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PETITIONER:

OLYMPUS SUPERSTRUCTURES PVT. LTD. ...

Vs.

RESPONDENT:

MEENA VIJAY KHETAN & ORS. ...

DATE OF JUDGMENT: 11/05/1999

BENCH:

M. JAGANNADHA RAO, & S.N. PHUKAN.

JUDGMENT:

M.JAGANNADHA RAO,J.

Leave granted.

These three Civil Appeals are directed against the Judgment

of the Bombay High Court in A.Nos. 175-177 of 1998 dated

2.4.98 in Arbitration Petitions 281-283 of 1997. By virtue

of this judgment dated 2.4.98, the decision of the learned

Single Judge in Arbitration Petitions 281-283 of 1997 dated

12.1.1998 was confirmed. The learned Single Judge had, by

his decision dismissed the objections filed by the appellant

under Sections 5 and 34 of the Arbitration and Conciliation

Act, 1996 (hereinafter called the `Act') to the awards and

confirmed the three Awards passed by the Arbitrator on

13.11.1997. The learned Chief Justice of the Bombay High

Court had appointed a retired Judge of that Court on

13.6.1997 as sole arbitrator and the said arbitrator had

passed the three awards on 13.11.1997.

The facts are as follows:

There were three main agreements dated 9.3.94, 9.3.94 and

29.6.1994 under which the appellant agreed to sell Flat Nos.

101-102, 201-202 and 301-302 on first, second and third

floors of the proposed building Wembley at, Play ground

Road, Vile Parle (East) Bombay to the respondents on the

terms contained in the agreements. The consideration was

Rs.76, 72 and 74 lakhs respectively. The possession of the

flats was to be handed over alongwith amenities by 30.10.94.

The terms of the contract provided the time- schedule for

payments by the purchasers and said time was to be the

essence of the contract and it was stated that failure to

pay would entail termination of the agreement. The

purchasers were to pay 21% interest in case of default.

There were various other terms. Clause 7 provided that the

power of termination should not be exercised by the

appellant unless and until the appellant had given to the

purchasers 15 days prior notice in writing of the intention

to terminate the agreement and given the purchasers

opportunity to set right the breaches, if any committed,

within the said period. Clause 39 in each agreement

contained an arbitration clause which read as follows:

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"39. All disputes of differences whatsoever which

shall at any time hereafter (whether during the continuance

and in force of this Agreement or upon or after it

discharges or determination) arise between the parties

hereto or their respective successors in title and assigns

touching or concerning this Agreement or its interpretation

or effect or as to the rights duties and liabilities of the

parties and liabilities of the parties hereto or either of

them under or by virtue of this Agreement or otherwise as to

any other matter in any way connected with arising out of or

in relation to the subject matter of this Agreement shall in

accordance with the subject to the provisions of the

Arbitration Act, 1940 or any statutory modification or re-

enactment thereof for the time being in force be referred to

a single arbitrator if agreed upon by the parties or

otherwise to the arbitration of two arbitrators to be

appointed by each party to the dispute whose decision ins

the matters shall be final and binding on the parties

hereto."

It will have to be noticed that the above clause

did not refer to any specific named arbitrator or

arbitrators.

Considerable amounts were paid under the above

said three main agreements to the appellant. The appellant

would contend there was default on part of the respondents

while the respondents would contend that there was no

progress in the construction.

There were three other separate agreements dated

9.3.94, 9.3.94 and 29.6.94 (hereinafter called the Interior

Design Agreements) between the appellant and the same

identical purchasers in which the appellant was appointed as

`Interior Designer' for carrying out renovation and interior

designing and decorating the respective flats and the

exterior area and to provide/install the special amenities

in the flats for a lumpsum payment of Rs.10 lakhs each. No

amount was, however, paid to the appellant under these three

agreements before or at the time of executing of these three

agreements. There is again a separate arbitration clause in

each of these three agreements. It reads as follows:

"5. All disputes and difference which may arise

between the parties hereto in connection with this agreement

of interpretation and effect thereof or in connection with

the rights and obligations of the parties hereto shall be

referred to the Joint Arbitration of Shri P.N. Nanavati

(Solicitor) and Mr.Rashmi Mehta (Solicitor). If the

aforesaid Arbitrators then and in such event such disputes

and differences shall be referred to arbitration of two

arbitrators, one to be appointed by each of the parties

hereto. The Arbitrators so appointed shall appoint an

umpire before entering upon the reference. The Arbitrators

of the umpire as the case may be shall be governed by the

provisions of the Indian Arbitration Act, 1940 or any

statutory modification or re-enactment thereof from time to

time in force."

