Citation Codes

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Case Number

F.A No. 2686 of 2007 in S.C Suit No. 4142 of 2006 of Bombay City Civil Court at Bombay with C.A No. 3180 of 2007

Attorney(S)

Jayesh Bhatt
G S. Godbole with Suresh Gole

Judges

Anoop V. Mohta, J.

Acts

Arbitration and Conciliation Act, 1996 (for short, The Arbitration Act, 1996).3.
SECTION 37 ARBITRATION ACT
SECTION 16 ARBITRATION ACT
ARBITRATION AND CONCILIATION ACT
sections 7 and 8 of the Arbitration Act, 1996.
Arbitration Act, 1996 including section 5
SECTION 5 ARBITRATION ACT
Arbitration Act, 1996

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Smart Summary

Court Opinion Summary: Anoop V. Mohta, J.

Factual and Procedural Background

This is a First Appeal by the original plaintiff (the Appellant) against an order dated 22-3-2007 of the Judge of the Bombay City Civil Court in Regular Civil Suit No. 4142/2006. By consent, the City Civil Court had raised and decided a preliminary issue of maintainability against the Appellant, holding that the Suit was not maintainable in view of the scheme and object of the Arbitration and Conciliation Act, 1996 ("Arbitration Act, 1996").

The City Civil Court framed the issue whether the defendants proved that, in view of the Arbitration Act, the Court had no jurisdiction to entertain and try the Suit.

Material factual events (as recited in the opinion): in November 2001 respondents 1–5 requested the Appellant to import waste paper and paid Rs. 10,00,000 on account. The Appellant imported goods worth about Rs. 21,66,230 on their behalf and as at 28-4-2004 claimed entitlement to Rs. 13,82,835 as his share of profit. On 29-4-2005 respondents' advocate alleged that the Appellant had executed a writing dated 1-4-2003 admitting liability of Rs. 31,80,000 with interest at 24% and agreeing to refer disputes to an arbitrator to be appointed by respondents; the Appellant denied executing that writing and alleged it was forged. Respondents purported to appoint arbitrators (Mr. Bharat B. Jain initially, who later withdrew, and subsequently Mr. Piyush M. Shah) and arbitration-related correspondence and proceedings followed. The Appellant filed the Suit on 12-9-2006. The City Civil Court on 29-9-2006 recorded that the next date for arbitration was not fixed and directed respondent No. 6 to give notice if he wanted to fix any meeting for hearing; liberty was granted to the Appellant to move the Court for ad-interim relief if such notice were received. No such notice was issued thereafter, according to the opinion.

Legal Issues Presented

Whether the defendants have proved that, in view of the Arbitration and Conciliation Act, 1996, the City Civil Court has no jurisdiction to entertain and try the present Suit?

Arguments of the Parties

Appellant's Arguments

The Appellant denied having executed the writing dated 1-4-2003 and challenged its validity, asserting that the alleged writing was forged.
The Appellant filed the Suit seeking a declaration that the alleged agreement/writing is null and void and/or obtained by fraud or misrepresentation and therefore not binding upon him.

Respondents' Arguments

Respondents maintained that the Appellant had executed the writing dated 1-4-2003 admitting liability (Rs. 31,80,000) and agreeing to interest at 24% and to refer disputes to an arbitrator appointed by the respondents; on that basis they purport to have appointed arbitrators and pursued arbitration proceedings.
Respondents proceeded with arbitration steps (appointment of arbitrators, correspondence, requisitioning handwriting expert, demand for arbitration fee), implying that the dispute falls to be resolved by arbitration under the clause in the alleged writing.

