TMI Blog2008 (7) TMI 1048X X X X Extracts X X X X X X X X Extracts X X X X ..... is reduced into specifics. (b) The aforesaid I.S.D.A. Master Agreement was signed on behalf of the applicant by its authorised signatory and on behalf of the 1st respondent (plaintiff) by its Financial Controller and Secretary, who is impleaded as the 2nd defendant in the suit. (c) The I.S.D.A. Master Agreement is actually a transaction in derivatives. It is a forward contract entered into by the plaintiff with the first defendant (who is an authorised dealer in foreign exchange) to hedge an exposure to exchange risk, on account of heavy fluctuation in the rate of exchange of foreign currencies. (d) Though such transactions border on speculations to some extent, they have been recognised statutorily by the Foreign Exchange Management (Foreign exchange derivatives contracts) Regulations, 2000 issued under the Foreign Exchange Management Act, 1999 and by the Reserve Bank of India (Amendment) Act, 2006. (e) Therefore, in pursuance of a Resolution passed by the Board of Directors of the plaintiff Company on 21.07.2005 (Resolution No.2065), authorising the 2nd defendant (Financial Controller and Secretary of the plaintiff) to enter into Spot and Forward Foreign Exchange C ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on was moved. Immediately thereafter, the 1st defendant filed the present application under Section 8 of the Arbitration and Conciliation Act, 1996 seeking reference of the dispute to arbitration in terms of Part-5, Clause(j) of the Schedule to the Master Agreement dated 05.01.2007. 6. Before proceeding further, it is relevant to take note of one important fact pleaded by the applicant/1st defendant Bank, viz., that the Bank had already invoked the Arbitration Clause, by a notice dated 26.11.2007 (4 days prior to the filing of the present suit). The Bank had also moved the High Court of Bombay on 27.11.2007 in Arbitration Petition No.446 of 2007 for interim reliefs under Section 9 of the Arbitration and Conciliation Act. A retired Judge of the Supreme Court had already entered upon the reference by a letter dated 29.11.2007. 7. The I.S.D.A. Master Agreement which is the subject matter of dispute in the present suit is dated 5-1-2007. Section 13(a), (b), (c) of the Standard Format of the said Master Agreement, got substituted under Part-5, Clause (j) of the Schedule to the I.S.D.A. Master Agreement, by new provisions. After this substitution, Section 13(b) in the Standard Form ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ons in Hindustan Petroleum Corporation Ltd., vs. Pinkcity Midway Petroleums reported in {2003 (6) SCC 503} and Rashtriya Ispat Nigam Ltd., and Another vs. Verma Transport Co. reported in {2006 (7) SCC 275} etc. The rationale behind the said decision is that section 5 of the Arbitration and Conciliation Act,1996 limits the extent of judicial intervention. The relevant portion of the said decision is as follows:- 4. Part I of the new Act deals with domestic arbitrations. Section 5, which is contained in Part I of the new Act, defines the extent of judicial intervention in arbitration proceedings. 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 that Part. Section 5 brings out clearly the object of the new Act, namely, that of encouraging resolution of disputes expeditiously and less expensively and when there is an Arbitration Agreement, the Court's intervention should be minimal........ It is pertinent to note that section 5 is peculiar to Part I of the Act and there is no corresponding provision in Part II, except that sections 45 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mitting his first statement on the substance of the dispute, refer the parties to arbitration. (2) The application referred to in sub-section(1) shall not be entertained unless it is accompanied by the original Arbitration Agreement or a duly certified copy thereof. (3) Notwithstanding that an application has been made under sub-section (1) and that the issue is pending before the judicial authority, an arbitration may be commenced or continued and an arbitral award made. Section 45 of the Act reads as follows:- 45.Power of judicial authority to refer parties to arbitration.- Notwithstanding anything contained in Part I or in the Code of Civil Procedure, 1908 (5 of 1908), a judicial authority, when seized of an action in a matter in respect of which the parties have made an agreement referred to in Section 44, shall, at the request of one of the parties or any person claiming through or under him, refer the parties to arbitration, unless it finds that the said agreement is null and void, inoperative or incapable of being performed. Section 54 of the Act reads as follows:- 54. Power of judicial authority to refer parties to arbitration- Notwithstanding an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n 2(1)(h), that it would mean only a party to an Arbitration Clause. On the contrary, Section 45 does not contain such a restriction. Section 45 enables any of the parties to the Arbitration Agreement or even any person claiming through or under him to seek a reference. Section 54 also enables the parties as well as any person claiming through or under them to seek a reference. (d) More importantly, the mandate under Section 45 to refer the