Power Corporation Ltd. Vs. Delhi Transco Ltd  Insc 323 (30 July 2003)
V. Patil & D.M. Dharmadhikari.
out of SLP (Civil) No.1775 of 2002) Dharmadhikari J.
learned counsel appearing for the parties. Leave to appeal, as prayed for, is
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.
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
factual background and nature of dispute giving rise to the prayer for
arbitration under Section 11 by the appellant- Corporation need examination.
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.
to the appellant, the exchange of letters and correspondence between the
parties, pursuant to the issuance of NIT 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.
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.
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.
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.
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 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:
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." …………………………………………………………………..
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
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
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.
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.
present appeal, therefore, deserves to succeed and is hereby allowed.
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.