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CASE NO.: Appeal (civil)  1417 of 2004

PETITIONER: Secur Industries Ltd.    

RESPONDENT: M/s Godrej & Boyce Mfg. Co. Ltd. & Anr  

DATE OF JUDGMENT: 26/02/2004

BENCH: Ruma Pal & P.Venkatarama Reddi.

JUDGMENT: J U D G M E N T

(Arising out of SLP(C) No. 16339/2003)

RUMA PAL, J.

       Leave granted.         This appeal has been preferred from an interim order  granted by the Division Bench of the Bombay High Court  staying the arbitration proceedings before the Uttar Pradesh  Industry Facilitation Council (referred to as ’the Council’) set up  under the Interest on Delayed Payments to Small Scale and  Ancillary Industrial Undertakings Act, 1993(referred to as ’the  Act’).           We are not concerned with the merits of the proceedings  initiated by the appellant before the Council.  The only question  is whether the High Court had the jurisdiction to pass the  impugned order.   The chronology of  events which are relevant for the  purposes of this appeal, commenced with a notice dated      11th September 2001 served by the appellant on the  respondent raising a demand.   The notice also contained the  following paragraph: "You may also treat this as a notice  under the provisions of the ’Interest on  Delayed Payments to Small Scale and  Ancillary Industrial Undertakings Act,  1993’.  Failure or non-payment will  force us to move our claims as  mentioned above to the appropriate  authorities for recovery of our dues as  mentioned above."

       In October, 2001 the appellants filed a claim petition  before the Council.   The Council forwarded the claim petition  to the respondent No. 1 under cover of its letter dated 27th  December 2001 asking the respondent No. 1 to respond to the  same within a period of one month.  The receipt of the claim  petition was acknowledged by the respondent by letter dated  25th January 2002 and requested for time to submit its reply by  six weeks.   The prayer for extension of time was, however,  made without prejudice to the respondent’s "legal rights and  contentions relating to the impugned notice dated 27th  December and the claim purported to be made under Section 6  of the said Act".         On 12th February 2002 the respondent No. 1 filed a suit  in the City Civil Court at Bombay against the appellant who  was named as the defendant No. 1 and the Council which was

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named as the defendant No. 2.  The prayers in the plaint are,  inter-alia, for a declaration that the claim petition filed by the  appellant before the Council was ultra-vires  the provisions of  the Act and, therefore, illegal, null and void.  A permanent  order of injunction was also asked for restraining further  proceedings before the Council.  An application was filed in the  suit for interim relief by the respondent No. 1.  By an order  dated 5th February 2002 the City Civil Court granted an ad- interim injunction staying the proceedings under the Act.  The  application for interim relief was, however, ultimately dismissed  by the City Civil Court on 28th November 2002 principally on  the ground that the claim had been filed by the appellant under  Section 6(2) read with Section 8(1) of the Arbitration and  Conciliation Act, 1996 (which we will refer to as the 1996 Act)  and in view of Section 5 of the 1996 Act no Court could  intervene in arbitration proceedings except to the extent  prescribed under the 1996 Act.  According to the City Civil  Court, the reliefs claimed for the respondent No. 1  in its suit  did not fall within the ambit of those situations where  interference by Court was permissible and consequently the  Court had no jurisdiction to stay the proceedings before the  Council.         The respondent No. 1 preferred an appeal from the  decision of the City Civil Court before the High Court.  The  appeal is pending.  On an application for interim relief filed by  the respondent No. 1 pending the appeal, the High Court by its  order dated 21st January 2003 stayed the proceedings before  the Council only on the ground that no notice had been served  by the appellant on the respondent No. 1 under Section 21 of  the 1996 Act.  The High Court rejected the appellant’s   application for expediting the appeal on 2nd May 2003.  Both  these orders of the High Court are questioned before us in  these appeals.         Section 6 of the Act  provides as follows: "Recovery of amount due \026

(1)     The amount due from a buyer,  together with the amount of  interest calculated in accordance  with the provisions of Sections 4  and 5 shall be recoverable by the  supplier from the buyer by way of  a suit or other proceedings under  any law for the time being in force.

(2)     Notwithstanding anything  contained in sub-section (1), any  party to a dispute may make a  reference to the Industry  Facilitation Council for acting as an  arbitrator or conciliator in respect of  the matters referred to in that sub- section and the provisions of the  Arbitration and Conciliation Act  1996 (26 of 1996) shall apply to  such disputes as if the arbitration  or conciliation were pursuant to an  arbitration agreement referred to in  sub-section (1) of section 7 of that  Act.

 Sub-section (2) of Section 6 expressly incorporates the  provisions of the 1996 Act. Apart from such express  incorporation, sub-section (2) of Section 6 goes further and  creates a legal fiction whereby disputes referred are to be

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deemed to have been made pursuant to an arbitration  agreement as defined in Section 7 of sub-section (1) of the  1996 Act.   Incorporation of the provisions of the 1996 Act into  Section 6(2) of the Act has also been effected by  sub-sections  (4) and (5) of Section 2 of the 1996 Act which say:  ( 4)   This Part except sub-section (1) of  section 40, sections 41 and 43 shall  apply to every arbitration under any  other enactment for the time being in  force, as if the arbitration were pursuant  to an arbitration agreement and as if  that other enactment were an arbitration  agreement, except in so far as the  provisions of this Part are inconsistent  with that other enactment or with any  rules made thereunder.   

