http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 1 of 12  

CASE NO.: Appeal (civil)  5048 of 2005

PETITIONER: Shin-Etsu Chemical Co. Ltd.                                      

RESPONDENT: M/s Aksh Optifibre Ltd. & Anr.                                   

DATE OF JUDGMENT: 12/08/2005

BENCH: B. N. Srikrishna

JUDGMENT: J U D G M E N T (arising out of SLP (C) No. 3160/2005)

SRIKRISHNA, J.

       Leave granted.  

       I have had the benefit of carefully considering the erudite judgment  delivered by my esteemed and learned Brother Sabharwal. Regretfully, I  find myself in the unenviable position of having to disagree with the views  expressed therein.

       The judgment of Brother Sabharwal fully sets out the facts in the Civil  Appeal arising out of Special Leave Petition (Civil) No. 3160/05 as well as  the issue which arises for determination. The core issue in this case is:  Whether the finding of the court made under Section 45 of the Indian  Arbitration and Conciliation Act, 1996 ("the Act") that the arbitration  agreement, falling within the definition of Section 44 of the Act, is or is not  "null and void, inoperative or incapable of being performed" should be a  final expression of the view of the court or should it be a prima facie view  formed without a full-fledged trial ?

Ambiguity in the Wording of Section 45         The contrast in language between Section 8 and 45 of the Act has  been rightly noticed by my Learned Brother. Section 8, which leaves no  discretion in the court in the matter of referring parties to arbitration, does  not apply to the present case, as we are concerned with Part II of the Act. On  the other hand, Section 45 which is directly applicable to the present case,  empowers the court to refuse a reference to arbitration if it "finds" that the  arbitration agreement is "null and void, inoperative or incapable of being  performed".  

       This Court in Konkan Railways Corporation Ltd. & Ors.  v.  M/s  Mehul Construction Co.  pointed out that Parliament had clearly indicated  that the Act had substantially adopted the Model Law on International  Commercial Arbitration 1985 ("the Model Law") which had been drafted by  the United Nations Commission on International Trade Law  ("UNCITRAL"). The objective, as the court observed, was to pursue the  "progressive harmonization and unification of the Law of International  Trade".  It is further pointed out in the said judgment that, it would be  appropriate to bear the said objective in mind while interpreting any  provision of the Act. Indeed, Section 45 of the Act is pari materia, not only  with Article 8 of the Model Law but also with Article 2(3) of the New York  Convention on the Recognition and Enforcement of Foreign Arbitral Awards  1958 ("the New York Convention").   

       However, even while bearing these objectives in mind, there is

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 2 of 12  

significant difficulty in interpreting the provisions of Section 45 of the Act,  which envisages pre-reference judicial interference with the arbitral process,  as there is no determinative indicator to ascertain whether the finding of the  court under Section 45 should be based on a prima facie view or on the  result of a final decision rendered in the trial court.

The Judgment in Renusagar          A survey of the situation in other jurisdictions has been made in the  judgment of Brother Sabharwal, and I refrain from duplicating his efforts,  except to point out that two distinct stands are possible on the wording of  Article 2(3) of the New York Convention, the language of which, as I have  already said, has been reproduced in Section 45 of the Act. My Learned  Brother strongly relies on the observations made in paragraphs 58 and 59 of  Renusagar Power Co. v. General Electric Co.  ("Renusagar"), which no  doubt appear to suggest, in the context of Section 3 of the Foreign Awards  Act, 1961 ("Foreign Awards Act") and the Arbitration Act, 1940, that the  court must be fully satisfied that the arbitration agreement exists before  granting stay of the proceedings. Following these observations, Brother  Sabharwal in his judgment, opines that: "When words in an earlier statute have received an  authoritative exposition by superior Court (interpretation  of Section 3 in Renusagar’s case), use of same words in  a similar context in a later Act will give rise to a strong  presumption that the Parliament intends that the same  interpretation should also be followed for construction of  these words in the later statute."  

