TMI Blog2005 (10) TMI 495X X X X Extracts X X X X X X X X Extracts X X X X ..... tion to rule 'on its own jurisdiction' under Sub-section (1) of Section 16 of the Act. Where the Arbitral Tribunal holds that it has jurisdiction, it shall continue with the arbitral proceedings and make an arbitral award. A remedy available to the party aggrieved is to challenge the award in accordance with Section 34 or Section 37 of the Act. Since the order passed by the Chief Justice under Sub-section (6) of Section 11 of the Act is administrative, a Writ Petition under Article 226 of the Constitution is maintainable. A Letters Patent Appeal/Intra-court Appeal is competent. A Special Leave Petition under Article 136 of the Constitution also lies to this Court. (viii) While exercising extraordinary jurisdiction under Article 226 of the Constitution, however, the High Court will be conscious and mindful of the relevant provisions of the Act, including Sections 5, 16, 34 to 37 as also the object of the legislation and exercise its power with utmost care, caution and circumspection. Since the Chief Justice is performing administrative function in appointing an Arbitral Tribunal, there is no 'duty to act judicially' on his part. The doctrine of 'duty to act fairly', howe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ainst the decision on such a motion. This Act was replaced by the Arbitration and Conciliation Act, 1996 which, by virtue of Section 85, repealed the earlier enactment. 3. The Arbitration and Conciliation Act, 1996 (hereinafter referred to as 'the Act') was intended to comprehensively cover international and commercial arbitrations and conciliations as also domestic arbitrations and conciliations. It envisages the making of an arbitral procedure which is fair, efficient and capable of meeting the needs of the concerned arbitration and for other matters set out in the objects and reasons for the Bill. The Act was intended to be one to consolidate and amend the law relating to domestic arbitrations, international commercial arbitrations and enforcement of foreign arbitral awards, as also to define the law relating to conciliation and for matters connected therewith or incidental thereto. The preamble indicates that since the United Nations Commission on International Trade Law (UNCITRAL) has adopted a Model Law for International Commercial Arbitration and the General Assembly of the United Nations has recommended that all countries give due consideration to the Model Law a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Part I deals with composition of arbitral tribunals. Section 10 gives freedom to the parties to determine the number of arbitrators but imposes a restriction that it shall not be an even number. Then comes Section 11 with which we are really concerned in these appeals. 5. The marginal heading of Section 11 is 'Appointment of arbitrators'. Sub- Section (1) indicates that a person of any nationality may be an arbitrator, unless otherwise agreed to by the parties. Under sub-Section (2), subject to sub-Section (6),the parties are free to agree on a procedure for appointing the arbitrator or arbitrators. Under sub- Section (3), failing any agreement in terms of sub-Section (2), in an arbitration with three arbitrators, each party could appoint one arbitrator, and the two arbitrators so appointed, could appoint the third arbitrator, who would act as the presiding arbitrator. Under sub- Section (4), the Chief Justice or any person or institution designated by him could make the appointment, in a case where sub-Section (3) has application and where either the party or parties had failed to nominate their arbitrator or arbitrators or the two nominated arbitrators had failed to a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to the Chief Justice of the High Court within whose local limits the principal Court is situated. 'Court' is defined under Section 2(e) as the principal Civil Court of original jurisdiction in a district. 6. Section 12 sets out the grounds of challenge to the person appointed as arbitrator and the duty of an arbitrator appointed, to disclose any disqualification he may have. Sub-Section (3) of Section 12 gives a right to the parties to challenge an arbitrator. Section 13 lays down the procedure for such a challenge. Section 14 takes care of the failure of or impossibility for an arbitrator to act and Section 15 deals with the termination of the mandate of the arbitrator and the substitution of another arbitrator. Chapter IV deals with the jurisdiction of arbitral tribunals. Section 16 deals with the competence of an arbitral tribunal, to rule on its jurisdiction. The arbitral tribunal may rule on its own jurisdiction, including ruling on any objection with respect to the existence or validity of the arbitration agreement. A person aggrieved by the rejection of his objection by the tribunal on its jurisdiction or the other matters referred to in that Section, has to wait ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t of an arbitrator under sub-Section (6) of Section 11 do exist. The Chief Justice could designate another person or institution to take the necessary measures. The Chief Justice has also to have the qualification of the arbitrators in mind before choosing the arbitrator. An arbitral tribunal so constituted, in terms of Section 16 of the Act, has the right to decide whether it has jurisdiction to proceed with the arbitration, whether there was any agreement between the parties and the other matters referred to therein. 8. Normally, any tribunal or authority conferred with a power to act under a statute, has the jurisdiction to satisfy itself that the conditions for the exercise of that power existed and that the case calls for the exercise of that power. Such an adjudication relating to its own jurisdiction which could be called a decision on jurisdictional facts, is not generally final, unless it is made so by the Act constituting the tribunal. Here, sub- Section (7) of Section 11 has given a finality to the decisions taken by the Chief Justice or any person or institution designated by him in respect of matters falling under sub-Sections (4), (5) and (6) of Section 11. Once a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s which affect the rights of parties. It cannot be said that when the Chief Justice decides that he has jurisdiction to proceed with the matter, that there is an arbitration agreement and that one of the parties to it has failed to act according to the procedure agreed upon, he is not adjudicating on the rights of the party who is raising these objections. The duty to decide the preliminary facts enabling the exercise of jurisdiction or power, gets all the more emphasized, when sub-Section (7) designates the order under sub-sections (4), (5) or (6) a 'decision' and makes the decision of the Chief Justice final on the matters referred to in that sub-Section. Thus, going by the general principles of law and the scheme of Section 11, it is difficult to call the order of the Chief Justice merely an administrative order and to say that the opposite side need not even be heard before the Chief Justice exercises his power of appointing an arbitrator. Even otherwise, when a statute confers a power or imposes a duty on the highest judicial