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TMI Blog2021 (3) TMI 382X X X X Extracts X X X X X X X X Extracts X X X X ..... llant, Pravin Electricals Pvt. Ltd., operates in key industrial and commercial retail sectors and provides services for electrical supplies etc. 3. On 26th May, 2014, an online tender was invited by Chief Engineer, South Bihar Power Distribution Company Ltd. (hereinafter referred to as "SBPDCL") for appointment of implementing agencies for execution of a Scheme, on turnkey basis, for strengthening, improvement and augmentation of distribution systems capacities of 20 towns in Bihar. The Appellant submitted its technical and financial bid and was declared the L1 bidder and was awarded the work on 22nd September, 2014. It is the case of the Respondent that it had made substantial efforts under a Consultancy Agreement dated 7th July, 2014, to facilitate the Appellant in getting the aforesaid contract for which it was entitled to commission. It is then alleged that the Appellant sent an email dated 15th July, 2014 to the Respondent with a draft agreement attached for comments and confirmation. On the same day, the Respondent sent its reply stating that certain terms were not acceptable. In emails that have surfaced for the first time in this Court dated 22nd July, 2014 and 25th July, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the 1996 Act for appointment of a Sole Arbitrator on the basis of the alleged Agreement dated 7th July, 2014. The Delhi High Court vide an order dated 28th November, 2018, directed the Respondent to produce the original of the Consultancy Agreement dated 7th July, 2014. The Appellant was then directed to produce Mr. M.G. Stephen, Managing Director of the Appellant, before the Registrar (Judicial) on 7th December, 2018, so that he can carry with him documents which bear his original signature at the contemporaneous time. The Registrar (Judicial) was also directed to obtain specimen signatures of Mr. M.G. Stephen. The original of the Agreement together with the aforesaid signatures of Mr. M.G. Stephen was then to be sent to the CFSL for obtaining a report. The report was then received and by an order dated 20th September, 2019, the High Court directed that copies of the report be given to the learned counsel for the parties. Finally, on 30th September, 2019, the learned counsel for the Appellant submitted that he had instructions to contest the matter after which the impugned judgment dated 12th May, 2020 was passed. 7. Vide the impugned judgment, the learned Single Judge of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Department to the respondent regarding award of the Contract to the respondent was also sent to the petitioner vide email dated 22.09.2014. Draft letter of acceptance sent by the Department to the petitioner through email dated 25.09.2014 was sent by the petitioner to the respondent on the same day, by an email. 41. Learned counsel for the respondent in my view is not correct in its contention that since a draft agreement was emailed by the respondent, there was no executed agreement dated 07.07.2014. From the email dated 15.07.2014, it is apparent that the respondent had executed an Agreement prior to 15.07.2014. Petitioner had categorically stated in the email dated 15.07.2014 that the payment terms in the draft agreement were different and there is no document on record filed by the respondent evidencing denial of the contents of this email. 42. In so far as the argument that the invoices were raised on PCTSPL and not on the petitioner is concerned, petitioner is correct in its submission that PCTSPL was only a sub-contractor of the respondent. Petitioner had not raised the invoice on its own will. Counsel for the petitioner has pointed out the email dated 24.09.2019 sent ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... referred to Arbitration for adjudication of their disputes." Accordingly, Justice G.S. Sistani, a former Judge of the Delhi High Court was appointed as the Sole Arbitrator to adjudicate the dispute between the parties. 8. Shri Shyam Divan, learned Senior Advocate, appearing on behalf of the Appellant, has argued that the alleged Consultancy Agreement dated 7th July, 2014 is a concocted document. This is clear from the CFSL report dated 29th September, 2019, on which he relied very heavily. This being the case, since the alleged Consultancy Agreement itself had no existence, there was no arbitration agreement between the parties, as a result of which the High Court judgment fell to the ground. He also argued that this is the only case of its kind in which a formal signed agreement is alleged to have been entered into between the parties, after which negotiations take place and a draft agreement is referred to. The very fact that negotiations have taken place after such alleged agreement shows that such alleged agreement does not in fact exist. He also went on to argue that the agreement is notarized at Faridabad, Haryana, when the parties are from Mumbai and Bihar respectively. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tis personae in this case interacted with each other and that, but for the efforts of his client, Pravin Electricals Pvt. Ltd. would never have got the bid. He relied upon a number of judgments of this Court to buttress his submissions. 10. Having heard learned counsel for both the parties, it is important to first set out the relevant provisions of the Arbitration and Conciliation Act, 1996: 8. Power to refer parties to arbitration where there is an arbitration agreement. - (1) A judicial authority, before which an action is brought in a matter which is the subject of an arbitration agreement shall, if a party to the arbitration agreement or any person claiming through or under him, so applies not later than the date of submitting his first statement on the substance of the dispute, then, notwithstanding any judgment, decree or order of the Supreme Court or any Court, refer the parties to arbitration unless it finds that prima facie no valid arbitration agreement exists. 11. Appointment of arbitrators. - xxxx (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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rpn. Ltd. v. Rani Construction (P) Ltd., (2002) 2 SCC 388 (Konkan Railway 2). 10. However, in SBP & Co. v. Patel Engg. Ltd., (2005) 8 SCC 618, a seven-Judge Bench overruled this view and held that the power to appoint an arbitrator under Section 11 is judicial and not administrative. The conclusions of the seven-Judge Bench were summarised in para 47 of the aforesaid judgment. We are concerned directly with sub-paras (i), (iv) and (xii), which read as follows: (SCC pp. 663-64) '(i) The power exercised by the Chief Justice of the High Court or the Chief Justice of India under Section 11(6) of the Act is not an administrative power. It is a judicial power. *** (iv) The Chief Justice or the designated Judge will have the right to decide the preliminary aspects as indicated in the earlier part of this judgment. These will be his own jurisdiction to entertain the request, the existence of a valid arbitration agreement, the existence or otherwise of a live claim, the existence of the condition for the exercise of his power and on the qualifications of the arbitrator or arbitrators. The Chief Justice or the designated Judge would be entitled to seek the opinion of an instituti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... een left to be decided by the arbitrator under Section 16 of the 1996 Act. As a result, the Law Commission of India, by its Report No. 246 submitted in August 2014, suggested that various sweeping changes be made in the 1996 Act. Insofar as SBP & Co. (supra) and Boghara Polyfab (supra) are concerned, the Law Commission examined the matter and recommended the addition of a new subsection, namely, sub-section (6-A) in Section 11. In so doing, the Law Commission recommendations which are relevant and which led to the introduction of Section 11(6- A) are as follows: '28. The Act recognises situations where the intervention of the Court is envisaged at the pre-arbitral stage i.e. prior to the constitution of the Arbitral Tribunal, which includes Sections 8, 9, 11 in the case of Part I arbitrations and Section 45 in the case of Part II arbitrations. Sections 8, 45 and also Section 11 relating to "reference to arbitration" and "appointment of the Tribunal", directly affect the constitution of the Tribunal and functioning of the arbitral proceedings. Therefore, their operation has a direct and significant impact on the "conduct" of arbitrations. Section 9, being solely for the purpos ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y receiving the final payment without objection? 22.3. The issues (third category) which the Chief Justice/his designate should leave exclusively to the Arbitral Tribunal are: (a) Whether a claim made falls within the arbitration clause (as for example, a matter which is reserved for final decision of a departmental authority and excepted or excluded from arbitration)? (b) Merits of any claim involved in the arbitration." 31. The Commission is of the view that, in this context, the same test regarding scope and nature of judicial intervention, as applicable in the context of Section 11, should also apply to Sections 8 and 45 of the Act - since the scope and nature of judicial intervention should not change upon whether a party (intending to defeat the arbitration agreement) refuses to appoint an arbitrator in terms of the arbitration agreement, or moves a proceeding before a judicial authority in the face of such an arbitration agreement. 