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CASE NO.:

Appeal (civil) 4168 of 2003

PETITIONER:

M/S S.B.P. & CO.

RESPONDENT:

M/S PATEL ENGINEERING LTD. & ANR

DATE OF JUDGMENT: 26/10/2005

BENCH:

CJI R.C. LAHOTI,B.N. AGRAWAL,ARUN KUMAR,G.P. MATHUR A.K. MATHUR P.K. BALASUBRAMANYAN

JUDGMENT:

J U D G M E N T

WITH

CIVIL APPEAL NOs.4169/2003, 4170-4173/2003, 4076/2004,

3777/2003 and CIVIL APPEAL

NOs.6562,6563-6564,6565-6566 of 2005

of 2005 arising out of S.L.P. (CIVIL) NOs.3205/2004, 14033-

14034/2004, 21272-21273/2002,

P.K. BALASUBRAMANYAN, J.

Leave granted in SLP(C) Nos.3205/2004, 14033-

14034/2004, 21272-273/2002.

1. What is the nature of the function of the Chief Justice or

his designate under Section 11 of the Arbitration and Conciliation Act,

1996 is the question that is posed before us. The three judges bench

decision in Konkan Rly. Corpn. Ltd. Vs. Mehul Construction Co.

[(2000) 7 SCC 201] as approved by the Constitution Bench in Konkan

Railway Corpn. Ltd. & anr. Vs. Rani Construction Pvt. Ltd.

[(2002) 2 SCC 388] has taken the view that it is purely an

administrative function, that it is neither judicial nor quasi-judicial and

the Chief Justice or his nominee performing the function under Section

11(6) of the Act, cannot decide any contentious issue between the

parties. The correctness of the said view is questioned in these appeals.

2. Arbitration in India was earlier governed by the Indian

Arbitration Act, 1859 with limited application and the Second Schedule

to the Code of Civil Procedure, 1908. Then came the Arbitration Act,

1940. Section 8 of that Act conferred power on the Court to appoint an

arbitrator on an application made in that behalf. Section 20 conferred a

wider jurisdiction on the Court for directing the filing of the arbitration

agreement and the appointment of an arbitrator. Section 21 conferred a

power on the Court in a pending suit, on the agreement of parties, to

refer the differences between them for arbitration in terms of the Act.

The Act provided for the filing of the award in court, for the making of

a motion by either of the parties to make the award a rule of court, a

right to have the award set aside on the grounds specified in the Act

and for an appeal against the decision on such a motion. This Act was

replaced by the Arbitration and Conciliation Act, 1996 which, by virtue

of Section 85, repealed the earlier enactment.

3. The Arbitration and Conciliation Act, 1996 (hereinafter

referred to as 'the Act') was intended to comprehensively cover

international and commercial arbitrations and conciliations as also

domestic arbitrations and conciliations. It envisages the making of an

arbitral procedure which is fair, efficient and capable of meeting the

needs of the concerned arbitration and for other matters set out in the

objects and reasons for the Bill. The Act was intended to be one to

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consolidate and amend the law relating to domestic arbitrations,

international commercial arbitrations and enforcement of foreign

arbitral awards, as also to define the law relating to conciliation and for

matters connected therewith or incidental thereto. The preamble

indicates that since the United Nations Commission on International

Trade Law (UNCITRAL) has adopted a Model Law for International

Commercial Arbitration and the General Assembly of the United

Nations has recommended that all countries give due consideration to

the Model Law and whereas the Model Law and the Rules make

significant contribution to the establishment of a unified legal

framework for a fair and efficient settlement of disputes arising in

international commercial relations and since it was expedient to make a

law respecting arbitration and conciliation taking into account the

Model Law and the Rules, the enactment was being brought forward.

The Act replaces the procedure laid down in Sections 8 and 20 of the

Arbitration Act, 1940. Part I of the Act deals with arbitration. It

contains Sections 2 to 43. Part II deals with enforcement of certain

foreign awards, and Part III deals with conciliation and Part IV contains

supplementary provisions. In this case, we are not concerned with Part

III, and Parts II and IV have only incidental relevance. We are

concerned with the provisions in Part I dealing with arbitration.

4. Section 7 of the Act read with Section 2 (b) defines an

arbitration agreement. Section 2(h) defines 'party' to mean a party to

an arbitration agreement. Section 4 deals with waiver of objections on

the part of the party who has proceeded with an arbitration, without

stating his objections referred to in the section, without undue delay.

Section 5 indicates the extent of judicial intervention. 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 Part I. The expression 'judicial

authority' is not defined. So, it has to be understood as taking in the

courts or any other judicial fora. Section 7 defines an arbitration

agreement and insists that it must be in writing and also explains when

an arbitration agreement could be said to be in writing. Section 8

confers power on a judicial authority before whom an action is brought

in a matter which is the subject of an arbitration agreement, to refer the

dispute to arbitration, if a party applies for the same. Section 9 deals

with the power of the Court to pass interim orders and the power to

give interim protection in appropriate cases. It gives a right to a party,

before or during arbitral proceedings or at any time after the making of

the arbitral arbitral award but before its enforcement in terms of Section

36 of the Act, to apply to a court for any one of the orders specified

therein. Chapter III of Part I deals with composition of arbitral

tribunals. Section 10 gives freedom to the parties to determine the

number of arbitrators but imposes a restriction that it shall not be an

even number. Then comes Section 11 with which we are really

concerned in these appeals.

5. The marginal heading of Section 11 is 'Appointment of

arbitrators'. Sub-Section (1) indicates that a person of any nationality

may be an arbitrator, unless otherwise agreed to by the parties. Under

sub-Section (2), subject to sub-Section (6),the parties are free to agree

on a procedure for appointing the arbitrator or arbitrators. Under sub-

Section (3), failing any agreement in terms of sub-Section (2), in an

arbitration with three arbitrators, each party could appoint one

arbitrator, and the two arbitrators so appointed, could appoint the third

arbitrator, who would act as the presiding arbitrator. Under sub-

Section (4), the Chief Justice or any person or institution designated by

him could make the appointment, in a case where sub-Section (3) has

application and where either the party or parties had failed to nominate

their arbitrator or arbitrators or the two nominated arbitrators had failed

to agree on the presiding arbitrator. In the case of a sole arbitrator, sub-

Section (5) provides for the Chief Justice or any person or institution

designated by him, appointing an arbitrator on a request being made by

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one of the parties, on fulfilment of the conditions laid down therein.

Then comes sub-Section (6), which may be quoted hereunder with

advantage:

"(6) Where, under an appointment procedure

agreed upon by the parties,-

(a) a party fails to act as required under

that procedure; or

(b) the parties, or the two appointed

arbitrators, fail to reach an agreement

expected of them under that

procedure; or

(c) a person, including an institution, fails

to perform any function entrusted to

him or it under that procedure,

a party may request the Chief Justice or any person

or institution designated by him to take the

necessary measure, unless the agreement on the

appointment procedure provides other means for

securing the appointment."

Sub-Section (7) gives a finality to the decision rendered by the Chief

Justice or the person or institution designated by him when moved

under sub-Section (4), or sub-Section (5), or sub-Section (6) of Section

11. Sub-Section (8) enjoins the Chief Justice or the person or

institution designated by him to keep in mind the qualifications

required for an arbitrator by the agreement of the parties, and other

considerations as are likely to secure the appointment of an

independent and impartial arbitrator. Sub-Section (9) deals with the

power of the Chief Justice of India or a person or institution designated

by him to appoint the sole or the third arbitrator in an international

commercial arbitration. Sub-Section (10) deals with Chief Justice's

power to make a scheme for dealing with matters entrusted to him by

sub-Section (4) or sub-Section (5) or sub-Section (6) of Section 11.

Sub-Section (11) deals with the respective jurisdiction of Chief Justices

of different High Courts who are approached with requests regarding

the same dispute and specifies as to who should entertain such a

request. Sub-Section 12 clause (a) clarifies that in relation to

international arbitration, the reference in the relevant sub-sections to

the 'Chief Justice' would mean the 'Chief Justice of India'. Clause (b)

indicates that otherwise the expression 'Chief Justice' shall be

construed as a reference to the Chief Justice of the High Court within

whose local limits the principal Court is situated. 'Court' is defined

under Section 2(e) as the principal Civil Court of original jurisdiction in

a district.

