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CASE NO.: Appeal (civil) 5880-5889  of  1997 Appeal (civil)  713-714  of  1999 Appeal (civil)  715      of  1999 Appeal (civil)  716      of  1999 Appeal (civil)  2037-2040        of  1999 Appeal (civil)  2041     of  1999 Appeal (civil)  2042-2044        of  1999 Appeal (civil)  4311     of  1999 Appeal (civil)  4312     of  1999 Appeal (civil)  4324     of  1999 Appeal (civil)  4356     of  1999 Appeal (civil)  7304     of  1999 Appeal (civil)  73066-09         of  1999

PETITIONER: M/S KONKAN RAILWAY CORPN.  LTD.  & ANR.

       Vs.

RESPONDENT: M/S RANI CONSTRUCTION PVT.  LTD.

DATE OF JUDGMENT:       14/10/2000

BENCH: K.G.Balakrishnaan, M.J.Rao

JUDGMENT:

D E R

L.....I.........T.......T.......T.......T.......T.......T..J

     M.JAGANNADHA RAO,J.

     Learned Solicitor General of India Sri Harish

     Salve,  appearing  for the appellants,  has  submitted that

     the order dated 4.7.97 of the learned Chief Justice of

     the Bombay High Court, under section 11 of the

     Arbitration and Conciliation Act, 1996 on the

     preliminary  issues is a Judicial order and, on facts, is

     liable to be set aside under Article 136 of the

     Constitution  of India.  It is contended that, even if it

     is to be treated as administrative in nature, it is

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     amenable to Article 136.

     The learned Chief Justice in his order dated

     4.7.97 held that inasmuch as the appellant-company

     failed to appoint Arbitrators as required under the

     arbitration clause, the appellants should be compelled

     to furnish a panel of names of arbitrators to the

     respondent-contractors   and   one   name  should   be suggested

     by the appellants.  The learned Chief Justice had also

     rejected  the plea of the appellants that no reference be

     made as the matters were ’excepted matters’ and held

     that the question whether the claims related to

     ’excepted  matters’  or not was also to be decided  by the

     arbitrators after recording evidence and verifying the

     facts.   Learned Solicitor General contends that  such an

     order of the Chief Justice deciding rights preliminary

     points cannot be characterised as an administrative

     order.

     Appellant is confronted with the three Judge Bench

     in Konkan Railway Corporation Ltd.  vs.  M/s Mehul

     Construction  Co.  [2000 (6) SCALE 71] which has  held that

     no  appeal  is maintainable under Article 136  against such

     an order passed by the Chief Justice directing

     appointment  of arbitrators under section 11  inasmuch as

     such orders are administrative in nature even if they

     contain reasons and decision on certain preliminary

     issues  raised  by  the  parties   at  the  stage   of appointment

     of arbitrator.

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     It is pointed out by the learned Solicitor General

     of India that the above judgment requires

     reconsideration.   Counsel pointed out that  initially in

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

     479] in a case which arose under section 9 (and not

     under section 11), a passing observation was made by

     Kirpal,  J.   (in para 12) that under section  11  the Chief

     Justice or his nominee would not be passing a judicial

     order.  That was by way of obiter.  Later on, in Ador

     Samia  Private  Ltd.  vs.  Peekay Holdings  Limited  & Others

     [1999 (8) SCC 572], a Bench consisting of Majmudar and

     Mohapatra,  JJ.   held  that against  an  order  under section

     11 passed by the Chief Justice, no application for

     special  leave  could  be   filed  under  Article  136 inasmuch

     as the order was an administrative order and the Bench

     relied  upon  the  observations  of  Kirpal,  J.    in Sundaram

     Finance Ltd..  The Bench also referred to the judgment

     of   the  Constitution  Bench   in  Indo-China   Steam Navigation

     Co.  Ltd.  vs.  Jasjit Singh [AIR 1964 SC 1140 :  1964 (6)

     SCR   594   (at  603)  which   held  that   a   purely administrative

     order or executive order was not amenable to Article

     136.   However, it appears that a Bench presided  over by

     Majmudar,  J.  referred the question as to the  nature of

     the order to a three Judge Bench in Konkan Railway Co.

