M-S. S.B.P. AND CO. v. M-S. PATEL ENGINEERING LTD. AND ANR

Citation: [2005] SUPP. 4 S.C.R. 688

Court: Supreme Court of India

Bench: R.C. LAHOTI, B.N. AGRAWAL, ARUN KUMAR, G.P. MATHUR, A.K. MATHUR, C.K. THAKKER, P.K. BALASUBRAMANYAN

Case summary

M-S. S.B.P. AND CO. v. M-S. PATEL ENGINEERING LTD. AND ANR.pdf

Judgment text

MIS. S. B. P. AND CO. v. MIS. PATEL ENGINEERING LTD. AND ANR. OCTOBER 26, 2005 [R. C. LAHOTI, CJ. , B. N. AGRAWAL, ARUN KUMAR, G. P. MATHUR, A. K. MATHUR, P. K. BALASUBRAMANYAN AND C. K. THAKKER, JJ. ] Arbitration Act, 1940; Ss. 8, 20 and 21! The Arbitration and Conciliation Act, 1996; Ss. 2(h), 2(h), 7, 9, //, /61and 34/Code of Civil Procedure, 1908: Functions performed by the Chief Justice of Supreme Court/Chief Justices ofHigh Courts under Section 11 ofthe 1996 Act-Administrative or Judicial-Held: Judicial.

Held, Per majority: Once a statute creates an authority, confers on it powers to adjudicate and makes its decision final, the decision cannot be termed as purely administrative decision-The ground a/ensuring minimum judicial interference by itself is not a ground to hold the power so conferred is only an administrative power-When the power is conferred so as to decide on the existence ofthe conditions justifying appointment ofan arbitrator/arbitral tribunal and is conferred on judicial authority/Chief Justice unless shown otherwise, the Chief Justice has to act judicially-When Chief Justice is called upon to decide on the existence ofarbitration agreement/appointment ofarbitrawr! constitution of tribunal and confronted with two different points of view contended for by the rival parties in deciding so he .

cannot be said to be performing administrative function-Issuance of Notice to opposite party cannot be construed to be merely an intimation but it really gives an opportunity of being heard-Since the Chief Justice has necessarily to apply his mind before coming to a conclusion to appoint/not to appoint an arbitrator, the decision so arrived at could appropriately be termed as judicial decision. Chief Justice exercising power to appoint an arbitrator/constitute · arbitral tribunal-Interference by the tribunal-Held: Tribunal cannot go S. B. P. AND CO. v. PATEL ENGINEERING LTD. 689 behind the decision of the Chief Justice and rule on its own jurisdiction.

Conferment of power on Chief Justice to appoint an arbitrator- ( Characteristics of-Held: It cannot be termed as persona designata as it is conferred on a class and not on an individual-Since the intention of the legislature is to entrust the power to the highest judicial authorities in the State/country, the Chief Justice could designate other judge of the same Court but he cannot designate a District Judge to perform the functions in terms of Section I1, sub-section (6) of the Act. Order ofthe arbitral tribunal-Challenge under Article 2261227 ofthe Constitution-Held: Not permissible.

Words and Phrases: 'Court '-Meaning of Held per minority: When an appropriate authority after applying its mind in terms of the circumstances enumerated in the Act arrived at a decision, the decision cannot be considered on that basis as judicial/quasi judicial and not administrative-The Chief Justice arrives at a decision of appointing an arbitrator after satisfj;ing itself to the existence of an arbitration agreement and failure on the part of one of the parties to approve appointment of an arbitrator-Such decision is merely of prima facie in nature and by passing such order he does not decide lis nor contentious issues between the parties- Thus performing of such functions does not make the function of the Chief Justice as judicial/quasi judicial-The power to appoint an arbitrator is given to the Chief Justice to ensure fairness, integrity and impartiality but that does not mean that the Chief Justice is exercising judicial/quasi-judicial powers-By appointing an arbitrator, the Chief Justice is performing administrative functions, as he is not under the obligation to act judicially- But he is under obligation/duty to act fairly and therefore requires to issue notice to other party before taking a decision to appoint an arbitrator- Constitution of India, 1950-Articles 226 and 227.

Power of Chief Justice-Delegation-Held: Not permissible. Power of Chief Justice to constitute arbitral tribunal/appoint an arbitrator-Interference-Jurisdiction of the High Court-Held: Aggrieved party could invoke the jurisdiction of High Court against an order passed by the ChiefJustice, however, the writ court will be circumspect in entertaining a petition and in exercising extra ordinary jurisdiction in such cases. Doctrines: Doctrine of 'fairness '-Applicabi/ily of Doctrine of 'Kompetenz-Kompetenz'-App/icabi/ity of In the case of Konkan Rly. Corpn. Ltd. v. Mehul Construction Co. , [2000} 7 SCC 201, three Judge Bench of this Court has taken the view that the function performed by the Chief Justice under Section 11(6) ofthe Arbitration and Conciliation Act is purely an administrative function; that it is neither judicial nor quasi-judicial and the Chief Justice or his nominee while performing such function cannot decide any contentious issue between the parties.

The decision/view was affirmed by the Constitution Bench in Konkan Railways Coproration Ltd. & Anr. v. Rani Construction Pvt. Ltd. , [2002} 2 SCC 388. The correctness of the view is questioned in these appeals. The question which arose for consideration in these appeals was about the nature of the functions performed by the Chief Justice or his designate under Section 11 of the arbitration and Conciliation Act, 1996. Disposing of the appeals, the Court HELD: Per majority (P. K. Balasubramanyan for himself, R. C. Lahoti, CJ, B. N. Agrawal, Arun Kuinar, G. P. Mathur, and A. K. Mathur, JJ. ): 1. 1. Sub-Section (7) of Section 11 of the Arbitration and Conciliation Act, 1996 has given a finality to the decisions taken by the ChiefJustice or any person or institution designated by him in respect of matters falling under sub-Sections (4), (5) and (6) of Section 11 of the Act.

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 ofthe 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 S. B. P. & CO. v. PATEL ENGINEERING LTD. 691 or the performance of that duty, exist. Section 11(7) makes his decision on · the matters entrusted to him, final. [715-D-G[ 1. 2.

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. [716-D) 1. 3. The duty to decide the preliminary facts enabling the exercise of jurisdiction or power, gets all the more emphasized, Sub-Section (7) ofSection 11 designates the order under sub-sections (4), (5) or (6) a 'decision' and makes the decision of the Chief Justice final on the matters rderred 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 ofappointing an arbitrator.

Even otherwise, when a statute confers a power or imposes a duty on the highest D 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. [716-D-F) 1. 4. The question, in the context of Sub-Section (7) of Section 11 is, what is the scope of the right conferred on the arbitral tribunal to rule upon its own jurisdiction and the existence of the arbitration clause, envisaged by Section 16(1), once the Chief Justice or the person designated by him had appointed an arbitrator after satisfying himself that the conditions for the exercise of power to appoint an arbitrator are present iii the case.

Primafacie, it would be difficult to say that in spite ofthe finality conferred by sub-Section (7) ofSection 11 ofthe Act, to such a decision ofthe Chief Justice, the arbitral tribunal can still go behind that decision and rule on its own jurisdiction or on the existence of an arbitration clause. It also appears to be incongruous to say that after the Chief Justice had appointed an arbitral tribunal, the arbitral tribunal can turn round and say that the Chief Justice had no jurisdiction or authority to appoint the tribunal, the very creature brought into existence by the exercise of power by its creator, the Chief Justice. [717-D-F[ 2. 1. The framers of the statute must certainly be taken to have been conscious of the definition of 'court' in the Act. It is easily possible to contemplate that they did not want the power under Section 11 to be conferred on the District Court or the High Court exercising original jurisdiction.

