Supreme Court of India

M/S S.B.P. & Co vs M/S Patel Engineering Ltd. & Anr on 26 October, 2005

Equivalent citations: AIR 2006 SUPREME COURT 450, 2005 (8) SCC 618, AIR 2006 (NOC) 261 (NCC), 2005 AIR SCW 5932, 2006 (1) ALL LJ 157, 2006 (1) ABR (NOC) 111 (NCC), 2006 (1) AJHAR (NOC) 226 (NCC), 2006 (1) AKAR (NOC) 117 (NCC), 2005 CLC 1546 (SC), (2005) 9 JT 219 (SC), 2006 (2) COM LJ 7 SC, 2005 (9) JT 219, 2005 (9) SCALE 1, (2005) 4 KHCACJ 325 (SC), (2005) 5 CTC 302 (SC), 2005 (8) SLT 405, 2005 (3) ARBI LR 285, 2005 (5) CTC 302, 2006 (1) SRJ 25, (2006) 1 ALLMR 156 (SC), (2006) 1 JCR 190 (SC), (2006) 2 COMLJ 7, (2006) 1 CPR 157, (2006) 3 ALL WC 4(15), (2006) 3 GUJ LR 2097, (2006) 1 GUJ LH 105, (2006) 1 PAT LJR 74, (2006) 2 RAJ LW 1386, (2005) 7 SCJ 461, (2005) 69 CORLA 96, (2005) 3 ARBILR 285, (2006) 1 ANDHLD 10, (2005) 7 SUPREME 610, (2005) 9 SCALE 1, (2006) 1 WLC(SC)CVL 1, (2006) 1 JLJR 39, (2006) 1 GCD 544 (SC), (2006) 2 CIVLJ 748, (2005) 128 COMCAS 465, (2005) 4 CURCC 140, (2006) 1 MAD LJ 1, (2006) 1 MAD LW 73, (2005) 4 RECCIVR 747, (2006) 2 ICC 1, (2006) 1 MPHT 61, (2006) 1 ALL WC 538, (2005) 4 CPJ 197, (2006) 1 BOM CR 585

Author:
P.K. Balasubramanyan

Bench:
R.C. Lahoti
,
B.N. Agrawal
,
Arun Kumar
,
P.K. Balasubramanyan

CASE NO.:
Appeal (civil) 4168 of 2003

PETITIONER:
M/S S.B.P. & CO.

RESPONDENT:
M/S PATEL ENGINEERING LTD. & ANR

DATE OF JUDGMENT: 26/10/2005

BENCH:
CJI R.C. LAHOTI,B.N. AGRAWAL,ARUN KUMAR,G.P. MATHUR A.K. MATHUR P.K. BALASUBRAMANYAN

JUDGMENT:

J U D G M E N T
WITH

CIVIL APPEAL NOs.4169/2003, 4170-4173/2003, 4076/2004,
3777/2003 and CIVIL APPEAL
NOs.6562,6563-6564,6565-6566 of 2005
of 2005 arising out of S.L.P. (CIVIL) NOs.3205/2004, 14033-
14034/2004, 21272-21273/2002,

P.K. BALASUBRAMANYAN, J.

Leave granted in SLP(C) Nos.3205/2004, 14033-
14034/2004, 21272-273/2002.

1. What is the nature of the function of the Chief Justice or
his designate under
Section 11
of the Arbitration and Conciliation Act,
1996 is the question that is posed before us. The three judges bench
decision in Konkan Rly.
Corpn. Ltd. Vs. Mehul Construction Co.

[(2000) 7 SCC 201] as approved by the Constitution Bench in Konkan
Railway Corpn. Ltd. & anr. Vs. Rani Construction Pvt. Ltd.
[(2002) 2 SCC 388] has taken the view that it is purely an
administrative function, that it is neither judicial nor quasi-judicial and
the Chief Justice or his nominee performing the function under
Section
11(6)
of the Act, cannot decide any contentious issue between the
parties. The correctness of the said view is questioned in these appeals.

2. Arbitration in India was earlier governed by the Indian
Arbitration Act, 1859 with limited application and the Second Schedule
to
the Code of Civil Procedure
, 1908. Then came the
Arbitration Act,
.
Section 8
of that Act conferred power on the Court to appoint an
arbitrator on an application made in that behalf.
Section 20
conferred a
wider jurisdiction on the Court for directing the filing of the arbitration
agreement and the appointment of an arbitrator.
Section 21
conferred a
power on the Court in a pending suit, on the agreement of parties, to
refer the differences between them for arbitration in terms of the Act.

The Act
provided for the filing of the award in court, for the making of
a motion by either of the parties to make the award a rule of court, a
right to have the award set aside on the grounds specified in the Act
and for an appeal against the decision on such a motion.
This Act
was
replaced by the
Arbitration and Conciliation Act, 1996
which, by virtue
of
Section 85
, repealed the earlier enactment.

3.
The Arbitration and Conciliation Act, 1996
(hereinafter
referred to as 'the Act') was intended to comprehensively cover
international and commercial arbitrations and conciliations as also
domestic arbitrations and conciliations. It envisages the making of an
arbitral procedure which is fair, efficient and capable of meeting the
needs of the concerned arbitration and for other matters set out in the
objects and reasons for the Bill.
The Act
was intended to be one to
consolidate and amend the law relating to domestic arbitrations,
international commercial arbitrations and enforcement of foreign
arbitral awards, as also to define the law relating to conciliation and for
matters connected therewith or incidental thereto. The preamble
indicates that since the United Nations Commission on International
Trade Law (UNCITRAL) has adopted a Model Law for International
Commercial Arbitration and the General Assembly of the United
Nations has recommended that all countries give due consideration to
the Model Law and whereas the Model Law and the Rules make
significant contribution to the establishment of a unified legal
framework for a fair and efficient settlement of disputes arising in
international commercial relations and since it was expedient to make a
law respecting arbitration and conciliation taking into account the
Model Law and the Rules, the enactment was being brought forward.

The Act
replaces the procedure
laid down in

Sections 8
and
of the
Arbitration Act, 1940.
Part I of the Act
deals with arbitration. It
contains
Sections 2
to
. Part II deals with enforcement of certain
foreign awards, and Part III deals with conciliation and Part IV contains
supplementary provisions. In this case, we are not concerned with Part
III, and Parts II and IV have only incidental relevance. We are
concerned with the provisions in Part I dealing with arbitration.

4.
Section 7
of the Act read with
Section 2 (b)
defines an
arbitration agreement.
Section 2(h)
defines 'party' to mean a party to
an arbitration agreement.
Section 4
deals with waiver of objections on
the part of the party who has proceeded with an arbitration, without
stating his objections referred to in the section, without undue delay.

Section 5
indicates the extent of judicial intervention. 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 Part I. The expression 'judicial
authority' is not defined. So, it has to be understood as taking in the
courts or any other judicial fora.
Section 7
defines an arbitration
agreement and insists that it must be in writing and also explains when
an arbitration agreement could be said to be in writing.
Section 8

confers power on a judicial authority before whom an action is brought
in a matter which is the subject of an arbitration agreement, to refer the
dispute to arbitration, if a party applies for the same.
Section 9
deals
with the power of the Court to pass interim orders and the power to
give interim protection in appropriate cases. It gives a right to a party,
before or during arbitral proceedings or at any time after the making of
the arbitral arbitral award but before its enforcement in terms of
Section
of the Act, to apply to a court for any one of the orders specified
therein. Chapter III of Part I deals with composition of arbitral
tribunals.
Section 10
gives freedom to the parties to determine the
number of arbitrators but imposes a restriction that it shall not be an
even number. Then comes
Section 11
with which we are really
concerned in these appeals.

5. The marginal heading of
Section 11
is 'Appointment of
arbitrators'. Sub-Section (1) indicates that a person of any nationality
may be an arbitrator, unless otherwise agreed to by the parties. Under
sub-Section (2), subject to sub-Section (6),the parties are free to agree
on a procedure for appointing the arbitrator or arbitrators. Under sub-
Section (3), failing any agreement in terms of sub-Section (2), in an
arbitration with three arbitrators, each party could appoint one
arbitrator, and the two arbitrators so appointed, could appoint the third
arbitrator, who would act as the presiding arbitrator. Under sub-
Section (4), the Chief Justice or any person or institution designated by
him could make the appointment, in a case where sub-Section (3) has
application and where either the party or parties had failed to nominate
their arbitrator or arbitrators or the two nominated arbitrators had failed
to agree on the presiding arbitrator. In the case of a sole arbitrator, sub-
Section (5) provides for the Chief Justice or any person or institution
designated by him, appointing an arbitrator on a request being made by
one of the parties, on fulfilment of the conditions laid down therein.
Then comes sub-Section (6), which may be quoted hereunder with
advantage:

"(6) Where, under an appointment procedure
agreed upon by the parties,-

(a) a party fails to act as required under
that procedure; or

(b) the parties, or the two appointed
arbitrators, fail to reach an agreement
expected of them under that
procedure; or

(c) a person, including an institution, fails
to perform any function entrusted to
him or it under that procedure,

a party may request the Chief Justice or any person
or institution designated by him to take the
necessary measure, unless the agreement on the
appointment procedure provides other means for
securing the appointment."

