RAMESHWAR DAS AGRAWAL AND ANR. v. KIRAN AGRAWAL AND ORS

Citation: [2007] 12 S.C.R. 488

Court: Supreme Court of India

Bench: G.P. MATHUR, P. SATHASIVAM

Case summary

RAMESHWAR DAS AGRAWAL AND ANR. v. KIRAN AGRAWAL AND ORS.pdf

Judgment text

_,_ RAMESHWAR DAS AGRAWAL AND ANR. v. KIRAN AGRAWAL AND ORS. NOVEMBER 23, 2007 '. [G. P. MATHUR AND P. SATHASIVAM,JJ. J " Arbitration and Conciliation Act, 1996-s. I I-Application under-Appointment ofarbitrator by ChiefJustice of High Court without passing reasoned order and without adverting to claim and objection of the parties-Sustainability of-Held: In the light of principles laid down in SEP & Co. 's case, order under s. 11(6) is a judicial pronouncement-It is incumbent on part ofChiefJustice or designated Judge to consider claim of both the parties and pass reasoned order-Hence, order ofChiefJustice not sustainable and set aside-Matter remitted to High Courtfor consideration in the light of SEP & Co 's case. Dispute arose between the parties. In terms ofthe agreement, first respondent filed application under section 11 ofthe Arbitration and Conciliation Act, 1996for appointment ofarbitrator. High Court issued notice to all the respondents, but most of them were not sen-ed.

Appellantsoughttime to file counter affidavit and stated that no dispute remained for adjudication. The ChiefJustice ofthe High Court rejected ).. the request of the appellant and appointed a retired judge as an arbitrator. Hence the present appeal. Allowing the appeal and remitting the matter to High Court, the Court HELD: 1. The impugned orderpassed by the ChiefJustice ofHigh ,. ___,,.. Court is set aside and is remitted back to the High Court to pass fresh order in the light of the principles laid down in SEP & Co. v. Patel Engineering Ltd andAnother's case. [Para 10) [497-AJ ~ 2. 1. From a seven-judge Bench decision of this Court in SBP & Co. v. Patel EngineeringLtd andAnother, it is clear that the power being exercised by the Chief Justice or the designated Judge under section 11 ofthe Arbitration and Conciliation Act, 1996 is not an administrative power but it is a judicial power. An appeal would lie against that order only under Article 136 of the Constitution to this Court.

Though the . , .. A decision in Konkan RailwayCorpn. Ltd has been overruled, the Bench clarified that appointment ofarbitrators orArbitral Tribunalstherefore, made are to be treated as valid, all objections being left to be decided under section 16 ofthe Act. After the decision of this Court in SBP & Co. v. Patel EngineeringLtd andAnother it is incumbent on the part of the ChiefJustice or a designated Judge to consider the claim of both parties and pass a reasoned order. [Para 8) [494-B, C, D; 495-A, BJ 2. 2. Unfortunately, the decision in SBP & Co. v. PatelEngineering Ltd. andAnother's case though decided earlier i. e. on 26. 10. 2005 was not brought to the notice of the Chief Justice, who passed an order, subsequent to the same i. e. on 09. 12. 2005.

In view of the fact that an order passed under section 11(6) is a judicial order and in the light of thestand ofthe appellants, the impugned order appointingan Arbitrator without adverting to the claim and objection ofboth parties cannot be sustained. The order did not show any reason for appointing an Arbitrator. Inspite ofa requestmade for filing an affidavitopposingthe application for appointment ofan Arbitrator, the ChiefJustice did not afforded further time. Except respondent No. 4, notice was not served on the other respondents and without hearingthem an orderwas passed appointing an arbitrator. The order did not satisfy the requirement of law laid down by this Court in SBP & Co. v. PatelEngineeringLtd and Another's case. [Para 8) [494-D, E, F; 495-A, B, C; 496-D, E) SBP & Co. v. Patel Engineering Ltd andAnr. , [2005) 8 SCC 618, followed. l·---- Konkan Railway Corporation Ltd. v. Rani Construction Private Limited, [2002) 2 SCC 388, referred to.