It will be noticed that this clause required

reference to specific named arbitrators.

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On 24.4.95, the respondent wrote to the appellant

seeking information as to the stage of the construction and

as to when the appellant would be handing over possession of

the flats. The appellant replied on 6.6.95 complaining

default on the part of the purchasers as some cheques were

dishonored and stated that he was terminating the three

agreements giving 15 days notice. On 22.6.95 the

respondents wrote to the appellant that considerable amounts

were paid under each of the main agreements and that the

appellant had not cared to inform the respondents about the

progress of the construction, that the story of default was

false, that the dishonored cheques had been substituted by

Banker's cheques or cash and that the termination was

invalid. The respondents were ready and willing to complete

the contract. On 21.10.95 the respondents wrote to the

appellant giving details of payments and the mode of payment

of the balance under the main and the Interior Design

Agreements and stating that 10 lakhs were paid under each of

the three Interior Design Agreement, by way of cash to the

appellant's solicitor, that only 6 lakhs remained to be paid

after the 6th slab was laid and that the termination of the

main agreement was bad in law etc. The appellant was called

upon to withdraw the contention regarding termination and

was asked as to when the 6th of the slabs would be laid so

that the payment of Rs. 6 lakhs could be made. The

appellant did not send any reply. The respondent then gave

a notice on 19.3.96 making various allegations against the

appellant. A reply was sent by the appellant on 27.7.96

limited to the allegations in the said letter dated 19.3.96.

A final notice was given by the respondents on 8.7.96

stating that as there were several disputes and differences

between the parties in relation to the agreements dated

9.3.94, 9.3.94 and 29.6.1994, they should be referred to one

out of the three retired Judges whose names were suggested

by the respondents. As the appellant failed to reply

agreeing for arbitration, one of the respondents moved the

Court on 9.8.96 seeking interim protection before the filing

of a regular petition under the Arbitration and Conciliation

Act, 1996. Thereafter a regular petition for appointment of

arbitrator was moved under section 11 of the Act on 3.6.97

and an order dated 13.6.97 was passed by the learned Chief

Justice appointing a sole arbitrator on 7.7.97. The learned

Arbitrator fixed a preliminary meeting on 14.7.97. On that

day the arbitrator issued certain directions. On 29.7.97,

the respondents filed their claim before the arbitrator.

The appellant took several adjournments on 19.8.97, 23.9.97

and 3.10.97 and raised an objection on 9.10.97 regarding the

continuance of the arbitrator which objection was dismissed

on 16.10.97. On 16.10.97 the appellant's new counsel sought

time to challenge the order of the arbitrator dated 9.10.97.

Adjournment was refused. The arbitrator took up the matter

for evidence. On 16.10.97, the respondents (i.e. claimants

before arbitrator) examined their witnesses in chief and the

appellant's counsel partly cross-examined them and sought

time and the matter was adjourned for 21.10.97. There were

some winding up proceedings against the appellant and a

provisional liquidator was appointed on 30.4.97. On an

application by the respondents, the arbitrator, after

hearing the counsel for the parties, passed an order on

22.10.97 that no leave of the company court was required at

the stage of appointment of a provisional liquidator. The

appellant's advocate sought further time and the same was

refused. The appellant's advocate then filed three IAs for

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condoning delay in filing the written statement dated

22.10.97 in all three matters. Delay was condoned. Further

adjournment sought by appellant was refused. On 27.10.97

evidence was recorded but there was no cross examination by

the appellants' counsel and the evidence was closed. On

13.11.97, the award was passed granting relief of specific

performance in respect of the three main agreements and also

in respect of the three Interior Design Agreements.

The appellant challenged the three awards under

Section 34 by filing three applications in December 1997 and

these were dismissed by a learned Single Judge on 12.1.98

and by the Division Bench on 2.4.98. It is against these

judgments that the present appeals have been filed.

