Supreme Court of India

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

Author:
P.K.Balasubramanyan

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

CASE NO.:
Appeal (civil) 4168 of 2003

PETITIONER:
S.B.P. & CO.

RESPONDENT:
PATEL ENGINEERING LTD. & ANR

DATE OF JUDGMENT: 26/10/2005

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

JUDGMENT:

JUDGMENT

DELIVERED BY:

P.K.BALASUBRAMANYAN, J.

C.K.THAKKER,J.

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.
Corporation Ltd. v. Mehul Construction Co.
as approved by the
Constitution Bench in
Konkan Railway Corporation Ltd. and Anr. v. Rani
Construction Pvt. Ltd.
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.
Page 1799

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, 1940
.
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,
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 Page 1800 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 36
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 Page 1801 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 12
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. Page 1802 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
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 Page
1804 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
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 Page 1805 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 v. Dwarka Prasad
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
v. 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 v. Cheppilat Puthanpurayil Aboobacker
this Court after
quoting the above passage from the
Central Talkies Ltd., Kanpur v. Dwarka
Prasad, Page
1806 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

11. 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
v. P.V. G. Raju
and in Hindustan Petroleum Corporation Ltd. v. Pink City
Midway Petroleum Page 1807 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 11
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 Page 1808 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 v. Union of India
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 Anr. v. N.K. Modi
.
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, Page 1809 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 9

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. v. 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 16
, 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 Page 1810 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. v. NEPC India Ltd.
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
of the Act.

The view as above was quoted with approval in
Ador Samia
Private Limited v. Peekay Holdings Limited and Ors.
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. v. Kirit Mehta
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 16
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. v. Mehul Construction Co.
in
which
the first question framed was, what Page 1811 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
Page 1812 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 Page 1813
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 Ors. v. State of Maharashtra and Anr.
and

Rupa Ashok Hurra v. Ashok Hurra and Anr..

26.
In
Nimet Resourcs Inc. and Anr. v. Essar Steels Ltd.
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 Corporation Ltd. v.
Mehul Construction Co.
(supra) was doubted in
Konkan Railway Cooperation
Ltd. v. Rani Construction Pvt. Ltd. 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 136
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. v. Rani Construction Pvt. Ltd.
, 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 Page 1815
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, Page 1816 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 v. 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 Page 1817 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. v. Shankar Lal Poddar and Ors.
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, Page 1818 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 Page 1819 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 v. 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 Page 1820 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 Page 1822 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
Corporation Ltd. and Anr. v. Rani Construction Pvt. Ltd.
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 Page
1824 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 Corporation Ltd. and Anr. v. Rani
Construction Pvt. Ltd.
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.

_________________________________________________________________________

C.K. Thakker, J.

1. I have had the benefit of going through the judgment prepared by my
learned brother P.K. Balasubramanyan ('majority judgment' for short). I,
however, express my inability to agree with the majority judgment on the
question as to the nature of function performed by the Chief Justice of the
High Court/Chief Justice of India or 'any person or institution designated
by him' under Sub-section (6) of
Section 11
of the Arbitration and
Conciliation Act, 1996.

2. The concept of arbitration is not unknown to India. In good old days,
disputes between private individuals used to be placed before Panchas and
Panchayats. Likewise, commercial matters were decided by Mahajans and
Chambers. Formal arbitration proceedings, however, came into existence
after Britishers started commercial activities in India. The provisions
relating to arbitration were found in
the Code of Civil Procedure
, 1859
(Act VIII of 1859) which was repealed by Act X of 1877. A full-fledged law
pertaining to arbitration in India was the Arbitration Act, 1899. A
consolidated and amended law relating to arbitration was passed in 1940,
known as the
Arbitration Act, 1940
(Act X 1940).

As has been said, protracted, time consuming, atrociously expensive and
complex court procedure impelled the commercial-world to an alternative,
less formal, more effective and speedy mode of resolution of disputes by a
Judge of choice of the parties which culminated into passing of an

Arbitration Act
. Experience, however, belied expectations. Proceedings
became highly technical and thoroughly complicated. The provisions of the
Act made 'lawyers laugh and litigants weep'. Representations were made from
all quarters of the society to amend the law by making it more responsive
to contemporary requirements. Moreover, apart from arbitration,
conciliation has been getting momentum and worldwide recognition as an
effective instrument of settlement of disputes. There was no composite
statute dealing with all matters relating to arbitration and conciliation.

3. The United Nations Commission on International Trade Law (UNCITRAL)
adopted a Model Law in 1985 on International Commercial Arbitration. The
Page 1825 General Assembly of the United Nations recommended member -
States to give due consideration to the Model Law to have uniformity in
arbitration procedure which resulted in passing of the
Arbitration and
Conciliation Act, 1996
.
The Act
is a complete Code in itself and
consolidates and amends the law relating to domestic arbitration,
international commercial arbitration and enforcement of foreign arbitral
awards. The Preamble expressly refers to UNCITRAL Model Law on
International Commercial Arbitration and UNCITRAL Conciliation Rules.

4. Over and above 'Preliminary' (
Section 1
), the Act is in four parts. Part
I (
Sections 2
to
) deals with Arbitration. Part II (
Sections 44
to 60)
contains provisions relating to Enforcement of Foreign Awards. While Part
III (Section 61 to 81) provides for Conciliation, Part IV (Sections 82 to

86) relates to Supplementary Provisions. In these cases, we are mainly
concerned with Part I.
General provisions are found in Chapter I (
Sections 2
to
).
Section 2(b)

defines 'arbitration agreement' as referred to in
Section 7
. 'Arbitral
tribunal' means a sole arbitrator or a panel of arbitrators -
Section 2

(d). Clause (h) defines 'party' as a party to arbitration agreement.

Section 5
restricts judicial intervention. The said section is material and
reads thus ;

"5. Extent of judicial intervention. -Notwithstanding anything contained in
any other law for the time being in force, in matters governed by this
Part, no judicial authority shall intervene except where so provided in
this Part."

Chapter II deals with 'Arbitration agreement'.
Section 7
declares that by
an arbitration agreement, the parties may submit to arbitration all or
certain disputes between them. Such agreement must be in writing.
Section 8

confers power on a judicial authority to refer the dispute to arbitration
in certain cases.
Section 9
enables the court to make interim orders.
Chapter III provides for composition of Arbitral Tribunal.
Section 10

allows parties to determine the number of arbitrators but declares that
'such number shall not be an even number'.
Section 11
relates to
appointment of arbitrators. It is relevant and material and may be quoted
in extenso;

"11. Appointment of arbitrators. - (1) A person of any nationality may be
an arbitrator, unless otherwise agreed by the parties.
(2) Subject to Sub-section (6), the parties are free to agree on a
procedure for appointing the arbitrator or arbitrators.
(3) Failing any agreement referred to in Sub-section (2), in an arbitration
with three arbitrators, each party shall appoint one arbitrator, and the
two appointed arbitrators shall appoint the third arbitrator who shall act
as the presiding arbitrator.

(4) If the appointment procedure in Sub-section (3) applies and-

(a) a party fails to appoint an arbitrator within thirty days from the
receipt of a request to do so from the other party; or

(b) the two appointed arbitrators fail to agree on the third arbitrator
within thirty days from the date of their appointment; Page 1826 the
appointment shall be made, upon request of a party, by the Chief Justice or
any person or institution designated by him.

(5) Failing any agreement referred to in Sub-section (2), in an arbitration
with a sole arbitrator, if the parties fail to agree the appointment shall
be made, upon request of a party, by the Chief Justice or any person or
institution designated by him.

(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.

(7) A decision on a matter entrusted by Sub-section (4) or Sub-section (5)
or Sub-section (6) to the Chief Justice or the person or institution
designated by him is final.

(8) The Chief Justice or the person or institution designated by him, in
appointing an arbitrator, shall have due regard to -

(a) any qualification required for the arbitrator by the agreement of the
parties, and

(b) other considerations as are likely to secure the appointment of an
independent and impartial arbitrator.

(9) In the case of appointment of sole or third arbitrator in an
international commercial arbitration, the Chief Justice of India or the
person or institution designated by him may appoint an arbitrator of a
nationality other than the nationalities of the parties where the parties
belong to different nationalities.

(10) The Chief Justice may make such scheme as he may deem appropriate for
dealing with matters entrusted by Sub-section (4) or Sub-section (5) or
Sub-section (6) to him.

(11) Where more than one request has been made under Sub-section (4) or
Sub-section (5) or Sub-section (6) to the Chief Justices of different High
Courts or their designates, the Chief Justice or his designate to whom the
request has been first made under the relevant sub-section shall alone be
competent to decide on the request.

(12)(a) Where the matters referred to in Sub-sections (4), (5), (6), (7),
(8) and (10) arise in an international commercial arbitration the reference
to "Chief Justice" in those sub-sections shall be construed as a reference
to the "Chief Justice of India".

(b) Where the matters referred to in Sub-sections (4), (5), (6), (7), (8)
and (10) arise in any other arbitration, the reference to "Chief Justice"

in those sub-sections shall be construed as a reference to the Chief
Justice of the Page 1827 High Court within whose local limits the principal
Civil Court referred to, in Clause (e) of Sub-section (1) of
Section 2
is
situate and, where the High Court itself is the Court referred to in that
clause, to the Chief Justice of that High Court."

Section 12
requires the arbitrator to disclose the disqualification, if
any. It also permits parties to challenge such arbitrator. Whereas
Section
lays down procedure for challenge,
Sections 14
and
deal with special
situations.