CIVIL APPELLATE JURISDICTION : Civil Appeal No. 5366 of From the final Judgment and Order dated 9. 12. 2005 ofthe High Court ofJudicature at Allahabad in A. A. No. 54 of2003. Manoj Swarup and Lalita Kohli (for Mis. Manoj Swarup & Co. ) for t. 11e Appellants. Jay Savla, Reena Bagga, Gaurav Agrawal and Ashutosh Lohia for '> the Respondents. ' The Judgment ofthe Court was delivered by P. SATHASIVAM, J. (1) Leave granted. (2) This appeal is directed against the order dated 09. 12. 2005 passed by the Hon'ble ChiefJustice ofthe High Court ofJudicature at Allahabad in Arbitration Application No. 54 of2003 appointing Hon'ble Mr. Justice Giridhar Malviya, a retired Judge ofthe Allahabad High Court .. as Arbitrator in respect ofthe dispute between the parties. (3) Respondent Nos. 4 and 5 before the High Court are the appellants in this appeal. According to them, late Hari Prakash Agrawal (father of respondent No. 7) and Rameshwar Das Agrawal (appellant No.

I herein) were very close relatives and they decided to carry on business ofelectronics and electrical goods and other items. They executed partnership deed on 15. 05. 1992 which contains an arbitration clause. Subsequently, a dispute arose between the members oftheir two families and by agreement dated 13. 09. 2002 signed by the partners, Shri Gopal Goel ofRavindrapuri, Varanasi was appointed as sole Arbitrator to decide all the disputes concerning the business. Since the entire disputes between the families were reconciled, fresh Deed ofPartnership reconstituting the three partnership firms were executed on 13. 09. 2002 and signed by all the partners and witnessed by the sole Arbitrator - Shri Gopal Goel and one Shri Vinod Kumar Jindal, one ofthe advisors to the Arbitrator. This was intimated to the bank and sales-tax authorities. After retirement of "'-·- Smt. Kiran Agrawal and her husband Shiv Kumar Agrawal on 13. 09. 2002, a fresh Partnership Deed was executed on 05. 07.

2003 which was also duly signed by the parties concerned. Thereafter, first respondent herein filed an application dated 07. 07. 2003 under Section 11 of the Arbitration and Conciliation Act, 1996 (in short the 'Act') for appointment of an Arbitrator based on clause 21 ofthe agreement dated 15. 05. 1992. On 17. 10. 2003, the High Court issued notice to all the 8 respondentstherein. Thereafter, the matter was listed on 09. 12. 2005 and as per the office report, most of the respondents had not been served. Shri .. Rameshwar Das Agrawal, appellant No. I-herein was represented in the "' High Court through his counsel and prayed time to file counter affidavit. It was also stated that no dispute remained for adjudication. The High Court, after rejecting the request ofthe first appellant-herein, by order dated 09. 12. 2005, appointed Hon'ble Mr. Justice Giridhar Malviya as an Arbitrator. Aggrieved by the said order, the appellants preferred this appeal. (4) We heard Mr.

Manoj Swamp, learned counsel for the appellants and Mr. Jay Savla and Mr. Gaurav Agrawal, learned counsel for respondent Nos. 1 and 7 respectively. · Respondent Nos. 2 to 6 though ... duly served notice not chosen to contest the appeal. (5) Mr. Manoj Swamp, learned counsel for the appellants placing reliance on a Seven-Judge Bench decision ofthis Court in SBP & Co. v. Patel Engineering Ltd. and Anr. , [2005] 8 SCC 618, which was pronounced on 26. l0. 2005, submitted that the decision on the application under Section 11 ofthe Act is ajudicial pronouncement, the impugned order ofthe Hon'ble Chief Justice which does not contain any reason cannot be sustained and the same deserves to be set aside. He also contended that the Hon'ble ChiefJustice, who passed the impugned order, has not taken care to verify whether notice had been duly served on all the respondents. He further contended that in any event, the High Court ought to have granted reasonable time to file their objections. .