Learned counsel for the appellant Sri H.L.Tiku

raised various contentions. He contended that the reference

to arbitration was based upon the three main agreements

dated 9.3.94, 9.3.94 and 29.6.94 and therefore the

arbitrator could not have decided the disputes regarding the

three other Interior Design agreements dated 9.3.94, 9.3.94

and 29.6.94 and there was neither a prayer nor a reference

of the disputes under the three latter Interior Design

agreements. It was pointed out that the arbitration clauses

in the main agreements could not supersede the separate

arbitration clauses under the Interior Design Agreements

which provided for named arbitrators. Merely, because the

appellant remained ex parte before the arbitrator after a

stage, the arbitrator could not assume the correctness of

the pleas of the respondents and he ought to have insisted

on proof of the pleas raised by the respondents. A point

was raised in the grounds in this Court that an arbitrator

could not grant specific performance of an agreement and

hence section 34(2)(b)(i) of the Act was attracted. It was

also contended that in respect of the main agreements, the

respondents had committed default, that respondents were not

ready and willing, that the termination of the main

agreement by the appellant was valid and that, on facts, an

award for specific performance could not have been granted.

In any event, as provided in the agreements, the respondents

should have been directed to pay interest on the balance at

consideration 21%.

On the other hand, the learned senior counsel for

the respondents Sri D.R.Dhanuka and Sri K.K.Venugopal

pointed out that under the arbitration clause contained in

the main agreements, it was permissible to refer to

arbitrator not only disputes and differences under the main

agreements but also in respect of "connected" matters, that

the appellant never raised any point relating to

jurisdiction under Section 16 of the Act, that the

arbitrator could not decide the dispute concerning the

Interior Design Agreements and that the point was not also

raised before the learned Single Judge. For the first time

the point was raised before the Division Bench. The same

could not be permitted to be raised after the award. An

arbitrator could grant specific performance of an agreement

of sale. So far as the other points raised on the merits of

the award were concerned, the same could not have been

raised in view of the narrow scope of objections permitted

by sub-clause (2)(b) of Section 34 of the new Act. It was

contended that the challenge to the award was rightly

rejected by the High Court. It was prayed that the appeals

be dismissed. On these contentions, the following points

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arise for consideration:

(1) Whether the appellant is right in contending

that the arbitration clause 39 in the main agreement did not

permit the arbitrator to deal with the disputes relating to

the Interior Design Agreement which contained a different

arbitration clause and whether the award, in respect of the

Interior Design Agreement was void?

(2) Whether the appellant who did not raise any

question of jurisdiction under Section 16 of the Act in

relation to the disputes under the Interior Design

Agreements, could have raised a question of jurisdiction of

the arbitrator or of his power to deal with issues arising

under the said Agreements at the stage of section 34?

(3) Whether an arbitrator is not entitled to pass

an award directing specific performance of an agreement of

sale and the subject matter of the dispute is not capable of

arbitration under section 34(2)(b)(i) of the Act?

(4) Whether the appellant could question factual

findings relating to default, time being essence, readiness

and willingness etc. before the arbitrator under Section 34

of the Act?

Points 1 and 2:

From the facts mentioned, it would be noticed that

there were two sets of agreements, namely the main set of

three agreements dated 9.3.94, 9.3.94 and 29.6.94 and the

three other agreements of the same dates dealing with

Interior Designing. Each of main agreements contained an

arbitration clause (clause 39) of a general nature which did

not specify any particular arbitrator's name while the

Interior Design Agreements in each case contained a separate

arbitration clause (clause 5) mentioning the name of

specified arbitrators. It was the case of the appellant

that the notice given on 8.7.96, the petition under Section

11 of the Act for appointment of an arbitrator and the

reference covered only disputes and differences arising

under the main agreements and there was no reference in

respect of the disputes and differences arising out of

Interior Design Agreements. It is contended for the

appellant that the order appointing the arbitrator dated

13.6.97 specifically dealt with disputes and differences

under the main agreements only and not those under the

Interior Design Agreements.

Before we go into the interpretation of the

arbitration clauses, we have to refer to the conduct of the

appellant which is very much relevant for purposes of

section 16 of the Act. The respondents had referred in

their claim statement before the arbitrator dated 29.7.97 to

the disputes and differences arising under the Main

agreements as well as under the Interior Designer

Agreements. The appellant filed its written statement dated

22.10.97 but no objection was raised that the disputes and

differences contained in the three Interior Design

Agreements were not intended to be referred to the

arbitrator or that the same could not be decided by the

arbitrator appointed under the main agreement. The

appellants' counsel had cross-examined the respondents'

witnesses upto a stage and even then no such objection as to

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scope of reference was raised. The arbitrator referred in

his award to the sole contention of the appellant before him

so far as the Interior Design Agreements were concerned and

that was that the said agreements were void inasmuch as no

amount was paid at the time of the agreements (though Rs.10

lakhs each was agreed to be paid). That was the only

contention concerning these three Interior Design

agreements. No dispute as to the power of the arbitrator to

deal with disputes under these three agreements was raised.