6. Section 12 sets out the grounds of challenge to the person

appointed as arbitrator and the duty of an arbitrator appointed, to

disclose any disqualification he may have. Sub-Section (3) of Section

12 gives a right to the parties to challenge an arbitrator. Section 13 lays

down the procedure for such a challenge. Section 14 takes care of the

failure of or impossibility for an arbitrator to act and Section 15 deals

with the termination of the mandate of the arbitrator and the

substitution of another arbitrator. Chapter IV deals with the jurisdiction

of arbitral tribunals. Section 16 deals with the competence of an

arbitral tribunal, to rule on its jurisdiction. The arbitral tribunal may

rule on its own jurisdiction, including ruling on any objection with

respect to the existence or validity of the arbitration agreement. A

person aggrieved by the rejection of his objection by the tribunal on its

jurisdiction or the other matters referred to in that Section, has to wait

until the award is made to challenge that decision in an appeal against

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the arbitral award itself in accordance with Section 34 of the Act. But

an acceptance of the objection to jurisdiction or authority, could be

challenged then and there, under Section 37 of the Act. Section 17

confers powers on the arbitral tribunal to make interim orders. Chapter

V comprising of Sections 18 to 27 deals with the conduct of arbitral

proceedings. Chapter VI containing Sections 28 to 33 deals with

making of the arbitral award and termination of the proceedings.

Chapter VII deals with recourse against an arbitral award. Section 34

contemplates the filing of an application for setting aside an arbitral

award by making an application to the Court as defined in Section 2(e)

of the Act. Chapter VIII deals with finality and enforcement of arbitral

awards. Section 35 makes the award final and Section 36 provides for

its enforcement under the Code of Civil Procedure, 1908 in the same

manner as if it were a decree of court. Chapter IX deals with appeals

and Section 37 enumerates the orders that are open to appeal. We have

already referred to the right of appeal available under Section 37(2) of

the Act, on the Tribunal accepting a plea that it does not have

jurisdiction or when the arbitral tribunal accepts a plea that it is

exceeding the scope of its authority. No second appeal is

contemplated, but right to approach the Supreme Court is saved.

Chapter X deals with miscellaneous matters. Section 43 makes the

Limitation Act, 1963 applicable to proceedings under the Act as it

applies to proceedings in Court.

7. We will first consider the question, as we see it. On a

plain understanding of the relevant provisions of the Act, it is seen that

in a case where there is an arbitration agreement, a dispute has arisen

and one of the parties had invoked the agreed procedure for

appointment of an arbitrator and the other party has not cooperated, the

party seeking an arbitration, could approach the Chief Justice of the

High Court if it is an internal arbitration or of the Supreme Court if it is

an international arbitration to have an arbitrator or arbitral tribunal

appointed. The Chief Justice, when so requested, could appoint an

arbitrator or arbitral tribunal depending on the nature of the agreement

between the parties and after satisfying himself that the conditions for

appointment of an arbitrator under sub-Section (6) of Section 11 do

exist. The Chief Justice could designate another person or institution

to take the necessary measures. The Chief Justice has also to have the

qualification of the arbitrators in mind before choosing the arbitrator.

An arbitral tribunal so constituted, in terms of Section 16 of the Act,

has the right to decide whether it has jurisdiction to proceed with the

arbitration, whether there was any agreement between the parties and

the other matters referred to therein.

8. Normally, any tribunal or authority conferred with a power

to act under a statute, has the jurisdiction to satisfy itself that the

conditions for the exercise of that power existed and that the case calls

for the exercise of that power. Such an adjudication relating to its own

jurisdiction which could be called a decision on jurisdictional facts, is

not generally final, unless it is made so by the Act constituting the

tribunal. Here, sub-Section (7) of Section 11 has given a finality to the

decisions taken by the Chief Justice or any person or institution

designated by him in respect of matters falling under sub-Sections (4),

(5) and (6) of Section 11. Once a statute creates an authority, confers

on it power to adjudicate and makes its decision final on matters to be

decided by it, normally, that decision cannot be said to be a purely

administrative decision. It is really a decision on its own jurisdiction

for the exercise of the power conferred by the statute or to perform the

duties imposed by the statute. Unless, the authority satisfies itself that

the conditions for exercise of its power exist, it could not accede to a

request made to it for the exercise of the conferred power. While

exercising the power or performing the duty under Section 11(6) of the

Act, the Chief Justice has to consider whether the conditions laid down

by the section for the exercise of that power or the performance of that

duty, exist. Therefore, unaided by authorities and going by general

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principals, it appears to us that while functioning under Section 11(6)

of the Act, a Chief Justice or the person or institution designated by

him, is bound to decide whether he has jurisdiction, whether there is an

arbitration agreement, whether the applicant before him, is a party,

whether the conditions for exercise of the power have been fulfilled and

if an arbitrator is to be appointed, who is the fit person, in terms of the

provision. Section 11(7) makes his decision on the matters entrusted

to him, final.

9. The very scheme, if it involves an adjudicatory process,

restricts the power of the Chief Justice to designate, by excluding the

designation of a non-judicial institution or a non-judicial authority to

perform the functions. For, under our dispensation, no judicial or

quasi-judicial decision can be rendered by an institution if it is not a

judicial authority, court or a quasi-judicial tribunal. This aspect is dealt

with later while dealing with the right to designate under Section 11(6)

and the scope of that designation.

10. The appointment of an arbitrator against the opposition of

one of the parties on the ground that the Chief Justice had no

jurisdiction or on the ground that there was no arbitration agreement, or

on the ground that there was no dispute subsisting which was capable

of being arbitrated upon or that the conditions for exercise of power

under Section 11(6) of the Act do not exist or that the qualification

contemplated for the arbitrator by the parties cannot be ignored and has

to be borne in mind, are all adjudications which affect the rights of

parties. It cannot be said that when the Chief Justice decides that he

has jurisdiction to proceed with the matter, that there is an arbitration

agreement and that one of the parties to it has failed to act according to

the procedure agreed upon, he is not adjudicating on the rights of the

party who is raising these objections. The duty to decide the

preliminary facts enabling the exercise of jurisdiction or power, gets all

the more emphasized, when sub-Section (7) designates the order under

sub-sections (4), (5) or (6) a 'decision' and makes the decision of the

Chief Justice final on the matters referred to in that sub-Section. Thus,

going by the general principles of law and the scheme of Section 11, it

is difficult to call the order of the Chief Justice merely an

administrative order and to say that the opposite side need not even be

heard before the Chief Justice exercises his power of appointing an

arbitrator. Even otherwise, when a statute confers a power or imposes

a duty on the highest judicial authority in the State or in the country,

that authority, unless shown otherwise, has to act judicially and has

necessarily to consider whether his power has been rightly invoked or

the conditions for the performance of his duty are shown to exist.

11. Section 16 of the Act only makes explicit what is even

otherwise implicit, namely, that the arbitral tribunal constituted under

the Act has the jurisdiction to rule on its own jurisdiction, including

ruling on objections with respect to the existence or validity of the

arbitration agreement. Sub-section (1) also directs that an arbitration

clause which forms part of a contract shall be treated as an agreement

independent of the other terms of the contract. It also clarifies that a

decision by the arbitral tribunal that the contract is null and void shall

not entail ipso jure the invalidity of the arbitration clause. Sub-section

(2) of Section 16 enjoins that a party wanting to raise a plea that the

arbitral tribunal does not have jurisdiction, has to raise that objection

not later than the submission of the statement of defence, and that the

party shall not be precluded from raising the plea of jurisdiction merely

because he has appointed or participated in the appointment of an

arbitrator. Sub-section (3) lays down that 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. When the Tribunal decides these two

questions, namely, the question of jurisdiction and the question of

exceeding the scope of authority or either of them, the same is open to

immediate challenge in an appeal, when the objection is upheld and

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only in an appeal against the final award, when the objection is

overruled. Sub-section (5) enjoins that if the arbitral tribunal overrules

the objections under sub-section (2) or sub-section (3), it should

continue with the arbitral proceedings and make an arbitral award.

Sub-section (6) provides that a party aggrieved by such an arbitral

award overruling the plea on lack of jurisdiction and the exceeding of

the scope of authority, may make an application on these grounds for

setting aside the award in accordance with Section 34 of the Act. The

question, in the context of Sub-Section (7) of Section 11 is, what is the

scope of the right conferred on the arbitral tribunal to rule upon its own

jurisdiction and the existence of the arbitration clause, envisaged by

Section 16(1), once the Chief Justice or the person designated by him

had appointed an arbitrator after satisfying himself that the conditions

for the exercise of power to appoint an arbitrator are present in the case.