The intention apparently was to confer the power on the highest judicial authority in the State and in the country, on Chief Justices of High Courts and on the Chief Justice of India. Such a provision is necessarily intended to add the greate5t credibility to the arbitral process. (718-E-GI 2. 2. Normally, when a power is conferred on the highest judicial authority who normally performs judicial functions and is the head of the judiciary ofthe State or ofthe 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. According to Black's Law Dictionary, Persona designata 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. (718-H; 719-A-BI The Central Talkies Ltd.. Kanpur v. Dwarka Prasad. (196113 SCR 495 and Mukri Gopalan v. Cheppilat Puthanpurayil Aboobacker, (19951 5 SCC 5, relied on. Black's Law Dictionary and Advanced LawLexicon, 3rd Edition, 2005 by P. Ramanatha Aiyar, referred to. 2. 3. Ifthe power is a judicial power, it is obvious that the power could be conferred only on a judicial authority and in this case, logically on another Judge of the High Court or on a Judge of the Supreme Court. It is logical to consider the conferment ofthe power on the Chief Justice of the High Court and on the Chief Justice of India as presiding Judges of the High Court and the Supreme Court and the exercise of the power so conferred, is exercise of judicial power/authority as presiding Judges of the respective courts. 1120-q P. Anand Gajapathi Raju v. P. V. G.

Raju, (2000] 4 SCC 539 and Hindustan Petroleum Corporation Ltd. v. Pink City Midway Petroleum. (200316 sec 503, relied on. 2. 4. The judicial authority is entitled to, has to and bound to decide the jurisdictional issue raised before it, before making or declining to make a reference. Section 11 only covers another situation. Where one of the parties S. B. P. & CO. v. PATEL ENGINEERING LTD. 693 has refused to act in terms ofthe arbitration agreement, the other party moves the Chief Justice under Section l l of the Act to have an arbitrator appointed and the first party objects, it would be incongruous to hold that the Chief Justice cannot decide the question of his own jurisdiction to appoint an arbitrator when in a parallel situation, the judicial authority can do so. Obviously, the highest judicial authority has to decide that question and his competence to decide cannot be questioned.

Ifit is held that the Chief Justice has no right or duty to decide the question or cannot decide the question, it will lead to an anomalous situation in that a judicial authority under Section 8 can decide, but not a Chief Justice under Section 11, though the nature of the objection is the same and the consequence of accepting the objection in one case and rejecting it in the other, is also the same, namely, sending the parties to arbitration. [720-G-H; 721-A-B) 2. 5. Looking at the scheme of the 1996 Act as a whole and the object with which it was enacted, replacing the Arbitration Act of 1940, it seems to be proper to view the conferment of power on the Chief Justice as the conferment of a judicial power to decide on the existence of the conditions justifying the constitution of an arbitral tribunal. [721-H; 722-A] Supreme Court Advocates on Record Association v. Union of India. , 11993[ 4 sec 441 at 668, relied on. 2. 6.

It is true that the power under Section 11 (6) of the Act is not conferred on the Supreme Court or on the High Court, but it is conferred on the Chief Justice of India or the Chief Justice of the High Court One possible reason for specifying the authority as the Chief Justice, could be that if it were merely the conferment of the power on the High Court, or the Supreme Court, the matter would be governed by the normal procedure of that Court, including the right of appeal and the Parliament obviously wanted to avoid that situation, since one of the objects was to restrict the interference by Courts in the arbitral process. Therefore, the power was conferred on the highest judicial authority in the country and in the State in their capacities as Chief Justices. They have been conferred the power or the right to pass an order contemplated by Section 11 of the Act. [722-C-D) 3. 1. Section 16 of the Act is said to be the recognition of the principle of Kompetenz-Kompetenz.

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. That is the posit. ion arising out ofSection 11(7) of the Act read with Section 16 thereof.

The finality given to the order of the Chief Justice on the matters within his competence under Section 11 ofthe Act, are incapable of being reopened before the arbitral tribunal. (723-F-H; 724-A] 3. 2. In the case of Konkan Railway what is considered is only the fact that under Section 16, the arbitral tribunal has the right to rule on its own jurisdiction and any objection, with respect to the existence or validity of the arbitration agreement. What is the impact of Section 11(7) of the Act on the arbitral tribunal constituted by an order under Section 11(6) of the Act, was not considered. Obviously, this was because of the view taken in that decision that the Chief Justice is not expected to decide anything while entertaining a request under Section 11(6) ofthe Act and is only performing an administi;ative function in appointing an arbitral tribunal.

Once it is held that there is an adjudicatory function entrusted to the Chief Justice by the Act, obviously, the right of the arbitral tribunal to go behind the order passed by the Chief Justice would take another hue and would be controlled by Section 11(7) of the Act. It was thus held that an order passed under Section 11(6) of the Act, by the Chief Justice of the High Court or his nominee, was an administrative order, its purpose being the speedy disposal of commercial disputes and that such an order could not be subjected to judicial review under Article 136 of the Constitution of India. Even an order refusing to appoint an arbitrator would not be amenable to the jurisdiction of the Supreme Court under Article 136 of the Constitution. A petition under Article 32 of the Constitution was also not maintainable. But, an order refusing to appoint an arbitrator made by the Chief Justice could be challenged before the High Court under Article 226 of the Constitution.

What seems to have persuaded this Court was the fact that the statement of objects and reasons of the Act clearly enunciated that the main object of the legislature was to minimize the supervisory role of courts in arbitral process. Since Section 16 empowers the arbitral tribunal to rule on its own jurisdiction including ruling on objections with respect to the existence or validity ofan arbitration agreement, a party would have the S. B. P. & CO. v. PATEL ENGINEERING LTD. 695 opportunity to raise his grievance against that decision either immediately or while challenging the award after it was pronounced. Since it was not proper to encourage a party to an arbitration, to frustrate the entire purpose of the Act by adopting dilatory tactics by approaching the court even against the order of appointment of an arbitrator, it was necessary to take the view that the order was administrative in nature.

This was all the more so, since the nature of the function performed by the Chief Justice was essentially to aid the constitution of the arbitral tribunal immediately and the legislature having consciously chosen to confer the power on the Chief Justice and not on the court, it was apparent that the order was an administrative order. However, it has to be pointed out that this Court did not discus or consider the nature of the power that the Chief Justice is called upon to exercise. Merely because the main purpose was the constitution of an arbitral tribunal, it could not be taken that the exercise of power is an administrative power. 1724-A-C; 726-F-H; 727-A-CJ Konkan Railway Corpn. ltd. & Anr. v. Rani Construction Pvt. ltd. , 1200212 SCC 388; Sundaram Finance ltd. v. NEPC India ltd, [199912 SCC 479; Ador Samia Private limited v, Peekay Holdings limited and Ors. , 119991 8 SCC 572; Wellington Associates ltd. v. Kirit Mehta, 12000] 4 SCC 272; Konkan Railway Corporation ltd. v.

Mehul Construction Co. , [20001 7 SCC 201; Ador Samia Private limited v. Peekay Holdings limited and Ors. , [1999] 8 SCC 572 and Sundaram Finance ltd. v. NEPC India ltd. , [19991 2 SCC 479, distinguished. 3. 4. While constituting an arbitral tribunal, on the scheme of the Act, the Chief Justice has to consider whether he as the Chief Justice has jurisdiction in relation to the contract, whether there was an arbitration agreement in terms of Section 7 of the Act and whether the person before him with the request, is a party to the arbitration agreement. On coming to a conclusion on these aspects, he has to enquire whether the conditions for exercise of his power under Section 11(6) of the Act exist in the case and only on being satisfied in that behalf, he could appoint an arbitrator or an arbitral tribunal on the basis of the request. [727-D-EI 3. 5.