Chapter IV relates to jurisdiction of Arbitral Tribunals.
Section 16
is
another important provision and confers power on the Arbitral Tribunal to
rule on its own jurisdiction. It reads thus ;

"16. Competence of arbitral tribunal to rule on its jurisdiction.-(1) The
arbitral tribunal may rule on its own jurisdiction, including ruling on any
objections with respect to the existence or validity of the arbitration
agreement, and for that purpose. -

(a) an arbitration clause which forms part of a contract shall be treated
as an agreement independent of the other terms of the contract; and

(b) a decision by the arbitral tribunal that the contract is null and void
shall not entail ipso jure the invalidity of the submission clause.
(2) A plea that the arbitral tribunal does not have jurisdiction shall be
raised not later than the submission of the statement of defence; however,
a party shall not be precluded from raising such a plea merely because that
he has appointed, or participated in the appointment of an arbitrator.
(3) 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.
(4) The arbitral tribunal may, in either of the cases referred to in Sub-

section (2) or Sub-section (3) admit a later plea if it considers the delay
justified.

(5) The arbitral tribunal shall decide on a plea referred to in Sub-section
(2) or Sub-section (3) and, where the arbitral tribunal takes a decision
rejecting the plea, continue with the arbitral proceedings and make an
arbitral award.

(6) A party aggrieved by such an arbitral award may make an application for
setting aside such an arbitral award in accordance with
Section 34
."
Chapters V and VI relate to 'Conduct of Arbitral Proceedings' and 'Making
of Arbitral Award and Termination of Proceedings'. Chapters VII, VIII and
IX provide for 'Recourse Against Arbitral Award', 'Finality and Enforcement
of Arbitral Awards' and 'Appeals' respectively. Chapter X covers
'Miscellaneous' matters.

5. The controversy in the present group of matters centres round
interpretation of
Section 11
and the nature of function performed by the
Chief Justice under Sub-section (6) thereof. According to one view, it is
administrative, while according to the other view, it is judicial or quasi-
judicial.

6. I have already quoted
Section 11
. It provides for appointment of
arbitrators. Sub-sections (1) to (3) which confer power on parties to
arbitration agreement to appoint arbitrators present no difficulty. Sub-
sections (4) to (6) deal with cases where there is failure by the parties
to appoint an arbitrator or arbitrators or default by two arbitrators in
appointing the third arbitrator.
The Act
in such eventuality empowers the
Chief Justice or any person or institution designated by him to take
necessary steps for securing the appointment. Sub-section (7) of
Section 11

makes the 'decision' of the Chief Justice 'final'. Sub-section (8) requires
the Chief Justice or the person or institution designated by him in
appointing an arbitrator to have due regard to qualifications required of
the arbitrator by the agreement of the parties as also other considerations
as are likely to secure the appointment of independent and impartial
arbitrator. Sub-section (10) enables the Chief Justice to frame a scheme
dealing with matters entrusted to him by Sub-sections (4) to (6).

Section 11
came to be interpreted by this Court in few cases.
In
Sundaram
Finance Ltd. v. NEPC India Ltd.
, a two Judge Bench was called upon to
consider whether under
Section 9
of the Act, the 'court' had jurisdiction
to pass interim orders before arbitral proceedings commenced and before an
arbitrator was appointed. Considering the scope of the said provision, this
Court held that the 'court' had no jurisdiction to entertain application
under
Section 9
before initiation of arbitration proceedings.

7. The Court, however, taking note of UNCITRAL Model Law, observed:

"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 Arbitrator(s)".

(emphasis supplied)
It is, no doubt, true that the question about nature of function to be
performed by the Chief Justice under
Section 11
did not strictly arise
in
that case
and, hence, the above observation could not be termed as 'ratio'.
As I will presently show, in a subsequent case, it was submitted that the
statement was in the nature of 'passing observation' or 'obiter'.

8.
In
Ador Sami Private Ltd. v. Peekay Holdings Ltd. and Ors.
, a direct
question arose before a two-Judge Bench. There, an order passed by the
Chief Justice under Sub-section (6) of
Section 11
of the Act was challenged
in this Court under
Article 136
of the Constitution. The question before
the Court was whether a special leave petition was maintainable.
Reproducing the observation in Sundaram Finance Ltd., the Court held that
Page 1829 the order passed by the Chief Justice under
Section 11
of the Act
was administrative in nature.

Referring to a decision of the Constitution
Bench in
Indo-China Steam Navigation Co. Ltd. v. Jasjit Singh, Additional
Collector of Customs and Ors.
, , the Court observed that it is well settled
that a petition under
Article 136
of the Constitution would lie against an
order made by a Court or Tribunal. Since the Chief Justice or his designate
acts under
Section 11(6)
of the Act in administrative capacity, the order
could not be said to have been passed by a court or by a tribunal having
trappings of a court. Special leave petition was hence held not
maintainable.

In
Konkan Railway Corporation Ltd. v. Mehul Construction Co. (Konkan
Railway Corporation Ltd. I
), the point was again considered by a three-
Judge Bench. It was observed that an important question had arisen for
consideration of the Court as to the nature of the order passed by the
Chief Justice under
Section 11(6)
of the Act and the remedy available to
the aggrieved party against such order. Referring to Sundaram Finance Ltd.
and Ador Samia Private Ltd., the Court held that the function performed by
the Chief Justice was essentially to aid the constitution of Arbitral
Tribunal. The Legislature had consciously chosen to confer the power on the
'Chief Justice' and not on the 'Court'. The order passed by the Chief
Justice or his nominee was administrative order. The Court considered
UNCITRAL Model Law of International Commercial Arbitration, the old Act of
1940 and the relevant provisions of 1996 Act and observed that the sole
objective was to resolve disputes as expeditiously as possible so that
trade and commerce are not adversely affected on account of litigation. The
Statement of Objects and Reasons of the Act clearly enunciated the object
of the legislation that it was intended to minimize the supervisory role of
the court in arbitral process.

According to the Court, when the matter is placed before the Chief Justice
or his nominee under
Section 11
of the Act, it is imperative for the Chief
Justice or his nominee to bear in mind the legislative intent. The Chief
Justice or his nominee is not expected to entertain contentious issues
between the parties and decide them.
Section 16
of the Act empowers the
Arbitral Tribunal to rule on its own jurisdiction. Combined reading of

Sections 11
and
make it crystal clear that questions as to
qualifications, independence and impartiality of Arbitral Tribunal as also
of the jurisdiction of the tribunal can be raised before the arbitrator who
will decide them. The function of the Chief Justice or his nominee is just
to appoint an arbitrator without wasting time. The nature of the function
to be performed by the Chief Justice is essentially to aid the constitution
of the tribunal and is administrative. If the function is held to be
judicial or quasi-judicial, the order passed by the Chief Justice or his
nominee would be amenable to judicial intervention and a Page 1830
reluctant litigant would attempt to frustrate the object of the Act by
adopting dilatory tactics by approaching a court of law against an
appointment of arbitrator. Such an interpretation should be avoided to
achieve the basic objective for which the Act has been enacted.

In
Konkan Railway Corporation Ltd. v. Rani Construction Pvt. Ltd. (Konkan
Railway Corporation Ltd. II
), a similar question had come for
consideration before a two-Judge Bench. The attention of the Court was
invited to earlier decisions including a three-Judge Bench decision in
Konkan Railway Corporation Ltd. I. It was, however, argued by the learned
Solicitor General that once a contention is raised that the matter cannot
be referred to arbitration, the issue has to be decided by the Chief
Justice or his nominee and such an order cannot be characterized as
administrative. When the attention of the learned Solicitor General was
invited to Sundarm Finance Ltd., submitted that the question about nature
of the order under
Section 11
was never raised before the Court and the
observation that the order passed by the Chief Justice or his nominee under

Section 11
was administrative was merely 'passing observation' or 'obiter'.
In Ador Samia, special leave petition under
Article 136
of the Constitution
was dismissed merely relying upon observation in Sundaram Finance Ltd. It
was no doubt true that in Konkan Railway Corporation Ltd.I, a three-Judge
Bench held that an order passed under
Section 11
of the Act by the Chief
Justice or his nominee was administrative in nature but it required
reconsideration in view of several factors. It was submitted that the Act
did not take away the power of the court to decide preliminary issues; the
Chief Justice or his nominee was bound to consider whether there was an
arbitration agreement, or whether an arbitration clause existed or the
matters were 'excepted matters'. Again, if the order of the Chief Justice
or his nominee would be treated as administrative, it could be challenged
before a High Court under
Article 226
of the Constitution, then before a
Division Bench in Letters Patent Appeal/Intra-court Appeal and then before
the Supreme Court under
Article 136
of the Constitution which would further
delay arbitration proceedings.
It was, therefore, necessary to reconsider
the law laid down in Konkan Railway Corporation Ltd. I.

9. In view of the contentions raised before a two-Judge Bench, an order was
passed directing the Registry to place the papers before Hon. the Chief
Justice for passing appropriate orders. Konkan Railway Corporation Ltd. I
was thus placed before a Constitution Bench of five Judges. The
Constitution Bench, Page 1831 considered the relevant provisions of the Act
and the scheme framed by the Chief Justice of India known as "The
Appointment of Arbitrators by the Chief Justice of India Scheme, 1996".
Discussing the Statement of Objects and Reasons and considering the
relevant provisions of the Act, the Court held that the only function the
Chief Justice or his designate was required to perform was to fill the gap
left by a party to the arbitration agreement or two arbitrators appointed
by the parties and nominate an arbitrator or umpire so that Arbitral
Tribunal is expeditiously constituted and arbitration proceedings
commenced. According to the Constitution Bench, the order passed by the
Chief Justice or his designate under
Section 11
nominating an arbitrator
could not be said to be 'adjudicatory order' and the Chief Justice or his
designate could not be described as 'Tribunal'. Such an order, therefore,
could not be challenged under
Article 136
of the Constitution. The decision
of three-Judge Bench in Konkan Railway Corporation Ltd. I was thus
affirmed.

