2005 Supreme(SC) 1407

2005(7) Supreme 610
Supreme Court of India
(From Bombay High Court)
R.C. Lahoti, CJI, B.N. Agarwal, Arun Kumar, G.P. Mathur, A.K. Mathur, P.K. Balasubramanyan and C.K. Thakker, JJ.
M/s. S.B.P. & Co. —Appellant
versus
M/s. Patel Engineering Ltd. & Anr. —Respondents
Civil Appeal No. 4168 of 2003
With
Civil Appeal Nos. 4169/2003, 4170-4173/2003, 4076/2004, 3777/2003 and Civil Appeal Nos. 6562, 6563-6564, 6565-6566 of 2005 arising out of SLP (C) Nos. 3205/2004, 14033-14034/2004, 21272-21273/2002
Decided on 26-10-2005
Counsel for the Parties :
For the Appearing Parties : B. Dutta, Additional Solicitor General, K.K. Venugopal, C.S. Vaidyanathan, Radhakrishnan, Harish Chandra, F.S. Nariman, Gaurab K. Banerji, Rakesh Dwivedi, Sr. Advocates, S. Muralidhar, Jashan Brar, Amit Sharma, Naveen R. Nath, Mrs. Lalit Mohini Bhat, Ms. Anitha Shenoy, Ms. Hetu Arora, Ms. Subhadra Chaturvedi, S. Udaya, Kr. Sagar, Ms. Bina Madhavan, Ms. Pooja Nanekar, Ms. Susan, A. Vinayagum, Hemal K. Sheth, Ms. C.K. Sucharita, S.W.A. Qadri, Aarohi Bhall, B.K. Prasad, Ms. Anil Katiyar, Ms. Indu Malhotra, Darius Khambatta, Jai Munim, Mustafa Doctor, Ranjit Shetty, P.S. Sudheer, Pratap Venugopal, Subhash Sharma, Atul Y. Chitale, Mrs. Suchitra Atul Chitale, Ms. Sujeeta Shrivastava, Ms. Tarandeep Mahal, Sanjay R. Hegde, Advocate (NP), Jaydeep Mazumdar, Saurav Agarwal, T.M. Singh, Harsha Rao, P. Vinay Kumar, Ms. Sneha Bhaskaran, Mrs. D. Bharathi Reddy, Krishnan Venugopal, Prasad Vijaykumar, Siddhartha Singh, Amit Dhingra, Gaurav Liberhan, Ms. Niranjana Singh, Ms. Vimla Sinha, Abhishek Chaudhary, Gaurav Dhama, Adarsh Upadhyay, S.K. Dhingra and Ms. Shefali Dhingra, Advocates.

Very important points
1. The power exercised by the Chief Justice of the High Court or the Chief Justice of India under Section 11(6) of the Arbitration and Conciliation Act is not an administrative power. It is a judicial power.
2. The power under Section 11(6) of the Arbitration and Conciliation Act, in its entirety, could be delegated, by the Chief Justice of the High Court only to another Judge of that Court and by the Chief Justice of India to another Judge of the Supreme Court.
3. Once the matter reaches the arbitral tribunal or the sole arbitrator, the High Court would not interfere with 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 or 34 of the Arbitration and Conciliation Act, 1996.

Headnote:(i) Arbitration and Conciliation Act, 1996—Sections 11 and 16—Nature of function of the Chief Justice or his designate—Held, power exercised by the Chief Justice of the High Court or the Chief Justice of India under Section 11(6) of the Act is not an administrative power—It is a judicial power—Konkan Rly. Corpn. Ltd. v. Mehul Construction Co., (2000) 7 SCC 201: Overruled.