That means that the appellant accepted that disputes under

these agreements were also covered by the reference. In the

objections to the award filed in the Court under section 34

no such point was raised except a general ground (j) that

the entire proceedings of arbitration were illegal and bad

in law, null and void and that the award was liable to be

set aside. In the order of the learned Single Judge in para

5 it was stated that only 3 points were raised and we find

that this was not one of those points argued before the

learned Single Judge. For the first time this point

relating to the scope of the reference was raised/argued

before the Division Bench and the same was rejected.

In our view, learned senior counsel for the

respondents are right in contending that if parties before

the arbitrator had any objections to the arbitrator's

Jurisdiction, the same must be raised before the arbitrator

as provided in sub-clauses (2) and (3) of section 16. (We

are, however, not deciding the consequences of not raising

the said question at that stage). Section 16 of the Act

reads as follows:

"16. Competence of arbitral tribunal to rule on

its jurisdiction - (1) The arbitral tribunal may rule on its

own jurisdiction, including ruling on any objections with

respect to the existence or validity of the arbitration

agreement, and for the purpose,-

(a) an arbitration clause which forms part of a

contract shall be treated as an agreement independent of the

other terms of the contract; and

(b) a decision by the arbitral that the contract

is null and void shall not entail ipso jure the invalidity

of the arbitration clause.

(2) A plea that the arbitral tribunal does not

have jurisdiction shall be raised not later than the

submission of the statement of defence; however, a party

shall not be precluded from raising such a plea merely

because that he has appointed, or participated in the

appointment of, an arbitrator.

(3) A plea that the arbitral tribunal is exceeding

the scope of its authority shall be raised as soon as the

matter alleged to be beyond the scope of its authority is

raised during the arbitral proceedings.

(4) The arbitral tribunal may, in either of the

cases referred to in sub- section (2) or sub-section (3),

admit a later plea if it considers the delay justified.

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(5) The arbitral tribunal shall decide on a plea

referred to in sub-section (2) or sub-section (3) and, where

the arbitral tribunal takes a decision rejecting the plea,

continue with the arbitral proceedings and make an arbitral

award.

(6) A party aggrieved by such an arbitral award

may make an application for setting aside such an arbitral

award in accordance with section 34."

Section 16 is based on Article 16 of the UNCITRAL

model law. Sub-clause (1) of section 16 corresponds to

sub-clause (1) of Article 16. Sub-clauses (2) and (3) of

section 16 of the Act correspond substantially to sub-clause

(2) of Article 16. The words `not later than' and `as soon

as may be' in sub-clause (2) of Article 16 of the Model Law

occur in sub- clauses (2) and (3) of section 16 of the Act.

It will be noticed that under the Act of 1996 the arbitral

tribunal is now invested with power under sub-clause (1) of

section 16 to rule on its own Jurisdiction including ruling

on any objection with respect to the existence or validity

of the arbitration agreement and for that purpose, the

arbitration clause which forms part of the contract shall be

treated as an agreement independent of other terms of the

contract and any decision by the arbitral tribunal that the

contract is null and void shall not entail ipso Jure affect

the validity of the arbitration clause. This is clear from

sub- clause (b) of Section 16(1) which states that a

decision by the arbitral tribunal that the main contract is

null and void shall not entail ipso Jure the invalidity of

the arbitration clause.

In the present context sub-clauses (2) and (3) of

Section 16 are relevant. They refer to two types of pleas

and the stages at which they can be raised. Under

sub-clause (2) a plea that the arbitral tribunal does not

have Jurisdiction shall be raised not later than the

submissions of the statement of defence: however, a party

shall not be precluded from raising such a plea merely

because he has appointed or participated in the appointment

of, an arbitrator. Under sub- clause (3) a plea that the

arbitral tribunal is exceeding the scope of its authority

shall be raised as soon as the matter alleged to be beyond

the scope of its authority, is raised during the arbitral

proceedings. These limitations in sub-clauses (2) and (3)

are subject to the power given to the arbitrator under

sub-clause (4) of Section 16 that the tribunal may, in

either of the cases referred to in sub-section (2) or

sub-section (3) - admit a later plea if it considered the

delay justified. Sub-section (5) requires the arbitral

tribunal to decide on the pleas referred to sub-section (2)

or sub-section (3) at that stage itself. It is further

provided that if either of the pleas is rejected and the

arbitral tribunal holds in favour of its own Jurisdiction,

the tribunal will continue with the arbitral proceedings and

proceed to make the arbitral award. Then comes sub- clause

(6) which states that the party aggrieved by such an

arbitral award may make an application for setting aside

such an arbitral award in accordance with Section 34.