Prima facie, it would be difficult to say that in spite of the finality

conferred by sub-Section (7) of Section 11 of the Act, to such a

decision of the Chief Justice, the arbitral tribunal can still go behind

that decision and rule on its own jurisdiction or on the existence of an

arbitration clause. It also appears to us to be incongruous to say that

after the Chief Justice had appointed an arbitral tribunal, the arbitral

tribunal can turn round and say that the Chief Justice had no

jurisdiction or authority to appoint the tribunal, the very creature

brought into existence by the exercise of power by its creator, the Chief

Justice. The argument of learned Senior Counsel, Mr. K.K. Venugopal

that Section 16 has full play only when an arbitral tribunal is

constituted without intervention under Section 11(6) of the Act, is one

way of reconciling that provision with Section 11 of the Act, especially

in the context of sub-section (7) thereof. We are inclined to the view

that the decision of the Chief Justice on the issue of jurisdiction and the

existence of a valid arbitration agreement would be binding on the

parties when the matter goes to the arbitral tribunal and at subsequent

stages of the proceeding except in an appeal in the Supreme Court in

the case of the decision being by the Chief Justice of the High Court or

by a Judge of the High Court designated by him.

12. It is common ground that the Act has adopted the

UNCITRAL Model Law on International Commercial Arbitration.

But at the same time, it has made some departures from the model law.

Section 11 is in the place of Article 11 of the Model Law. The Model

Law provides for the making of a request under Article 11 to "the court

or other authority specified in Article 6 to take the necessary measure".

The words in Section 11 of the Act, are "the Chief Justice or the person

or institution designated by him". The fact that instead of the court,

the powers are conferred on the Chief Justice, has to be appreciated in

the context of the statute. 'Court' is defined in the Act to be the

principal civil court of original jurisdiction of the district and includes

the High Court in exercise of its ordinary original civil jurisdiction.

The principal civil court of original jurisdiction is normally the District

Court. The High Courts in India exercising ordinary original civil

jurisdiction are not too many. So in most of the States the concerned

court would be the District Court. Obviously, the Parliament did not

want to confer the power on the District Court, to entertain a request for

appointing an arbitrator or for constituting an arbitral tribunal under

Section 11 of the Act. It has to be noted that under Section 9 of the

Act, the District Court or the High Court exercising original

jurisdiction, has the power to make interim orders prior to, during or

even post arbitration. It has also the power to entertain a challenge to

the award that may ultimately be made. The framers of the statute

must certainly be taken to have been conscious of the definition of

'court' in the Act. It is easily possible to contemplate that they did not

want the power under Section 11 to be conferred on the District Court

or the High Court exercising original jurisdiction. The intention

apparently was to confer the power on the highest judicial authority in

the State and in the country, on Chief Justices of High Courts and on

the Chief Justice of India. Such a provision is necessarily intended to

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add the greatest credibility to the arbitral process. The argument that

the power thus conferred on the Chief Justice could not even be

delegated to any other Judge of the High Court or of the Supreme

Court, stands negatived only because of the power given to designate

another. The intention of the legislature appears to be clear that it

wanted to ensure that the power under Section 11(6) of the Act was

exercised by the highest judicial authority in the concerned State or in

the country. This is to ensure the utmost authority to the process of

constituting the arbitral tribunal.

13. Normally, when a power is conferred on the highest

judicial authority who normally performs judicial functions and is the

head of the judiciary of the State or of the country, it is difficult to

assume that the power is conferred on the Chief Justice as persona

designata. Under Section 11(6), the Chief Justice is given a power to

designate another to perform the functions under that provision. That

power has generally been designated to a Judge of the High Court or of

the Supreme Court respectively. Persona designata, according to

Black's Law Dictionary, means "A person considered as an individual

rather than as a member of a class". When the power is conferred on

the Chief Justices of the High Courts, the power is conferred on a class

and not considering that person as an individual. In the Central

Talkies Ltd., Kanpur vs. Dwarka Prasad (1961 (3) SCR 495) while

considering the status in which the power was to be exercised by the

District Magistrate under the United Provinces (Temporary) Control

of Rent and Eviction Act, 1947, this Court held:

"a persona designata is "a person who is pointed out or

described as an individual, as opposed to a person

ascertained as a member of a class, or as filling a particular

character." (See Osborn's Concise Law Dictionary, 4th

Edition., p.253). In the words of Schwabe, C.J., in

Parthasardhi Naidu vs. Koteswara Rao,[I.L.R. 47 Mad 369

F.B.] personae designatae are, "persons selected to act in

their private capacity and not in their capacity as Judges."

The same consideration applies also to a well-known

officer like the District Magistrate named by virtue of his

office, and whose powers the Additional District

Magistrate can also exercise and who can create other

officers equal to himself for the purpose of the Eviction

Act."

In Mukri Gopalan vs. Cheppilat Puthanpurayil Aboobacker

[(1995) 5 SCC 5] this Court after quoting the above passage from the

Central Talkies Ltd., Kanpur vs. Dwarka Prasad, applied the test to

come to the conclusion that when Section 18 of the Kerala Buildings

(Lease and Rent Control) Act, 1965 constituted the District Judge as an

appellate authority under that Act, it was a case where the authority was

being conferred on District Judges who constituted a class and,

therefore, the appellate authority could not be considered to be persona

designata. What can be gathered from P. Ramanatha Aiyar's

Advanced Law Lexicon, 3rd Edition, 2005, is that "persona designata"

is a person selected to act in his private capacity and not in his capacity

as a judge. He is a person pointed out or described as an individual as

opposed to a person ascertained as a member of a class or as filling a

particular character. It is also seen that one of the tests to be applied is

to see whether the person concerned could exercise the power only so

long as he holds office or could exercise the power even subsequently.

Obviously, on ceasing to be a Chief Justice, the person referred to in

Section 11(6) of the Act could not exercise the power. Thus, it is clear

that the power is conferred on the Chief Justice under Section 11(6) of

the Act not as persona designata.

14. Normally a persona designata cannot delegate his power to

another. Here, the Chef Justice of the High Court or the Chief Justice

of India is given the power to designate another to exercise the power

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conferred on him under Section 11(6) of the Act. If the power is a

judicial power, it is obvious that the power could be conferred only on

a judicial authority and in this case, logically on another Judge of the

High Court or on a Judge of the Supreme Court. It is logical to

consider the conferment of the power on the Chief Justice of the High

Court and on the Chief Justice of India as presiding Judges of the High

Court and the Supreme Court and the exercise of the power so

conferred, is exercise of judicial power/authority as presiding Judges of

the respective courts. Replacing of the word 'court' in the Model Law

with the expression "Chief Justice" in the Act, appears to be more for

excluding the exercise of power by the District Court and by the court

as an entity leading to obvious consequences in the matter of the

procedure to be followed and the rights of appeal governing the matter.

The departure from Article 11 of the Model Law and the use of the

expression "Chief Justice" cannot be taken to exclude the theory of its

being an adjudication under Section 11 of the Act by a judicial

authority.

15. We may at this stage notice the complementary nature of

Sections 8 and 11. Where there is an arbitration agreement between the

parties and one of the parties, ignoring it, files an action before a

judicial authority and the other party raises the objection that there is an

arbitration clause, the judicial authority has to consider that objection

and if the objection is found sustainable to refer the parties to

arbitration. The expression used in this Section is 'shall' and this Court

in P. Anand Gajapathi Raju Vs. P.V. G. Raju [(2000) 4 SCC 539

and in Hindustan Petroleum Corporation Ltd. Vs. Pink City

Midway Petroleum [(2003) 6 SCC 503] has held that the judicial

authority is bound to refer the matter to arbitration once the existence

of a valid arbitration clause is established. Thus, the judicial authority

is entitled to, has to and bound to decide the jurisdictional issue raised

before it, before making or declining to make a reference. Section 11

only covers another situation. Where one of the parties has refused to

act in terms of the arbitration agreement, the other party moves the

Chief Justice under Section 11 of the Act to have an arbitrator

appointed and the first party objects, it would be incongruous to hold

that the Chief Justice cannot decide the question of his own jurisdiction

to appoint an arbitrator when in a parallel situation, the judicial

authority can do so. Obviously, the highest judicial authority has to

decide that question and his competence to decide cannot be

questioned. 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 a judicial authority under Section 8 can

decide, but not a Chief Justice under Section 11, though the nature of

the objection is the same and the consequence of accepting the

objection in one case and rejecting it in the other, is also the same,

namely, sending the parties to arbitration. The interpretation of Section

11 that we have adopted would not give room for such an anomaly.

16. Section 11(6) does enable the Chief Justice to designate

any person or institution to take the necessary measures on an

application made under Section 11(6) of the Act. This power to

designate recognized in the Chief Justice, has led to an argument that a

judicial decision making is negatived, in taking the necessary measures

on an application, under Section 11(6) of the Act. It is pointed out that

the Chief Justice may designate even an institution like the Chamber of

Commerce or the Institute of Engineers and they are not judicial

authorities. Here, we find substance in the argument of Mr.

