Case Comment
SUBJECT INDEX
| SR.NO | SUBJECT | PAGE NO. |
| 1 | EFFECT OF JUDGEMENT | 4 |
| 2 | FACTS | 5 |
| 3 | ISSUES RAISED, CONTENTION, RATIONALE | 6 |
| 4 | DEFECTS IN LAW, INTERFERENCE | 7 |
| 5 | CONCLUSION | 8-9 |
Citation Appeal No. : 4168 of 2003
Supreme Court of India
Bench: Lahoti, R.C. (Cji), Agrawal, B.N. (J), Kumar, Arun (J), Mathur, G.P. (J) Mathur, A.K. (J), Balasubramanyan P.K.I.(J) Thakker, C.K.(J)
Petitioner: S.B.P. & Co.
Respondent: Patel Engineering Ltd. & Anr
Date Of Judgment: 26/10/2005
Bench: R.C.Lahoti Cji & B.N.Agrawal & Arun Kumar & G.P.Mathur & A.K.Mathur & P.K.Balasubramanyan & C.K.Thakker
Judgment Delivered By:
P.K.Balasubramanyan,
J. C.K.Thakker, J.
With Civil Appeal Nos.4169/2003, 4170-4173/2003, 4076/2004, 3777/2003, And Civil Appeal Nos.6562,6563-6564,6565-6566 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.
Effect of judgment :
One of the most important effects of the judgment was the prospective ruling direction, which provided that any appointment of an arbitrator under S. 11 made before 26.10.2005 had to be treated as valid and objections including the existence or validity of the arbitration agreement, have to be decided by the arbitrator under S.16 of the Act. The legal position enunciated by SBP would govern only application to be filed under S.11 of the Act from 26.10.2005 as also applications under S.11 (6) of the Act pending as on 26.10.2005 where the arbitrator was not appointed. The decision of the Hon’ble Supreme Court was reiterated in the case of Maharishi Dayanand University v. Anand Coop. L/C Society Ltd & wherein it was observed by the Court that if an appointment of an arbitrator has been made before 26.10.2005, that appointment has to be treated as valid even if it challenged before this Court.
The next issue which has been raised in many an appeal i.e. who should decide whether there is an arbitration agreement or not. Should it be decided by the Chief Justice or his designate before making an appointment of arbitrator under S.11 or the arbitrator who is appointed under S.11 of the Act? This issue is no longer res-integra. Ever since the decision in SBP., it is recognized law, that any question on whether there is an arbitration agreement or not, or whether the party who has applied under S.11 of the Act, is a party to such an agreement, is an issue which has to be decided by the Chief Justice or his designate under S.11 before making appointment of an arbitrator
Facts:
The state of Maharashtra through its irrigation department handed over the civil work of stage IV of the Koyna Hydroelectric Project to Respondent no.1. For the same, respondent no.1 entered into a sub-contract with the petitioner. While entering into the contract an agreement was made to define the process after any kind of indifferences are faced between the parties to the contract. Clause 19 of the agreement was as follow:
“The continuance of this piece work agreement/contract or at any time after the termination thereof, any difference or dispute shall arise between the parties hereto concerning the interpretation of any of the provisions herein contained or act or thing relating to this agreement/contract, such difference or dispute shall be forthwith referred to two Arbitrators for Arbitration in Bombay one to be appointed by each party with liberty to the Arbitrators in case of differences or their failure to reach an agreement within one month of the appointment, to appoint an umpire residing in Bombay and the award which shall be made by two Arbitrators or umpire as the case may be shall be final, conclusive and binding on the parties hereto. If either party to the difference or dispute shall fail to appoint an arbitrator within 30 calendar days after notice in writing having been given by the parties or shall appoint an arbitrator who shall refuse to act then the arbitrator appointed by the other party shall be entitled to proceed with the reference as a Sole Arbitrator and to make the final decision on such difference or dispute and the award made as a result of such arbitration shall be a condition precedent to any right of action against any two parties hereto in respect of any such difference and dispute.”
Both the parties agreed to the terms of the agreement. Later there were indifferences between the parties. Petitioner appointed Respondent no.2 as his arbitrator. Respondent no.1 appointed S.N. Huddar as his arbitrator but he rejected the proposal as he was earlier connected with the Koyna Hydroelectric Project and subsequently S.L. Jain was appointed as the arbitrator. Respondent no. 1 then wrote a letter to respondent no.2 saying that he cannot act as a sole arbitrator and as per sec. 15(2) of the Arbitration and Conciliation Act, 1996, the arbitrator has to be reappointed within 30 days of the decline of the first arbitrator. This letter also included names of three learned judges from Bombay High Court who can be appointed as third arbitrator/ umpire. Respondent no.2 said that there was no need to appoint a third judge and in furtherance of the same respondent no.1 approached the high court of Bombay. A learned judge accepted the appeal of respondent no.1 and appointed one retired judge of the same court as the third arbitrator. Being aggrieved from this decision passed by High Court, this petition was filed under section 11, Arbitration and Conciliation Act, 1996.
