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Nissho Iwai Corporation v. Veejay Impex
Factual and Procedural Background
The plaintiff filed a civil suit seeking multiple declarations and reliefs, principally that the plaintiff did not enter into any arbitration agreement with defendant No. 1 (and other defendants), that specified documents (a Composite Agreement dated December 15, 1997, an alleged letter dated December 10, 1997, and an alleged registered letter No. 4707) did not constitute an arbitration agreement and should be adjudged void, cancelled and delivered up, and for a perpetual injunction restraining defendants from enforcing or acting upon those instruments. Costs and other reliefs were also sought.
Defendant No. 1 applied (the present application) for revocation of leave previously granted under Clause 12 of the Letters Patent of this Court, seeking revocation of that leave among other reliefs. This application is opposed by affidavit.
Separately, defendant No. 1 had initiated proceedings under Section 9 of the Arbitration and Conciliation Act, 1996 in the Court of the learned District Judge, 24-Parganas (North) at Barasat (Misc. Case No. 2 of 1998). That Section 9 proceeding is pending and is being contested by the plaintiff (a fact admitted in the plaint). The present suit challenges the existence/validity/factual existence of the arbitration agreement which is also the subject of the Section 9 proceedings.
Legal Issues Presented
- Whether this Court has jurisdiction to entertain the suit and whether leave granted under Clause 12 of the Letters Patent should be revoked in view of the pendency of proceedings under Part I of the Arbitration and Conciliation Act, 1996 (specifically under Section 9) in another court and the operation of Section 42 (read with Section 5) of the Act which provides that the court before which a Part I application is made "alone" shall have jurisdiction.
- Whether questions concerning the existence, validity or factual existence (including allegations of forgery, fabrication or manipulation) of an arbitration agreement fall within the jurisdiction of the arbitral tribunal under Section 16(1) of the Act (i.e., whether the arbitrator may rule on its own jurisdiction, including objections with respect to the existence or validity of the arbitration agreement).
- Whether, on the above statutory scheme, this Court is precluded from adjudicating the dispute and therefore whether leave under Clause 12 of the Letters Patent is unsustainable and must be revoked.
Arguments of the Parties
Defendant No. 1's Arguments (as presented by Mr. Binoy Sinha Roy)
- Defendant No. 1 has already initiated proceedings under Section 9 of the Arbitration and Conciliation Act, 1996 (Misc. Case No. 2 of 1998) in the District Judge's Court; that proceeding is pending and is being contested by the plaintiff (admitted in the plaint).
- Section 42 of the Act, read with Section 5, expressly ousts the jurisdiction of other courts once an application under Part I has been made to a Court; the Court before which the Part I application is made "alone" shall have jurisdiction. Consequently, this Court has no jurisdiction to entertain the suit and Clause 12 leave is overridden by the special statutory provision.
- Any dispute concerning existence, validity or legality of the arbitration agreement (including factual existence) falls to be addressed by the arbitral tribunal; Section 16 and Section 5 preclude the civil court from adjudicating such disputes.
- The Court should scrutinize cause of action and revoke leave where, on scrutiny, there cannot be any cause of action under law; he relied on several precedents in support of revocation.
Plaintiff's Arguments (as presented by Mr. Mitra led by Mr. Bachawat)
- The application to revoke leave should be decided on the basis of the averments in the plaint: the plaint avers that the dominant part of the cause of action arose within the territorial limits of this Court because the alleged arbitration agreement was said to have been concluded within this Court's jurisdiction.
- The issue in the suit is the factual existence of the arbitration agreement, which is impugned on grounds of forgery, manipulation and/or fabrication; such factual contests cannot properly be determined by arbitral proceedings.
- Section 16 of the Act, the plaintiff contends, does not provide a mechanism for adjudication of disputes relating to factual existence of the agreement and instead relates to legal existence; therefore, the civil court should not be precluded from deciding the question and revoking leave does not arise.