F.S.Nariman, learned senior counsel that in the context of Section 5 of

the Act excluding judicial intervention except as provided in the Act,

the designation contemplated is not for the purpose of deciding the

preliminary facts justifying the exercise of power to appoint an

arbitrator, but only for the purpose of nominating to the Chief Justice a

suitable person to be appointed as arbitrator, especially, in the context

of Section 11(8) of the Act. One of the objects of conferring power on

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the highest judicial authority in the State or in the country for

constituting the arbitral tribunal, is to ensure credibility in the entire

arbitration process and looked at from that point of view, it is difficult

to accept the contention that the Chief Justice could designate a non-

judicial body like the Chamber of Commerce to decide on the existence

of an arbitration agreement and so on, which are decisions, normally,

judicial or quasi judicial in nature. Where a Chief Justice designates

not a Judge, but another person or an institution to nominate an arbitral

tribunal, that can be done only after questions as to jurisdiction,

existence of the agreement and the like, are decided first by him or his

nominee Judge and what is to be left to be done is only to nominate the

members for constituting the arbitral tribunal. Looking at the scheme

of the Act as a whole and the object with which it was enacted,

replacing the Arbitration Act of 1940, it seems to be proper to view the

conferment of power on the Chief Justice as the conferment of a

judicial power to decide on the existence of the conditions justifying

the constitution of an arbitral tribunal. The departure from the

UNCITRAL model regarding the conferment of the power cannot be

said to be conclusive or significant in the circumstances. Observations

of this Court in paragraphs 389 and 391 in Supreme Court Advocates

on Record Association Vs. Union of India [(1993) 4 SCC 441 at 668]

support the argument that the expression chief justice is used in the

sense of collectivity of judges of the Supreme Court and the High

Courts respectively.

17. It is true that the power under Section 11(6) of the Act is

not conferred on the Supreme Court or on the High Court, but it is

conferred on the Chief Justice of India or the Chief Justice of the High

Court. One possible reason for specifying the authority as the Chief

Justice, could be that if it were merely the conferment of the power on

the High Court, or the Supreme Court, the matter would be governed

by the normal procedure of that Court, including the right of appeal and

the Parliament obviously wanted to avoid that situation, since one of

the objects was to restrict the interference by Courts in the arbitral

process. Therefore, the power was conferred on the highest judicial

authority in the country and in the State in their capacities as Chief

Justices. They have been conferred the power or the right to pass an

order contemplated by Section 11 of the Act. We have already seen

that it is not possible to envisage that the power is conferred on the

Chief Justice as persona designata. Therefore, the fact that the power is

conferred on the Chief Justice, and not on the court presided over by

him is not sufficient to hold that the power thus conferred is merely an

administrative power and is not a judicial power.

18. It is also not possible to accept the argument that there is

an exclusive conferment of jurisdiction on the arbitral tribunal, to

decide on the existence or validity of the arbitration agreement.

Section 8 of the Act contemplates a judicial authority before which an

action is brought in a matter which is the subject of an arbitration

agreement, on the terms specified therein, to refer the dispute to

arbitration. A judicial authority as such is not defined in the Act. It

would certainly include the court as defined in Section 2(e) of the Act

and would also, in our opinion, include other courts and may even

include a special tribunal like the Consumer Forum (See Fair Air

Engineers (P) Ltd. and another vs. N.K. Modi (1996 (6) SCC 385).

When the defendant to an action before a judicial authority raises the

plea that there is an arbitration agreement and the subject matter of the

claim is covered by the agreement and the plaintiff or the person who

has approached the judicial authority for relief, disputes the same, the

judicial authority, in the absence of any restriction in the Act, has

necessarily to decide whether, in fact, there is in existence a valid

arbitration agreement and whether the dispute that is sought to be raised

before it, is covered by the arbitration clause. It is difficult to

contemplate that the judicial authority has also to act mechanically or

has merely to see the original arbitration agreement produced before it,

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and mechanically refer the parties to an arbitration. Similarly, Section

9 enables a Court, obviously, as defined in the Act, when approached

by a party before the commencement of an arbitral proceeding, to grant

interim relief as contemplated by the Section. When a party seeks an

interim relief asserting that there was a dispute liable to be arbitrated

upon in terms of the Act, and the opposite party disputes the existence

of an arbitration agreement as defined in the Act or raises a plea that

the dispute involved was not covered by the arbitration clause, or that

the Court which was approached had no jurisdiction to pass any order

in terms of Section 9 of the Act, that Court has necessarily to decide

whether it has jurisdiction, whether there is an arbitration agreement

which is valid in law and whether the dispute sought to be raised is

covered by that agreement. There is no indication in the Act that the

powers of the Court are curtailed on these aspects. On the other hand,

Section 9 insists that once approached in that behalf, "the Court shall

have the same power for making orders as it has for the purpose of and

in relation to any proceeding before it". Surely, when a matter is

entrusted to a Civil Court in the ordinary hierarchy of Courts without

anything more, the procedure of that Court would govern the

adjudication [See R.M.A.R.A. Adaikappa Chettiar and anr. vs. R.

Chandrasekhara Thevar (AIR 1948 P.C. 12)]

19. Section 16 is said to be the recognition of the principle of

Kompetenz \026 Kompetenz. The fact that the arbitral tribunal has the

competence to rule on its own jurisdiction and to define the contours of

its jurisdiction, only means that when such issues arise before it, the

Tribunal can and possibly, ought to decide them. This can happen

when the parties have gone to the arbitral tribunal without recourse to

Section 8 or 11 of the Act. But where the jurisdictional issues are

decided under these Sections, before a reference is made, Section 16

cannot be held to empower the arbitral tribunal to ignore the decision

given by the judicial authority or the Chief Justice before the reference

to it was made. The competence to decide does not enable the arbitral

tribunal to get over the finality conferred on an order passed prior to its

entering upon the reference by the very statute that creates it. That is

the position arising out of Section 11(7) of the Act read with Section 16

thereof. The finality given to the order of the Chief Justice on the

matters within his competence under Section 11 of the Act, are

incapable of being reopened before the arbitral tribunal. In Konkan

Railway (Supra) what is considered is only the fact that under Section

16, the arbitral tribunal has the right to rule on its own jurisdiction and

any objection, with respect to the existence or validity of the arbitration

agreement. What is the impact of Section 11(7) of the Act on the

arbitral tribunal constituted by an order under Section 11(6) of the Act,

was not considered. Obviously, this was because of the view taken in

that decision that the Chief Justice is not expected to decide anything

while entertaining a request under Section 11(6) of the Act and is only

performing an administrative function in appointing an arbitral tribunal.

Once it is held that there is an adjudicatory function entrusted to the

Chief Justice by the Act, obviously, the right of the arbitral tribunal to

go behind the order passed by the Chief Justice would take another hue

and would be controlled by Section 11(7) of the Act.

20. We will now consider the prior decisions of this Court. In

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

479) this Court held that the provisions of the Act must be

interpreted and construed independently of the interpretation

placed on the Arbitration Act, 1940 and it will be more relevant to

refer to the UNCITRAL model law while called upon to interpret the

provisions of the Act. This Court further held that under the 1996 Act,

appointment of arbitrator(s) is made as per the provision of Section 11

which does not require the Court to pass a judicial order appointing an

arbitrator or arbitrators. It is seen that the question was not discussed

as such, since the court in that case was not concerned with the

interpretation of Section 11 of the Act. The view as above was quoted

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with approval in Ador Samia Private Limited Vs. Peekay Holdings

Limited & Others (1999 (8) SCC 572) and nothing further was said

about the question. In other words, the question as to the nature of the

order to be passed by the Chief Justice when moved under Section

11(6) of the Act, was not discussed or decided upon.

21. In Wellington Associates Ltd. vs. Kirit Mehta (2000 (4)

SCC 272) it was contended before the designated Judge that what was

relied on by the applicant was not an arbitration clause. The applicant

contended that the Chief Justice of India or the designate Judge cannot

decide that question and only the arbitrator can decide the question in

view of Section 16 of the Act. The designated Judge held that Section

16 did not exclude the jurisdiction of the Chief Justice of India or the

designated Judge to decide the question of the existence of an

arbitration clause. After considering the relevant aspects, the learned

Judge held:

"I am of the view that in cases where --- to start with \026

there is a dispute raised at the stage of the application

under Section 11 that there is no arbitration clause at all,

then it will be absurd to refer the very issue to an arbitrator

without deciding whether there is an arbitration clause at

all between the parties to start with. In my view, in the

present situation, the jurisdiction of the Chief Justice of

India or his designate to decide the question as to the

"existence" of the arbitration clause cannot be doubted and

cannot be said to be excluded by Section 16."