     Limited.   The  three Judge Bench took the  view  (see 2000

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     (6) SCALE 71) that no special leave petition could be

     filed  under  Article 136 against the order passed  by the

     Chief Justice or his nominee under section 11.

     According  to the learned Solicitor General, this view of

     the three Judge Bench requires reconsideration.

     Learned Solicitor General submits that, it is now

     well-settled in several countries, where the UNCITRAL

     model  has been adopted and where the arbitrator  also is

     permitted  to decide questions as to the existence  of the

     arbitration clause or validity of the agreement - that

     the  Court  can  decide certain  preliminary  disputes which

     are raised before it at or before the appointment of

     arbitrators  - such as disputes relating to  existence of

     the arbitration agreement or a question as to the very

     existence of a ’dispute’ or as to whether the items of

     disputes fell within ’excepted’ matters or whether an

     arbitrator could be appointed where the invocation of

     the  clause  by  one party was beyond  the  prescribed period

     in which one has to ask the otherside to appoint an

     arbitrator,  etc.  It is true that under section 16(1) of

     the new Act, the arbitrator is now empowered to decide

     his own jurisdiction including any objection as to the

     existence or validity of the agreement and for that

     purpose the arbitration clause is deemed to be

     independent of the main contract (called Kompetenz-

     Kompetenz  principle).  Counsel contends that, it  may be

     that  in  situations where the matter has  straightway gone

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     before an arbitrator by act of parties without

     intervention of Court, the arbitrator is now

     statutorily empowered to decide these basic questions

     also.  But when a case comes before judicial authority

     and the defendant pleads that there is an arbitration

     clause (see section 8 of the new Act) or where, on

     account of the non-appointment of an arbitrator, the

     Court is approached for appointment of an arbitrator

     (see section 11), - the Court can decide these

     preliminary   issues   judicially     and   need   not mechanically

     appoint an arbitrator under section 11 in such cases.

     The power of the Court has not been taken away by the

     new  Act.  It is contended, that this is still the law in

     all  countries  where  the  UNCITRAL  model  has  been adopted.

     In all such cases, the order of the court or the Chief

     Justice (or his nominee) will be a ’judicial’ one and

     not  an administrative order.  It is pointed out  that the

     UNCITRAL Model Law, in fact, uses the words ’Court or

     other authority’ in Article 6 and Article 11.  See in

     this connection Article II(3) of the New York

     Convention, Article 4(1) Geneva Protocol, Article 8 of

     the  Model  Law  and section 9 of the English  Act  of 1996.

     We may note that in para 5.49 (pp.273-274) of ’Law

     and  Practice of International Commercial Arbitration’ by

     Alan Redfern and Martin Hunter (3rd Ed.) (1999), it is

     stated, in relation to the procedure adopted now in

     various countries following the UNCITRAL model as

     follows:

     "The  third course of action is for the respondent  to

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ignore  the arbitral tribunal and to go to Court to  resolve the  issue of jurisdiction.  There are various ways in which this  may be done.  The respondent may, for example, seek an injunction  or  similar  remedy  to  restrain  the  arbitral tribunal  from  proceeding.   Or the respondent may  seek  a declaration  to  the effect that the arbitral tribunal  does not  have jurisdiction in respect of the particular claim or claims  put  forward  by the claimant-for instance,  on  the basis  that  there was no valid arbitration agreement.   Or, again  by  way  of  example, the  respondent  may  take  the offensive  and commence litigation in respect of the matters in   dispute.   The  claimant  in  the   arbitration   would presumably  defend  such a challenge to the jurisdiction  of the  arbitral  tribunal by seeking to have  the  arbitration agreement  enforced.  This would be a straightforward matter of reliance upon Article II of the New York Convention (such as section 9 of the English 1996 Act) or a similar provision of  the  law  governing  arbitration  at  the  seat  of  the arbitration  (as  in  Article  8 of  the  Model  Law).   The relevant  national Court must decide whether the arbitration agreement  is  null  and void, inoperative or  incapable  of being performed;  if it is not, the parties will be referred to arbitration."