Sub-Section (7) gives a finality to the decision rendered by the Chief
Justice or the person or institution designated by him when moved
under sub-Section (4), or sub-Section (5), or sub-Section (6) of Section

11. Sub-Section (8) enjoins the Chief Justice or the person or
institution designated by him to keep in mind the qualifications
required for an arbitrator by the agreement of the parties, and other
considerations as are likely to secure the appointment of an
independent and impartial arbitrator. Sub-Section (9) deals with the
power of the Chief Justice of India or a person or institution designated
by him to appoint the sole or the third arbitrator in an international
commercial arbitration. Sub-Section (10) deals with Chief Justice's
power to make a scheme for dealing with matters entrusted to him by
sub-Section (4) or sub-Section (5) or sub-Section (6) of
Section 11
.
Sub-Section (11) deals with the respective jurisdiction of Chief Justices
of different High Courts who are approached with requests regarding
the same dispute and specifies as to who should entertain such a
request. Sub-
Section 12
clause (a) clarifies that in relation to
international arbitration, the reference in the relevant sub-sections to
the 'Chief Justice' would mean the 'Chief Justice of India'. Clause (b)
indicates that otherwise the expression 'Chief Justice' shall be
construed as a reference to the Chief Justice of the High Court within
whose local limits the principal Court is situated. 'Court' is defined
under
Section 2(e)
as the principal Civil Court of original jurisdiction in
a district.

6.
Section 12
sets out the grounds of challenge to the person
appointed as arbitrator and the duty of an arbitrator appointed, to
disclose any disqualification he may have. Sub-Section (3) of
Section
gives a right to the parties to challenge an arbitrator.
Section 13
lays
down the procedure for such a challenge.
Section 14
takes care of the
failure of or impossibility for an arbitrator to act and
Section 15
deals
with the termination of the mandate of the arbitrator and the
substitution of another arbitrator. Chapter IV deals with the jurisdiction
of arbitral tribunals.
Section 16
deals with the competence of an
arbitral tribunal, to rule on its jurisdiction. The arbitral tribunal may
rule on its own jurisdiction, including ruling on any objection with
respect to the existence or validity of the arbitration agreement. A
person aggrieved by the rejection of his objection by the tribunal on its
jurisdiction or the other matters referred to in that Section, has to wait
until the award is made to challenge that decision in an appeal against
the arbitral award itself in accordance with
Section 34
of the Act. But
an acceptance of the objection to jurisdiction or authority, could be
challenged then and there, under
Section 37
of the Act.
Section 17

confers powers on the arbitral tribunal to make interim orders. Chapter
V comprising of
Sections 18
to
deals with the conduct of arbitral
proceedings. Chapter VI containing
Sections 28
to
deals with
making of the arbitral award and termination of the proceedings.
Chapter VII deals with recourse against an arbitral award.
Section 34

contemplates the filing of an application for setting aside an arbitral
award by making an application to the Court as defined in
Section 2(e)

of the Act. Chapter VIII deals with finality and enforcement of arbitral
awards.
Section 35
makes the award final and
Section 36
provides for
its enforcement under
the Code of Civil Procedure
, 1908 in the same
manner as if it were a decree of court. Chapter IX deals with appeals
and
Section 37
enumerates the orders that are open to appeal. We have
already referred to the right of appeal available under
Section 37(2)
of
the Act, on the Tribunal accepting a plea that it does not have
jurisdiction or when the arbitral tribunal accepts a plea that it is
exceeding the scope of its authority. No second appeal is
contemplated, but right to approach the Supreme Court is saved.
Chapter X deals with miscellaneous matters.
Section 43
makes the

Limitation Act, 1963
applicable to proceedings under the Act as it
applies to proceedings in Court.

7. We will first consider the question, as we see it. On a
plain understanding of the relevant provisions of the Act, it is seen that
in a case where there is an arbitration agreement, a dispute has arisen
and one of the parties had invoked the agreed procedure for
appointment of an arbitrator and the other party has not cooperated, the
party seeking an arbitration, could approach the Chief Justice of the
High Court if it is an internal arbitration or of the Supreme Court if it is
an international arbitration to have an arbitrator or arbitral tribunal
appointed. The Chief Justice, when so requested, could appoint an
arbitrator or arbitral tribunal depending on the nature of the agreement
between the parties and after satisfying himself that the conditions for
appointment of an arbitrator under sub-Section (6) of
Section 11
do
exist. The Chief Justice could designate another person or institution
to take the necessary measures. The Chief Justice has also to have the
qualification of the arbitrators in mind before choosing the arbitrator.
An arbitral tribunal so constituted, in terms of
Section 16
of the Act,
has the right to decide whether it has jurisdiction to proceed with the
arbitration, whether there was any agreement between the parties and
the other matters referred to therein.

8. Normally, any tribunal or authority conferred with a power
to act under a statute, has the jurisdiction to satisfy itself that the
conditions for the exercise of that power existed and that the case calls
for the exercise of that power. Such an adjudication relating to its own
jurisdiction which could be called a decision on jurisdictional facts, is
not generally final, unless it is made so by the Act constituting the
tribunal. Here, sub-Section (7) of
Section 11
has given a finality to the
decisions taken by the Chief Justice or any person or institution
designated by him in respect of matters falling under sub-Sections (4),
(5) and (6) of
Section 11
. Once a statute creates an authority, confers
on it power to adjudicate and makes its decision final on matters to be
decided by it, normally, that decision cannot be said to be a purely
administrative decision. It is really a decision on its own jurisdiction
for the exercise of the power conferred by the statute or to perform the
duties imposed by the statute. Unless, the authority satisfies itself that
the conditions for exercise of its power exist, it could not accede to a
request made to it for the exercise of the conferred power. While
exercising the power or performing the duty under
Section 11(6)
of the
Act, the Chief Justice has to consider whether the conditions
laid down
by
the section for the exercise of that power or the performance of that
duty, exist. Therefore, unaided by authorities and going by general
principals, it appears to us that while functioning under
Section 11(6)

of the Act, a Chief Justice or the person or institution designated by
him, is bound to decide whether he has jurisdiction, whether there is an
arbitration agreement, whether the applicant before him, is a party,
whether the conditions for exercise of the power have been fulfilled and
if an arbitrator is to be appointed, who is the fit person, in terms of the
provision.
Section 11(7)
makes his decision on the matters entrusted
to him, final.

9. The very scheme, if it involves an adjudicatory process,
restricts the power of the Chief Justice to designate, by excluding the
designation of a non-judicial institution or a non-judicial authority to
perform the functions. For, under our dispensation, no judicial or
quasi-judicial decision can be rendered by an institution if it is not a
judicial authority, court or a quasi-judicial tribunal. This aspect is dealt
with later while dealing with the right to designate under
Section 11(6)

and the scope of that designation.

10. The appointment of an arbitrator against the opposition of
one of the parties on the ground that the Chief Justice had no
jurisdiction or on the ground that there was no arbitration agreement, or
on the ground that there was no dispute subsisting which was capable
of being arbitrated upon or that the conditions for exercise of power
under
Section 11(6)
of the Act do not exist or that the qualification
contemplated for the arbitrator by the parties cannot be ignored and has
to be borne in mind, are all adjudications which affect the rights of
parties. It cannot be said that when the Chief Justice decides that he
has jurisdiction to proceed with the matter, that there is an arbitration
agreement and that one of the parties to it has failed to act according to
the procedure agreed upon, he is not adjudicating on the rights of the
party who is raising these objections. The duty to decide the
preliminary facts enabling the exercise of jurisdiction or power, gets all
the more emphasized, when sub-Section (7) designates the order under
sub-sections (4), (5) or (6) a 'decision' and makes the decision of the
Chief Justice final on the matters referred to in that sub-Section. Thus,
going by the general principles of law and the scheme of
Section 11
, it
is difficult to call the order of the Chief Justice merely an
administrative order and to say that the opposite side need not even be
heard before the Chief Justice exercises his power of appointing an
arbitrator. Even otherwise, when a statute confers a power or imposes
a duty on the highest judicial authority in the State or in the country,
that authority, unless shown otherwise, has to act judicially and has
necessarily to consider whether his power has been rightly invoked or
the conditions for the performance of his duty are shown to exist.

