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CASE NO.:

Appeal (civil) 5880-5889 of 1997

Appeal (civil) 713-714 of 1999

Appeal (civil) 715 of 1999

Appeal (civil) 716 of 1999

Appeal (civil) 2037-2040 of 1999

Appeal (civil) 2041 of 1999

Appeal (civil) 2042-2044 of 1999

Appeal (civil) 4311 of 1999

Appeal (civil) 4312 of 1999

Appeal (civil) 4324 of 1999

Appeal (civil) 4356 of 1999

Appeal (civil) 7304 of 1999

Appeal (civil) 73066-09 of 1999

PETITIONER:

M/S KONKAN RAILWAY CORPN. LTD. & ANR.

Vs.

RESPONDENT:

M/S RANI CONSTRUCTION PVT. LTD.

DATE OF JUDGMENT: 14/10/2000

BENCH:

K.G.Balakrishnaan, M.J.Rao

JUDGMENT:

D E R

L.....I.........T.......T.......T.......T.......T.......T..J

M.JAGANNADHA RAO,J.

Learned Solicitor General of India Sri Harish

Salve, appearing for the appellants, has submitted

that

the order dated 4.7.97 of the learned Chief Justice of

the Bombay High Court, under section 11 of the

Arbitration and Conciliation Act, 1996 on the

preliminary issues is a Judicial order and, on facts,

is

liable to be set aside under Article 136 of the

Constitution of India. It is contended that, even if

it

is to be treated as administrative in nature, it is

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amenable to Article 136.

The learned Chief Justice in his order dated

4.7.97 held that inasmuch as the appellant-company

failed to appoint Arbitrators as required under the

arbitration clause, the appellants should be compelled

to furnish a panel of names of arbitrators to the

respondent-contractors and one name should be

suggested

by the appellants. The learned Chief Justice had also

rejected the plea of the appellants that no reference

be

made as the matters were 'excepted matters' and held

that the question whether the claims related to

'excepted matters' or not was also to be decided by

the

arbitrators after recording evidence and verifying the

facts. Learned Solicitor General contends that such

an

order of the Chief Justice deciding rights preliminary

points cannot be characterised as an administrative

order.

Appellant is confronted with the three Judge Bench

in Konkan Railway Corporation Ltd. vs. M/s Mehul

Construction Co. [2000 (6) SCALE 71] which has held

that

no appeal is maintainable under Article 136 against

such

an order passed by the Chief Justice directing

appointment of arbitrators under section 11 inasmuch

as

such orders are administrative in nature even if they

contain reasons and decision on certain preliminary

issues raised by the parties at the stage of

appointment

of arbitrator.

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It is pointed out by the learned Solicitor General

of India that the above judgment requires

reconsideration. Counsel pointed out that initially

in

Sundaram Finance Ltd. vs. NEPC India Ltd. [1999 (2)

SCC

479] in a case which arose under section 9 (and not

under section 11), a passing observation was made by

Kirpal, J. (in para 12) that under section 11 the

Chief

Justice or his nominee would not be passing a judicial

order. That was by way of obiter. Later on, in Ador

Samia Private Ltd. vs. Peekay Holdings Limited &

Others

[1999 (8) SCC 572], a Bench consisting of Majmudar and

Mohapatra, JJ. held that against an order under

section

11 passed by the Chief Justice, no application for

special leave could be filed under Article 136

inasmuch

as the order was an administrative order and the Bench

relied upon the observations of Kirpal, J. in

Sundaram

Finance Ltd.. The Bench also referred to the judgment

of the Constitution Bench in Indo-China Steam

Navigation

Co. Ltd. vs. Jasjit Singh [AIR 1964 SC 1140 : 1964

(6)

SCR 594 (at 603) which held that a purely

administrative

order or executive order was not amenable to Article

136. However, it appears that a Bench presided over

by

Majmudar, J. referred the question as to the nature

of

the order to a three Judge Bench in Konkan Railway Co.

Limited. The three Judge Bench took the view (see

2000

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(6) SCALE 71) that no special leave petition could be

filed under Article 136 against the order passed by

the

Chief Justice or his nominee under section 11.

According to the learned Solicitor General, this view

of

the three Judge Bench requires reconsideration.