It is difficult to say that when one of the parties raises an objection that there is no arbitration agreement, raises an objection that the person who has come forward with a request is not a party to the arbitration agreement, the Chief Justice can come to a conclusion on those objections without following an adjudicatory process. It is also not correct to say that by the mere constitution of an arbitral tribunal the rights of parties are not .. , affected. Dragging a party to an arbitration when there existed no arbitration agreement or when there existed no arbitrable dispute, can certainly affect the right of that party and even on monetary terms, impose on him a serious liability for meeting the expenses ofthe arbitration, even if it be preliminary expenses and his objection is upheld by the arbitral tribunal. Therefore, it cannot be said that no adjudication is involved in the constitution of an arbitral tribunal. 1727-E-F; G, H; 728-A] 3. 6.

It is also somewhat incongruous to permit the order of the Chief Justice under Section 11(6) of the Act being subjected to scrutiny ~oder Article 226 of the Constitution at the hands of another Judge of the High Court. In the absence ofany conferment ofan appellate power, it may not be possible to say that a certiorari would lie against the decision of the High Court in the very same High Court. Even in the case of an international arbitration, the decision of the Chief Justice oflndia would be amenable to challenge under Article 226 of the Constitution before a High Court. While construing the scope of the power under Section 11(6), it will not be out of place for the court to bear this aspect in mind, since after all, courts follow or attempt to follow certain judicial norms and that precludes such challenges. In other countries where UNCITRAL model was being followed, the court could decide such issues judicially and need not mechanically appoint an arbitrator. [728-B-D-G [ 3. 7.

There are situations where preliminary issues would have to be decided by the court rather than by the arbitrator. Ifthe order of the Chief Justice or his nominees were to be treated as an administrative one, it could be challenged before the single Judge ofthe High Court, then before a Division Bench and then the Supreme Court under Article 136 of the Constitution, a result that would cause further delay in arbitral proceedings, something sought to be prevented by the Act. An order under Section 11 of the Act did not relate to the administrative functions of the Chief Justice or of the Chief Justice of India.

The question whether the Chief Justice could entertain the application under Section 11(6) of the Act could not be left to the decision of the arbitral tribunal constituted by him on entertaining such an application; that adequate attention was not paid to the requirement of the Chief Justice having to decide that there is an arbitration agreement in terms of Section 7 of the Act before he could exercise his power under Section 11(6) of the Act and its implication. The aspect, whether there was an arbitration agreement, was not merely a jurisdictional fact for commencing the arbitration itself, but it was also a jurisdictional fact for appointing an arbitrator on a motion S. B. P. &CO. v. PATEL ENGINEERING LTD. 697 under Section 11(6) of the Act.

The Chief Justice could appoint an arbitrator in exercise of his power only if there existed an arbitration agreement and without holding that there was an agreement, it would not be open to him to appoint an arbitrator saying that he was appointing an arbitrator since he has been moved in that behalf and the applicant before him asserts that there is an arbitration agreement. Acceptance of such an argument would reduce the high judicial authority entrusted with the power to appoint an arbitrator, an automaton and sub-servient to the arbitral tribunal which he himself brings into existence. Our system of law does not contemplate such a situation. 1728-G-H; 729-A, F-H; 730-A) Naresh Shridhar Mirajkar and Ors. v. State of Maharashtra and Anr. 11966) 3 SCR 744 and Rupa Ashok Hurra v. Ashok Hurra and Anr. , 12002) 4 sec 388, relied on. 3. 8.

The ground of ensuring minimum judicial intervention by itself is not a ground to hold that the power exercised by the Chief Justice is only an administrative function. 1730-EI 3. 9. In a case where the objection to jurisdiction or the existence of an arbitration agreement is overruled by the arbitral tribunal, the party has to participate in the arbitration proceedings extending over a period of time by incurring substantial expenditure and then to come to court with an application under Section 34 ofthe Arbitration Act seeking the setting aside of the award on the ground that there was no arbitration agreement or that there was nothing to be arbitrated upon when the tribunal was constituted. Though this may avoid intervention by court until the award is pronounced, it does mean considerable expenditure and time spent by the party before the arbitral tribunal.

On the other hand, if even at the initial stage, the Chief Justice judicially pronounces that he has jurisdiction to appoint an arbitrator, that there is an arbitration agreement between the parties, that there was a live and subsisting dispute for being referred to arbitration and constitutes the tribunal as envisaged, on being satisfied of the existence of the conditions for the exercise of his power, ensuring that the arbitrator is a qualified arbitrator, that will put an end to a host of disputes between the parties, leaving the party aggrieved with a remedy of approaching this Court under Article 136 of the Constitution. That would give this Court, an opportunity ofscrutinizing the decision of the Chief Justice on merits and deciding whether it calls for interference in exercise of its plenary power. Once this Court declines to interfere with the adjudication ofthe Chief Justice to the extent it is made, it becomes final. 1730-G, H; 731-A-CI 4. 1.

An appointment of an arbitral tribunal in terms of Section 11 of the Act, is based on a power derived from a statute and the statute itself prescribes the conditions that should exist for the exercise of that power. In the process of exercise of that power, obviously the parties would have the right of being heard and when the existence of the conditions for the exercise of the power are found on accepting or overruling the contentions of one of the parties it necessarily amounts to an order, judicial in nature, having finality subject to any available judicial challenge as envisaged by the Act or any other statute or the Constitution. Looked at from that point of view also, it seems to be appropriate to hold that the Chief Justice exercises a judicial power while appointing an arbitrator. [731-H; 732-A-B] 4. 2.

In the matter of deciding his own jurisdiction and in the matter of deciding on the existence of an arbitration agreement, the Chief Justice when confronted with two points ofview presented by the rival parties, is called upon to decide between them and the decision vitally affects the rights of the parties in that, either the claim for appointing an arbitral tribunal leading to an award is denied to a party or the claim to have an arbitration proceeding set in motion for entertaining a claim is facilitated by the Chief Justice. In this context, it is not possible to say that the Chief Justice is merely exercising an administrative function when called upon to appoint an arbitrator and that he need not even issue notice to opposite side before appointing an arbitrator. [734-D, E, F] Shankar/al Aggarwal and Ors. v. Shankar Lal Poddar and Ors. , (1964] I SCR 717, referred to. Attorney Geenral ofthe Gambia v. Pierre Sarr N'jie, (1961) Appeal Cases 617 and Myers v. Elman, per lord Wright.

referred to. 4. 3. It is fundamental to the procedural jurisprudence, that the right of no person shall be affected without he being heard. This necessarily imposes an obligation on the Chief Justice to issue notice to the opposite party when he is moved under Section 11 of the Act. The notice to the opposite party cannot be considered to be merely an intimation to that party of the filing of the arbitration application and the passing ofan administrative order appointing an arbitrator or an arbitra1 tribunal. It is really the giving of an opportunity of being heard. [734-F-Gl 4. 4. The Chief Justice has necessarily to apply his mind to various aspects before coming to a conclusion one way or the other and before S. B. P. &CO. v. PATEL ENGINEERING LTD. 699 proceeding to appoint an arbitrator or declining to appoint an arbitrator. Obviously, this is an adjudicatory process. An opportunity of hearing to both parties is a must.

Even in administrative functions if rights are affected, rules of natural justice step in. Therefore, findings in the case of Konkan Railway that no notice need be issued to the opposite party to give him an opportunity of being heard before appointing an arbitrator, has to be held to be not sustainable. (735-B-D] Konkan Railway Corpn. ltd. & Anr. v. Rani Construction Pvt. Ltd.. (2002) 2 SCC 388 and Konkan Railway Corporation Ltd. v. Mehul Construction Co. , (2000) 7 SCC 201, referred to. Ridge v. Baldwin, (1963) 2 ALL ER 66, referred to. 4. 5. It is true that finality under Section II (7) of the Act is attached only to a decision of the Chief Justice on a matter entrusted by sub-Section (4) or sub-Section (5) or sub-Section (6) of that Section. The finality, at first blush, could be said to be only on the decision on these matters.