22. Then came Konkan Railway Corporation Ltd. vs.

Mehul Construction Co. (2000(7) SCC 201) in which the first

question framed was, what was the nature of the order passed by the

Chief Justice or his nominee in exercise of his power under Section

11(6) of the Arbitration and Conciliation Act, 1996? After noticing the

Statement of Objects and Reasons for the Act and after comparing the

language of Section 11 of the Act and the corresponding article of the

model law, it was stated that the Act has designated the Chief Justice of

the High Court in cases of domestic arbitration and the Chief Justice of

India in cases of international commercial arbitration, to be the

authority to perform the function of appointment of an arbitrator,

whereas under the model law, the said power was vested with the

court. When the matter is placed before the Chief Justice or his

nominee under Section 11 of the Act it was imperative for the Chief

Justice or his nominee to bear in mind the legislative intent that the

arbitral process should be set in motion without any delay whatsoever

and all contentious issues left to be raised before the arbitral tribunal

itself. It was further held that at that stage, it would not be appropriate

for the Chief Justice or his nominee, to entertain any contention or

decide the same between the parties. It was also held that in view of

the conferment of power on the arbitral tribunal under Section 16 of the

Act, the intention of the legislature and its anxiety to see that the

arbitral process is set in motion at the earliest, it will be appropriate for

the Chief Justice to appoint an arbitrator without wasting any time or

without entertaining any contentious issue by a party objecting to the

appointment of an arbitrator. The Court stated:

"Bearing in mind the purpose of legislation, the language

used in Section 11(6) conferring power on the Chief

Justice or his nominee to appoint an arbitrator, the

curtailment of the power of the court in the matter of

interference, the expanding jurisdiction of the arbitrator

in course of the arbitral proceeding, and above all the

main objective, namely, the confidence of the

international market for speedy disposal of their disputes,

the character and status of an order appointing an

arbitrator by the Chief Justice or his nominee under

Section 11(6) has to be decided upon. If it is held that an

order under Section 11(6) is a judicial or quasi-judicial

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order then the said order would be amenable to judicial

intervention and any reluctant party may frustrate the

entire purpose of the Act by adopting dilatory tactics in

approaching a court of law even against an order of

appointment of an arbitrator. Such an interpretation has

to be avoided in order to achieve the basic objective for

which the country has enacted the Act of 1996 adopting

the UNCITRAL Model."

23. The Court proceeded to say that if it were to be held that

the order passed was purely administrative in nature, that would

facilitate the achieving of the object of the Act, namely, quickly setting

in motion the process of arbitration. Great emphasis was placed on the

conferment of power on the Chief Justice in preference to a court as

was obtaining in the model law. It was concluded " The nature of the

function performed by the Chief Justice being essentially to aid the

constitution of the arbitral tribunal immediately and the legislature

having consciously chosen to confer the power on the Chief Justice and

not a court, it is apparent that the order passed by the Chief Justice or

his nominee is an administrative order as has been held by this Court in

Ador Samia case (supra) and the observations of this Court in

Sundaram Finance Ltd. case (supra) also are quite appropriate

and neither of those decisions require any reconsideration."

24. It was thus held that an order passed under Section 11(6)

of the Act, by the Chief Justice of the High Court or his nominee, was

an administrative order, its purpose being the speedy disposal of

commercial disputes and that such an order could not be subjected to

judicial review under Article 136 of the Constitution of India. Even an

order refusing to appoint an arbitrator would not be amenable to the

jurisdiction of the Supreme Court under Article 136 of the Constitution.

A petition under Article 32 of the Constitution was also not

maintainable. But, an order refusing to appoint an arbitrator made by

the Chief Justice could be challenged before the High Court under

Article 226 of the Constitution. What seems to have persuaded this

Court was the fact that the statement of objects and reasons of the Act

clearly enunciated that the main object of the legislature was to

minimize the supervisory role of courts in arbitral process. Since

Section 16 empowers the arbitral tribunal to rule on its own jurisdiction

including ruling on objections with respect to the existence or validity

of an arbitration agreement, a party would have the opportunity to raise

his grievance against that decision either immediately or while

challenging the award after it was pronounced. Since it was not proper

to encourage a party to an arbitration, to frustrate the entire purpose of

the Act by adopting dilatory tactics by approaching the court even

against the order of appointment of an arbitrator, it was necessary to

take the view that the order was administrative in nature. This was all

the more so, since the nature of the function performed by the Chief

Justice was essentially to aid the constitution of the arbitral tribunal

immediately and the legislature having consciously chosen to confer

the power on the Chief Justice and not on the court, it was apparent that

the order was an administrative order. With respect, it has to be

pointed out that this Court did not discus or consider the nature of the

power that the Chief Justice is called upon to exercise. Merely because

the main purpose was the constitution of an arbitral tribunal, it could

not be taken that the exercise of power is an administrative power.

While constituting an arbitral tribunal, on the scheme of the Act, the

Chief Justice has to consider whether he as the Chief Justice has

jurisdiction in relation to the contract, whether there was an arbitration

agreement in terms of Section 7 of the Act and whether the person

before him with the request, is a party to the arbitration agreement. On

coming to a conclusion on these aspects, he has to enquire whether the

conditions for exercise of his power under Section 11(6) of the Act

exist in the case and only on being satisfied in that behalf, he could

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appoint an arbitrator or an arbitral tribunal on the basis of the request.

It is difficult to say that when one of the parties raises an objection that

there is no arbitration agreement, raises an objection that the person

who has come forward with a request is not a party to the arbitration

agreement, the Chief Justice can come to a conclusion on those

objections without following an adjudicatory process. Can he

constitute an arbitrary tribunal, without considering these questions? If

he can do so, why should such a function be entrusted to a high judicial

authority like the Chief Justice. Similarly, when the party raises an

objection that the conditions for exercise of the power under Section

11(6) of the Act are not fulfilled and the Chief Justice comes to the

conclusion that they have been fulfilled, it is difficult to say that he was

not adjudicating on a dispute between the parties and was merely

passing an administrative order. It is also not correct to say that by the

mere constitution of an arbitral tribunal the rights of parties are not

affected. Dragging a party to an arbitration when there existed no

arbitration agreement or when there existed no arbitrable dispute, can

certainly affect the right of that party and even on monetary terms,

impose on him a serious liability for meeting the expenses of the

arbitration, even if it be preliminary expenses and his objection is

upheld by the arbitral tribunal. Therefore, it is not possible to accept

the position that no adjudication is involved in the constitution of an

arbitral tribunal.

25. It is also somewhat incongruous to permit the order of the

Chief Justice under Section 11(6) of the Act being subjected to scrutiny

under Article 226 of the Constitution at the hands of another Judge of

the High Court. In the absence of any conferment of an appellate

power, it may not be possible to say that a certiorari would lie against

the decision of the High Court in the very same High Court. Even in

the case of an international arbitration, the decision of the Chief Justice

of India would be amenable to challenge under Article 226 of the

Constitution before a High Court. While construing the scope of the

power under Section 11(6), it will not be out of place for the court to

bear this aspect in mind, since after all, courts follow or attempt to

follow certain judicial norms and that precludes such challenges (see

Naresh Shridhar Mirajkar and others. Vs. State of Maharashtra

and another (1966 (3) SCR 744) and Rupa Ashok Hurra vs. Ashok

Hurra and another (2002 (4) SCC 388).

26. In Nimet Resourcs Inc. & Anr. Vs.Essar Steels Ltd.

(2000 (7) SCC 497) the question of existence or otherwise of an

arbitration agreement between the parties was itself held to be referable

to the arbitrator since the order proceeded on the basis that the power

under Section 11(6) was merely administrative.

27. The correctness of the decision in Konkan Railway

Corpn. Ltd. vs. Mehul Construction Co.(supra) was doubted in

Konkan Railway Cooperation Ltd. vs. Rani Construction Pvt. Ltd.

and the order of reference, is reported in 2000 (8) SCC 159. The

reconsideration was recommended on the ground that the Act did not

take away the power of the Court to decide preliminary issues

notwithstanding the arbitrator's competence to decide such issues

including whether particular matters were "excepted matters", or

whether an arbitration agreement existed or whether there was a dispute

in terms of the agreement. It was noticed that in other countries where

UNCITRAL model was being followed, the court could decide such

issues judicially and need not mechanically appoint an arbitrator.

There were situations where preliminary issues would have to be

decided by the court rather than by the arbitrator. If the order of the

Chief Justice or his nominees were to be treated as an administrative

one, it could be challenged before the single Judge of the High Court,

then before a Division Bench and then the Supreme Court under Article

136 of the Constitution, a result that would cause further delay in

arbitral proceedings, something sought to be prevented by the Act. An

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order under Section 11 of the Act did not relate to the administrative

functions of the Chief Justice or of the Chief Justice of India.

