2005 Supreme(SC) 516

2005(3) Supreme 189
Supreme Court of India
(From Calcutta High Court)
D.M. Dharmadhikari & G.P. Mathur, JJ.
Shree Subhlaxmi Fabrics Pvt. Ltd. —Appellant
versus
Chand Mal Baradia & Ors. —Respondents
Civil Appeal No. 7653 of 2004
Decided on 29-3-2005
Counsel for the Parties :
For the Appellants : M.N. Krishnamani, Jaideep Gupta, Sr. Advocates, Abhijit Sengupta and Balender Dixit, Advocates.
For the Respondents : V.A. Mohta, Sr. Advocate, B.S. Banthia, Nilakanta Nayak, Rana Mukherjee and Indra Makwana, Advocates.

Important points
1. The legislative intent underlying the Arbitration and Conciliation Act, 1996 is to minimize the supervisory role of Courts in the arbitral process and nominate/appoint the arbitrator without wasting time, leaving all contentious issues to be urged and agitated before the arbitral tribunal itself.
2. Where two Courts or more have juris­diction to try a suit or a proceeding, an agreement between the parties that the disputes between them shall be tried in one of such Courts is not contrary to public policy.

Headnote:(i) Civil Procedure Code, 1908—Order 39, Rules 1 and 2, Section 151—Arbitration and Conciliation Act, 1996 —Sections 4, 5, 7 and 16—Temporary injunction in arbitration proceedings—Objection regarding non existence of an arbitration clause—Whether High Court was justified in granting an injunction and staying the arbitration proceedings—(No)—Legislative intent underlying the 1996 Act is to minimize the supervisory role of Courts in arbitral process and nominate/appoint arbitrator without wasting time—Contentious issues should not be gone into or decided at the stage of appointment of an arbitrator—­Remedy of the aggrieved party is to raise an objection before the arbitral Tribunal.

       Held : Section 5 of the Act provides that notwithstanding anything contained in any other law for the time being in force, in matters governed by Part I (Sections 2 to 43), no judicial authority shall intervene except where so provided in the said part. This clearly indicates the legislative intent to minimize supervisory role of courts to ensure that the intervention of the court is minimal. Section 4 is a deeming provision, which lays down that where a party proceeds with the arbitration without stating his objection to non-compliance of any provision of Part I from which the parties may derogate or any requirement under arbitration agreement, it shall be deemed that he has waived his right to so object. Section 7 provides that the arbitration agreement shall be in writing and such an agreement may be in the form of an arbitration clause in a contract or in the form of a separate agreement. Sub-section (4) of Section 7 provides the conditions under which a document or exchange of letter or exchange of statement of claim and defence may amount to an arbitration agreement. Section 16 of the Act is important and it provides that the arbitral tribunal may rule on its own jurisdiction, including ruling on any objections with respect to the existence or authority of the arbitration agreement. Section 11 of the Act provides for appointment of arbitrators and sub-section (6) thereof empowers the Chief Justice of the High Court or any person or institution designated by him to make such an appointment on the happening of certain conditions enumerated in clauses (a), (b) or (c). (Paras 9 and 10)

       The consistent view taken by this Court, therefore, is that contentious issues should not be gone into or decided at the stage of appointment of an arbitrator and no time should be wasted in such an exercise. The remedy of the aggrieved party is to raise an objection before the arbitral tribunal as under Section 16 of the Act it is empowered to rule about its own jurisdiction. It is, therefore, open to the plaintiff to raise all the pleas before defendant No. 2 including a plea that there is no arbitration agreement between the parties for referring any dispute for arbitration before the Hindustan Chamber of Commerce, Mumbai. It is also important to note that in response to the notice issued by defendant No. 2 the plaintiff had sent a communication raising certain pleas and had also remitted an amount of Rs. 200/- as fee for arbitration. In such circumstances we are of the opinion that the view taken by the City Civil Court was just and proper and the High Court erred in granting an injunction in favour of the plaintiff and staying the proceedings before defendant No. 2. (Para 14)

       (ii) Arbitration and Conciliation Act, 1996—Sections 4, 5, 7 and 16—Civil Procedure Code, 1908—Order 39 Rules 1 and 2—Reference of dispute to arbitration—Stay of proceedings—Plaintiff was carrying on cloth business at Calcutta and was getting supplies from appellant Company through its agents at Calcutta—Delay in making payments—Plaintiff received notices that defendant 1 had initiated arbitration proceedings—Plaintiff filed an application under Order 39 Rules 1 and 2 and Section 151 CPC for restraining defendants from proceeding with arbitration cases—Case of plaintiff that there was no arbitration agreement between plaintiff and defendant 1—Appellant had referred the matter to the Hindustan Chamber of Commerce, defendant 2 for arbitration—Appellant opposed the prayer for grant of injunction and also filed an application under Section 20 rw/s 151 CPC challenging jurisdiction of Calcutta Court—Application moved by plaintiff was allowed—Defendants were restrained by the High Court from proceeding in ­Arbitration case subject to deposit of Rs. 2 lakhs by the plaintiff—Whether City Civil Court was justified in dismissing plaintiff application—(Yes)—Court was justified in holding that Calcutta Court had no jurisdiction to try the suit and further that arbitration proceedings having already commenced, Civil Court should not interfere with its ­functioning.

       Held : According to the appellant the indent (contract) contained a clause that the dispute under the contract shall be decided by the court at Bombay and by no other court. That apart it was defendant No. 1, which had commenced arbitration proceedings before defendant No. 2 and both are situate in Bombay. The plaintiff wants that the Hindustan Chamber of Commerce (defendant No. 2) may be restrained from proceeding with arbitration of the dispute, which has been raised by the appellant Shree Subhlaxmi Fabrics Pvt. Ltd. (defendant No. 1). Both defendant No. 1 and defendant No. 2 have their offices at Bombay. Insofar as commencement of proceedings before defendant No. 2 by defendant No. 1 is concerned, no part of cause of action has accrued in Calcutta. (Paras 15 and 16)

       In the case on hand the clause in the indent is very clear, viz., “court of Bombay and no other court”. The trial court on consideration of material on record held that the court at Calcutta had no jurisdiction to try the suit. (Para 19)

       In our opinion the approach of the High Court is not correct. The plea of the jurisdiction goes to the very root of the matter. The trial court having held that it had no territorial jurisdiction to try the suit, the High Court should have gone deeper into the matter and until a clear finding was recorded that the court had territorial jurisdiction to try the suit, no injunction could have been granted in favour of the plaintiff by making rather a general remark that the plaintiff has an arguable case that he did not consciously agree to the exclusion of the jurisdiction of the court. On overall consideration of the matter, we are clearly of the opinion that on the facts and circumstances of the case the view taken by the trial court was perfectly correct and the High Court has erred in reversing its order and granting an injunction in favour of the plaintiff. (Paras 21 and 22)