11.
Section 16
of the Act only makes explicit what is even
otherwise implicit, namely, that the arbitral tribunal constituted under
the Act has the jurisdiction to rule on its own jurisdiction, including
ruling on objections with respect to the existence or validity of the
arbitration agreement. Sub-section (1) also directs that an arbitration
clause which forms part of a contract shall be treated as an agreement
independent of the other terms of the contract. It also clarifies that a
decision by the arbitral tribunal that the contract is null and void shall
not entail ipso jure the invalidity of the arbitration clause. Sub-section
(2) of
Section 16
enjoins that a party wanting to raise a plea that the
arbitral tribunal does not have jurisdiction, has to raise that objection
not later than the submission of the statement of defence, and that the
party shall not be precluded from raising the plea of jurisdiction merely
because he has appointed or participated in the appointment of an
arbitrator. Sub-section (3) lays down that a plea that the arbitral
tribunal is exceeding the scope of its authority, shall be raised as soon
as the matter alleged to be beyond the scope of its authority is raised
during the arbitral proceedings. When the Tribunal decides these two
questions, namely, the question of jurisdiction and the question of
exceeding the scope of authority or either of them, the same is open to
immediate challenge in an appeal, when the objection is upheld and
only in an appeal against the final award, when the objection is
overruled. Sub-section (5) enjoins that if the arbitral tribunal overrules
the objections under sub-section (2) or sub-section (3), it should
continue with the arbitral proceedings and make an arbitral award.
Sub-section (6) provides that a party aggrieved by such an arbitral
award overruling the plea on lack of jurisdiction and the exceeding of
the scope of authority, may make an application on these grounds for
setting aside the award in accordance with
Section 34
of the Act. The
question, in the context of Sub-Section (7) of
Section 11
is, what is the
scope of the right conferred on the arbitral tribunal to rule upon its own
jurisdiction and the existence of the arbitration clause, envisaged by

Section 16(1)
, once the Chief Justice or the person designated by him
had appointed an arbitrator after satisfying himself that the conditions
for the exercise of power to appoint an arbitrator are present in the case.
Prima facie, it would be difficult to say that in spite of the finality
conferred by sub-Section (7) of
Section 11
of the Act, to such a
decision of the Chief Justice, the arbitral tribunal can still go behind
that decision and rule on its own jurisdiction or on the existence of an
arbitration clause. It also appears to us to be incongruous to say that
after the Chief Justice had appointed an arbitral tribunal, the arbitral
tribunal can turn round and say that the Chief Justice had no
jurisdiction or authority to appoint the tribunal, the very creature
brought into existence by the exercise of power by its creator, the Chief
Justice. The argument of learned Senior Counsel, Mr. K.K. Venugopal
that
Section 16
has full play only when an arbitral tribunal is
constituted without intervention under
Section 11(6)
of the Act, is one
way of reconciling that provision with
Section 11
of the Act, especially
in the context of sub-section (7) thereof. We are inclined to the view
that the decision of the Chief Justice on the issue of jurisdiction and the
existence of a valid arbitration agreement would be binding on the
parties when the matter goes to the arbitral tribunal and at subsequent
stages of the proceeding except in an appeal in the Supreme Court in
the case of the decision being by the Chief Justice of the High Court or
by a Judge of the High Court designated by him.

12. It is common ground that the Act has adopted the
UNCITRAL Model Law on International Commercial Arbitration.
But at the same time, it has made some departures from the model law.

Section 11
is in the place of
Article 11
of the Model Law. The Model
Law provides for the making of a request under
Article 11
to "the court
or other authority specified in
Article 6
to take the necessary measure".
The words in
Section 11
of the Act, are "the Chief Justice or the person
or institution designated by him". The fact that instead of the court,
the powers are conferred on the Chief Justice, has to be appreciated in
the context of the statute. 'Court' is defined in the Act to be the
principal civil court of original jurisdiction of the district and includes
the High Court in exercise of its ordinary original civil jurisdiction.
The principal civil court of original jurisdiction is normally the District
Court. The High Courts in India exercising ordinary original civil
jurisdiction are not too many. So in most of the States the concerned
court would be the District Court. Obviously, the Parliament did not
want to confer the power on the District Court, to entertain a request for
appointing an arbitrator or for constituting an arbitral tribunal under

Section 11
of the Act. It has to be noted that under
Section 9
of the
Act, the District Court or the High Court exercising original
jurisdiction, has the power to make interim orders prior to, during or
even post arbitration. It has also the power to entertain a challenge to
the award that may ultimately be made. The framers of the statute
must certainly be taken to have been conscious of the definition of
'court' in the Act. It is easily possible to contemplate that they did not
want the power under
Section 11
to be conferred on the District Court
or the High Court exercising original jurisdiction. The intention
apparently was to confer the power on the highest judicial authority in
the State and in the country, on Chief Justices of High Courts and on
the Chief Justice of India. Such a provision is necessarily intended to
add the greatest credibility to the arbitral process. The argument that
the power thus conferred on the Chief Justice could not even be
delegated to any other Judge of the High Court or of the Supreme
Court, stands negatived only because of the power given to designate
another. The intention of the legislature appears to be clear that it
wanted to ensure that the power under
Section 11(6)
of the Act was
exercised by the highest judicial authority in the concerned State or in
the country. This is to ensure the utmost authority to the process of
constituting the arbitral tribunal.

13. Normally, when a power is conferred on the highest
judicial authority who normally performs judicial functions and is the
head of the judiciary of the State or of the country, it is difficult to
assume that the power is conferred on the Chief Justice as persona
designata. Under
Section 11(6)
, the Chief Justice is given a power to
designate another to perform the functions under that provision. That
power has generally been designated to a Judge of the High Court or of
the Supreme Court respectively. Persona designata, according to
Black's Law Dictionary, means "A person considered as an individual
rather than as a member of a class". When the power is conferred on
the Chief Justices of the High Courts, the power is conferred on a class
and not considering that person as an individual.
In the
Central
Talkies Ltd., Kanpur vs. Dwarka Prasad
(1961 (3) SCR 495) while
considering the status in which the power was to be exercised by the
District Magistrate under the United Provinces (Temporary) Control
of Rent and Eviction Act, 1947, this Court held:

"a persona designata is "a person who is pointed out or
described as an individual, as opposed to a person
ascertained as a member of a class, or as filling a particular
character." (See Osborn's Concise Law Dictionary, 4th
Edition., p.253). In the words of Schwabe, C.J., in
Parthasardhi Naidu vs. Koteswara Rao,[I.L.R. 47 Mad 369
F.B.] personae designatae are, "persons selected to act in
their private capacity and not in their capacity as Judges."

The same consideration applies also to a well-known
officer like the District Magistrate named by virtue of his
office, and whose powers the Additional District
Magistrate can also exercise and who can create other
officers equal to himself for the purpose of the Eviction
Act."

In
Mukri Gopalan vs. Cheppilat Puthanpurayil Aboobacker

[(1995) 5 SCC 5] this Court after quoting the above passage from the

Central Talkies Ltd., Kanpur vs. Dwarka Prasad
, applied the test to
come to the conclusion that when
Section 18
of the Kerala Buildings
(Lease and Rent Control) Act, 1965 constituted the District Judge as an
appellate authority under that Act, it was a case where the authority was
being conferred on District Judges who constituted a class and,
therefore, the appellate authority could not be considered to be persona
designata. What can be gathered from P. Ramanatha Aiyar's
Advanced Law Lexicon, 3rd Edition, 2005, is that "persona designata"

is a person selected to act in his private capacity and not in his capacity
as a judge. He is a person pointed out or described as an individual as
opposed to a person ascertained as a member of a class or as filling a
particular character. It is also seen that one of the tests to be applied is
to see whether the person concerned could exercise the power only so
long as he holds office or could exercise the power even subsequently.
Obviously, on ceasing to be a Chief Justice, the person referred to in

Section 11(6)
of the Act could not exercise the power. Thus, it is clear
that the power is conferred on the Chief Justice under
Section 11(6)
of
the Act not as persona designata.

14. Normally a persona designata cannot delegate his power to
another. Here, the Chef Justice of the High Court or the Chief Justice
of India is given the power to designate another to exercise the power
conferred on him under
Section 11(6)
of the Act. If the power is a
judicial power, it is obvious that the power could be conferred only on
a judicial authority and in this case, logically on another Judge of the
High Court or on a Judge of the Supreme Court. It is logical to
consider the conferment of the power on the Chief Justice of the High
Court and on the Chief Justice of India as presiding Judges of the High
Court and the Supreme Court and the exercise of the power so
conferred, is exercise of judicial power/authority as presiding Judges of
the respective courts. Replacing of the word 'court' in the Model Law
with the expression "Chief Justice" in the Act, appears to be more for
excluding the exercise of power by the District Court and by the court
as an entity leading to obvious consequences in the matter of the
procedure to be followed and the rights of appeal governing the matter.
The departure from
Article 11
of the Model Law and the use of the
expression "Chief Justice" cannot be taken to exclude the theory of its
being an adjudication under
Section 11
of the Act by a judicial
authority.

15. We may at this stage notice the complementary nature of

Sections 8
and
. Where there is an arbitration agreement between the
parties and one of the parties, ignoring it, files an action before a
judicial authority and the other party raises the objection that there is an
arbitration clause, the judicial authority has to consider that objection
and if the objection is found sustainable to refer the parties to
arbitration. The expression used in this Section is 'shall' and this Court
in
P. Anand Gajapathi Raju Vs. P.V. G. Raju
[(2000) 4 SCC 539
and in
Hindustan Petroleum Corporation Ltd. Vs. Pink City
Midway Petroleum
[(2003) 6 SCC 503] has held that the judicial
authority is bound to refer the matter to arbitration once the existence
of a valid arbitration clause is established. Thus, the judicial authority
is entitled to, has to and bound to decide the jurisdictional issue raised
before it, before making or declining to make a reference.
Section 11

only covers another situation. Where one of the parties has refused to
act in terms of the arbitration agreement, the other party moves the
Chief Justice under
Section 11
of the Act to have an arbitrator
appointed and the first party objects, it would be incongruous to hold
that the Chief Justice cannot decide the question of his own jurisdiction
to appoint an arbitrator when in a parallel situation, the judicial
authority can do so. Obviously, the highest judicial authority has to
decide that question and his competence to decide cannot be
questioned. If it is held that the Chief Justice has no right or duty to
decide the question or cannot decide the question, it will lead to an
anomalous situation in that a judicial authority under
Section 8
can
decide, but not a Chief Justice under
Section 11
, though the nature of
the objection is the same and the consequence of accepting the
objection in one case and rejecting it in the other, is also the same,
namely, sending the parties to arbitration. The interpretation of
Section
that we have adopted would not give room for such an anomaly.