       Majority Judgment [P.K. Balasubramanyan, J. on behalf of R.C. Lahoti, CJI, B.N. Agrawal, Arun Kumar, G.P. Mathur, A.K. Mathur, JJ. and for Himself]

       Held : Normally, any tribunal or authority conferred with a power to act under a statute, has the jurisdiction to satisfy itself that the conditions for the exercise of that power existed and that the case calls for the exercise of that power. Such an adjudication relating to its own jurisdiction which could be called a decision on jurisdictional facts, is not generally final, unless it is made so by the Act constituting the tribunal. Here, sub-Section (7) of Section 11 has given a finality to the decisions taken by the Chief Justice or any person or institution designated by him in respect of matters falling under sub-Sections (4), (5) and (6) of Section 11. Once a statute creates an authority, confers on it power to adjudicate and makes its decision final on matters to be decided by it, normally, that decision cannot be said to be a purely administrative decision. It is really a decision on its own jurisdiction for the exercise of the power conferred by the statute or to perform the duties imposed by the statute. Unless, the authority satisfies itself that the conditions for exercise of its power exist, it could not accede to a request made to it for the exercise of the conferred power. While exercising the power or performing the duty under Section 11(6) of the Act, the Chief Justice has to consider whether the conditions laid down by the section for the exercise of that power or the performance of that duty, exist. Therefore, unaided by authorities and going by general principals, it appears to us that while functioning under Section 11(6) of the Act, a Chief Justice or the person or institution designated by him, is bound to decide whether he has jurisdiction, whether there is an arbitration agreement, whether the applicant before him, is a party, whether the conditions for exercise of the power have been fulfilled and if an arbitrator is to be appointed, who is the fit person, in terms of the provision. Section 11(7) makes his decision on the matters entrusted to him, final. The very scheme, if it involves an adjudicatory process, restricts the power of the Chief Justice to designate, by excluding the designation of a non-judicial institution or a non-judicial authority to perform the functions. For, under our dispensation, no judicial or quasi-judicial decision can be rendered by an institution if it is not a judicial authority, court or a quasi-judicial tribunal. (Paras 8 and 9)

       The appointment of an arbitrator against the opposition of one of the parties on the ground that the Chief Justice had no jurisdiction or on the ground that there was no arbitration agreement, or on the ground that there was no dispute subsisting which was capable of being arbitrated upon or that the conditions for exercise of power under Section 11(6) of the Act do not exist or that the qualification contemplated for the arbitrator by the parties cannot be ignored and has to be borne in mind, are all adjudications which affect the rights of parties. It cannot be said that when the Chief Justice decides that he has jurisdiction to proceed with the matter, that there is an arbitration agreement and that one of the parties to it has failed to act according to the procedure agreed upon, he is not adjudicating on the rights of the party who is raising these objections. The duty to decide the preliminary facts enabling the exercise of jurisdiction or power, gets all the more emphasized, when sub-Section (7) designates the order under sub-sections (4), (5) or (6) a ‘decision’ and makes the decision of the Chief Justice final on the matters referred to in that sub-Section. Thus, going by the general principles of law and the scheme of Section 11, it is difficult to call the order of the Chief Justice merely an administrative order and to say that the opposite side need not even be heard before the Chief Justice exercises his power of appointing an arbitrator. Even otherwise, when a statute confers a power or imposes a duty on the highest judicial authority in the State or in the country, that authority, unless shown otherwise, has to act judicially and has necessarily to consider whether his power has been rightly invoked or the conditions for the performance of his duty are shown to exist. (Para 10)

       Minority Judgment [C.K. Thakker, J.]

       Held : I have had the benefit of going through the judgment prepared by my learned brother P.K. Balasubramanyan (‘majority judgment’ for short). I, however, express my inability to agree with the majority judgment on the question as to the nature of function performed by the Chief Justice of the High Court/Chief Justice of India or ‘any person or institution designated by him’ under sub-section (6) of Section 11 of the Arbitration and Conciliation Act, 1996. (Paras 45)

       The controversy in the present group of matters centres round interpretation of Section 11 and the nature of function performed by the Chief Justice under sub-section (6) thereof. According to one view, it is administrative, while according to the other view, it is judicial or quasi-judicial. (Para 57)

       I have already quoted Section 11. It provides for appointment of arbitrators. Sub-sections (1) to (3) which confer power on parties to arbitration agreement to appoint arbitrators present no difficulty. Sub-sections (4) to (6) deal with cases where there is failure by the parties to appoint an arbitrator or arbitrators or default by two arbitrators in appointing the third arbitrator. The Act in such eventuality empowers the Chief Justice or any person or institution designated by him to take necessary steps for securing the appointment. Sub-section (7) of Section 11 makes the ‘decision’ of the ‘Chief Justice ‘final’. Sub-section (8) requires the Chief Justice or the person or institution designated by him in appointing an arbitrator to have due regard to qualifications required of the arbitrator by the agreement of the parties as also other considerations as are likely to secure the appointment of independent and impartial arbitrator. Sub-section (10) enables the Chief Justice to frame a scheme dealing with matters entrusted to him by sub-sections (4) to (6). (Para 58)