       With great deference to the opinion of my Learned Brother, I find  myself unable to agree to this proposition. In fact, the observations in  Renusagar (supra) are clearly distinguishable. In the first place, in  paragraph 51 of the judgment, the learned Judges set forth six propositions  as the conditions required to be fulfilled for invoking Section 3 of the  Foreign Awards Act, which incidentally has been repealed by the Act. What  is of relevance is proposition No. 5, which the court states as follows:

"(v)   the Court has to be satisfied that the agreement is  valid, operative and capable of being performed; this  relates to the satisfaction about the "existence and  validity" of the arbitration agreement. (In the instant case  these questions do not arise)"              

       After having said so, the court proceeded to make the observations in  paragraph 58, which have been referred to and highlighted by my Learned  Brother. In my respectful view, if the court thinks that an issue does not  arise, then any observation made with regard to such an issue would be  purely obiter dictum. It is a well settled proposition that the ratio decidendi  of a case is the principle of law that decided the dispute in the facts of the  case and, therefore, a decision cannot be relied upon in support of a  proposition that it did not decide.  An apt observation about this principle  was made in M/s Amarnath Nath Om Prakash v. State of Punjab :

"We consider it proper to say, as we have already said in  other cases, that judgments of courts are not be construed  as statutes. To interpret words, phrases and provisions of  a statute, it may become necessary for Judges to embark  into lengthy discussions but the discussion is meant to  explain and not to define. Judges interpret statutes, they  do not interpret judgments. They interpret words of  statutes; their words are not to be interpreted as  statutes\005.It is needless to repeat the oft-quoted truism of  Lord Halsbury that a case is only a authority for what it  actually decides and not for what may seem to follow  logically from it."   

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 3 of 12  

       Further, decisions rendered under the Arbitration Act, 1940 or under  the Foreign Award Act should be considered with caution as the Act  purports to bring a new approach to arbitration, as has been observed in  Firm Ashok Traders & Anr. v. Gurumukh Das Saluja :  "The A&C Act, 1996 is a long leap in the direction of  alternate dispute resolution systems. It is based on (sic)  UNCITRAL Model. The decided cases under the  preceding Act of 1940 have to be applied with caution  for determining the issues arising for decision under the  new Act."  

       Secondly, no one can doubt that Part II of the 1996 Act is intended to  opt for the international arbitration regime to meet the challenges of  international trade and commerce, nor can it be doubted that Section 45  offers a greater discretion to the court for judicial intervention at the pre- reference stage. Despite all this, the question would still remain as to  whether the discretion available for the court for interference, even under  Section 45 of the Act, should be exercised on a prima facie view of the  nature of the arbitral agreement, or should it be on a final finding?

Ex Visceribus Interpretation of the Statute         True, that there is nothing in Section 45 which suggests that the  finding as to the nature of the arbitral agreement has to be ex facie or prima  facie. In my view, however, this is an inescapable inference from an ex  visceribus interpretation of the statute. Sub-section (3) of Section 8 in Part I  of the Act envisages that even in a situation where an application to the court  has been made under sub-section (1), the arbitration may commence,  continue and even an arbitral award be made. This was obviously meant to  cut down delay in the conclusion of the arbitral proceedings. There is  conspicuous absence of a corresponding provision either in Section 45 or in  the rest of the provisions in Part II. This legitimately gives rise to an  inference that once the arbitral agreement has been subjected to scrutiny  before the court under Section 45 of the Act, conceivably, the arbitral  proceedings could be stayed till the decision of the court on the nature of the  arbitral agreement. If it were to be held that the finding of the court under  Section 45 should be a final, determinative conclusion, then it is obvious  that, until such a pronouncement is made, the arbitral proceedings would  have to be in limbo. This evidently defeats the credo and ethos of the Act,  which is to enable expeditious arbitration without avoidable intervention by  judicial authorities.  

       The absence in Part II of the Act of a provision corresponding to  Section 5 in Part I has been highlighted as supportive of the view that greater  judicial intervention is contemplated in Part II of the Act. The question that  has arisen before the Court is not the presence or absence of judicial  intervention; it is one with regard to the manner in which the said judicial  intervention should proceed \026 whether on a final view or prima facie view of  the factors enumerated in Section 45 of the Act.