The Court observed:

"
Section 11
of the Act deals with the appointment of arbitrators. It
provides that the parties are free to agree on a procedure for appointing
an arbitrator or arbitrators. In the event of there being no agreement in
regard to such procedure, in an arbitration by three arbitrators each party
is required to appoint one arbitrator and the two arbitrators so appointed
must appoint the third arbitrator. If a party fails to appoint an
arbitrator within thirty days from the request to do so by the other party
or the two arbitrators appointed by the parties fail to agree on a third
arbitrator within thirty days of their appointment, a party may request the
Chief Justice to nominate an arbitrator and the nomination shall be made by
the Chief Justice or any person or institution designated by him. If the
parties have not agreed on a procedure for appointing an arbitrator in an
arbitration with a sole arbitrator and the parties fail to agree on an
arbitrator within thirty days from receipt of a request to one party by the
other party, the nomination shall be made on the request of a party by the
Chief Justice or his designate. Where an appointment procedure has been
agreed upon by the parties but a party fails to act as required by that
procedure or the parties, or the two arbitrators appointed by them, fail to
reach the agreement expected of them under that procedure or a person or
institution fails to perform the function entrusted to him or it under that
procedure, a party may request the Chief Justice or his designate to
nominate an arbitrator, unless the appointment procedure provides other
means in this behalf. The decision of the Chief Justice or his designate is
final. In nominating an arbitrator the Chief Justice or his designate must
have regard to the qualifications required of the arbitrator in the
agreement between the parties and to other considerations that will secure
the nomination of an independent and impartial arbitrator.
There is nothing in
Section 11
that requires the party other than the party
making the request to be noticed. It does not contemplate a response from
that other party. It does not contemplate a decision by the Chief Justice
or his designate on any controversy that the other party may raise, even in
Page 1832 regard to its failure to appoint an arbitrator within the period
of thirty days. That the Chief Justice or his designate has to make the
nomination of an arbitrator only if the period of thirty days is over does
not lead to the conclusion that the decision to nominate is adjudicatory.
In its request to the Chief Justice to make the appointment the party would
aver that this period has passed and, ordinarily, correspondence between
the parties would be annexed to bear this out. This is all that the Chief
Justice or his designate has to see. That the Chief Justice or his
designate has to take into account the qualifications required of the
arbitrator by the agreement between the parties (which, ordinarily, would
also be annexed to the request) and other considerations likely to secure
the nomination of an independent and impartial arbitrator also cannot lead
to the conclusion that the Chief Justice or his designate is required to
perform an adjudicatory function. That the word 'decision' is used in the
matter of the request by a party to nominate an arbitrator does not of
itself mean that an adjudicatory decision is contemplated.
As we see it, the only function of the Chief Justice or his designate under

Section 11
is to fill the gap left by a party to the arbitration agreement
or by the two arbitrators appointed by the parties and nominate an
arbitrator. This is to enable the arbitral tribunal to be expeditiously
constituted and the arbitration proceedings to commence. The function has
been left to the Chief Justice or his designate advisedly, with a view to
ensure that the nomination of the arbitrator is made by a person occupying
high judicial office or his designate, who would take due care to see that
a competent, independent and impartial arbitrator is nominated.
It might be that though the Chief Justice or his designate might have taken
all due care to nominate an independent and impartial arbitrator, a party
in a given case may have justifiable doubts about that arbitrator's
independence or impartiality. In that event it would be open to that party
to challenge the arbitrator under
Section 12
, adopting the procedure under

Section 13
. There is no reason whatever to conclude that the grounds for
challenge under
Section 13
are not available only because the arbitrator
has been nominated by the Chief Justice or his designate under
Section 11
.
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 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 not expired and that,
therefore, it had no jurisdiction."

Regarding the scheme, the Court observed that such scheme could not govern
the Act. Since
Section 11
did not contain any element of 'adjudication' and
the function of the Chief Justice or his designate was purely
administrative, there was no question of issuing notice to affected persons
or to afford opportunity of hearing. The scheme, however, contained Clause
7 (Notice to affected persons) and expressly provided for issuance of
notice to persons likely to be affected thereby. It thus went 'beyond terms
of
Section 11
' and was, therefore, bad.

The Court, in this connection, observed ;

"The schemes made by the Chief Justices under
Section 11
cannot govern the
interpretation of
Section 11
. If the schemes, as drawn, go beyond the terms
of
Section 11
they are bad and have to be amended. To the extent that The
Appointment of Arbitrators by the Chief Justice of India Scheme, 1996, goes
beyond
Section 11
by requiring, in Clause 7, the service of a notice upon
the other party to the arbitration agreement to show cause why the
nomination of an arbitrator, as requested, should not be made, it is bad
and must be amended. The other party needs to be given notice of the
request only so that it may know of it and it may, if it so chooses, assist
the Chief Justice or his designate in the nomination of an arbitrator."

The point was thus concluded by a Constitution Bench of five Judges wherein
it was held that the function performed by the Chief Justice or his
designate was administrative and did not contain any adjudicatory process.
The order passed by the Chief Justice or his designate could not be
challenged before this Court under
Article 136
of the Constitution.

10. In the light of the above legal position, when these matters were
placed
before a Constitution Bench of five Judges on July 19, 2005, the following
order was passed :

"After hearing the learned Counsel for the parties, we are of the opinion
that the cases may call for re-consideration of the decision of this Court
in
Konkan Railway Corporation Ltd. and Anr. v. Rani Construction Pvt. Ltd.
,
, in particular the view taken in paras 18 to 21 thereof, which is by a
Constitution Bench.

Be placed before a seven-Judge Bench."

11. That is how, the matters have been placed before us.

We have heard the learned Counsel for the parties at considerable length.
It was urged by Mr. Venugopal, Senior Advocate that when the Chief Justice
is requested to make an appointment of an arbitrator under Sub-section (6)
of
Section 11
of the Act, the Chief Justice must apply his mind and satisfy
himself about the fulfillment of conditions for the exercise of power for
appointment of an arbitrator. The Chief Justice for that purpose, is bound
to Page 1834 decide certain preliminary or 'jurisdictional' facts before
taking a decision of appointment of arbitrator. He must be convinced that
there is an 'arbitration agreement' under
Section 7
of the Act, the other
party has refused to make an appointment, or parties or two arbitrators
have failed to reach an agreement or a person or institution has failed to
perform the function entrusted to him or it. Moreover, the Chief Justice in
appointing an arbitrator 'shall have regard to' qualifications,
independence and impartiality of the arbitrator. The Chief Justice, after
considering all those factors will come to a conclusion whether the
provisions of law have been complied with and only then he may make such
order. The issues arise before the Chief Justice are thus contentious
issues and require adjudication. Such adjudication affects rights of
parties. The 'duty to act judicially' is, therefore, implicit and the
decision is judicial or quasi-judicial.

I am unable to uphold the argument. In my view, it is based on the
misconception that wherever a statute requires certain matters to be taken
into account and the authority is obliged to apply its mind to those
considerations, the action, decision or adjudication must be held judicial
or quasi-judicial. With respect, this is not the legal position.

12. It is settled law that in several cases, an appropriate authority may
have to consider the circumstances
laid down in
the Act, apply its mind and
then to take a decision. Such decision may affect one or the other party
and may have far reaching consequences. But from that it cannot be
concluded that the decision is judicial or quasi-judicial and not
administrative.

Before more than fifty years, in
State of Madras v. C.P. Sarthy
, the
Constitution Bench of this Court, while interpreting the provisions of

Section 10
of the Industrial Disputes Act, 1947 held that the action of the
Government of referring or refusing to refer the matter for an adjudication
to Labour Court or Industrial Tribunal is administrative.
The Court stated:

This is, however, not to say that the Government will be justified in
making a reference under
Section 10(1)
without satisfying itself on the
facts and circumstances brought to its notice that an industrial dispute
exists or is apprehended in relation to an establishment or a definite
group of establishments engaged in a particular industry. It is also
desirable that the Government should, wherever possible, indicate the
nature of the dispute in the order of reference. But it must be remembered
that in making a reference under
Section 10(1)
the Government is doing an
administrative act and the fact that it has to form an opinion as to the
factual existence of an industrial dispute as a preliminary step to the
discharge of its function does not make it any the less administrative in
character. The Court cannot, therefore, canvass the order of reference
closely to see if there was any material before the Government to support
its conclusion, as if it was a judicial or quasi-judicial determination. No
doubt, it will be open to a party seeking to impugn the resulting award to
show that what was referred Page 1835 by the Government was not an
industrial dispute within the meaning of the Act, and that, therefore, the
Tribunal had no jurisdiction to make the award. But, if the dispute was an
industrial dispute as defined in the Act, its factual existence and the
expediency of making a reference in the circumstances of a particular case
are matters entirely for the Government to decide upon, and it will not be
competent for the Court to hold the reference bad and quash the proceedings
for want of jurisdiction merely because there was, in its opinion, no
material before the Government on which it could have come to an
affirmative conclusion on those matters.