But the basic requirement for exercising his power under Section I1(6), is the existence of an arbitration agreement in terms of Section 7 ofthe Act and the applicant before the Chief Justice being shown to be a party to such an agreement. It would also include the question of the existence of jurisdiction in him to entertain the request and an enquiry whether at least a part of the cause of action has arisen within the concerned State. Therefore, a decision on jurisdiction and on the existence of the arbitration agreement and of the person making the request being a party to that agreement and the subsistence ofan arbitrable dispute require to be decided and the decision on these aspects is a prelude to the Chief Justice considering whether the requirements of sub-Section (4), sub-Section (5) or sub-Section (6) of Section 11 are satisfied when approached with the request for appointment of an arbitrator.

It is difficult to understand the finality as referred to in Section 11(7) as excluding the decision on his competence and the locus standi of the party who seeks to invoke his jurisdiction to appoint an arbitrator. Viewed from that angle, the decision on all these aspects rendered by the Chief Justice would attain finality and it is obvious that the decision on these aspects could be taken only after notice to the parties and after hearing them. (735-D, G, H; 736-A-B) 5. Taking note ofSection 5 ofthe Act and the finality attached by Section 11 (7) of the Act to the order of the Chief Justices of High Courts and the Chief Justice of India and the conclusion 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.

The 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. 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. Since the intention ofthe statute is to entrust the power to the highest judicial authorities in the State and in the country, the Chief Justice cannot designate a district judge to perform the functions under Section 11(6) of the Act. (737-A-C, EJ 6.

1, The arbitral tribunal is after all, the creature of a contract between the parties, the arbitration agreement, even though if the occasion arises, the ChiefJustice 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. Therefore 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 is disapproved as not permissible. (739-8, CJ 6. 2. It is clarified that appointments of arbitrators or arbitral tribunals thus far made, are to be treated as valid, all objections being left to be decided under Section 16 of the Act. As and from this date, the position as adopted in this judgment will govern even pending applications under Section 11(6) of the Act. (740-H; 741-AJ 6. 3.

Where District Judges had been designated by the Chief Justice of the High Court under Section 11(6) of the Act, the appointment orders thus far made by them will be treated as valid; but applications ifany pending before them as on this date will stand transferred, to be dealt l\ith by the ChiefJustice of the concerned High Court or a Judge of that court designated by the Chief Justice. (741-BI 6. 4. The decision in Konkan Railway Corpn. Ltd. & Anr. v. Rani Construction Pvt. ltd. , (20021 2 SCC 388 is overruled. Per minority (C. K. Thakker, J. ): S. B. P. & CO. v. PATEL ENGINEERING LTD. 701 I. I. The argument that wherever a statute requires certain matters to be taken into account and the authority is obliged to apply its mind to those considerations, the action, decision or adjudication must be held judicial or quasi-judicial is based on misconception. This is not the legal position.

It is settled law that in several cases, an appropriate authority may have to consider the circumstances laid down in the Act, apply its mind and then to take decision. Such decision may affect one or the other party and may have far reaching consequences. But from that it cannot be concluded that the decision is judicial or quasi-judicial and not administrative. [753-F-G[ State ofMadras v. C. P. Sarthy, [1953[ SCR334 AIR (1953) SC 53; Prem Kakar v. State of Haryana, [1976[ 3 SCR 1010; Sultan Singh v. State of Haryana, [1996] 2 SCC 66 and Secretary Indian Tea Association v. Ajit Kumar Baral, [2000[ 3 SCC 93, referred to. 1. 2. It cannot be gainsaid that there must be an 'arbitration agreement' between the parties. It also cannot be denied that there must be default o_r failure on the part ofone party to appoint an arbitrator. But that will not make the function performed by the C! Jiedustice as judicial or quasi-judicial.

_ Therefore, when the question as to composition of Arbitral Tribunal and appointment of an arbitrator comes up for consideration, it can safely be assumed that there is an arbitration agreement, inasmuch as it is in consonance with the legislative scheme and the question as to the appointment of arbitrator arises only in view of such agreement. Moreover, before exercising the power to appoint an arbitrator, the Chief Justice must peruse the relevant record relating to an agreement and failure by one party in making an appointment which would enable him to act. There is, however, no doubt that at that stage, the satisfaction required is merely ofprimafacie nature and the Chief Justice does not decide ! is nor contentious issues between the parties. Section 11 of the Arbitration and Conciliation Act neither contemplates detailed inquiry, nor trial nor findings on controversial or contested matters. [755-C-E[ Wellington Associates Ltd v.

Kirit Mehta, [2000[ 4 SCC 272; Malaysian Airlines System v. Stic Travels (P) Ltd, [2001[ l SCC 509; Nimeet Resources INC v. Essar Steels Ltd, [2000[ SCC 497 and Shin Etsu Chemical Co. ltd v. Aksh Optifibre Ltd. & Anr. (2005[ 7 SCC 234, referred to. Report on Arbitration and Conciliation (Amendment) Bill, 2001 and International Commercial Arbitration (1994 edn. ) by Fouchard, Gaillard and Goldman, referred to. 1. 3. Sub-section (7) of Section 11 of the Act, no doubt, uses the term 'decision'. But the Chief Justice forms primafacie opinion as to the fulfillment ofconditions specified in sub-section (6). The decision neither contemplates adjudication of /is between two or more parties nor resolves controversial and contentious issues. It merely requires the Chief Justice to take an appropriate action keeping in view the provisions of Part II and sub-sections (1), (4) and (5) ofSection 11.

Regarding matters which the Chief Justice is expected to consider, such as qualification, independence and impartiality of arbitrator, they are statutory provisions and the Chief Justice is obliged to keep them in view as per mandate ofthe Legislature. The said fact, however, does not make the function of the Chief Justice judicial or quasi-judicial. (756-H; 757-A-B) 2. Finality of an order has nothing to do with the nature offunction 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 rnnnot take away the jurisdiction of High Courts or the Supreme Court and judicial review is available against 'final' orders a/be. it on limited grounds. [757-E-G] Vide Somvanti v. State ofPunjab, (1963] 2 SCR 774; AIR 1963 SC 154 and Neelima Misra v. Harvinder Kaur Painta/ and Ors. , (1990] 2 SCC 746, referred to. 3. 1. There is another important reason as to why the function of the Chief Justice under Section 11 of the 1996 Act should be considered administrative. All the three sub-sections, (4), (5) and (6) of Section 11 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 the Arbitration Act, 1940.

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 admini. strative in character and is required to be performed on primafacie satisfaction under --- S. B. P. &CO. v. PATEL ENGINEERING LTD. 703 sub-section (6) of Section l l of the Act. 1757-G-H; 758-A) 3. 2. The provision under Section 16 of the 1996 Act appears to have been made to prevent dilatory tactics and abuse of immediate right to approach the court. Ifan 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 make the legal position clear, unambiguous and free from doubt. 1758-D-E] 3. 3.

Section 16 (1) of the Act incorporates the well-known doctrine of Kompetenz - Kompetenz or competence de la competence. It recognizes and enshrines an important principle that initially and primarily, it is for the Arbitral Tribunal itself to determine whether it has jurisdiction in the matter, subject of course, to ultimate court-control. It is thus a rule of chronological priority. Kompetenz - Kompetenz is a widely accepted feature of modern international arbitration, and allows the Arbitral Tribunal to decide its own jurisdiction including ruling on any objections with respect to the existence or validity ofthe arbitration-agreement, subject to final review by a competent court of law; i. e. subject to Section 34 of the Act. 1758-F-G] Renusagar Power Co. Ltd v. General Electric Co. and Anr. , [1984] 4 sec 679, referred to. 'Contract' by Chitty and "Law and Practice of International Commercial Arbitration" by Alan Redfern and Martin Hunter, referred to. 3. 4.