32. In relation to the nature of intervention, the exposition of the law is to be found in the decision of the Supreme Court in Shin- Etsu Chemical Co. Ltd. v. Aksh Optifibre Ltd., (2005) 7 SCC 234, (in the context of Section 45 of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e that in the case of international commercial arbitrations, the Court should be the High Court; (ii) to ensure that an Indian Court can exercise jurisdiction to grant interim measures, etc., even where the seat of the arbitration is outside India; (iii) an application for appointment of an arbitrator shall be disposed of by the High Court or Supreme Court, as the case may be, as expeditiously as possible and an endeavour should be made to dispose of the matter within a period of sixty days; (iv) to provide that while considering any application for appointment of arbitrator, the High Court or the Supreme Court shall examine the existence of a prima facie arbitration agreement and not other issues; (v) to provide that the Arbitral Tribunal shall make its award within a period of twelve months from the date it enters upon the reference and that the parties may, however, extend such period up to six months, beyond which period any extension can only be granted by the Court, on sufficient cause; (vi) to provide that a model fee schedule on the basis of which High Courts may frame rules for the purpose of determination of fees of Arbitral Tribunal, where a High Court app ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . (ii) The conundrum - "who decides" - whether the court at the reference stage or the Arbitral Tribunal in the arbitration proceedings would decide the question of non-arbitrability. 2.3. The second aspect also relates to the scope and ambit of jurisdiction of the court at the referral stage when an objection of non-arbitrability is raised to an application under Section 8 or 11 of the Arbitration and Conciliation Act, 1996 (for short "the Arbitration Act"). 13. The Bench then went into the Law Commission's 246th Report as follows: 124. In order to appreciate the effect of the amendments made by Act 3 of 2016, it would be appropriate to refer to the Law Commission's 246th Report which had given reasons for amendments to Sections 8 and 11 of the Arbitration Act, including insertion of sub-section (6-A) to Section 11. The said reasons read as under: "24. Two further sets of amendments have been proposed in this context. First, it is observed that a lot of time is spent for appointment of arbitrators at the very threshold of arbitration proceedings as applications under Section 11 are kept pending for many years. In this context, the Commission has proposed a few amendm ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... views are expressed by this Court in Vimal Kishor Shah v. Jayesh Dinesh Shah, (2016) 8 SCC wherein the test applied at the pre-arbitration stage was whether there is a "good arguable case" for the existence of an arbitration agreement. 15. The parameters of review under Sections 8 and 11 were then laid down thus: 138. In the Indian context, we would respectfully adopt the three categories in Boghara Polyfab (P) Ltd. The first category of issues, namely, whether the party has approached the appropriate High Court, whether there is an arbitration agreement and whether the party who has applied for reference is party to such agreement would be subject to more thorough examination in comparison to the second and third categories/issues which are presumptively, save in exceptional cases, for the arbitrator to decide. In the first category, we would add and include the question or issue relating to whether the cause of action relates to action in personam or rem; whether the subject-matter of the dispute affects third-party rights, have erga omnes effect, requires centralised adjudication; whether the subject-matter relates to inalienable sovereign and public interest functions of t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ntralisation of litigation with the Arbitral Tribunal as the primary and first adjudicator is beneficent as it helps in quicker and efficient resolution of disputes. 16. The Court then examined the meaning of the expression "existence" which occurs in Section 11(6A) and summed up its discussion as follows: 146. We now proceed to examine the question, whether the word "existence" in Section 11 merely refers to contract formation (whether there is an arbitration agreement) and excludes the question of enforcement (validity) and therefore the latter falls outside the jurisdiction of the court at the referral stage. On jurisprudentially and textualism it is possible to differentiate between existence of an arbitration agreement and validity of an arbitration agreement. Such interpretation can draw support from the plain meaning of the word "existence". However, it is equally possible, jurisprudentially and on contextualism, to hold that an agreement has no existence if it is not enforceable and not binding. Existence of an arbitration agreement presupposes a valid agreement which would be enforced by the court by relegating the parties to arbitration. Legalistic and plain meaning i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to Section 8, Section 16 and Section 45, which deal with "validity" of an arbitration agreement is answered by this Court's understanding of the expression "existence" in Hyundai Engg. case, as followed by us." Existence and validity are intertwined, and arbitration agreement does not exist if it is illegal or does not satisfy mandatory legal requirements. Invalid agreement is no agreement. 