Judgments and Awards

Section 7 & 11 - Existence of arbitration clause

2005(1) RAJ 632 (AP)
GAIL (India) Ltd Vs Nagarjuna Cerachem Pvt Ltd

There was a government contract for supply of gas which had an arbitration clause. However, the petitioner filed a writ petition under Article 226 of the Constitution of India, the maintainability of which was questioned in this case.

The court held that the writ was not maintainable as there was an arbitration clause in the agreement under which all the disputes, if not settled mutually, will have to be referred for arbitration where the arbitrator would decide the dispute and grant appropriate relief. It is not permissible to invoke Article 226 because there is an existing effective remedy available in the contract itself. Availability of an alternative remedy is a good ground for the court to decline to exercise its extraordinary jurisdiction under Article 226.

Section 9 & 37 - Maintainability of writ petition against interim order
2005(1) RAJ 676 (Gau)
Archcon & Ors Vs Sewda Construction Co & Anr

At the very outset a question was raised as to the maintainability of the writ petition on the ground that against the impugned order, appeal lies before this court u/s 37 and the same being the alternative remedy available to the petitioner, the present petition under Article 226 was not maintainable.

It was held that undoubtedly against an order u/s 9, a statutory appeal is maintainable u/s 37 but it cannot be said that the same will be a bar for invoking the power of the court under Article 226. If the order suffers from basic illegality or has been passed in contravention of the established principles of law, or if it is shown that grave injustice has been done to the party, the High Court in exercise of its power under Article 226 can interfere with such orders. This power involves a duty of the High Court to keep the inferior courts and tribunals within the bounds of their authority, ensure that they are performing their duty in a legal manner.

Therefore, seeing the facts and circumstances of the case, although an alternative remedy was available to the petitioner, the said remedy was not adequate and efficacious and therefore a petition under Article 226 was maintainable.

Section 16, 5, 2(3), 21, 13(1), 34 & 8 - Arbitrability of dispute

2001(4) RAJ 343 (Mad)
Mankanner Jain Social Welfare Society Vs Anilkumar J Doshi

The respondent was a member of the petitioner society who expelled the respondent from its membership. The respondent sought revocation of the expulsion and in the ensuing dispute, the petitioner appointed an arbitrator. The respondent did not argue that there is no arbitration clause but his argument was that the arbitration clause does not bind him and he has no faith in the sole arbitrator and he also filed a suit for declaration that the alleged expulsion was void.

It was held that the prime issue before the suit and the arbitrator is one and the same. The arbitrator has the power to decide his own jurisdiction, therefore the first issue raised by the respondent can be answered by the arbitrator himself. With regard to the issue of legality of the expulsion as raised by the respondent in the suit, the same is a prime issue before the arbitrator. If the arbitrator had come to the conclusion that the expulsion was illegal, the respondent would have got relief that he sought in the suit.

Section 16 & 11 - Power to decide existence of arbitration agreement
2001(3) RAJ 250 (All)
Rail India Technical & Economic Services Ltd Vs Vidyawati Construction Company

The power of the arbitrator to decide the question of the existence of the arbitration clause was discussed in this case and support was taken from citing another case viz. Nimet Resources Inc and Anr Vs Essar Steels Ltd ; 2000(3) RAJ 175

It was held that in a matter where there has been some transaction between the parties and the existence of the arbitration agreement is in challenge, the proper course for the parties is to thrash out such questions u/s 16 and not u/s 11 of the Act. The reason being that the power which is exercise u/s11 is in the nature of an administrative order and in such a case, unless the Chief Justice can be absolutely sure that there exists no arbitration agreement between the parties, it would be difficult to state that there should be no reference to arbitration. Further, such a view may not be conclusive in view of the nature of the powers that are exercised u/s 11(6).

It was also held that section 16 does not take away the jurisdiction of the Chief Justice, if need be, to decide the question of existence of the arbitration agreement and it does not declare that except the arbitral tribunal, none else can determine such a question. It was also observed that merely because the 1996 Act permits the arbitrator to decide this question, it does not necessarily follow that at the stage of section11, the Chief Justice cannot decide a question as to the existence of the arbitration clause.

Section 16 & 11(12) - Question of existence of arbitration agreement
2000(1) RAJ 433 (SC)
Wellington Associates Ltd Vs Kirit Mehta

The question that was raised in this case was whether the Chief Justice had a power to adjudicate on the question of existence of the arbitration agreement.

