrator. Obviously, this is an adjudicatory process. An opportunity of hearing to both parties is a must. Even in administrative functions if rights are affected, rules of natural justice step in. The principles settled by Ridge v. Baldwin [(1963) 2 ALL ER 66] are well known, therefore, to the extent, Konkan Railway (sup....
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....e, the decision on all these aspects rendered by the Chief Justice would attain finality and it is obvious that the decision on these aspects could be taken only after notice to the parties and after hearing them. 38. It is necessary to define what exactly the Chief Justice, approached with an application under Section 11 of the Act, is to decide at that stage. Obviously, he has to decide his own jurisdiction in the sense, whether the party making the motion has approached the right High Court. He has to decide whether there is an arbitration agreement, as defined in the Act and whether the person who has made the request before him, is a party to such an agreement. It is necessary to indicate that he can also decide the question whether the claim was a dead one; or a long barred claim that was sought to be resurrected and whether the parties have concluded the transaction by recording satisfaction of their mutual rights and obligations or by receiving the final payment without objection. It may not be possible at that stage, to decide whether a live claim made, is one which comes within the purview of the arbitration clause. It will be appropriate to leave that question to be dec....
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....ctions under Section 11(6) of the Act. We have seen the definition of 'Court' in the Act. We have reasoned that the intention of the legislature was not to entrust the duty of appointing an arbitrator to the District Court. Since the intention of the statute was to entrust the power to the highest judicial authorities in the State and in the country, we have no hesitation in holding that the Chief Justice cannot designate a district judge to perform the functions under Section 11(6) of the Act. This restriction on the power of the Chief Justice on designating a district judge or a non-judicial authority flows from the scheme of the Act. 41. In our dispensation of justice, especially in respect of matters entrusted to the ordinary hierarchy of courts or judicial authorities, the duty would normally be performed by a judicial authority according to the normal procedure of that court or of that authority. When the Chief Justice of the High Court is entrusted with the power, he would be entitled to designate another judge of the High Court for exercising that power. Similarly, the Chief Justice of India would be in a position to designate another judge of the Supreme Court to ....
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....fore the Tribunal only on the merits of the claim. Obviously, the dispensation in our country, does not contemplate any further appeal from the decision of the Supreme Court and there appears to be nothing objectionable in taking the view that the order of the Chief Justice of India would be final on the matters which are within his purview, while called upon to exercise his jurisdiction under Section 11 of the Act. It is also necessary to notice in this context that this conclusion of ours would really be in aid of quick disposal of arbitration claims and would avoid considerable delay in the process, an object that is sought to be achieved by the Act. 44. It is seen that some High Courts have proceeded on the basis that any order passed by an arbitral tribunal during arbitration, would be capable of being challenged under Article 226 or 227 of the Constitution of India. We see no warrant for such an approach. Section 37 makes certain orders of the arbitral tribunal appealable. Under Section 34, the aggrieved party has an avenue for ventilating his grievances against the award including any in-between orders that might have been passed by the arbitral tribunal acting under Sectio....
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....existence or otherwise of a live claim, the existence of the condition for the exercise of his power and on the qualifications of the arbitrator or arbitrators. The Chief Justice or the judge designated would be entitled to seek the opinion of an institution in the matter of nominating an arbitrator qualified in terms of Section 11(8) of the Act if the need arises but the order appointing the arbitrator could only be that of the Chief Justice or the judge designate. (v) Designation of a district judge as the authority under Section 11(6) of the Act by the Chief Justice of the High Court is not warranted on the scheme of the Act. (vi) Once the matter reaches the arbitral tribunal or the sole arbitrator, the High Court would not interfere with 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. (vii) Since an order passed by the Chief Justice of the High Court or by the designated judge of that court is a judicial order, an appeal will lie against that order only under Article 136 of the Constitution of Ind....
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....ambers. Formal arbitration proceedings, however, came into existence after Britishers started commercial activities in India. The provisions relating to arbitration were found in the Code of Civil Procedure, 1859 (Act VIII of 1859) which was repealed by Act X of 1877. A full-fledged law pertaining to arbitration in India was the Arbitration Act, 1899. A consolidated and amended law relating to arbitration was passed in 1940, known as the Arbitration Act, 1940 (Act X 1940). As has been said, protracted, time consuming, atrociously expensive and complex court procedure impelled the commercial-world to an alternative, less formal, more effective and speedy mode of resolution of disputes by a Judge of choice of the parties which culminated into passing of an Arbitration Act. Experience, however, belied expectations. Proceedings became highly technical and thoroughly complicated. The provisions of the Act made 'lawyers laugh and litigants weep'. Representations were made from all quarters of the society to amend the law by making it more responsive to contemporary requirements. Moreover, apart from arbitration, conciliation has been getting momentum and worldwide recognition as....
