IN THE HIGH COURT OF JUDICATURE AT MADRAS DATED: 09.10.2007 CORAM: THE HONOURABLE MR.JUSTICE P.P.S.JANARTHANA RAJA C.M.A.No.134 of 2007 The Board of Trustees of the Port of Chennai, Rajaji Salai, Chennai-600 001, rep. by its Chairman .. Appellant Vs. M/s.X Press Container Line (UK) Ltd., S.P. Center "B" Wing, 41/44, Minoo Desai Marg, (Behind Radio Club) Coloba, Mumbai-400 001. rep. by its Regional Representative, Capt.S.P.Rao .. Respondent Appeal under Section 37 of the Arbitration and Conciliation Act, 1996 against the order of the learned Arbitral Tribunal comprising of Hon'ble Mr.Justice Malai Subramanian (Retd.), Mr.V.Subramanian and Mr.T.R. Gopalakrishnan, dated 11.10.2006. For Appellant : Mr.V.T.Gopalan, Additional Solicitor General of India, assisted by Mr.P.Wilson, Assistant Solicitor General of India For Respondent : Mr.T.Poornam JUDGMENT The Civil Miscellaneous Appeal is filed against the order of the learned Arbitral Tribunal dated 11.10.2006. 2. The facts arising out of this appeal are as under:- The Board of Trustees of the Port of Chennai, the appellant herein, is a statutory authority duly constituted under the Major Port Trusts Act, 1963 having the office at Rajaji Salai, Chennai-600 001. The respondent is a Feeder Operator engaged in the carriage of goods by sea with its https://hcservices.ecourts.gov.in/hcservices/ registered office at England and Wales and with a place of business in India. The appellant, with the consultation of Ministry of Shipping, introduced a Berth Reservation Scheme for container vessels. In pursuance of this scheme, the appellant and the respondent entered into a Berth Reservation Agreement dated 18th January 1995 under which the appellant agreed to provide the respondent with a reservation of 200 metres of berth length at West Quay I and II, Dr.Ambedkar Dock. The respondent, as licensee, obtained a reservation of the 200 metres of berth together with a back-up area for an initial tenure of 2 years for the purpose of berthing, discharging and loading cargo. The appellant as well as the respondent subsequently extended the term of the agreement from 25th September 1997 until 24th December 1997 and again from 25th December 1997 until 31st March 1998. Article I of the agreement deals with Definitions and Interpretations. Article II of the agreement deals with Term and Termination. Article III of the agreement deals with Licence and Authority. Article IV of the agreement deals with Guaranteed Productivity. Article V of the agreement deals with Insurance and Indemnity. Article VI of the agreement deals with Transfer. Article VII of the agreement deals with Statues. Article VIII of the agreement deals with Force Majeure. Article IX of the agreement deals with Notices. Article X of the agreement deals with Arbitration which reads as follows:- "All disputes between the parties under this Agreement shall be referred to the award of two arbitrators, one to be nominated by the Board and one by the Licensee or in the case of the said arbitrators not agreeing to the award of the Umpire to be appointed by the said arbitrators and their decision shall be final and binding on the parties and the provisions of the Indian Arbitration Act 1940 and the Rules made thereunder shall apply to such references. The Arbitrators and the Umpire shall state the reasons for the award. The parties hereto agree that the High Court of Madras and the Courts in the City of Madras have jurisdiction for all legal actions arising out of this Agreement." The agreement also contemplates other conditions. The appellant sent a letter dated 28.02.1997 to the respondent stating that there is certain violation of the terms of agreement and hence the respondent has to make the payments due to the Port as indicated in the letter, immediately, failing which the appellant will be constrained to issue a formal notice to terminate the agreement entered into with the respondent for awarding Licence to the respondent to operate 200m berth length at W.Q. I & II under the Berth Reservation Scheme. The respondent immediately sent a reply dated 01.08.1997 to the appellant denying the allegations and also enclosing a cheque for Rs.37,21,680/-, wherein it was stated as under:- "In view of the difference in perception of the agreement provisions leading to a dispute between Chennai Port Trust and X-Press Container Line on the issues relating to berth hire and penal levy in the https://hcservices.ecourts.gov.in/hcservices/ Berth Reservation Agreement dated 18th January '95, we have appointed Mr.P.C.Tilak, 13 Norton 1st Street, Mandavali, Madras-600028, as our Arbitrator. We would request you to please nominate your Arbitrator at the earliest." Later the respondent filed Original Petition No.292 of 2001 under Section 11 of the Arbitration and Conciliation Act, 1996 ("Act" in short) before this Court, praying to appoint a