In the instant case, per majority, though it was rightly held that Section 16(1) only makes explicit what is even otherwise implicit, namely, that the tribunal has the jurisdiction to rule its own jurisdiction, 'including ruling on any objections with respect to the existence or validity of the arbitration agreement, but the matter does not rest there. Over and above subsection (l), Section 16 contains other sub-sections and in particular, subsections (5) and (6). The former requires the tribunal to continue the proceedings in case it decides that the tribunal has jurisdiction in the matter and the latter provides remedy to the aggrieved party. The conjoint reading of sub-sections (1), (4), (5) and (6) of Section 11 makes it abundantly clear that the provision is 'self-contained' and deals with all cases, even those wherein the plea as to want of jurisdiction has been rejected.

As a general rule, such orders are subject to certiorari jurisdiction since a court of limited jurisdiction or an inferior tribunal by wrongly interpreting a statutory provision cannot invest itself with the jurisdiction which it otherwise does not possess. But it is always open to a competent Legislature to invest a tribunal of limited jurisdiction with the power to decide or determine finally the preliminary or jurisdictional facts on which exercise of its jurisdiction depends. In such cases, the finding recorded by the tribunal cannot be challenged by certiorarL As a general rule, neither in England, nor in India, such jurisdiction is granted on a court of limited jurisdiction or on an inferior tribunal The existence of preliminary or 'jurisdictional' fact is a sine qua non to the assumption of jurisdiction by a tribunal of limited jurisdiction. Ifthe jurisdictional fact does not exist, the tribunal cannot act. (763-8, F; 764-q Ebrahim Aboobaker v.

Custodian General, AIR (i952) SC 319: (1952) SC 696; Ujjam Bai v. State ofU. P. , AIR (1962) SC 1621 : (1963) 1 SCR 778; Raja Anand v. State ofU. P. , AIR (1967) SC 1081 : (1967) 1 SCR 373; Naresh Shridhar Mirazkar v. State ofMaharashtra, AIR (1967) SC 1 : [1966) 3 SCR 744; Raza Textiles Ltd. v. J. T. O. , (1973) l SCC 633: AIR (1973) SC 1362; Shiv Chander v. Amar Bose, (1990( l SCC 234: AIR (1990) SC 325; Shrisht Dhawan v. Shaw Brothers, (1992) 1 SCC 534; Vatticherubura Village Panchayat v. Nari Venkatarama Deekshithulu, (1991( Supp 2 SCC 228 : (1991) 2 SCR 531 and Executive Officer, Arthanareswarar Temple v. R. Sathyamoorthy and Ors. , (1999) 3 SCC ll5, referred to. Halsbury's Laws ofEngland, (4th edn. vol. I; para 56), referred to. 4. 1. Sub-section (1) of Section 16 does not merely enable the Arbitral Tribunal to rule on its own jurisdiction, but requires it to continue arbitral proceedings and pass an arbitral award.

(Sub-section (5)) It allows the aggrieved party to make an application for setting aside the award in accordance with Section 34. (Sub-section (6)). Thus, Section 16 can be described as 'self-contained Code' as regards the challenge to the jurisdiction of Arbitral Tribunal. As per the scheme envisaged by Parliament, once the Arbitral Tribunal rules that it has jurisdiction, it will proceed to decide the matter on merits and make an award. Parliament has also provided the remedy to the aggrieved party by enacting that he may make an application under Section 34 of the Act. In the circumstances, the proceedings cannot be allowed to be arrested or interference permitted during the pendency of arbitration proceedings. (766-C-E) . Addanki Tiruvenkata Thata Desika Charyulu v. State ofAndhra Pradesh and Anr. , AIR (1964) SC 807, followed. S. B. P. &CO. v. PATEL ENGINEERING LTD. 705 Queen v. Commissioner ofIncome Tax, (1888) 21QB313: 33 WR 776 and Lord Esher, M. R.

and Chaube Jagdish Prasad and Anr. v. Ganga Prasad Chaturvedi, (19591Supp1 SCR 733: AIR (1959) SC 492, relied on. 4. 2. The function of the Court is to interpret the provision as it is and not to amend, alter or substitute by interpretative process. It is for the Legislature to make a law applicable to certain situations contemplated by it and the judiciary has no power in entering into 'legislative wisdom'. The 'decision' of the Chief Justice is merely primafacie decision and sub-section (1) of Section 16 confers express power on the Arbitral Tribunal to rule on its own jurisdiction. It provides remedy to deal with situations created by the order passed by the Arbitral Tribunal. The situation as envisaged by the appellant that Section 16 should be so construed that it would apply only to the cases covered by sub-sections (2) and (3) of Section 11 and not to subsection (6) of Section 11 and the appointment of an arbitrator made by the Chief Justice would seldom arise.

Normally, when parties agree on the appointment of an arbitrator or arbitrators, there would,hardly be any dispute between them on such appointment which may call for intervention by Arbitral Tribunal under Section 16 of the Act. For all these reasons, it cannot be said that Section 16 has limited application to cases covered by sub-sections (2) and (3) and not to sub-section (6) of Section 11 of the Act. The phraseology used by the Legislature does not warrant the interpretation as sought to be suggested by the appellant. [766-H; 767-A-CI 4. 3.

The submission that in case of failure on the part of the party to the arbitration agreement in appointing an arbitrator, an application can be made under Section 11 ofthe Act and arbitrator can be appointed by the Chief Justice or any person or institution designated by him; that judicial or quasijudicial power has to be exercised by the authority to whom it is granted and cannot be delegated, as the intention of Parliament was to confer the power on the highest judicial authority in the State and in the country, it cannot be allowed to be exercised by 'any person' or 'institution', is ill-conceived and has been made by looking at the matter from an incorrect angle. It first assumes that the function performed by the Chief Justice is judicial or quasijudicial and then proceeds to examine legal position on that basis and attempts to salvage the situation by urging that the power must be exercised by the Chief Justice. In that case, however, the subsequent part "or any person or .

institution designated by him" (Chief Justice) would become redundant. (767-D-F( 4. 4. The submission that Section 11 provides for dichotomy of functions. It contemplates two situations, and ~eals with two stages. The first stage consists of consideration of preliminary facts and taking of decision as to whether an arbitrator can be appointed. The second stage allows nomination of an arbitrator. The first part is essentially ajudicial fanction which cannot be delegated to 'any person or institution' and at the most, it can be delegated to any Judge of the court. The second stage, however, is more or less ministerial and at that stage, the Chief Justice may, if he thinks fit, take help of any person or institution so that proper and fit person is appointed as arbitrator. However, the submission cannot be accepted for several reasons. Firstly, it proceeds on the basis that the function of the Chief Justice is judicial or quasi-judicial, which is not correct.

It is administrative which is apparent from the language ofSection 11 and strengthened by Section 16 which enables the Arbitral Tribunal to rule on its own jurisdiction. Secondly, a court of law must give credit to Parliament that it is aware of settled legal position that judicial or quasi-judicial function cannot be delegated and if the function performed by the Chief Justice is judicial or quasi-judicial in nature, keeping in view legal position, it would not have allowed delegation ofsuch function to 'any person or authority'. Thirdly, the majority rightly held that the conferment of power on the Chief Justice is not as 'persona designata '. Hence, tbe power can be delegated. Finally, ifthe legislative intent is the exercise of power by the Chief Justice alone, one fails to understand as to how it can be exercised by a 'colleague' of the Chief Justice as well. Further, acceptance of the submission of the appellant would result in rewriting of a statute.

The scheme of the legislation does not warrant such construction. . :t (767-G-H; 768-A-E] 4. 5. No court much less the highest court ofthe country would interpret one provision (Section 11) of an Act ofParliament which would make another provision (Section 16) totally redundant, otiose and nugatory. The Legislature has conferred power on the Chief Justice to appoint an arbitrator in certain contingencies. It also allowed the ChiefJustice to get that power exercised through 'any person or institution'. It is not open to a court to ignore the legislative mandate by making artificial distinction between the power to be exercised by the Chief Justice or by his 'colleague' and the power to be exercised by other organs though Legislature was quite clear on the exercise of power by the persons and authorities specified therein. [768-E-GJ 5. 1.