authority in the State or in the country, that authority, unless shown otherwise, has to act judicially and has necessarily to consider whether h ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Chief Justice or the person designated by him had appointed an arbitrator after satisfying himself that the conditions for the exercise of power to appoint an arbitrator are present in the case. Prima facie, it would be difficult to say that in spite of the finality conferred by sub-Section (7) of Section 11 of the Act, to such a decision of the Chief Justice, the arbitral tribunal can still go behind that decision and rule on its own jurisdiction or on the existence of an arbitration clause. It also appears to us to be incongruous to say that after the Chief Justice had appointed an arbitral tribunal, the arbitral tribunal can turn round and say that the Chief Justice had no jurisdiction or authority to appoint the tribunal, the very creature brought into existence by the exercise of power by its creator, the Chief Justice. The argument of learned Senior Counsel, Mr. K.K. Venugopal that Section 16 has full play only when an arbitral tribunal is constituted without intervention under Section 11(6) of the Act, is one way of reconciling that provision with Section 11 of the Act, especially in the context of sub- section (7) thereof. We are inclined to the view that the decision of t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ef Justices of High Courts and on the Chief Justice of India. Such a provision is necessarily intended to add the greatest credibility to the arbitral process. The argument that the power thus conferred on the Chief Justice could not even be delegated to any other Judge of the High Court or of the Supreme Court, stands negatived only because of the power given to designate another. The intention of the legislature appears to be clear that it wanted to ensure that the power under Section 11(6) of the Act was exercised by the highest judicial authority in the concerned State or in the country. This is to ensure the utmost authority to the process of constituting the arbitral tribunal. 13. Normally, when a power is conferred on the highest judicial authority who normally performs judicial functions and is the head of the judiciary of the State or of the country, it is difficult to assume that the power is conferred on the Chief Justice as persona designata. Under Section 11(6), the Chief Justice is given a power to designate another to perform the functions under that provision. That power has generally been designated to a Judge of the High Court or of the Supreme Court respective ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ceasing to be a Chief Justice, the person referred to in Section 11(6) of the Act could not exercise the power. Thus, it is clear that the power is conferred on the Chief Justice under Section 11(6) of the Act not as persona designata. 14. Normally a persona designata cannot delegate his power to another. Here, the Chef Justice of the High Court or the Chief Justice of India is given the power to designate another to exercise the power conferred on him under Section 11(6) of the Act. If the power is a judicial power, it is obvious that the power could be conferred only on a judicial authority and in this case, logically on another Judge of the High Court or on a Judge of the Supreme Court. It is logical to consider the conferment of the power on the Chief Justice of the High Court and on the Chief Justice of India as presiding Judges of the High Court and the Supreme Court and the exercise of the power so conferred, is exercise of judicial power/authority as presiding Judges of the respective courts. Replacing of the word 'court' in the Model Law with the expression Chief Justice in the Act, appears to be more for excluding the exercise of power by the District Court a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... for such an anomaly. 16. Section 11(6) does enable the Chief Justice to designate any person or institution to take the necessary measures on an application made under Section 11(6) of the Act. This power to designate recognized in the Chief Justice, has led to an argument that a judicial decision making is negatived, in taking the necessary measures on an application, under Section 11(6) of the Act. It is pointed out that the Chief Justice may designate even an institution like the Chamber of Commerce or the Institute of Engineers and they are not judicial authorities. Here, we find substance in the argument of Mr. F.S.Nariman, learned senior counsel that in the context of Section 5 of the Act excluding judicial intervention except as provided in the Act, the designation contemplated is not for the purpose of deciding the preliminary facts justifying the exercise of power to appoint an arbitrator, but only for the purpose of nominating to the Chief Justice a suitable person to be appointed as arbitrator, especially, in the context of Section 11(8) of the Act. One of the objects of conferring power on the highest judicial authority in the State or in the country for constituting ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Act. We have already seen that it is not possible to envisage that the power is conferred on the Chief Justice as persona designata. Therefore, the fact that the power is conferred on the Chief Justice, and not on the court presided over by him is not sufficient to hold that the power thus conferred is merely an administrative power and is not a judicial power. 18. It is also not possible to accept the argument that there is an exclusive conferment of jurisdiction on the arbitral tribunal, to decide on the existence or validity of the arbitration agreement. Section 8 of the Act contemplates a judicial authority before which an action is brought in a matter which is the subject of an arbitration agreement, on the terms specified therein, to refer the dispute to arbitration. A judicial authority as such is not defined in the Act. It would certainly include the court as defined in Section 2(e) of the Act and would also, in our opinion, include other courts and may even include a special tribunal like the Consumer Forum (See Fair Air Engineers (P) Ltd. and Anr. v. N.K. Modi . When the defendant to an action before a judicial authority raises the plea that there is an arbitration agr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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. That is the position arising out of Section 11(7) of the Act read with Section 16 thereof. The finality given to the order of the Chief Justice on the matters within his competence under Section 11 of the Act, are incapable of being reopened before the arbitral tribunal. In Konkan Railway (Supra) what is considered is only the fact that under Section 16, the arbitral tribunal has the right to rule on its own jurisdiction and any objection, with respect to the existence or validity of the arbitration agreement. What is the impact of Section 11(7) of the Act on the arbitral tribunal constituted by an order under Section 11(6) of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... der Section 11 that there is no arbitration clause at all, then it will be absurd to refer the very issue to an arbitrator without deciding whether there is an arbitration clause at all between the parties to start with. In my view, in the present situation, the jurisdiction of the Chief Justice of India or his designate to decide the question as to the existence of the arbitration clause cannot be doubted and cannot be said to be excluded by Section 16. 