16.
Section 11(6)
does enable the Chief Justice to designate
any person or institution to take the necessary measures on an
application made under
Section 11(6)
of the Act. This power to
designate recognized in the Chief Justice, has led to an argument that a
judicial decision making is negatived, in taking the necessary measures
on an application, under
Section 11(6)
of the Act. It is pointed out that
the Chief Justice may designate even an institution like the Chamber of
Commerce or the Institute of Engineers and they are not judicial
authorities. Here, we find substance in the argument of Mr.
F.S.Nariman, learned senior counsel that in the context of
Section 5
of
the Act excluding judicial intervention except as provided in the Act,
the designation contemplated is not for the purpose of deciding the
preliminary facts justifying the exercise of power to appoint an
arbitrator, but only for the purpose of nominating to the Chief Justice a
suitable person to be appointed as arbitrator, especially, in the context
of
Section 11(8)
of the Act. One of the objects of conferring power on
the highest judicial authority in the State or in the country for
constituting the arbitral tribunal, is to ensure credibility in the entire
arbitration process and looked at from that point of view, it is difficult
to accept the contention that the Chief Justice could designate a non-
judicial body like the Chamber of Commerce to decide on the existence
of an arbitration agreement and so on, which are decisions, normally,
judicial or quasi judicial in nature.
Where a Chief Justice designates
not a Judge, but another person or an institution to nominate an arbitral
tribunal, that can be done only after questions as to jurisdiction,
existence of the agreement and the like, are decided first by him or his
nominee Judge and what is to be left to be done is only to nominate the
members for constituting the arbitral tribunal. Looking at the scheme
of the Act as a whole and the object with which it was enacted,
replacing the
Arbitration Act
of 1940, it seems to be proper to view the
conferment of power on the Chief Justice as the conferment of a
judicial power to decide on the existence of the conditions justifying
the constitution of an arbitral tribunal. The departure from the
UNCITRAL model regarding the conferment of the power cannot be
said to be conclusive or significant in the circumstances. Observations
of this Court in paragraphs 389 and 391 in Supreme Court Advocates
on
Record Association Vs. Union of India
[(1993) 4 SCC 441 at 668]
support the argument that the expression chief justice is used in the
sense of collectivity of judges of the Supreme Court and the High
Courts respectively.

17. It is true that the power under
Section 11(6)
of the Act is
not conferred on the Supreme Court or on the High Court, but it is
conferred on the Chief Justice of India or the Chief Justice of the High
Court. One possible reason for specifying the authority as the Chief
Justice, could be that if it were merely the conferment of the power on
the High Court, or the Supreme Court, the matter would be governed
by the normal procedure of that Court, including the right of appeal and
the Parliament obviously wanted to avoid that situation, since one of
the objects was to restrict the interference by Courts in the arbitral
process. Therefore, the power was conferred on the highest judicial
authority in the country and in the State in their capacities as Chief
Justices. They have been conferred the power or the right to pass an
order contemplated by
Section 11
of the Act. We have already seen
that it is not possible to envisage that the power is conferred on the
Chief Justice as persona designata. Therefore, the fact that the power is
conferred on the Chief Justice, and not on the court presided over by
him is not sufficient to hold that the power thus conferred is merely an
administrative power and is not a judicial power.

18. It is also not possible to accept the argument that there is
an exclusive conferment of jurisdiction on the arbitral tribunal, to
decide on the existence or validity of the arbitration agreement.

Section 8
of the Act contemplates a judicial authority before which an
action is brought in a matter which is the subject of an arbitration
agreement, on the terms specified therein, to refer the dispute to
arbitration. A judicial authority as such is not defined in the Act. It
would certainly include the court as defined in
Section 2(e)
of the Act
and would also, in our opinion, include other courts and may even
include a special tribunal like the Consumer Forum (See
Fair Air
Engineers (P) Ltd. and another vs. N.K. Modi
(1996 (6) SCC 385).
When the defendant to an action before a judicial authority raises the
plea that there is an arbitration agreement and the subject matter of the
claim is covered by the agreement and the plaintiff or the person who
has approached the judicial authority for relief, disputes the same, the
judicial authority, in the absence of any restriction in the Act, has
necessarily to decide whether, in fact, there is in existence a valid
arbitration agreement and whether the dispute that is sought to be raised
before it, is covered by the arbitration clause. It is difficult to
contemplate that the judicial authority has also to act mechanically or
has merely to see the original arbitration agreement produced before it,
and mechanically refer the parties to an arbitration. Similarly,
Section
enables a Court, obviously, as defined in the Act, when approached
by a party before the commencement of an arbitral proceeding, to grant
interim relief as contemplated by the Section. When a party seeks an
interim relief asserting that there was a dispute liable to be arbitrated
upon in terms of the Act, and the opposite party disputes the existence
of an arbitration agreement as defined in the Act or raises a plea that
the dispute involved was not covered by the arbitration clause, or that
the Court which was approached had no jurisdiction to pass any order
in terms of
Section 9
of the Act, that Court has necessarily to decide
whether it has jurisdiction, whether there is an arbitration agreement
which is valid in law and whether the dispute sought to be raised is
covered by that agreement. There is no indication in the Act that the
powers of the Court are curtailed on these aspects. On the other hand,

Section 9
insists that once approached in that behalf, "the Court shall
have the same power for making orders as it has for the purpose of and
in relation to any proceeding before it". Surely, when a matter is
entrusted to a Civil Court in the ordinary hierarchy of Courts without
anything more, the procedure of that Court would govern the
adjudication [See R.M.A.R.A. Adaikappa Chettiar and anr. vs. R.
Chandrasekhara Thevar (AIR 1948 P.C. 12)]

19.
Section 16
is said to be the recognition of the principle of
Kompetenz  Kompetenz. The fact that the arbitral tribunal has the
competence to rule on its own jurisdiction and to define the contours of
its jurisdiction, only means that when such issues arise before it, the
Tribunal can and possibly, ought to decide them. This can happen
when the parties have gone to the arbitral tribunal without recourse to

Section 8
or 11 of the Act. But where the jurisdictional issues are
decided under these Sections, before a reference is made,
Section 16

cannot be held to empower the arbitral tribunal to ignore the decision
given by the judicial authority or the Chief Justice before the reference
to it was made. The competence to decide does not enable the arbitral
tribunal to get over the finality conferred on an order passed prior to its
entering upon the reference by the very statute that creates it. That is
the position arising out of
Section 11(7)
of the Act read with
Section 16

thereof. The finality given to the order of the Chief Justice on the
matters within his competence under
Section 11
of the Act, are
incapable of being reopened before the arbitral tribunal. In Konkan
Railway (Supra) what is considered is only the fact that under
Section
, the arbitral tribunal has the right to rule on its own jurisdiction and
any objection, with respect to the existence or validity of the arbitration
agreement. What is the impact of
Section 11(7)
of the Act on the
arbitral tribunal constituted by an order under
Section 11(6)
of the Act,
was not considered. Obviously, this was because of the view taken in
that decision that the Chief Justice is not expected to decide anything
while entertaining a request under
Section 11(6)
of the Act and is only
performing an administrative function in appointing an arbitral tribunal.
Once it is held that there is an adjudicatory function entrusted to the
Chief Justice by the Act, obviously, the right of the arbitral tribunal to
go behind the order passed by the Chief Justice would take another hue
and would be controlled by
Section 11(7)
of the Act.

20. We will now consider the prior decisions of this Court. In
Sundaram Finance Ltd. vs. NEPC India Ltd. (1999(2) SCC

479) this Court held that the provisions of the Act must be
interpreted and construed independently of the interpretation
placed on the
Arbitration Act, 1940
and it will be more relevant to
refer to the UNCITRAL model law while called upon to interpret the
provisions of the Act. This Court further held that under the 1996 Act,
appointment of arbitrator(s) is made as per the provision of
Section 11

which does not require the Court to pass a judicial order appointing an
arbitrator or arbitrators. It is seen that the question was not discussed
as such, since the court in that case was not concerned with the
interpretation of
Section 11
of the Act.
The view as above was quoted
with approval in
Ador Samia Private Limited Vs. Peekay Holdings
Limited & Others
(1999 (8) SCC 572) and nothing further was said
about the question. In other words, the question as to the nature of the
order to be passed by the Chief Justice when moved under
Section
11(6)
of the Act, was not discussed or decided upon.