       There are distinct advantages in veering to the view that Section 45  does not require a final determinative finding by the Court. First, under the  Rules of Arbitration of the International Chamber of Commerce (as in force  with effect from 1.1.1998), as in the present case, invariably the arbitral  tribunal is vested with the power to rule upon its own jurisdiction. Even if  the court takes the view that the arbitral agreement is not vitiated or that it is  not invalid, inoperative or unenforceable, based upon purely a prima facie  view, nothing prevents the arbitrator from trying the issue fully and  rendering a final decision thereupon. If the arbitrator finds the agreement  valid, there is no problem as the arbitration will proceed and the award will  be made. However, if the arbitrator finds the agreement invalid, inoperative  or void, this means that the party who wanted to proceed for arbitration was  given an opportunity of proceeding to arbitration, and the arbitrator after  fully trying the issue has found that there no scope for arbitration. Since the  arbitrator’s finding would not be an enforceable award, there is no need to  take recourse to the judicial intercession available under Section 48(1)(a) of

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 4 of 12  

the Act.  

       The finding of the court that the arbitration agreement is valid,  operative and enforceable, if in favour of the party setting up the arbitration  agreement, is not appealable under Section 50 as a matter of legislative  policy. Refusing to refer parties to arbitration under Section 45, is however,  made appealable under Section 50(1) (a) of the Act. Even after the court  takes a prima facie view that the arbitration agreement is not vitiated on  account of factors enumerated in Section 45, and the arbitrator upon a full  trial holds that there is no vitiating factor in the arbitration agreement and  makes an award, such an award can be challenged under Section 48(1)(a).  The award will be set aside if the party against whom it is invoked satisfies  the court inter alia that the agreement was not valid under the law to which  the parties had subjected it or under the law of the country where the award  was made. The two basic requirements, namely, expedition at the pre- reference stage, and a fair opportunity to contest the award after full trial,  would be fully satisfied by interpreting Section 45 as enabling the court to  act on a prima facie view.    

Res Judicata and Unfairness         If the finding made under Section 45 as to the validity of the arbitral  agreement were to be treated as final, then the competent court while  entertaining an application for enforcement of a foreign award might decline  to go into the same question. In other words, the court before which  enforcement is sought may not re-examine whether the agreement was valid  under the applicable law, on the ground that a final judgment had been  rendered on an earlier occasion by another competent court. The principles  analogous to res judicata (even though the Code of Civil Procedure, 1908  does not directly apply) might preclude the party from raising the defence  under clause (a) of sub section (1) of Section 48.  

       When a party raises the issue as to the validity of the agreement in an  application under Section 45, the court must either hold a full-fledged trial  and give a final finding or give a prima facie finding on that issue. If we  were to hold that a final finding has to be given, then it must necessarily be  after a trial recording all necessary evidence, in order to eliminate the  likelihood of fraud, coercion etc that may render the agreement void,  inoperative or unenforceable. If we were to take the view that it could be  done only on the basis of affidavits by excluding oral evidence altogether, I  am afraid, it would render injustice to the party because a final judgment  would have been rendered on insufficient material.  

       Moreover, since principles analogous to res judicata may operate, as  mentioned earlier, such a party may not even be heard in a post-award  situation under Section 48(1)(a) on the same issue as the finding given under  Section 45 would be treated as final and binding. For this reason also, I am  of the view that, it would be preferable to hold that Section 45 requires only  a prima facie view of the matter as to the absence of the vitiating factors  contemplated therein.  

       Treating the finding under Section 45 as final results in a paradoxical  situation. A final decision rendered by the competent court on the nature of  the arbitral agreement may have to be ignored by the arbitral tribunal, which  would be entitled to decide the issue afresh on the material presented to it. It  may also lead to another curious result, that the competent court in the  jurisdiction where the arbitration proceeds (Japan, as in the present case)  would have to reckon with the fully binding effect of a finding made under  Section 45 by a competent court in India arrived at by following a summary  procedure without admitting all relevant evidence.  