Table of Precedents Cited

Precedent	Rule or Principle Cited For	Application by the Court
SBP & Co. v. Patel Engineering Limited (Constitutional Bench)	Recognition of Kompetenz-Kompetenz: section 16 gives the arbitral tribunal competence to rule on its own jurisdiction; but where judicial authority has decided jurisdictional issues under sections 8 or 11 before reference, the tribunal cannot ignore that judicial finality.	The Court relied on this as establishing that an arbitral tribunal can decide jurisdictional issues when parties go to arbitration, but cannot override prior judicial decisions; the principle supported non-interference by the civil court once tribunal proceedings were in place.
McDermott International Inc. v. Burn Standard Co. Ltd. ((2006) 11 SCC 181)	Under section 16 a party questioning arbitrator's jurisdiction must raise the question before the arbitrator (during arbitration or soon after initiation); jurisdictional question is a preliminary ground and is subject to challenge under section 34; if arbitrator says no jurisdiction, appeal under section 37 is available.	The Court relied on this to show the obligation to raise jurisdictional objections before the arbitrator and that the proper remedies against an arbitral decision are under sections 34 and 37, reinforcing that the civil court should not entertain the Suit.
National Thermal Power Corpn. Ltd. v. Siemens Atkeingesellschaft ((2007) 4 SCC 451)	Reiteration of the principles in SBP and McDermott concerning section 16 (tribunal's power to rule on its jurisdiction) and related remedial provisions.	The Court noted that the Apex Court reiterated the same principle, strengthening the conclusion that the tribunal can decide jurisdictional objections and that the civil court's interference is limited.
Subhalaxmi Fabrics v. Chandralal Barodia ((2005) 10 SCC 704)	Support for the scope of section 5 (extent of judicial intervention): section 5 promotes minimal judicial intervention in matters governed by Part I of the Arbitration Act and overrides inconsistent provisions in other statutes.	The Court invoked this for the proposition that section 5 aims to encourage expeditious, less expensive dispute resolution and to limit court interference when an arbitration agreement exists.
T. Anand Gajapatty Raju v. PVG Raju ((2000) 4 SCC 539 : AIR 2000 SC 1886)	Authority cited in support of minimal court intervention where there is an arbitration agreement (principle cited alongside section 5 discussion).	The Court cited this authority to reinforce the objective of section 5 to minimize judicial intervention where Part I applies.
Atul Singh v. Sunil Kumar Singh ((2008) 2 SCC 602)	Decision concerning sections 7 and 8 of the Arbitration Act; deals with pre-reference objections and the circumstances in which a civil court may decide validity of an arbitration agreement under section 8.	The Court distinguished Atul Singh as inapplicable to the present facts because Atul Singh related to sections 7 and 8 and involved absence of an original arbitration agreement before reference; here an arbitrator had been appointed and proceedings were pending under section 16.
Maharshi Dayanand University v. Anand Coop. L/C Society Ltd. ((2007) 5 SCC 295)	Arbitrator must decide (while proceeding to final award) whether an arbitration agreement in terms of section 7 exists and whether the claim falls within the arbitration clause; parties may raise jurisdictional objections before the arbitrator and amend/supplement objections if necessary.	The Court quoted and applied this to support the view that the arbitral tribunal should decide existence of the arbitration agreement and related jurisdictional questions, and that such matters properly lie before the arbitrator rather than the civil court.

Court's Reasoning and Analysis

The court's analysis proceeds from the statutory framework and binding Apex Court authority. It emphasized two statutory provisions: section 16 (competence of the arbitral tribunal to rule on its own jurisdiction) and section 5 (limiting judicial intervention in matters governed by Part I of the Arbitration Act, 1996).

Key steps in the court's reasoning (as stated in the opinion):

The court reproduced section 16 and observed that section 16 embodies the Kompetenz-Kompetenz principle—an arbitral tribunal has the competence to decide on its jurisdiction and challenges to the existence or validity of the arbitration agreement.
Relying on the Constitutional Bench decision in SBP & Co. v. Patel Engineering Ltd., the court noted that while the tribunal can decide jurisdictional issues, it cannot ignore the finality of an order previously given by a judicial authority where that authority has decided jurisdictional issues under sections 8 or 11 before reference is made.
The court cited McDermott and National Thermal to stress that a party questioning jurisdiction must raise the issue before the arbitrator and that the proper remedies against the arbitrator's decision are under sections 34 (setting aside award) and 37 (appeal) of the Arbitration Act.
The court relied on section 5 and authorities (Subhalaxmi Fabrics; T. Anand Gajapatty Raju) to conclude that judicial intervention is limited where Part I applies and that the principal object is to promote resolution of disputes expeditiously and with minimal court interference when an arbitration agreement exists.
The court distinguished Atul Singh (which dealt with sections 7 and 8) as being factually different and therefore not helpful to the Appellant: Atul Singh involved pre-reference challenges where no original arbitration agreement had been furnished in proceedings under section 8; in the present case an arbitrator was already appointed and proceedings were pending.
The court relied on the Maharshi Dayanand University decision to underscore that the arbitrator must decide whether an arbitration agreement exists and whether the claim falls within the arbitration clause, and that such issues are to be decided by the arbitrator while proceeding to the final award.
On the combined effect of the statutory scheme and the cited authorities, the court concluded that the Civil Court should not interfere with proceedings pending before the arbitral tribunal and that the Suit seeking declaration of nullity/forgery of the alleged agreement was rightly dismissed by the trial court on maintainability grounds.