21.
In
Wellington Associates Ltd. vs. Kirit Mehta
(2000 (4)
SCC 272) it was contended before the designated Judge that what was
relied on by the applicant was not an arbitration clause. The applicant
contended that the Chief Justice of India or the designate Judge cannot
decide that question and only the arbitrator can decide the question in
view of
Section 16
of the Act. The designated Judge held that
Section
did not exclude the jurisdiction of the Chief Justice of India or the
designated Judge to decide the question of the existence of an
arbitration clause. After considering the relevant aspects, the learned
Judge held:

"I am of the view that in cases where --- to start with 
there is a dispute raised at the stage of the application
under
Section 11
that there is no arbitration clause at all,
then it will be absurd to refer the very issue to an arbitrator
without deciding whether there is an arbitration clause at
all between the parties to start with. In my view, in the
present situation, the jurisdiction of the Chief Justice of
India or his designate to decide the question as to the
"existence" of the arbitration clause cannot be doubted and
cannot be said to be excluded by
Section 16
."

22. Then came
Konkan Railway Corporation Ltd. vs.
Mehul Construction Co.
(2000(7) SCC 201) in which the first
question framed was, what was the nature of the order passed by the
Chief Justice or his nominee in exercise of his power under
Section
11(6)
of the Arbitration and Conciliation Act, 1996? After noticing the
Statement of Objects and Reasons for the Act and after comparing the
language of
Section 11
of the Act and the corresponding article of the
model law, it was stated that the Act has designated the Chief Justice of
the High Court in cases of domestic arbitration and the Chief Justice of
India in cases of international commercial arbitration, to be the
authority to perform the function of appointment of an arbitrator,
whereas under the model law, the said power was vested with the
court. When the matter is placed before the Chief Justice or his
nominee under
Section 11
of the Act it was imperative for the Chief
Justice or his nominee to bear in mind the legislative intent that the
arbitral process should be set in motion without any delay whatsoever
and all contentious issues left to be raised before the arbitral tribunal
itself. It was further held that at that stage, it would not be appropriate
for the Chief Justice or his nominee, to entertain any contention or
decide the same between the parties. It was also held that in view of
the conferment of power on the arbitral tribunal under
Section 16
of the
Act, the intention of the legislature and its anxiety to see that the
arbitral process is set in motion at the earliest, it will be appropriate for
the Chief Justice to appoint an arbitrator without wasting any time or
without entertaining any contentious issue by a party objecting to the
appointment of an arbitrator. The Court stated:

"Bearing in mind the purpose of legislation, the language
used in
Section 11(6)
conferring power on the Chief
Justice or his nominee to appoint an arbitrator, the
curtailment of the power of the court in the matter of
interference, the expanding jurisdiction of the arbitrator
in course of the arbitral proceeding, and above all the
main objective, namely, the confidence of the
international market for speedy disposal of their disputes,
the character and status of an order appointing an
arbitrator by the Chief Justice or his nominee under

Section 11(6)
has to be decided upon. If it is held that an
order under
Section 11(6)
is a judicial or quasi-judicial
order then the said order would be amenable to judicial
intervention and any reluctant party may frustrate the
entire purpose of the Act by adopting dilatory tactics in
approaching a court of law even against an order of
appointment of an arbitrator. Such an interpretation has
to be avoided in order to achieve the basic objective for
which the country has enacted the Act of 1996 adopting
the UNCITRAL Model."

23. The Court proceeded to say that if it were to be held that
the order passed was purely administrative in nature, that would
facilitate the achieving of the object of the Act, namely, quickly setting
in motion the process of arbitration. Great emphasis was placed on the
conferment of power on the Chief Justice in preference to a court as
was obtaining in the model law. It was concluded " The nature of the
function performed by the Chief Justice being essentially to aid the
constitution of the arbitral tribunal immediately and the legislature
having consciously chosen to confer the power on the Chief Justice and
not a court, it is apparent that the order passed by the Chief Justice or
his nominee is an administrative order as has been held by this Court in

Ador Samia
case (supra) and the observations of this Court in

Sundaram Finance Ltd.
case (supra) also are quite appropriate
and neither of those decisions require any reconsideration."

24. It was thus held that an order passed under
Section 11(6)

of the Act, by the Chief Justice of the High Court or his nominee, was
an administrative order, its purpose being the speedy disposal of
commercial disputes and that such an order could not be subjected to
judicial review under
Article 136
of the Constitution of India. Even an
order refusing to appoint an arbitrator would not be amenable to the
jurisdiction of the Supreme Court under
Article 136
of the Constitution.
A petition under
Article 32
of the Constitution was also not
maintainable. But, an order refusing to appoint an arbitrator made by
the Chief Justice could be challenged before the High Court under

Article 226
of the Constitution. What seems to have persuaded this
Court was the fact that the statement of objects and reasons of the Act
clearly enunciated that the main object of the legislature was to
minimize the supervisory role of courts in arbitral process. Since

Section 16
empowers the arbitral tribunal to rule on its own jurisdiction
including ruling on objections with respect to the existence or validity
of an arbitration agreement, a party would have the opportunity to raise
his grievance against that decision either immediately or while
challenging the award after it was pronounced. Since it was not proper
to encourage a party to an arbitration, to frustrate the entire purpose of
the Act by adopting dilatory tactics by approaching the court even
against the order of appointment of an arbitrator, it was necessary to
take the view that the order was administrative in nature. This was all
the more so, since the nature of the function performed by the Chief
Justice was essentially to aid the constitution of the arbitral tribunal
immediately and the legislature having consciously chosen to confer
the power on the Chief Justice and not on the court, it was apparent that
the order was an administrative order. With respect, it has to be
pointed out that this Court did not discus or consider the nature of the
power that the Chief Justice is called upon to exercise. Merely because
the main purpose was the constitution of an arbitral tribunal, it could
not be taken that the exercise of power is an administrative power.
While constituting an arbitral tribunal, on the scheme of the Act, the
Chief Justice has to consider whether he as the Chief Justice has
jurisdiction in relation to the contract, whether there was an arbitration
agreement in terms of
Section 7
of the Act and whether the person
before him with the request, is a party to the arbitration agreement. On
coming to a conclusion on these aspects, he has to enquire whether the
conditions for exercise of his power under
Section 11(6)
of the Act
exist in the case and only on being satisfied in that behalf, he could
appoint an arbitrator or an arbitral tribunal on the basis of the request.
It is difficult to say that when one of the parties raises an objection that
there is no arbitration agreement, raises an objection that the person
who has come forward with a request is not a party to the arbitration
agreement, the Chief Justice can come to a conclusion on those
objections without following an adjudicatory process. Can he
constitute an arbitrary tribunal, without considering these questions? If
he can do so, why should such a function be entrusted to a high judicial
authority like the Chief Justice. Similarly, when the party raises an
objection that the conditions for exercise of the power under
Section
11(6)
of the Act are not fulfilled and the Chief Justice comes to the
conclusion that they have been fulfilled, it is difficult to say that he was
not adjudicating on a dispute between the parties and was merely
passing an administrative order. It is also not correct to say that by the
mere constitution of an arbitral tribunal the rights of parties are not
affected. Dragging a party to an arbitration when there existed no
arbitration agreement or when there existed no arbitrable dispute, can
certainly affect the right of that party and even on monetary terms,
impose on him a serious liability for meeting the expenses of the
arbitration, even if it be preliminary expenses and his objection is
upheld by the arbitral tribunal. Therefore, it is not possible to accept
the position that no adjudication is involved in the constitution of an
arbitral tribunal.

25. It is also somewhat incongruous to permit the order of the
Chief Justice under
Section 11(6)
of the Act being subjected to scrutiny
under
Article 226
of the Constitution at the hands of another Judge of
the High Court. In the absence of any conferment of an appellate
power, it may not be possible to say that a certiorari would lie against
the decision of the High Court in the very same High Court. Even in
the case of an international arbitration, the decision of the Chief Justice
of India would be amenable to challenge under
Article 226
of the
Constitution before a High Court. While construing the scope of the
power under
Section 11(6)
, it will not be out of place for the court to
bear this aspect in mind, since after all, courts follow or attempt to
follow certain judicial norms and that precludes such challenges (see
Naresh Shridhar Mirajkar and others.
Vs. State of Maharashtra
and another (1966 (3) SCR 744) and Rupa Ashok Hurra vs. Ashok
Hurra and another
(2002 (4) SCC 388).

26. In Nimet Resourcs Inc. & Anr. Vs.Essar Steels Ltd.
(2000 (7) SCC 497) the question of existence or otherwise of an
arbitration agreement between the parties was itself held to be referable
to the arbitrator since the order proceeded on the basis that the power
under
Section 11(6)
was merely administrative.