Proof of Applicable Foreign Law         There is yet another strange result which may come about by holding  that Section 45 requires a final finding. This can be illustrated by reference  to the facts of the present case. The parties here have subjected their  agreement to the laws of Japan. The question that will arise is: When a court

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 5 of 12  

has to make a final determinative ruling on the validity of the arbitration  agreement, under which law is this issue to be tested? This question of  choice of law has been conclusively decided by the judgment of this court in  National Thermal Power Corporation v. Singer Company,  where it was  observed: "The proper law of the arbitration agreement is normally  the same as the proper law of the contract. It is only in  exceptional cases that it is not so even where the proper  law of the contract is expressly chosen by the parties.  Where, however, there is no express choice of the law  governing the contract as a whole, of the arbitration  agreement as such, a presumption may arise that the law  of the country where the arbitration is agreed to be held is  the proper law of the arbitration agreement. But that is  only a rebuttable presumption."   

       Thus, the proper law of the arbitration agreement is the substantive  law governing the contract itself. In the present case, to effectively decide  whether the arbitration agreement is "null and void, inoperative or incapable  of being performed", the court would have to apply the law to which the  contract has been expressly subjected, namely, Japanese law. Obviously,  proof of Japanese law (as applicable to arbitration agreements) would have  to be rendered on the lines of proving facts in a trial.  

       It would not only be unfeasible to prove foreign law exclusively  through affidavits, but it would also entail enormous expenditure of time and  money. Fouchard, Gaillard, Goldman on International Commercial  Arbitration highlights that this problem as best exemplified in the U.S. case  of SMG Swedish Machine Group v. Swedish Machine Group.  In this  case, it was held by the U.S. court that the validity or existence of the  arbitration agreement would have to be conclusively determined by the court  itself at the pre-award stage. The law applicable to the arbitration agreement  was Swedish law and therefore the validity of the agreement had to be  determined in accordance with this law. The court reviewed the Swedish law  opinions submitted by both parties, but found them poorly documented.  When parties submitted new opinions, these were found to be mutually  contradictory. Finally, the court had to conduct a hearing where parties could  provide proof of their true intentions as to the issue.  Thus, similar  difficulties, delays and costs may be encountered by the trial court in the  present case if it has to give a final finding (after conducting a full-fledged  trial) on the validity of the arbitration agreement at the pre-reference stage  under Section 45.  

       On the other hand, if one were to take the view that the finding under  Section 45 is only a prima facie view, then all these difficulties could be  obviated. Neither the arbitral tribunal, nor the court enforcing the arbitral  award may consider itself bound by the prima facie view expressed under  Section 45 of the Act. The difficulty of having to conclusively prove the  applicable foreign law at a trial would also be obviated.

Redundancy in the Statute         Another undesirable result flows from the view that the court  conclusively rules upon the validity of the arbitration agreement at the pre- reference stage. If a final finding were to be made upon the arbitration  agreement, finding it valid and operative, such a finding might operate as res  judicata. Thus, one ground made available by Parliament under Section  48(1)(a) to assail the award at the post-award stage, by impugning the  validity of the arbitration agreement, would be totally precluded because the  finding under Section 45 on the said issue would be final. The approach  suggested by Brother Sabharwal would, therefore, preclude this ground in  cases where Section 45 is in fact resorted to by parties. Indeed, the present  case is such a case, where the ground might be precluded if a final finding  were to be arrived at by the trial court in the application under Section 45.

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 6 of 12  

       It is a well accepted principle of statutory interpretation that a court  must make every effort to give effect to all words in a statute since  Parliament cannot be held to have been wasting its words or saying  something in vain.  Only in exceptional situations can this be departed  from. In J.K. Cotton Mills Spinning and Weaving Mills Co. Ltd. v. State of  U.P.,  it was observed:

"In the interpretation of statutes the courts always  presume that the legislature inserted every part thereof  for a purpose and the legislative intention is that every  part of the statute should have effect."  

       This principle has received widespread acceptance by this court in  numerous decisions.  If the approach suggested by Brother Sabharwal in  interpreting Section 45 were to be adopted, it could effectively make a part  of the provision in Section 48(1)(a) redundant; an outcome which Parliament  could surely have not intended.   

Possibility of Multiple Trials         It appears to me that, at the post-award stage, at least, the finding has  to be recorded on a full trial of the relevant issue under Section 48(1)(a). If  this be so, I see no special advantage in taking the view that the finding  under Section 45 should be anything other than a prima facie finding.  