22. Then came Konkan Railway Corporation Ltd. v. Mehul Construction Co. in which the first question framed was, what Page 1811 was the nature of the order passed by the Chief Justice or his nominee in exercise of his power under Section 11(6) of the Arbitration and Conciliation Act, 1996? After noticing the Statement of Objects and Reasons for the Act and after comparing the language of Section 11 of the Act and the corresponding article of the model law, it was stated that the Act has designated the Chief Justice of the High Court in cases of domestic arbitration and the Chief Justice of India in cases of international commercial arbitration, to be the authority to perform the function of appointment of an arbitrator, wherea ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ower on the Chief Justice in preference to a court as was obtaining in the model law. It was concluded The nature of the function performed by the Chief Justice being essentially 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 a court, it is apparent that the order passed by the Chief Justice or his nominee is an administrative Page 1812 order as has been held by this Court in Ador Samia case (supra) and the observations of this Court in Sundaram Finance Ltd. case (supra) also are quite appropriate and neither of those decisions require any reconsideration. 24. It was thus held that an order passed under Section 11(6) of the Act, by the Chief Justice of the High Court or his nominee, was an administrative order, its purpose being the speedy disposal of commercial disputes and that such an order could not be subjected to judicial review under Article 136 of the Constitution of India. Even an order refusing to appoint an arbitrator would not be amenable to the jurisdiction of the Supreme Court under Article 136 of the Constitution. A petition under Article 32 of the Const ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s an objection that there is no arbitration Page 1813 agreement, raises an objection that the person who has come forward with a request is not a party to the arbitration agreement, the Chief Justice can come to a conclusion on those objections without following an adjudicatory process. Can he constitute an arbitrary tribunal, without considering these questions? If he can do so, why should such a function be entrusted to a high judicial authority like the Chief Justice. Similarly, when the party raises an objection that the conditions for exercise of the power under Section 11(6) of the Act are not fulfilled and the Chief Justice comes to the conclusion that they have been fulfilled, it is difficult to say that he was not adjudicating on a dispute between the parties and was merely passing an administrative order. It is also not correct to say that by the mere constitution of an arbitral tribunal the rights of parties are not affected. Dragging a party to an arbitration when there existed no arbitration agreement or when there existed no arbitrable dispute, can certainly affect the right of that party and even on monetary terms, impose on him a serious liability for meeting the ex ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... be treated as an administrative one, it could be challenged before the single Judge of the High Court, then before a Division Bench and then the Supreme Court under Article 136 of the Constitution, a result that would cause further delay in arbitral proceedings, something sought to be prevented by the Act. An order under Section 11 of the Act did not relate to the administrative functions of the Chief Justice or of the Chief Justice of India. 28. The reference came up before a Constitution Bench. In Konkan Railway Construction Ltd. v. Rani Construction Pvt. Ltd., the Constitution Bench reiterated the view taken in Mehul Construction Co.'s case (supra), if we may say so with respect, without really answering the questions posed by the order of reference. It was stated that there is nothing in Section 11 of the Act that requires the party other than the party making the request, to be given notice of the proceedings before the Chief Justice. The Court went on to say that Section 11 did not contemplate a response from the other party. The approach was to say that none of the requirements referred to in Section 11(6) of the Act contemplated or amounted to an adjudication by the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t was the nature of that process by which he came to the conclusion that an arbitral tribunal was liable to be constituted. When, for example, a dispute which no more survives as a dispute, was referred to an arbitral tribunal or when an arbitral tribunal was constituted even in the absence of an arbitration agreement as understood by the Act, how could the rights of the objecting party be said to be not affected, was not considered in that perspective. In other words, the Constitution Bench proceeded on the basis that while exercising power under Section 11(6) of the Act there was nothing for the Chief Justice to decide. With respect, the very question that fell for decision was whether there had to be an adjudication on the preliminary matters involved and when the result had to depend on that adjudication, what was the nature of that adjudication. It is in that context that a reconsideration of the said decision is sought for in this case. The ground of ensuring minimum judicial intervention by itself is not a ground to hold that the power exercised by the Chief Justice is only an administrative function. As pointed out in the order of reference to that Bench, the conclusion tha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ising judicial intervention in matters coming under the Act. This will also avert the situation where even the order of the Chief Justice of India could be challenged before a single judge of the High Court invoking the Article 226 of the Constitution of India or before an arbitral tribunal, consisting not necessarily of legally trained persons and their coming to a conclusion that their constitution by the Chief Justice was not warranted in the absence of an arbitration agreement or in the absence of a dispute in terms of the agreement. 