Learned Solicitor General submits that, it is now

well-settled in several countries, where the UNCITRAL

model has been adopted and where the arbitrator also

is

permitted to decide questions as to the existence of

the

arbitration clause or validity of the agreement - that

the Court can decide certain preliminary disputes

which

are raised before it at or before the appointment of

arbitrators - such as disputes relating to existence

of

the arbitration agreement or a question as to the very

existence of a 'dispute' or as to whether the items of

disputes fell within 'excepted' matters or whether an

arbitrator could be appointed where the invocation of

the clause by one party was beyond the prescribed

period

in which one has to ask the otherside to appoint an

arbitrator, etc. It is true that under section 16(1)

of

the new Act, the arbitrator is now empowered to decide

his own jurisdiction including any objection as to the

existence or validity of the agreement and for that

purpose the arbitration clause is deemed to be

independent of the main contract (called Kompetenz-

Kompetenz principle). Counsel contends that, it may

be

that in situations where the matter has straightway

gone

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before an arbitrator by act of parties without

intervention of Court, the arbitrator is now

statutorily empowered to decide these basic questions

also. But when a case comes before judicial authority

and the defendant pleads that there is an arbitration

clause (see section 8 of the new Act) or where, on

account of the non-appointment of an arbitrator, the

Court is approached for appointment of an arbitrator

(see section 11), - the Court can decide these

preliminary issues judicially and need not

mechanically

appoint an arbitrator under section 11 in such cases.

The power of the Court has not been taken away by the

new Act. It is contended, that this is still the law

in

all countries where the UNCITRAL model has been

adopted.

In all such cases, the order of the court or the Chief

Justice (or his nominee) will be a 'judicial' one and

not an administrative order. It is pointed out that

the

UNCITRAL Model Law, in fact, uses the words 'Court or

other authority' in Article 6 and Article 11. See in

this connection Article II(3) of the New York

Convention, Article 4(1) Geneva Protocol, Article 8 of

the Model Law and section 9 of the English Act of

1996.

We may note that in para 5.49 (pp.273-274) of 'Law

and Practice of International Commercial Arbitration'

by

Alan Redfern and Martin Hunter (3rd Ed.) (1999), it is

stated, in relation to the procedure adopted now in

various countries following the UNCITRAL model as

follows:

"The third course of action is for the respondent to

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ignore the arbitral tribunal and to go to Court to resolve

the issue of jurisdiction. There are various ways in which

this may be done. The respondent may, for example, seek an

injunction or similar remedy to restrain the arbitral

tribunal from proceeding. Or the respondent may seek a

declaration to the effect that the arbitral tribunal does

not have jurisdiction in respect of the particular claim or

claims put forward by the claimant-for instance, on the

basis that there was no valid arbitration agreement. Or,

again by way of example, the respondent may take the

offensive and commence litigation in respect of the matters

in dispute. The claimant in the arbitration would

presumably defend such a challenge to the jurisdiction of

the arbitral tribunal by seeking to have the arbitration

agreement enforced. This would be a straightforward matter

of reliance upon Article II of the New York Convention (such

as section 9 of the English 1996 Act) or a similar provision

of the law governing arbitration at the seat of the

arbitration (as in Article 8 of the Model Law). The

relevant national Court must decide whether the arbitration

agreement is null and void, inoperative or incapable of

being performed; if it is not, the parties will be referred

to arbitration."

(See also para 5.51 which deals with a 'combined

approach').

In several countries, the negative effects of the

'Kompetenz-Kompetenz' principle, conferring powers on

the arbitrator, has been considered.

In this connection, there is an exhaustive and

detailed discussion of this aspect in 'Fouchard,

Gaillard Goldman on International Arbitration) (1999)

(para 672 to 682) (pages 407-413), referring to the

post-UNCITRAL case-law in France, Austria, Sweden,

Belgium, Netherlands, USA etc. to the effect that if

the

Court is first seized of these preliminary issues

before

appointment of arbitrator, - even in cases where the

arbitrator, under the statute, is empowered to decide

these questions - the Court can and will decide these

issues first rather than permit the arbitrator to

decide

them. The experience of the various Courts in these

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countries where the UNCITRAL model had been adopted

long

ago is a matter for consideration in India, where we

have recently adopted the model.

In France, in Caprodag vs. Dame Bohin (1995 Rev.

Arb. 617) the Court of Appeal has held recently that

the

arbitrators can decide these questions in cases where

the Court is not seized with these questions earlier.

This is also so under the 1961 European Convention.

Where, however, the matter straightway goes before the

arbitrator by act of parties and the arbitrators are

first seized of these problems, they can decide but

their decisions will still be subject to the decision

of

the Court. Reference is made by the authors (Fouchard

etc.) to the US cases in Comptek Telecom Inc vs. IVD

Corp. (1995 US Dist. Lexis 11876) (W.D.N.Y Aug. 1,

1995)

(10. Intnl Arb. Rep. 1) SMG Swedish Machine Group

vs.