     (See also para 5.51 which deals with a ’combined

     approach’).

     In several countries, the negative effects of the

     ’Kompetenz-Kompetenz’ principle, conferring powers on

     the arbitrator, has been considered.

     In this connection, there is an exhaustive and

     detailed discussion of this aspect in ’Fouchard,

     Gaillard Goldman on International Arbitration) (1999)

     (para 672 to 682) (pages 407-413), referring to the

     post-UNCITRAL case-law in France, Austria, Sweden,

     Belgium,  Netherlands, USA etc.  to the effect that if the

     Court  is  first  seized of these  preliminary  issues before

     appointment of arbitrator, - even in cases where the

     arbitrator, under the statute, is empowered to decide

     these questions - the Court can and will decide these

     issues  first  rather  than permit the  arbitrator  to decide

     them.  The experience of the various Courts in these

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     countries  where  the UNCITRAL model had been  adopted long

     ago is a matter for consideration in India, where we

     have recently adopted the model.

     In France, in Caprodag vs.  Dame Bohin (1995 Rev.

     Arb.   617) the Court of Appeal has held recently that the

     arbitrators can decide these questions in cases where

     the Court is not seized with these questions earlier.

     This is also so under the 1961 European Convention.

     Where, however, the matter straightway goes before the

     arbitrator by act of parties and the arbitrators are

     first seized of these problems, they can decide but

     their  decisions will still be subject to the decision of

     the Court.  Reference is made by the authors (Fouchard

     etc.) to the US cases in Comptek Telecom Inc vs.  IVD

     Corp.   (1995 US Dist.  Lexis 11876) (W.D.N.Y Aug.  1, 1995)

     (10.   Intnl Arb.  Rep.  1) SMG Swedish Machine  Group vs.

     Swedish Machine Group Inc (1991 US Dist.  Lexis 780)

     holding that if the Court is seized of these issues

     first, it had better decide them.  The position is the

     same  under  Swedish Law in the 1999  Arbitration  Act (Sec

     2, para 1).  The authors (Fouchard etc.) refer (p.409)

     to the Belgium Law (Art.  1679, para 1 of the Judicial

     Code), the 1986 Netherlands Arbitration Act (Act 1022

     (1) of the Code of Civil Procedure), the 1987 Swiss

     Private  International  Law  Statute  (Art  7)  -  all stating

     that the arbitrators shall decide these issues except

     where  the  Court  is  seized of these  issues  at  an earlier

     stage.    The  Swiss  case   law,  the  1996   English Arbitration

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     Act  are  also referred to.  In para 676, the  Authors say

     "As  a  result,  and  although  it  was  at  one  time relatively isolated, the rule found in French law and in the 1961  European  Convention has recently  gained  substantial acceptance."

     In    para   678,    under    the   heading    ’Policy Considerations’,

     it  is stated that if matter has not gone straight  to the

     arbitrators  but has come initially before the  Court, the

     Court  can  decide these preliminary issues  and  this saves

     (i) time and (ii) costs of arbitration.  It is said:

     "The  approach whereby the Courts seized of the merits of  the  case  are  entitled  to  rule  immediately  on  the existence and validity of the arbitration agreement arguably leads  to  a certain degree of time and cost avoidance.   It may  prevent  parties having to wait several months,  or  in some  cases, years, before knowing the final outcome of  the dispute regarding jurisdiction - it will often take long for the  arbitrators  and  then  the   Courts  to  reach   their decisions."

     In a very recent case in Azov Shipping Co.  Vs.

     Baltic Shipping Co.  ( 1999(1) LL LR 68), which arose

     under the 1996 Act, the parties had first gone before

     the arbitrator on the preliminary question of

     jurisdiction, the matter was argued for three days to

     ascertain whether or not there was a contract with the

     respondent and the arbitrator held that the respondent

     before  him  was a party to the contract.  The  matter then

     came under Section 67 before the Court.  The Court

     observed  that  this  was  perhaps a  case  where  the parties

     could have straight come first before the Court for

     determination on this issue and that would have saved

     costs and time.  ( The English Act permits parties to

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     take consent or by consent of the arbitrator, to go to

     Court on jurisdictional issues).  Rix J said (p.70):

     "This  was perhaps a case where the parties might well have  come  to  Court,  either  by  agreement  or  upon   an application from the one side or the other, for the Court to determine  issues of jurisdiction, on the ground that it was likely to produce substantial savings in cost and that there was  good  reason  why the matter should be decided  by  the Court."