32. Section 8 of the Arbitration Act, 1940 enabled the court when approached in that behalf to supply an omission. Section 20 of that Act enabled the court to compel the parties to produce the arbitration agreement and then to appoint an arbitrator for adjudicating on the disputes. It may be possible to say that Section 11(6) of the Act combines both the powers. May be, it is more in consonance with Section 8 of the Old Act. But to call the power merely as an administrative one, does not appear to be warranted in the context of the relevant provisions of the Act. First of all, the power is conferred not on an administrative authority, but on a j ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ives an indication that it is the nature of the power that is relevant and not the mode of exercise. In Shankarlal Aggarwal and Ors. v. Shankar Lal Poddar and Ors. this Court was dealing with the question whether the order of the Company Judge confirming a sale was merely an administrative order passed in the course of the administration of the assets of the company under liquidation and, therefore, not a judicial order subject to appeal. This Court held that the order of the Company Judge confirming the sale was not an administrative but a judicial order. Their Lordships stated thus: It is not correct to say that every order of the Court, merely for the reason that it is passed in the course of the realization of the assets of the Company, must always be treated merely as an administrative one. The question ultimately depends upon the nature of the order that is passed. An order according sanction to a sale undoubtedly involves a discretion and cannot be termed merely an administrative order, for before confirming the sale the court has to be satisfied, particularly where the confirmation is opposed, that the sale has been held in accordance with the conditions subject to whic ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... held or even otherwise was for a gross undervalue in the sense that very much more could reasonably be expected to be obtained if the sale were properly held, in view of the figure of ₹ 3,37,000/- which had been bid by Nandlal Agarwalla it would be duty of the court to refuse the confirmation in the interests of the general body of creditors, and this was the submission made by the first respondent. There were thus two points of view presented to the court by two contending parties or interests and the court was called upon to decide between them, and the decision vitally affected the rights of the parties to property. Under the circumstances, the order of the Company Judge was a judicial order and not administrative one, and was therefore not inherently incapable of being brought up in appeal. 35. Going by the above test it is seen that at least in the matter of deciding his own jurisdiction and in the matter of deciding on the existence of an arbitration agreement, the Chief Justice when confronted with two points of view presented by the rival parties, is called upon to decide between them and the decision vitally affects the rights of the parties in that, either the c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... es that no notice need be issued to the opposite party to give him an opportunity of being heard before appointing an arbitrator, with respect, the same has to be held to be not sustainable. 37. It is true that finality under Section 11 (7) of the Act is attached only to a decision of the Chief Justice on a matter entrusted by sub- Section (4) or sub-Section (5) or sub-Section (6) of that Section. Sub- Section (4) deals with the existence of an appointment procedure and the failure of a party to appoint the arbitrator within 30 days from the receipt of a request to do so from the other party or when the two appointed arbitrators fail to agree on the presiding arbitrator within 30 days of their appointment. Sub-Section (5) deals with the parties failing to agree in nominating a sole arbitrator within 30 days of the request in that behalf made by one of the parties to the arbitration agreement and sub-Section (6) deals with the Chief Justice appointing an arbitrator or an arbitral tribunal when the party or the two arbitrators or a person including an institution entrusted with the function, fails to perform the same. The finality, at first blush, could be said to be only on the d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... by the arbitral tribunal on taking evidence, along with the merits of the claims involved in the arbitration. The Chief Justice has to decide whether the applicant has satisfied the conditions for appointing an arbitrator under Section 11(6) of the Act. For the purpose of taking a decision on these aspects, the Chief Justice can either proceed on the basis of affidavits and the documents produced or take such evidence or get such evidence recorded, as may be necessary. We think that adoption of this procedure in the context of the Act would best serve the purpose sought to be achieved by the Act of expediting the process of arbitration, without too many approaches to the court at various stages of the proceedings before the Arbitral tribunal. 39. An aspect that requires to be considered at this stage is the question whether the Chief Justice of the High Court or the Chief Justice of India can designate a non-judicial body or authority to exercise the power under Section 11(6) of the Act. We have already held that, obviously, the legislature did not want to confer the power on the Court as defined in the Act, namely, the District Court, and wanted to confer the power on the Chie ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o exercise the power under Section 11(6) of the Act. When so entrusted with the right to exercise such a power, the judge of the High Court and the judge of the Supreme Court would be exercising the power vested in the Chief Justice of the High Court or in the Chief Justice of India. Therefore, we clarify that the Chief Justice of a High Court can delegate the function under Section 11(6) of the Act to a judge of that court and he would actually exercise the power of the Chief Justice conferred under Section 11(6) of the Act. The position would be the same when the Chief Justice of India delegates the power to another judge of the Supreme Court and he exercises that power as designated by the Chief Justice of India. 42. In this context, it has also to be noticed that there is an ocean of difference between an institution which has no judicial functions and an authority or person who is already exercising judicial power in his capacity as a judicial authority. Therefore, only a judge of the Supreme Court or a judge of the High Court could respectively be equated with the Chief Justice of India or the Chief Justice of the High Court while exercising power under Section 11(6) of th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r Section 16 of the Act. The party aggrieved by any order of the arbitral tribunal, unless has a right of appeal under Section 37 of the Act, has to wait until the award is passed by the Tribunal. This appears to be the scheme of the Act. The arbitral tribunal is after all, the creature of a contract between the parties, the arbitration agreement, even though if the occasion arises, the Chief Justice may constitute it based on the contract between the parties. But that would not alter the status of the arbitral tribunal. It will still be a forum chosen by the parties by agreement. We, therefore, disapprove of the stand adopted by some of the High Courts that any order passed by the arbitral tribunal is capable of being corrected by the High Court under Article 226 or 227 of the Constitution of India. Such an intervention by the High Courts is not permissible. 45. The object of minimizing judicial intervention while the matter is in the process of being arbitrated upon, will certainly be defeated if the High Court could be approached under Article 227 of the Constitution of India or under Article 226 of the Constitution of India against every order made by the arbitral tribunal. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nstitution of India to the Supreme Court. (viii) There can be no appeal against an order of the Chief Justice of India or a judge of the Supreme Court designated by him while entertaining an application under Section 11(6) 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. (x) Since all were guided by the decision of this Court in Konkan Railway Corporation Ltd. and Anr. v. Rani Construction Pvt. Ltd. and orders under Section 11(6) of the Act have been made based on the position adopted in that decision, we clarify that appointments of arbitrators or arbitral tribunals thus far made, are to be treated as valid, all objections being left to be decided under Section 16 of the Act. As and from this date, the position as adopted in this judgment will govern even pending applications under Section 11(6) of the Act. (xi) Where District Judges had been designated by the Chief Justice of the High Court under Section 11(6) of the Act, the appointment orders thus far made by the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and worldwide recognition as an effective instrument of settlement of disputes. There was no composite statute dealing with all matters relating to arbitration and conciliation. 3. The United Nations Commission on International Trade Law (UNCITRAL) adopted a Model Law in 1985 on International Commercial Arbitration. The Page 1825 General Assembly of the United Nations recommended member - States to give due consideration to the Model Law to have uniformity in arbitration procedure which resulted in passing of the Arbitration and Conciliation Act, 1996. The Act is a complete Code in itself and consolidates and amends the law relating to domestic arbitration, international commercial arbitration and enforcement of foreign arbitral awards. The Preamble expressly refers to UNCITRAL Model Law on International Commercial Arbitration and UNCITRAL Conciliation Rules. 4. Over and above 'Preliminary' (Section 1), the Act is in four parts. Part I (Sections 2 to 43) deals with Arbitration. Part II (Sections 44 to 60) contains provisions relating to Enforcement of Foreign Awards. While Part III (Section 61 to 81) provides for Conciliation, Part IV (Sections 82 to 86) relates to S ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eferred to in Sub-section (2), in an arbitration with a sole arbitrator, if the parties fail to agree the appointment shall be made, upon request of a party, by the Chief Justice or any person or institution designated by him. (6) Where, under an appointment procedure agreed upon by the parties, - (a) a party fails to act as required under that procedure; or (b) the parties, or the two appointed arbitrators, fail to reach an agreement expected of them under that procedure; or (c) a person, including an institution, fails to perform any function entrusted to him or it under that procedure, a party may request the Chief Justice or any person or institution designated by him to take the necessary measure, unless the agreement on the appointment procedure provides other means for securing the appointment. (7) A decision on a matter entrusted by Sub-section (4) or Sub-section (5) or Sub-section (6) to the Chief Justice or the person or institution designated by him is final. (8) The Chief Justice or the person or institution designated by him, in appointing an arbitrator, shall have due regard to - (a) any qualification required for the arbitrator by the agreement o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . - (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 submission 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) or 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tiation of arbitration proceedings. 7. The Court, however, taking note of UNCITRAL Model Law, observed: 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) . (emphasis supplied) It is, no doubt, true that the question about nature of function to be performed by the Chief Justice under Section 11 did not strictly arise in that case and, hence, the above observation could not be termed as 'ratio'. As I will presently show, in a subsequent case, it was submitted that the statement was in the nature of 'passing observation' or 'obiter'. 8. In Ador Sami Private Ltd. v. Peekay Holdings Ltd. and Ors., a direct question arose before a two-Judge Bench. There, an order passed by the Chief Justice under Sub-section (6) of Section 11 of the Act was challenged in this Court under Article 136 of the Constitution. The question before the Court was whether a special leave petition was maintainable. Reproducing the observation in Sundaram Finance Ltd., the Court held that Page 1829 the order passed by the Chief Justice under Section 11 of the A ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tions, independence and impartiality of Arbitral Tribunal as also of the jurisdiction of the tribunal can be raised before the arbitrator who will decide them. The function of the Chief Justice or his nominee is just to appoint an arbitrator without wasting time. The nature of the function to be performed by the Chief Justice is essentially to aid the constitution of the tribunal and is administrative. If the function is held to be judicial or quasi-judicial, the order passed by the Chief Justice or his nominee would be amenable to judicial intervention and a Page 1830 reluctant litigant would attempt to frustrate the object of the Act by adopting dilatory tactics by approaching a court of law against an appointment of arbitrator. Such an interpretation should be avoided to achieve the basic objective for which the Act has been enacted. In Konkan Railway Corporation Ltd. v. Rani Construction Pvt. Ltd. (Konkan Railway Corporation Ltd. II), a similar question had come for consideration before a two-Judge Bench. The attention of the Court was invited to earlier decisions including a three-Judge Bench decision in Konkan Railway Corporation Ltd. I. It was, however, argued by the lear ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ly function the Chief Justice or his designate was required to perform was to fill the gap left by a party to the arbitration agreement or two arbitrators appointed by the parties and nominate an arbitrator or umpire so that Arbitral Tribunal is expeditiously constituted and arbitration proceedings commenced. According to the Constitution Bench, the order passed by the Chief Justice or his designate under Section 11 nominating an arbitrator could not be said to be 'adjudicatory order' and the Chief Justice or his designate could not be described as 'Tribunal'. Such an order, therefore, could not be challenged under Article 136 of the Constitution. The decision of three-Judge Bench in Konkan Railway Corporation Ltd. I was thus affirmed. The Court observed: Section 11 of the Act deals with the appointment of arbitrators. It provides that the parties are free to agree on a procedure for appointing an arbitrator or arbitrators. In the event of there being no agreement in regard to such procedure, in an arbitration by three arbitrators each party is required to appoint one arbitrator and the two arbitrators so appointed must appoint the third arbitrator. If a part ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... has