       As to the ambit and scope of Section 16, I will refer to little later, but in my view, finality of an order has nothing to do with the nature of function to be performed by the Chief Justice. Several statutes declare an order passed, decision taken or declaration made by the competent authority ‘final’ or ‘final and conclusive’ or ‘final and conclusive and is not open to challenge in any court’. This is known as ‘statutory finality’ and such clauses require to be interpreted in juxta-position of constitutional provisions. As a general rule, no appeal, revision or review lies against an order which has been treated by a statute as ‘final’. It may not be challenged by instituting a civil suit in certain cases. But such finality cannot take away the jurisdiction of High Courts or the Supreme Court and judicial review is available against ‘final’ orders albeit on limited grounds. (Para 87)

       But there is another important reason why the function of the Chief Justice under Section 11 should be considered administrative. All the three sub-sections, (4), (5) and (6) of the said section empower the Chief Justice or ‘any person or institution designated by him’ to exercise the power of the Chief Justice. No provision similar to the one in hand was present in 1940 Act. Parliament, therefore, has consciously and intentionally made the present arrangement for the first time allowing exercise of the power by the Chief Justice himself or through ‘any person or institution designated by him’, since the function is administrative in character and is required to be performed on prima facie satisfaction under sub-section (6) of Section 11 of the Act. Now, let us consider Section 16 of the Act. This section is new and did not find place in the old Act of 1940. Sub-section (1) of that section enables the Arbitral Tribunal to rule on its own jurisdiction. It further provides that the jurisdiction of the tribunal includes ruling on any objections with respect to existence or validity of the arbitration agreement. Sub-sections (2), (3) and (4) lay down procedure of raising plea as to the jurisdiction of the Arbitral Tribunal and entertaining such plea. Sub-section (5) mandates that the Arbitral Tribunal ‘shall decide’ such plea and, ‘where the arbitral tribunal takes a decision rejecting the plea, continue with the arbitration proceedings and make an arbitral award’. Sub-section (6) is equally important and expressly enacts that a party aggrieved by arbitral award may invoke Section 34 of the Act for setting aside such award. The provision appears to have been made to prevent dilatory tactics and abuse of immediate right to approach the court. If an aggrieved party has right to move the court, it would not have been possible to preclude the court from granting stay or interim relief which would bring the arbitration proceedings to a grinding halt. The provisions of Section 16(6) read with Section 5 now make the legal position clear, unambiguous and free from doubt. (Paras 88 and 89)

       The function performed by the Chief Justice of the High Court or the Chief Justice of India under sub-section (6) of Section 11 of the Act (i.e. Arbitration and Conciliation Act, 1996) is administrative, - pure and simple -, and neither judicial nor quasi-judicial. [Para 142(i)]

       (ii) Arbitration and Conciliation Act, 1996—Section 11(6)—Appointment of Arbitrator—Powers of the Chief Justice or his designate—Delegation of powers—Held, power u/s 11(6) of the Act, in its entirety, could be delegated by the Chief Justice of the High Court only to another Judge of that Court and by the Chief Justice of India to another Judge of the Supreme Court—Whether Chief Justice of the High Court can designate a District Judge to perform the functions u/s 11(6) of the Act—(No)—Whether the Chief Justice can designate a non judicial body or authority to exercise the power u/s 11(6) of the Act—(No).