147.2. The court at the reference stage exercises judicial powers. "Examination", as an ordinary expression in common parlance, refers to an act of looking or considering something carefully in order to discover something (as per Cambridge Dictionary). It requires the person to inspect closely, to test the condition of, or to inquire into carefully (as per Merriam-Webster Dictionary). It would be rather odd for the court to hold and say that the arbitration agreement exists, though ex facie and manifestly the arbitration agreement is invalid in law and the dispute in question is non-arbitrable. The court is not powerless and would not act beyond jurisdiction, if it rejects an application for reference, when the arbitration clause is admittedly or without doubt is with a minor, lunatic or ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... served: (SCC p. 642, para 191) "191. The Indian judicial system is grossly afflicted with frivolous litigation. Ways and means need to be evolved to deter litigants from their compulsive obsession towards senseless and ill-considered claims. One needs to keep in mind that in the process of litigation, there is an innocent sufferer on the other side of every irresponsible and senseless claim. He suffers long-drawn anxious periods of nervousness and restlessness, whilst the litigation is pending without any fault on his part. He pays for the litigation from out of his savings (or out of his borrowings) worrying that the other side may trick him into defeat for no fault of his. He spends invaluable time briefing counsel and preparing them for his claim. Time which he should have spent at work, or with his family, is lost, for no fault of his. Should a litigant not be compensated for what he has lost for no fault? The suggestion to the legislature is that a litigant who has succeeded must be compensated by the one who has lost. The suggestion to the legislature is to formulate a mechanism that anyone who initiates and continues a litigation senselessly pays for the same. It is su ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t felt that the legal position was beyond doubt as the scope of the arbitration clause was fully covered by the dictum in Vulcan Insurance Co. Ltd. [Vulcan Insurance Co. Ltd. v. Maharaj Singh, (1976) 1 SCC 943] Similarly, in PSA Mumbai Investments Pte. Ltd. [PSA Mumbai Investments Pte. Ltd. v. Jawaharlal Nehru Port Trust, (2018) 10 SCC 525] , this Court at the referral stage came to the conclusion that the arbitration clause would not be applicable and govern the disputes. Accordingly, the reference to the Arbitral Tribunal was set aside leaving the respondent to pursue its claim before an appropriate forum. 147.11. The interpretation appropriately balances the allocation of the decision-making authority between the court at the referral stage and the arbitrators' primary jurisdiction to decide disputes on merits. The court as the judicial forum of the first instance can exercise prima facie test jurisdiction to screen and knock down ex facie meritless, frivolous and dishonest litigation. Limited jurisdiction of the courts ensures expeditious, alacritous and efficient disposal when required at the referral stage. 17. The Bench finally concluded: 153. Accordingly, we hold ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dings would be insufficient and inconclusive; when facts are contested; when the party opposing arbitration adopts delaying tactics or impairs conduct of arbitration proceedings. This is not the stage for the court to enter into a mini trial or elaborate review so as to usurp the jurisdiction of the Arbitral Tribunal but to affirm and uphold integrity and efficacy of arbitration as an alternative dispute resolution mechanism. 155. Reference is, accordingly, answered. 18. Ramana, J. in a separate concurring opinion, after referring to the case law, summed up his conclusions as follows: 244. Before we part, the conclusions reached, with respect to Question 1, are: 244.1. Sections 8 and 11 of the Act have the same ambit with respect to judicial interference. 244.2. Usually, subject-matter arbitrability cannot be decided at the stage of Section 8 or 11 of the Act, unless it is a clear case of deadwood. 