to see. That the Chief Justice or his designate has to take into account the qualifications required of the arbitrator by the agreement between the parties (which, ordinarily, would also be annexed to the request) and other considerations likely to secure the nomination of an independent and impartial arbitrator also cannot lead to the conclusion that the Chief Justice or his designate is required to perform an adjudicatory function. That the word 'decision' is used in the matter of the request by a party to nominate an arbitrator does not of itself mean that an adjudicatory decision is contemplated. As we see it, the only function of the Chief Justice or his designate under Section 11 is to fill the gap left by a party to the arbitration agreement or by the two arbitrators appointed by the parties and nominate an arbitrator. This is to enable the arbitral tribunal to be expeditiously constituted and the arbitration proceedings to commence. The function has been left to the Chief Justice or his designate advisedly, with a view to ensure that the nomination of the arbitrator is made by a person occupying high judicial office or his designate, who would take due care ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... The schemes made by the Chief Justices under Section 11 cannot govern the interpretation of Section 11. If the schemes, as drawn, go beyond the terms of Section 11 they are bad and have to be amended. To the extent that The Appointment of Arbitrators by the Chief Justice of India Scheme, 1996, goes beyond Section 11 by requiring, in Clause 7, the service of a notice upon the other party to the arbitration agreement to show cause why the nomination of an arbitrator, as requested, should not be made, it is bad and must be amended. The other party needs to be given notice of the request only so that it may know of it and it may, if it so chooses, assist the Chief Justice or his designate in the nomination of an arbitrator. The point was thus concluded by a Constitution Bench of five Judges wherein it was held that the function performed by the Chief Justice or his designate was administrative and did not contain any adjudicatory process. The order passed by the Chief Justice or his designate could not be challenged before this Court under Article 136 of the Constitution. 10. In the light of the above legal position, when these matters were placed before a Constitution Bench of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nces laid down in the Act, apply its mind and then to take a decision. Such decision may affect one or the other party and may have far reaching consequences. But from that it cannot be concluded that the decision is judicial or quasi-judicial and not administrative. Before more than fifty years, in State of Madras v. C.P. Sarthy, the Constitution Bench of this Court, while interpreting the provisions of Section 10 of the Industrial Disputes Act, 1947 held that the action of the Government of referring or refusing to refer the matter for an adjudication to Labour Court or Industrial Tribunal is administrative. The Court stated: This is, however, not to say that the Government will be justified in making a reference under Section 10(1) without satisfying itself on the facts and circumstances brought to its notice that an industrial dispute exists or is apprehended in relation to an establishment or a definite group of establishments engaged in a particular industry. It is also desirable that the Government should, wherever possible, indicate the nature of the dispute in the order of reference. But it must be remembered that in making a reference under Section 10(1) the Gove ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of Arbitral Tribunal). Therefore, when the question as to composition of Arbitral Tribunal and appointment of an arbitrator comes up for consideration, it can safely be assumed that there is an arbitration agreement, inasmuch as it is in consonance with the legislative scheme and the question as to the appointment of arbitrator arises only in view of such agreement. Moreover, before exercising the power to appoint an arbitrator, the Chief Justice must peruse the relevant record relating to an agreement and failure by one party in making an appointment which would enable him to act. There is, however, no doubt in my mind that at that stage, the satisfaction required is merely of prima facie nature and the Chief Justice does not decide lis nor contentious issues between the parties. Section 11 neither contemplates detailed inquiry, nor trial nor findings on controversial or contested matters. 14. The Law Commission, in 176th Report on Arbitration and Conciliation (Amendment) Bill, 2001, after referring to the relevant Rules and legal opinion, stated: It is, therefore, clear that the ICC Rules and the opinion of jurists support the view that at the stage of Section 11, it is per ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hin Etsu Chemical Co. Ltd. v. Aksh Optifibre Ltd. and Anr.]. 17. It was then argued that Sub-section (7) of Section 11 empowers the Chief Justice to decide the question and uses the expression 'decision' which is significant. Whenever a statute confers power on an authority to pass an order or to take a decision, it must be held that the function is judicial or quasi-judicial and duty to act judicially must be inferred. Even this contention is not well founded. Sub-section (7), no doubt, uses the term 'decision'. But as I have already observed earlier, the Chief Justice forms prima facie opinion as to the fulfillment of conditions specified in Sub-section (6). The decision neither contemplates adjudication of lis between two or more parties nor resolves controversial and contentious issues. It merely requires the Chief Justice to take an appropriate action keeping in view the provisions of Part II and Sub- sections (1), (4) and (5) of Section 11. Regarding matters which the Chief Justice is expected to consider, such as qualification, independence and impartiality of arbitrator, they are statutory provisions and the Chief Justice is obliged to keep them in view a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... institution designated by him', since the function is administrative in character and is required to be performed on prima facie satisfaction under Sub-section (6) of Section 11 of the Act. 21. 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 rig ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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. 