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....'such number shall not be an even number'. Section 11 relates to appointment of arbitrators. It is relevant and material and may be quoted in extenso; "11. Appointment of arbitrators. - (1) A person of any nationality may be an arbitrator, unless otherwise agreed by the parties. (2) Subject to Sub-section (6), the parties are free to agree on a procedure for appointing the arbitrator or arbitrators. (3) Failing any agreement referred to in Sub-section (2), in an arbitration with three arbitrators, each party shall appoint one arbitrator, and the two appointed arbitrators shall appoint the third arbitrator who shall act as the presiding arbitrator. (4) If the appointment procedure in Sub-section (3) applies and- (a) a party fails to appoint an arbitrator within thirty days from the receipt of a request to do so from the other party; or (b) the two appointed arbitrators fail to agree on the third arbitrator within thirty days from the date of their appointment; Page 1826 the appointment shall be made, upon request of a party, by the Chief Justice or any person or institution designated by him. (5) Failing any agreement referred to in Sub-section (2), in an arb....
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....d to in Sub-sections (4), (5), (6), (7), (8) and (10) arise in any other arbitration, the reference to "Chief Justice" in those sub-sections shall be construed as a reference to the Chief Justice of the Page 1827 High Court within whose local limits the principal Civil Court referred to, in Clause (e) of Sub-section (1) of Section 2 is situate and, where the High Court itself is the Court referred to in that clause, to the Chief Justice of that High Court." 7. Section 12 requires the arbitrator to disclose the disqualification, if any. It also permits parties to challenge such arbitrator. Whereas Section 13 lays down procedure for challenge, Sections 14 and 15 deal with special situations. 8. Chapter IV relates to jurisdiction of Arbitral Tribunals. Section 16 is another important provision and confers power on the Arbitral Tribunal to rule on its own jurisdiction. It reads thus ; "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 ....
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....hief Justice or any person or institution designated by him to take necessary steps for securing the appointment. Sub-section (7) of Section 11 makes the 'decision' of the Chief Justice 'final'. Sub-section (8) requires the Chief Justice or the person or institution designated by him in appointing an arbitrator to have due regard to qualifications required of the arbitrator by the agreement of the parties as also other considerations as are likely to secure the appointment of independent and impartial arbitrator. Sub-section (10) enables the Chief Justice to frame a scheme dealing with matters entrusted to him by Sub-sections (4) to (6). 12. Section 11 came to be interpreted by this Court in few cases. In Sundaram Finance Ltd. v. NEPC India Ltd., a two Judge Bench was called upon to consider whether under Section 9 of the Act, the 'court' had jurisdiction to pass interim orders before arbitral proceedings commenced and before an arbitrator was appointed. Considering the scope of the said provision, this Court held that the 'court' had no jurisdiction to entertain application under Section 9 before initiation of arbitration proceedings. 13. The Cour....
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.... power on the 'Chief Justice' and not on the 'Court'. The order passed by the Chief Justice or his nominee was administrative order. The Court considered UNCITRAL Model Law of International Commercial Arbitration, the old Act of 1940 and the relevant provisions of 1996 Act and observed that the sole objective was to resolve disputes as expeditiously as possible so that trade and commerce are not adversely affected on account of litigation. The Statement of Objects and Reasons of the Act clearly enunciated the object of the legislation that it was intended to minimize the supervisory role of the court in arbitral process. 17. According to the Court, when the matter is placed before the Chief Justice or his nominee under Section 11 of the Act, it is imperative for the Chief Justice or his nominee to bear in mind the legislative intent. The Chief Justice or his nominee is not expected to entertain contentious issues between the parties and decide them. Section 16 of the Act empowers the Arbitral Tribunal to rule on its own jurisdiction. Combined reading of Sections 11 and 16 make it crystal clear that questions as to qualifications, independence and impartiality of Ar....
