1. The present Civil Revision Petition is directed against the order of the learned Principal District Munsif, Madurai Town dated 16.11.2004 made in I.A No. 54 of 2003 in O.S No. 1477 of 1996.
2. The first respondent herein has filed the Suit in O.S No. 1477 of 1996 on the file of the learned Principal District Munsif, Madurai Town against the petitioner and the second respondent for permanent injunction restraining the petitioner herein from enforcing the bank guarantee dated 12.4.1988 and restraining the second respondent herein from making payment of the amount covered by the bank guarantee dated 12.4.1988 to the petitioner herein and for costs. In the said Suit, the petitioner, who was the first defendant, has filed an Application in I.A No. 54 of 2003 under Section 8(3) of the Arbitration and Conciliation Act, 1996 (hereinafter referred to as “the Act”). The case of the petitioner is that the agreement between the petitioner and the first respondent herein contains an arbitration clause. Hence, an Application in I.A No. 196 of 2001 was filed earlier under Section 8 of the Arbitration and Conciliation Act invoking the said arbitration clause. At the time of filing the said Application, according to the petitioner herein, the sole Arbitrator, who is to be nominated by the Northern Railway, has not been appointed and hence, the petitioner has sought the assistance of the Court “to refer the parties to the arbitration in terms of the arbitration clause in the contract between the parties to the sole Arbitrator being an Officer of the Northern Railway in respect of the dispute raised in this Suit.” When the above Application was pending for an enquiry, the petitioner has averred that a decision was pronounced by this Court in Mankanner Jain School Welfare Society v. Anilkumar J. Doshi, 2001(2) LW 572 The said judgment exhaustively dealt with innumerable decisions of the Apex Court, our High Court and other High Courts in respect of the scope of Section 8 and other related provisions of the Arbitration Act. Taking note of the above said principle, it is further averred in the said affidavit that the General Manager, Northern Railway invoking the arbitration clause has appointed the sole Arbitrator, namely, Shri P.K Goyal, Dy. CE/TS-1, Baroda House, New Delhi, for settlement of disputes between the parties. Hence, the petitioner has filed the Application under Section 8(3) of the Arbitration and Conciliation Act, 1996 praying the Court below not to proceed with the Suit any further and direct the parties to agitate their rights before the sole Arbitrator already appointed.
3. A detailed counter has been filed by the first respondent opposing the said Application. In the said counter, it has been stated that the petitioner has already filed an Application in I.A No. 144 of 1988 on 15.3.1988 for stay under Section 34 of the Arbitration Act 1940. Even though the Suit was pending before the Subordinate Court for more than 15 years, the petitioner has not moved for arbitration proceedings by appointing an Arbitrator. Further, the first respondent has denied about the arbitration clause in the agreement between the parties. Further, in the said counter it has been stated that the petitioner has already filed an Application in I.A No. 196 of 2001 to refer the parties to arbitration and hence, the present Application without withdrawing the earlier Application is not at all maintainable. Learned Principal District Munsif, Madurai Town by his order dated 16.11.2004 dismissed the said Application and the present Revision is directed against the said order.
4. I have heard N. Ananthapadmanabhan, learned counsel for the petitioner and Mr. R. Subramaniam, learned counsel appearing for the first respondent and Ms. S. Srimathy, learned counsel appearing for the second respondent.
5. Mr. N. Ananthapadmanabhan, learned counsel for the petitioner, has contended that the though I.A No. 144 of 1988 has been filed under Section 34 of the old Act, the same could not be prosecuted in view of the later Act. The other Application in I.A No. 196 of 2001 has been filed to refer the matter for arbitration under Section 8 of the Arbitration and Conciliation Act was not pressed since at the time of filing the Application in I.A No. 196 of 2001, no sole Arbitrator was appointed and after the judgment rendered by the Principal Seat of this High Court reported in Mankanner Jain School Welfare Society v. Anilkumar J. Doshi, 2001 (2) LW 572 and the judgment of the Apex Court reported in Kalpana Kothari v. Sudha Yadav, 2002 (1) SCC 203 the petitioner thought it fit to file the present Application in I.A No. 54 of 2003 praying for an order not to proceed with the Suit any further and direct the parties to agitate their rights before the sole Arbitrator appointed. This Application has been filed under Section 8(3) of the Arbitration and Conciliation Act. The learned counsel for the petitioner has further submitted that since an Arbitration Clause is provided under the agreement between the petitioner and the first respondent, the Court below ought to have allowed the Application filed by the petitioner.