Section 34 of the Act deals with the filing of an

application for setting aside the award and reads as

follows. Sub-clause (1) and (2) are relevant for our

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purpose and they read as follows:

"34. Application for setting aside arbitral award

- (1) Recourse to a court against an arbitral award may be

made only by an application for setting aside such award in

accordance with sub-section (2) and sub-section (3).

(2) An arbitral award may be set aside by the

court only if -

(a) the party making the application furnishes

proof that -

(i) a party was under some incapacity, or

(ii) the arbitration agreement is not valid under

the law to which the parties have subjected it or failing

any indication thereon, under the law for the time being in

force; or

(iii) the party making the application was not

given proper notice of the appointment of an arbitrator or

of the arbitral proceedings or was otherwise unable to

present his case; or

(iv) the arbitral award deals with a dispute not

contemplated by or not falling within the terms of the

submission to arbitration, or it contains decisions on

matters beyond the scope of the submission to arbitration:

Provided that, if the decisions on matters

submitted to arbitration can be separated from those not so

submitted, only that part of the arbitral award which

contains decisions on matters not submitted to arbitration

may be set aside; or

(v) the composition of the arbitral tribunal or

the arbitral procedure was not in accordance with the

agreement of the parties, unless such agreement was in

conflict with a provision of this Part from which the

parties cannot derogate, or, failing such agreement, was not

in accordance with this Part; or

(b) the court finds that -

(i) the subject-matter of the dispute is not

capable of settlement by arbitration under the law for the

time being in force; or

(ii) the arbitral award is in conflict with the

public policy of India.

Explanation.- Without prejudice to the generality

of sub-clause (ii) of clause (b), it is hereby declared, for

the avoidance of any doubt, that an award is in conflict

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with the public policy of India if the making of the award

was induced or affected by fraud or corruption or was in

violation of section 75 or section 81."

Section 34 of the Act is based on Article 34 of

the UNCITRAL Model Law and it will be noticed that under the

1996 Act the scope of the provisions for setting aside the

award is far less the same under Section 30 or Section 33 of

the Arbitration Act of 1940.

It will be noticed that under sub-clause 2(a) (iv)

of Section 34, the arbitral award may be set aside by the

Court if the award deals with a dispute not contemplated by

or not falling within the terms of the submission to

arbitrator or if it contains a decision on matters beyond

the scope of the submission to arbitration. The proviso to

clause (iv) deals with severability.

The word `terms of the submission to arbitration'

in Section 34 (2)(a)(iv) in our view, refer to the terms of

the arbitration clause. This appears to be the meaning of

the word if one refer to Section 28 which uses the word

`dispute submitted to arbitration' and to Section 43 (3)

which uses the word `submit'future dispute to arbitration.

A question arises whether in view of the

provisions of Section 16(2) which uses the word `not later

than', any such objection as contained in Section 16(2) not

raised before the arbitrator can be permitted to be raised

for the first time under Section 34. Similarly a question

arises whether in view of the proviso of Section 16(3) which

uses sthe word `as soon as' any objection as contained in

Section 16(3), cannot be raised for the first time under

Section 34.

It may be argued on one side that the time limits

set in Arbitration Clause (2) and (3) of Section 16 are

mandatory and do not permit the said question to be raised

at a later point of time even under Section 34. An opposite

view could be that these being Juridictional issues, the

fact that they were not raised earlier could not preclude

the questions being raised under Section 34 inasmuch as

consent, express or implied could not confer jurisdiction.

We do not think it necessary to decide this

question in view of the fact that though Section 16 was

referred to during the course of the hearing, the learned

senior counsel for respondents had argued on merits that the

arbitrator had Jurisdiction to decide the

disputes/differences concerning the Interior Design

agreements also and that even if the appellant could be

permitted to raise these issues at the stage of Section 34,

there was no substance in the said contentions.

We shall, therefore, proceed to decide the

question of jurisdiction on the assumption that the

appellant is not precluded from raising these questions at

the stage of Section 34 though these issues have not been

raised before the arbitration as per sub-clause (2) and (3)

Section 16. Before we do so, we shall advert to a recent

decision of this Court in Rajinder Krishan Khanna vs. Union

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of India [1998 (7) SCC 129] wherein this Court referred to

Section 16 and Section 34 (2)(a)(iv) of the Act. In that

case a reference was made to arbitrators when the appeal was

being heard by this Court. The appellant was the claimant.