28. The reference came up before a Constitution Bench. In

Konkan Railway Construction Ltd. vs. Rani Construction Pvt. Ltd.

(2002 (2) SCC 388), the Constitution Bench reiterated the view taken

in Mehul Construction Co.'s case (supra), if we may say so with

respect, without really answering the questions posed by the order of

reference. It was stated that there is nothing in Section 11 of the Act

that requires the party other than the party making the request, to be

given notice of the proceedings before the Chief Justice. The Court

went on to say that Section 11 did not contemplate a response from the

other party. The approach was to say that none of the requirements

referred to in Section 11(6) of the Act contemplated or amounted to an

adjudication by the Chief Justice while appointing an arbitrator. The

scheme framed under the Arbitration Act by the Chief Justice of India

was held to be not mandatory. It was stated that the UNCITRAL

model law was only taken into account and hence the model law, or

judgments and literature thereon, was not a guide to the interpretation

of the Act and especially of Section 11.

29. With respect, what was the effect of the Chief Justice

having to decide his own jurisdiction in a given case was not

considered by the Bench. Surely, the question whether the Chief

Justice could entertain the application under Section 11(6) of the Act

could not be left to the decision of the arbitral tribunal constituted by

him on entertaining such an application. We also feel that adequate

attention was not paid to the requirement of the Chief Justice having to

decide that there is an arbitration agreement in terms of Section 7 of the

Act before he could exercise his power under Section 11(6) of the Act

and its implication. The aspect, whether there was an arbitration

agreement, was not merely a jurisdictional fact for commencing the

arbitration itself, but it was also a jurisdictional fact for appointing an

arbitrator on a motion under Section 11(6) of the Act, was not kept in

view. A Chief Justice could appoint an arbitrator in exercise of his

power only if there existed an arbitration agreement and without

holding that there was an agreement, it would not be open to him to

appoint an arbitrator saying that he was appointing an arbitrator since

he has been moved in that behalf and the applicant before him asserts

that there is an arbitration agreement. Acceptance of such an

argument, with great respect, would reduce the high judicial authority

entrusted with the power to appoint an arbitrator, an automaton and

sub-servient to the arbitral tribunal which he himself brings into

existence. Our system of law does not contemplate such a situation.

30. With great respect, it is seen that the court did not really

consider the nature of the rights of the parties involved when the Chief

Justice exercised the power of constituting the arbitral tribunal. The

court also did not consider whether it was not necessary for the Chief

Justice to satisfy himself of the existence of the facts which alone

would entitle him or enable him to accede to the request for

appointment of an arbitrator and what was the nature of that process by

which he came to the conclusion that an arbitral tribunal was liable to

be constituted. When, for example, a dispute which no more survives

as a dispute, was referred to an arbitral tribunal or when an arbitral

tribunal was constituted even in the absence of an arbitration agreement

as understood by the Act, how could the rights of the objecting party

be said to be not affected, was not considered in that perspective. In

other words, the Constitution Bench proceeded on the basis that while

exercising power under Section 11(6) of the Act there was nothing for

the Chief Justice to decide. With respect, the very question that fell for

decision was whether there had to be an adjudication on the preliminary

matters involved and when the result had to depend on that

adjudication, what was the nature of that adjudication. It is in that

context that a reconsideration of the said decision is sought for in this

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case. The ground of ensuring minimum judicial intervention by itself

is not a ground to hold that the power exercised by the Chief Justice is

only an administrative function. As pointed out in the order of

reference to that Bench, the conclusion that it is only an administrative

act is the opening of the gates for an approach to the High Court under

Article 226 of the Constitution, for an appeal under the Letters Patent

or the concerned High Court Act to a Division Bench and a further

appeal to this Court under Article 136 of the Constitution of India.

31. Moreover, in a case where the objection to jurisdiction or

the existence of an arbitration agreement is overruled by the arbitral

tribunal, the party has to participate in the arbitration proceedings

extending over a period of time by incurring substantial expenditure

and then to come to court with an application under Section 34 of the

Arbitration Act seeking the setting aside of the award on the ground

that there was no arbitration agreement or that there was nothing to be

arbitrated upon when the tribunal was constituted. Though this may

avoid intervention by court until the award is pronounced, it does mean

considerable expenditure and time spent by the party before the arbitral

tribunal. On the other hand, if even at the initial stage, the Chief Justice

judicially pronounces that he has jurisdiction to appoint an arbitrator,

that there is an arbitration agreement between the parties, that there was

a live and subsisting dispute for being referred to arbitration and

constitutes the tribunal as envisaged, on being satisfied of the existence

of the conditions for the exercise of his power, ensuring that the

arbitrator is a qualified arbitrator, that will put an end to a host of

disputes between the parties, leaving the party aggrieved with a remedy

of approaching this Court under Article 136 of the Constitution. That

would give this Court, an opportunity of scrutinizing the decision of the

Chief Justice on merits and deciding whether it calls for interference in

exercise of its plenary power. Once this Court declines to interfere

with the adjudication of the Chief Justice to the extent it is made, it

becomes final. This reasoning is also supported by sub-section (7) of

Section 11, making final, the decision of the Chief Justice on the

matters decided by him while constituting the arbitral tribunal. This

will leave the arbitral tribunal to decide the dispute on merits

unhampered by preliminary and technical objections. In the long run,

especially in the context of the judicial system in our country, this

would be more conducive to minimising judicial intervention in matters

coming under the Act. This will also avert the situation where even

the order of the Chief Justice of India could be challenged before a

single judge of the High Court invoking the Article 226 of the

Constitution of India or before an arbitral tribunal, consisting not

necessarily of legally trained persons and their coming to a conclusion

that their constitution by the Chief Justice was not warranted in the

absence of an arbitration agreement or in the absence of a dispute in

terms of the agreement.

32. Section 8 of the Arbitration Act, 1940 enabled the court

when approached in that behalf to supply an omission. Section 20 of

that Act enabled the court to compel the parties to produce the

arbitration agreement and then to appoint an arbitrator for adjudicating

on the disputes. It may be possible to say that Section 11(6) of the Act

combines both the powers. May be, it is more in consonance with

Section 8 of the Old Act. But to call the power merely as an

administrative one, does not appear to be warranted in the context of

the relevant provisions of the Act. First of all, the power is conferred

not on an administrative authority, but on a judicial authority, the

highest judicial authority in the State or in the country. No doubt, such

authorities also perform administrative functions. An appointment of

an arbitral tribunal in terms of Section 11 of the Act, is based on a

power derived from a statute and the statute itself prescribes the

conditions that should exist for the exercise of that power. In the

process of exercise of that power, obviously the parties would have the

right of being heard and when the existence of the conditions for the

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exercise of the power are found on accepting or overruling the

contentions of one of the parties it necessarily amounts to an order,

judicial in nature, having finality subject to any available judicial

challenge as envisaged by the Act or any other statute or the

Constitution. Looked at from that point of view also, it seems to be

appropriate to hold that the Chief Justice exercises a judicial power

while appointing an arbitrator.

33. In Attorney Geenral of the Gambia vs. Pierre Sarr

N'jie (1961 Appeal Cases 617) the question arose whether the power

to judge an alleged professional misconduct could be delegated to a

Deputy Judge by the Chief Justice who had the power to suspend any

barrister or solicitor from practicing within the jurisdiction of the court.

Under Section 7 of the Supreme Court Ordinance of the Gambia, the

Deputy Judge could exercise "all the judicial powers of the Judge of the

Supreme Court". The question was, whether the taking of disciplinary

action for professional misconduct; was a judicial power or an

administrative power. The Judicial Committee of the Privy Council

held that a judge exercises judicial powers not only when he is deciding

suits between the parties but also when he exercises disciplinary

powers which are properly appurtenant to the office of a judge. By

way of illustration, Lord Dening stated "Suppose, for instance, that a

judge finding that a legal practitioner had been guilty of professional

misconduct in the course of a case, orders him to pay the costs, as he

has undoubtedly power to do (see Myers v. Elman, per Lord Wright).

That would be an exercise of the judicial powers of the judge just as

much as if he committed him for contempt of court. Yet there is no

difference in quality between the power to order him to pay costs and

the power to suspend him or strike him off."

34. The above example gives an indication that it is the nature

of the power that is relevant and not the mode of exercise. In

Shankarlal Aggarwal and ors. vs. Shankar Lal Poddar and ors.