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....se existed or the matters were 'excepted matters'. Again, if the order of the Chief Justice or his nominee would be treated as administrative, it could be challenged before a High Court under Article 226 of the Constitution, then before a Division Bench in Letters Patent Appeal/Intra-court Appeal and then before the Supreme Court under Article 136 of the Constitution which would further delay arbitration proceedings. It was, therefore, necessary to reconsider the law laid down in Konkan Railway Corporation Ltd. I. 19. In view of the contentions raised before a two-Judge Bench, an order was passed directing the Registry to place the papers before Hon. the Chief Justice for passing appropriate orders. Konkan Railway Corporation Ltd. I was thus placed before a Constitution Bench of five Judges. The Constitution Bench, Page 1831 considered the relevant provisions of the Act and the scheme framed by the Chief Justice of India known as "The Appointment of Arbitrators by the Chief Justice of India Scheme, 1996". 20. Discussing the Statement of Objects and Reasons and considering the relevant provisions of the Act, the Court held that the only function the Chief Justice or his de....
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.... the Chief Justice or his designate is final. In nominating an arbitrator the Chief Justice or his designate must have regard to the qualifications required of the arbitrator in the agreement between the parties and to other considerations that will secure the nomination of an independent and impartial arbitrator. There is nothing in Section 11 that requires the party other than the party making the request to be noticed. It does not contemplate a response from that other party. It does not contemplate a decision by the Chief Justice or his designate on any controversy that the other party may raise, even in Page 1832 regard to its failure to appoint an arbitrator within the period of thirty days. That the Chief Justice or his designate has to make the nomination of an arbitrator only if the period of thirty days is over does not lead to the conclusion that the decision to nominate is adjudicatory. In its request to the Chief Justice to make the appointment the party would aver that this period has passed and, ordinarily, correspondence between the parties would be annexed to bear this out. This is all that the Chief Justice or his designate has to see. That the Chief Justice or ....
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....arbitration agreement" shows that the arbitral tribunal's authority under Section 16 is not confined to the width of its jurisdiction, as was submitted by learned Counsel for the appellants, but goes to the very root of its jurisdiction. There would, therefore, be no impediment in contending before the arbitral tribunal that it had been wrongly constituted by reason of the fact that the Chief Justice or his designate had nominated an arbitrator although the period of thirty days had not expired and that, therefore, it had no jurisdiction." 22. Regarding the scheme, the Court observed that such scheme could not govern the Act. Since Section 11 did not contain any element of 'adjudication' and the function of the Chief Justice or his designate was purely administrative, there was no question of issuing notice to affected persons or to afford opportunity of hearing. The scheme, however, contained Clause 7 (Notice to affected persons) and expressly provided for issuance of notice to persons likely to be affected thereby. It thus went 'beyond terms of Section 11' and was, therefore, bad. 23. The Court, in this connection, observed ; "The schemes made by the Chief....
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....o arbitrators have failed to reach an agreement or a person or institution has failed to perform the function entrusted to him or it. Moreover, the Chief Justice in appointing an arbitrator 'shall have regard to' qualifications, independence and impartiality of the arbitrator. The Chief Justice, after considering all those factors will come to a conclusion whether the provisions of law have been complied with and only then he may make such order. The issues arise before the Chief Justice are thus contentious issues and require adjudication. Such adjudication affects rights of parties. The 'duty to act judicially' is, therefore, implicit and the decision is judicial or quasi-judicial. 28. I am unable to uphold the argument. In my view, it is based on the misconception that wherever a statute requires certain matters to be taken into account and the authority is obliged to apply its mind to those considerations, the action, decision or adjudication must be held judicial or quasi-judicial. With respect, this is not the legal position. 29. It is settled law that in several cases, an appropriate authority may have to consider the circumstances laid down in the Act, app....
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....emphasis supplied) 32. Now, it cannot be disputed that the action of the Government (of referring the dispute or refusing to refer it) certainly affects one party or the other. Still an action which is otherwise administrative in nature does not change its character and remains as it is irrespective of the consequences likely to ensue or the effect of decision on parties to such dispute. [See also Prem Kakar v. State of Haryana, Sultan Singh v. State of Haryana, Secretary Indian Tea Association v. Ajit Kumar Barat,] 33. Several similar actions having far reaching consequences have been held administrative, for instance, an order of acquisition or requisition of property; an order making an appointment to a civil post, an order granting sanction to prosecute a public servant; etc. 34. It cannot be gainsaid that there must be an 'arbitration agreement' between the parties. It also cannot be denied that there must be default or failure on the part of one party to appoint an arbitrator. But that will not make the function performed by the Chief Justice as judicial or quasi-judicial. Chapter II (Arbitration Agreement) precedes Chapter III (Composition of Arbitral Tribunal). T....
