http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 1 of 4  

CASE NO.: Appeal (civil)  5315 of 2003

PETITIONER: Hythro Power Corporation Ltd.            

RESPONDENT: Vs. Delhi Transco Ltd.                               

DATE OF JUDGMENT: 30/07/2003

BENCH: Shivaraj V. Patil &  D.M. Dharmadhikari.

JUDGMENT:

J U D G M E N T

(Arising out of SLP (Civil) No.1775 of 2002)

Dharmadhikari J.

Heard learned counsel appearing for the parties.  Leave to  appeal, as prayed for, is granted.   

The appellant Hythro Power Corporation Limited has  approached this Court aggrieved by rejection of its application under  Section 11 of the Arbitration and Conciliation Act, 1996 (hereinafter  referred to as the "Act" for short).  The learned judge of the Delhi  High Court acting as designate or nominee of the Chief Justice, in  exercise of his powers under Section 11 of the Act, by  his  order  dated 7.12.2000 came to the conclusion that no agreement in writing  having been executed by the parties with an arbitration clause, the  prayer made by the appellant for seeking a reference of the disputes  raised to arbitral Tribunal has to be rejected.

Aggrieved by refusal of the learned judge of the Delhi High  Court to make a reference to the arbitration, the appellant- Corporation filed a Writ Petition in the High Court of Delhi.   The  Division Bench of the High Court by the impugned order dated  29.8.2001 came to the same conclusion that there exist no written  arbitration agreement and hence the dispute between the parties  cannot be referred for arbitration under Section 11 of the Act.  The  appellant-Corporation therefore has approached this Court by seeking  leave under Article 136 of the Constitution.

The factual background and nature of dispute giving rise to  the prayer for arbitration under Section 11 by the appellant-  Corporation need examination.

The respondent Delhi Transco Limited issued a notice inviting  tenders (NIT) for awarding the work of Erection, Testing and  Commissioning of balance work of 220 KV DC Tower Line from  Samaypur to Mehrauli.  The NIT contained clause 25 which is a  arbitration clause.  Pursuant to the NIT, the appellant submitted its  tender.  The respondent issued a letter of intent in favour of the  appellant.  According the appellant, the respondent also sent a  detailed letter showing acceptance of the award of the work to the  appellant.  It was also indicated that all terms and conditions of the  NIT would form part of the contract.

According to the appellant, the exchange of letters and  correspondence between the parties, pursuant to the issuance of NIT

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 2 of 4  

and submission of offer by the appellant and its acceptance by the  respondent constituted a contract and as the terms and conditions in  the NIT, on which the contract was awarded, contained clause 25  providing forum of arbitration, "arbitration agreement" as defined in  Section 7(4)(b) of the Act had come into  existence to enable the  appellant to invoke the said arbitration clause.

Learned Senior Counsel appearing for the appellant relies on  a three-judge bench decision of this Court in Konkan Railway  Corporation Ltd. vs. Mehul Construction Co. [2000 (7) SCC  201] and the Constitution Bench Judgment of this Court in Konkan  Railway Corporation Ltd. vs. Rani Construction P.Ltd. [2002  (2) SCC 388].  On behalf of the appellant,  it is argued that, as has  been held by this Court in the cases (supra), the nominee or  designate of the Chief Justice, when its power is invoked under  Section 11 of the Act, merely exercises administrative functions and,  therefore, has no jurisdiction to adjudicate upon the contentious  issues between the parties on ’the existence or the validity of the  arbitration Agreement.’  It is submitted that ’arbitral tribunal’ to  whom the dispute is referred is alone conferred with jurisdiction to  decide the existence or validity of the arbitration agreement as  provided in Section 16(1) of the Act.  

On the facts and background of the dispute briefly indicated  above, we find that the designate of the Chief Justice acting  administratively under Section 11 and the Division Bench of the High  Court exercising powers under Article 226 of the Constitution were  clearly in error in adjudicating upon the dispute regarding ’the validity  and existence of the arbitration agreement’ and holding that the  dispute was not referable to  arbitration.

This Court in three-Judge Bench decision and the  Constitution-Bench decision in the case of Konkan Railway (supra)  has held that the Chief Justice or his designate under Section 11 of  the Act exercises purely administrative functions and it is not open to  him to discharge any judicial function  of adjudicating the dispute  even regarding the ’existence of arbitration agreement.’  Whether the  letters and exchange of correspondence between the parties,  pursuant to the NIT, can constitute a contract and an ’arbitration  agreement’ can be read into the same in terms of Section 7(4)(b) of  the Act was a question solely within the jurisdiction of ’arbitral  tribunal’ under Section 16 of the Act.   See decision in the case of  Nimet Resources Inc. vs. Essar Steels Ltd. [2000 (7) SCC 497]  wherein Justice Rajendra Babu of this Court acting as designate of the  Chief Justice of India while exercising powers under Section 11 of the  Act, observed thus:- "I am conscious of the fact that M.Jagannadha Rao, J. in  Wellington Associates Ltd. vs. Kirti Mehta, (2000) 4 SCC 272  held that the jurisdiction of the nominee of the Chief Justice of  India to decide the question is not excluded by Section 16 of Act  and such a power can be exercised in a suitable case.  On this  basis, it is no doubt permissible under Section 11 of the Act to  decide a question as to the existence or otherwise of the  arbitration agreement but when the correspondence or  exchange of documents between the parties are not clear as to  the existence or non-existence of an arbitration agreement, in  terms of Section 7 of the Act the appropriate course would be  that the arbitrator should decide such a question under Section  16 of the Act rather the Chief Justice of India or his nominee  under Section 11 of the Act.