6. In this connection learned counsel for the petitioner has drawn my attention to Section 8 of the Act which reads as follows:—
“8. Power to refer parties to arbitration where there is an arbitration agreement.—
(1) A judicial authority before which an action is brought in a matter which is the subject of an arbitration agreement shall, if a party so applies not later than when submitting his first statement on the substance of the dispute, refer the parties to arbitration.
(2) The Application referred to in sub-section (1) shall not be entertained unless it is accompanied by the original arbitration agreement or a duly certified copy thereof.
(3) Notwithstanding that an Application has been made under sub-section (1) and that the issue is pending before the judicial authority, an arbitration may be commenced or continued and an arbitral award made.”
7. By pointing out the said provision, the learned counsel for the petitioner has submitted that the conditions which are required to be satisfied under sub-sections (1) and (2) of Section 8 of the Act by the Court before exercising its powers are:
(1) there is an arbitration agreement;
(2) a party to the agreement brings an action in the Court against the other party;
(3) subject-matter of the action is the same as the subject-matter of the arbitration agreement;
(4) the other party moves the Court for referring the parties to arbitration before it submits his first statement on the substance of the dispute.
8. Thus, according to the learned counsel for the petitioner, since there is an arbitration agreement between the parties, the Application filed by the petitioner to refer the matter for arbitration under the provisions of the Act is perfectly valid and the Court below has erred in dismissing the said Application.
9. Per contra, the learned counsel appearing for the first respondent has submitted that (a) the first respondent does not admit the alleged Arbitration Clause covered by the agreement; (b) Even assuming that there is a clause in the agreement with reference to arbitration, the petitioner has not produced any arbitration agreement which is essential and the failure to produce the same disentitle the petitioner from claiming the relief under the said Act; (c) Since there is an assertion by the petitioner about the arbitration agreement which is being denied by the first respondent about the same, the Court has to first decide existence of arbitration clause or otherwise in the agreement between the parties and the appointment of an arbitrator without informing the same to the respondents is invalid; (d) Since there was a denial about the arbitration clause, the Application filed by the petitioner to refer the matter for arbitration is not valid and proper. In Ex.R-1 tender dated 1.2.1988, the first respondent has specifically denied to the arbitration clause and the said document clearly states that if any dispute arises out of the contract, it should be instituted in the Court having jurisdiction in the city of Madurai. In reply to Ex.R-1, the petitioner has sent their telex message on 23.2.1988 which is marked as Ex.R-2 which would clearly show that there was a request made by petitioner to the first respondent as to the arbitration clause. Ex.R-3 dated 24.2.1988 has been sent by the first respondent wherein the first respondent has specifically stated that they were not able to withdraw their option for jurisdiction which is uniform for all customers. Since there was no further clarification from the petitioner and in view of the letter of acceptance by the petitioner dated 30.3.1988 which is marked as Ex.R-4, it has to be presumed that the first respondent did not accept for the arbitration clause. The learned counsel for the second respondent has also reiterated the submission made on behalf of the first respondent.
10. Though initially the counsel for the first respondent has raised an objection with regard to non-filing of the arbitration agreement along with I.A No. 54 of 2003, stating that it is mandatory, the learned counsel for the respondents 1 and 2 later fairly submitted that they are not pressing that point. In view of the said fact and also in view of the fact that it has been held by the Apex Court as well as by this Court that the agreement between the parties need not be produced along with the Application under Section 8(3) of the said Act, I am constrained to hold that non-production of the agreement between the parties along with the Application will not disentitle the petitioner from claiming the relief under the said Act.
11. Ex.P-1 dated 4.2.1988 is the agreement between the petitioner and the first respondent. Admittedly, in the said agreement, an arbitration clause is provided in Clause 15 which reads as follows:
“15. ARBITRATION CLAUSE.— In the event of any dispute or difference of opinion between the Railway administration and Contractors as to the respective right and obligation of the parties hereunder or of as to the true intent and meaning of these presents and of any articles or conditions thereof such dispute or difference of opinion (except the matter regarding which the decision has been specifically provided for in the terms of the contract) shall be referred to the sole arbitration of an officer of the Railway who shall be nominated for the purpose by the General Manager, Northern Railway for the time being and his decision shall be final, conclusive and binding on the parties. For the purpose of contract the General Manager will mean the Head of the Northern Railway.”