second Arbitrator. The appellant resisted the petition. This Court, by order dated 28.09.2004, appointed a sole arbitrator. Aggrieved by the same, the appellant filed a Writ Petition in W.P. No.7692 of 2005 praying for issuance of a writ of certiorari calling for the records relating to the order of the Hon'ble Chief Justice dated 28.09.2004 in O.P. No.292 of 2001 and quash the same. The matter came up before this Court and this Court by order dated 08.03.2005 passed the following order:- "Learned Senior Counsel for the petitioner relies on the judgment of this Court in M/s.Oil and Natural Gas Corporation Cauvery Project Vs. M.Gouthamchand Gothi reported in [1998(11) CTC 419) in support of this contention that when the application is beyond the period of limitation, the authority cannot appoint an Arbitrator. Interim stay. Notice." Later, this Court by order dated 13.06.2005, made the following order:- "Since if the interim stay is vacated, nothing survives in the writ petition, the interim stay already granted is made absolute." Aggrieved by the order, the respondent filed a Writ Appeal in W.A. No.1459 of 2005, against which the following order has been passed by this Court:- "Both sides agree for the appointment of a third arbitrator. Accordingly a third arbitrator will be appointed by (1) the Arbitrator appointed by the Contractor (2) the Arbitrator appointed by the Court. This appointment of the third Arbitrator should be done by the aforesaid two Arbitrators expeditiously and the Arbitral proceedings should also go on expeditiously. The question of Limitation or any other question can be raised before the Arbitrators. The Writ Appeal as well as the connected Writ Petition, from which the present appeal has arisen, are disposed of finally. Connected W.A.M.P. Nos.3124 and 2708 of 2005 are closed." Subsequently, the respondent filed a Claim Statement before the Arbitrators and requested the Arbitrators to make an award as follows:- "i. that the sum of Rs.1,37,28,608.47 being the amount due to the Claimant from the Respondent, as more particularly set out in the Claimant's claim summary, be refunded to the Claimant; ii. that the Respondent pay to the Claimant interest at the rate of 18% on the sum of https://hcservices.ecourts.gov.in/hcservices/ Rs.1,37,28,608.47 from September 1997 to November 2005 which works out to Rs.2,03,86,987.00. iii. that the Respondent pay to the Claimant interest at the rate of 18% on the sum of Rs.1,37,28,608.47 from September 1997 to the date of payment of all sums due by the Respondent. iv. that besides the berth hire charges, the Respondent shall be obliged to refund all other charges collected from other vessels which the Respondent had berthed at West Quay I & II during the pendency of the Agreement. v. that the Respondent pay the costs of the Arbitral Proceedings; and vi. that the Hon'ble Arbitrator pass such further or other orders as it may deem fit and proper in the circumstances of the case." The appellant has filed a counter affidavit before the Arbitral Tribunal and prayed as follows:- "a) reject the claim upto 1.8.1997 of the Respondent / Claimant made in the claim petition and covered under the letter of request / reference dated 1.8.1997 as barred by law of limitation. b) to reject the claim made by the Respondent / Claimant subsequently to 1.8.1997 as beyond the jurisdiction of the Arbitral Tribunal. c) and pass such further or other orders as this Honourable Arbitral Tribunal may deem fit to pass and thus render justice." Later the appellant filed a petition under Section 16 of the Act, on the preliminary issue of Limitation. After hearing both the parties, the Arbitral Tribunal rejected the petition. Aggrieved by the order, the appellant filed the present appeal under Section 37 of the Act, questioning the validity of the impugned order of the Arbitral Tribunal, praying to set aside the order of the Arbitral Tribunal relating to the preliminary issue of limitation in respect of the disputes arising out of Agreement for Berth Reservation dated 18.01.1995 and dismiss the claim petition in relation to claim up to 01.08.1987 as barred by limitation. This Court admitted the appeal and also granted interim stay in M.P.No.1 of 2007 on 25.01.2007. Aggrieved by the grant of stay, the respondent filed a petition for vacating the stay in M.P.No.2 of 2007 in M.P.No.1 of 2007 and the same was taken up for hearing on 22.02.2007. After hearing the arguments, the Court dismissed the vacate stay petition and the stay granted on 25.01.2007 was made absolute. Aggrieved, the respondent filed an SLP before the Supreme court against the order dated 22.02.2007 in M.P.No.1 of 2007. The Supreme Court granted stay by its Order dated 09.07.2007 in Civil Appeal No.2944 of 2007 (arising out of SLP(C) No.5660 of 2007), and passed the following order:- "Leave granted. Heard the