244.3. The court, under Sections 8 and 11, has to refer a matter to arbitration or to appoint an arbitrator, as the case may be, unless a party has established a prima facie (summary findings) case of non-existence of valid arbitration agreement, by summarily portraying a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 03) 5 SCC 531, - in cases where all the parties to the dispute are not parties to the arbitration agreement, the reference is to be rejected only where such parties are necessary parties to the action - and not if they are only proper parties, or are otherwise legal strangers to the action and have been added only to circumvent the arbitration agreement. Proviso (ii) of the amendment contemplates a two-step process to be adopted by a judicial authority when considering an application seeking the reference of a pending action to arbitration. The amendment envisages that the judicial authority shall not refer the parties to arbitration only if it finds that there does not exist an arbitration agreement or that it is null and void. If the judicial authority is of the opinion that prima facie the arbitration agreement exists, then it shall refer the dispute to arbitration, and leave the existence of the arbitration agreement to be finally determined by the arbitral tribunal. However, if the judicial authority concludes that the agreement does not exist, then the conclusion will be 44 final and not prima facie. The amendment also envisages that there shall be a conclusive determination ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ation 3 has been inserted with the hope and expectation that High Courts would encourage the parties to refer the disputes to institutionalize arbitration by a professional Indian or international arbitral institute.] (v) In sub-section (7), after the words "or sub-section (6)" add the words "or subsection (6A)" and after the words "to the" delete the words "Chief Justice or the" and add the words "High Court is final where an arbitral tribunal has been appointed or a" and after the words "person or institution" add the words "has been" and after the words "designated by" delete the words "him is final" and insert the words "the High Court, and no appeal, including letters patent appeal, shall lie against such order." [NOTE: This amendment ensures that a) an affirmative judicial finding regarding the existence of the arbitration agreement; and (b) the administrative act of appointing the arbitrator are final and nonappealabe.] Section 37, which is the appeal provision, was also sought to be amended as follows: Amendment of Section 37 20. In section 37, (i) In sub-section (1), renumber sub-clause "(a)" as sub-clause "(b)" and insert sub-clause "(a)refusing to refe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... under Section 11(6) read with Sections 6(A) and 7 is not appealable. In the light of what has been decided in Vidya Drolia (supra), Parliament may need to have a re-look at Section 11(7) and Section 37 so that orders made under Sections 8 and 11 are brought on par qua appealability as well. 22. We now come to the facts of the present case. It is first important to set out the CFSL report dated 29th September, 2019, in which the CFSL found: "Result of Examination: It has not been possible to express any opinion regarding the authorship of questioned signatures marked A-1 to A-6 in comparison with the standard signatures marked A-1 to A-11 and S-1 to S-16 attributed to M.G. Stephen, due to the reason that the model of both the sets of signatures are different, hence, technically not comparable." 23. Since, the CFSL did not express an opinion either way, it became incumbent upon the learned Single Judge to determine as to whether the Agreement dated 7th July, 2014 could have been entered into given the surrounding circumstances of the case. As Shri Divan rightly points out, there are no negotiations which lead upto the 7th July, 2014 Agreement that are on record. Secondly, neg ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nsultancy Agreement of 7th July, 2014 had a signature that may not be that of Mr. M.G. Stephen was brushed aside stating that an arbitration agreement need not be signed by the parties. That is entirely besides the point. Mr. M.G. Stephen has sworn to an affidavit filed before the High Court that the signatures appearing on the 7th July, 2014 agreement are not his signatures, as a result of which the Appellant cannot be said to have entered into an agreement at all on 7th July, 2014. Again, in paragraph 45, the learned Single Judge's finding that there exists an arbitration agreement between the parties as contained in the "draft agreement" exchanged by email dated 7th July, 2014, is incorrect for two reasons. The draft agreement sent by email was exchanged on 15th July, 2014 and not on 7th July, 2014. Secondly, the email in reply to the email of 15th July, 2014 shows that there was no concluded contract between the parties. Also, the pleading with which the parties went to Court was that there was a concluded contract between the parties on 7th July, 2014. There was no pleading worthy of the name that on 15th July, 2014, a draft agreement was exchanged between the parties, as a re ..... X X X X Extracts X X X X X X X X Extracts X X X X
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