Table of Precedents Cited
| Precedent | Rule or Principle Cited For | Application by the Court |
|---|---|---|
| AIR 1949 Cal 495 | Relied upon by defendant's counsel to support the submission that the Court should scrutinize cause of action and that leave may be revoked where jurisdiction is absent. | The Court's reasoning does not rest on this precedent; the Court decided the matter on the statutory scheme in the Arbitration and Conciliation Act (Sections 5, 16 and 42) rather than on this case. |
| AIR 1957 Andh Pra 894 | Relied upon by defendant's counsel in support of revocation and jurisdictional submissions. | The opinion does not expressly apply principles from this decision; the Court grounded its decision on the text and operation of Sections 5, 16 and 42 of the Act. |
| AIR 1969 All 526 | Relied upon by defendant's counsel as authority in support of his submissions on revocation/scrutiny of cause of action. | The Court did not expressly rely on or discuss this authority in its reasoning, instead focusing on the statutory provisions of the Arbitration Act. |
| AIR 1989 SC 1239 | Relied upon by defendant's counsel in support of the proposition that jurisdictional questions justify revocation of leave. | The Court's judgment does not record application of this Supreme Court decision to its analysis; the statutory provisions were determinative. |
| (1998) 1 Cal HN 500 (Bench decision of this Court) | Relied upon by defendant's counsel as a local precedent supporting revocation and jurisdictional scrutiny. | The Court's reasoning and conclusion are framed on Sections 5, 16 and 42 of the Arbitration Act; the opinion does not set out or apply the specific holdings of this Benched decision. |
Court's Reasoning and Analysis
The Court first identified and recorded certain admitted facts: (i) the suit challenges the legality, validity and factual existence of the arbitration agreement; (ii) a proceeding under Section 9 of the Arbitration and Conciliation Act, 1996 has been initiated in another (higher) Court in relation to the arbitration agreement; and (iii) the plaintiff is contesting that Section 9 proceeding.
The Court emphasized that Sections 9 and 42 (and Section 16 and Section 5) fall within Part I of the Act. It reproduced the text of Section 42, which provides (in the Court's quotation):
“Notwithstanding anything elsewhere in this part or in any other law for the time being in force, where with respect to an arbitration agreement, any application under this part has been made to a Court, that Court alone shall have jurisdiction over the arbitral proceedings and all subsequent applications arising out of that agreement and the arbitral proceedings shall be made in that Court and in no other Court.”
The Court treated this jurisdictional clause as mandatory. Its analytical steps were:
- Because a proceeding under Part I (Section 9) has been instituted in another Court and is pending, Section 42 gives that Court exclusive jurisdiction over the arbitral proceedings and all subsequent applications arising out of that agreement; the word "alone" effectually ousts jurisdiction of any other Court.
- Section 42 has overriding effect over any other law, meaning Clause 12 of the Letters Patent (which ordinarily furnishes this Court with jurisdiction) is overridden in matters governed by Part I when a Part I application is pending in another Court.
- The Court examined whether the disputes in the plaint fall within "arbitral proceedings." It held they do: the plaintiff's suit challenges the arbitration agreement that is the subject of the Part I proceeding; hence those disputes arise from the arbitration agreement and are within the scope of Part I for jurisdictional purposes.
- The Court addressed the plaintiff's contention that Section 16 does not cover factual existence. It quoted Section 16(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 concluded that the phrase “objections with respect to the existence or validity of the arbitration agreement”—qualified by the word “any”—embraces both legal and factual challenges to existence and validity of the arbitration agreement.
- Further, Section 5 (reproduced by the Court) contains a non-obstante provision: in matters governed by Part I, no judicial authority shall intervene except where provided in that Part. The Court deemed this to be mandatory and to strip the Civil Court (this Court) of the jurisdiction otherwise conferred by Clause 12 of the Letters Patent in matters governed by Part I.
- On these bases—Section 42’s exclusive jurisdiction, Section 16(1)’s allocation of jurisdiction to the tribunal to rule on existence/validity (including factual existence) and Section 5’s bar on judicial intervention—the Court concluded that it was precluded from entertaining the present suit and that the leave under Clause 12 granted earlier is not sustainable.
The Court thus refused the plaintiff's submission that factual issues of forgery, manipulation or fabrication necessarily fall outside the jurisdiction of an arbitral tribunal, explicitly disagreeing with the plaintiff's counsel on that point and construing Section 16(1) to include factual challenges.
Holding and Implications
Core Holding: The Court revoked the leave previously granted under Clause 12 of the Letters Patent and held that it has no jurisdiction to entertain the suit because proceedings under Part I of the Arbitration and Conciliation Act, 1996 (Section 9) have been initiated in another Court; Section 42 (read with Sections 5 and 16) of the Act gives exclusive jurisdiction to the Court before which the Part I application has been made.
The Court ordered that leave under Clause 12 be revoked and that all interim orders, if any, stand vacated. The Court directed that there will be no order as to costs.
