M/s Konkan Railway v. M/s. Rani Construction Pvt. Ltd., (SC) BS5962
SUPREME COURT OF INDIA

(Large Bench)

Before:- S.P. Bharucha, C.J.I. Syed Shah Mohammed Quadri, Umesh C. Banerjee, S.N. Variava and Shivaraj V. Patil, JJ.

Civil Appeal Nos. 5880-5889 of 1997. D/d. 30.1.2002.

M/s Konkan Railway Corporation Ltd. - Appellant

Versus

M/s. Rani Construction Pvt. Ltd. - Respondent

For the Appearing Parties :- Soli J. Sorabjee, Attorney General, S. Ganesh, P.P. Malhotra, S.K. Dholakia, Dushyant Dave, Senior Advocates, Atul Y. Chitale, Sanjiv Sen, Mrs. Suchitra Atul Chitale, B.K. Satija, S. Muralidhar, V.B. Saharya, Advocate for M/s Saharya and Company, Advocates, Dhruv Mehta, Prateek Jalan, Mrs. Anil Katiyar, V.K. Verma, P. Nagesh, K.V. Mohan, S. Guru Krishna Kumar, L.C. Tolat, S.R. Setia, B.K. Satija, S. Muralidhar, P.S. Sudheer, K.J. John, P. Venugopal, Narendra M. Sharma, R.K. Sanghi, Rajesh Prasad Singh, Hari Shankar. K., Advocates.

A. Constitution of India, Article 136 - Arbitration and Conciliation Act, 1996, Section 11 - Nomination of Arbitrator - Order of nomination made by Chief Justice or his Designate - Order whether administrative or judicial aminable to jurisdiction of Supreme Court under Article 136 - Reference on correctness of the view of three judges Bench in Konkan Railway Corporation Ltd. Vs. Mehul Construction Co., 2000(7) SCC 201 affirming the view taken in Ador Samia Pvt. Ltd.'s case 1999(8) SCC 572 that "the order of the Chief Justice under Section 11 of the Act is an administrative order not amenable to the jurisdiction under Article 136" - Held that the order of the Chief Justice or his designate under Section 11 is not an adjudicatory order or any Tribunal, therefore, not appealable under Article 136 - View of three Judges in Konkan Railway Corporation 2000(7) SCC 572 affirmed (Para 22) - Any grievance against nomination or eligibility, bias, competence or jurisdiction etc. of the nominated arbitrator can be raised before the arbitrator itself who is competent to adjudicate on all such matters and decide.

[Paras 11, 15, 17 and 22]

B. UNCITRAL Model Law framed by the Commission on International Trade Law established by the United Nations - Domestic Laws on Arbitration and conciliation - The Model Law and Rules intended to deal with international commercial arbitration and conciliation can, with appropriate modifications, serve as a model for legislation on domestic arbitration.

[Para 8]

C. Arbitration and Conciliation Act, 1996, Section 11 - Scheme made by the Chief Justice under Section 11 must be drawn in terms of the provisions of the Section - Schemes made beyond that are bad and have to be amended.

[Para 21]

Cases Referred :-

Ador Samia Private Limited v. Peekay Holdings Limited and others, 1999(4) RCR (Civil) 64 (SC).

Konkan Railway Corporation Ltd. v. Mehul Construction Corporation, 2000(4) RCR (Civil) 153 (SC).

Konkan Railway Corporation Ltd. v. Rani Construction Pvt. Ltd., 2001(1) RCR (Civil) 263 (SC).

Associated Cement Companies Ltd. v. P.N. Sharma, 1965(2) SCR 366.

Engineering Mazdoor Sabha Representing Workmen Employed under Hind Cycles Ltd. v. Hind Cycles Ltd., Bombay, 1963 Supp. (1) SCR 625

Jaswant Sugar Mills Ltd., Meerut v. Lakshmichand, 1963 Supp. (1) SCR 242.