27. The correctness of the decision in
Konkan Railway
Corpn. Ltd. vs. Mehul Construction Co.
(supra) was doubted in

Konkan Railway Cooperation Ltd. vs. Rani Construction Pvt. Ltd.

and the order of reference, is reported in 2000 (8) SCC 159. The
reconsideration was recommended on the ground that the Act did not
take away the power of the Court to decide preliminary issues
notwithstanding the arbitrator's competence to decide such issues
including whether particular matters were "excepted matters", or
whether an arbitration agreement existed or whether there was a dispute
in terms of the agreement. It was noticed that in other countries where
UNCITRAL model was being followed, the court could decide such
issues judicially and need not mechanically appoint an arbitrator.
There were situations where preliminary issues would have to be
decided by the court rather than by the arbitrator. If the order of the
Chief Justice or his nominees were to be treated as an administrative
one, it could be challenged before the single Judge of the High Court,
then before a Division Bench and then the Supreme Court under
Article
of the Constitution, a result that would cause further delay in
arbitral proceedings, something sought to be prevented by the Act. An
order under
Section 11
of the Act did not relate to the administrative
functions of the Chief Justice or of the Chief Justice of India.

28. The reference came up before a Constitution Bench.
In

Konkan Railway Construction Ltd. vs. Rani Construction Pvt. Ltd.

(2002 (2) SCC 388), the Constitution Bench reiterated the view taken
in
Mehul Construction Co.
's case (supra), if we may say so with
respect, without really answering the questions posed by the order of
reference. It was stated that there is nothing in
Section 11
of the Act
that requires the party other than the party making the request, to be
given notice of the proceedings before the Chief Justice. The Court
went on to say that
Section 11
did not contemplate a response from the
other party. The approach was to say that none of the requirements
referred to in
Section 11(6)
of the Act contemplated or amounted to an
adjudication by the Chief Justice while appointing an arbitrator. The
scheme framed under the
Arbitration Act
by the Chief Justice of India
was held to be not mandatory. It was stated that the UNCITRAL
model law was only taken into account and hence the model law, or
judgments and literature thereon, was not a guide to the interpretation
of the Act and especially of
Section 11
.

29. With respect, what was the effect of the Chief Justice
having to decide his own jurisdiction in a given case was not
considered by the Bench. Surely, the question whether the Chief
Justice could entertain the application under
Section 11(6)
of the Act
could not be left to the decision of the arbitral tribunal constituted by
him on entertaining such an application. We also feel that adequate
attention was not paid to the requirement of the Chief Justice having to
decide that there is an arbitration agreement in terms of
Section 7
of the
Act before he could exercise his power under
Section 11(6)
of the Act
and its implication. The aspect, whether there was an arbitration
agreement, was not merely a jurisdictional fact for commencing the
arbitration itself, but it was also a jurisdictional fact for appointing an
arbitrator on a motion under
Section 11(6)
of the Act, was not kept in
view. A Chief Justice could appoint an arbitrator in exercise of his
power only if there existed an arbitration agreement and without
holding that there was an agreement, it would not be open to him to
appoint an arbitrator saying that he was appointing an arbitrator since
he has been moved in that behalf and the applicant before him asserts
that there is an arbitration agreement. Acceptance of such an
argument, with great respect, would reduce the high judicial authority
entrusted with the power to appoint an arbitrator, an automaton and
sub-servient to the arbitral tribunal which he himself brings into
existence. Our system of law does not contemplate such a situation.

30. With great respect, it is seen that the court did not really
consider the nature of the rights of the parties involved when the Chief
Justice exercised the power of constituting the arbitral tribunal. The
court also did not consider whether it was not necessary for the Chief
Justice to satisfy himself of the existence of the facts which alone
would entitle him or enable him to accede to the request for
appointment of an arbitrator and what was the nature of that process by
which he came to the conclusion that an arbitral tribunal was liable to
be constituted. When, for example, a dispute which no more survives
as a dispute, was referred to an arbitral tribunal or when an arbitral
tribunal was constituted even in the absence of an arbitration agreement
as understood by the Act, how could the rights of the objecting party
be said to be not affected, was not considered in that perspective. In
other words, the Constitution Bench proceeded on the basis that while
exercising power under
Section 11(6)
of the Act there was nothing for
the Chief Justice to decide. With respect, the very question that fell for
decision was whether there had to be an adjudication on the preliminary
matters involved and when the result had to depend on that
adjudication, what was the nature of that adjudication. It is in that
context that a reconsideration of
the said decision
is sought for in this
case. The ground of ensuring minimum judicial intervention by itself
is not a ground to hold that the power exercised by the Chief Justice is
only an administrative function. As pointed out in the order of
reference to that Bench, the conclusion that it is only an administrative
act is the opening of the gates for an approach to the High Court under

Article 226
of the Constitution, for an appeal under the Letters Patent
or the concerned
High Court Act
to a Division Bench and a further
appeal to this Court under
Article 136
of the Constitution of India.

31. Moreover, in a case where the objection to jurisdiction or
the existence of an arbitration agreement is overruled by the arbitral
tribunal, the party has to participate in the arbitration proceedings
extending over a period of time by incurring substantial expenditure
and then to come to court with an application under
Section 34
of the
Arbitration Act seeking the setting aside of the award on the ground
that there was no arbitration agreement or that there was nothing to be
arbitrated upon when the tribunal was constituted. Though this may
avoid intervention by court until the award is pronounced, it does mean
considerable expenditure and time spent by the party before the arbitral
tribunal. On the other hand, if even at the initial stage, the Chief Justice
judicially pronounces that he has jurisdiction to appoint an arbitrator,
that there is an arbitration agreement between the parties, that there was
a live and subsisting dispute for being referred to arbitration and
constitutes the tribunal as envisaged, on being satisfied of the existence
of the conditions for the exercise of his power, ensuring that the
arbitrator is a qualified arbitrator, that will put an end to a host of
disputes between the parties, leaving the party aggrieved with a remedy
of approaching this Court under
Article 136
of the Constitution. That
would give this Court, an opportunity of scrutinizing the decision of the
Chief Justice on merits and deciding whether it calls for interference in
exercise of its plenary power. Once this Court declines to interfere
with the adjudication of the Chief Justice to the extent it is made, it
becomes final. This reasoning is also supported by sub-section (7) of

Section 11
, making final, the decision of the Chief Justice on the
matters decided by him while constituting the arbitral tribunal. This
will leave the arbitral tribunal to decide the dispute on merits
unhampered by preliminary and technical objections. In the long run,
especially in the context of the judicial system in our country, this
would be more conducive to minimising judicial intervention in matters
coming under the Act. This will also avert the situation where even
the order of the Chief Justice of India could be challenged before a
single judge of the High Court invoking the
Article 226
of the
Constitution of India or before an arbitral tribunal, consisting not
necessarily of legally trained persons and their coming to a conclusion
that their constitution by the Chief Justice was not warranted in the
absence of an arbitration agreement or in the absence of a dispute in
terms of the agreement.

32.
Section 8
of the Arbitration Act, 1940 enabled the court
when approached in that behalf to supply an omission.
Section 20
of
that Act enabled the court to compel the parties to produce the
arbitration agreement and then to appoint an arbitrator for adjudicating
on the disputes. It may be possible to say that
Section 11(6)
of the Act
combines both the powers. May be, it is more in consonance with

Section 8
of the Old Act. But to call the power merely as an
administrative one, does not appear to be warranted in the context of
the relevant provisions of the Act. First of all, the power is conferred
not on an administrative authority, but on a judicial authority, the
highest judicial authority in the State or in the country. No doubt, such
authorities also perform administrative functions. An appointment of
an arbitral tribunal in terms of
Section 11
of the Act, is based on a
power derived from a statute and the statute itself prescribes the
conditions that should exist for the exercise of that power. In the
process of exercise of that power, obviously the parties would have the
right of being heard and when the existence of the conditions for the
exercise of the power are found on accepting or overruling the
contentions of one of the parties it necessarily amounts to an order,
judicial in nature, having finality subject to any available judicial
challenge as envisaged by the Act or any other statute or the
Constitution. Looked at from that point of view also, it seems to be
appropriate to hold that the Chief Justice exercises a judicial power
while appointing an arbitrator.

33. In Attorney Geenral of the Gambia vs. Pierre Sarr
N'jie (1961 Appeal Cases 617) the question arose whether the power
to judge an alleged professional misconduct could be delegated to a
Deputy Judge by the Chief Justice who had the power to suspend any
barrister or solicitor from practicing within the jurisdiction of the court.
Under
Section 7
of the Supreme Court Ordinance of the Gambia, the
Deputy Judge could exercise "all the judicial powers of the Judge of the
Supreme Court". The question was, whether the taking of disciplinary
action for professional misconduct; was a judicial power or an
administrative power. The Judicial Committee of the Privy Council
held that a judge exercises judicial powers not only when he is deciding
suits between the parties but also when he exercises disciplinary
powers which are properly appurtenant to the office of a judge. By
way of illustration, Lord Dening stated "Suppose, for instance, that a
judge finding that a legal practitioner had been guilty of professional
misconduct in the course of a case, orders him to pay the costs, as he
has undoubtedly power to do (see Myers v. Elman, per Lord Wright).
That would be an exercise of the judicial powers of the judge just as
much as if he committed him for contempt of court. Yet there is no
difference in quality between the power to order him to pay costs and
the power to suspend him or strike him off."