Issue raised:
Whether the power of appointing an arbitrator by the chief justice of India or chief justice of high court or a judge designated by him a judicial or administrative power?
Contention:
Respondent no.2 strongly opposed the appointment of the third arbitrator/ umpire as he said that Shri Jain, the arbitrator appointed by Respondent no.1 was not a valid arbitrator and hence the argument has to be decided by a sole arbitrator.
Rationale:
The case was filed in high court questioning the appointment of the third arbitrator, but the plea was dismissed as the high court had no jurisdiction over the case and it should have been filed in the arbitral tribunal by the parties. Later, the question of whether the appointment of the arbitrator is a judicial/ administrative duty was posed in front of the Supreme court. The supreme court in this regard overruled the judgment passed in Konkan Railway Corpn. Ltd. & Anr. Vs Rani Construction Pvt. Ltd.[1] In this judgment the nature of the function was administrative function, that is neither judicial nor quasi-judicial. Chief Justice or his nominee performing the function under sec 11(6)[2] cannot decide any contentious issue between the parties.[3]
In this case, the court has explained the function under sec 11(6), Arbitration and Conciliation Act,1966(hereinafter the “Act”) which deals with the appointment of the arbitrator. Balasubramanyan, J. held that “the power exercised by the chief justice of India or the chief justice of High court under section 11(6) of the Act is not administrative. It is a judicial one.” Thus, the court will appoint an arbitrator only if the conditions under this section are satisfied. To rationalize the holding of the Supreme Court with the Arbitral Tribunal to decide the jurisdiction under section 16 of the Act, the court forced the rule of Kompetenz-kompetenz will operate only in the cases where the arbitrator is not been appointed.
Also, it was stated that under section 11(6) of the Act, the word ‘Institution’ means only a judge of any High court or any Supreme Court, as the term institution was severely mutilated.
Defects in the law:
The power to appoint an arbitrator was vested upon the ‘court’. So, the default power was given to the ‘Chief Justice’ to hand over the responsibility to the highest judicial authority. But the fact that the authority can be delegated to ‘any person or institution’ clearly indicates that this function cannot be considered as a judicial function. Because a judicial function cannot be delegated by the Chief Justice to ‘any person or institution.’
As the right passes on to the Chief Justice after the failure of the parties, it can be considered as his default duty. For the same, the majority has suggested changing the language of the statute. But judiciary changing the language of the statute would be a complete intervention in the works of the legislature.
Inference:
Many people reviewed this judgment to be a fundamental flaw. This judgment requires reconsideration by a larger bench. Even then the decision rendered cannot be overruled ad infinitum. it is therefore suggested to seek a suitable amendment. In a similar case, on the decision rendered by the court, the parliament enacted a new Act.[4]
Arbitration being the most useful and effective alternative method of dispute resolution should be clear and helpful to people. If this system has flaws in it that it shall be a difficult task for the judiciary to look over all the cases and pass judgments. Hence, it is quite important to raise a question on this issue and clear the same.
But as long as the decision is not overruled by a larger judge bench, this judgment shall prevail and appointment of arbitrator by Chief Justice or ‘any other person or institution’ delegated by him shall be a judicial duty, and same shall be followed and obeyed.
Conclusion:
The decision of the Supreme Court in SBP was a watershed moment in the history of the Arbitration Act in India. The decision in SBP has gone a long way in clearing many a legal hurdle in the appointment of arbitrators under the Act. It has laid down the law applicable to the exercise of powers by the Chief Justice or his designate under Section. 11 of the Act.
The aim of this Article would hence be achieved by summarizing the powers of the Chief Justice or his designate under Section.11 – his 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, and by believing that it has cleared many a doubt on the subject.
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 administrative. It is a judicial power. 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. In case of designation of a judge of the High Court or the Supreme Court, the power that is exercised by the designated, the judge would be that of the Chief Justice as conferred by the statute. 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 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. 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.
Once the matter reaches the arbitral tribunal SUPREME COURT OF INDIA arbitrator, the High Court would not interfere with orders passed by the arbitrator or the arbitral tribunal during 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. 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.
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. 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.
JANGALA CHARLESS BABU
Email:charlessbabu.j@gmail.com Contact:9640000575.
[1] 2002 (2) SCC 388
[2] Arbitration and Conciliation Act, 1996
[3] 2006 (1) UJ 156(SC) [FB]
[4] The Bonus Act, 1965; in Associated Cement Companies Ltd. V. Workmen