JUDGMENT

S.P. Bharucha, C.J.I. - In Ador Samia Private Limited v. Peekay Holdings Limited and others, 1999(8) SCC 572 : 1999(4) RCR (Civil) 64 (SC), a Bench of two learned Judges of this Court came to the conclusion that the Chief Justice or any person or institution designated by him, acting under Section 11 of the Arbitration and Conciliation Act, 1996 (hereinafter called "The Act"), acted in an administrative capacity and such order did not attract the provisions of Article 136 of the Constitution of India. A Bench of two learned Judges referred for re-consideration the decision in Ador Samia to a Bench of three learned Judges. The decision of the Bench of the three learned Judges Konkan Railway Corporation Ltd. and others v. Mehul Construction Corporation, 2000(7) SCC 201 : 2000(4) RCR (Civil) 153 (SC) affirmed the view taken in Ador Samia, namely, that the order of the Chief Justice or his designate in exercise of the power under Section 11 of the Act was an administrative order and that such order was not amenable to the jurisdiction of this Court under Article 136. Thereafter, in Konkan Railway Corporation Ltd. and another v. Rani Construction Pvt. Ltd., 2000(8) SCC 159 : 2001(1) RCR (Civil) 263 (SC), a Bench of two learned Judges referred to a larger Bench the decision of the three learned Judges for re-consideration (a practice which a Constitution Bench has frowned upon). This is how the matter comes to be placed before a Constitution Bench.

2. When it first reached before a Constitution Bench, the following order was passed :

3. To determine whether the order of the Chief Justice or his designate under Section 11 of the Act is a judicial order or an administrative order, it is necessary to take note of certain provisions of the Act. Section 2(e) defines a Court thus :

Section 12 imposes upon a person approached to be an arbitrator the obligation to disclose to the parties in writing any circumstance that may give rise to justifiable doubts as to his independent and impartiality. An arbitrator can be challenged if there are circumstances that give rise to justifiable doubts his independence and impartiality or if he does not possess the qualifications agreed to by the parties, but such challenge can be made only for reasons which the party challenging becomes aware of after the appointment has been made. Section 13 speaks of the challenge procedure. It states that the parties are free to agree on such a procedure. Failing that, the party who makes the challenge must within fifteen days after becoming aware of the constitution of the arbitral tribunal or of any of the circumstances mentioned in Section 12, send a written statement of the reasons for the challenge to the arbitral tribunal. Unless the challenged arbitrator withdraws or the other party to the arbitration agrees to the challenge, the arbitral tribunal shall decide upon the challenge and if the challenge is not successful it shall continue the arbitration proceedings and make an award. That award can be sought to be set aside under Section 34.

Section 16 empowers the arbitral tribunal to rule on its own jurisdiction. Clause (1) of Section 16 is relevant, and reads thus :

4. If a party is aggrieved by an arbitral award made after rejection of his plea of jurisdiction, he can challenge it in accordance with Section 34.

Section 34, so far as is relevant reads thus :

An order setting aside or refusing to set aside an arbitral award under Section 34 is appealable by reason of Section 37. Also appealable are the orders relating to the jurisdiction of the arbitral tribunal under Section 16.

5. It is convenient at this state to set out the scheme framed by the Chief Justice of India under Section 11(10) of the Act. It is representative of the schemes framed by the High Courts under the same provision.

6. The three-Judge Bench whose judgment is to be reconsidered framed the following two questions for consideration :

The three-Judge Bench noted that the Act was based upon the UNCITRAL Model framed by the Commission on International Trade Law established by the United Nations. It said that if a comparison was made between the language of Section 11 of the Act and Article 11 of the Model Law it was apparent that the Act had designated the Chief Justice of a 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 that power had been vested in the court. When the matter was placed before the Chief Justice or his designate under Section 11 it was imperative for the Chief Justice or his designate to bear in mind the legislative intent that the arbitral process should be set in motion without any delay and leave all contentious issues to be raised before the arbitral tribunal. At that stage it was not appropriate for the Chief Justice or his designate to entertain any contentious issues between the parties and decide the same. A bare reading of Sections 13 and 16 made it clear that questions with regard to the qualifications, independence and impartiality of the arbitrator and in respect of the jurisdiction of the arbitrator could be raised before the arbitrator, who would decide the same. If a contingency arose where the Chief Justice or his designate refused to make an appointment, the party seeking the appointment was not without remedy. An intervention was possible by a court in the same way as an intervention was possible against an administration order of the executive. In other words, it would be a case of non-performance of his duty by the Chief Justice or his designate and, therefore, a mandamus would lie. In such an event there would not be any inordinate delay in setting the arbitral process in motion. The nature and function performed by the Chief Justice or his designate being essentially to aid the constitution of the arbitral tribunal it could not be held to be a judicial function, as otherwise the legislature would have used the expression "court" or "judicial authority". It was, therefore, held that an order under Section 11 refusing to appoint an arbitrator was not amenable to the jurisdiction of this Court under Article 136 of the Constitution.

7. In the referring judgment the Bench of two learned Judges noted the material relied upon the learned counsel o the appellant before them, which related to the Model Law, and learned counsel's argument. It then stated, "In the light of the above contentions and material, which in our opinion have a substantial bearing on the matter, and further inasmuch as this question is one arising almost constantly in a large number of cases in the various High Courts, it is desirable that this Court re-examines the matter".