(emphasis supplied)

13. Now, it cannot be disputed that the action of the Government (of
referring the dispute or refusing to refer it) certainly affects one party
or the other. Still an action which is otherwise administrative in nature
does not change its character and remains as it is irrespective of the
consequences likely to ensue or the effect of decision on parties to such
dispute. [See also
Prem Kakar v. State of Haryana
,
Sultan Singh v. State of
Haryana
,
Secretary Indian Tea Association v. Ajit Kumar Barat,]
Several
similar actions having far reaching consequences have been held
administrative, for instance, an order of acquisition or requisition of
property; an order making an appointment to a civil post, an order granting
sanction to prosecute a public servant; etc.
It cannot be gainsaid that there must be an 'arbitration agreement' between
the parties. It also cannot be denied that there must be default or failure
on the part of one party to appoint an arbitrator. But that will not make
the function performed by the Chief Justice as judicial or quasi-judicial.
Chapter II (Arbitration Agreement) precedes Chapter III (Composition of
Arbitral Tribunal). Therefore, when the question as to composition of
Arbitral Tribunal and appointment of an arbitrator comes up for
consideration, it can safely be assumed that there is an arbitration
agreement, inasmuch as it is in consonance with the legislative scheme and
the question as to the appointment of arbitrator arises only in view of
such agreement. Moreover, before exercising the power to appoint an
arbitrator, the Chief Justice must peruse the relevant record relating to
an agreement and failure by one party in making an appointment which would
enable him to act. There is, however, no doubt in my mind that at that
stage, the satisfaction required is merely of prima facie nature and the
Chief Justice does not decide lis nor contentious issues between the
parties.
Section 11
neither contemplates detailed inquiry, nor trial nor
findings on controversial or contested matters.

14. The Law Commission, in 176th Report on Arbitration and Conciliation
(Amendment) Bill, 2001, after referring to the relevant Rules and legal
opinion, stated:

It is, therefore, clear that the ICC Rules and the opinion of jurists
support the view that at the stage of
Section 11
, it is permissible to
decide preliminary issues. There are considerable advantages if such issues
are decided at that stage, inasmuch as a decision at that stage saves time
and expense for the parties. As pointed out by Fouchard and others, there
is no question of an 'automatic appointment' of arbitrators, whenever an
application is made for an appointment of arbitrators. The appointing
authority normally considers if a case is made out for appointment of
arbitrators and such a decision can be taken on undisputed facts available
at that stage.

(emphasis supplied)

15. As Fouchard, Gaillard, Goldman on International Commercial Arbitration
(1994 edn.); (para 854) pithily put it; "the Court should only verity that
the clause is not patently void, as it would be unreasonable to require it
to appoint an arbitrator where there is no indication that an arbitration
clause exists. The Court should not be seen to automatically appoint
arbitrators in cases where the arbitration clearly has no contractual basis
and the award has no chance of being recognized in any jurisdiction".
(emphasis supplied)

16. At the stage of exercising powers under Sub-section (6) of
Section 11
,
the Chief Justice is bound to apply his mind to allegations and counter-
allegations of the parties and will form an opinion on the available
material. Thus, in
Wellington Associates Ltd. v. Kirit Mehta
, at the stage
of
Section 11
, it was argued that the relevant clause relied upon by the
applicant was not an 'arbitration clause'. It merely permitted parties to
agree, in future, to go to arbitration.

Upholding the objection, the Court observed that the clause was not an
arbitration clause and the application was not maintainable. It held that

Section 16
did not take away the jurisdiction of the Chief Justice to
decide the question of 'existence' of the arbitration agreement. The said
section did not declare that except the Arbitral Tribunal, none else could
determine such question. "Merely because the new Act permits the arbitrator
to decide this question, it does not necessarily follow that at the stage
of
Section 11
, the Chief Justice of India or his designate cannot decide
the question as to the existence of the arbitration clause." [See also

Malaysian Airlines System v. Stic Travels (P) Ltd.
, (2001) 1 SCC 509;

Nimeet Resources INC v. Essar Steels Ltd.
; (2000) SCC 497;
Shin Etsu
Chemical Co. Ltd. v. Aksh Optifibre Ltd. and Anr.
].

Page 1837

17. It was then argued that Sub-section (7) of
Section 11
empowers the
Chief Justice to decide the question and uses the expression 'decision'
which is significant. Whenever a statute confers power on an authority to
pass an order or to take a decision, it must be held that the function is
judicial or quasi-judicial and duty to act judicially must be inferred.
Even this contention is not well founded. Sub-section (7), no doubt, uses
the term 'decision'. But as I have already observed earlier, the Chief
Justice forms prima facie opinion as to the fulfillment of conditions
specified in Sub-section (6). The decision neither contemplates
adjudication of lis between two or more parties nor resolves controversial
and contentious issues. It merely requires the Chief Justice to take an
appropriate action keeping in view the provisions of Part II and Sub-
sections (1), (4) and (5) of
Section 11
. Regarding matters which the Chief
Justice is expected to consider, such as qualification, independence and
impartiality of arbitrator, they are statutory provisions and the Chief
Justice is obliged to keep them in view as per mandate of the Legislature.
The said fact, however, does not make the function of the Chief Justice
judicial or quasi-judicial.

18. It was also submitted that there is an important provision which cannot
be lost sight of and it is the finality of decision rendered by the Chief
Justice. Sub-section (7) expressly declares that the decision of the Chief
Justice under Sub-section (6) of
Section 11
is 'final'. It was submitted
that in view of finality attached to the order passed by the Chief Justice,
the order passed by him cannot be made subject-matter of dispute under the
Act and all provisions, including
Section 16
must be read in conformity
with 'finality clause'. For that reason also, the action must be held
judicial or quasi-judicial.

19. As to the ambit and scope of
Section 16
, I will refer to little later,
but in my view, finality of an order has nothing to do with the nature of
function to be performed by the Chief Justice. Several statutes declare an
order passed, decision taken or declaration made by the competent authority
'final' or 'final and conclusive' or 'final and conclusive and is not open
to challenge in any court'. This is known as 'statutory finality' and such
clauses require to be interpreted in juxta-position of constitutional
provisions. As a general rule, no appeal, revision or review lies against
an order which has been treated by a statute as 'final'. It may not be
challenged by instituting a civil suit in certain cases. But such finality
cannot take away the jurisdiction of High Courts or the Supreme Court and
judicial review is available against 'final' orders albeit on limited
grounds. [Vide Somvanti v. State of Punjab;
Neelima Misra v. Harvinder Kaur
Paintal and Ors
.]

20. But there is another important reason why the function of the Chief
Justice under
Section 11
should be considered administrative. All the three
Sub-sections, (4), (5) and (6) of the said section empower the Chief
Justice or 'any person or institution designated by him' to exercise the
power of the Chief Page 1838 Justice. No provision similar to the one in
hand was present in 1940 Act. Parliament, therefore, has consciously and
intentionally made the present arrangement for the first time allowing
exercise of the power by the Chief Justice himself or through 'any person
or institution designated by him', since the function is administrative in
character and is required to be performed on prima facie satisfaction under
Sub-section (6) of
Section 11
of the Act.

21. Now, let us consider
Section 16
of the Act. This section is new and did
not find place in the old Act of 1940. Sub-section (1) of that section
enables the Arbitral Tribunal to rule on its own jurisdiction. It further
provides that the jurisdiction of the tribunal includes ruling on any
objections with respect to existence or validity of the arbitration
agreement. Sub-sections (2), (3) and (4) lay down procedure of raising plea
as to the jurisdiction of the Arbitral Tribunal and entertaining such plea.
Sub-section (5) mandates that the Arbitral Tribunal 'shall decide' such
plea and, 'where the arbitral tribunal takes a decision rejecting the plea,
continue with the arbitration proceedings and make an arbitral award'. Sub-
section (6) is equally important and expressly enacts that a party
aggrieved by arbitral award may invoke
Section 34
of the Act for setting
aside such award. The provision appears to have been made to prevent
dilatory tactics and abuse of immediate right to approach the court. If an
aggrieved party has right to move the court, it would not have been
possible to preclude the court from granting stay or interim relief which
would bring the arbitration proceedings to a grinding halt. The provisions
of
Section 16 (6)
read with
Section 5
now make the legal position clear,
unambiguous and free from doubt.

22.
Section 16 (1)
incorporates the well-known doctrine of Kompetenz -
Kompetenz or competence de la competence. It recognizes and enshrines an
important principle that initially and primarily, it is for the Arbitral
Tribunal itself to determine whether it has jurisdiction in the matter,
subject of course, to ultimate court-control. It is thus a rule of
chronological priority. Kompetenz -Kompetenz is a widely accepted feature
of modern international arbitration, and allows the Arbitral Tribunal to
decide its own jurisdiction including ruling on any objections with respect
to the existence or validity of the arbitration-agreement, subject to final
review by a competent court of law; i.e. subject to
Section 34
of the Act.

23. Chitty on Contract (1999 edn.; p. 802) explains the principle thus:

English law has always taken the view that the arbitral tribunal cannot be
the final adjudication of its own jurisdiction. The final decision as per
the substantive jurisdiction of the tribunal rests with the Court. However,
there is no reason why the tribunal should not have the power, subject to
review by the Court, to rule on its own jurisdiction. Indeed such a power
(often referred to as the principle of "Kompetenz - Kompetenz" has been
generally recognized in other legal systems. It had also been recognized by
English Law before the 1986 Act, but
Section 30
of the Act put this on a
statutory basis. Unless otherwise agreed by the parties, the arbitral
tribunal Page 1839 may rule on its substantive jurisdiction that is, as to

(a) whether there is valid arbitration agreement; (b) whether the tribunal
is properly constituted; and (c) what matters have been submitted to
arbitration in accordance with the arbitration agreement. Any such ruling
may be challenged by any arbitral process of appeal or review or in
accordance with the provisions of
Part I of the Act
, notably by an
application under
Section 32
or by a challenge to the award under Section

67. (emphasis supplied) Alan Redfern and Martin Hunter in their work on
"Law and Practice of International Commercial Arbitration", (4th edn.),
(para 5-34) also said:

When any question is raised as to the jurisdiction of the Arbitral
Tribunal, a two stage procedure is followed. At the first stage, if one of
the parties raises 'one or more pleas concerning the existence, validity or
scope of the agreement to arbitrate', the ICC's Court must satisfy itself
of the prima facie existence of such an agreement [ICC Arbitration Rules
6(2)]. If it is satisfied that such an agreement exists, the ICC's Court
must allow the arbitration to proceed so that, at the second stage, any
decision as to the jurisdiction of the Arbitral Tribunal shall be taken by
the Arbitral Tribunal itself.