The opposite party raised a specific plea before the

arbitrators that they had no Jurisdiction to decide about

the value of the potentiality of the land and that the claim

petition before the arbitrator could not have included the

above claim, which was outside the reference and outside the

writ petition and the Civil Appeal from which the reference

arose by consent. It was argued for the appellant in reply

that the respondents did not have a specific issue framed by

the arbitrators in regard to the scope of the reference and

the respondents were estopped from contending that the

arbitrators could not have dealt with the question. This

Court held that this case was not a case where no objection

was raised by the respondent before the arbitrators as to

the scope of the reference. A specific objection was raised

in the written statement of the respondents that the

potentiality of the land was not one of the questions

referred to the arbitrators. This Court held that the fact

that an issue was not framed by the arbitrtators that the

item was not covered by the reference did not raise any

estoppel. The said question as to the scope of the

reference could therefore be permitted to be raised under

Section 34(2)(a)(iv) in the objections to the award. It is

true that on the facts of the case before us, the objection

as to the scope of the reference was not raised in the

written statement of the appellant. But as already stated,

we are not deciding the question whether the appellant is

precluded at the stage of section 34 from raising the

question relating to the scope of the reference. We shall

assume, for the purpose of this case, that the said

contention can still be raised under Section 34(2)(a)(iv).

We shall accordingly deal with the merits of the question of

Jurisdiction of the arbitrator.

It is true that there are two agreements in each

of the three appeals before us. One is the main agreement

relating to construction of flats and the arbitration clause

39 there is general and does not refer to any named

arbitrator. It is also true that there is a separate

arbitration clause 5 in the Interior Design Agreement which

gives the names of specific arbitrators. But it must be

noticed that clause 39 permits reference to arbitration not

only of issues arising under the main agreement but also

those disputes or differences which are "connected" with

disputes arising under the main agreement. The following

words in the main agreement are important.

"Otherwise as to any other method in any way

connected with, arising out of or in relation to the subject

matter of this agreement."

In other words, clause 39 refers to the `subject

matter' of the main agreement and also to `any other

matters' and these `any other matters' if they are

"connected" with or arise out of or are in relation to the

subject matter of the main agreement, the disputes and

differences concerning those `other matters' can also be

referred to arbitration under clause 39 of the main

agreement. In other words, parties intended arbitration in

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respect of the main disputes and connected disputes before

one arbitral tribunal.

As to the meaning of the words "connected with,

arising out of or in relation thereto", we may refer to

Renusagar Power Co.Ltd. vs. General Electric Co. [1984

(4) SCC 679]. It was held that these words "are of the

widest amplitude and content and include even questions as

to the existence and effect (scope) of the arbitration

agreement.

Question is whether the disputes and differences

arising under the Interior Design Agreement are integrally

"connected with" the disputes and differences arising from

the main contract? In our view, they are. The main

agreement refers to the payment of the last instalment of

Rs.17 lakhs against `taking of possession' of the flats.

Therefore the main agreements extended upto the time of

taking of possession by the purchasers. Para 8 of the main

agreement states that the fixtures, fittings and ameneties

to be provided by the Developers in the said building and

the flat/unit are those that are set out in Annexure E

annexed to the main agreement. Now annexure E refers not

only to the building but to the type of doors, corridors,

fixtures, the nature of the flooring, the bathroom tiles and

fittings, the Kitchen, the W.C. and the nature of the

Electric Wiring. When we come to the Interior Design

Agreement, Annexure A itself refers to the element of

designs, Interior finishes/fittings/services and deals with

the Walls, Balcony, type of Main Door and Internal Doors,

External Doors. It also deals with the type of staircase,

the flooring (Italian marbles for Hall room, Bed rooms and

passages), Toilet (Italian Marbles, Designed Basin Ceiling

Valve plassstering, Bath tub/Ja cuzzi all hardware fitting

inclusively Germany range), Marble skirting, Lobby &

Entrance (Italian Marble Flooring), Plumbering, Gas system,

Electrical (Heavy Duty ISI quality concealed copper wiring)

etc.