       Even if the view were to be taken that the finding under Section 45 of  the Act would be a final finding not amenable to reiteration under Section  48(1)(a) at the time of the attempt to enforce the award, it is quite possible  that the award may be challenged on the other grounds available under  Section 48. As I have already said, this challenge will have to be tried out by  a full trial by involving all kinds of evidence (including oral evidence). If  that be so, then all issues including the present issue could be tried fully after  the award instead of seeking a final finding at the pre-reference stage under  Section 45 of the Act. This would be in consonance with the ethos of the Act  to avoid delay at different stages, to centralize the court review of all  disputes relating to the arbitration at the post-award stage, and also carry  forward the objectives of the Model Law.  

Approach in Foreign Jurisdictions         The importance of carrying forward the objectives underlying the  Model Law can hardly be gainsaid. There is evident dearth of guiding Indian  precedent which might be useful in interpreting Section 45 of the Act.  Hence, it becomes necessary to seek light from foreign judgments  interpreting corresponding provisions that have been modeled on the Model  Law. Now, for a survey of such foreign precedents.   

       It has rightly been noticed in the judgment of Brother Sabharwal that  different countries have approached the issue depending on their substantive  and processual laws. It has been noticed that the situation under the French  Code of Civil Procedure favours a prima facie view, since under the Statute  if the dispute is not before an arbitral tribunal, the French Courts must  decline jurisdiction unless the arbitration agreement is "patently void".  

       Similarly, Article 7 of the 1987 Swiss Private International Law  Statute stipulates that the courts decline jurisdiction "\005b. unless the court  finds that the arbitral agreement is null and void, inoperative or incapable of  being performed". This has been interpreted by the Swiss Federal Tribunal  as restricting the courts review at the start of the proceedings to a prima  facie verification of the existence and effectiveness of the arbitration  clause.  

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 7 of 12  

       As far as the U.S. jurisdiction is concerned, the statute there, which  deals both with the substantive law and the law of procedure, is worded  differently from the Act. Indeed, not all jurisdictions in the U.S. have even  modeled their law on the Model Law and U.S. cases must be approached  with great caution. The U.S position is, therefore, not very helpful in  resolving the issue before us.  

       It has been noticed in Brother Sabharwal’s judgment that in at least  two common law jurisdictions, Ontario and Hong Kong, both of which have  based their law on the Model Law (like India), the courts have adopted a  ’liberal approach’ to the issue, namely, that of prima facie view as to the  existence and non-vitiation of the arbitral agreement, before making a  reference. The Hong Kong and Ontario judgments will be examined  presently.  

The Hong Kong Judgment         There is no doubt that in Pacific International Lines (Pte.) Ltd. v.  Tsinlien Metals and Minerals Co. Ltd.,  ("Pacific International Lines")  the High Court of Hong Kong was concerned precisely with the issue as to  whether there was a valid arbitration agreement within the meaning of  Article 7 of the Model Law. The court was of the view that there was a  "plainly arguable" case to support the proposition that there was an  arbitration agreement that complied with Article 7 of the Model Law. The  Court observed: "It follows, therefore, that if I am satisfied that there is a  plainly arguable case to support the proposition and there  was an arbitration agreement which complies with Art. 7  of the Model Law, I should proceed to appoint the  arbitrator in the full knowledge that the defendants will  not be precluded from raising the point before the  arbitrator and having the matter reconsidered by the court  consequent upon that preliminary ruling."  

Further, the court held:  "I am quite satisfied that the plaintiffs have made out a  strongly arguable case in support of an arbitration  agreement which complies Article 7 of the Model  Law."   

       In my reading of the case, the Hong Kong High Court was squarely  concerned with the issue as to whether the arbitration agreement complied  with Article 7 of the Model Law or not. This became relevant because under  Article 8 the Court was empowered to decide as to the existence or  otherwise of the arbitral agreement and Article 7 required the agreement to  be in the form prescribed by that Article itself. With respect, it would be  incorrect to distinguish the case on the ground that it was not concerned with  Article 8 of the Model Law. In my view, the court was directly concerned  with the validity of the arbitration agreement as it was argued that the  arbitration agreement did not comply with Article 7 and, therefore, was  invalid.