24. To cite Fouchard, Gaillard, Goldman again:

658. - More fundamentally, although the arbitrators' jurisdiction to rule
on their own jurisdiction is indeed one of the effects of the arbitration
agreement (or even of a prima facie arbitration agreement, since the
question would not arise in the absence of a prima facie arbitration
agreement), the basis of that power is neither the arbitration agreement
itself, nor the principle of pacta sunt servanda under which the
arbitration agreement is Binding.

The competence-competence principle enables the arbitral tribunal to
continue with the proceedings even where the existence or validity of the
arbitration agreement has been challenged by one of the parties for reasons
directly affecting the arbitration agreement, and not simply on the basis
of allegations that the main contract is void or otherwise ineffective. The
principle that the arbitration agreement is autonomous of the main contract
is sufficient to resist a claim that the arbitration agreement is void
because the contract containing it is invalid, but it does not enable the
arbitrators to proceed with the arbitration where the alleged invalidity
directly concerns the arbitration agreement. That is a consequence of the
competence-competence principle alone. The competence-competence principle
also allows arbitrators to determine that an arbitration agreement is
invalid and to make an award declaring that they lack jurisdiction without
contradicting themselves.

Of course, neither of those effects results from the arbitration agreement.
If that were the case, one would immediately be confronted with the
"vicious circle" argument put forward by authors opposed to the competence-
competence principle: how can an arbitrator, solely on the basis of an
arbitration agreement, declare that agreement to be void or even hear a
claim to that effect? The answer is simple: the basis for the competence-
competence Page 1840 principle lies not in the arbitration agreement, but
in the arbitration laws of the country where the arbitration is held and,
more generally, in the laws of all countries liable to recognize an award
made by arbitrators concerning their own jurisdiction. For example, an
international arbitral tribunal sitting in France can properly make an
award declaring that it lacks jurisdiction for want of a valid arbitration
agreement, because it does so on the basis of French arbitration law, and
not on the basis of the arbitration agreement held to be non-existent or
invalid. Similarly, it is perfectly logical for the interested party to
rely on that award in other jurisdictions, provided that those other
jurisdictions also recognize the competence-competence principle. As we
shall now see, the legal basis for the principle does not prejudice the
subsequent review by the courts, in France or in the country where
recognition is sought, of the arbitrators' finding that the arbitration
agreement is non-existent or invalid.

659. - Even today, the competence-competence principle is all too often
interpreted as empowering the arbitrators to be the sole judges of their
jurisdiction. That would be neither logical nor acceptable. In fact, the
real purpose of the rule is in no way to leave the question of the
arbitrators' jurisdiction in the hands of the arbitrators alone. Their
jurisdiction must instead be reviewed by the courts if an action is brought
to set aside or to enforce the award. Nevertheless, the competence-
competence rule ties in with the idea that there are no grounds for the
prima facie suspicion that the arbitrators themselves will not be able to
reach decisions which are fair and protect the interests of society as well
as those of the parties to the dispute. This same philosophy is also found
in the context of arbitrability, where it serves as the basis for the case
law which entrusts arbitrators with the task of applying rules of public
policy (in areas such as antitrust law and the prevention of corruption),
subject to subsequent review by the courts.

660. - However, it is important to recognize that the competence-competence
rule has a dual function. Like the arbitration agreement, it has or may
have both positive and negative effects, even if the latter have not yet
been fully accepted in a number of jurisdictions. The positive effect of
the competence-competence principle is to enable the arbitrators to rule on
their own jurisdiction, as is widely recognized by international
conventions and by recent statutes on international arbitration. However,
the negative effect is equally important. It is to allow the arbitrators to
be not the sole judges, but the first judges of their jurisdiction. In
other words, it is to allow them to come to a decision on their
jurisdiction prior to any court or other judicial authority, and thereby to
limit the role of the courts to the review of the award. The principle of
competence-competence thus obliges any court hearing a claim concerning the
jurisdiction of an arbitral tribunal - regarding, for example, the
constitution of the tribunal or the validity of the arbitration agreement -
to refrain from hearing substantive argument as to the arbitrators'
jurisdiction until such time as the arbitrators themselves have had the
opportunity to do so. In that sense, the competence-competence principle is
a rule of chronological priority. Taking both of its facets into account,
the competence-competence principle can be defined as the rule whereby
arbitrators must have the first Page 1841 opportunity to hear challenges
relating to their jurisdiction, subject to subsequent review by the courts.
From a practical standpoint, the rule is intended to ensure that a party
cannot succeed in delaying the arbitral proceedings by alleging that the
arbitration agreement is invalid or non-existent. Such delay is avoided by
allowing the arbitrators to rule on this issue themselves, subject to
subsequent review by the courts, and by inviting the courts to refrain from
intervening until the award has been made. Nevertheless, the interests of
parties with legitimate claims concerning the invalidity of the arbitration
agreement are not unduly prejudiced, because they will be able to bring
those claims before the arbitrators themselves and, should the arbitrators
choose to reject them, before the courts thereafter.

The competence-competence rule thus concerns not only the positive, but
also the negative effects of the arbitration agreement.

25.
In
Renusagar Power Co. Ltd. v. General Electric Co. and Anr.
,
considering the relevant provisions of the
Foreign Awards (Recognition and
Enforcement) Act, 1961
, this Court held that the arbitrator or umpire is
competent to provisionally decide his own jurisdiction, if the arbitration
agreement so provides, however, subject to final determination by a
competent court.

The Court stated:

"As explained earlier the scheme that emerges on a combined reading of
Sections 3 and 7 of the Foreign Awards Act clearly contemplates that
questions of existence, validity or effect (scope) of the arbitration
agreement itself, in cases where such agreement is wide enough to include
within its ambit such questions, may be decided by the arbitrators
initially but their determination is subject to the decision of the Court
and such decision of the Court can be had either before the arbitration
proceedings commence or during their pendency, if the matter is decided in
a
Section 3
petition or can be had under
Section 7
after the award is mane
and filed in the Court and is sought to be enforce by a party thereto. In
the face of such schemes envisaged by the Foreign Awards Act which governs
this case it will be difficult to accept the contention that the
arbitrators will have no jurisdiction to decide questions regarding the
existence, validity or effect (scope) of the arbitration agreement. In fact
the scheme makes for avoidance of dilatory tactics on the part of any party
to such agreement by merely raising a plea of lack of arbitrator's
competence -and a frivolous plea at that - and enables the arbitrator to
determine the plea one way or the other and if negatived to proceed to make
his award with the further safeguard that the Court would be in a position
to entertain and decide the same plea finally when the award is sought to
be enforced."

(emphasis supplied)

In the instant case, according to the majority,
Section 16(1)
only makes
explicit what is even otherwise implicit, namely, that the tribunal has the
jurisdiction to rule its own jurisdiction, 'including ruling on any
objections with respect to the existence or validity of the arbitration
agreement.'
So far, so good and I am in respectful agreement with these observations.
The matter, however, does not rest there. Over and above Sub-section (1),

Section 16
contains other sub-sections and in particular, Sub-sections (5)
and (6). The former requires the tribunal to continue the proceedings in
case it decides that the tribunal has jurisdiction in the matter and the
latter provides remedy to the aggrieved party.

26. In my opinion, conjoint reading of Sub-sections (1), (4), (5) and (6)
makes it abundantly clear that the provision is 'self-contained' and deals
with all cases, even those wherein the plea as to want of jurisdiction has
been rejected. As a general rule, such orders are subject to certiorari
jurisdiction since a court of limited jurisdiction or an inferior tribunal
by wrongly interpreting a statutory provision cannot invest itself with the
jurisdiction which it otherwise does not possess. But it is always open to
a competent Legislature to invest a tribunal of limited jurisdiction with
the power to decide or determine finally the preliminary or jurisdictional
facts on which exercise of its jurisdiction depends. In such cases, the
finding recorded by the tribunal cannot be challenged by certiorari. (Vide
Ujjam Bai v. State of U.P.

27. As a general rule, neither in England, nor in India, such jurisdiction
is granted on a court of limited jurisdiction or on an inferior tribunal.
In Halsbury's Laws of England, (4th edn. vol. 1; para 56); it has been
stated;

It is possible for an inferior tribunal to be vested with power to
determine conclusively questions demarcating the limits of its own
jurisdiction. Such a grant of power must now be regarded as exceptional, in
view of the very restrictive interpretation placed by the courts on
statutory formulae purporting to exclude their inherent supervisory
jurisdiction, and their reluctance to be precluded by subjectively worded
grants of power from determining judicially ascertainable matters
delimiting the area of competence of inferior tribunals, especially where
the relevant question is one of law.

(emphasis supplied)
In fact, one of the points of differentiation between a Crown's Court and a
statutory tribunal is that whereas a court has inherent power to decide the
question of its own jurisdiction, although as a result of inquiry, it may
turn out that it has no jurisdiction to try the suit, the jurisdiction of a
tribunal constituted under a statute is strictly confined to the terms of
the statute creating it. The existence of preliminary or 'jurisdictional'
fact is a sine qua non to the assumption of jurisdiction by a tribunal of
limited jurisdiction. If the jurisdictional fact does not exist, the
tribunal cannot act. But a Legislature Page 1843 may confer such power on a
court of limited jurisdiction or on an inferior tribunal (vide
Ebrahim
Aboobaker v. Custodian General
;
Ujjam Bai v. State of U.P.
,;
Raja Anand v.
State of U.P.
,;
Naresh Shridhar Mirazkar v. State of Maharashtra
, ;
Raza
Textiles Ltd. v. I.T.O.
,;
Shiv Chander v. Amar Bose
,;
Shrisht Dhawan v.
Shaw Brothers
,;
Vatticherubura Village Panchayat v. Nari Venkatarama
Deekshithulu
,;
Executive Officer, Arthanareswarar Temple v. R.
Sathyamoorthy and Ors.
].