Though the constitutional remedy cannot be taken away and an aggrieved party can invoke the jurisdiction of the High Court against an order passed by the Chief Justice, the Writ Court will be circumspect in S. B. P. &CO. v. PATEL ENGINEERING LTD. entertaining a petition and in exercising extraordinary jurisdiction in such cases. (771·AI 5. 2. Once_ it is held that the order passed by the Chief Justice is administrative, it can be challenged in Writ Petition, Letters Patent Appeal and in Special Leave Petition. But the High Court while exercising extraordinary jurisdiction under Article 226 of the Constitution, would consider the provisions of the Act, such as, limited judicial intervention of Court (Section 5); power of Arbitral Tribunal to rule on its own jurisdiction and the effect of such decision (Section 16). It will also keep in mind the legislative intent of expeditious disposal ofproceedings and may not interfere at that stage.

Ultimately, having jurisdiction or power to entertain a cause and interference with the order are two different and distinct matters. One does not necessarily result into the other. Hence, in spite of jurisdiction of the High Court, it may not stall arbitration proceedings by allowing the party to raise all objections before the Arbitral Tribunal (769-D, E, F] Laxmikant Revchand Bhojwani and Anr. v. Pratapsingh Mohansingh Pardeshi, (1995] 6 SCC 576; Koyilerian Janaki and Ors. v. Rent Controller (Munsiff), Cannore and Ors. , (2000) 9 SCC 406; Ouseph Mathai and Ors. v. M Abdul Khadir, (2002) 1 SCC 319 and State of Orissa and Ors. v. Gokulananda Jena, [2003) 6 SCC 456, referred to. 5. 3. The paramount consideration of Parliament in selecting the Chief Justice and in conferring upon him the power to appoint an arbitrator is to ensure complete independence, total impartiality and highest degree of credibility in arbitral process.

The Chief Justice of India and Chief Justices of High Courts have been specially chosen considering their constitutional status as Judges of superior courts and their rich experience in dealing with such matters. The office occupied by them would infuse greater confidence in the procedure in appointing an arbitrator and in ensuring fairness, integrity and impartiality. But that does not mean that the Chief Justice is exercising judicial or quasi-judicial power. On the contrary, the Chief Justice, acting in administrative capacity, as distinguished from judicial capacity, is expected to act. quickly and expeditiously without being inhibited by procedural requirements and 'technical tortures'. In undertaking the task to appoint an Arbitral Tribunal, he is neither required to consult parties nor arbitrators. The Chief Justice would thus uphold, preserve and protect solemnity of agreement between the parties to arbitration. (771-B-E] Pa/grave Gold Mining Co. v.

McMillan, (1892) AC 460 61 LJ PC 85, referr. ed to. 6. 1. Section 8 of the 1940 Act expressly provided written notice and opportunity ofhearing in case ofappointment ofan arbitrator or umpire. The present Act of 1996 neither provides for issuance of notice nor for opportunity of being heard. In exercise of power under sub-section (10) ofSection 11of the 1996 Act, the Chief Justice of India had framed a scheme, known as "The Appointment of Arbitrators by the Chief Justice of India Scheme, 1996". Clause 7 provided for issuing notice to affected persons. In the case ofKonkan Railway Corporation Ltd II v. Rani Construction Pvt. Ltd. , the Constitution Bench held the function of the Chief Justice of appointment of an arbitrator under sub-section (6) ofSection 11 as administrative and not judicial. In the light of the finding, the Court proceeded to state that it was not necessary to issue notice to the parties likely to be affected. Section 11 did not provide for such notice.

The Court, however, did not stop there. It held that by making a provision for issuance of notice, the scheme went 'beyond the terms ofSection 11' and was bad on that ground. A direction was, therefore, issued to amend it. Such provision cannot be held inconsistent with the parent Act or otherwise bad in law. The Constitution Bench did not assign any reason as to why it was of the view that clause 7 could not stand or how it violated Section 11. But reference to the cases of Jaswant Sugar Mills Ltd, Engineering Mazdoor Sabha and Associated Cement Companies Ltd. clearly shows that the Constitution Bench was of the view that while performing function of appointing an Arbitral Tribunal the Chief Justice was not acting as a Court or Tribunal, he was not expected to issue notice or afford an opportunity of hearing to the parties likely to be affected by such decision.

Once the function of the ChiefJustice is held to be administrative, there may not be 'duty to act judicially' on the part of the Chief Justice. Nevertheless in such cases, an administrative authority is required to act 'fairly'. Basic procedural fairness requires such notice to the opposite party. The principle in the case of R, v. Electricity Commissioners and Ridge v. Baldwin may not apply to administrative functions, but another concept which developed at a later stage and accepted in public law field and found place in Administrative Law of 'duty to act fairly' would apply to administrative actions as well. (771-H; 772-A, B, E, F; 773-B-E] Konkan Railway Corporation Ltd v. Rani Construction Pvt. Ltd, [20001 8 sec 151, followed. Jaswant Sugar Mills Ltd v. Lakshmi Chand, [19631Supp1SCR242: AIR (1963) SC 677; Engineering Mazdoor Sabha v. Hind Cycles Ltd. , [19631 S. B. P. &CO. v. PATEL ENGINEERING LTD. 709 Supp I SCR 625 : AIR (1963) SC 874 and Associated Cement Companies Ltd. v. P.

N. Sharma, [I965] 2 SCR 366: AIR (I965) SC I595; Keshav Mills Co. Ltd. v. Union ofIndia, [I973] I SCC 380 : [I973] 3 SCR 22; Mohinder Singh Gill v. ChiefElection Commission, [I978] I SCC 405 : [1978] 2 SCR 272 and Nally Bharat Engineering Co. Ltd. v. State ofBihar, [I990] 2 SCC 48, referred to. R. v. Electricity Commissioners, (I 924) I KB I71 : 93 LJ KB 390; Ridge v. Baldwin, (I964) AC 40 : [I963] 2 All ER 66 : (1963) 2 WLR 935 and Pearlberg v. Varty (Inspector ofTaxes), [1972] 2 All ER 6: (I972) I WLR 534 R. v. Commisioner for Racial Equality, (I982) AC 779 : (I982) 3 WLR I59, referred to. 6. 2. The doctrine of 'fairness' has become all pervasive. As has been said, the 'acting fairly' doctrine proved useful as a device for evading confusion which prevailed in the past. "The courts now have two strings to their bow.

" An administrative act may be held to be subject to the requirement and observance of natural justice either because it affects rights or interests and hence would involve a 'duty to act judicially' or it may be administrative, pure and simple, and yet, may require basic procedural protection which would involve 'duty to act fairly'. 'Acting fairly' is thus an additional weapon in the armoury of the court. It is not intended to be substituted for another much more powerful weapon 'acting judicially'. Where, however, the former ('acting judicially') cannot be wielded, the court will try to reach injustice by taking resort to the latter - less powerful weapon ('acting fairly'). [776-E-G] "From Duty to Act Judicially to Duty to Act Fairly" by C. K. Thakker (2003) 4 SCC (Jour) I, referred to. 'Administrative Law'; (2005); pp. 492-94 by Wade & Forsyth and "Judicial Review ofAdministrative Action'', (I 995); pp. 397-98 by de Smith, referred to. 6. 3.

As the Chief Justice is performing administrative function under sub-section (6) ofSection I I of the I996 Act in appointing an arbitrator, there is no 'duty to act judicially' on his part, nonetheless there is 'duty to act fairly' which requires him to issue notice to the other side before taking a decision to appoint an arbitrator. Hence, clause 7 of the scheme as stood prior to the amendment, could neither be held bad in law nor inconsistent with Section I 1 of the Act. [776-H; 777-A-B] CIVIL APPELLATE JURISDICTION: Civil Appeal No. 4168 of2003. ·, From the Judgment and Order dated 3. 2. 2003 of the Bombay High Court in W. P. No. 21 of2002. WITH C. A. Nos. 4169, 4170-73/2003, 4076/2004, 3777/2003, 6562, 6563-64, 6565- 6566 of2005. B. Dutta, Additional Solicitor General, K. K. Venugopal, C. S. Vaidyanathan, Radhakrishnan, Harish Chandra, F. S. Nariman, Gaurab K. Banerji, Rakesh Dwivedi, S. Muralidhar, Jashan Brar, Amit Sharma, Naveen R. Nath Mrs. Lalit Mohini Bhat, Ms.