12. As referred to already, the counsels for the respondents have submitted that though there is an Arbitration Clause in the said agreement, it has not been accepted. In Ex.R-2, Telex dated 23.2.1988, telex message has been sent by the petitioner to the first respondent about the Arbitration Clause and a reply has been sent by the first respondent dated 24.2.1988 under Ex.R-3, wherein it has been specifically stated by the first respondent that that are not able to withdraw their option for jurisdiction which is uniform for all customers. In tender dated 1.2.1988 marked as Ex.R-1, it has been clearly stated that if any dispute arises out of the contract, Suit has to be instituted in the Court in the jurisdiction of Madurai city. Thus, the sum and substance of the argument on the side of the respondents is that the terms and conditions containing Arbitration Clause has not been accepted by the first respondent. Hence, according to the learned counsel for the respondents, the Application filed by the petitioner to refer the matter under the Act has to be disallowed and the Court below has rightly rejected the Application filed by the petitioner in that regard. I am unable to subscribe my views with regard to the said submission for more than one reason.
13. It is obligatory on the part of the Court if it is brought to the notice of the Court that there exists an agreement containing a clause to refer the matter for arbitration. The arbitrator has got ample power to decide whether there is an existence of the arbitration clause in the agreement or he can give his own ruling about the validity of the arbitration agreement. At this juncture, it is useful to refer to Section 16(1) of the said Act which reads as follows:-
“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 Arbitration Clause.”
14. The above said provision clearly gives power to the Arbitrator to decide the existence or validity of the arbitration agreement. Hence, the argument of the learned counsel for the respondents that there is no Arbitration Clause in the agreement and that even if there is a clause regarding arbitration in the said agreement, it has not been accepted by the first respondent, can be decided by the Arbitrator and on that count, the respondents cannot claim that the Application filed by the petitioner to refer the matter for arbitration under Section 8 of the Act is invalid.
15. The said issue came up before this Court in Niit Limited v. Ashish Deb, 2004 (2) LW 244 wherein Their Lordships have held as follows:
“Section 16 of the Act gives power to the Arbitrator to decide even the validity of the agreement. If it is brought to the notice of the Court that there was an arbitration agreement, it is obligatory for the Court to refer the matter for arbitration in terms of the arbitration agreement. In the present case, though the appellant/defendant has brought to the notice of the Civil Court that there was an agreement providing for arbitration, the appellant is entitled to sustain the Application under Section 8 of the Act, to refer the matter to Arbitrator.”
16. In Shree Subhlaxmi Fabrics Pvt. Ltd v. Chand Mal Baradia, AIR 2005 SC 2161, the Honourable Apex Court had an occasion to deal with similar question, wherein Their Lordships have held as follows:
“Contentious issues should not be gone into or decided at the stage of appointment of an Arbitrator and no time should be wasted in such an exercise. The remedy of the aggrieved party is to raise an objection before the Arbitral Tribunal as under Section 16 of the Act it is empowered to rule about its own jurisdiction. It is, therefore, open to the plaintiff to raise all the pleas before Arbitral Tribunal including a plea that there is no arbitration agreement between the parties for referring any dispute for arbitration.”
17. In S.B.P & Co. v. Patel Engineering Ltd, 2005 (5) CTC 302. wherein the Honourable Apex Court has held as follows:
“Orders passed by Arbitral Tribunal under Section 16 can be challenged under Section 34 but such challenge can be made only after award is passed by Tribunal.”
18. Thus, the above said decisions clearly laid down the proposition of law that the Arbitrator has got power to decide the validity of the agreement between the parties. The respondents can very well urge before the Arbitrator that there was no clause regarding arbitration in the agreement and also that it has not been accepted by the first respondent to have such a clause in the said agreement. So, the Court below went wrong in deciding that it could not be possible for the parties to enter into any terms and conditions of contract regarding Arbitration Clause and it cannot be construed that the first respondent had agreed for the Arbitration Clause as alleged by the petitioner. The further finding of the Court below is that when there is no consensus between the petitioner and the first respondent as to the arbitration clause, it cannot be said that Arbitration Clause is one of the terms of the contract entered into between the petitioner and the first respondent. Such finding of the Court below is totally erroneous and against Section 16 of the said Act. Whether the first respondent has agreed for the Arbitration Clause as stated by the petitioner or not has to be decided only by the arbitrator and it cannot be decided by the Court below. If the Court below assumes its jurisdiction, even though there is a clause in the agreement, on the ground that the first respondent has not accepted for the said clause, it is totally erroneous.