Implications: The direct consequence is that this Court will not proceed with the suit challenging the alleged arbitration agreement while Part I proceedings in relation to that agreement are pending before another Court; the exclusivity granted by Section 42 and the non-intervention principle in Section 5 govern. The opinion does not record any broader pronouncement of novel precedent beyond applying the statutory scheme; it does not state that it is establishing a new legal principle beyond construing the relevant statutory provisions and applying them to the admitted facts.
1. This application has been taken out by the defendant No. 1 asking amongst other for revocation of leave under Clause 12 of the Letters Patent granted by this Court before institution of the suit. The suit has been filed by the plaintiff above-named praying following reliefs:—
“(a) Declaration that the plaintiff did not enter into any arbitration agreement with the defendant No. 1 and/or any of the defendants Nos. 1, 2, 3 and 4;
(b) Declaration that—
(i) Composite Agreement of Assignment and Arbitral Adjudication of disputes dated December 15, 1997.
(ii) Alleged letter dated December 10, 1997 addressed by the defendant No. 2 to the plaintiff, and.
(iii) Alleged registered letter No. 4707 sent to the plaintiff, mentioned in paragraph 10 of the plaint did not constitute any arbitration agreement;
(c)(i) Composite Agreement of Assignment and Arbitral Adjudication of disputes dated December 15, 1997.
(ii) Alleged letter dated December 10, 1997 addressed by the defendant No. 2 to the plaintiff, and.
(iii) Alleged registered letter No. 4707 sent to the plaintiff mentioned in paragraph 10 of the plaint, be adjudged void, delivered up and cancelled;
(d) Declaration that the plaintiff did not agree to any conciliation proceeding relating to and arising out of any alleged disputes touching, concerning or in relation to the contract dated May 22, 1996, or otherwise;
(e) Perpetual injunction restraining the defendants Nos. 1, 2, 3 and 4, their servants, agents and assigns and each of them from in anyway or manner whatsoever or howsoever relying, acting upon, giving effect or further effect to, enforcing or taking steps and/or causing any step to be taken pursuant to or under any of the following:—
(i) Composite Agreement of Assignment and Arbitral Adjudication of Disputes dated December 15, 1997;
(ii) Alleged letter dated December 10, 1997 addressed by the defendant No. 2 to the plaintiff, and.
(iii) Alleged registered letter No. 4707 sent to the plaintiff, mentioned in paragraph 10 of the plaint;
(f) Costs;
(c) Further and other reliefs.”
2. This application is obviously opposed by filing an affidavit.
3. Mr. Binoy Sinha Roy, learned Counsel appearing with Ms. Pathayria, learned Counsel submits that his client, viz., the defendant No. 1 pursuant to an arbitration agreement which is sought to be challenged in this Court in the aforesaid suit has already taken out an application under Section 9 of the Arbitration and Conciliation Act, 1996 (hereinafter referred to as the said Act) in the Court of the learned District Judge, 24-Parganas (North) at Barasat. The said application has been marked as Misc. Case No. 2 of 1998 and the same is pending. The plaintiff herein has entered appearance in the said Misc. Case No. 2 of 1998 and has been contesting the said case. This fact of pendency of this proceeding is also admitted in the plaint itself. He argues that the whole scope of the suit relates to existence of the aforesaid arbitration agreement. He argues in view of Section 42 of the aforesaid Act read with Section 5 thereof this Court has no jurisdiction at all to entertain this suit. By this special statute the jurisdiction of this Court has been expressedly ousted inasmuch as one of the defendants in an arbitration proceedings had no option but to approach the same Court where a proceedings under the above Act has been initiated in relation to arbitration agreement. Since by operation of law jurisdiction of this Court is ousted question of granting leave under Clause 12 of the Letters Patent does not and cannot arise. As such leave should be revoked. Moreover, the dispute raised in this application relates to existence of the arbitration agreement. So any dispute relating to validity, legality and existence of the arbitration agreement can be decided by the tribunal of arbitration alone and by virtue of Section 5 of the aforesaid Act the Civil Court is precluded from adjudicating disputes of this nature. On this score also leave already granted should be revoked. He also argues that Court must scrutinize cause of action and if the Court finds, in doing so, that there cannot be any cause of action under the law the Court should revoke. In support of his submission he relies on the following decisions:—
(i) AIR 1949 Cal 495; (ii) AIR 1957 Andh Pra 894; (iii) AIR 1969 All 526; (iv) AIR 1989 SC 1239 and a Bench decision of this Court reported in (1998) 1 Cal HN 500.