24. To cite Fouchard, Gaillard, Goldman again: 658. - More fundamentally, although the arbitrators' jurisdiction to rule on their own jurisdiction is indeed one of the effects of the arbitration agreement (or even of a prima facie arbitration agreement, since the question would not arise in the absence of a prima facie arbitration agreement), the basis of that power is neither the arbitration agreement itself, nor the principle of pacta sunt servanda under wh ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... where recognition is sought, of the arbitrators' finding that the arbitration agreement is non-existent or invalid. Even today, the competence-competence principle is all too often interpreted as empowering the arbitrators to be the sole judges of their jurisdiction. That would be neither logical nor acceptable. In fact, the real purpose of the rule is in no way to leave the question of the arbitrators' jurisdiction in the hands of the arbitrators alone. Their jurisdiction must instead be reviewed by the courts if an action is brought to set aside or to enforce the award. Nevertheless, the competence- competence rule ties in with the idea that there are no grounds for the prima facie suspicion that the arbitrators themselves will not be able to reach decisions which are fair and protect the interests of society as well as those of the parties to the dispute. This same philosophy is also found in the context of arbitrability, where it serves as the basis for the case law which entrusts arbitrators with the task of applying rules of public policy (in areas such as antitrust law and the prevention of corruption), subject to subsequent review by the courts. However, it is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the arbitration agreement. 25. In Renusagar Power Co. Ltd. v. General Electric Co. and Anr., considering the relevant provisions of the Foreign Awards (Recognition and Enforcement) Act, 1961, this Court held that the arbitrator or umpire is competent to provisionally decide his own jurisdiction, if the arbitration agreement so provides, however, subject to final determination by a competent court. The Court stated: As explained earlier the scheme that emerges on a combined reading of Sections 3 and 7 of the Foreign Awards Act clearly contemplates that questions of existence, validity or effect (scope) of the arbitration agreement itself, in cases where such agreement is wide enough to include within its ambit such questions, may be decided by the arbitrators initially but their determination is subject to the decision of the Court and such decision of the Court can be had either before the arbitration proceedings commence or during their pendency, if the matter is decided in a Section 3 petition or can be had under Section 7 after the award is mane and filed in the Court and is sought to be enforce by a party thereto. In the face of such schemes envisaged by the Foreign A ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rt of limited jurisdiction or on an inferior tribunal. In Halsbury's Laws of England, (4th edn. vol. 1; para 56); it has been stated; It is possible for an inferior tribunal to be vested with power to determine conclusively questions demarcating the limits of its own jurisdiction. Such a grant of power must now be regarded as exceptional, in view of the very restrictive interpretation placed by the courts on statutory formulae purporting to exclude their inherent supervisory jurisdiction, and their reluctance to be precluded by subjectively worded grants of power from determining judicially ascertainable matters delimiting the area of competence of inferior tribunals, especially where the relevant question is one of law. (emphasis supplied) In fact, one of the points of differentiation between a Crown's Court and a statutory tribunal is that whereas a court has inherent power to decide the question of its own jurisdiction, although as a result of inquiry, it may turn out that it has no jurisdiction to try the suit, the jurisdiction of a tribunal constituted under a statute is strictly confined to the terms of the statute creating it. The existence of preliminary or ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t, because the legislature gave them jurisdiction to Page 1844 determine all the facts, including the existence of the preliminary facts on which the further exercise of their jurisdiction depends; and if they were given jurisdiction so to decide, without any appeal being given, there is no appeal from such exercise of their jurisdiction. (emphasis supplied) 29. The above statement of law has been quoted with approval by this Court in several cases. In Chaube Jagdish Prasad and Anr. v. Ganga Prasad Chaturvedi the Court stated: These observations which relate to inferior courts or tribunals with limited jurisdiction show that there are two classes of cases dealing with the power of such a tribunal (1) where the legislature entrusts a tribunal with the jurisdiction including the jurisdiction to determine whether the preliminary state of facts on which the exercise of its jurisdiction depends exists and (2) where the legislature confers jurisdiction on such tribunals to proceed in a case where a certain state of facts exists or is shown to exist. The difference is that in the former case the tribunal has power to determine the facts giving it jurisdiction and in the latter cas ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ppointment of an arbitrator made by the Chief Justice. By such interpretation, submitted the counsel, both the provisions can be harmoniously interpreted and properly applied. Though the majority observed it to be 'one of the ways of reconciliation', I have my own reservation in accepting it. Firstly, the function of the Court is to interpret the provision as it is and not to amend, alter or substitute by interpretative process. Secondly, it is for the Legislature to make a law applicable to certain situations contemplated by it and the judiciary has no power in entering into 'legislative wisdom'. Thirdly, as held by me, the 'decision' of the Chief Justice is merely prima facie decision and Sub-section (1) of Section 16 confers express power on the Arbitral Tribunal to rule on its own jurisdiction. Fourthly, it provides remedy to deal with situations created by the order passed by the Arbitral Tribunal. Finally and importantly, the situation envisaged by Mr. Venugopal would seldom arise. Normally, when parties agree on the appointment of an arbitrator or arbitrators, there would hardly be any dispute between them on such appointment which may call for int ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... or. Though the submission weighed with the majority, I express my inability to agree with it for several reasons. Firstly, as earlier noted, it proceeds on the basis that the function of the Chief Justice is judicial or quasi- judicial, which is not correct. In my view, it is administrative which is apparent from the language of Section 11 and strengthened by Section 16 which enables the Arbitral Tribunal to rule on its own jurisdiction. Secondly, a court of law must give credit to Parliament that it is aware of settled legal position that judicial or quasi-judicial function cannot be delegated and if the function performed by the Chief Justice is judicial or quasi-judicial in nature, keeping in view legal position, it would not have allowed delegation of such function to 'any person or authority'. Thirdly, the majority held, and I am in respectful agreement with it, that the conferment of power on the Chief Justice is not as 'persona designata'. Hence, the power can be delegated. Finally, if the legislative intent is the exercise of power by the Chief Justice alone, one fails to understand as to how it can be exercised by a 'colleague' of the Chief Justi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y result in increase of litigation and delay in disposal of cases. I must admit that once it is held that the order passed by the Chief Justice is administrative, it can be challenged in Writ Petition, Letters Patent Appeal and in Special Leave Petition. But in my opinion, while exercising extraordinary jurisdiction under Article 226 of the Constitution, the High Court would consider the provisions of the Act, such as, limited judicial intervention of Court (Section 5); power of Arbitral Tribunal to rule on its own jurisdiction and the effect of such decision (Section 16). It will also keep in mind the legislative intent of expeditious disposal of proceedings and may not interfere at that stage. Ultimately, having jurisdiction or power to entertain a cause and interference with the order are two different and distinct matters. One does not necessarily result into the other. Hence, in spite of jurisdiction of the High Court, it may not stall arbitration proceedings by allowing the party to raise all objections before the Arbitral Tribunal. 