8. It is convenient at this stage itself to deal with the argument based on the Model Law. The Statement of Objects and Reasons of the Act states, "Though the said UNCITRAL Model Law and Rules are intended to deal with international commercial arbitration and conciliation, they could, with appropriate modifications, serve as a model for legislation on domestic arbitration and conciliation. The present Bill seeks to consolidate and amend the law relating to domestic arbitration, international commercial arbitration, enforcement of foreign arbitral awards and to definite the law relating to conciliation, taking into account the said UNCITRAL Model Law and Rules". That the Model Law was only taken into account in the drafting of the said Act is, therefore, patent. The Act and the Model Law are not identically drafted. Under Section 11 the appointment of an arbitrator, in the event of a party to the arbitration agreement failing to carry out his obligation to appoint an arbitrator, is to be made by "the Chief Justice or any person or institution designated by him"; under clause 11 of the Model Law it is to be made by a court. Section 34 of the Act is altogether different from clause 34 of the Model Law. The Model Law and judgments and literature thereon are, therefore, not a guide to the interpretation of the Act and, especially, of Section 11 thereof.

9. Learned counsel for the appellants submitted that Section 11 of the Act laid down conditions precedent to the Chief Justice or his designate naming an arbitrator in that, as for example, in sub-section (4)(a) the party had to fail to appoint an arbitrator within thirty days from the receipt of a request to do so from the other party. If the party who was alleged to have failed to appoint an arbitrator within thirty days of the receipt of the request contested this position, it was for the Chief Justice or his designate to decide the issue. Reliance was placed upon sub-section (7) of Section 11, which refers to a "decision" on the matter entrusted to the Chief Justice or his designate, and on sub-section (8), which requires the Chief Justice or his designate to have due regard to the qualifications required of the arbitrator by the agreement of the parties and other considerations as are likely to secure the appointment of an independent and impartial arbitrator. In learned counsel submission, these also indicated that the Chief Justice or his designate had to perform an adjudicatory function in naming an arbitrator. Learned counsel submitted that Section 16 of the Act enabled the arbitral tribunal to decide on the width of its jurisdiction but it could not decide whether or not an arbitrator had no jurisdiction because he had been appointed by the Chief Justice or his designate even though the period of thirty days of the receipt of the request to do so had not elapsed; this was an issue which had to be decided by the Chief Justice or his designate. Reliance was placed upon clause 7 of The Appointment of Arbitrators by the Chief Justice of India Scheme; it was submitted that the affected parties had to be given notice by reason of that clause to show cause, which implied that, on their showing cause, the issues they raised would be decided by the Chief Justice or his designate. Reliance was placed upon Associated Cement Companies Ltd. v. P.N. Sharma and Another, 1965(2) SCR 366, to contend that the Chief Justice or his designate functioned as a tribunal so as to attract Article 136 to the order naming an arbitrator. It was submitted that the four essential requirements in this behalf were satisfied, namely, the appointment of the Chief Justice was an appointment by the State; the Chief Justice or his designate were independent of the executive; there was a duty cast upon them to decide judicially; and they had the power to enforce their decision.

10. The learned Attorney General, on notice, made submissions that were adopted by learned counsel for the respondents. The Attorney General drew our attention to Section 5 of the Act, which mandated that no judicial authority should intervene except to the extent provided in the Act, and to Section 8, which required a judicial authority before which an action was brought in a matter which was the subject of an arbitration agreement to refer the parties to arbitration. The emphasis of the Act, in the learned Attorney General's submission, was to expedite the proceedings of the domestic tribunal to which the parties had agreed to submit their disputes. It was in this light that the Act had to be read. Section 11 did not require the Chief Justice or his designate to perform any adjudicatory function. All that the Chief Justice or his designate was required to do was to nominate an arbitrator if a party to an arbitration agreement had failed to do so within the specified time after a request to it to do so had been made, and in so nominating an arbitrator the Chief Justice or his designate was to have regard to the qualifications that were required of the arbitrator by the agreement of the parties and to other considerations which were likely to secure the appointment of an independent and impartial arbitrator. This the Chief Justice or his designate had to do on an ex facie basis; no element of adjudication came into it. The learned Attorney General drew attention to Sections 12 and 13 which provided for a challenge to an arbitrator in respect of whom there were doubts about independence or impartiality. The provisions of Sections 12 and 13 applied even to an arbitrator who had been nominated by the Chief Justice or his designate under Section 11. In the submission of the learned Attorney General, the competence of the arbitral tribunal to rule on its own jurisdiction under Section 16 was not confined to the width of its jurisdiction but extended to deciding whether it had any jurisdiction at all. Section 34 gave a party adversely affected by an arbitral award the right to approach a court to set it aside on the stated grounds, which included the composition of the arbitral tribunal. An order under Section 34 was appealable under Section 37, as was an order accepting the plea that the arbitral tribunal did not have jurisdiction. The learned Attorney General drew our attention to the judgments of this Court in The Engineering Mazdoor Sabha Representing Workmen Employed under The Hind Cycles Ltd. and another v. The Hind Cycles Ltd., Bombay, 1963 Supp. (1) SCR 625 and Jaswant Sugar Mills Ltd., Meerut v. Lakshmichand and others, 1963 Supp. (1) SCR 242 to submit that a tribunal was a body that exercised an adjudicatory function. The Chief Justice or his designate under Section 11 performed neither an adjudicatory function nor they were exercising the power of the State. They were not, therefore, tribunals and their orders under Section 11 could not be made the subject of petitions for leave to appeal under Article 136.