parties to arbitration, indicated by the word, shall appearing in the section, is watered down by the last part of Section 45, whereby a leverage is given to the Judicial Authority not to refer the parties to arbitration if it finds that the agreement is null and void, inoperative or incapable of being performed. Such a discretion conferred upon the Judicial Authority in the later part of Section 45 is conspicuously absent in Section 8. Section 54 goes a step further in stipulating that if the agreement or the arbitration cannot proceed or becomes inoperative, the reference to arbitration shall not prejudice the competence of the Judicial Authority. (e) As stated above, section 5 of the Act, which restricts the power of intervention of a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... moved not later than when submitting the first statement of the substance of the dispute, under Section 45 there is no such limitation. The apparent reason is that insofar as domestic arbitration is concerned, the legislature intended to achieve speedy reference of disputes to the Arbitral Tribunal and left most of the matters to be raised before the arbitrators or post-award. In case of foreign arbitration, however, in its wisdom the legislature left the question relating to the validity of the Arbitration Agreement being examined by the court. One of the main reasons for the departure being the heavy expense involved in such arbitrations which may be unnecessary if the Arbitration Agreement is to be invalidated in the manner prescribed in Section 45. Though the above view formed part of the minority decision of Justice Y.K.Sabharwal, as he then was, the majority view of the other 2 learned Judges (Justices D.M.Dharmadhikari and B.N. Srikrishna) was not different, in so far as this particular aspect was concerned. This is seen from the following passage, of the decision of the majority:- 66. The contrast in the language between Sections 8 and 45 of the Act has been rightl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nstruction of a particular clause leads to manifestly absurd or anomalous results which could not have been intended by the legislature. An intention to produce an unreasonable result said Danckwerts, L.J., in Artemiou V. Procopiou (All ER p.544-I) is not to be imputed to a statute if there is some other construction available. Where to apply words literally would defeat the obvious intention of the legislation and produce a wholly unreasonable result , we must do some violence to the words and so achieve that obvious intention and produce a rational construction. Per Lord Reid in Luke v. IRC where at AC p.577 he also observed:(AllER p.664 I) This is not a new problem, though our standard of drafting is such that it rarely emerges. It follows from the above decision of the Supreme Court that casus omissus should not be readily inferred. It cannot be supplied by the court except in the case of clear necessity and when the reason for it is found in the four corners of the statute itself. Therefore let me find out if a clear necessity has arisen in this case to supply the casus omissus and to read into section 8, what is not provided therein but what is specifically provid ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t the same result follows from an analysis of the Contract Act. By S.2 (g) of the Act, an agreement, which is not enforceable by law, is void. By S.2(h), it is only an agreement enforceable by law that is a a contract . By S.30, an agreement by way of wager is a void agreement. It is no more a contract than an agreement affected by Ss.20, 23 or S.25. I, therefore, agree with the view expressed tentatively by Panckridge,J., in Chong Wong's case (1), to the effect that such a suit lies.... 21. In Abdul Kadir Shamsuddin Bubere -vs- Madhav Prabhakar (AIR 1962 Supreme Court 406), the Supreme court held as follows:- 17. There is no doubt that where serious allegations of fraud are made against a party and the party who is charged with fraud desires that the matter should be tried in open court, that would be a sufficient cause for the court not to order an Arbitration Agreement to be filed and not to make the reference. But it is not every allegation imputing some kind of dishonesty, particularly in matters of accounts, which would be enough to dispose a court to take the matter out of the forum which the parties themselves have chosen. This to our mind is clear even from the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... solve the disputes by an alternative forum before the Arbitrator should be strictly complied with. But when the dispute involves consideration of substantial questions of law and contested allegations of mala fides, fraud, misrepresentation etc., which depend on adducing of and scrutiny of detailed oral and documentary evidence, then the parties as well as the Civil Court would be justified in ignoring the arbitration clause. Section 27 of the 1996 Act provides for the Arbitrator to seek the assistance of the Court in taking evidence is an example of the admitted deficiencies of a proceeding before the arbitrator. Even after obtaining such assistance from the Civil Court, the Arbitrator would still be unable to appreciate the demeanor of the witnesses which is an essential feature of appreciation