Thus it will be noticed that there are several

items in Schedule E of the main agreement which overlap the

items in Schedule A of the Interior Design Agreement. In

view of the overlapping, in our opinion it has to be said

that several items in the Schedule A of the Interior Design

Agreement are in modification/substitution of the items in

the Main Agreement. Therefore the coverage of the two

agreements makes it clear that the execution of the Interior

Design Agreement is `connected with' the execution of the

main Agreement. It may also be noted that the date of the

main agreement and the Interior Design Agreement is the same

in each of the three cases and clause 3 of the Interior

Design Agreement states specifically that `the work of the

said renovation, designing and installation shall commence

from the execution thereof' which means that the execution

of the Interior Design agreement and the main agreement is

to be simultaneous.

But then, we have to explain the purpose of the

arbitration agreement contained in clause 5 of the Interior

Design Agreement? Is it wholly superfluous?

If there is a situation where there are disputes

and differences in connection with the main agreement, and

also disputes in regard to "other matters" "connected" with

subject matter of the main agreement then in such a

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situation, in our view, we are governed by the general

arbitration clause 39 of the main agreement under which

disputes under the main agreement and disputes connected

therewith can be referred to the same arbitral tribunal.

This clause 39 no doubt does not refer to any named

arbitrtators. So far as Clause 5 of the Interior Decorator

Agreement is concerned, it refers to disputes and

differences arising from that agreement which can be

referred to named arbitrators and said clause 5, in our

opinion, comes into play only in a situation where there are

no disputes and differences in relation to the main

agreement and the disputes and differences are solely

confined to the Interior Design Agreement. That, in our

view, is the true intention of parties and that is the only

way by which the general arbitration provision in clause 39

of the main agreement and the arbitration provision for

named arbitrator contained in clause 5 of the Interior

Design Agreement can be harmonised or reconciled.

Therefore, in a case like the present where the disputes and

differences cover the main agreement as well as the Interior

Design Agreement, - (that there are disputes arising under

the main agreement and the Interior Design Agreement is not

in dispute) - it is the general arbitration clause 39 in the

main agreement that governs because the questions arise also

in regard to disputes relating to the overlapping items in

the Schedule to the main agreement and the Interior Design

Agreement, as detailed earlier. There cannot be conflicting

awards in regard to items which, overlap in the two

agreements. Such a situation was never contemplated by the

parties. The intention of the parties when they

incorporated clause 39 in the main agreement and clause 5 in

the Interior Design agreement was that the former clause was

to apply to situations when there were disputes arising

under both agreements and the latter was to apply to a

situation where there were no disputes or differences

arising under the main contract but the disputes and

differences were confined only to the Interior Design

Agreement. A case containing two agreements with

arbitration clauses arose before this Court in Aggarwal

Engineering Co. vs. T.H. Machine Industries [AIR 1977

S.C. 2122]. There were arbitration clauses in two

contracts one for sale of two machines to the appellant and

the other appointing the appellant as sales-representative.

On the facts of the case, it was held that both the clauses

operated separately and this conclusion was based on the

specific clause in the sale contract that it was the "sole

repository" of the sale transaction of the two machines.

Krishna Iyer,J. held that if that were so, then there was

no jurisdiction for travelling beyond the sale contract.

The language of the other agreement appointing the appellant

as sales representative was prospective and related to a

sales agency and `later purchases', other than the purchases

of these two machines. There was therefore no overlapping.

The case before us and the above case exemplify contrary

situations. In one case the disputes are connected and in

the other they are distinct and not connected. Thus, in the

present case, clause 39 of the main agreement applies.

Points 1 and 2 are decided accordingly in favour of the

respondents.

Point 3: This point becomes relevant because if

the arbitrators cannot grant specific performance, a point

can be raised under Section 34(2)(b)(i) that the subject

matter of the dispute is not capable of arbitration.

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One of the points raised in the grounds in this

Court is that the grant of specific performance is

discretionary and the discretion to grant or not to grant

specific performance has been conferred by the Specific

Relief Act, 1963 on the Civil Court and hence the arbitrator

cannot be deemed to have been empowered to grant such a

relief.

We may point out that the Punjab High Court in

Laxmi Narayan vs. Raghubir Singh [AIR 1956 Punjab 249] the

Bombay High Court in Fertiliser Corporation of India vs.

Chemical Construction Corporation [ILR 1974 Bombay 856/858

(DB)] and the Calcutta High Court in Keventer Agro Ltd. vs.

Seegram Comp. Ltd. [Apo 498 of 1997 & Apo 449 of (401)]

(dated 27.1.98) have taken the view that an arbitrator can

grant specific performance of a contract relating to

immovable property under an award. No doubt, the Delhi High

Court in M/s PNB Finance Limited vs. Shital Prasad Jain &

Others [AIR 1991 Del. 13] has however held that the

arbitrator cannot grant specific performance. The question

arises as to which view is correct.

