Civil Revision No.1409 of 2008 -1- **** IN THE HIGH COURT OF PUNJAB AND HARYANA AT CHANDIGARH Civil Revision No.1409 of 2008 Date of decision: 18.2.2009 Shriram Transport Finance Company Ltd. and others ...Petitioners Versus Jagdev Singh and another ...Respondent CORAM: HON'BLE MR. JUSTICE S.D.ANAND. Present: Mr. N.S.Shekhawat, Advocate for the petitioners. Mr. Vikas Sagar, Advocate for the respondents S.D.ANAND, J. The petitioners before this Court are defendants whose plea (AnnexureP-3 for reference to arbitration in terms of an arbitration clause) was declined by the learned Trial Judge, vide impugned order dated 7.12.2007 (Annexure P-4). In the course of the impugned order, the learned Trial Judge noticed that though there was an averment that the there was a hire purchase agreement between the parties, there also was a separate arbitration clause in the agreement which had not been produced at the trial. It further noticed that a further clause in the impugned agreement providing for exclusive jurisdiction to the Courts at New Delhi “waters down the effect of arbitration clause”. It also weighed with the learned Trial Court that the defendants-petitioners had themselves not adhered to the arbitration clause inasmuchas they had already launched a prosecution under Section 138 of the Negotiable Instruments Act against the plaintiffs- Civil Revision No.1409 of 2008 -2- **** respondents as a cheque issued by the latter bounced on account of insufficiency of funds and they did not pay up inspite of the issuance of a statutory notice in the context. It is common ground presently that the following clauses (one pertaining to the arbitration and other to the exclusive jurisdiction of the Civil Court) at New Delhi do exist in the agreement between the parties:- “ARBITRATION: All disputes, differences and/ or claims, arising out of this hire purchase agreement, whether during the subsistence of thereafter, shall be settled by arbitration in accordance with the provisions of the Arbitration and Conciliation Act, 1996 or any other statutory modification or re- enactment for the time being in force and shall be referred to the sole arbitrator nominated by the Managing Director of the owner. The award given by such an arbitrator, shall be final and binding on the parties to this agreement. It is a term of this agreement that in the event of such an arbitrator, to whom the matter has been originally referred, dying or being unable to act for any reason, the Managing Director of the owner, at the time of such death of the arbitrator or his inability to act as arbitrator, shall appoint another person to act as arbitrator. Such a person shall be entitled to proceed with the reference from the stage at which it was left by his predecessor. The Venue of arbitration proceeding shall be N.Delhi. OR JURISDICTION : it is agreed by and between the parties that the Civil Court in ___ hereto shall have the exclusive Civil Revision No.1409 of 2008 -3- **** jurisdiction in respect of any matter, claim or dispute arising out of or in any way relating to this agreement” Insofaras the last indicated count of premise relied upon by the learned Trial Court is concerned, it deserves outright invalidation. A cause of action, in case dishonour of a cheque, is an altogether different facet and resort thereto at the hands of defendants-petitioners does not at all water down the effect of arbitration clause. The fact that it was only a notarised copy of the agreement, which was produced at the trial, could not have weighed with the learned Trial Judge in declining the plea under reference. It was open to the learned Trial Court to require the defendants-petitioners to produce original agreement. It could not wish away the notarised copy as well particularly when the factum of there being an arbitration clause could not be contested on behalf of plaintiffs-respondents. The 'exclusive jurisdiction clause' also could not have been validly relied upon by the learned Trial Court to wish away the arbitration clause. The law on the point was authoritatively laid down by the Apex Court in Hindustan Petroleum Corpn. Ltd. Vs. M/s Pinkcity Midway Petroleums 2003 (3) P.L.R. 746. In that case, The Apex Court held that a question of there being a matter referable to Arbitration or not has to be left to the exclusive domain of the Arbitrator to decide and embark upon an enquiry with regard to applicability of the arbitration clause to the facts of the case. The following observations recorded by the Apex Court would clarify the things beyond any controversy:- “14. This Court in the case of P. Anand Gajapathi Raju & Ors. v. P.V.G. Raju (Dead) & Ors. [2000(4) SCC 539] has Civil Revision No.1409 of 2008 -4- **** held that the language of Section 8 is peremptory in nature. Therefore, in cases where there is an arbitration clause in the agreement, it is obligatory for the Court to refer the parties to arbitration in terms of their arbitration agreement and nothing remains to be decided in the original action after such an application is made except to refer the dispute to an arbitrator. Therefore, it is clear that if, as contended by a party in an agreement between the parties before the Civil Court, there is a clause for arbitration, it is mandatory for the Civil Court to refer the dispute to an arbitrator. In the instant case the existence of an arbitral clause in the agreement is accepted by both the parties as also by the court below but the applicability thereof is disputed by the respondent and the said dispute is accepted by the courts below. Be that as it may, at the cost of repetition, we may again state that the existence of the arbitration clause is admitted. If that be so, in view of the mandatory language of Section 8 of the Act, the courts below ought to have referred the dispute to arbitration. 15. The question then would arise what would be the role of the Civil Court when an argument is raised that such an arbitration clause does not apply to the facts of the case in hand? Learned counsel for the appellant contends that it is a matter which should be raised before the arbitrator who is competent to adjudicate upon the same and the Civil Court should not embark upon an inquiry in regard to the applicability of the arbitration clause to the facts of the case. While learned counsel appearing for the respondent contends that since the Civil Revision No.1409 of 2008 -5- **** applicability of the arbitration clause to the facts of the case goes to the very root of the jurisdiction of the reference to arbitration, this question will have to be decided by the Civil Court before referring the matter to arbitration even in cases where there is admittedly an arbitration clause. The answer to this argument in our opinion, is found in Section 16 of the Act itself. It has empowered the Arbitral Tribunal to rule on its own jurisdiction including rule on any objection with respect to the existence or validity of the arbitration agreement. That apart, a Constitution Bench of this Court in Konkan Railway (supra) with reference to the power of the arbitrator under Section 16 has laid down thus: - “It might also be that in a given case the Chief Justice or his designate may have nominated an arbitrator although the period of thirty days had not expired. If so, the Arbitral Tribunal would have been improperly constituted and be without jurisdiction. It would then be open to the aggrieved party to require the Arbitral Tribunal to rule on its jurisdiction. Section 16 provides for this. It states that the Arbitral Tribunal may rule on its own jurisdiction. That the Arbitral Tribunal may rule “on any objections with respect to the existence or validity of the arbitration agreement” shows that the Arbitral Tribunal's authority under Section 16 is not confined to the width of its jurisdiction, as was submitted by learned counsel for the appellants, but goes to the very root of its jurisdiction. There would, therefore, be no impediment Civil Revision No.1409 of 2008 -6- **** in contending before the Arbitral Tribunal that it had been wrongly constituted by reason of the fact that the Chief Justice or his designate had nominated an arbitrator although the period of thirty days had days had not expired and that, therefore, it had no jurisdiction.” In the light thereof, the petition is allowed. The impugned order is set aside. The matter shall stand referred to the Arbitrator in terms of the arbitration clause aforementioned. Further consequential orders in the context shall be granted by the learned Trial Court. The stay order dated 15.5.2008 shall stand vacated. The vacation of stay order shall be communicated to the Court concerned forthwith. February 18, 2009 (S.D.Anand) Pka Judge