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....o allegations and counter- allegations of the parties and will form an opinion on the available material. Thus, in Wellington Associates Ltd. v. Kirit Mehta, at the stage of Section 11, it was argued that the relevant clause relied upon by the applicant was not an 'arbitration clause'. It merely permitted parties to agree, in future, to go to arbitration. 38. Upholding the objection, the Court observed that the clause was not an arbitration clause and the application was not maintainable. It held that Section 16 did not take away the jurisdiction of the Chief Justice to decide the question of 'existence' of the arbitration agreement. The said section did not declare that except the Arbitral Tribunal, none else could determine such question. "Merely because the new Act permits the arbitrator to decide this question, it does not necessarily follow that at the stage of Section 11, the Chief Justice of India or his designate cannot decide the question as to the existence of the arbitration clause." [See also Malaysian Airlines System v. Stic Travels (P) Ltd., (2001) 1 SCC 509; Nimeet Resources INC v. Essar Steels Ltd.; (2000) SCC 497; Shin Etsu Chemical Co. Ltd. v. Aks....
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....finality' and such clauses require to be interpreted in juxta-position of constitutional provisions. As a general rule, no appeal, revision or review lies against an order which has been treated by a statute as 'final'. It may not be challenged by instituting a civil suit in certain cases. But such finality cannot take away the jurisdiction of High Courts or the Supreme Court and judicial review is available against 'final' orders albeit on limited grounds. [Vide Somvanti v. State of Punjab; Neelima Misra v. Harvinder Kaur Paintal and Ors.] 43. But there is another important reason why the function of the Chief Justice under Section 11 should be considered administrative. All the three Sub-sections, (4), (5) and (6) of the said section empower the Chief Justice or 'any person or institution designated by him' to exercise the power of the Chief Page 1838 Justice. No provision similar to the one in hand was present in 1940 Act. Parliament, therefore, has consciously and intentionally made the present arrangement for the first time allowing exercise of the power by the Chief Justice himself or through 'any person or institution designated by him', ....
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....e 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 recognized in other legal systems. It had also been recognized 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 Page 1839 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. (emphasis supplied) Alan Redfern and Martin Hunter in their work on "Law and Practice of International Comm....
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....nce- competence principle: how can an arbitrator, solely on the basis of an arbitration agreement, declare that agreement to be void or even hear a claim to that effect? The answer is simple: the basis for the competence- competence Page 1840 principle lies not in the arbitration agreement, but in the arbitration laws of the country where the arbitration is held and, more generally, in the laws of all countries liable to recognize an award made by arbitrators concerning their own jurisdiction. For example, an international arbitral tribunal sitting in France can properly make an award declaring that it lacks jurisdiction for want of a valid arbitration agreement, because it does so on the basis of French arbitration law, and not on the basis of the arbitration agreement held to be non-existent or invalid. Similarly, it is perfectly logical for the interested party to rely on that award in other jurisdictions, provided that those other jurisdictions also recognize the competence-competence principle. As we shall now see, the legal basis for the principle does not prejudice the subsequent review by the courts, in France or in the country where recognition is sought, of the arbitrator....
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....hat sense, the competence-competence principle is a rule of chronological priority. Taking both of its facets into account, the competence-competence principle can be defined as the rule whereby arbitrators must have the first Page 1841 opportunity to hear challenges relating to their jurisdiction, subject to subsequent review by the courts. 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. 47. In R....
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...., Sub-sections (5) and (6). The former requires the tribunal to continue the proceedings in case it decides that the tribunal has jurisdiction in the matter and the latter provides remedy to the aggrieved party. 50. In my opinion, conjoint reading of Sub-sections (1), (4), (5) and (6) makes it abundantly clear that the provision is 'self-contained' and deals with all cases, even those wherein the plea as to want of jurisdiction has been rejected. As a general rule, such orders are subject to certiorari jurisdiction since a court of limited jurisdiction or an inferior tribunal by wrongly interpreting a statutory provision cannot invest itself with the jurisdiction which it otherwise does not possess. But it is always open to a competent Legislature to invest a tribunal of limited jurisdiction with the power to decide or determine finally the preliminary or jurisdictional facts on which exercise of its jurisdiction depends. In such cases, the finding recorded by the tribunal cannot be challenged by certiorari. (Vide Ujjam Bai v. State of U.P. 51. As a general rule, neither in England, nor in India, such jurisdiction is granted on a court of limited jurisdiction or on an inf....