(1964 (1) SCR 717) this Court was dealing with the question whether

the order of the Company Judge confirming a sale was merely an

administrative order passed in the course of the administration of the

assets of the company under liquidation and, therefore, not a judicial

order subject to appeal. This Court held that the order of the Company

Judge confirming the sale was not an administrative but a judicial

order. Their Lordships stated thus:

"It is not correct to say that every order of the Court,

merely for the reason that it is passed in the course of the

realization of the assets of the Company, must always be

treated merely as an administrative one. The question

ultimately depends upon the nature of the order that is

passed. An order according sanction to a sale

undoubtedly involves a discretion and cannot be termed

merely an administrative order, for before confirming

the sale the court has to be satisfied, particularly where

the confirmation is opposed, that the sale has been held in

accordance with the conditions subject to which alone the

liquidator has been permitted to effect it, and that even

otherwise the sale has been fair and has not resulted in

any loss to the parties who would ultimately have to

share the realization.

It is not possible to formulate a definition which

would satisfactorily distinguish between an

administrative and a judicial order. That the power is

entrusted to or wielded by a person who functions as a

court is not decisive of the question whether the act or

decision is administrative or judicial. An administrative

order would be one which is directed to the regulation or

supervision of matters as distinguished from an order

which decides the rights of parties or confers or refuses

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to confer rights to property which are the subject of

adjudication before the court. One of the tests would be

whether a matter which involves the exercise of

discretion is left for the decision of the authority,

particularly if that authority were a court, and if the

discretion has to be exercised on objective, as

distinguished from a purely subjective consideration, it

would be a judicial decision. It has sometimes been said

that the essence of a judicial proceeding or of a judicial

order is that there would be two parties and a lis between

them which is the subject of adjudication, as a result of

that order or a decision on an issue between a proposal

and an opposition. No doubt it would not be possible to

describe an order passed deciding a lis between the

authority that is not a judicial order but it does not follow

that the absence of a lis necessarily negatives the order

being judicial. Even viewed from this narrow

standpoint, it is possible to hold that there was a lis

before the Company Judge which he decided by passing

the order. On the one hand were the claims of the

highest bidder who put forward the contention that he

had satisfied the requirements laid down for the

acceptance of his bid and was consequently entitled to

have the sale in his favour confirmed, particularly so as

he was supported in this behalf by the Official

Liquidators. On the other hand, there was the first

respondent and the large body of unsecured creditors

whose interests, even if they were not represented by the

first respondent, the court was bound to protect. If the

sale of which confirmation was sought was characterized

by any deviation subject to which the sale was directed to

be held or even otherwise was for a gross undervalue in

the sense that very much more could reasonably be

expected to be obtained if the sale were properly held, in

view of the figure of Rs.3,37,000/- which had been bid

by Nandlal Agarwalla it would be duty of the court to

refuse the confirmation in the interests of the general

body of creditors, and this was the submission made by

the first respondent. There were thus two points of view

presented to the court by two contending parties or

interests and the court was called upon to decide between

them, and the decision vitally affected the rights of the

parties to property. Under the circumstances, the order

of the Company Judge was a judicial order and not

administrative one, and was therefore not inherently

incapable of being brought up in appeal."

35. Going by the above test it is seen that at least in the matter

of deciding his own jurisdiction and in the matter of deciding on the

existence of an arbitration agreement, the Chief Justice when

confronted with two points of view presented by the rival parties, is

called upon to decide between them and the decision vitally affects the

rights of the parties in that, either the claim for appointing an arbitral

tribunal leading to an award is denied to a party or the claim to have an

arbitration proceeding set in motion for entertaining a claim is

facilitated by the Chief Justice. In this context, it is not possible to say

that the Chief Justice is merely exercising an administrative function

when called upon to appoint an arbitrator and that he need not even

issue notice to opposite side before appointing an arbitrator.

36. It is fundamental to our procedural jurisprudence, that the

right of no person shall be affected without he being heard. This

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necessarily imposes an obligation on the Chief Justice to issue notice to

the opposite party when he is moved under Section 11 of the Act. The

notice to the opposite party cannot be considered to be merely an

intimation to that party of the filing of the arbitration application and

the passing of an administrative order appointing an arbitrator or an

arbitral tribunal. It is really the giving of an opportunity of being heard.

There have been cases where claims for appointment of an arbitrator

based on an arbitration agreement are made ten or twenty years after

the period of the contract has come to an end. There have been cases

where the appointment of an arbitrator has been sought, after the parties

had settled the accounts and the concerned party had certified that he

had no further claims against the other contracting party. In other

words, there have been occasions when dead claims are sought to be

resurrected. There have been cases where assertions are made of the

existence of arbitration agreements when, in fact, such existence is

strongly disputed by the other side who appears on issuance of notice.

Controversies are also raised as to whether the claim that is sought to

be put forward comes within the purview of the concerned arbitration

clause at all. The Chief Justice has necessarily to apply his mind to

these aspects before coming to a conclusion one way or the other and

before proceeding to appoint an arbitrator or declining to appoint an

arbitrator. Obviously, this is an adjudicatory process. An opportunity

of hearing to both parties is a must. Even in administrative functions if

rights are affected, rules of natural justice step in. The principles

settled by Ridge Vs. Baldwin [(1963) 2 ALL ER 66] are well known

Therefore, to the extent, Konkan Railway (supra) states that no notice

need be issued to the opposite party to give him an opportunity of being

heard before appointing an arbitrator, with respect, the same has to be

held to be not sustainable.

37. It is true that finality under Section 11 (7) of the Act is

attached only to a decision of the Chief Justice on a matter entrusted by

sub-Section (4) or sub-Section (5) or sub-Section (6) of that Section.

Sub-Section (4) deals with the existence of an appointment procedure

and the failure of a party to appoint the arbitrator within 30 days from

the receipt of a request to do so from the other party or when the two

appointed arbitrators fail to agree on the presiding arbitrator within 30

days of their appointment. Sub-Section (5) deals with the parties

failing to agree in nominating a sole arbitrator within 30 days of the

request in that behalf made by one of the parties to the arbitration

agreement and sub-Section (6) deals with the Chief Justice appointing

an arbitrator or an arbitral tribunal when the party or the two arbitrators

or a person including an institution entrusted with the function, fails to

perform the same. The finality, at first blush, could be said to be only

on the decision on these matters. But the basic requirement for

exercising his power under Section 11(6), is the existence of an

arbitration agreement in terms of Section 7 of the Act and the applicant

before the Chief Justice being shown to be a party to such an

agreement. It would also include the question of the existence of

jurisdiction in him to entertain the request and an enquiry whether at

least a part of the cause of action has arisen within the concerned State.

Therefore, a decision on jurisdiction and on the existence of the

arbitration agreement and of the person making the request being a

party to that agreement and the subsistence of an arbitrable dispute

require to be decided and the decision on these aspects is a prelude to

the Chief Justice considering whether the requirements of sub-Section

(4), sub-Section (5) or sub-Section (6) of Section 11 are satisfied when

approached with the request for appointment of an arbitrator. It is

difficult to understand the finality to referred to in Section 11(7) as

excluding the decision on his competence and the locus standi of the

party who seeks to invoke his jurisdiction to appoint an arbitrator.

Viewed from that angle, the decision on all these aspects rendered by

the Chief Justice would attain finality and it is obvious that the decision

on these aspects could be taken only after notice to the parties and after

hearing them.

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38. It is necessary to define what exactly the Chief Justice,

approached with an application under Section 11 of the Act, is to

decide at that stage. Obviously, he has to decide his own jurisdiction

in the sense, whether the party making the motion has approached the

right High Court. He has to decide whether there is an arbitration

agreement, as defined in the Act and whether the person who has made

the request before him, is a party to such an agreement. It is necessary

to indicate that he can also decide the question whether the claim was a

dead one; or a long barred claim that was sought to be resurrected and

whether the parties have concluded the transaction by recording

satisfaction of their mutual rights and obligations or by receiving the

final payment without objection. It may not be possible at that stage, to

decide whether a live claim made, is one which comes within the

purview of the arbitration clause. It will be appropriate to leave that

question to be decided by the arbitral tribunal on taking evidence, along

with the merits of the claims involved in the arbitration. The Chief

Justice has to decide whether the applicant has satisfied the conditions

for appointing an arbitrator under Section 11(6) of the Act. For the

purpose of taking a decision on these aspects, the Chief Justice can

either proceed on the basis of affidavits and the documents produced or

take such evidence or get such evidence recorded, as may be necessary.

We think that adoption of this procedure in the context of the Act

would best serve the purpose sought to be achieved by the Act of

expediting the process of arbitration, without too many approaches to

the court at various stages of the proceedings before the Arbitral

tribunal.