       Majority Judgment

       Held : An aspect that requires to be considered at this stage is the question whether the Chief Justice of the High Court or the Chief Justice of India can designate a non-judicial body or authority to exercise the power under Section 11(6) of the Act. We have already held that, obviously, the legislature did not want to confer the power on the Court as defined in the Act, namely, the District Court, and wanted to confer the power on the Chief Justices of the High Courts and on the Chief Justice of India. Taking note of Section 5 of the Act and the finality attached by Section 11(7) of the Act to his order and the conclusion we have arrived at that the adjudication is judicial in nature, it is obvious that no person other than a Judge and no non-judicial body can be designated for entertaining an application for appointing an arbitrator under Section 11(6) of the Act or for appointing an arbitrator. In our dispensation, judicial powers are to be exercised by the judicial authorities and not by non-judicial authorities. This scheme cannot be taken to have been given the go-by by the provisions in the Act in the light of what we have discussed earlier. Therefore, what the Chief Justice can do under Section 11(6) of the Act is to seek the help of a non-judicial body to point out a suitable person as an arbitrator in the context of Section 11(8) of the Act and on getting the necessary information, if it is acceptable, to name that person as the arbitrator or the set of persons as the arbitral tribunal. Then the question is whether the Chief Justice of the High Court can designate a district judge to perform the functions under Section 11(6) of the Act. We have seen the definition of ‘Court’ in the Act. We have reasoned that the intention of the legislature was not to entrust the duty of appointing an arbitrator to the District Court. Since the intention of the statute was to entrust the power to the highest judicial authorities in the State and in the country, we have no hesitation in holding that the Chief Justice cannot designate a district judge to perform the functions under Section 11(6) of the Act. This restriction on the power of the Chief Justice on designating a district judge or a non-judicial authority flows from the scheme of the Act. In our dispensation of justice, especially in respect of matters entrusted to the ordinary hierarchy of courts or judicial authorities, the duty would normally be performed by a judicial authority according to the normal procedure of that court or of that authority. When the Chief Justice of the High Court is entrusted with the power, he would be entitled to designate another judge of the High Court for exercising that power. Similarly, the Chief Justice of India would be in a position to designate another judge of the Supreme Court to exercise the power under Section 11(6) of the Act. When so entrusted with the right to exercise such a power, the judge of the High Court and the judge of the Supreme Court would be exercising the power vested in the Chief Justice of the High Court or in the Chief Justice of India. Therefore, we clarify that the Chief Justice of a High Court can delegate the function under Section 11(6) of the Act to a judge of that court and he would actually exercise the power of the Chief Justice conferred under Section 11(6) of the Act. The position would be the same when the Chief Justice of India delegates the power to another judge of the Supreme Court and he exercises that power as designated by the Chief Justice of India. In this context, it has also to be noticed that there is an ocean of difference between an institution which has no judicial functions and an authority or person who is already exercising judicial power in his capacity as a judicial authority. Therefore, only a judge of the Supreme Court or a judge of the High Court could respectively be equated with the Chief Justice of India or the Chief Justice of the High Court while exercising power under Section 11(6) of the Act as designated by the Chief Justice. A non-judicial body or institution cannot be equated with a Judge of the High Court or a Judge of the Supreme Court and it has to be held that the designation contemplated by Section 11(6) of the Act is not a designation to an institution that is incompetent to perform judicial functions. Under our dispensation a non-judicial authority cannot exercise judicial powers. (Paras 39 to 42)

       Minority Judgment

       The function to be performed by the Chief Justice under sub-section (6) of Section 11 of the Act may be performed by him or by ‘any person or institution designated by him’. While performing the function under sub-section (6) of Section 11 of the Act, the Chief Justice should be prima facie satisfied that the conditions laid down in Section 11 are satisfied. [Para 142(ii) and (iii)]

       (iii) Arbitration and Conciliation Act, 1996—Section 11(6)—Constitution of India—Articles 226 and 227—Appointment of Arbitrator—Scope of judicial review—Whether order passed by an arbitral tribunal during arbitration would be capable of being challenged under Article 226 or 227 of the Constitution—(No)—Parties could approach the Court only in terms of Section 34 or 37 of the Act.