of oral evidence. Assuming that the grounds of challenge of an arbitration award as provided under the New Act has been narrowed down compared to the old Act, that would be all the more reason why the jurisdiction of the Civil Court to go into such contentious issues like substantial questions of law or serious allegation of fraud etc., requiring detailed evidence, should be properly reser ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed to have endeavoured to refer to an arbitration an attempt by one of them to cheat the other? I can find no reason for assuming it. A fraudulent man would not desire publicity, but would wish that question to be inquired into before a private tribunal. Nor does it follow that the man who has been defrauded wants publicity. It is an injury to the credit of the firm. .... why should it be necessarily beyond the purview of this contract to refer to an arbitrator questions of account, even when those questions do involve misconduct amounting to dishonesty,on the part of the same partner? I do not see it. I do not say that in many cases which I will come to in the second branch of the case before the Court, Court may not in exercise of its discretion, refuse to interfere; but it does not appear to me to follow of necessity that this clause was not intended to apply to all questions, even including questions either imputing moral dishonesty or moral misconduct to one or other of the parties . 39. These observations of Jessell M.R. were referred to with approval by the Supreme Court in the case of Abdul Kadir Shamsuddin Bubere vs. Madhav Prabakar Oak (AIR 1962 SC 406). 40. In Engl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rder passed by the learned Judge . Thus the view taken by the Division Bench supports the view taken by R.Jayasimha Babu,J., though the same has not specifically been referred to. Even a Division Bench of the Karnataka High Court took a similar view in Lexicon Finance Limited -vs- Union of India and others {2002(3) Arb.LR 60 (Karnataka) (DB). It is as follows:- A perusal of the aforesaid provision makes it clear that an arbitration clause in an agreement shall be treated an agreement independent of other terms of the contract and even if the Arbitral Tribunal were to hold that the contract is null and void it shall not entail ipso jure the invalidity of the arbitration clause. In other words even if the contract is held to be void the clause regarding arbitration found in a void contract would not become void. It exists independently of the said contract and it could be enforced. 25. In India Household and Healthcare Ltd., vs. LG Household and Healthcare Ltd. (AIR 2007 SC 1376), the Supreme court considered the effect of an allegation of fraud and held as follows:- 3. Respondent, however, contends that the said agreement was preceded by a Memorandum of Understanding ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... this magnitude. 13. It may be noticed that Part II of the 1996 Act contains a provision for approaching the court. Section 45 of the 1996 Act contains a non-obstante clause. A judicial authority, therefore, may entertain an application at the instance of a party which alleges that there exists an Arbitration Agreement whereupon judicial authority may refer the parties to arbitration, save and except in a case where it finds that the said agreement is null and void, inoperative and incapable of being performed. Section 8 of the 1996 Act, however, is differently worded. 14. Thus, as and when a question in regard to the validity or otherwise of the Arbitration Agreement arises, a judicial authority would have the jurisdiction under certain circumstances to go into the said question . But the above decision of the Supreme Court is of no assistance in arriving at a conclusion, since it arose in respect of international commercial arbitration governed by Part II of the Act and the Supreme court even while holding as aforesaid, noted that section 8 is differently worded. Therefore it is clear that the above decision cannot be applied to a case arising under section 8. 26. Thus ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . PATEL ENGINEERING LTD. AND ANOTHER ((2005) 8 Supreme Court Cases 618), wherein the Supreme court noted the complimentary nature of sections 8 and 11 and held in para 16 of its judgement that the judicial authority is entitled to, has to and bound to decide the jurisdictional issue raised before it, before making or declining a reference. The Supreme court further pointed out that 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 the judicial authority under section 8 can decide but not a Chief Justice under section 11 . After so explaining the complimentary nature of sections 8 and 11, the Apex court held in para 19 as follows:- 19. 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 s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... In short, the ratio laid down by the Constitution Bench of the Supreme court in the above case (SBP Co case) is (i) that sections 8 and 11 are complimentary in nature and (ii) that there is no exclusive conferment of jurisdiction on the Arbitral Tribunal under section 16 to decide the existence or validity of the Arbitration Agreement. 