39. An aspect that requires to be considered at this stage is the

question whether the Chief Justice of the High Court or the Chief

Justice of India can designate a non-judicial body or authority to

exercise the power under Section 11(6) of the Act. We have already

held that, obviously, the legislature did not want to confer the power on

the Court as defined in the Act, namely, the District Court, and wanted

to confer the power on the Chief Justices of the High Courts and on the

Chief Justice of India. Taking note of Section 5 of the Act and the

finality attached by Section 11 (7) of the Act to his order and the

conclusion we have arrived at that the adjudication is judicial in nature,

it is obvious that no person other than a Judge and no non-judicial body

can be designated for entertaining an application for appointing an

arbitrator under Section 11(6) of the Act or for appointing an arbitrator.

In our dispensation, judicial powers are to be exercised by the judicial

authorities and not by non-judicial authorities. This scheme cannot be

taken to have been given the go-by by the provisions in the Act in the

light of what we have discussed earlier. Therefore, what the Chief

Justice can do under Section 11(6) of the Act is to seek the help of a

non-judicial body to point out a suitable person as an arbitrator in the

context of Section 11(8) of the Act and on getting the necessary

information, if it is acceptable, to name that person as the arbitrator or

the set of persons as the arbitral tribunal.

40. Then the question is whether the Chief Justice of the High

Court can designate a district judge to perform the functions under

Section 11(6) of the Act. We have seen the definition of 'Court' in

the Act. We have reasoned that the intention of the legislature was not

to entrust the duty of appointing an arbitrator to the District Court.

Since the intention of the statute was to entrust the power to the highest

judicial authorities in the State and in the country, we have no

hesitation in holding that the Chief Justice cannot designate a district

judge to perform the functions under Section 11(6) of the Act. This

restriction on the power of the Chief Justice on designating a district

judge or a non-judicial authority flows from the scheme of the Act.

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41. In our dispensation of justice, especially in respect of

matters entrusted to the ordinary hierarchy of courts or judicial

authorities, the duty would normally be performed by a judicial

authority according to the normal procedure of that court or of that

authority. When the Chief Justice of the High Court is entrusted with

the power, he would be entitled to designate another judge of the High

Court for exercising that power. Similarly, the Chief Justice of India

would be in a position to designate another judge of the Supreme Court

to exercise the power under Section 11(6) of the Act. When so

entrusted with the right to exercise such a power, the judge of the High

Court and the judge of the Supreme Court would be exercising the

power vested in the Chief Justice of the High Court or in the Chief

Justice of India. Therefore, we clarify that the Chief Justice of a High

Court can delegate the function under Section 11(6) of the Act to a

judge of that court and he would actually exercise the power of the

Chief Justice conferred under Section 11(6) of the Act. The position

would be the same when the Chief Justice of India delegates the power

to another judge of the Supreme Court and he exercises that power as

designated by the Chief Justice of India.

42. In this context, it has also to be noticed that there is an

ocean of difference between an institution which has no judicial

functions and an authority or person who is already exercising judicial

power in his capacity as a judicial authority. Therefore, only a judge of

the Supreme Court or a judge of the High Court could respectively be

equated with the Chief Justice of India or the Chief Justice of the High

Court while exercising power under Section 11(6) of the Act as

designated by the Chief Justice. A non-judicial body or institution

cannot be equated with a Judge of the High Court or a Judge of the

Supreme Court and it has to be held that the designation contemplated

by Section 11(6) of the Act is not a designation to an institution that is

incompetent to perform judicial functions. Under our dispensation a

non-judicial authority cannot exercise judicial powers.

43. Once we arrive at the conclusion that the proceeding

before the Chief Justice while entertaining an application under Section

11(6) of the Act is adjudicatory, then obviously, the outcome of that

adjudication is a judicial order. Once it is a judicial order, the same, as

far as the High Court is concerned would be final and the only avenue

open to a party feeling aggrieved by the order of the Chief Justice

would be to approach to the Supreme Court under Article 136 of the

Constitution of India. If it were an order by the Chief Justice of India,

the party will not have any further remedy in respect of the matters

covered by the order of the Chief Justice of India or the Judge of the

Supreme Court designated by him and he will have to participate in the

arbitration before the Tribunal only on the merits of the claim.

Obviously, the dispensation in our country, does not contemplate any

further appeal from the decision of the Supreme Court and there

appears to be nothing objectionable in taking the view that the order of

the Chief Justice of India would be final on the matters which are

within his purview, while called upon to exercise his jurisdiction under

Section 11 of the Act. It is also necessary to notice in this context that

this conclusion of ours would really be in aid of quick disposal of

arbitration claims and would avoid considerable delay in the process,

an object that is sought to be achieved by the Act.

44. It is seen that some High Courts have proceeded on the

basis that any order passed by an arbitral tribunal during arbitration,

would be capable of being challenged under Article 226 or 227 of the

Constitution of India. We see no warrant for such an approach.

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Section 37 makes certain orders of the arbitral tribunal appealable.

Under Section 34, the aggrieved party has an avenue for ventilating his

grievances against the award including any in-between orders that

might have been passed by the arbitral tribunal acting under Section 16

of the Act. The party aggrieved by any order of the arbitral tribunal,

unless has a right of appeal under Section 37 of the Act, has to wait

until the award is passed by the Tribunal. This appears to be the

scheme of the Act. The arbitral tribunal is after all, the creature of a

contract between the parties, the arbitration agreement, even though if

the occasion arises, the Chief Justice may constitute it based on the

contract between the parties. But that would not alter the status of the

arbitral tribunal. It will still be a forum chosen by the parties by

agreement. We, therefore, disapprove of the stand adopted by some of

the High Courts that any order passed by the arbitral tribunal is capable

of being corrected by the High Court under Article 226 or 227 of the

Constitution of India. Such an intervention by the High Courts is not

permissible.

45. The object of minimizing judicial intervention while the

matter is in the process of being arbitrated upon, will certainly be

defeated if the High Court could be approached under Article 227 of

the Constitution of India or under Article 226 of the Constitution of

India against every order made by the arbitral tribunal. Therefore, it is

necessary to indicate that once the arbitration has commenced in the

arbitral tribunal, parties have to wait until the award is pronounced

unless, of course, a right of appeal is available to them under Section 37

of the Act even at an earlier stage.

46. We, therefore, sum up our conclusions as follows:

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.

ii) The power under Section 11(6) of the Act, in its entirety,

could be delegated, by the Chief Justice of the High Court

only to another judge of that court and by the Chief Justice

of India to another judge of the Supreme Court.

(iii) In case of designation of a judge of the High Court or of

the Supreme Court, the power that is exercised by the

designated, judge would be that of the Chief Justice as

conferred by the statute.

(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 judge designated

would be entitled to seek the opinion of an institution in

the matter of nominating an arbitrator qualified in terms of

Section 11(8) of the Act if the need arises but the order

appointing the arbitrator could only be that of the Chief

Justice or the judge designate.

(v) Designation of a district judge as the authority under

Section 11(6) of the Act by the Chief Justice of the High

Court is not warranted on the scheme of the Act.

(vi) Once the matter reaches the arbitral tribunal or the sole

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arbitrator, the High Court would not interfere with orders

passed by the arbitrator or the arbitral tribunal during the

course of the arbitration proceedings and the parties could

approach the court only in terms of Section 37 of the Act

or in terms of Section 34 of the Act.

(vii) Since an order passed by the Chief Justice of the High

Court or by the designated judge of that court is a judicial

order, an appeal will lie against that order only under

Article 136 of the Constitution of India to the Supreme

Court.

(viii) There can be no appeal against an order of the Chief

Justice of India or a judge of the Supreme Court

designated by him while entertaining an application under

Section 11(6) of the Act.

(ix) In a case where an arbitral tribunal has been constituted by

the parties without having recourse to Section 11(6) of the

Act, the arbitral tribunal will have the jurisdiction to

decide all matters as contemplated by Section 16 of the

Act.

(x) Since all were guided by the decision of this Court in

Konkan Railway Corpn. Ltd. & anr. Vs. Rani

Construction Pvt. Ltd. [(2000) 8 SCC 159] and orders

under Section 11(6) of the Act have been made based on

the position adopted in that decision, we clarify that

appointments of arbitrators or arbitral tribunals thus far

made, are to be treated as valid, all objections being left to

be decided under Section 16 of the Act. As and from this

date, the position as adopted in this judgment will govern

even pending applications under Section 11(6) of the Act.

(xi) Where District Judges had been designated by the Chief

Justice of the High Court under Section 11(6) of the Act,

the appointment orders thus far made by them will be

treated as valid; but applications if any pending before

them as on this date will stand transferred, to be dealt with

by the Chief Justice of the concerned High Court or a

Judge of that court designated by the Chief Justice.

(xii) The decision in Konkan Railway Corpn. Ltd. & anr. Vs.

Rani Construction Pvt. Ltd. [(2000) 8 SCC 159] is

overruled.

44. The individual appeals will be posted before the

appropriate bench for being disposed of in the light of the principles

settled by this decision.