28. Let us consider the principle in the light of case-law on the point:

Keeping in view, the distinction referred to hereinabove, before more than
hundred years, in Queen v. Commissioner of Income Tax (1888) 21 QB 313: 33
WR 776, Lord Esher, M.R. made the following observations:

"When an inferior court or tribunal or body, which has to exercise the
power of deciding facts, is first established by Act of Parliament, the
legislature has to consider, what powers it will give that tribunal or
body. It may in effect say that, if a certain state of facts exists and is
shown to such tribunal or body before it proceeds to do certain things, it
shall have jurisdiction to do such things, but not otherwise. There it is
not for them conclusively to decide whether that state of facts exists,
and, if they exercise the jurisdiction without its existence, what they do
may be questioned, and it will be held that they have acted without
jurisdiction. But there is another state of things which may exist. The
legislature may intrust the tribunal or body with a jurisdiction, which
includes the jurisdiction to determine whether the preliminary state of
facts exists as well as the jurisdiction, on finding that it does exist, to
proceed further or do something more. When the legislature are establishing
such a tribunal or body with limited jurisdiction, they also have to
consider, whatever jurisdiction they give them, whether there shall be any
appeal from their decision, for otherwise there will be none. In the second
of the two cases I have mentioned it is an erroneous application of the
formula to say that the tribunal cannot give themselves jurisdiction by
wrongly deciding certain facts to exist, because the legislature gave them
jurisdiction to Page 1844 determine all the facts, including the existence
of the preliminary facts on which the further exercise of their
jurisdiction depends; and if they were given jurisdiction so to decide,
without any appeal being given, there is no appeal from such exercise of
their jurisdiction."

(emphasis supplied)

29. The above statement of law has been quoted with approval by this Court
in several cases.
In
Chaube Jagdish Prasad and Anr. v. Ganga Prasad
Chaturvedi
the Court stated:

"These observations which relate to inferior courts or tribunals with
limited jurisdiction show that there are two classes of cases dealing with
the power of such a tribunal (1) where the legislature entrusts a tribunal
with the jurisdiction including the jurisdiction to determine whether the
preliminary state of facts on which the exercise of its jurisdiction
depends exists and (2) where the legislature confers jurisdiction on such
tribunals to proceed in a case where a certain state of facts exists or is
shown to exist. The difference is that in the former case the tribunal has
power to determine the facts giving it jurisdiction and in the latter case
it has only to see that a certain state of facts exists."

(emphasis supplied)
Again, in
Addanki Tiruvenkata Thata Desika Charyulu v. State of Andhra
Pradesh and Anr.
, the Settlement Officer was empowered to decide finally as
to whether inam village was an 'inam estate'. It also barred jurisdiction
of Civil Court from
questioning the correctness of the decision.

30. Considering the question as to extent to which the powers of statutory
tribunals are 'exclusive', the Constitution Bench after referring to
Commissioner of Income Tax, stated:

"It is manifest that the answer to the question as to whether any
particular case falls under the first or the second of the above categories
would depend on the purpose of the statute and its general scheme, taken in
conjunction with the scope of the enquiry entrusted to the tribunal set up
and other relevant factors."

31. As already indicated by me earlier, Sub-section (1) of
Section 16
does
not merely enable the Arbitral Tribunal to rule on its own jurisdiction,
but requires it to continue arbitral proceedings and pass an arbitral
award. [Sub-section (5)] It allows the aggrieved party to make an
application for setting aside the award in accordance with
Section 34
.
[Sub-section (6)]. Thus, in my judgment,
Section 16
can be described as
'self-contained Code' as regards the challenge to the jurisdiction of
Arbitral Tribunal. As per the scheme envisaged by Parliament, once the
Arbitral Tribunal rules that it has jurisdiction, it will proceed to decide
the matter on merits and make an award. Parliament has also provided the
remedy to the aggrieved party by enacting that he may make an application
under
Section 34
of the Act. In the circumstances, the proceedings cannot
be allowed to be arrested or interference permitted during the pendency of
arbitration proceedings.

Page 1845
It was submitted by Mr. Venugopal that once the Chief Justice is satisfied
as to fulfillment of conditions for the exercise of power to appoint an
arbitrator and his decision is 'final', it would be impossible to hold that
the Arbitral Tribunal can go behind the decision of the Chief Justice and
hold otherwise.

Mr. Venugopal suggested that
Section 16
should be so construed that it
would apply only to the cases covered by Sub-sections (2) and (3) of

Section 11
and not to Sub-section (6) of
Section 11
and the appointment of
an arbitrator made by the Chief Justice. By such interpretation, submitted
the counsel, both the provisions can be harmoniously interpreted and
properly applied.

Though the majority observed it to be 'one of the ways of reconciliation',
I have my own reservation in accepting it. Firstly, the function of the
Court is to interpret the provision as it is and not to amend, alter or
substitute by interpretative process. Secondly, it is for the Legislature
to make a law applicable to certain situations contemplated by it and the
judiciary has no power in entering into 'legislative wisdom'. Thirdly, as
held by me, the 'decision' of the Chief Justice is merely prima facie
decision and Sub-section (1) of
Section 16
confers express power on the
Arbitral Tribunal to rule on its own jurisdiction. Fourthly, it provides
remedy to deal with situations created by the order passed by the Arbitral
Tribunal. Finally and importantly, the situation envisaged by Mr. Venugopal
would seldom arise. Normally, when parties agree on the appointment of an
arbitrator or arbitrators, there would hardly be any dispute between them
on such appointment which may call for intervention by Arbitral Tribunal
under
Section 16
of the Act. For all these reasons, I am unable to persuade
myself to hold that
Section 16
has limited application to cases covered by
Sub-sections (2) and (3) and not to Sub-section (6) of
Section 11
of the
Act. The phraseology used by the Legislature does not warrant
interpretation sought to be suggested by Mr. Venugopal.

32. It was also submitted that in case of failure on the part of the party
to the arbitration agreement in appointing an arbitrator, an application
can be made under
Section 11
of the Act and arbitrator can be appointed by
the Chief Justice or any person or institution designated by him. It was
urged that it is settled law that judicial or quasi-judicial power has to
be exercised by the authority to whom it is granted and cannot be
delegated. As the intention of Parliament was to confer the power on the
highest judicial authority in the State and in the country, it cannot be
allowed to be exercised by 'any person' or 'institution'.

33. In my view, the submission is ill-conceived and has been made by
looking at the matter from an incorrect angle. It first assumes that the
function performed by the Chief Justice is judicial or quasi-judicial and
then proceeds to examine legal position on that basis and attempts to
salvage the situation by urging that the power must be exercised by the
Chief Justice. In that case, however, the subsequent part "or any person or
institution designated by him" (Chief Justice) would become redundant.
Realising the difficulty and keeping in view the principles relating to
interpretation of statutes, Mr. Nariman, Senior Advocate submitted that

Section 11
provides for dichotomy of functions. It contemplates two
situations, and deals with two stages. The first stage consists of
consideration of preliminary facts and taking of decision Page 1846 as to
whether an arbitrator can be appointed. The second stage allows nomination
of an arbitrator. According to Mr. Nariman, the first part is essentially a
judicial function, which cannot be delegated to 'any person or institution'
and at the most, it can be delegated to any Judge of the court. The second
stage, however, is more or less ministerial and at that stage, the Chief
Justice may, if he thinks fit, take help of any person or institution so
that proper and fit person is appointed as arbitrator.

Though the submission weighed with the majority, I express my inability to
agree with it for several reasons. Firstly, as earlier noted, it proceeds
on the basis that the function of the Chief Justice is judicial or quasi-
judicial, which is not correct. In my view, it is administrative which is
apparent from the language of
Section 11
and strengthened by
Section 16

which enables the Arbitral Tribunal to rule on its own jurisdiction.
Secondly, a court of law must give credit to Parliament that it is aware of
settled legal position that judicial or quasi-judicial function cannot be
delegated and if the function performed by the Chief Justice is judicial or
quasi-judicial in nature, keeping in view legal position, it would not have
allowed delegation of such function to 'any person or authority'. Thirdly,
the majority held, and I am in respectful agreement with it, that the
conferment of power on the Chief Justice is not as 'persona designata'.
Hence, the power can be delegated. Finally, if the legislative intent is
the exercise of power by the Chief Justice alone, one fails to understand
as to how it can be exercised by a 'colleague' of the Chief Justice as
well.

In my opinion, acceptance of the submission of Mr. Nariman would result in
rewriting of a statute. The scheme of the legislation does not warrant such
construction. No court much less the highest court of the country would
interpret one provision (
Section 11
) of an Act of Parliament which would
make another provision (
Section 16
) totally redundant, otiose and nugatory.
The Legislature has conferred power on the Chief Justice to appoint an
arbitrator in certain contingencies. By the same pen and ink, it allowed
the Chief Justice to get that power exercised through 'any person or
institution'. It is not open to a court to ignore the legislative mandate
by making artificial distinction between the power to be exercised by the
Chief Justice or by his 'colleague' and the power to be exercised by other
organs though Legislature was quite clear on the exercise of power by the
persons and authorities specified therein. I accordingly reject the
argument.