Anitha Shengy, 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. lndu Malhotra, Darius Khambatta, Jai Munim, Mustafa Doctor, Ranjit Shetty, P. S. Sudheer, Pratap Venugopal, Subash Sharma, Atul Y. Chitale, Mrs. Suchitra Atul Chitale, Ms. Sujeeta Shrivastava, Ms. Tarandeep Mahal, Sanjay R. Hegde, (NP), Jaydeep Mazumdar, Saurav Agarwal, T. M. Singh, Harsha Rao, P. Vinay Kumar, Ms. Sneha Bhaskaran, Mrs. D. Bharathi Reddy, Krishnan Venugopal, Prasad Vijayakumar, 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 for the appearing parties. The Judgment of the Court was delivered by P. K. BALASUBRAMANYAN, J. Leave granted in SLP(C) Nos. 3205/ p 2004, 14033-1403412004, 21212-21312002. I.

What is the nature ofthe function ofthe Chief Justice or his designate under Section 11 of the Arbitration and Conciliation Act, 1996 is the question that is posed before us.. The three judges bench decision in Konkan Rly. Corpn. Ltd v. Mehu/ Construction Co. , [2000] 7 SCC 20 I as approved by the Constitution Bench in Konkan Railway Corpn. Ltd. and Anr. v. Rani Construction Pvt. Ltd, [2002] 2 SCC 388 has taken the view that it is purely an administrative function, that it is neither judicial nor quasi-judicial and the Chief Justice or his nominee performing the function under Section 11(6) of the Act, cannot decide any contentious issue between the parties. The correctness of the said view is questioned in these appeals. S. B. P. & CO. v. PATEL ENGINEERING LTD. [BALASUBRAMANYAN,J. ) 7] j 2. Arbitration in India was earlier governed by the Indian Arbitration Act, 1859 with limited application and the Second Schedule to the Code of Civil Procedure, 1908.

Then came the Arbitration Act, 1940. Section 8 ofthat Act conferred power on the Court to appoint an arbitrator on an application made in that behalf. Section 20 conferred a wider jurisdiction on the Court for directing the filing of the arbitration agreement and the appointment of an arbitrator. Section 2 I conferred a power on the Court in a pending suit, on the agreement of parties, to refer the differences between them for arbitration in terms of the Act. The Act provided for the filing of the award in court, for the making of a motion by either of the parties to make the award a rule of court, a right to have the award set aside on the grounds specified in the Act and for an appeal against the decision on such a motion. This Act was replaced by the Arbitration and Conciliation Act, 1996 which, by virtue of Section 85, repealed the earlier enactment. 3. The Arbitration and Conciliation Act, 1996 (hereim!

fter referred to as 'the Act') was intended to comprehensively cover international and commercial arbitrations and conciliations as also domestic arbitrations and conciliations. It envisages the making of an arbitral procedure which is fair, efficient and capable of meeting the needs of the concerned arbitration and for other matters set out in the objects and reasons for the Bill. The Act was intended to be one to consolidate and amend the law relating to domestic arbitrations, international commercial arbitrations and enforcement of foreign arbitral awards, as also to defip. e the law relating to conciliation and for matters connected therewith or incidental thereto.

The preamble indicates that since the United Nations Commission on International Trade Law (UNCITRAL) has adopted a Model Law for International Commercial Arbitration and the General Assembly of the United Nations has recommended that all countries give due consideration to the Model Law and whereas the Model Law and the Rules make significant contribution to the establishment of a unified legal framework for a fair and efficient settlement ofdisputes arising in international commercial relations and since it was expedient to make a law respecting arbitration and conciliation taking into account the Model Law and the Rules, the enactment was being brought forward. The Act replaces the procedure laid down in Sections 8 and 20 of the Arbitration Act, 1940. Part I of the Act deals with arbitration. It contains Sections 2 to 43. Part II deals with enforcement of certain foreign awards, and Part III deals with conciliation and Part IV contains supplementary provisions.

In this case, we are not concerned with Part III, and Parts II and IV have only incidental relevance. We are concerned with the provisions in Part l dealing with arbitration. 4. Section 7 of the Act read with Section 2 (b) defines an arbitration agreement. Section 2(h) defines 'party' to mean a party to an arbitration agreement. Section 4 deals with waiver of objections on the part of the party who has proceeded with an arbitration, without stating his objections referred to in the section, without undue delay. Section 5 indicates the extent of judicial intervention. It says that notwithstanding anything contained in any other law for the time being in force, in matters governed by Part I, no judicial authority shall intervene except where so provided in Part I. The expression 'judicial authority' is not defined. So, it has to be understood as taking in the courts or any other judicial fora.

Section 7 defines an arbitration agreement and insists that it must be in writing and also explains when an arbitration agreement could be said to be in writing. Section 8 confers power on a judicial authority before whom an action is brought in a matter which is the subject of an arbitration agreement, to refer the dispute to arbitration, if a party ·applies for the same. Section 9 deals with the power of the Court to pass interim orders and·the power to give interim protection in appropriate cases. It gives a right to a party, before or during arbitral proceedings or at any time after the making of the arbitral award but before its enforcement in terms of Section 36 of the Act, to apply to a court for any one of the orders specified therein. Chapter Ill of Part I deals with composition of arbitral tribunals. Section 10 gives freedom to the parties to determine the number of arbitrators but imposes a restriction that it shall not be an even number.

Then comes Section 11 with which we are really concerned in these appeals. 5. The marginal heading of Section 11 is 'Appointment of arbitrators'. Sub-Section ( l) indicates that a person of any nationality may be an arbitrator, unless otherwise agreed to by the parties. Under sub-Section (2), subject to sub-Section (6), the parties are free to agree on a procedure for appointing the arbitrator or arbitrators. Under sub-Section (3), failing any agreement in terms of sub-Section (2), in an arbitration with three arbitrators, each party could appoint one arbitrator, and the two arbitrators so appointed, could appoint the third arbitrator, who would act as the presiding arbitrator.

Under sub-Section (4), the Chief Justice or any person or institution designated by him could make the appointment, in a case where sub-Section (3) has application and where either the party or parties had failed to nominate their arbitrator or arbitrators or the two nominated arbitrators had failed to agree on the presiding arbitrator. In the case of a sole arbitrator, sub-Section (5) provides for the Chief Justice or any person or institution designated by him, appointing an arbitrator on a request being made by one of the parties, on fulfilment of the conditions laid down therein. Then comes sub-Section (6), S. B. P. & CO. v. PATEL ENGINEERING LTD. [BALASUBRAMANYAN, J.

] 713 which may be quoted hereunder with advantage: "(6) Where, under an appointment procedure agreed upon by the parties,- (a) a party fails to act as required under that procedure; or (b) the parties, or the two appointed arbitrators, fail to reach an agreement expected of them under that procedure; or (c) a person, including an institution, fails to perform any function entrusted to him or it under that procedure, a party may request the Chief Justice or any person or institution designated by him to take the necessary measure, unless the agreement on the appointment procedure provides other means for securing the appointment. " Sub-Section (7) gives a finality to the decision rendered by the Chief Justice or the person or institution designated by him when moved under sub- Section (4), or sub-Section (5), or sub-Section (6) of Section fl. Sub-Section (8) enjoins the Chief Justice or the person or institution designated by hiln to keep in.

mind the qualifications required for an arbitrator by the agreement of the parties, and other considerations as are likely to secure the appointment of an independent and impartial arbitrator. Sub-Section (9) deals with the power of the Chief Justice of India or a person or institution designated by him to appoint the sole or the third arbitrator in an international commercial arbitration. Sub-Section (10) deals with Chief Justice's power to make a scheme for dealing with matters entrusted to him by sub-Section (4) or sub-Section (5) or sub-Section (6) of Section 11. Sub-Section (11) deals with the respective jurisdiction of Chief Justices of different High Courts who are approached with requests regarding the same dispute and specifies as to who should entertain such a request. Sub-Section 12 clause (a) clarifies that in relation to international arbitration, the reference in the relevant sub-sections to the 'Chief Justice' would mean the 'Chief Justice of India'.