28. But the ratio laid down in the above decision to the effect that sections 8 and 11 are complimentary in nature, has to be reconciled with the other decisions of the Supreme court, where the dividing line between sections 8 and 45 are clearly spelt out and a Line of Control (LOC) or Lakshman rekha is pointed out. If so done, one can appreciate that the difference deliberately maintained by the law makers between sections 8 and 45 cannot be obliterated judicially. It is axiomatic that a decision is to be construed for what it lays down as a proposition of law and not for what flows out of it by inference. Therefore I am unable to accept the submission made on the basis of S.B.P. Co case. 29. From the above discussion in entirety, it is clear-- (i) that section 8 is differently worded than section 45; (ii) that the leverage giv ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... gal trap to the unwary. Informal forum chosen by the parties for expeditious disposal of their disputes has by the decisions of the Courts been clothed with 'legalese' of unforeseeable complexity. The above passage was quoted with approval in Trustees of The Port of Madras -vs- Engineering Constructions Corporations Ltd, {1995 (5) SCC 531}. 32. Again, in Panchu Gopal Bose -vs- Board of Trustees For Port of Calcutta {1993(4) SCC 338}, the Supreme Court quoted from Robertson's history that honest men dread arbitration more than they dread law suits. A more scathing but frank observation was made in Executive Engineer, Minor Irrigation Division Orissa -vs- N.C.Budharaj (Dead) by Lrs., 2001 (1) CTC 375 as follows:- The arbitration proceeding has been a racket in this country and in construing the law in relation to the powers of the arbitrator, the courts must construe the provisions of the law rather strictly. 33. Thus, on the one hand, even courts were getting suffocated about arbitration becoming allergetic dispute resolution mechanism (A.D.R.) rather than an alternative dispute resolution mechanism . But on the other hand, the world of Economics and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t is stated that the same model could be applied even to domestic arbitration with certain modifications. Paragraph No.3 of the Statement of Objects and Reasons, reads as follows:- Though the UNCITRAL Model Law and Rules are intended to deal with international commercial arbitration and conciliation, they could, with appropriate modifications, serve as a model for legislation on domestic arbitration and conciliation. The present Bill seeks to consolidate and amend law relating to domestic arbitration, international commercial arbitration, enforcement of foreign arbitral awards and to define the law relating to conciliation, taking into account the said UNCITRAL Model Law and Rules. 37. Thus it is made clear by the Statement of Objects and Reasons-- (i) that insofar as Part II of the 1996 Act is concerned, it was simply an adoption of the UNCITRAL Model Law, since Part II deals with International Commercial Arbitration; and (ii) that insofar as Part I of the Act is concerned, the UNCITRAL Model Law was adopted with appropriate modifications . 38. Now if we carefully scan the UNCITRAL Model Law and make a comparison of the same with the provisions of the 1996 Act, w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to entertain an application under Section 8(1) unless it is accompanied by the original Arbitration Agreement or a duly certified copy thereof. However, Section 45 of the Act incorporates the aforesaid rider, in the case of International Commercial Arbitration governed by Newyork Convention Awards. Article 9 enables a party to seek interim measures of protection from a Court before or during arbitral proceedings. Section 9 not only contains such a provision, but also deals in extenso, the nature of the interim measures that could be granted by a Court. While Article 9 of the Model Law restricts the right to grant interim reliefs only before or during the arbitral proceedings, section 9 of the Act enables the grant of such reliefs even after the arbitral award was made but before it is enforced under Section 36. Articles 10, 11, 12, 13, 14 and 15 deal with number of arbitrators, appointment of arbitrators, grounds for challenge, challenge procedure, failure or impossibility to act and appointment of substitute arbitrator. Except making small deviations, Sections 11 to 15 contain similar provisions under the same headings. The small modifications relate to the numb ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tion 27, more elaborately. Article 27 enables Court assistance in taking evidence. Section 27 enables an Arbitral Tribunal or even a party, with the approval of the Arbitral Tribunal to seek assistance of a Court in taking evidence. Article 28 deals with the rules applicable to the substance of dispute. Section 28 substantially reproduces the same and adopts the principles of ex aequo et bono and amiable compositeur, only if the parties have expressly authorised the tribunal to adopt them. Article 29 enables decision making by the Arbitral Tribunal, by a majority. It also enables the presiding arbitrator to decide the questions of procedure, by himself, if so authorised by the parties or by the other members. Section 29 reproduces the same. Article 30 deals with settlement of a dispute during the course of the