34. It was then urged that the principal ground for holding the function of
the Chief Justice under Sub-section (6) of
Section 11
as administrative was
to ensure immediate commencement of arbitration proceedings and speedy
disposal of cases. In reality, however, it is likely to cause delay for the
simple reason that if the order passed by the Chief Justice of the High
Court is treated as judicial or quasi judicial, it can only be challenged
in the Supreme Court under
Article 136
of the Constitution. So far as the
order of the Chief Justice of India is concerned, it is 'final' as no
appeal/application/writ petition lies against it. But if such decision is
held to be administrative, initially, it can be challenged on the judicial
side of the High Court under
Article 226
of the Constitution. Normally,
under the High Court Rules, such petitions are dealt with and decided by a
Single Judge. Hence, the decision of a single Page 1847 Judge can further
be challenged by filing a Letters Patent Appeal or Intra-court Appeal under
the relevant clause of the Letters Patent applicable to the High Court
concerned. Finally, an order passed by the Division Bench can always be
made subject-matter of challenge before this Court under
Article 136
of the
Constitution. Thus, an interpretation sought to be adopted for the purpose
of reducing litigation and speedy disposal of proceedings would really
result in increase of litigation and delay in disposal of cases.
I must admit that once it is held that the order passed by the Chief
Justice is administrative, it can be challenged in Writ Petition, Letters
Patent Appeal and in Special Leave Petition. But in my opinion, while
exercising extraordinary jurisdiction under
Article 226
of the
Constitution, the High Court would consider the provisions of the Act, such
as, limited judicial intervention of Court (
Section 5
); power of Arbitral
Tribunal to rule on its own jurisdiction and the effect of such decision
(
Section 16
). It will also keep in mind the legislative intent of
expeditious disposal of proceedings and may not interfere at that stage.
Ultimately, having jurisdiction or power to entertain a cause and
interference with the order are two different and distinct matters. One
does not necessarily result into the other. Hence, in spite of jurisdiction
of the High Court, it may not stall arbitration proceedings by allowing the
party to raise all objections before the Arbitral Tribunal.

35.
In
Laxmikant Revchand Bhojwani and Anr. v. Pratapsingh Mohansingh
Pardeshi
, the relevant
Rent Act
did not provide for further appeal or
revision against an order assed by the appellate authority. The aggrieved
party, therefore, invoked supervisory jurisdiction of the High Court. The
High Court allowed the petition and set aside the order passed by the
appellate court.

Quashing the order of the High Court and keeping in view the legislative
scheme, this Court said;

"Before parting with this judgment we would like to say that the High Court
was not justified in extending its jurisdiction under
Article 227
of the
Constitution of India in the present case.
The Act
is a special legislation
governing landlord-tenant relationship and disputes. The legislature has,
in its wisdom, not provided second appeal or revision to the High Court.
The object is to give finality to the decision of the appellate authority.
The High Court under
Article 227
of the Constitution of India cannot assume
unlimited prerogative to correct all species of hardship or wrong
decisions. It must be restricted to cases of grave dereliction of duty and
flagrant abuse of fundamental principles of law or justice, where grave
injustice would be done unless the High Court interferes."

[See also Koyilerian Janaki and Ors. v. Rent Controller (Munsiff), Cannore
and Ors.;
Ouseph Mathai and Ors. v. M. Abdul Khadir
;]

In
State of Orissa and Ors. v. Gokulananda Jena
, (2003) 6 SCC 456, relying
upon Konkan Railway Corporation Ltd. II, the High Court of Orissa held that
since the order passed by the Chief Justice was administrative, it was not
amenable to writ jurisdiction under
Article 226
of the Constitution.
Holding that the High Court was wrong and the writ petition under
Article
was maintainable, a two-Judge Bench stated;

"However, we must notice that in view of
Section 16
read with
Sections 12

and
of the Act as interpreted by the Constitution Bench of this Court in
the M/s.
Konkan Railway
(supra) almost all disputes which could be
presently contemplated can be raised and agitated before the Arbitrator
appointed by the Designated Judge under
Section 11(6)
of the Act. From the
perusal of the said provisions of the Act, it is clear that there is hardly
any area of dispute which cannot be decided by the Arbitrator appointed by
the Designated Judge. If that be so, since an alternative efficacious
remedy is available before the Arbitrator, writ court normally would not
entertain a challenge to an order of the Designated Judge made under

Section 11(6)
of the Act which includes considering the question of
jurisdiction of the Arbitrator himself. Therefore, in our view even though
a writ petition under
Article 226
of the Constitution is available to an
aggrieved party, ground available for challenge in such a petition is
limited because of the alternative remedy available under the Act itself."

(emphasis supplied)
The above observations clearly go to show that though the constitutional
remedy cannot be taken away and an aggrieved party can invoke the
jurisdiction of the High Court against an order passed by the Chief
Justice, the Writ Court will be circumspect in entertaining a petition and
in exercising extraordinary jurisdiction in such cases.

36. As has been held in earlier decisions as also in the majority judgment,
the paramount consideration of Parliament in selecting the Chief Justice
and in conferring upon him the power to appoint an arbitrator is to ensure
complete independence, total impartiality and highest degree of credibility
in arbitral process. The Chief Justice of India and Chief Justices of High
Courts have been specially chosen considering their constitutional status
as Judges of superior courts and their rich experience in dealing with such
matters. The office occupied by them would infuse greater confidence in the
procedure in appointing an arbitrator and in ensuring fairness, integrity
and impartiality.

But that does not mean that the Chief Justice is exercising judicial or
quasi-judicial power. On the contrary, the Chief Justice, acting in
administrative capacity, as distinguished from judicial capacity, is
expected to act quickly and expeditiously without being inhibited by
procedural requirements and 'technical tortures'. In undertaking the task
to appoint an Arbitral Tribunal, he is neither required to consult parties
nor arbitrators. The Chief Justice would thus uphold, preserve and protect
solemnity of agreement between the parties to arbitration. This practice is
prevalent in England and in other countries since several years.

37. I intend to conclude the discussion on this point by quoting the
following pertinent observations of Lord Hobhouse in Palgrave Gold Mining
Co. v. McMillan, 1892 AC 460 : 61 LJ PC 85. Dealing with a similar
situation and repelling an identical contention, before more than hundred
years, the Law Lord rightly declared;

It is very common in England to invest responsible public officials with
the duty of appointing Arbitrators under given circumstances. Such
appointment should be made with integrity and impartiality, but it is new
to their Lordships to hear them called judicial acts..."
(emphasis supplied)

38. The last question relates to issuance of notice to the party likely to
be affected and affording an opportunity of hearing before making an order
of composition of Arbitral Tribunal.
Section 8
of the old Act of 1940
expressly provided written notice and opportunity of hearing in case of
appointment of an arbitrator or umpire. The present Act of 1996 neither
provides for issuance of notice nor for opportunity of being heard.
In exercise of power under Sub-section (10) of
Section 11
of the Act, the
Chief Justice of India had framed a scheme, known as "The Appointment of
Arbitrators by the Chief Justice of India Scheme. 1996". Clause 7 provided
for issuing notice to affected persons and read thus;

"Notice to affected persons.- Subject to the provisions of paragraph 6, the
Chief Justice or the person or the institution designated by him shall
direct that a notice of the request be given to all the parties to the
arbitration agreement and such other person or persons as may seem to him
or is likely to be affected by such request to show cause, within the time
specified in the notice, why the appointment of the arbitrator or the
measure proposed to be taken should not be made or taken and such notice
shall be accompanied by copies of all documents referred to in paragraph 2
or, as the case may be, by information or clarification, if any, sought
under paragraph 5."

39. In Konkan Railway Corporation Ltd. II, the Constitution Bench held the
function of the Chief Justice of appointment of an arbitrator under Sub-
section (6) of
Section 11
as administrative and not judicial. In the light
of the said finding, the Court proceeded to state that it was not necessary
to issue notice to the parties likely to be affected.
Section 11
did not
provide for such notice. The Court, however, did not stop there. It held
that by making a provision for issuance of notice, the scheme went 'beyond
the terms of
Section 11
' and was bad on that ground. A direction was,
therefore, issued to amend it.

Since the majority judgment has held the function of the Chief Justice as
judicial, it ruled that such notice ought to be issued and opportunity of
hearing ought to be afforded by the Chief Justice to the person or persons
likely to be affected thereby in an appointment of arbitrator.
I have, on the other hand, held that the function of the Chief Justice
under Sub-section (6) of
Section 11
is neither judicial nor quasi-judicial
but administrative. It is also true that unlike
Section 8
of the 1940 Act,
1996 Act does not envisage issuance of notice to the party likely to be
affected by the order of the Chief Justice.

40. The question, however, is : Can such clause in the scheme prepared by
the Chief Justice of India be held bad as going 'beyond the terms of

Section 11
'? The Constitution Bench so held in Konkan Railway Corporation
Ltd. II. With great respect to the Constitution Bench, such provision
cannot be held inconsistent with the parent Act or otherwise bad in law.
The Constitution Bench did not assign any reason as to why it was of the
view that Clause 7 could not stand or how it violated
Section 11
. But
reference to Jaswant Sugar Mills Ltd v. Lakshmi Chand,;
Engineering Mazdoor
Sabha v. Hind Cycles Ltd.
, and
Associated Cement Companies Ltd. v. P.N.
Sharma
, clearly shows that since the Constitution Bench was of the view
that while performing function of appointing an Arbitral Tribunal the Chief
Justice was not acting as a Court or Tribunal, he was not expected to issue
notice or afford an opportunity of hearing to the parties likely to be
affected by such decision.

Once the function of the Chief Justice is held to be administrative, there
may not be 'duty to act judicially' on the part of the Chief Justice.
Nevertheless in such cases, an administrative authority is required to act
'fairly'. Basic procedural fairness requires such notice to the opposite
party. The principle in
R. v. Electricity Commissioners
, or Ridge v.
Baldwin, may not apply to administrative functions, but another concept
which developed at a later stage and accepted in public law field and found
place in Administrative Law of 'duty to act fairly' would apply to
administrative actions as well.