       The second ground of distinction sought to be made by my learned  Brother is that the Hong Kong Arbitration Ordinance ("the Hong Kong  Ordinance") was based upon the English Arbitration Act, 1996 ("the English  Act") and that the Hong Kong judgment was in the special context of these  statutes. In particular, my Learned Brother holds that Section 6 of the Hong  Kong Ordinance is similar to Section 32 of the English Act (both of which  are not present in our Act), as a distinguishing feature rendering the Hong  Kong judgment inapplicable to the present case. To clear the air, I quote  below both the concerned provisions.

The Hong Kong Ordinance: "Section 6 Court to refer matter to arbitration in  certain cases  

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 8 of 12  

(1) Subject to subsections (2) and (3), article 8 of the  UNCITRAL Model Law (Arbitration agreement and  substantive claim before court) applies to a matter that is  the subject of a domestic arbitration agreement in the  same way as it applies to a matter that is the subject of an  international arbitration agreement.   (2) Subject to subsection (3), if a party to an arbitration  agreement that provides for the arbitration of a dispute  involving a claim or other matter this is within the  jurisdiction of the Labour Tribunal or a person claiming  through or under such a party, commences legal  proceedings in any court against any other party to the  agreement or any person claiming through or under that  other party, in respect of any matter agreed to be referred,  and any party to those legal proceedings applies to that  court after appearance and before delivering any  pleadings or taking any other step in the proceedings, to  stay the proceedings, the court or a judge of that court  may make an order staying the proceedings, if satisfied  that-            (a) there is no sufficient reason why the matter          should not be referred in accordance with the          agreement; and           (b) the applicant was ready and willing at the time          the proceedings were commenced to do all things          necessary for the proper conduct of the arbitration,          and remains so.   (3) Subsections (1) and (2) have effect subject to section  15 of the Control of Exemption Clauses Ordinance (Cap  71)."     The English Act: "Section 32. - Determination of preliminary point of  jurisdiction.    

(1) The court may, on the application of a party to  arbitral proceedings (upon notice to the other parties),  determine any question as to the substantive jurisdiction  of the tribunal. A party may lose the right to object (see  section 73).  

(2) An application under this section shall not be  considered unless -            (a) it is made with the agreement in writing of all          the other parties to the proceedings, or          (b) it is made with the permission of the tribunal          and the court is satisfied -                     (i) that the determination of the question is                    likely to produce substantial savings in                         costs,                  (ii) that the application was made without                       delay, and                  (iii) that there is good reason why the matter                  should be decided       by the court.  

(3) An application under this section, unless made with  the agreement of all the other parties to the proceedings,  shall state the grounds on which it is said that the matter

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 9 of 12  

should be decided by the court.  

(4) Unless otherwise agreed by the parties, the arbitral  tribunal may continue the arbitral proceedings and make  an award while an application to the court under this  section is pending.  

(5) Unless the court gives leave, no appeal lies from a  decision of the court whether the conditions specified in  subsection (2) are met.  

(6) The decision of the court on the question of  jurisdiction shall be treated as a judgment of the court for  the purposes of an appeal. But no appeal lies without the  leave of the court which shall not be given unless the  court considers that the question involves a point of law  which is one of general importance or is one which for  some other special reason should be considered by the  Court of Appeal."            On a comparative reading of Section 6 of the Hong Kong Ordinance  and Section 32 of the English Act, it appears to me that the two are neither  similar, nor resemble each other, the purposes of the two sections being  totally different. This distinction made by Brother Sabharwal, with respect,  appears to be unsupportable.  

       On the other hand, what corresponds to Section 32 of the English Act  is Section 23A of the Hong Kong Ordinance, which is reproduced below:

"Section 23A Determination of preliminary point of  law by Court

(1) Subject to subsection (2) and section 23B, on an  application to the Court made by any of the parties to a  reference-

       (a) with the consent of an arbitrator who has          entered on the reference or, if an umpire has          entered on the reference, with his consent, or

       (b) with the consent of all the other parties,

the Court shall have jurisdiction to determine any  question of law arising in the course of the reference.

(2) The Court shall not entertain an application under  subsection (1)(a) with respect to any question of law  unless it is satisfied that-

       (a) the determination of the application might          produce substantial savings in costs to the parties;          and

       (b) the question of law is one in respect of which l         eave to appeal would be likely to be given under          section 23(3)(b).