parties. https://hcservices.ecourts.gov.in/hcservices/ The order assailed in this appeal is dated 22.02.2007 passed by the High Court making an interim order dated 25.01.2007 absolute. It is contended by Mr.C.A.Sundaram, learned senior counsel for the appellant that although many grounds have been raised and the parties are heard, the High Court has made an interim order 25.01.2007 absolute by a cryptic order dated 22.02.2007. Without adverting to the contention of the parties, we dispose of this appeal by requesting the High Court to decide the issue of the maintainability of the appeal within one month from today. In the meantime, the arbitration may proceed and the award may be pronounced but such award shall not be put into execution till the maintainability of the appeal is decided. With the aforesaid direction, the appeal is disposed of." In view of the above order of the Supreme Court, the present matter is taken up for deciding whether the appeal is maintainable or not. 3. Learned Additional Solicitor General of India appearing for the appellant submitted that the order of the Arbitral Tribunal is wrong, illegal, without basis and justification. It is further submitted that the cause of action arose on 01.08.1997 and the request for appointment of arbitrator was made only on 30.12.2000 which is beyond the period of 3 years and that therefore, it is clearly barred by limitation. Once it is barred by limitation, the Arbitral Tribunal has no jurisdiction to continue with the arbitral proceedings. It is further submitted that the Arbitral Proceedings being original proceedings, there is no question of invoking Section 5 of the Limitation Act for condoning the delay. It is also further contended that the Arbitral Tribunal ought to have seen that it is the duty of the respondent to bring to the Hon'ble Chief Justice the fact of delay by a separate application under Section 5 of the Limitation Act which had not been done and yet in the absence of such an application before the Chief Justice and even before the Arbitral Tribunal, the action of the Arbitral Tribunal in suo-motu condoning the delay under Section 5 of the Limitation Act without any application and without reasons given by the respondent herein explaining the delay, amounts to illegality and also is an apparent error and hence the order of the Tribunal is perverse, illegal, without basis and justification. As the Arbitral Tribunal has exceeded its jurisdiction, the appellant is right in filing appeal to challenge the illegal order and therefore, it is maintainable. It is also further submitted that the appellant need not wait till the award is passed and then challenge the award by filing an application under Section 34 of the Act, which amounts to nothing but futile exercise. Here the Tribunal passed the order on 11.10.2006 duly signed by all the Arbitrators, but there is a note at the end of the order which reads as follows:- "Subject to Joint Note dtd. 11.10.06 appended by Co- Arbitrators". https://hcservices.ecourts.gov.in/hcservices/ The procedure followed by the Tribunal is illegal and it only indicates that the Tribunal went beyond its jurisdiction. Hence the counsel strenously contended that the appeal filed by the appellant under Section 37(2)(a) of the Act is maintainable and it is in accordance with law and further relied on the following judgments to support his contention:- a) State of Tamil Nadu v T.Dhilipkumar and Others, 2001 (8) SCC 700 b) Meghraj v Jesraj Kasturjee and another, AIR 1975 MADRAS 137 c) Suresh Kumar and Others v Firm Kurban Hussain Taiyab Ali and Others, AIR 1996 M.P. 151 4. Learned counsel appearing for the respondent submitted that the appeal is not maintainable under Section 37(2)(a) of the Act. When the petition filed under Section 16(3) of the Act is rejected, the appellant has to wait till the final order is passed and then only they can challenge the award by filing application under Section 34 of the Act. The remedy as well as the manner is provided specifically under Section 16 (6) of the Act. Hence, filing an appeal under Section 37(2)(a) of the Act is not maintainable. If any petition is rejected under Section 16(2) or 16(3), the Arbitral Tribunal has to continue with the arbitral proceedings and make an award under Section 16(5) of the Act. Hence Section 16 is a complete code by itself. The appellant cannot bypass the said provision and hence the appeal filed by the appellant is not maintainable under Section 37(2)(a) of the Act. Learned counsel appearing for the respondent also relied on the following judgments to support his contention:- a) BASF Styrenics Pvt. Ltd. v Offshore Industrial Construction Pvt. Ltd. and another, AIR 2002 BOMBAY 289. b) Harinarayanan G.Bajaj v Sharedeal Financial Consultants Pvt. Ltd., Mumbai and another, AIR 2003 BOMBAY 296. c) M.Mohan Reddy v Union of India and others, 2000(1) Arb. LR 39 (A.P.). d) Nirma Ltd. v Lurgi Energie Und Entsorgung GMBH, Germany and Others, AIR 2003 GUJARAT 145. e) Union of India and another v M/s.East Coast Boat Builders & Engineers Ltd., AIR 1999 DELHI 44. f) Shriram Investment Services Limited v Palki/Jeypad Investment (P) Ltd., (2006) 4 M.L.J. 743. 