arbitral proceedings and enables the tribunal to pass an award on agreed terms, if requested by the parties and not objected to by the tribunal. Section 30 not only reproduces the contents of Article 30, but also goes a step further by stipulating that the Arbitral Tribunal may encourage settlement of the dispute by using mediation, conciliation or oth ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of a party vi)jurisdiction vii) limitation viii)enforcement of New York Convention Awards ix) enforcement of Geneva Convention Award x) Conciliation and the procedure to be adopted in relation thereto. xi)Supplemental provisions such as the power to make rules and to remove difficulties xii)repeal and savings of the Arbitration (Protocol and Convention) Act, 1937, the Arbitration Act, 1940 and the Foreign Awards (Recognition and Enforcement) Act, 1961 and xiii) the First, Second and Third Schedules, containing the Convention on the recognition and enforcement of Foreign Arbitral Awards (relating to New Yark Convention), Protocol on Arbitration Clauses and Convention on the execution of Foreign Arbitral Awards (relating to Geneva Convention). 39. From the above comparative table, it is clear that even while adopting most of the Articles of the UNCITRAL Model Law, the Parliament has chosen to make (1) additions (2) deletions and (3) modifications. These additions, deletions and modifications do not appear to be accidental slips, born out of non application of mind. They appear to be deliberate acts of additions, deletions and alterations, born out of a cons ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of its jurisdiction is pending with the court . 17. Section 8 of the 1996 Act, however, although lifted the first part of the said Article 8 did not contain the expression contained in the second part therein. The Indian Parliament has gone beyond the recommendations made by the UNCITRAL Model Rules in enacting Sections 8 and 16 of the 1996 Act. 18. The provisions of Sections 8 and 16 of the 1996 Act may be compared with Sections 45 and 54 thereof. Section 45 deals with the New York Convention, whereas Section 54 deals with the Geneva Convention Awards. The difference can be immediately noticed. Whereas under Sections 45 and 54, the court exercises its supervisory jurisdiction in relation to arbitration proceedings, in terms of Section 16 of the 1996 Act, the arbitrator is entitled to determine his own jurisdiction. We, however, do not mean to suggest that Part II of the 1996 Act does not contemplate determination of his own jurisdiction by the Arbitral Tribunal as we are not called upon to determine the said question. We have referred to the aforementioned provisions only for the purpose of comparing the difference in the language used by the Indian Parliament while dealing ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... wer is conferred under Section 54. 46. The omission of the rider in Sections 8 and 54 and the inclusion of the rider in Section 45 are not without significance. The omission and commission have not happened unintentionally. Till the advent of 1996 Act, the severability or separability of the arbitration clause, from the main agreement, of which it formed a part, posed great challenges. The Arbitration Act, 1940, did not specifically provide for treating the arbitration clause contained in the main contract, as a separate agreement by itself. Therefore, the Courts were flooded with legal issues on the ability of the arbitration clause to survive the agreement, of which it formed a part, whenever the main contracts were assailed as vitiated by fraud etc.. 47. In one of the earliest decisions, in Union of India vs. Kishorilal Gupta (AIR 1959 SC 1362), the Constitution Bench of the Supreme Court considered the issue of severability of the arbitration clause from the main contract and laid down the following principles:- 1. An arbitration clause is a collateral term of a contract as distinguished from its substantive terms; but nonetheless it is an integral part of it; 2.Ho ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng the arbitration clause contained therein. It was held that it had not. It was in this context that the law as to the circumstances under which an arbitration clause in an agreement would become unenforceable came in for elaborate discussion. Summing up the law on the subject Viscount Simon, L.C. Observed: If the dispute is whether the contract which contains the clause has ever been entered into at all, that issue cannot go to Arbitration under the clause, for the party who denies that he has ever entered into the contract is thereby denying that he has ever joined in the submission. Similarly, if one party to the alleged contract is contending that it is void ab initio (because, for example, the making of such a contract is illegal), the arbitration clause cannot operate, for on this view the clause itself also is void. But in a situation where the parties are at one in asserting that they entered into a binding contract, but a difference has arisen between them whether there has been breach by one side or the other, or whether circumstances have arisen which have discharged one or both parties from further performance, such differences should be regarded as differences which ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tes which were in printed form as prescribed in Appendix IV to the bye laws of the Exchange. In the printed format, there was a clause for delivery of goods along side the export vessel in the port of Calcutta, after giving a notice of a duration agreed to between the parties. The said clause was scored out. Later, the parties entered into three cross contracts, by way of settlement of the earlier two contracts and the deliveries under the first set of contracts, were set off against each other and differences in price were claimed as due and payable. The Calcutta High Court held such contracts which were in the nature of forward contracts, to be illegal and void, as they were in violation of the prescribed form under bye-law 1(b) r/w section 15 (3A) of the Forward Contracts Act. Consequently, the Calcutta High Court held that the arbitration clause contained in those contracts would fall along with the main contracts, of which, they formed a part. While upholding the said decision, the Supreme Court held as follows:- 6. Now, there can be no doubt that if a contract is illegal and void, an arbitration clause, which is one of the terms thereof, must also perish along with it. As ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rived of the right of a civil suit. On the other hand if despite the arbitration clause having included or covered ex facie even a dispute as to the existence, validity or binding nature of the parent contract to allow the suit to proceed and to deprive the arbitrator of his jurisdiction to decide the question will go contrary to the policy and objects of the Arbitration Act as embodied in sections 32, 33 and 34 of the Act. 52. Thus, in the above decision, the Supreme court carved out a principle, even under the 1940 Act, that if the arbitration clause was wide enough to cover issues such as the validity or otherwise of the contract, on grounds of fraud, misrepresentation, mutual mistake or any valid reason, then the jurisdiction of the arbitrator will not get ousted. This possibility is what is now incorporated statutorily, under section 16 (1) of the Arbitration and Conciliation Act, 1996. 53. Interestingly, a comparison of Article 16 of the Model Law would reveal that the contents of Article 16 (1) are imported as such into Section 16 (1) (a) and (b). The contents of Article 16 (2) are segregated and made into Sections 16 (2), (3) and (4). Article 16 (3) of the Model Law ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... al Tribunal may, in either case, admit a later plea if it considers the delay justified. (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. (3) The Arbitral Tribunal may rule on a plea referred to in paragraph (2) of this Article either as a preliminary question or in an award on the merits. If the Arbitral Tribunal rules as a preliminary question that it has jurisdiction, any party may request, within thirty days after having received notice of that ruling, the Court specified in Article 6 to decide the matter, which decision shall be subject to no appeal; while such ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... se agreed by the parties, the Arbitral Tribunal may rule on its own jurisdiction on any questions including the following issues, namely - (a) whether there is existence of a valid Arbitration Agreement; (b) whether the Arbitral Tribunal is properly constituted; (c) whether the Arbitration Agreement is against public policy; (d) whether the Arbitration Agreement is incapable of being performed; and (e) what matters have been submitted to arbitration in accordance with the Arbitration Agreement . Section 18 of the Act provides for severability of the Arbitration Agreement, for the purpose of enabling the Arbitral Tribunal to rule on its own jurisdiction. Limited powers are conferred on the High Court under the said Act, to determine any question as to the jurisdiction of the Arbitral Tribunal, if any of the parties to the Arbitration Agreement makes an application in this regard. However, the said powers are circumscribed by certain conditions prescribed under Section 20(2) of the said Act. 57. Similarly, Section 16 of the Nepal Arbitration Act, 1999, makes it clear that the Arbitrator shall take a decision, before commencing proceedings on the matter referred t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ise than as provided in this Act . However, Sec.34 of the said Act whittles down the effect of Se.32 to some extent. 59. The Arbitration Act, 1995 of Srilanka adopts the same principles as contained in the Model Law. Under Section 11 of the Act, the Arbitral Tribunal is conferred with jurisdiction to rule on any question as to the existence or validity of an Arbitration Agreement or as to whether such agreement is contrary to public policy or is incapable of being performed. However, Section 11(1) also enables a party to the arbitral proceedings to apply to the High Court for a determination of any such question. But Section 12 makes it clear that the Arbitration Agreement which forms part of another agreement shall be deemed to constitute a separate agreement for the purpose of deciding the jurisdiction of the tribunal and the validity of the Arbitration Agreement. Section 11 reads as follows:- 11. Competence of Arbitral : (1) An