Swedish Machine Group Inc (1991 US Dist. Lexis 780)

holding that if the Court is seized of these issues

first, it had better decide them. The position is the

same under Swedish Law in the 1999 Arbitration Act

(Sec

2, para 1). The authors (Fouchard etc.) refer (p.409)

to the Belgium Law (Art. 1679, para 1 of the Judicial

Code), the 1986 Netherlands Arbitration Act (Act 1022

(1) of the Code of Civil Procedure), the 1987 Swiss

Private International Law Statute (Art 7) - all

stating

that the arbitrators shall decide these issues except

where the Court is seized of these issues at an

earlier

stage. The Swiss case law, the 1996 English

Arbitration

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Act are also referred to. In para 676, the Authors

say

"As a result, and although it was at one time

relatively isolated, the rule found in French law and in the

1961 European Convention has recently gained substantial

acceptance."

In para 678, under the heading 'Policy

Considerations',

it is stated that if matter has not gone straight to

the

arbitrators but has come initially before the Court,

the

Court can decide these preliminary issues and this

saves

(i) time and (ii) costs of arbitration. It is said:

"The approach whereby the Courts seized of the merits

of the case are entitled to rule immediately on the

existence and validity of the arbitration agreement arguably

leads to a certain degree of time and cost avoidance. It

may prevent parties having to wait several months, or in

some cases, years, before knowing the final outcome of the

dispute regarding jurisdiction - it will often take long for

the arbitrators and then the Courts to reach their

decisions."

In a very recent case in Azov Shipping Co. Vs.

Baltic Shipping Co. ( 1999(1) LL LR 68), which arose

under the 1996 Act, the parties had first gone before

the arbitrator on the preliminary question of

jurisdiction, the matter was argued for three days to

ascertain whether or not there was a contract with the

respondent and the arbitrator held that the respondent

before him was a party to the contract. The matter

then

came under Section 67 before the Court. The Court

observed that this was perhaps a case where the

parties

could have straight come first before the Court for

determination on this issue and that would have saved

costs and time. ( The English Act permits parties to

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take consent or by consent of the arbitrator, to go to

Court on jurisdictional issues). Rix J said (p.70):

"This was perhaps a case where the parties might well

have come to Court, either by agreement or upon an

application from the one side or the other, for the Court to

determine issues of jurisdiction, on the ground that it was

likely to produce substantial savings in cost and that there

was good reason why the matter should be decided by the

Court."

[ See also 'A Practical Approach to Arbitration Law by

Keren Tweeddale and Andrew Tweeddale'(1999)(at p.79)]

It is, therefore, contended that the Chief Justice

or his nominee, is, therefore, entitled to decide

these

issues notwithstanding the arbitrator's 'competence'

to

decide these issues and if there is a decision, the

order deciding rights of parties cannot be

'administrative' but can only be a judicial order

amenable to Article 136.

As to the nature of the order to be passed under

section 7 of the International Arbitration Act which

deals with reference of disputes falling under the

Convention to arbitration, the Federal Court of

Australia (New South Wales) in its judgment dated

30.6.97 held:

"Each of these determinations which may arise under

section 7 of the Act, calls for the exercised by the Court

of judicial power."

(See Hi-Fert Pty. Ltd. vs. Kiukiang Maritime

Carriers

reported in Vol. XXIII - 1998, Year Book of

Commercial

Arbitration of ICCA p. 606 at p.612).

The learned Solicitor General of India Sri Salve

has also contended that under section 11 the Chief

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Justice (or his nominee) has now replaced the

jurisdiction of the Court under section 8 of the old

Arbitration Act, 1940. More or less, the same powers

are now conferred on the Chief Justice and this has

been

done only to enthuse more confidence among the

litigants

in the person who is appointed as arbitrator. The

District Court has been previously performing judicial

functions under Section 8 of the Arbitration Act, 1940

and even now the Chief Justice performs only judicial

functions. The UNCITRAL MODEL law, (on which the 1996

Act is modeled) and several statutes passed in various

countries on the UNCITRAL model use the word 'Court'

and

do not use the word 'Chief Justice'. It is contended

that merely because the word 'Chief Justice' (or his

nominee) is now used in the new Indian Act, the order

of

the Chief Justice (or his nominee) cannot be treated

as

an administrative order. The order does not relate to

administrative functions of the Chief Justice of India

or of the Chief Justice of the High Court -such as

those

concerning the internal administration of the Supreme

Court or High Court or of the Subordinate Judiciary,

as

the case may be. On the other hand, the order

judicially decides preliminary issues raised by two

contracting litigating parties. Such an order cannot

be

said to be administrative in nature. That is the

contention.