5. Heard the counsel. In view of the direction of the Supreme Court, both the counsel made their submissions only in respect of the maintainability of the appeal. The Arbitration and Conciliation Act, 1996 has been brought into force with effect from 22.08.1996. The main objectives as enumerated in the Bill are as under:- "(i) to comprehensively cover international and commercial arbitration and conciliation as also domestic arbitration and conciliation; (ii) to make provision for an arbitral procedure which is fair, efficient and capable of meeting the needs of the specific arbitration. (iii) to provide that the arbitral tribunal gives reasons for its arbitral award; https://hcservices.ecourts.gov.in/hcservices/ (iv) to ensure that the arbitral tribunal remains within the limits of its jurisdiction; (v) to minimise the supervisory role of Courts in the arbitral process; (vi) to permit an arbitral tribunal to use mediation, conciliation or other procedures during the arbitral proceedings to encourage settlement of disputes; (vii) to provide that every final arbitral award is enforced in the same manner as if it were a decree of the Court; (viii) to provide that a settlement agreement reached by the parties as a result of conciliation proceedings will have the same status and effect as an arbitral award on agreed terms on the substance of the dispute rendered by an arbitral tribunal; and (ix) to provide that, for purposes of enforcement of foreign awards, every arbitral award made in a country to which one of the two international Conventions relating to foreign arbitral awards to which India is a party applies, will be treated as a foreign award." The Act consists of four parts. Part I deals with arbitration. Part II deals with enforcement of certain foreign awards. Part III deals with conciliation. Part IV deals with supplementary provisions. Part I consists of 10 chapters. Chapter I deals with General Provisions. Chapter II deals with Arbitration Agreement. Chapter III deals with Composition of Arbitral Tribunal. Chapter IV deals with Jurisdiction of Arbitral Tribunals. Chapter V deals with Conduct of Arbitral Proceedings. Chapter VI deals with Making of Arbitral Award and Termination of Proceedings. Chapter VII deals with Recourse against Arbitral Award. Chapter VIII deals with Finality and Enforcement of Arbitral Awards. Chapter IX deals with Appeals. Chapter X deals with Miscellaneous. Section 5 comes under Chapter I, which deals with Extent of Judicial Intervention and the same reads as follows:- "5. Extent of judicial intervention.-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." One of the main objectives of the provision is to minimise the supervisory role of Courts in the arbitral process and the judicial review is available only to challenge the award in accordance with the procedure laid down under the Act. The question of jurisdiction of the Arbitrator also should be considered only after the award is passed and not at any penultimate stage by the appropriate Court. Seeing the object as well as the intention, it is evident that the judicial scrutiny or intervention could be made only in the manner provided under the Act. The Apex Court in the case of Babar Ali v Union of India and others, (2000) 2 SCC 178, considered the vires of the provision of the Act and scope of Section 16 of the Act and held as follows:- "We find that there is no question of the Arbitration https://hcservices.ecourts.gov.in/hcservices/ and Conciliation Act, 1996 being unconstitutional or in any way offending the basic structure of the Constitution of India, as the High Court has rightly observed that judicial review is available for challenging the award in accordance with the procedure laid down therein. Only because the question of jurisdiction of the arbitrator is required to be considered after the award is passed and not at any penultimate stage by the appropriate court, it cannot be a ground for submitting that such an order is not subject to any judicial scrutiny. The time and manner of judicial scrutiny can legitimately be laid down by the Act passed by Parliament. The challenge to the vires of the Act was rightly rejected by the High Court. We fully endorse that view." In the case of P.Anand Gajapathi Raju and Others v P.V.G.Raju and Others, (2000) 4 SCC 539, the Apex Court considered the scope of Section 5 of the Act and held as follows:- "Part I of the new Act deals with domestic arbitrations. Section 5, which is contained in Part I of the new Act, defines the extent of judicial intervention in