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....ertain state of facts exists and is shown to such tribunal or body before it proceeds to do certain things, it shall have jurisdiction to do such things, but not otherwise. There it is not for them conclusively to decide whether that state of facts exists, and, if they exercise the jurisdiction without its existence, what they do may be questioned, and it will be held that they have acted without jurisdiction. But there is another state of things which may exist. The legislature may intrust the tribunal or body with a jurisdiction, which includes the jurisdiction to determine whether the preliminary state of facts exists as well as the jurisdiction, on finding that it does exist, to proceed further or do something more. When the legislature are establishing such a tribunal or body with limited jurisdiction, they also have to consider, whatever jurisdiction they give them, whether there shall be any appeal from their decision, for otherwise there will be none. In the second of the two cases I have mentioned it is an erroneous application of the formula to say that the tribunal cannot give themselves jurisdiction by wrongly deciding certain facts to exist, because the legislature gav....
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....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 of arbitration proceedings. 60. It was submitted by Mr. Venugopal that once the Chief Justice is satisfied as to fulfillment of conditions for the exercise of power to appoint an arbitrator and his decision is 'final', it would be impossible to hold that the Arbitral Tribunal can go behind the decision of the Chief Justice and hold otherwise. 61. Mr. Venugopal suggested that Section 16 should be so construed that it would apply only to the cases covered by Sub-sections (2) and (3) of Section 11 and not to Sub-section (6) of Section 11 and the appointment of an arbitrator made ....
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....si-judicial and then proceeds to examine legal position on that basis and attempts to salvage the situation by urging that the power must be exercised by the Chief Justice. In that case, however, the subsequent part "or any person or institution designated by him" (Chief Justice) would become redundant. Realising the difficulty and keeping in view the principles relating to interpretation of statutes, Mr. Nariman, Senior Advocate submitted that Section 11 provides for dichotomy of functions. It contemplates two situations, and deals with two stages. The first stage consists of consideration of preliminary facts and taking of decision Page 1846 as to whether an arbitrator can be appointed. The second stage allows nomination of an arbitrator. According to Mr. Nariman, the first part is essentially a judicial function, which cannot be delegated to 'any person or institution' and at the most, it can be delegated to any Judge of the court. The second stage, however, is more or less ministerial and at that stage, the Chief Justice may, if he thinks fit, take help of any person or institution so that proper and fit person is appointed as arbitrator. 65. Though the submission weig....
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....s. In reality, however, it is likely to cause delay for the simple reason that if the order passed by the Chief Justice of the High Court is treated as judicial or quasi judicial, it can only be challenged in the Supreme Court under Article 136 of the Constitution. So far as the order of the Chief Justice of India is concerned, it is 'final' as no appeal/application/writ petition lies against it. But if such decision is held to be administrative, initially, it can be challenged on the judicial side of the High Court under Article 226 of the Constitution. Normally, under the High Court Rules, such petitions are dealt with and decided by a Single Judge. Hence, the decision of a single Page 1847 Judge can further be challenged by filing a Letters Patent Appeal or Intra-court Appeal under the relevant clause of the Letters Patent applicable to the High Court concerned. Finally, an order passed by the Division Bench can always be made subject-matter of challenge before this Court under Article 136 of the Constitution. Thus, an interpretation sought to be adopted for the purpose of reducing litigation and speedy disposal of proceedings would really result in increase of litigatio....
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....ai and Ors. v. M. Abdul Khadir;] 71. In State of Orissa and Ors. v. Gokulananda Jena, (2003) 6 SCC 456, relying upon Konkan Railway Corporation Ltd. II, the High Court of Orissa held that since the order passed by the Chief Justice was administrative, it was not amenable to writ jurisdiction under Article 226 of the Constitution. 72. Holding that the High Court was wrong and the writ petition under Article 226 was maintainable, a two-Judge Bench stated; "However, we must notice that in view of Section 16 read with Sections 12 and 13 of the Act as interpreted by the Constitution Bench of this Court in the M/s. Konkan Railway (supra) almost all disputes which could be presently contemplated can be raised and agitated before the Arbitrator appointed by the Designated Judge under Section 11(6) of the Act. From the perusal of the said provisions of the Act, it is clear that there is hardly any area of dispute which cannot be decided by the Arbitrator appointed by the Designated Judge. If that be so, since an alternative efficacious remedy is available before the Arbitrator, writ court normally would not entertain a challenge to an order of the Designated Judge made under Section 11(....