       Majority Judgment

       Held : It is seen that some High Courts have proceeded on the basis that any order passed by an arbitral tribunal during arbitration, would be capable of being challenged under Article 226 or 227 of the Constitution of India. We see no warrant for such an approach. Section 37 makes certain orders of the arbitral tribunal appealable. Under Section 34, the aggrieved party has an avenue for ventilating his grievances against the award including any in-between orders that might have been passed by the arbitral tribunal acting under Section 16 of the Act. The party aggrieved by any order of the arbitral tribunal, unless has a right of appeal under Section 37 of the Act, has to wait until the award is passed by the Tribunal. This appears to be the scheme of the Act. The arbitral tribunal is after all, the creature of a contract between the parties, the arbitration agreement, even though if the occasion arises, the Chief Justice may constitute it based on the contract between the parties. But that would not alter the status of the arbitral tribunal. It will still be a forum chosen by the parties by agreement. We, therefore, disapprove of the stand adopted by some of the High Courts that any order passed by the arbitral tribunal is capable of being corrected by the High Court under Article 226 or 227 of the Constitution of India. Such an intervention by the High Courts is not permissible. The object of minimizing judicial intervention while the matter is in the process of being arbitrated upon, will certainly be defeated if the High Court could be approached under Article 227 of the Constitution of India or under Article 226 of the Constitution of India against every order made by the arbitral tribunal. Therefore, it is necessary to indicate that once the arbitration has commenced in the arbitral tribunal, parties have to wait until the award is pronounced unless, of course, a right of appeal is available to them under Section 37 of the Act even at an earlier stage. (Paras 44 and 45)

       Once the matter reaches the arbitral tribunal or the sole arbitrator, the High Court would not interfere with 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. Since an order passed by the Chief Justice of the High Court or by the designated judge of that court is a judicial order, an appeal will lie against that order only under Article 136 of the Constitution of India to the Supreme Court. There can be no appeal against an order of the Chief Justice of India or a judge of the Supreme Court designated by him while entertaining an application under Section 11(6) of the Act. 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. [Para 46(vi) to (ix)]

       Minority Judgment

       The Arbitral Tribunal has power and jurisdiction to rule ‘on its own jurisdiction’ under sub-section (1) of Section 16 of the Act. Where the Arbitral Tribunal holds that it has jurisdiction, it shall continue with the arbitral proceedings and make an arbitral award. A remedy available to the party aggrieved is to challenge the award in accordance with Section 34 or Section 37 of the Act. Since the order passed by the Chief Justice under sub-section (6) of Section 11 of the Act is administrative, a Writ Petition under Article 226 of the Constitution is maintainable. A Letters Patent Appeal/Intra-court Appeal is competent. A Special Leave Petition under Article 136 of the Constitution also lies to this Court. While exercising extraordinary jurisdiction under Article 226 of the Constitution, however, the High Court will be conscious and mindful of the relevant provisions of the Act, including Sections 5, 16, 34 to 37 as also the object of the legislation and exercise its power with utmost care, caution and circumspection. [Para 142(iv) to (viii)]

       (iv) Words and Phrases—Persona designata—Means ‘a person considered as an individual rather than as a member of a class’—Black’s Law Dictionary—Arbitration and Conciliation Act, 1996—Section 11(6)—Power conferred on the Chief Justice u/s 11(6) of the Act is not a persona designata.

       Held : Normally, when a power is conferred on the highest judicial authority who normally performs judicial functions and is the head of the judiciary of the State or of the country, it is difficult to assume that the power is conferred on the Chief Justice as persona designata. Under Section 11(6), the Chief Justice is given a power to designate another to perform the functions under that provision. That power has generally been designated to a Judge of the High Court or of the Supreme Court respectively. Persona designata, according to Black’s Law Dictionary, means “A person considered as an individual rather than as a member of a class”. When the power is conferred on the Chief Justices of the High Courts, the power is conferred on a class and not considering that person as an individual. (Para 13)

       What can be gathered from P. Ramanatha Aiyar’s Advanced Law Lexicon, 3rd Edition, 2005, is that “persona designata” is a person selected to act in his private capacity and not in his capacity as a judge. He is a person pointed out or described as an individual as opposed to a person ascertained as a member of a class or as filling a particular character. It is also seen that one of the tests to be applied is to see whether the person concerned could exercise the power only so long as he holds office or could exercise the power even subsequently. Obviously, on ceasing to be a Chief Justice, the person referred to in Section 11(6) of the Act could not exercise the power. Thus, it is clear that the power is conferred on the Chief Justice under Section 11(6) of the Act not as persona designata. (Para 13)