arbitration proceedings. It says that notwithstanding anything contained in any other law for the time being in force, in matters governed by Part I, no judicial authority shall intervene except where so provided in that Part. Section 5 brings out clearly the object of the new Act, namely, that of encouraging resolution of disputes expeditiously and less expensively and when there is an arbitration agreement, the court's intervention should be minimal." In view of the above Supreme Court judgments, whenever there is arbitration agreement, the Court's intervention should be minimal and also the Court shall only intervene in the manner provided under the Act. Chapter IV of the Act deals with jurisdiction of Arbitral Tribunals and Sections 16 and 17 are the relevant provisions. The Apex Court in the case of Gas Authority of India Ltd. & another v Keti Construction (I) Ltd. and others, 2007 (4) CTC 435, considered the scope of the preamble of the Arbitration and Conciliation Act, 1996 as well as Article 16 of the UNCITRAL Model Law which corresponds to Section 16 of the Arbitration and Conciliation Act, 1996, and held at paragraphs 17 and 18 of its order, as under:- "17. It will be useful to take note of the preamble of the Arbitration and Conciliation Act, 1996 which reads as under:- WHEREAS the United Nations Commission on International Trade Law (UNCITRAL) has adopted the UNCITRAL Model law on International Commercial Arbitration in 1985; AND WHEREAS the General Assembly of the United Nations has recommended that all countries give due consideration to the said Model Law, in view of the desirability of uniformity of the law of arbitral procedures and the specific needs of https://hcservices.ecourts.gov.in/hcservices/ international commercial arbitration practice; AND WHEREAS the UNCITRAL has adopted the UNCITRAL Conciliation Rules in 1980; AND WHEREAS the General Assembly of the United Nations has recommended the use of the said Rules in cases where a dispute arises in the context of international commercial relations and the parties seek an amicable settlement of that dispute by recourse to conciliation; AND WHEREAS the said Model Law and Rules make significant contribution to the establishment of a unified legal framework for the fair and efficient settlement of disputes arising in international commercial relations; AND WHEREAS it is expedient to make law respecting arbitration and conciliation, taking into account the aforesaid Model Law and Rules; The Preamble of the Act makes it amply clear that the Parliament has enacted the Arbitration and Conciliation Act, 1996 almost on the same lines as the Model Law, which was drafted by United Nations Commission on International Trade Law. In Sundaram Finance Ltd. v. NEPC Ltd., AIR 1999 SC 565, it has been observed that the provisions of the Arbitration and Conciliation Act, 1996 should be interpreted keeping in mind the Model Law as the concept under the present Act has undergone a complete change. It will, therefore, be useful to take note of the corresponding provisions of the UNCITRAL Model Law. Article 16 of the Model Law, which corresponds to Section 16 of the Act, is being reproduced below: UNCITRAL Model Law "Article 16. Competence to rule on own jurisdiction.- (1) The Arbitral Tribunal has the power to rule on its own jurisdiction, including any objections with respect to the existence or validity of the arbitration agreement. For the purpose, an arbitration clause which forms part of a contract shall be treated as an agreement independent of the other terms of the contract. A decision by the Arbitral Tribunal that the contract is null and void shall not entail ipso jure the invalidity of the arbitration clause. (2) A plea that the Arbitral Tribunal does not have jurisdiction shall be raised not later than in the statement of defence. A party is not precluded from raising such a plea by the fact that he has appointed, or participated in the appointment of, an arbitrator. A plea that the Arbitral Tribunal is exceeding the scope of its authority shall be raised promptly after the Arbitral Tribunal has indicated its intention to decide on the matter alleged to be beyond the scope of its authority. The Arbitral Tribunal may, in either case, admit a later plea if it considers the delay justified. (3) The Arbitral Tribunal may rule on a plea referred to in paragraph (2) of this article either as a preliminary question or in an award on the merits. In either case, a ruling by the https://hcservices.ecourts.gov.in/hcservices/ Arbitral Tribunal that it has jurisdiction may be contested by any party only in an action for setting aside the arbitral award." The commentary on the three paragraphs of the Model Law has been given under the headings A, B, C and D. Note 1 under heading A and Note 11 under heading D, which are relevant for the controversy in hand,