Holding and Implications

APPEAL DISMISSED.

Direct effects on the parties:

The order dated 22-3-2007 of the City Civil Court, which held the Suit not maintainable on the ground that the dispute falls within the arbitration scheme, is upheld.
The Appellate Court dismissed the present First Appeal and disposed of the related civil application accordingly.
The opinion records the statutory and judicial route for challenging arbitral decisions (sections 34 and 37) as the available remedies, consistent with the cited authorities.

The opinion does not purport to set any new legal precedent; it applies existing Supreme Court authority and the statutory scheme to the facts and dismisses the appeal on those grounds.

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Girish Manubhai Parekh v. Continental Steel Corporation And Others

Anoop V. Mohta, J.:— By consent, heard finally.

2. This is the First Appeal filed by the original plaintiff against the order dated 22-3-2007 passed in Regular Civil Suit No. 4142/2006 by the learned Judge of Bombay City Civil Court at Bombay, whereby in Notice of Motion, by consent of the parties, a preliminary issue of maintainability of the Suit was raised and decided against him by holding that Suit is not maintainable in view of the scheme and object of The Arbitration and Conciliation Act, 1996 (for short, “The Arbitration Act, 1996”).

3. On 26-2-2007 the Court has framed the following issues:

4. Whether defendants prove that in view of Arbitration Act this Hon'ble Court has no jurisdiction to entertain and try the present Suit?

5. The relevant events and facts are as under:

6. In November, 2001, respondents 1 to 5 requested the Appellant to import waste paper on their behalf and made on account payment of Rs. 10,00,000/-. Appellant imported goods worth about Rs. 21,66,230/- on behalf of respondents 1 to 5.

7. On 28-4-2004 the Appellant become entitled to receive Rs. 13,82,835/- as his share of profit in the said import business in view of various amounts already paid by him to respondents 1 to 5.

8. On 29-4-2005, the Advocate for respondents 1 to 5 addressed letter to the Appellant contending that the Appellant allegedly executed alleged writing dated 1-4-2003 inter alia admitting his alleged liability to pay Rs. 31,80,000/- to the respondents 1 to 5 with interest at 24% and also allegedly agreeing to refer the matter to Arbitrator to be appointed by respondents 1 to 5 in the event of non payment. By the said letter the said Advocate threatened to refer the matter to alleged Arbitrator Mr. Bharat B. Jain if payment was not made as per alleged Arbitration Agreement. On 11-5-2005 Appellant through his Advocate denied having executed alleged writing dated 1-4-2003 and asked for inspection of the same. The appellant has not paid the amount. On 21-7-2005 Mr. Bharat B. Jain Advocate claiming to be sole Arbitrator allegedly appointed by respondents 1 to 5 as per said alleged writing dated 1-4-2003, fixed meeting for Arbitration. Number of letters were thereafter exchanged between the parties where Appellant pointed out that the alleged Arbitration was without any authority and the said alleged writing dated 1-4-2003 is a forged one.

9. On 7-12-2005 Mr. Bharat B. Jain Advocate addressed letter recording that he was withdrawing from Arbitration as his conscience did not allow to continue as Arbitrator in view of serious allegations of forgery and pendency of criminal case in respect thereof.

10. On 16-12-2005 Mr. Piyush M. Shah, Advocate addressed letter claiming to be appointed by respondents 1 to 5 as Arbitrator under alleged writing dated 1-4-2003. The Appellant pointed out the relevant facts to Mr. Piyush M. Shah but he persisted in going on with the alleged Arbitration.

11. On 20-2-2006 Mr. Piyush M. Shah addressed letter directing Appellant to deposit Rs. 20,000/- with him on account of alleged Arbitration fee.

12. On 21-8-2006 respondent No. 6 passed an ex parte Order in the alleged Arbitration proceeding for forwarding the alleged confirmation letter dated 1-4-2003 to handwriting expert.

13. On 12-9-2006 the Appellant filed the Suit.

14. On 29-9-2006 the Judge of the City Civil Court passed order recording that next date for Arbitration is not fixed and directing respondent No. 6 to give notice if he wanted to fix any meeting for hearing. Liberty was granted to the Appellant to move Court for ad-interim relief if such notice is received. Such notice has thereafter not been issued till date.

15. The relevant section 16 of Arbitration Act, 1996 is reproduced as under:

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.