     [ See also ’A Practical Approach to Arbitration Law by

     Keren Tweeddale and Andrew Tweeddale’(1999)(at p.79)]

     It is, therefore, contended that the Chief Justice

     or  his  nominee,  is, therefore, entitled  to  decide these

     issues  notwithstanding the arbitrator’s  ’competence’ to

     decide these issues and if there is a decision, the

     order deciding rights of parties cannot be

     ’administrative’ but can only be a judicial order

     amenable to Article 136.

     As to the nature of the order to be passed under

     section 7 of the International Arbitration Act which

     deals with reference of disputes falling under the

     Convention to arbitration, the Federal Court of

     Australia (New South Wales) in its judgment dated

     30.6.97 held:

     "Each  of  these determinations which may arise  under section  7 of the Act, calls for the exercised by the  Court of judicial power."

     (See  Hi-Fert  Pty.   Ltd.    vs.   Kiukiang  Maritime Carriers

     reported   in  Vol.   XXIII  -  1998,  Year  Book   of Commercial

     Arbitration of ICCA p.  606 at p.612).

     The learned Solicitor General of India Sri Salve

     has also contended that under section 11 the Chief

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     Justice (or his nominee) has now replaced the

     jurisdiction of the Court under section 8 of the old

     Arbitration Act, 1940.  More or less, the same powers

     are  now  conferred on the Chief Justice and this  has been

     done  only  to  enthuse   more  confidence  among  the litigants

     in the person who is appointed as arbitrator.  The

     District Court has been previously performing judicial

     functions under Section 8 of the Arbitration Act, 1940

     and even now the Chief Justice performs only judicial

     functions.  The UNCITRAL MODEL law, (on which the 1996

     Act is modeled) and several statutes passed in various

     countries  on the UNCITRAL model use the word  ’Court’ and

     do not use the word ’Chief Justice’.  It is contended

     that merely because the word ’Chief Justice’ (or his

     nominee)  is now used in the new Indian Act, the order of

     the  Chief Justice (or his nominee) cannot be  treated as

     an administrative order.  The order does not relate to

     administrative functions of the Chief Justice of India

     or  of  the Chief Justice of the High Court  -such  as those

     concerning the internal administration of the Supreme

     Court  or High Court or of the Subordinate  Judiciary, as

     the case may be.  On the other hand, the order

     judicially decides preliminary issues raised by two

     contracting  litigating parties.  Such an order cannot be

     said to be administrative in nature.  That is the

     contention.

     It was pointed out by the learned Solicitor

     General that in this very case, the learned Chief

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     Justice of the Bombay High Court had passed a judicial

     order  on  the  preliminary issues raised  -and  which could

     be raised at the stage anterior to the appointment of

     the  arbitrator.   These  issues had  to  be  decided. Other

     examples are also referred to.  The case in SLP(C)

     No.19549 of 1999 which was heard by the three Judge

     Bench (from the order of the Chief Justice, Gauhati)

     alongwith  Konkan  Railway Corporation’s  cases,  (see para

     8 at p.77) is one such.  But the three Judge Bench

     however  characterised  a detailed  reasoned  judicial order

     of the Chief Justice, Gauhati in that SLP as an

     ’administrative order’ though the Chief Justice had

     decided  a preliminary issue concerning the  existence or

     otherwise   of  an   arbitration  agreement.   Learned Solicitor

     General argued that the judgment of the three Judge

     Bench  was  not  correct  in stating  that  the  Chief Justice

     of Guwahati was "not functioning" as a Court when the

     said order was passed.  A similar question arose in

     Wellington  Associates Ltd.  vs.  Mr.  Kirit Mehta [JT 2000

     (4)  SC 135] (before one of us, Jagannadha Rao, J.) as to

     the existence of the arbitration clause and after

     deciding about the competence of the Court and the

     Kompetenz-Kompetenz  principle, the issue was  decided as

     a  matter of law by assigning reasons and in fact,  it was

     held that there was no arbitration clause at all.  (Of

     course,  in  Nimet Resources Inc.  & Anr.  vs.   Essar Steels

     Ltd.   [JT 2000 (Suppl.  1) SC 95], Rajendra Babu,  J.