(3) A decision of the Court under subsection (1) shall be  deemed to be a judgment of the Court within the meaning  of section 14 of the High Court Ordinance (Cap 4)  (appeals to the Court of Appeal), but no appeal shall lie  from such a decision unless the Court or the Court of

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 10 of 12  

Appeal gives leave. (Amended 25 of 1998 s. 2)

(4) (Repealed 64 of 1989 s. 15)"

       Courts under both Section 32 of the English Act as well as Section  23A of the Hong Kong Arbitration Ordinance, can make a determination of  preliminary point of jurisdiction with the ’consent of all the parties’ or at  least with the ’consent of the arbitrator’ and only upon being satisfied that  the determination of the application might reduce substantially the costs to  the parties, and the question of law is one in which leave is likely to be  given.  

       The Hong Kong decision has also been distinguished on the ground  that Section 23A of the Hong Kong Ordinance specifically provides for  determination of the preliminary issue by the court and that there is no  similar provision in the Act. With respect, this distinction may also not be  valid. In the first place, the judgment in Pacific International Lines (supra)  was rendered in the year 1992; it does not make any reference whatsoever to  Section 23A of the Hong Kong Ordinance. Nor does it appear from the  judgment that there was any analogous provision when the Hong Kong High  Court decided the matter. Indeed, all references in the judgment are to the  provisions of the Model Law. Moreover, if Section 23A had been applicable,  it would have been wholly unnecessary for the court to express its opinion  on an interpretation of Article 7 or 8 of the Model Law as it could   straightaway have relied on Section 23A. In my view, the Hong Kong  judgment squarely deals with the issue before us and conclusively holds that  the approach to be adopted is whether it is a "plainly arguable" that the  arbitration agreement was in existence.   

The Ontario Judgment         The Ontario Court of Justice in Rio Algom Ltd. v. Sami Steel Co.  Ltd.  dealt with Article 16 of the Model Law with regard to the competence  of the arbitral tribunal to rule on its jurisdiction and the court’s own powers  at the preliminary stage. Article 16 has been quoted in Learned Brother  Sabharwal’s judgment. The court expressed its categorical opinion on the  relevant issue in the following words:

"What appears to me of significance is that the Model  Law reflects an emphasis in favour of arbitration in the  first instance in international commercial arbitrations to  which it applies (of which it is common ground this is  one). The courts in matters of contract interpretation as  such are limited in that they do not appear to have a role  in determining matters of law or construction;  jurisdiction and scope of authority are for the arbitrator to  determine in the first instance, subject to later recourse to  set aside the ruling or award. The role of the court before  arbitration appears to be confined to determining whether  the arbitration clause is null and void, inoperative or  incapable of being performed (Art. 8) \026 if not it is  mandatory to send the parties to arbitration. Kane, J. did  not follow this course - he referred questions of the  construction of the agreement to trial without apparent  reference to the condition specified in Art. 8; these issues  to be tried relate to matters of law, including jurisdiction  and scope of the arbitrator’s authority, but not, so far as I  can see, to the issues for the court to determine under Art.  8. It seems to me be at least arguable that the matters  referred to trial are not matters that permit the  intervention of the court in the light of Art. 5, supra."  

       In my view, this is a clear and unequivocal expression on the part of  the court on the issue before us. Indeed, the Ontario Court has clearly held  that the court in the matter of interpretation of the existence and non- vitiation of the arbitral agreement has only a prima facie jurisdiction and is

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 11 of 12  

not required to render a final decision at that stage.   

The English Judgment         The English judgment in Azov Shipping Co. v.  Baltic Shipping Co.,   raised a different issue altogether. The case of the applicant before the court  was that he was not a party to the arbitral agreement, which contained the  arbitration clause, and, despite this, the arbitrator had delivered an award in  favour of the other party. The arbitrator after a full trial found that there was  a valid arbitration agreement and that he had jurisdiction over the parties.  There was a challenge to the award. The issue before the court was: Where a  full-scale hearing on jurisdiction had been completed before the arbitrator,  and there was a challenge to the award, whether the jurisdiction of the  arbitrator could be challenged with complete oral evidence and cross- examination so the challenge in effect became a full hearing of what had  already occurred before the arbitrator?