I take this view because the power that is exercised by the  nominee of the Chief Justice of India under Section 11 of the Act  is in the nature of an administrative order.  In such a case,  unless the Chief Justice of India or his nominee can be

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 3 of 4  

absolutely sure that there exists no arbitration agreement  between the parties it would be difficult to state that there  should be no reference to arbitration.  Further such a view may  not be conclusive in view of the nature of the powers that are  exercised under Section 11(6) of the Act."

In the latest decision of two-Judge Bench of this Court in the  case of Food Corporation of India vs. Indian Council of  Arbitration & Ors. etc. etc., [JT 2003 (5) SC 480], similar view  was taken.  In that case reference of dispute to arbitration was  opposed on the ground that under the arbitration clause the arbitrator  was to be nominated by the Food Corporation of  India  as the  employer and not by the Indian Council of Arbitration which was the  institution from whose panel the arbitrator was to be selected.  The  designate of the Chief Justice under Section 11 refused to make a  reference and the High Court in Writ Petition by an elaborate  judgment expressed its opinion on the dispute that the Food  Corporation of India  should have nominated the arbitrator from the  panel of Indian Council of arbitration.  In the context of that dispute,  this Court observed thus:

"Unfortunately, the High Court in this case seems to have  proceeded to adopt an adjudicatory role and returned a verdict  recording reasons as to the very existence or otherwise of the  agreement as well as the tenability and legality or otherwise of  making a reference to an arbitrator."

â\200¦â\200¦â\200¦â\200¦â\200¦â\200¦â\200¦â\200¦â\200¦â\200¦â\200¦â\200¦â\200¦â\200¦â\200¦â \200¦â\200¦â\200¦â\200¦â\200¦â\200¦â\200¦â\200¦â\200¦â\200¦..

"As indicated earlier even assuming without accepting for  purposes of consideration that there is any infirmity in the  arbitration clause which go to undermine as claimed by the  respondents the legality, propriety and validity of the  constitution of the Tribunal and/or even if there be any  objections as to the existence of an enforceable or valid  arbitration agreement, it had to be adjudicated by the very  Arbitral Tribunal after a reference is made to it on being so  constituted and it is not for the ICA or the learned Judge in the  High Court to undertake this impermissible adjudicatory task of  adjudging highly contentious issues between the parties.  As  observed by the Constitution Bench of this Court, there is  nothing in Section 11 of the 1996 Act that requires the party  other than the party making the request to be noticed and that  it does neither contemplate a response from the other party nor  contemplate any decision by the Chief Justice or his nominee on  any controversy that the other party may raise, even in regard  to its failure to appoint an Arbitrator within the stipulated  period.  The legislative intent underlying the 1996 Act is to  minimize the supervisory role of courts in arbitral process and  nominate/appoint the Arbitrator without wasting time, leaving  all contentious issues to be urged and agitated before the  Arbitral Tribunal itself.  Even under the old law, common sense  approach alone was commended for being adopted in construing  an arbitration clause more to perpetuate the intention of parties  to get their disputes resolved through the alternate disputes  redressal method of arbitration rather than thwart it by adopting  a narrow, pedantic and legalistic interpretation.     

Keeping in view the law as settled by this Court, the  designate of the Chief Justice acting  under Section 11 of the Act and  the Division Bench of the High Court in exercise of power under Article  226 of the Constitution both acted under a misconception of law and  wrongly held that the disputes were not referable to the arbitration.

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 4 of 4  

The appellant sought reference of its disputes with the respondent/  company for adjudication through the arbitration in accordance with  arbitration clause in the alleged agreement arrived at between them.  Whether on the facts mentioned above an arbitration agreement can  be said to have existed by recourse to arbitration clause in NIT was  itself a dispute which deserved to be referred to the arbitral Tribunal  in accordance with the arbitration clause. Section 16 empowers the  arbitral Tribunal to decide the question of existence and validity of the  arbitration agreement.  

The present appeal, therefore, deserves to succeed and is  hereby allowed.

The impugned order of the learned Single Judge passed  under Section 11 of the Act and the order of Division Bench of the  High Court in Writ Petition under Article 226, both are quashed.  The  case is remanded to the Chief Justice or his designate for hearing the  parties on the limited question of constitution of an arbitral Tribunal in  accordance with the arbitration clause in the NIT and for making a  reference for arbitration in accordance with section 11 of the Act.  The  costs incurred by the parties in this case shall abide the final results of  the arbitration proceedings.