19. The next contention of the learned counsel for the first respondent is that earlier application has been filed under the original Act and later it has been withdrawn and another Application has been filed in I.A No. 196 of 2001 which was also not pressed and hence, the present Application is not maintainable cannot also be acceptable. The dismissal of the earlier Application filed under Section 34 of the Arbitration Act, 1940 as not pressed following repeal of 1940 Act does not constitute legal impediment in seeking the relief under Section 8 and other provisions of 1996 Act. Further, the petitioner not pressing the Application in I.A No. 196 of 2001 also does not constitute any legal impediment in seeking the relief under Section 8 or other provisions of 1996 Act. The reason for filing the present Application in I.A No. 54 of 2003 has been explained by the petitioner in details in their affidavit in support of their Application. Hence, the argument of the learned counsel for the first respondent on this ground has also to be rejected.
20. In this connection, it is useful to refer the judgment of the Apex Court reported in Kalpana Kothari v. Sudha Yadav, 2002 (1) SCC 203 wherein Their Lordships have held as follows:
“The fact that the earlier Application under the 1940 Act was got dismissed as not pressed in the teeth of the repeal of the said Act cannot constitute any legal impediment for having recourse to and avail of the avenues thrown open to parties under the 1996 Act. Similarly, having regard to the distinct purposes, scope and object of the respective provisions of law in these two Acts, the plea of estoppel can have no application to deprive the appellants of the legitimate right to invoke an all comprehensive provision of mandatory character like Section 8 of the 1996 Act to have the matter relating to the disputes referred to arbitration, in terms of the arbitration agreement.”
21. Therefore, in case where there is an Arbitration Clause in the agreement, it is obligatory for the Court to refer the matter in terms of the arbitration agreement and nothing remains to be decided in the original action, namely, in the Suit that has been instituted by the first respondent herein, after an Application is made under Section 8(3) of the Act, except to refer the dispute to the Arbitrator. It is nothing, but mandatory for the Civil Court to refer the dispute to the Arbitrator. In view of the mandatory language provided under Section 8 of the Act, the Court below has no option, but to refer the dispute to arbitration. The main objects of the Act itself are as under:
(i) to comprehensively cover international and commercial arbitration and conciliation as also domestic arbitration and conciliation;
(ii) to make provision for an arbitral procedure which is fair, efficient and capable of meeting the needs of the specific arbitration.
(iii) to provide that the Arbitral Tribunal gives reasons for its arbitral award;
(iv) to ensure that the Arbitral Tribunal remains within the limits of its jurisdiction;
(v) to minimise the supervisory role of Courts in the arbitral process;
(vi) to permit the Arbitral Tribunal to use mediation, conciliation or other procedures during the arbitral proceedings to encourage settlement of disputes;
(vii) to provide that every final arbitral award is enforced in the same manner as if it were a decree of the Court;
(viii) to provide that a settlement agreement reached by the parties as a result of conciliation proceedings will have the same status and effect as an arbitral award on agreed terms on the substance of the dispute rendered by an Arbitral Tribunal; and
(ix) to provide that, for purposes of enforcement of foreign awards, every arbitral award made in a country to which one of the two international conventions relating to foreign arbitral awards to which India is a party applies, will be treated as a foreign award.”
22. Thus, the legislative intent underlying the 1996 Act is to minimise the supervisory role of Courts in the arbitral process and nominate/appoint the Arbitrator without wasting time, leaving all contentious issues to be urged and agitated before the Arbitral Tribunal itself. The contentious issues like whether there is an Arbitration Clause or the parties have agreed for such clause, should not be gone into or decided at the stage of appointment of an arbitrator. The remedy of the aggrieved party is to raise such an objection before the Arbitral Tribunal as laid down under Section 16 of the Act which empowers an Arbitrator to rule about its own, jurisdiction.
23. Thus, looking at any angle, the order of the Court below rejecting the Application filed by the petitioner under Section 8(3) of the Act is totally erroneous. Hence, the order of the learned Principal District Munsif, Madurai Town dated 16.11.2004 made in I.A No. 54 of 2003 in O.S No. 1477 of 1996 is set aside and the said Application is ordered. Accordingly, the matter is directed to be referred to the Arbitrator appointed by the petitioner in pursuant, to Clause 15 of the agreement and the Arbitrator is directed to decide the issues including the issue raised by the respondents, within four months from this date.
24. With the above direction, the Civil Revision Petition stands allowed. Consequently, C.M.P No. 1116 of 2005 is closed. However, there is no order as to costs.