(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.

16. A Constitutional Bench of the Apex Court in SBP & Co. v. Patel Engineering Limited, while dealing with section 11(6) and (7) and section 16 of the Arbitration Act has observed as under:

“19. Section 16 is said to be the recognition of the principle of Kompetenz-Komopetenz. 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 ……”

17. Subsequently, the Supreme Court in McDermott International Inc. v. Burn Standard Co. Ltd., reported in (2006) 11 SCC 181 while dealing with sections 16, 34 and 37 has observed in para 51 as under:—

“51. After the 1996 Act came into force, under section 16 of the Act the party questioning the jurisdiction of the arbitrator has an obligation to raise the said question before the arbitrator. Such a question of jurisdiction could be raised if it is beyond the scope of his authority. It was required to be raised during arbitration proceedings or soon after initiation thereof. The jurisdictional question is required to be determined as a preliminary ground. A decision taken thereupon by; the arbitrator would be the subject-matter of challenge under section 34 of the Act. In the event the arbitrator opined that he had no jurisdiction in relation thereto an appeal thereagainst was provided for under section 37 of the Act.”

18. The said principle has further been reiterated by Apex Court in National Thermal Power Corpn. Ltd. v. Siemens Atkeingesellschaft, reported in (2007) 4 SCC 451.

19. Therefore, taking overall view of the scheme of section 16, one thing is very clear that Arbitrator has power to decide the applications with regard to the existence of arbitration agreement and objection in respect of jurisdiction. The Arbitrator having once taken decision and rejected the objection with regard to the jurisdiction and observed further that there is existence of arbitration agreement between the parties and proceed accordingly, such order cannot be challenged except the remedy as available under section 34 and or section 37 of the Arbitration Act as referred above.

20. Another important facet is section 5 of the Arbitration Act which is reproduced as under:

“Section 5Extent 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.”

21. It is clear that section 5 applies to the matters governed by Part I. Section 16 is part of this part. The opening non-obstante clause therein clearly indicates that it overrides provisions in any other statute. As a result, judicial intervention is permissible only where it is specifically provided for in this part Shri Subhalaxmi Fabrics v. Chandralal Barodia/Manu/SC0231/2005, (2005) 10 SCC 704. The principal object of section 5 is to promote and encourage resolution of disputes expeditiously and less expensively. Especially when there is an arbitration agreement, the Court's intervention should be minimal. (T. Anand Gajapatty Raju v. PVG Raju, (2000) 4 SCC 539 : AIR 2000 SC 1886).

22. The conclusion in SBP & Co. v. Patel Engineering Ltd. (supra) with regard to sections 16, 34 and 37 clinches the issue against the appellants, viz.

“(vi) Once the matter reaches the Arbitral Tribunal or the sole arbitrator, the High Court would not interfere with the 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,

(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”.

23. Now that the Apex Court has declared as above that there is no option and considering the scheme and purpose of the Arbitration Act, 1996 the order of dismissal of Suit needs no interference.

24. The decision of Apex Court in Atul Singh v. Sunil Kumar Singh, (2008) 2 SCC 602, as relied upon by the learned counsel for the Appellant is of no assistance to support his submissions. That judgment revolves around sections 7 and 8 of the Arbitration Act, 1996. Before reference, an objection was raised about the validity of the Arbitration Agreement. In a Suit, pursuant to section 8 no original arbitration agreement or duly certified copy thereof was filed and, therefore, no order for referring the dispute to arbitration was passed in the Suit. The relief having the partnership deed as illegal and void can be granted by the Civil Court and not by Arbitrator. Plaintiffs or respondents through whom plaintiffs derive title are not parties to the said Deed and, therefore, also the trial Court refused to refer the matter to Arbitration. The Apex Court in this background has maintained the said order. In the present case, as per agreement and arbitration clause itself, the Arbitrator was appointed. Therefore, this is a case where matter is pending before arbitral tribunal as contemplated under section 16 of the Arbitration Act, 1996. In view of the scheme and object of Arbitration Act, 1996 and clear dictum of the Apex Court as recorded above, the facts and circumstances of this case (Atul Singh) itself makes the case distinct and distinguishable. Therefore, it is not applicable as admittedly in the present case the Appellant is party to the suit contract/agreement and, therefore, bound by the said arbitration clause based upon which the Arbitrator has been appointed and the parties appeared before the Tribunal. The Appellant, after many correspondences, filed the Suit for declaration that such agreement/writing is null and void and/or obtained by fraud or misrepresentation and, therefore, not binding. All these facets including the existence of arbitration agreement and its effect on the constitution of the Tribunal including the jurisdiction of the Tribunal to proceed with the matter can very well be decided by the Tribunal.