On the other hand, Mr. Jay Savla and Mr. Gaurav Agrawal, learned counsel for the contesting respondents submitted that inasmuch as the appellants herein (respondents before the High Court) did not utiliz. e the ample time provided >.. -~by the High Court for filing their objection, the ultimate order of the Hon'ble ChiefJustice cannot be faulted with. He also submitted that there is no violation ofthe law as declared by this Court. (7) We have carefully perused the relevant materials and considered ~ -the rival submissions. (8) Before analyzing the claim ofboth the parties, it is relevant to note that the Hon'ble ChiefJustice ofthe Allahabad High Court passed the impugned order appointing a retired Judge of the High Court as an Arbitrator on 09. 12. 2005. On 26. 10. 2005, a Seven-Judge Bench ofthis .. Court in SEP & Co. v. Patel Engineering Ltd. and Anr. , (supra) ~ reviewed the entire legal position and issued various directions in the matter of appointment of Arbitrator.

The larger Bench has also overruled the earlier decision in Konkan Railway Corporation Ltd. v. Rani Construction Private Limited, [2002] 2 SCC 388. It is useful to refer to the conclusions arrived at by the larger Bench which read thus: "47. We, therefore, sum up our conclusions as follows: (i) The power exercised by the ChiefJustice ofthe High Court or the Chief Justice oflndia under Section 11(6) ofthe Act is not an administrative power. It is ajudicial power. (iz) The power under Section 11(6) ofthe Act, in its entirety, could be delegated, by the ChiefJustice ofthe High Court only to another Judge ofthat Court and by the Chief Justice of India to another Judge ofthe Supreme Court. (iii) In case ofdesignation ofa Judge ofthe High Court or ofthe Supreme Court, the power that is exercised by the designated Judge would be that ofthe ChiefJustice as conferred by the statute.

(iv) The ChiefJustice or the designated Judge will have the right to decide the preliminary aspects as indicated in the earlier part of this judgment. These will be his own jurisdiction to entertain the request, the existence ofa valid arbitration agreement, the existence or otherwise ofa live claim, the existence ofthe condition for the exercise ofhis power and on the qualifications ofthe arbitrator or ~- '""" arbitrators. The Chief Justice or the designated Judge would be entitled to seek the opinion of an institution in the matter of nominating an arbitrator qualified in terms ofSection 11(8) ofthe Act ifthe need arises but the order appointing the arbitrator could only be that ofthe Chief Justice or the designated Judge. (v) Designation of a District Judge as the authority under Section 11(6) of the Act by the Chief Justice of the High Court is not warranted on the scheme ofthe Act.

(vi) Once the matter reaches the Arbitral Tribunal or the sole •; ~ arbitrator, the High Court would not interfere with the orders passed by the arbitrator or the Arbitral Tribunal during the course ofthe arbitration proceedings and the parties could approach the Court only in terms ofSection 37 ofthe Act or in terms ofSection 34 of the Act. >(• (vii) Since an order passed by the ChiefJustice ofthe 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 to the Supreme Court. ~ (viii) There can be no appeal against an order ofthe ChiefJustice oflndia or a Judge ofthe Supreme Court designated by him while entertaining an application under Section 11(6) ofthe Act.

(ix) 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 ofthe Act. (x) Since all were guided by the decision ofthis Court in Konkan ~ Rly. Corpn. Ltd. v. Rani Construction (P) Ltd. 2 and orders under Section 11 (6) of the Act have been made based on the position adopted in that decision, we clarify 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 ;.... ,__.. ,, ofthe Act. As and from this date, the position as adopted in this judgment will govern even pending applications under Section 11(6) ofthe Act.

(xi) 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 with by the ChiefJustice ofthe High Court concerned or aJudge ofthat Court designated by the ChiefJustice. (xii) The decision in Konkan Rly. Corpn. Ltd. v. Rani Construction (P) Ltd is overruled. " From the above, it is clear that the power being exercised by the Chief Justice or the designated Judge under Section 11 is not an administrative power but it is ajudicial power. It is also clear that an appeal would lie against that order only under Article 136 ofthe Constitution oflndia to this Court. Though the decision in Konkan Railway Corpn.