       The court allowed the application and held that even at the post-award  stage, it was permissible to lead oral evidence to demonstrate that the  arbitrator had no jurisdiction.  The point of distinction is that the court was  dealing with a challenge at a post-award stage. There could be no doubt that,  at that stage the finding on the jurisdictional issue or the existence of  vitiating factors has to be rendered only after complete trial and has to be a  final finding. Further, the observations of the court were perfectly in  consonance of Sections 32 and 67 of the English Act which are not in any  manner reflected in the Act.  

Consequences of the Mollificatory Suggestions         The suggestions made by Learned Brother Sabharwal to mollify some  of the obvious drawbacks of the approach that he adopts, also needs closer  scrutiny. He has suggested a trial by affidavits as well as a fixed time-frame  to reduce the possible delays ensuing from a protracted trial at the pre- reference stage. In my view, any attempt to mollify the significant adverse  consequences of the determinative approach by enabling the court to render  final judgment only on the basis of affidavits, albeit within a fixed time- frame, may prove counter-productive.

       There are several instances where affidavit evidence cannot aid in  making a final determinative finding on the issue. For instance, where a  defence taken is that the signature of a party was forged or that agreement  itself is entirely fabricated, I cannot conceive of the issue being satisfactorily  determined fully and finally merely on the basis of affidavits without oral  evidence. Correspondingly, if courts at the preliminary stage were to admit  oral evidence, simply because forgery or the like is pleaded, the  consequences are still troublesome. In fact, if the view postulated by learned  Brother Sabharwal were to prevail, then all international commercial  arbitrations can be defeated by a totally bogus defence that the agreement is  forged or fabricated. If such a defence were to be allowed, it would  necessarily require a full-fledged trial (with oral evidence) at the pre- reference stage with all its consequential delay and expense. On the other  hand, if only a prima facie view were to be taken, then the issue could still  be examined in-depth after a full trial either before the arbitral tribunal or at  any rate under Section 48(1)(a) when the enforceability of the ensuing award  is questioned.

       I am afraid that the suggestion of fixing a time limit, within which an  issue can be determined without oral evidence, may also not be practical. As  pointed out earlier, if the applicable law is a foreign law (which is not an  uncommon feature in international commercial contracts), the time limit of  three months is unlikely to be complied with as it would be unfeasible. In  any event, since it is undoubted that at the enforcement stage a full trial  under Section 48 is permissible, parties are none the better by having two  trials i.e. one at the stage of Section 45, and another at the stage of Section  48.

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 12 of 12  

       I fully agree with my Learned Brother’s view that the object of  dispute resolution through arbitration, including international commercial  arbitration, is expedition and that the object of the Act would be defeated if  proceedings remain pending in court even after commencing of the  arbitration. It is precisely for this reason that I am inclined to the view that at  the pre-reference stage contemplated by Section 45, the court is required to  take only a prima facie view for making the reference, leaving the parties to  a full trial either before the arbitral tribunal or before the court at the post- award stage.

       Undoubtedly, an international commercial arbitration involves huge  expenses, particularly where the parties have subjected the contract to a  foreign law. But, that cannot be a deterrent to this Court from pronouncing  on the correct approach to be adopted under Section 45 of the Act. In fact, as  I have pointed out, adopting a final and determinative approach under  Section 45 may not only prolong proceedings at the initial stage but also  correspondingly increase costs and uncertainty for all the parties concerned.  Finally, having regard to the structure of the Act, consequences arising from  particular interpretations, judgments in other jurisdictions, as well as the  opinion of learned authors on the subject,  I am of the view that, the correct  approach to be adopted under section 45 at the pre-reference stage, is one of  a prima facie finding by the trial court as to the validity or otherwise of the  arbitration agreement.

       For all these reasons, I respectfully differ from the judgment of my  esteemed Brother Sabharwal. I am of the view that the present matter needs  to be remitted to the trial court, but not for a full trial as directed by the  impugned judgment of the High Court. The application under Section 45  would have to be determined by the trial court after arriving at the prima  facie satisfaction that there exists an arbitral agreement, which is "not null  and void, inoperative or incapable of being performed". If the trial court  finds thus, the parties shall be referred to arbitration.

       The appeal is accordingly allowed and Ordered accordingly.