25. It is apt to quote the observation of the Supreme Court in Maharshi Dayanand University v. Anand Coop. L/C Society Ltd., (2007) 5 SCC 295:

“13. But we make it clear that the arbitrator, in the first instance, has to decide whether the existence of an arbitration agreement in terms of section 7 of the Act is established and also to decide whether the claim now made is a claim that comes within the purview of clause 25-A of the tender conditions in case it is found to be an agreement within the meaning of section 7 of the Act. Only on deciding these two aspects can the arbitrator go into the merits of the claim made by the respondent. But we clarify that it does not mean, that he should treat these two aspects as preliminary issues and decide them first but only that he must decide them without fail while proceeding to finally pronounce his award.

14. In this view of the matter, we see no reason to interfere with the appointment of an arbitrator. We dismiss this appeal giving liberty to the parties to raise all their contentions based on lack of jurisdiction of the Arbitral Tribunal before the arbitrator. The arbitrator will permit the appellant to amend or supplement the objections already filed by it if it is felt necessary by the appellant. We make no order as to costs.”

26. As noted the appellant has challenged the said letter dated 1-4-2003, the contents of which are as under:

Multiple Import & Export Inc.

41, Vaidya Mansion, 2nd floor, Flat No. 4,

Opp. Cross Road, Haji Ali, Mumbai 400034,

India.

-------------------------------------

1-4-2003

CONFIRMATION LETTER

1. It is agreed and confirmed on part of the Multiple Import & Export Inc. that they are liable to pay a sum of Rs. 42,92,929.99 (Rupees Forty Two Lacs Ninety Two Thousand Nine Hundred Twenty Nine & Paise Ninety Nine only) to M/s Continental Steel Corporation, comprising of Rs. 31,80,000/- principal amount and a sum of Rs. 11,12,929.99 the amount of interest computed upto 31.03.2003 @ 24% p.a as per the statements of accounts attached (four pages).

2. It is hereby confirmed on part of the Multiple Import & Export Inc. that the said principal amount of Rs. 31,80,000/- is comprising of the following amounts paid by M/s Continental Steel Corporation to Multiple Import & Export Inc. and to the concerned various authorities/parties for and on behalf of Multiple Import & Export Inc.

i) Rs. 2,10,795.00 paid for custom duty.

ii) Rs. 16,00,000.00 paid to M/s New Plastomer (I) Ltd. (Kandla)— paid at Gandhidham-Kutch,

iii) Rs. 13,69,205.00 paid directly to Multiple Import & Export Inc.

3. Multiple Import & Export Inc. agrees to repay the said amount of Rs. 42,92,929.99 to M/s Continental Steel Corporation with interest thereon @ 24% p.a within the period of one year and after six months from today.

4. It is agreed between the parties hereto that all the disputes and/or differences including non-payment of dues under this writing shall be referred to the Sole Arbitration of a person to be appointed by M/s Continental Steel Corporation having its address at 12/14, Ardeshir Dady Street, Near Alankar Cinema, Mumbai 400004. The Arbitration shall be conducted subject to Mumbai jurisdiction under the provisions of the Arbitration & Conciliation Act, 1996.

Kindly return the copy thereof duly confirmed.

We confirm.

Sd/- Sd/-

For Continental Steel Corporation. For Multiple Import & Export Inc.”

27. In view of above and considering the scheme or Arbitration Act, 1996 including section 5 it is appropriate and desirable that the Civil Court should not interfere with the said proceedings which is pending before the Tribunal. The Suit for such declaration therefore as filed by the Appellant/plaintiff is rightly dismissed on the ground of maintainability as not triable by the Civil Court in view of clear dictum of the Apex Court.

28. In view of this, the present Appeal is dismissed.

29. In view of this, Civil application also stands disposed of accordingly.

Appeal dismissed.

Girish Manubhai Parekh v. Continental Steel Corporation And Others

Court Opinion Summary: Anoop V. Mohta, J.

Factual and Procedural Background

Legal Issues Presented

Arguments of the Parties

Appellant's Arguments

Respondents' Arguments

Table of Precedents Cited

Court's Reasoning and Analysis

Holding and Implications

Girish Manubhai Parekh v. Continental Steel Corporation And Others

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