41. By now, it is well settled that when an administrative action is likely
to affect rights of subjects, there would be a duty on the part of the
authority to act fairly.

In Pearlberg v. Varty (Inspector of Taxes), Lord Pearson said;

"A tribunal to whom judicial or quasi-judicial functions are entrusted is
held to be required to apply those principles (i.e. the rules of natural
justice) in performing those functions unless there is a provision to title
contrary. But where some person or body is entrusted by Parliament that
administrative or executive functions there is no presumption that
compliance with the principles of natural justice is required although, as
'Parliament is not to be presumed to act unfairly', the courts may be able
in suitable cases (perhaps always) to imply an obligation to act with
fairness." 5
(emphasis supplied)
In
R. v. Commissioner
for Racial Equality, Lord Diplock stated;
"Where an act of Parliament confers upon an administrative body functions
which involve its making decisions which affect to their detriment the
rights Page 1851 of other persons or curtail their liberty to do as they
please, there is a presumption that Parliament intended that the
administrative body should act fairly towards those persons who will be
affected by their decisions."

The above principles have been accepted and applied in India also.
In the
leading case of
Keshav Mills Co. Ltd. v. Union of India
, a textile mill was
closed down. A Committee was appointed by the Government of India to
investigate into the affairs of the mill-company under the
Industries
(Development and Regulation) Act, 1951
. After affording opportunity to the
Company, a report was prepared by the Committee and submitted to the
Government. A copy of the report, however, was not supplied to the Company.
On the basis of the report, the Government took over the management of the
Company. The said action was challenged by the company inter alia on the
ground of violation of principles of natural justice inasmuch as no copy of
the report submitted by the Committed to the Government was supplied to the
Company nor was hearing afforded before finally deciding to take over the
management.

Rejecting the contention and observing that no prejudice had been caused to
the mill-company, this Court did not interfere with the order.
Speaking for the Court, A.K. Mukherjea, J. stated:

"The second question, however, as to what are the principles of natural
justice that should regulate an administrative act or order is a much more
difficult one to answer. We do not think it either feasible or even
desirable to lay down any fixed or rigorous yardstick in this manner. The
concept of natural justice cannot be put into a straitjacket. It is futile,
therefore, to look for definitions or standards of natural justice from
various decisions and then try to apply them to the facts of any given
case. The only essential point that has to be kept in mind in all cases is
that the person concerned should have a reasonable opportunity of
presenting his case and that the administrative authority concerned should
act fairly, impartially and reasonably. Where administrative officers are
concerned, the duty is not so much to act judicially as to act fairly.
(emphasis supplied)
In
Mohinder Singh Gill v. Chief Election Commission
after considering
several cases, Krishna Iyer, J. stated :

"Once we understand the soul of the rule as fairplay in action -and it is
so - we must hold that it extends to both the fields. After all,
administrative power in a democratic set-up is not allergic to fairness in
action and discretionary executive justice cannot degenerate into
unilateral injustice. Nor is there ground to be frightened of delay,
inconvenience and expense, if natural justice gains access. For fairness
itself is a flexible, pragmatic and relative concept, not a rigid,
ritualistic or sophisticated abstraction. It is not a bull in a china shop,
nor a bee in one's bonnet: Its essence is good conscience in a given
situation; nothing more - but nothing less."

(emphasis supplied)

In
Nally Bharat Engineering Co. Ltd. v. State of Bihar
, the Government, on
an application by a dismissed workman transferred his case from one Labour
Court to another Labour Court without issuing a notice or giving
opportunity to the employer.

Setting aside the order and referring to several cases, the Supreme Court
invoked the 'acting fairly' doctrine. The Court stated: "Fairness, in our
opinion, is a fundamental principle of good administration. It is a rule to
ensure the vast power in the modern State is not abused but properly
exercised. The State power is used for proper and not for improper
purposes. The authority is not misguided by extraneous or irrelevant
considerations. Fairness, is also a principle to ensure that statutory
authority arrives at a just decision either in promoting the interest or
affecting the rights of persons. To use the timehallowed phrase that
'justice should not only be done but be seen to be done' is the essence of
fairness equally applicable to administrative authorities. Fairness is thus
a prime test for proper and good administration. It has no set form or
procedure. It depends upon the facts of each case."

(emphasis supplied)
Quoting the observations of Paul Jackson, the Court said:

"It may be noted that the terms 'fairness of procedure', 'fair play in
action', 'duty to act fairly' are perhaps used as alternatives to 'natural
justice' without drawing any distinction. But Prof Paul Jackson points out
that 'such phrases may sometimes be used to refer not to the obligation to
observe the principles of natural justice but, on the contrary, to refer to
a standard of behavior which increasingly, the courts require to be
followed even in circumstances where the duty to observe natural justice is
inapplicable'."

(emphasis supplied)
de Smith states:

"The principal value of the introduction of the 'duty to act fairly' into
the courts' vocabulary has been to assist them to extend the benefit of
basic procedural protections to situations where it would be both confusing
to characterize as judicial or even quasi-judicial, the decision-makers'
functions, and inappropriate to insist on a procedure analogous to a
trial."

['Judicial Review of Administrative Action'; (1995); p. 399]

42. It is thus clear that the doctrine of 'fairness' has become all
pervasive. As has been said, the 'acting fairly' doctrine proved useful as
a device for evading confusion which prevailed in the past. "The courts now
have two strings to their bow." An administrative act may be held to be
subject to the requirement and observance of natural justice either because
it affects rights or interests and hence would involve a 'duty to act
judicially' or it may be administrative, pure and simple, and yet, may
require basic procedural Page 1853 protection which would involve 'duty to
act fairly'. [Wade & Forsyth; 'Administrative Law'; (2005); pp. 492-94; de
Smith; "Judicial Review of Administrative Action", (1995); pp. 397-98]
'Acting fairly' is thus an additional weapon in the armoury of the court.
It is not intended to be substituted for another much more powerful weapon
'acting judicially'. Where, however, the former ('acting judicially')
cannot be wielded, the court will try to reach injustice by taking resort
to the latter - less powerful weapon ('acting fairly'). [See C.K. Thakker :

"From Duty to Act Judicially to Duty to Act Fairly",].

43. As the Chief Justice is performing administrative function under Sub-
section (6) of
Section 11
in appointing an arbitrator, mere is no 'duty to
act judicially' on his part, nonetheless there is 'duty to act fairly'
which requires him to issue notice to the other side before taking a
decision to appoint an arbitrator. I am, therefore, of the view that Clause
7 of the scheme as stood prior to the amendment, could neither be held bad
in law nor inconsistent with
Section 11
of the Act. I am, therefore, in
respectful agreement with the majority judgment on that point.

44. On the basis of the above findings, my conclusions are as under;

(i) The function performed by the Chief Justice of the High Court or the
Chief Justice of India under Sub-section (6) of
Section 11
of the Act (i.e.

Arbitration and Conciliation Act, 1996
) is administrative, - pure and
simple -, and neither judicial nor quasi-judicial.

(ii) The function to be performed by the Chief Justice under Sub-section
(6) of
Section 11
of the Act may be performed by him or by 'any person or
institution designated by him'.

(iii) While performing the function under Sub-section (6) of
Section 11
of
the Act, the Chief Justice should be prima facie satisfied that the
conditions
laid down in

Section 11
are satisfied.

(iv) The Arbitral Tribunal has power and jurisdiction to rule 'on its own
jurisdiction' under Sub-section (1) of
Section 16
of the Act.

(v) Where the Arbitral Tribunal holds that it has jurisdiction, it shall
continue with the arbitral proceedings and make an arbitral award.

(vi) A remedy available to the party aggrieved is to challenge the award in
accordance with
Section 34
or
Section 37
of the Act.

(vii) Since the order passed by the Chief Justice under Sub-section (6) of

Section 11
of the Act is administrative, a Writ Petition under
Article 226

of the Constitution is maintainable. A Letters Patent Appeal/Intra-court
Appeal is competent. A Special Leave Petition under
Article 136
of the
Constitution also lies to this Court.

(viii) While exercising extraordinary jurisdiction under
Article 226
of the
Constitution, however, the High Court will be conscious and mindful of the
relevant provisions of the Act, including
Sections 5
,
,
to
as also
the object of the legislation and exercise its power with utmost care,
caution and circumspection.

(ix) The decision of the Constitution Bench in Konkan Railway Corporation
Ltd. II, to the extent that it held the function of the Chief Justice under
Sub-section (6) of
Section 11
of the Act as administrative is in consonance
Page 1854 with settled legal position and lays down correct law on the
point.

(x) The decision of the Constitution Bench in Konkan Railway Corporation
Ltd. II, to the extent that it held Clause 7 of "The Appointment of
Arbitrators by the Chief Justice of India Scheme, 1996" providing for
issuance of notice to affected parties as 'beyond the term of
Section 11
'
and bad on that ground is not in accordance with law and does not state the
legal position correctly.

(xi) Since the Chief Justice is performing administrative function in
appointing an Arbitral Tribunal, there is no 'duty to act judicially' on
his part. The doctrine of 'duty to act fairly', however, applies and the
Chief Justice must issue notice to the person or persons likely to be
affected by the decision under Sub-section (6) of
Section 11
of the Act.

(xii) All appointments of Arbitral Tribunals so far made without issuing
notice to the parties affected are held legal and valid. Henceforth,
however, every appointment will be made after issuing notice to such person
or persons. In other words, this judgment will have prospective operation
and it will not affect past appointments or concluded proceedings.