In our opinion, the view taken by the Punjab,

Bombay and Calcutta High Courts is the correct one and the

view taken by the Delhi High Court is not correct. We are

of the view that the right to specific performance of an

agreement of sale deals with contractual rights and it is

certainly open to the partiess to agree - with a view to

shorten litigation in regular courts - to refer the issues

relating to specific performance to arbitration. There is

no prohibition in the Specific Relief Act, 1963 that issues

relating to specific performance of contract relating to

immovable property cannot be referred to arbitration. Nor

is there such a prohibition contained in the Arbitration and

Conciliation Act, 1996 as contrasted with Section 15 of the

English Arbitration Act, 1950 or section 48(5)(b) of the

English Arbitration Act, 1996 which contained a prohibition

relating to specific performance of contracts concerning

immoveable property.

It is stated in Halsburys' Laws of England 4th

Ed., (Arbitration Vol.2 para 503) as follows:

"Nature of the dispute or difference: The dispute

or difference which the parties to an arbitration agreement

agree to refer must consist of a justiciable issue triable

civilly. A fair test of this is whether the differences can

be compromised lawfully by way of accord and satisfaction

(Cf. Bacon's Abidgement and Award A)."

Reference is made there to certain disputes like

criminal offences of a public nature, disputes arising out

of illegal agreements and disputes relating to status, such

as divorce, which cannot be referred to arbitration. It

has, however, been held that if in respect of facts relating

to a criminal matter, (say) physical injury, if there is a

right to damages for personal injury, then such a dispute

can be referred to arbitration (Keir vs. Leeman) (1846) 9

Q.B. 371. Similarly, it has been held that a husband and

wife may, refer to arbitration the terms on which they shall

separate, because they can make a valid agreement between

themselves on that matter (Soilleux vs. Herbst) (1801) 2

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Bos & p. 444; Wilson vs. Wilson (1848) 1 HL Cas 538;

(Cahill vs. Cahill) (1883) 8 App Cas 420(HL).

Further, as pointed in the Calcutta case, merely

because there is need for exercise of discretion in case of

specific performance, it cannot be said that only the civil

court can exercise such a discretion. In the above case,

Ms.Ruma Pal,J. observed:

".....merely because the sections of the Specific

Relief Act confer discretion on courts to grant specific

performance of a contract does nto means that parties cannot

agree that the discretion will be exercised by a forum of

their choice. If the converse were true, then whenever a

relief is dependent upon the exercise of discretion of a

court by statute e.g. the grant of interest or costs,

parties chould be precluded from referring the dispute to

arbitration."

We agree with this reasoning. We hold on Point 3

that disputes relating to specific performance of a contract

can be referred to arbitration and Section 34(2)(b)(i) is

not attracted. We overrule the view of the Delhi High

Court. Point 3 is decided in favour of respondents.

Point 4: This point concerns the issues between

the parties on the merits of the award relating to deafult,

time being exercise, readiness and willingness etc. These

are all issues of fact. If we examine section 34(2) of the

Act, the relevant provisions of which have already been

extracted under Point 1 and 2, it will be seen that under

sub-clause (b) of section 34(2), interference is permissible

by the Court only if

(i) the subject matter of the dispute is non

capable of settlement by arbitration under the law for the

time being in force, or

(ii) the arbitral amount is in conflict with the

public policy in India.

The Explanation to the provisions says that

without prejudice to the generality of sub-clause (ii) of

clause (b), it is declared for the avoidance of any doubt,

that an award is to be treated as in conflict with the

public policy of India if the making of the award was

induced or affected by fraud, or corruption or was in

violation of sections 75 or 81. Section 75 deals with

confidentiality while section 81 deals with admissibility of

evidence in other proceedings. We do not have any such

situation before us falling within section 34(2)(b)(ii).

The factual points raised in the case before us, to which we

have referred to earlier, do not fall within Section

34(2)(b)(ii). Coming to Section 34(2)(b)(i) we have already

held that the subject matter of the dispute is not incapable

of settlement by arbitration under the law for the time

being in force. Nor is any point raised that the arbitral

award is in conflict with the public policy of India. We

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are, therefore, of the view that the merits of the award, on

the facts of the case do not fall under Section 34(2)(b) of

the Act. Point 4 is held accordingly against the appellant.

For the aforesaid reasons, the appeals fail and

are dismissed but in the circumstances without costs.