11. Article 136 empowers this Court to grant special leave to appeal from any judgment, decree, sentence or order in any cause or matter passed or made by any court or tribunal in the territory of India. For the nomination of an arbitrator by the Chief Justice or his designate under Section 11 of the Act to be subject to Article 136 such nomination must be (a) a judgment, decree, determination, sentence or order (b) passed or made any court or tribunal in the territory of India. The question is whether such nomination is a determination or order and whether it is made by a tribunal, as contended by learned counsel for the appellants. There is in the line of authority of this Court on the subject a recurring theme.

12. In the judgment cited by learned counsel for the appellants himself, namely, the case of Associated Cement Companies Ltd., a Constitution Bench, said, "The question which we have to decide in the present appeal is whether the State Government is a tribunal when it exercises its authority under Rule 6(5) or R. 6(6) ....... The main and basic test, however, is whether the adjudicating power which a particular authority is empowered to exercise has been conferred on it by a statute and can be described as a part of the State's inherent power exercised in discharging its judicial function. Applying this test, there can be no doubt that the power which the State Government exercises under Rule 6(5) and R. 6(6) is a part of the State's judicial power. It has been conferred on the State Government by a statutory Rule and it can be exercised in respect of disputes between the management and its welfare officers. There is, in that sense, a lis; there is affirmation by one party and denial by another, and the dispute necessarily involves the rights and obligations of the parties to it."

13. In Jaswant Sugar Mills Ltd., cited by the learned Attorney General, this Court said, "The expression "determination" in the context in which it occurs in Article 136 signifies an effective expression of opinion which ends a controversy or a dispute by some authority to whom it is submitted under a valid law for disposal. The expression "order" must have also a similar meaning, except that it need not operate to end the dispute. 'Determination' or 'order' must be judicial or quasi-judicial; purely administrative or executive direction is not contemplated to be made the subject-matter of appeal to this Court. The essence of the authority of this Court being judicial, this Court does not exercise administrative or executive powers, i.e., character of the power conferred upon this Court, original or appellate, by its constitution being judicial, the determination or order sought to be appealed from must have the character of a judicial adjudication". The Court went on to state that to make a decision or an act judicial, the following criteria must be satisfied :

14. In the case of The Engineering Mazdoor Sabha, a Constitution Bench said :

The Court added :

15. To put it concisely, for an order properly to be the subject of a petition for special leave to appeal under Article 136 it must be an adjudicatory order, an order that adjudicates upon the rival contentions of parties, and it must be passed by an authority constituted by the State by law for the purpose in discharge of the State's obligation to secure justice to its people.

16. 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 by the parties but a party fails to act as acquired 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.

17. 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 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 to 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.

18. 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 the due care to see that a competent, independent and impartial arbitrator is nominated.

19. 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.

20. 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 required 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.

21. The schemes made by the Chief Justice 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 may, if it so chooses, assist the Chief Justice or his designate in the nomination of an arbitrator.

22. In conclusion, we hold that the order of the Chief Justice or his designate under Section 11 nominating an arbitrator is not an adjudicatory order and the Chief Justice or his designate is not a tribunal. Such an order cannot properly be made the subject of a petition for special leave to appeal under Article 136. The decision of the three-Judge Bench in Konkan Railway Corporation Ltd. and others v. Mehul Construction Co. is affirmed.

23. We record our appreciation of the assistance rendered by the learned Attorney General as Amicus Curiae.

In the result, the appeals are dismissed. No order as to costs.

Appeals dismissed.