While answering in the affirmative, the court held that in cases where there is a dispute raised at the stage of the application u/s 11 that there is no arbitration clause at all, then it would be absurd to refer the very issue to an arbitrator without first deciding whether there is an arbitration clause or not in the first place. Therefore, the jurisdiction of the Chief Justice or his designate to decide the question of the 'existence' of the arbitration clause cannot be doubted or excluded by section 16. Merely because the 1996 Act permits the arbitrator to decide this question does not necessarily mean that at the stage of section 11, the Chief Justice cannot decide a question as to the existence of the arbitration clause.

Section 16 & 34 - Determination of jurisdiction of arbitrator
2002(4) RAJ 1 (Cal)
Board of Trustees for the Port of Calcutta Vs Mahalakshmi Constructions

The determination of jurisdiction of an arbitrator was discussed in this matter. It was held that the same is to be determined with reference to the arbitration clause ie. The forum choosing clause. The phrases used in that clause are to be looked at to see whether any and every dispute arising out of the commercial contract has been made the subject of a possible reference or not.

In all usual contracts containing an arbitration clause, there are not one but two contracts ie. The clause containing the arbitration clause is one contract and the other clauses delineating the terms and conditions agreed upon by and between the parties for commercial transactions forms the other contract. Although these two contracts are contained in the same document, it is very important to distinguish them as separate and distinct. Even if the commercial contract is unenforceable due to illegality or fraud, the arbitration contract does not become void and the arbitrator can pronounce upon the illegality or fraud.

Section 16 & 34 - Ruling on own jurisdiction by arbitrator

2002(1) RAJ 212 (Del)
Rajnigandha Co-operative Group Housing Society Ltd Vs Chand Construction Co

The issue was whether the ruling on its own jurisdiction by the arbitrator is an interim award and appealable. The court deliberated on this matter in a very lucid and elaborate manner and clarified that the decision by the arbitral tribunal u/s 16(5) holding that it has jurisdiction to entertain the claim petition is not an interim award. It was categorically held that where the arbitral tribunal decides the question of jurisdiction u/s 16(5) and rules that disputes raised in the petition are arbitrable, the petition u/s 34 is not maintainable as no appeal is provided under the Act against such order and since the order is not an interim order, it is not challengeable u/s 34 either.

It was further observed that from the scheme of the Act, it is apparent that the Legislature did not provide appeal against the order u/s 16(5) where the arbitral tribunal takes a decision rejecting the plea that the arbitral tribunal has no jurisdiction. The intention appears to be that in such a case, the arbitral tribunal shall continue with the proceedings and make an award without delay an without the arbitral process being interfered with at that stage by the Court in their supervisory role.

Section 16, 34 & 2(b) - Determination whether dispute beyond scope of arbitrator
2002(4) RAJ 331 (Del)
D-Ionic India (P) Ltd Vs State of Rajasthan

The issue raised in this case was whether a dispute raised by a party for determination of the existence of the arbitration agreement was within the scope of the arbitrator.

It was held that the question whether the arbitrator has jurisdiction to decide the disputes and differences raised by the petitioner in the petition is itself the subject matter of the decision of the arbitrator. Section 16 confers power under the arbitrator to rule on its own jurisdiction, including ruling on any objections with respect to the existence or validity of the arbitration agreement and for that purpose an arbitration clause which forms part of the contract shall be treated as an agreement independent of the other terms of the contract and a decision by the arbitrator that the contract is null and void shall not entail ipso jure the invalidity of the arbitration clause.Section 16(3) also provides that as soon as the matter is alleged to be beyond the scope or authority of the arbitrator, such a plea should be raised during the arbitral proceedings. Where the arbitrator rejects the aforesaid plea and continues with the proceedings and makes an award, the aggrieved party may make an application u/s 34 for setting aside of such an award.

Section 16 & 34(2)(b)(i) & (ii) - Jurisdiction of Arbitrator

2002(2) RAJ 252 (Cal)
Sarkar Enterprises Vs Garden Reach Shipbuilders & Engineers

The issue discussed in this case was whether when no question is raised before the arbitrator about his jurisdiction, can such a plea be allowed to be taken later before this court in an application for setting aside the award.