It was pointed out by the learned Solicitor

General that in this very case, the learned Chief

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Justice of the Bombay High Court had passed a judicial

order on the preliminary issues raised -and which

could

be raised at the stage anterior to the appointment of

the arbitrator. These issues had to be decided.

Other

examples are also referred to. The case in SLP(C)

No.19549 of 1999 which was heard by the three Judge

Bench (from the order of the Chief Justice, Gauhati)

alongwith Konkan Railway Corporation's cases, (see

para

8 at p.77) is one such. But the three Judge Bench

however characterised a detailed reasoned judicial

order

of the Chief Justice, Gauhati in that SLP as an

'administrative order' though the Chief Justice had

decided a preliminary issue concerning the existence

or

otherwise of an arbitration agreement. Learned

Solicitor

General argued that the judgment of the three Judge

Bench was not correct in stating that the Chief

Justice

of Guwahati was "not functioning" as a Court when the

said order was passed. A similar question arose in

Wellington Associates Ltd. vs. Mr. Kirit Mehta [JT

2000

(4) SC 135] (before one of us, Jagannadha Rao, J.) as

to

the existence of the arbitration clause and after

deciding about the competence of the Court and the

Kompetenz-Kompetenz principle, the issue was decided

as

a matter of law by assigning reasons and in fact, it

was

held that there was no arbitration clause at all. (Of

course, in Nimet Resources Inc. & Anr. vs. Essar

Steels

Ltd. [JT 2000 (Suppl. 1) SC 95], Rajendra Babu, J.

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while

dealing with the question of existence of the

contract,

referred to the above case in Wellington Associates

Ltd.

but felt bound by the three Judge Bench in Konkan

Railway case). In yet another case, in M/s Datar

Switchgears Ltd. Vs. Tata Finance Ltd. and

Anr.(Civil

Appeal arising out of SLP(C) No.13812 of 2000 disposed

of on 18.10.2000), a question arose whether when one

party had, on demand by the other party, appointed an

arbitrator - though beyond the period stipulated in

the

contract, - the Chief Justice (or his nominee), could,

when approached by the other party, appoint another

(sole) arbitrator. Such a question, it would be

obvious, had to be decided at that stage and could not

be left to be decided by one of the arbitrators

because

the question would be as to who among them would then

be

the 'sole' arbitrator? It is pointed out that there

could be a variety of situations where preliminary

issues arising at the stage of Section 11 would have

to

be decided by the Chief Justice or his nominee, by a

judicial order and this would save time and

expenditure

and that this view is not inconsistent with the

UNCITRAL

Model.

It was pointed out that there is a more important

aspect of a practical nature which had to be borne in

mind. If such an order of the Chief Justice (or his

nominee) was to be treated as an administrative order,

it could be challenged before a Single Judge of the

High

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Court and then before a Division Bench and then in

this

Court under Article 136, and such a procedure would

only

delay the arbitration proceedings more than if the

order

was accepted as a Judicial order and was permitted to

be

challenged directly under Article 136. In fact, if

the

order was to be treated as administrative in nature,

even the order of the Chief Justice of India (or his

nominee) could be challenged first before a Single

Judge

of the High Court and then before a Division Bench and

then under Article 136 - rather than being treated as

a

final order of this Court. That would only delay the

proceedings further. Similarly, if the order of the

Chief Justice of the High Court or his nominee is

treated as a judicial order, there would be only one

appeal to this Court under Article 136 of the

Constitution. It was contended that the reasoning of

the

three Judge Bench, that if the order was to be treated

as an administrative order, time would be saved, -

could

thus be rendered nugatory. In practice, the

defaulting

party could drag on the matter for years at the two

stages of Article 226 proceedings even on the

preliminary issues, it is pointed out.

We are of the view that in the light of the above

contentions and material, which in our opinion have a

substantial bearing on the matter, and further

inasmuch

as this question is one arising almost constantly in a

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large number of cases in the various High Courts, it

is

desirable that this Court re-examines the matter.

We, therefore, direct the papers to be placed

before the Hon'ble Chief Justice of India for passing

appropriate orders.

......................J. [M.JAGANNADHA RAO]

NEW DELHI; ......................J. OCTOBER 19,

2000. [K.G.BALAKRISHNAN]

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IN THE SURPEME COURT OF INDIA CIVIL APPELLATE

JURISDICTION

CIVIL APPEAL NOS. 5880-5889 of 1997

M/s Konkan Railway Corpn.Ltd. and Anr. ..Appellants

versus

M/s Rani Construction Pvt.Ltd. ..Respondents

Dear Brother,

A Revised draft order in the above-mentioned

matter is being sent herewith for your favourable

consideration.

With warm regards,

Yours sincerely,