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....common in England to invest responsible public officials with the duty of appointing Arbitrators under given circumstances. Such appointment should be made with integrity and impartiality, but it is new to their Lordships to hear them called judicial acts..." (emphasis supplied) 77. The last question relates to issuance of notice to the party likely to be affected and affording an opportunity of hearing before making an order of composition of Arbitral Tribunal. Section 8 of the old Act of 1940 expressly provided written notice and opportunity of hearing in case of appointment of an arbitrator or umpire. The present Act of 1996 neither provides for issuance of notice nor for opportunity of being heard. In exercise of power under Sub-section (10) of Section 11 of the Act, the Chief Justice of India had framed a scheme, known as "The Appointment of Arbitrators by the Chief Justice of India Scheme. 1996". Clause 7 provided for issuing notice to affected persons and read thus; "Notice to affected persons.- Subject to the provisions of paragraph 6, the Chief Justice or the person or the institution designated by him shall direct that a notice of the request be given to all the parti....
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....clearly shows that since the Constitution Bench was of the view that while performing function of appointing an Arbitral Tribunal the Chief Justice was not acting as a Court or Tribunal, he was not expected to issue notice or afford an opportunity of hearing to the parties likely to be affected by such decision. 83. Once the function of the Chief Justice is held to be administrative, there may not be 'duty to act judicially' on the part of the Chief Justice. Nevertheless in such cases, an administrative authority is required to act 'fairly'. Basic procedural fairness requires such notice to the opposite party. The principle in R. v. Electricity Commissioners, or Ridge v. Baldwin, may not apply to administrative functions, but another concept which developed at a later stage and accepted in public law field and found place in Administrative Law of 'duty to act fairly' would apply to administrative actions as well. 84. By now, it is well settled that when an administrative action is likely to affect rights of subjects, there would be a duty on the part of the authority to act fairly. 85. In Pearlberg v. Varty (Inspector of Taxes), Lord Pearson said; "A tr....
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....e to lay down any fixed or rigorous yardstick in this manner. The concept of natural justice cannot be put into a straitjacket. It is futile, therefore, to look for definitions or standards of natural justice from various decisions and then try to apply them to the facts of any given case. The only essential point that has to be kept in mind in all cases is that the person concerned should have a reasonable opportunity of presenting his case and that the administrative authority concerned should act fairly, impartially and reasonably. Where administrative officers are concerned, the duty is not so much to act judicially as to act fairly. (emphasis supplied) 90. In Mohinder Singh Gill v. Chief Election Commission after considering several cases, Krishna Iyer, J. stated : "Once we understand the soul of the rule as fairplay in action -and it is so - we must hold that it extends to both the fields. After all, administrative power in a democratic set-up is not allergic to fairness in action and discretionary executive justice cannot degenerate into unilateral injustice. Nor is there ground to be frightened of delay, inconvenience and expense, if natural justice gains access. For f....
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....confusing to characterize as judicial or even quasi-judicial, the decision-makers' functions, and inappropriate to insist on a procedure analogous to a trial." ['Judicial Review of Administrative Action'; (1995); p. 399] 94. It is thus clear that the doctrine of 'fairness' has become all pervasive. As has been said, the 'acting fairly' doctrine proved useful as a device for evading confusion which prevailed in the past. "The courts now have two strings to their bow." An administrative act may be held to be subject to the requirement and observance of natural justice either because it affects rights or interests and hence would involve a 'duty to act judicially' or it may be administrative, pure and simple, and yet, may require basic procedural Page 1853 protection which would involve 'duty to act fairly'. [Wade & Forsyth; 'Administrative Law'; (2005); pp. 492-94; de Smith; "Judicial Review of Administrative Action", (1995); pp. 397-98] 95. 'Acting fairly' is thus an additional weapon in the armoury of the court. It is not intended to be substituted for another much more powerful weapon 'acting judicially'. Wher....