4. Mr. Mitra led by Mr. Bachawat opposes this application submitting that this application should be decided on the basis of the averments made in the plaint. It has been averred that dominant part of the cause of action has arisen within the territorial limit of this Court as the alleged arbitration agreement is said to have been concluded within the jurisdiction of this Court. He contends the issue involved in this suit had nothing to do with the disputes relating to arbitration. In this case factual existence of the arbitration agreement is challenged on the ground of forgery, manipulation and/or fabrication. This cannot be decided by the arbitration proceedings. Section 16 of the aforesaid Act does not cover a mechanism for adjudication of dispute relating to factual existence. It relates to legal existence. So going by the averment made in the plaint question of revoking leave does not arise.
5. Having heard to the submissions of the learned lawyers and considered the material placed before me it appears to me the following are the admitted positions.
(i) The instant suit has been filed challenging the legality, validity and factual existence of the arbitration agreement.
(ii) A proceeding has been initiated in relation to an arbitration agreement, under Section 9 of the said Act, in higher Court, whereas the validity and factual existence of such agreement is being challenged in this Court.
(iii) The plaintiff herein has been contesting the said proceedings under Section 9 of the said Act.
6. It is an admitted position that Sections 9 and 42 of the Arbitration Act fall within Part I of the aforesaid Act. Section 42 of the said Act provides expressed ouster of jurisdiction of any other Court. So it would be very useful to reproduce the text of Section 42 of the said Act.
“Notwithstanding anything elsewhere in this part or in any other law for the time being in force, where with respect to an arbitration agreement, any application under this part has been made to a Court, that Court alone shall have jurisdiction over the arbitral proceedings and all subsequent applications arising out of that agreement and the arbitral proceedings shall be made in that Court and in no other Court.”
7. It is no doubt the aforesaid jurisdiction clause is a mandatory one. Now it is incumbent for me to examine whether the disputes canvassed in the present plaint can be termed and/or treated to be the arbitral proceedings. When a proceeding under Section 9 of the said Act has been instituted by one party in this suit and the plaintiff is contesting such proceedings, the legality and validity of the arbitration proceedings are bound to be arisen therein and the Court will have to consider the same for adjudication. Whether Court can decide the question of factual existence and validity of the arbitration agreement or not, is one aspect of the matter but in order to entertain a proceeding there must be conferment of power under law to do so. Therefore, when a proceeding has been instituted under Part I by one party, adversely party must approach to that Court under Section 42 of the said Act. The language used in the said section “alone” completely oust the jurisdiction of any other Court. Section 42 has got overriding effect of any other law meaning thereby Clause 12 of the Letters Patent of this Court is overridden. Needless to mention that this Court as a Court of principal civil jurisdiction is clothed with jurisdiction by virtue of Clause 12 of the Letters Patent. When the effect of Clause 12 in its entirety has been overridden by Section 42 of the said Act this Court cannot entertain this suit. I hold that disputes canvassed in the present plaint are not entertainable by this Court. In any event Section 16 of the said Act also provides for adjudication of such dispute by the arbitrator himself. Mr. Mitra, however, argues that Section 16 does not provide for adjudication of disputes with regard to the factual existence of the arbitration agreement that is what is exactly raised here. With respect I cannot accept the argument of Mr. Mitra that the language of Section 16(1) is very clear which reads as follows:
“16(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…..”
8. So, the words “objections with respect to the existence or validity of the arbitration agreement” are qualified by the word ‘any’ connotes and/or includes not only legal existence but factual existence as well. Needless to mention that this Section 16 falls within Part I.
9. Section 5 of the aforesaid Act also falls within Part I, Chapter I of the said Act. Section 5 of the said Act provides as follows:
“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.”
10. Nowhere in this Part any Civil Court is conferred with jurisdiction expressly to decide the question of factual existence or validity and legality of the arbitration agreement. This Section is coupled with non-obstante clause. So it is of mandatory nature. By this Section the Civil Court particularly this Court is stripped off jurisdiction conferred upon it under Clause 12 of the Letters Patent. When Clause 12 is not invokable so leave thereunder granted by this Court is also not sustainable. On this score also this application is bound to succeed. As such leave granted, Clause 12 of the Letters Patent is revoked. All interim orders, if any, stand vacated.
11. There will be no order as to costs.
Order accordingly.
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