35. In Laxmikant Revchand Bhojwani and Anr. v. Pratapsingh Mohansingh Pardeshi, the relevant Rent Act did not provide for further appeal or re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... made under Section 11(6) of the Act which includes considering the question of jurisdiction of the Arbitrator himself. Therefore, in our view even though a writ petition under Article 226 of the Constitution is available to an aggrieved party, ground available for challenge in such a petition is limited because of the alternative remedy available under the Act itself. (emphasis supplied) The above observations clearly go to show that though the constitutional remedy cannot be taken away and an aggrieved party can invoke the jurisdiction of the High Court against an order passed by the Chief Justice, the Writ Court will be circumspect in entertaining a petition and in exercising extraordinary jurisdiction in such cases. 36. As has been held in earlier decisions as also in the majority judgment, the paramount consideration of Parliament in selecting the Chief Justice and in conferring upon him the power to appoint an arbitrator is to ensure complete independence, total impartiality and highest degree of credibility in arbitral process. The Chief Justice of India and Chief Justices of High Courts have been specially chosen considering their constitutional status as Judges of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... uest be given to all the parties to the arbitration agreement and such other person or persons as may seem to him or is likely to be affected by such request to show cause, within the time specified in the notice, why the appointment of the arbitrator or the measure proposed to be taken should not be made or taken and such notice shall be accompanied by copies of all documents referred to in paragraph 2 or, as the case may be, by information or clarification, if any, sought under paragraph 5. 39. In Konkan Railway Corporation Ltd. II, the Constitution Bench held the function of the Chief Justice of appointment of an arbitrator under Sub- section (6) of Section 11 as administrative and not judicial. In the light of the said finding, the Court proceeded to state that it was not necessary to issue notice to the parties likely to be affected. Section 11 did not provide for such notice. The Court, however, did not stop there. It held that by making a provision for issuance of notice, the scheme went 'beyond the terms of Section 11' and was bad on that ground. A direction was, therefore, issued to amend it. Since the majority judgment has held the function of the Chief Jus ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ord Pearson said; A tribunal to whom judicial or quasi-judicial functions are entrusted is held to be required to apply those principles (i.e. the rules of natural justice) in performing those functions unless there is a provision to title contrary. But where some person or body is entrusted by Parliament that administrative or executive functions there is no presumption that compliance with the principles of natural justice is required although, as 'Parliament is not to be presumed to act unfairly', the courts may be able in suitable cases (perhaps always) to imply an obligation to act with fairness. 5 (emphasis supplied) In R. v. Commissioner for Racial Equality, Lord Diplock stated; Where an act of Parliament confers upon an administrative body functions which involve its making decisions which affect to their detriment the rights Page 1851 of other persons or curtail their liberty to do as they please, there is a presumption that Parliament intended that the administrative body should act fairly towards those persons who will be affected by their decisions. The above principles have been accepted and applied in India also. In the leading case of Keshav M ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ess. For fairness itself is a flexible, pragmatic and relative concept, not a rigid, ritualistic or sophisticated abstraction. It is not a bull in a china shop, nor a bee in one's bonnet: Its essence is good conscience in a given situation; nothing more - but nothing less. (emphasis supplied) In Nally Bharat Engineering Co. Ltd. v. State of Bihar, the Government, on an application by a dismissed workman transferred his case from one Labour Court to another Labour Court without issuing a notice or giving opportunity to the employer. Setting aside the order and referring to several cases, the Supreme Court invoked the 'acting fairly' doctrine. The Court stated: Fairness, in our opinion, is a fundamental principle of good administration. It is a rule to ensure the vast power in the modern State is not abused but properly exercised. The State power is used for proper and not for improper purposes. The authority is not misguided by extraneous or irrelevant considerations. Fairness, is also a principle to ensure that statutory authority arrives at a just decision either in promoting the interest or affecting the rights of persons. To use the timehallowed phrase tha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... '. Where, however, the former ('acting judicially') cannot be wielded, the court will try to reach injustice by taking resort to the latter - less powerful weapon ('acting fairly'). [See C.K. Thakker : From Duty to Act Judicially to Duty to Act Fairly ,]. 43. As the Chief Justice is performing administrative function under Sub- section (6) of Section 11 in appointing an arbitrator, mere is no 'duty to act judicially' on his part, nonetheless there is 'duty to act fairly' which requires him to issue notice to the other side before taking a decision to appoint an arbitrator. I am, therefore, of the view that Clause 7 of the scheme as stood prior to the amendment, could neither be held bad in law nor inconsistent with Section 11 of the Act. I am, therefore, in respectful agreement with the majority judgment on that point. 44. On the basis of the above findings, my conclusions are as under; (i) The function performed by the Chief Justice of the High Court or the Chief Justice of India under Sub-section (6) of Section 11 of the Act (i.e. Arbitration and Conciliation Act, 1996) is administrative, - pure and simple -, and neither judicial nor ..... X X X X Extracts X X X X X X X X Extracts X X X X
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