2000 Supreme(SC) 703

2000(3) Supreme 80
SUPREME COURT OF INDIA
(Under Section 11 of the Arbitration and Conciliation Act, 1996)
M. Jagannadha Rao, J.
Wellington Associates Ltd. -Petitioner
versus
Mr. Kirit Mehta -Respondent
Arbitration Petition No. 9 of 1999
Decided on 4-4-2000
Counsel for the Parties :
For the Petitioner : U.A. Rana, Rajesh Nair, Advocates for M/s. Gagrat & Co. Advocates.
For the Respondent : P.H. Parekh, E.R. Kumar and Rohit, Advocates.

VERY IMPORTANT POINTS
1. Section 16 of the Arbitration and Conciliation Act does not exclude the jurisdiction of the Chief Justice of India or his designate in this behalf if a question as to the existence of the arbitration clause is raised by the respondent in his reply to the petition filed under Section 11.
2. Section 7 of the Arbitration and Conciliation Act does not cover a case where the parties agree that they "may" go to a suit or that they `may also go to arbitration.

Headnote:(i) Arbitration and Conciliation Act, 1996-Section 11 r/w Section 16-Petition for appointment of arbitrator-Objection by respondent that there was no arbitration agreement-Petitioner s case Chief Justice/designate cannot decide dispute as to existence of arbitration clause in view of Section 16-Held, Section 16 does not take away jurisdiction of Chief Justice or his designate to decide existence of arbitration agreement.

       Held : It is clear from Section 33 of the old Act of 1940 that any question as to the "existence" of the arbitration agreement was to be decided only by application to the Court and not by the arbitrator. This disability on the part of the arbitrator has now been removed by Section 16 of the new Act. Now Section 16 has conferred power on the arbitral tribunal to decide whether there is in `existence an arbitration clause. Section 16 does not take away the jurisdiction of the Chief Justice of India or his designate, if need be, to decide the question of the existence of the arbitration agreement. Section 16 does not declare that except the arbitral tribunal, none else can determine such a question. Merely because the new Act permits the Arbitrator to decide this question, it does not necessarily follow that at the stage of Section 11 the Chief Justice of India or his designate cannot decide a question as to the existence of the arbitration clause. (Paras 13 and 15)

       The arbitrator cannot, in all situations, be the sole authority to decide upon the "existence" of the arbitration clause. Supposing again, the contract between the parties which contained the arbitration clause remained at the stage of negotiation and there was no concluded contract at all. Then in such a case also, there is no point in appointing an arbitrator and asking him to decide the question as to the existence of the arbitration clause. Now Section 16 of the new Act permits the arbitral tribunal to treat the arbitration clause as an independent clause and Section 16 says that the arbitration clause does not perish even if the main contract is declared to be null and void. Keeping these latter and other similar situations apart, I am of the view that in cases where - to start with - there is a dispute raised at the stage of the application under Section 11 that there is no arbitration clause at all, then it will be absurd to refer the very issue to an arbitrator without deciding whether there is an arbitration clause at all between the parties to start with. In my view, in the present situation, the jurisdiction of the Chief Justice of India or his designate to decide the question as to the `existence of the arbitration clause cannot be doubted and cannot be said to be excluded by Section 16. (Para 16)

       (ii) Arbitration and Conciliation Act, 1996-Section 11 r/w Section 7-Petition for appointment of arbitrator-Objection that no arbitration agreement exists-Arbitration clause stated that parties may refer dispute to arbitration-Clause in contract preceded by a clause which stated that disputes are to be settled by way of suit-Arbitration clause merely enabling provision-Section 7 does not cover a case where parties agree that may go to a suit or to arbitration-Petition dismissed.

       The words in sub-clause (1) of Section 7, "means an agreement by the parties to submit to arbitration", in my opinion, postulate an agreement which necessarily or rather mandatorily requires the appointment of an arbitrator/arbitrators. Section 7 of the Arbitration and Conciliation Act does not cover a case where the parties agree that they "may" go to a suit or that they `may also go to arbitration. (Para 17)

       In the instant case it was contended for the petitioner that the word may in clause 5 has to be construed as shall . According to the petitioner s counsel, that is the true intention of the parties. The question then is as to what is the intention of the parties? The parties, in my view, used the words may not without reason. If one looks at the fact that clause 4 precedes clause 5, one can see that under clause 4 parties desired that in case of disputes, the Civil Courts at Bombay are to be approached by way of a suit. Then follows clause 5 with the words it is also agreed that the dispute may be referred to arbitration implying that parties need not necessarily go to the Civil Court by way of suit but can also go before an arbitrator. Thus, clause 5 is merely an enabling provision as contended by the respondents. I may also state that in cases where there is a sole arbitration clause couched in mandatory language, it is not preceded by a clause like clause 4 which discloses a general intention of the parties to go before a Civil Court by way of suit. Thus, reading clause 4 and clause 5 together, I am of the view that it is not the intention of the parties that arbitration is to be the sole remedy. It appears that the parties agreed that they can "also" go to arbitration also in case the aggrieved party does not wish to go to a Civil Court by way of a suit. But in that event, obviously, fresh consent to go to arbitration is necessary. Further, in the present case, the same clause 5, so far as the Venue of arbitration is concerned, uses word shall . The parties, in my view, must be deemed to have used the word may and shall at different places, after due deliberation. The words may be referred used in clause 5, read with clause 4, lead me to the conclusion that clause 5 is not a firm or mandatory arbitration clause and in my view, it postulates a fresh agreement between the parties that they will to go to arbitration. The petition is dismissed. (Paras 22 and 25)