34. The above example gives an indication that it is the nature
of the power that is relevant and not the mode of exercise. In
Shankarlal Aggarwal and ors. vs. Shankar Lal Poddar and ors.
(1964 (1) SCR 717) this Court was dealing with the question whether
the order of the Company Judge confirming a sale was merely an
administrative order passed in the course of the administration of the
assets of the company under liquidation and, therefore, not a judicial
order subject to appeal. This Court held that the order of the Company
Judge confirming the sale was not an administrative but a judicial
order. Their Lordships stated thus:

"It is not correct to say that every order of the Court,
merely for the reason that it is passed in the course of the
realization of the assets of the Company, must always be
treated merely as an administrative one. The question
ultimately depends upon the nature of the order that is
passed. An order according sanction to a sale
undoubtedly involves a discretion and cannot be termed
merely an administrative order, for before confirming
the sale the court has to be satisfied, particularly where
the confirmation is opposed, that the sale has been held in
accordance with the conditions subject to which alone the
liquidator has been permitted to effect it, and that even
otherwise the sale has been fair and has not resulted in
any loss to the parties who would ultimately have to
share the realization.

It is not possible to formulate a definition which
would satisfactorily distinguish between an
administrative and a judicial order. That the power is
entrusted to or wielded by a person who functions as a
court is not decisive of the question whether the act or
decision is administrative or judicial. An administrative
order would be one which is directed to the regulation or
supervision of matters as distinguished from an order
which decides the rights of parties or confers or refuses
to confer rights to property which are the subject of
adjudication before the court. One of the tests would be
whether a matter which involves the exercise of
discretion is left for the decision of the authority,
particularly if that authority were a court, and if the
discretion has to be exercised on objective, as
distinguished from a purely subjective consideration, it
would be a judicial decision. It has sometimes been said
that the essence of a judicial proceeding or of a judicial
order is that there would be two parties and a lis between
them which is the subject of adjudication, as a result of
that order or a decision on an issue between a proposal
and an opposition. No doubt it would not be possible to
describe an order passed deciding a lis between the
authority that is not a judicial order but it does not follow
that the absence of a lis necessarily negatives the order
being judicial. Even viewed from this narrow
standpoint, it is possible to hold that there was a lis
before the Company Judge which he decided by passing
the order. On the one hand were the claims of the
highest bidder who put forward the contention that he
had satisfied the requirements laid down for the
acceptance of his bid and was consequently entitled to
have the sale in his favour confirmed, particularly so as
he was supported in this behalf by the Official
Liquidators. On the other hand, there was the first
respondent and the large body of unsecured creditors
whose interests, even if they were not represented by the
first respondent, the court was bound to protect. If the
sale of which confirmation was sought was characterized
by any deviation subject to which the sale was directed to
be held or even otherwise was for a gross undervalue in
the sense that very much more could reasonably be
expected to be obtained if the sale were properly held, in
view of the figure of Rs.3,37,000/- which had been bid
by Nandlal Agarwalla it would be duty of the court to
refuse the confirmation in the interests of the general
body of creditors, and this was the submission made by
the first respondent. There were thus two points of view
presented to the court by two contending parties or
interests and the court was called upon to decide between
them, and the decision vitally affected the rights of the
parties to property. Under the circumstances, the order
of the Company Judge was a judicial order and not
administrative one, and was therefore not inherently
incapable of being brought up in appeal."

35. Going by the above test it is seen that at least in the matter
of deciding his own jurisdiction and in the matter of deciding on the
existence of an arbitration agreement, the Chief Justice when
confronted with two points of view presented by the rival parties, is
called upon to decide between them and the decision vitally affects the
rights of the parties in that, either the claim for appointing an arbitral
tribunal leading to an award is denied to a party or the claim to have an
arbitration proceeding set in motion for entertaining a claim is
facilitated by the Chief Justice. In this context, it is not possible to say
that the Chief Justice is merely exercising an administrative function
when called upon to appoint an arbitrator and that he need not even
issue notice to opposite side before appointing an arbitrator.

36. It is fundamental to our procedural jurisprudence, that the
right of no person shall be affected without he being heard. This
necessarily imposes an obligation on the Chief Justice to issue notice to
the opposite party when he is moved under
Section 11
of the Act. The
notice to the opposite party cannot be considered to be merely an
intimation to that party of the filing of the arbitration application and
the passing of an administrative order appointing an arbitrator or an
arbitral tribunal. It is really the giving of an opportunity of being heard.
There have been cases where claims for appointment of an arbitrator
based on an arbitration agreement are made ten or twenty years after
the period of the contract has come to an end. There have been cases
where the appointment of an arbitrator has been sought, after the parties
had settled the accounts and the concerned party had certified that he
had no further claims against the other contracting party. In other
words, there have been occasions when dead claims are sought to be
resurrected. There have been cases where assertions are made of the
existence of arbitration agreements when, in fact, such existence is
strongly disputed by the other side who appears on issuance of notice.
Controversies are also raised as to whether the claim that is sought to
be put forward comes within the purview of the concerned arbitration
clause at all.
The Chief Justice has necessarily to apply his mind to
these aspects before coming to a conclusion one way or the other and
before proceeding to appoint an arbitrator or declining to appoint an
arbitrator. Obviously, this is an adjudicatory process. An opportunity
of hearing to both parties is a must. Even in administrative functions if
rights are affected, rules of natural justice step in. The principles
settled by Ridge Vs. Baldwin [(1963) 2 ALL ER 66] are well known
Therefore, to the extent,
Konkan Railway
(supra) states that no notice
need be issued to the opposite party to give him an opportunity of being
heard before appointing an arbitrator, with respect, the same has to be
held to be not sustainable.

37. It is true that finality under
Section 11 (7)
of the Act is
attached only to a decision of the Chief Justice on a matter entrusted by
sub-Section (4) or sub-Section (5) or sub-Section (6) of that Section.
Sub-Section (4) deals with the existence of an appointment procedure
and the failure of a party to appoint the arbitrator within 30 days from
the receipt of a request to do so from the other party or when the two
appointed arbitrators fail to agree on the presiding arbitrator within 30
days of their appointment. Sub-Section (5) deals with the parties
failing to agree in nominating a sole arbitrator within 30 days of the
request in that behalf made by one of the parties to the arbitration
agreement and sub-Section (6) deals with the Chief Justice appointing
an arbitrator or an arbitral tribunal when the party or the two arbitrators
or a person including an institution entrusted with the function, fails to
perform the same. The finality, at first blush, could be said to be only
on the decision on these matters. But the basic requirement for
exercising his power under
Section 11(6)
, is the existence of an
arbitration agreement in terms of
Section 7
of the Act and the applicant
before the Chief Justice being shown to be a party to such an
agreement. It would also include the question of the existence of
jurisdiction in him to entertain the request and an enquiry whether at
least a part of the cause of action has arisen within the concerned State.
Therefore, a decision on jurisdiction and on the existence of the
arbitration agreement and of the person making the request being a
party to that agreement and the subsistence of an arbitrable dispute
require to be decided and the decision on these aspects is a prelude to
the Chief Justice considering whether the requirements of sub-Section
(4), sub-Section (5) or sub-Section (6) of
Section 11
are satisfied when
approached with the request for appointment of an arbitrator. It is
difficult to understand the finality to referred to in
Section 11(7)
as
excluding the decision on his competence and the locus standi of the
party who seeks to invoke his jurisdiction to appoint an arbitrator.
Viewed from that angle, the decision on all these aspects rendered by
the Chief Justice would attain finality and it is obvious that the decision
on these aspects could be taken only after notice to the parties and after
hearing them.

38. It is necessary to define what exactly the Chief Justice,
approached with an application under
Section 11
of the Act, is to
decide at that stage. Obviously, he has to decide his own jurisdiction
in the sense, whether the party making the motion has approached the
right High Court. He has to decide whether there is an arbitration
agreement, as defined in the Act and whether the person who has made
the request before him, is a party to such an agreement. It is necessary
to indicate that he can also decide the question whether the claim was a
dead one; or a long barred claim that was sought to be resurrected and
whether the parties have concluded the transaction by recording
satisfaction of their mutual rights and obligations or by receiving the
final payment without objection. It may not be possible at that stage, to
decide whether a live claim made, is one which comes within the
purview of the arbitration clause. It will be appropriate to leave that
question to be decided by the arbitral tribunal on taking evidence, along
with the merits of the claims involved in the arbitration. The Chief
Justice has to decide whether the applicant has satisfied the conditions
for appointing an arbitrator under
Section 11(6)
of the Act. For the
purpose of taking a decision on these aspects, the Chief Justice can
either proceed on the basis of affidavits and the documents produced or
take such evidence or get such evidence recorded, as may be necessary.
We think that adoption of this procedure in the context of the Act
would best serve the purpose sought to be achieved by the Act of
expediting the process of arbitration, without too many approaches to
the court at various stages of the proceedings before the Arbitral
tribunal.