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while

     dealing   with  the  question  of  existence  of   the contract,

     referred  to  the above case in Wellington  Associates Ltd.

     but felt bound by the three Judge Bench in Konkan

     Railway case).  In yet another case, in M/s Datar

     Switchgears   Ltd.   Vs.   Tata   Finance  Ltd.    and Anr.(Civil

     Appeal arising out of SLP(C) No.13812 of 2000 disposed

     of on 18.10.2000), a question arose whether when one

     party had, on demand by the other party, appointed an

     arbitrator  -  though beyond the period stipulated  in the

     contract, - the Chief Justice (or his nominee), could,

     when approached by the other party, appoint another

     (sole) arbitrator.  Such a question, it would be

     obvious, had to be decided at that stage and could not

     be  left  to  be  decided by one  of  the  arbitrators because

     the  question would be as to who among them would then be

     the ’sole’ arbitrator?  It is pointed out that there

     could be a variety of situations where preliminary

     issues  arising at the stage of Section 11 would  have to

     be decided by the Chief Justice or his nominee, by a

     judicial   order   and  this   would  save  time   and expenditure

     and  that  this  view  is not  inconsistent  with  the UNCITRAL

     Model.

     It was pointed out that there is a more important

     aspect of a practical nature which had to be borne in

     mind.  If such an order of the Chief Justice (or his

     nominee) was to be treated as an administrative order,

     it  could  be challenged before a Single Judge of  the High

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     Court  and  then before a Division Bench and  then  in this

     Court  under  Article 136, and such a procedure  would only

     delay  the  arbitration proceedings more than  if  the order

     was  accepted as a Judicial order and was permitted to be

     challenged  directly  under Article 136.  In fact,  if the

     order was to be treated as administrative in nature,

     even the order of the Chief Justice of India (or his

     nominee)  could  be challenged first before  a  Single Judge

     of the High Court and then before a Division Bench and

     then  under Article 136 - rather than being treated as a

     final order of this Court.  That would only delay the

     proceedings further.  Similarly, if the order of the

     Chief Justice of the High Court or his nominee is

     treated as a judicial order, there would be only one

     appeal to this Court under Article 136 of the

     Constitution.   It was contended that the reasoning of the

     three Judge Bench, that if the order was to be treated

     as  an  administrative order, time would be  saved,  - could

     thus   be  rendered  nugatory.    In   practice,   the defaulting

     party could drag on the matter for years at the two

     stages of Article 226 proceedings even on the

     preliminary issues, it is pointed out.

     We are of the view that in the light of the above

     contentions and material, which in our opinion have a

     substantial  bearing  on  the   matter,  and   further inasmuch

     as this question is one arising almost constantly in a

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     large  number of cases in the various High Courts,  it is

     desirable that this Court re-examines the matter.

     We, therefore, direct the papers to be placed

     before the Hon’ble Chief Justice of India for passing

     appropriate orders.

     ......................J.  [M.JAGANNADHA RAO]

     NEW  DELHI;   ......................J.    OCTOBER  19, 2000.  [K.G.BALAKRISHNAN]

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     IN   THE  SURPEME  COURT  OF  INDIA  CIVIL   APPELLATE JURISDICTION

     CIVIL APPEAL NOS.  5880-5889 of 1997

     M/s Konkan Railway Corpn.Ltd.  and Anr.  ..Appellants

     versus

     M/s Rani Construction Pvt.Ltd.  ..Respondents

     Dear Brother,

     A Revised draft order in the above-mentioned

     matter is being sent herewith for your favourable

     consideration.

     With warm regards,

     Yours sincerely,