Arbitral Tribunal may rule on its Arbitral jurisdiction including any question, with respect to the existence or validity of the Arbitration Agreement or as to whether such agreement is contrary to public policy or is incapable of being perfo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is akin to Section 16 of our Act (though not in pari materia), enables the Arbitral Tribunal to rule on the existence of a valid Arbitration Agreement. But unlike Section 16 of our Act, Section 30 of the English Act provides for an appeal or review against such a ruling of the Arbitral Tribunal on its own substantive jurisdiction, under sub-section (2) of Section 30 read with Section 32. Section 45 also enables a Court to determine any question of law, arising in the course of arbitration proceedings, subject to certain conditions. Section 72 of the Act saves the right of a person, to question, by proceedings in a Court for a declaration or injunction or other appropriate relief, as to whether there was a valid Arbitration Agreement. The right saved under Section 72, is curiously of a person who takes no part in the proceedings. Thus, English Law gives ample scope for a person (i) either to challenge the validity of the Arbitration Agreement before the tribunal or (ii) to seek recourse to Section 30 (2) by filing an appeal or review against the ruling of the Arbitral Tribunal on such decision regarding jurisdiction (iii) or to seek a decision from a Court on a preliminary point of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... concerned, some of the states have adopted the UNCITRAL Model Law, but the federal law namely, the United States Arbitration Act, 1925, now known as Federal Arbitration Act, does not appear to have been brought in tune with the Model Law. Section 2 of the said Act provides that a written Arbitration Agreement may be denied enforcement on such grounds as exist at law or in equity for the revocation of any contract. In their book Arbitration Law in America- A Critical Assessment , published by the Cambridge University Press, the authors Edward Brunet and Richard E. Speidel, say the following on the question of separability of the arbitration clause and its enforcement: The practical effect of the separability doctrine is that in most cases, an attack on the validity or enforceability of the underlying contract will not be regarded as a direct attack on the arbitration clause and that these disputes can be decided by arbitrators under a 'broad' arbitration clause. The nagging exception is where one party attacks the 'very existence' of the underlying contract by claiming that it is void ab initio (as opposed to public policy) or that no contract was ever formed. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... insertion of a similar rider in section 16 empowering the Arbitral Tribunal to go into the question, is a case of commission. This, therefore, is a clear signal to the fact that in so far as domestic arbitration is concerned, the question as to whether an Arbitration Agreement is vitiated by fraud etc., are also to be determined only by the Arbitral Tribunal. It does not fall under the exception to the rule of casus omissus and hence the court cannot supply the same by resorting to the maxim ex nihilo nihil fit . 65. The reintroduction of Section 89 into the Code of Civil Procedure, by C.P.C. (Amendment) Act, 1999, which was earlier repealed by the Arbitration Act of 1940 is a pointer to the fact that the object of the Legislature is to encourage alternative dispute resolution mechanisms. The seal of approval put on the validity of the C.P.C. (Amendment) Act, in Salem Advocate Bar Association case {(2003) 1 SCC 49} and the directions issued in the second Salem Advocate Bar Association case {(2005) 6 SCC 344} are also pointers to the above fact. 66. In view of the above, I am of the considered view that in an application under section 8, this court cannot, nay, need not, go i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... person who is not a party to an Arbitration Agreement is roped in, the jurisdiction of the Arbitral Tribunal stands ousted. In a Civil Suit, the plaintiff is the dominus litus and he may cite any one as a party, at the time of institution. Such a privilege granted to a plaintiff cannot be (mis)used as a gate pass to avoid an Arbitration Agreement. In the present suit, the defendants 2 and 3, who were only Officers of the plaintiff, have been cited as defendants 2 and 3, without any relief being sought against them. They are impleaded only in view of the allegations made against them that they exceeded the authority conferred upon them to enter into derivatives transactions. In other words, the plaintiff requires their presence as witnesses and not as parties against whom any relief is sought for. In paragraph-30 of the plaint, it is made clear by the plaintiff that no specific relief has been sought against defendants 2 and 3. In such circumstances, their impleadment in the suit, cannot enure to the benefit of the plaintiff to avoid the Arbitration Agreement. 69. In the light of my conclusion that in an application under Section 8 (as distinguished from an application under Sec ..... X X X X Extracts X X X X X X X X Extracts X X X X
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