While answering in the negative, the court held that the 1996 Act provides 2 sections, section 13 and section 16, under which an arbitrator may be challenged. Section 13(5) is made for general procedure for arbitration and challenges thereunder and Section 16 is specially provided for making applications to challenge the jurisdiction before the arbitrator. Special supercedes the general. It cannot be the intention of the Legislature that in each and every stage jurisdiction will be questioned and the expeditious nature of the arbitral proceedings is hampered.

It was further held that the question of jurisdiction based on factual matrix cannot be decided at any point of time since the same is not a question of inherent lacking of jurisdiction. The petitioner did not take up this point before the arbitrator which ought to have been taken under the 1996 Act, or in the court during the course of arbitral proceedings under which the arbitrator was appointed by consent of the parties an allowed the arbitrator to make an award. Therefore, such a plea cannot be allowed to be taken now in the application for setting aside the award.

Section 16, 10 & 4 - Challenge to composition of arbitral tribunal before the tribunal
2002(1) RAJ 381 (SC)
Narayan Prasad Lohia Vs Nikunj Kumar Lohia

A contention arose in this case that u/s 16 a party cannot challenge the composition of the arbitral tribunal before the arbitral tribunal itself. The permissibility and scope of such an action was looked into and the court held that this contention was not tenable.

It was held that Section 16 enables the arbitral tribunal to rule on its own jurisdiction, on any objection with respect to the existence or validity of the arbitration agreement and the tribunal's authority is not limited to the width of its jurisdiction but also goes to the root of its jurisdiction. Section 16(2) makes it clear that such a challenge can be taken even though the party may have participated in the appointed of the arbitrator and/or may have himself appointed the arbitrator. The party would be free, if he so chose, not to raise such a challenge.

A conjoint reading of Sections 10 & 16 shows that an objection to the composition of the arbitral tribunal is a matter which is derogable, because the party is free not to object within the time prescribed in Section 16(2). If a party chooses not to object, there will be a deemed waiver u/s 4.

Section 16(1) & (2) - Competence of arbitral tribunal to rule on its own jurisdiction when the contract is void
2003(2) RAJ 316 (Kar)
Lexicon Finance Limited Unit No II Mumbai Vs Union of India

In this matter, the contract was held void. The scope of the arbitral tribunal to rule on its own jurisdiction under the effect of a void contract was examined in this case.

It was held that in view of the provision of section 16(1), an arbitration clause in an agreement is to be treated as an agreement independent of other clauses and terms in the contract. Even if the arbitral tribunal were told 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 and is enforceable.

Section 16, 34 & 37 - Remedy to challenge rejection of application u/s16
2003(4) RAJ 571 (Cal)
Unik Accurates Pvt Ltd Vs Sumedha Fiscal Services Ltd

The petitioner had filed an application u/s 16 challenging the validity of the agreement and jurisdiction of the tribunal, which was rejected by the tribunal. Thereafter the petitioner filed an application under Article 227 of the Constitution and the issue of its maintainability was in question in this matter.

It was held that it is established that an arbitral tribunal is subject to the supervision of a principal Civil Court of original jurisdiction in a District or High Court in exercise of ordinary original jurisdiction and it would be preposterous to contend that such tribunal will not come within the purview of Article 227 of the Constitution. An arbitral tribunal under the Act is a tribunal within the meaning of Article 227 of the Constitution as the Act has conferred upon such tribunal inherent judicial power of the State.

Section 16, 34 & 37(2) - Right to challenge order of arbitrator

2002(4) RAJ 575 (Mad)
Tamil Nadu Water Supply and Drainage Board, Chennai Vs Aban Constructions

The respondent contractor entered into contract with the petitioner wherein the contract was signed by the respondent's project manager who held a power of attorney in this behalf. It was contended by the petitioner that the agreement was invalid, null and void. The arbitrator rejected the contention and continued with the proceedings. Thereafter the petitioner filed a petition u/s 34 challenging the rejection order.

While dismissing the petition, it was held that the aggrieved party has no right to challenge the order passed by the tribunal in respect of the jurisdiction u/s 34. on the contrary, if the objection raised by one of the parties is accepted, the aggrieved party can file an appeal u/s 37(2). The intention of the Parliament is that if the arbitral tribunal has come to the conclusion that it is not vested with the jurisdiction, then nothing remains with them and the aggrieved party has to necessarily rush to the court of law. Whereas, if the arbitral tribunal finds that it has the jurisdiction, the aggrieved party can agitate the said finding as well as the final award u/s 34.