Ltd (supra) has been ovemtled, the Bench has clarified that appointment ofarbitrators or Arbitral Tribunals therefore, made are to be treated as valid, all objections being left to be decided under Section 16 of the Act. Unfortunately, the above decision in SBP & Co. v. Patel Engineering Ltd and Anr. (supra) though decided earlier i. e. on 26. 10. 2005 has not been brought to the notice of the Chief Justice, who passed an order, subsequent to the same i. e. on 09. 12. 2005. In view ofthe fact that an order passed under Section 11(6) is a judicial order and in the light of the stand of the contesting respondents before the High Court, the appellants in this Court, the impugned order appointing an Arbitrator without adverting to the claim and objection of both parties cannot be sustained. The order ofthe High Court reads as under: "Shri Vijay Kumar Singh has appeared for the respondent. The prayer for filing affidavit is turned down.

For the purpose ofacting as Arbitrator in this matter Hon'ble Giridhar Malviya of26, Hamilton Road, a retired Judge ofthis High Court is hereby nominated. Sd/- Ajoy Nath Ray C. J. " -· As rightly pointed out by learned counsel for the appellants, the order does not show any reason for appointing an Arbitrator. As said earlier, after the decision ofthis Court in SEP & Co. v. Patel Engineering Ltd. and Anr. (supra) it is incumbent on the part of the Chief Justice or designated Judge to consider the claim ofboth parties and pass a reasoned order. .... Apart from the above infirmity, learned counsel for the appellants has also brought to our notice that in spite ofa request made for filing an affidavit opposing the application for appointment of an Arbitrator, the ChiefJustice has not afforded further time. It is also pointed out that except respondent No.

4-therein, notice had not been served on the other respondents and without hearing them an order has been passed appointing an Arbitrator. We verified the order sheet ofthe High Court (Annexure- P4) which is available at page 50 ofthe paper-book. The relevant details are reproduced hereunder:- "ORDER SHEET Arbitration case No. 54 of 2002 Xxxx xxxx xxxx 14. 07. 05 Case Shri Y. P. Singh Advocate and Ajay Kumar Singh have filed Vakalatnama on behalfofthe respondent No. 4 Notices issued to respondents fixing 17. 12. 2002 have been returned after service as under: Respondent No. 7 Returned undelivered cover with report "Not Known". Respondent No. 6 Returned undelivered cover with report "Not Known". Respondent No. 8 Returned undelivered cover with report "Not Known". Respondent No. I Returned undelivered cover with report "Not Known". Respondent No. 3 Returned undelivered cover with report "Not Known". Respondent No.

2 Notice has not returned after service Put up for Orders Sd/- Section Officer Copying (D) Department High Court, Allahabad. " As rightly pointed out that whether notice duly served on all the respondents was not verified before passing the order on 09. 12. 2005. In our opinion, the following conclusion would emerge: (i) All the respondents therein except respondent No. 4, notice was not served in the application for appointment ofarbitrator. (ii) Even the served respondent was not afforded adequate opportunity to file his objection. (iii) The order does not satisfy the requirement oflaw laid down by this Court in SEP & Co. v. Patel Engineering Ltd and Anr. (supra) (9) In view of the above, we have no other option except to set aside the impugned order and remit the same for passing fresh order.

Since respondents I and 7 herein are represented by their counsel and notice had duly been served on the other respondents in this Court and none appeared for them, they are permitted to file their objections, ifthey so desire within a period of4 weeks from the date ofreceipt ofcopy ofthis judgment. Considering the fact referred to above, we make it clear that no further notice need be issued by the High Court. We constrain to arrive at such conclusion since all of them (except Shivkumar Agrawal) are members of one family residing at No. 20, Gurdas Colony, Varanasi and all ofthem were duly served notice in this Court. y (10) We, therefore, set aside the impugned order dated 09. 12. 2005 A passed by the ChiefJustice ofAllahabad High Court and remit the same to the High Court to pass fresh order as early as possible as observed above and in the light ofthe principles laid down in SBP & Co. v. Patel Engineering Ltd and Anr. (supra).

B (11) The Civil Appeal is allowed to the extent mentioned above. No costs. NJ. Appeal allowed.