Clause (b) indicates that otherwise the expression 'Chief Justice' shall be construed as a reference to the Chief Justice of the High Court within whose local limits th_e principal Court is situated. 'Court' is defined under Section 2(e) as the principal Civil Court of original jurisdiction in a district. 6. Section I2 sets out the grounds of challenge to the person appointed as arbitrator and the duty of an arbitrator appointed, to disc lose any disqualification he may have. Sub-Section (3) of Section 12 gives a right to the parties to challenge an arbitrator. Section 13 lays down the procedure for such a challenge. Section 14 takes care of the failure of or impossibility for an arbitrator to act and Section 15 deals with the termination of the mandate of the arbitrator and the substitution of another arbitrator. Chapter IV deals with the jurisdiction of arbitral tribunals. Section 16 deals with the competence of an arbitral tribunal, to rule on its jurisdiction.

The arb)tral trihunal may rule on its own jurisdiction, including ruling on any objection with respect to the existence or validity of the arbitration agreement. A person aggrieved by the rejection of his objection by the tribunal on its jurisdiction or the other matters referred to in that Section, has to wait until the award is made to challenge that decision in an appeal against the arbitral award itself in accordance with Section 34 of the Act. But an acceptance of the 9bjection to jurisdiction or authority, could be challenged then and there, under Section 37 of the Act. Section 17 confers powers on the arbitral tribunal to make interim orders. Chapter V comprising of Sections 18 to 27 deals with the conduct of arbitral proceedings. Chapter VI containing Sections 28 to 33 deals with making of the arbitral award and termination of the proceedings. Chapter VII deals with recourse against an arbitral award.

Section 34 contemplates the filing of an application for setting aside an arbitral award by making an application to the Court as defined in Section 2(e) of the Act. Chapter Vlll deals with finality and enforcement of arbitral awards. Section 35 makes the award final and Section 36 provides for its enforcement under the Code of Civil Procedure, 1908 in the same manner as if it were a decree of court. Chapter IX deals with appeals and Section 37 enumerates the orders that are open to appeal. We have already referred to the right of appeal available under Section 37(2) of the Act, on the Tribunal accepting a plea that it does not have jurisdiction or when the arbitral tribunal accepts a plea that it is exceeding the scope of its authority. No second appeal is contemplated, but right to approach the Supreme Court is saved. Chapter X deals with miscellaneous matters. Section 43 makes the Limitation Act, 1963 applicable to proceedings under the Act as it applies to proceedings in Court. 7.

We will first consider the question. as we see it. On a plain understanding of the relevant provisions of the Act, it is seen that in a case where there is an arbitration agreement, a dispute has arisen and one of the parties had invoked the agreed procedure for appointment of an arbitrator and the other party has not cooperated, the party seeking an arbitration, could approach the Chief Justice of the High Court if it is an internal arbitration or of the Supreme Court if it is an international arbitration to have an arbitrator S. B. P. & CO. v. PATEL ENGINEERING LTD. [BALASUBRAMANYAN, J. ] 715 or arbitral tribunal appointed. The Chief Justice, when so requested, could A . appoint an arbitrator or arbitral tribunal depending on the nature of the agreement between the parties and after satisfying himself that the conditions for appointment of an arbitrator under sub-Section (6) of Section 11 do exist.

The Chief Justice could designate another person or institution to take the necessary measures. The Chief Justice has also to have the qualification of the arbitrators in mind before choosing the arbitrator. An arbitral tribunal so constituted, in terms of Section 16 of the Act, has the right to decide whether it has jurisdiction to proceed with the arbitration, whether there was any agreement between the parties and the other matters referred to therein. 8. 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 ofthe 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 w'1ile 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, whethe_r 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. 9.

The very scheme, if it involves an adjudicatory process, restricts the power of the Chief Justice to designate, by excluding the designation of 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 quasijudicial tribunal. This aspect is dealt with later while dealing with the right to designate under Section 11(6) and the scope of that designation. 10.

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 ofjurisdiction 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 ofSection 11, it is difficult to call the order ofthe ChiefJustice 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. 11.

Section 16 of the Act only makes explicit what is even otherwise implicit, namely, that the arbitral tribunal constituted under the Act has the jurisdiction to rule on its own jurisdiction, including ruling on objections with respect to the existence or validity of the arbitration agreement. Sub-section (I) also directs that an arbitration clause which forms part of a contract shall be treated as an agreement independent of the other terms of the contract. It also clarifies that a decision by the arbitral tribunal that the contract is null and void shall not entail ipsoJure the invalidity of the arbitration clause. Subsection (2) of Section 16 enjoins that a party wanting to raise a plea that the S. B. P. &CO. v. PATEL ENGINEERINGLTD. [BALASUBRAMANYAN, J. ] 717 .

arbitral tribunal does not have jurisdiction, has to raise that objection not later than the submission of the statement of defence, and that the party shall not be precluded from raising the plea of jurisdiction merely because he has appointed or participated in the appointment of an arbitrator. Sub-section (3) lays down that 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. When the Tribunal decides these two questions, namely, the question of jurisdiction and the question of exceeding the scope of authority or either of them, the same is open to immediate challenge in an appeal, when the objection is upheld and only in an appeal against the final award, when the objection is overruled.

Sub-section (5) enjoins that if the arbitral tribunal overrules the objections under sub-section (2) or sub-section (3), it should continue with the arbitral proceedings and make an arbitral award. Sub-section (6) provides that a party aggrieved by such an arbitral award overruling the plea on lack of jurisdiction and the exceeding of the scope of authority, may make an application on these grounds for setting aside the award in accordance with Section 34 of the Act. The question, in the context of Sub-Section (7) of Section 11 is, what is the scope of the right conferred on the arbitral tribunal to rule upon its own jurisdiction and the existence of the arbitration clause, envisaged by Section 16(1), once _the Chief Justice or the person designated by him had appointed an arbitrator after satisfying himself that tbe conditions for the exercise of power to appoint an arbitrator are present in the case.

Primafacie, it would be difficult to say that in spite of the finality conferred by sub-Section (7) of Section 11 of the Act, to such a decision of the Chief Justice, the arbitral tribunal can still go behind that decision and rule on its own jurisdiction or on the existence of an arbitration clause. It also appears to us to be incongruous to say that after the Chief Justice had appointed an arbitral tribunal, the arbitral tribunal can turn round and say that the Chief Justice had no jurisdiction or authority to appoint the tribunal, the yery creature brought into existence by the exercise of power by its creator, the Chief Justice. The argument of learned Senior Counsel, Mr. K. K. Venugopal that Section 16 has full play only when an arbitral tribunal is constituted without intervention under Section 11(6) of the Act, is one way ofreconciling that provision with Section 11 of the Act, especially in the context of subsection (7) thereof.

We are inclined to the view that the decision of the Chief Justice on the issue of jurisdiction and the existence of a valid arbitration agreement would be binding on the parties when the matter goes to the arbitral tribunal and at subsequent stages of the proceeding except in an appeal in the Supreme Court in the case of the decision being by the Chief Justice of the High Court or by a Judge of the High Court designated by him. 12. It is common ground that the Act has adopted the UNCITRAL Model Law on International Comme