The intention of the Parliament not to allow any party to have any recourse against the decision of the arbitral tribunal rejecting a challenge, is clear u/s 16(5). The Parliament also left out Article 13(3) and 16(3) of the UCNITRAL Model Law in order to support the theory of non interference by Courts in arbitral proceedings. Thus the Parliament has decided not to provide any appeal or recourse against the order of the arbitral tribunal rejecting the challenge to its jurisdiction.

Section 16(2), (3), (5) & 34 - Question of arbitrator proceeding with arbitration without deciding jurisdiction

2003(4) RAJ 98 (Cal)
Arati Dhar Vs SK Dutta

The petitioner raised a plea of jurisdiction of the arbitrator before the submission of statement of defense, when the arbitrator first entered upon reference. The said submission was also repeated in the counter statement of defense by the petitioner. The arbitrator, without deciding the plea, proceeded with the arbitration and made an award.

While setting aside the award, it was held that it is clear from a conjoint reading of section 16(2), (3) and (5) that the arbitrator is under an obligation to decide the plea of jurisdiction and his authority to continue the arbitration depends on his decision regarding the plea about his jurisdiction. ie. Section 16(5) envisages that the arbitrator may reject the plea about his jurisdiction and then continue with the proceeding and make an award. In the instant case, the arbitrator proceeded with making an award without rejecting the question as to his jurisdiction first, and as such committed a grave error of law.

Reading section 16(1) with section 16(2) makes it clear that the plea relating to the jurisdiction of the arbitral tribunal should be raised not later than the submission of the statement of defense. In the instant case, the plea was raised even before the submission of the statement of defense. Section 16(2) clearly provides that a party shall not be precluded from raising the said plea merely because either (i) he has appointed or (ii) participated in the appointment of the arbitrator. Therefore, the order passed for appointment at the stage of section 11 cannot preclude the petitioner from raising the plea of jurisdiction.

Since the question of jurisdiction goes to the root of the matter, other questions raised by the parties were not considered and the court held that the arbitrator had no jurisdiction to pass the award which it had passed.

Section 16(2), 11, 2(1)(B), 7 & 37 - Jurisdiction of arbitrator

2001(4) RAJ 262 (Bom)
Prem Laxmi & Co Vs Tata Engineering ad Locomotive Co Ltd

The respondents made some modifications in the General Conditions of Sale of Goods, whereby removing the arbitration clause. However, the heading 'Arbitration' remained in the said clause but the contents of the clause reflected jurisdiction of Bombay courts in case of disputes. The question of jurisdiction of the arbitrator came up and the arbitrator held that he had no jurisdiction.

The court upheld the arbitrator's decision and stated that a perusal of the contents of the said clause did not suggest that the same can be construed as an arbitration clause as the same refers to the fact that the contract has been entered into at Bombay and that disputes or differences arising from the contract shall be decided by the court in Bombay.

Section 16(5), 34 & 37(2) - Constitutionality of section 16(5)

2003(2) RAJ 316 (Kar)
Lexicon Finance Ltd Unit No II, Mumbai Vs Union of India

A plea was put forward in this case that section 16(5) of the Act is ultra vires the Constitution as an aggrieved party is left without any effective remedy except to go through the entire trial.

It was held that a bare reading of the section reveals that if the objection regarding jurisdiction is rejected by the tribunal, the tribunal shall continue with the proceedings and make an award. If the party is aggrieved by such an award, he has been provided with a remedy by way of application u/s 34 for setting aside such award. Therefore, an arbitral award could be challenged u/s 34 not only on the grounds set out in section 34(2), but also on the ground that the tribunal has no jurisdiction or that the tribunal exceeded its authority as contemplated u/s 16(2) and (3). If a plea u/s 16(2) or (3) is accepted by the tribunal then u/s 37(2) an appeal is provided against such finding.

Therefore the Legislature in its wisdom has provided for appropriate statutory remedies both when the plea regarding jurisdiction is accepted and rejected by the Tribunal. Merely because after the plea is rejected the person raising the said objection is made to contest the proceedings on merits and only when an award is passed is he permitted to challenge the said award, both on the question of jurisdiction and on merits u/s 34, would not render section 16(5) inequitable and violative of the principles of natural justice and ultra vires of the Constitution.