(5)  Subject to the provisions of sub- section (4), and save in so far as is  otherwise provided by any law for the  time being in force or in any agreement  in force between India and any other  country or countries, this Part shall  apply to all arbitrations and to all  proceedings relating thereto".   

(emphasis added))

       The "Part" referred to in this sub-section is Part I of the  1996 Act which deals with domestic arbitrations. The  proceedings before the Council, therefore, are proceedings  under the 1996 Act, pursuant to a deemed agreement between  the parties to the dispute.  With the applicability of Part I of the  1996 Act in all its force, the extent of judicial intervention in  arbitrations is limited by the non-obstante provisions of Section  5 of the 1996 Act, which stipulate: "Notwithstanding anything  contained in any other law for the time being in force, in  matters governed by this Part, no judicial authority shall  intervene except where so provided in this Part".   The City  Civil Court was right in its approach when it said that the Court  could only intervene in respect of matters expressly provided  for in the 1996 Act.  The validity of the proceedings before the  Arbitral  Tribunal is an issue which the Council, and not the  Court, could decide under Section 16 of the 1996 Act.    Sub- section (1) of Section 16 opens with the words " The Arbitral  Tribunal may rule on its jurisdiction.\005..".  It has been held by  this Court that the Arbitral Tribunal’s authority under Section 16  is not confined to the width of its jurisdiction but goes to the  very root of its jurisdiction. (Konkan Railways Corporation  Ltd. V. Rani Construction Pvt. Ltd. 2002 (2) SCC 388).   Therefore, the Council can go into the question whether its  authority had been wrongly invoked by the appellant and it is  open to it to hold that it had no jurisdiction to proceed with the  matter.         The arguments which have been raised before us by the  learned counsel on behalf of the respondent to a large extent  related to the merits of the appellant’s claim before the Council.   Having regard to the scope of the authority of the Arbitral  Tribunal under Section 16, this is not a matter which the Court  can adjudicate upon.  Indeed it is incumbent on the Court to  refer the parties to arbitration under Section 8(1) of the 1996  Act if a suit is filed in a matter which is the subject matter of an  arbitration agreement.  Furthermore, even while this question

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is pending decision before a Court, the Arbitral Tribunal may  proceed with the arbitration under Section 8(3) and make its  award.  The High Court could not, therefore, have stayed the  proceedings before the Council. We are also unable to accept the submission of the  respondent No. 1  that Section 16 of the 1996 Act does not  apply to the present case because the reference is a statutory  one.  The decision relied upon by the respondent No. 1 in  support of this submission, namely, Rohtas Industries Ltd.  and Another V. Rohtas Industries Staff Union and Others  1976 (2) SCC 82 related to a voluntary reference of an  industrial dispute under Section 10A of the Industrial Disputes  Act.   Section 10A of the Industrial Disputes Act, 1947 permits  the employer and the workmen to agree to refer the dispute to  the arbitration to a Labour Court or a Tribunal for adjudication  "where any industrial dispute exists or is apprehended".   Therefore, if there was no such industrial dispute there could  be no arbitral reference.  This Court therefore held that the  disputes spilt ’into areas where the arbitrator deriving authority  under Section 10A has no jurisdiction". The provisions of  Section 10A are entirely different from the provisions of Section  16 of the 1996 Act.  There is in this case, no question of  dispute spilling into areas where the Arbitral Tribunal does not  have jurisdiction.  Under the 1996 Act, the Arbitral Tribunal has  been given a very wide and deep area of operation and it is the  Court’s powers which have been statutory curtailed.         This brings us to the ground on which the High Court  stayed the proceedings before the Council, namely, the alleged  failure of the appellant to serve notice under Section 21 of the  1996 Act.  The point was not raised before the High Court at all  by the respondent No. 1.  This was candidly stated by the  learned counsel for the respondent No. 1. Our attention was  not drawn  to any other legal proceeding which requires a  notice to be given prior to commencing proceedings apart from  Section 21 of the 1996 Act.  Whether the notice was a notice  under Section 21 and whether the giving of notice under  Section 21 is to be construed as a pre-condition to the exercise  of jurisdiction by the Council are questions which the Council  will have to decide.   This debate could not be a ground for the  High Court interfering with the Council’s jurisdiction and staying  proceedings before it.   To sum up: The High Court erred in staying  proceedings before the Council.  It had no jurisdiction to do so.   Having regard to our conclusion, and as has been  agreed by the parties, the appeal before the High Court has  really become infructuous.  We, therefore, set aside the  decision of the High Court and treat the appeal of respondent  No. 1 before the High Court as having been decided by this  order.  The decision of the City Civil Court is confirmed and the  appeal is allowed with costs.