39. An aspect that requires to be considered at this stage is the
question whether the Chief Justice of the High Court or the Chief
Justice of India can designate a non-judicial body or authority to
exercise the power under
Section 11(6)
of the Act. We have already
held that, obviously, the legislature did not want to confer the power on
the Court as defined in the Act, namely, the District Court, and wanted
to confer the power on the Chief Justices of the High Courts and on the
Chief Justice of India. Taking note of
Section 5
of the Act and the
finality attached by
Section 11 (7)
of the Act to his order and the
conclusion we have arrived at that the adjudication is judicial in nature,
it is obvious that no person other than a Judge and no non-judicial body
can be designated for entertaining an application for appointing an
arbitrator under
Section 11(6)
of the Act or for appointing an arbitrator.
In our dispensation, judicial powers are to be exercised by the judicial
authorities and not by non-judicial authorities. This scheme cannot be
taken to have been given the go-by by the provisions in the Act in the
light of what we have discussed earlier. Therefore, what the Chief
Justice can do under
Section 11(6)
of the Act is to seek the help of a
non-judicial body to point out a suitable person as an arbitrator in the
context of
Section 11(8)
of the Act and on getting the necessary
information, if it is acceptable, to name that person as the arbitrator or
the set of persons as the arbitral tribunal.

40. Then the question is whether the Chief Justice of the High
Court can designate a district judge to perform the functions under

Section 11(6)
of the Act. We have seen the definition of '
Court' in
the Act
. We have reasoned that the intention of the legislature was not
to entrust the duty of appointing an arbitrator to the District Court.
Since the intention of the statute was to entrust the power to the highest
judicial authorities in the State and in the country, we have no
hesitation in holding that the Chief Justice cannot designate a district
judge to perform the functions under
Section 11(6)
of the Act. This
restriction on the power of the Chief Justice on designating a district
judge or a non-judicial authority flows from the scheme of the Act.

41. In our dispensation of justice, especially in respect of
matters entrusted to the ordinary hierarchy of courts or judicial
authorities, the duty would normally be performed by a judicial
authority according to the normal procedure of that court or of that
authority. When the Chief Justice of the High Court is entrusted with
the power, he would be entitled to designate another judge of the High
Court for exercising that power. Similarly, the Chief Justice of India
would be in a position to designate another judge of the Supreme Court
to exercise the power under
Section 11(6)
of the Act. When so
entrusted with the right to exercise such a power, the judge of the High
Court and the judge of the Supreme Court would be exercising the
power vested in the Chief Justice of the High Court or in the Chief
Justice of India. Therefore, we clarify that the Chief Justice of a High
Court can delegate the function under
Section 11(6)
of the Act to a
judge of that court and he would actually exercise the power of the
Chief Justice conferred under
Section 11(6)
of the Act. The position
would be the same when the Chief Justice of India delegates the power
to another judge of the Supreme Court and he exercises that power as
designated by the Chief Justice of India.

42. In this context, it has also to be noticed that there is an
ocean of difference between an institution which has no judicial
functions and an authority or person who is already exercising judicial
power in his capacity as a judicial authority. Therefore, only a judge of
the Supreme Court or a judge of the High Court could respectively be
equated with the Chief Justice of India or the Chief Justice of the High
Court while exercising power under
Section 11(6)
of the Act as
designated by the Chief Justice. A non-judicial body or institution
cannot be equated with a Judge of the High Court or a Judge of the
Supreme Court and it has to be held that the designation contemplated
by
Section 11(6)
of the Act is not a designation to an institution that is
incompetent to perform judicial functions. Under our dispensation a
non-judicial authority cannot exercise judicial powers.

43. Once we arrive at the conclusion that the proceeding
before the Chief Justice while entertaining an application under
Section
11(6)
of the Act is adjudicatory, then obviously, the outcome of that
adjudication is a judicial order. Once it is a judicial order, the same, as
far as the High Court is concerned would be final and the only avenue
open to a party feeling aggrieved by the order of the Chief Justice
would be to approach to the Supreme Court under
Article 136
of the
Constitution of India. If it were an order by the Chief Justice of India,
the party will not have any further remedy in respect of the matters
covered by the order of the Chief Justice of India or the Judge of the
Supreme Court designated by him and he will have to participate in the
arbitration before the Tribunal only on the merits of the claim.
Obviously, the dispensation in our country, does not contemplate any
further appeal from the decision of the Supreme Court and there
appears to be nothing objectionable in taking the view that the order of
the Chief Justice of India would be final on the matters which are
within his purview, while called upon to exercise his jurisdiction under

Section 11
of the Act. It is also necessary to notice in this context that
this conclusion of ours would really be in aid of quick disposal of
arbitration claims and would avoid considerable delay in the process,
an object that is sought to be achieved by the Act.

44. It is seen that some High Courts have proceeded on the
basis that any order passed by an arbitral tribunal during arbitration,
would be capable of being challenged under
Article 226
or 227 of the
Constitution of India. We see no warrant for such an approach.

Section 37
makes certain orders of the arbitral tribunal appealable.
Under
Section 34
, the aggrieved party has an avenue for ventilating his
grievances against the award including any in-between orders that
might have been passed by the arbitral tribunal acting under
Section 16

of the Act. The party aggrieved by any order of the arbitral tribunal,
unless has a right of appeal under
Section 37
of the Act, has to wait
until the award is passed by the Tribunal. This appears to be the
scheme of the Act. The arbitral tribunal is after all, the creature of a
contract between the parties, the arbitration agreement, even though if
the occasion arises, the Chief Justice may constitute it based on the
contract between the parties. But that would not alter the status of the
arbitral tribunal. It will still be a forum chosen by the parties by
agreement. We, therefore, disapprove of the stand adopted by some of
the High Courts that any order passed by the arbitral tribunal is capable
of being corrected by the High Court under
Article 226
or 227 of the
Constitution of India. Such an intervention by the High Courts is not
permissible.

45. The object of minimizing judicial intervention while the
matter is in the process of being arbitrated upon, will certainly be
defeated if the High Court could be approached under
Article 227
of
the Constitution of India or under
Article 226
of the Constitution of
India against every order made by the arbitral tribunal. Therefore, it is
necessary to indicate that once the arbitration has commenced in the
arbitral tribunal, parties have to wait until the award is pronounced
unless, of course, a right of appeal is available to them under
Section 37

of the Act even at an earlier stage.

46. We, therefore, sum up our conclusions as follows:

i) The power exercised by the Chief Justice of the High
Court or the Chief Justice of India under
Section 11(6)
of
the Act is not an administrative power. It is a judicial
power.

ii) The power under
Section 11(6)
of the Act, in its entirety,
could be delegated, by the Chief Justice of the High Court
only to another judge of that court and by the Chief Justice
of India to another judge of the Supreme Court.

(iii) In case of designation of a judge of the High Court or of
the Supreme Court, the power that is exercised by the
designated, judge would be that of the Chief Justice as
conferred by the statute.

(iv) The Chief Justice or the designated judge will have the
right to decide the preliminary aspects as indicated in the
earlier part of this judgment. These will be, his own
jurisdiction, to entertain the request, the existence of a
valid arbitration agreement, the existence or otherwise of a
live claim, the existence of the condition for the exercise
of his power and on the qualifications of the arbitrator or
arbitrators. The Chief Justice or the judge designated
would be entitled to seek the opinion of an institution in
the matter of nominating an arbitrator qualified in terms of

Section 11(8)
of the Act if the need arises but the order
appointing the arbitrator could only be that of the Chief
Justice or the judge designate.

(v) Designation of a district judge as the authority under

Section 11(6)
of the Act by the Chief Justice of the High
Court is not warranted on the scheme of the Act.

(vi) Once the matter reaches the arbitral tribunal or the sole
arbitrator, the High Court would not interfere with orders
passed by the arbitrator or the arbitral tribunal during the
course of the arbitration proceedings and the parties could
approach the court only in terms of
Section 37
of the Act
or in terms of
Section 34
of the Act.

(vii) Since an order passed by the Chief Justice of the High
Court or by the designated judge of that court is a judicial
order, an appeal will lie against that order only under

Article 136
of the Constitution of India to the Supreme
Court.

(viii) There can be no appeal against an order of the Chief
Justice of India or a judge of the Supreme Court
designated by him while entertaining an application under

Section 11(6)
of the Act.

(ix) In a case where an arbitral tribunal has been constituted by
the parties without having recourse to
Section 11(6)
of the
Act, the arbitral tribunal will have the jurisdiction to
decide all matters as contemplated by
Section 16
of the
Act.

(x) Since all were guided by the decision of this Court in
Konkan Railway Corpn. Ltd. & anr. Vs. Rani
Construction Pvt. Ltd. [(2000) 8 SCC 159] and orders
under
Section 11(6)
of the Act have been made based on
the position adopted in that decision, we clarify that
appointments of arbitrators or arbitral tribunals thus far
made, are to be treated as valid, all objections being left to
be decided under
Section 16
of the Act. As and from this
date, the position as adopted in this judgment will govern
even pending applications under
Section 11(6)
of the Act.

(xi) Where District Judges had been designated by the Chief
Justice of the High Court under
Section 11(6)
of the Act,
the appointment orders thus far made by them will be
treated as valid; but applications if any pending before
them as on this date will stand transferred, to be dealt with
by the Chief Justice of the concerned High Court or a
Judge of that court designated by the Chief Justice.

(xii) The decision in Konkan Railway Corpn. Ltd. & anr. Vs.
Rani Construction Pvt. Ltd. [(2000) 8 SCC 159] is
overruled.

44. The individual appeals will be posted before the
appropriate bench for being disposed of in the light of the principles
settled by this decision.