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2011 DIGILAW 1062 (CAL)

Orient Paper And Industries Ltd. v. Shaun Automobiles Pvt. Ltd.

2011-08-09

SANJIB BANERJEE

body2011
JUDGMENT 1. THE Court: This is a request under section 11 of the Arbitration and Conciliation Act, 1996. THE arbitration agreement is not in dispute. There is a live claim to carry to arbitration. 2. THE only objection raised by the respondent is that since the petitioner, in effect, seeks the respondent's eviction from an immovable property, the dispute relating thereto would not be arbitrable. THE respondent refers to a judgment reported at 2011 (5) SCC 532 [Booz Allen and Hamilton Inc. vs. SBI Home Finance Ltd.] and relies on paragraph 36 of the report. Paragraph 36 recognizes the gamut of matters where the disputes would not be arbitrable. One of the categories is enumerated under subheading (vi) as follows: "Eviction or tenancy matters governed by special statutes where the tenant enjoys statutory protection against eviction and only the specified Courts are conferred jurisdiction to grant eviction or decide the disputes." 3. THE respondent says that the respondent is entitled to protection under the West Bengal Premises Tenancy Act, 1997 and, notwithstanding the case made out by the petitioner, the respondent is a monthly tenant and entitled to special status. THE petitioner says that the 1997 Act would not apply to the relationship between the parties since the monthly rent or occupation charges (by whatever name called) paid or payable by the respondent to the petitioner takes it beyond the pale of the 1997 Act. THE petitioner says that the respondent is liable to pay at the rate of Rs.6.50 per month per sq. ft for an area of 17672 sq. ft at 17, Taratala Road, Kolkata - 700 088. 4. THE respondent insists that if the issue as to whether the respondent is entitled to protection under the rent law is decided, it would, willy-nilly, decide the substance of the disputes between the parties. THE respondent contends that if such matter has per force to be decided by the Chief Justice or his designate on a request under section 11 of the 1996 Act, there would be nothing left for the arbitrator or the arbitral tribunal to adjudicate upon. THE respondent says that it is for such reason that a matter of the present kind cannot be sent to an arbitral tribunal and must be decided in a Civil Court. 5. THE respondent says that it is for such reason that a matter of the present kind cannot be sent to an arbitral tribunal and must be decided in a Civil Court. 5. THE judgment that the respondent has relied on does not make every dispute between a landlord and tenant, or between an owner of any premises and the occupier, incapable of being adjudicated upon in arbitration. THE relevant sub-heading is carefully worded and involves at least three conditions: that the matter has to be governed by a special statute; that the tenant must enjoy statutory protection against eviction under such special statute; and, that the jurisdiction under such special statute must only be conferred on specified Courts. 6. PRIMA facie, it appears that the quantum of monthly rent or occupation charges paid or payable by the respondent to the petitioner under the admitted agreement would make the respondent ineligible to seek protection under the 1997 Act. However, such matter need not be decided conclusively at this stage. Notwithstanding the Chief Justice or his designate being called upon under section 11 of the 1996 Act to adjudicate whether there is a live claim to go to arbitration or whether the arbitration agreement is in existence or binding, there is also a section 16 to the 1996 Act. It is open to the Chief Justice or his designate to decide the matter conclusively, in view of the dictum in the Constitution bench reported at 2005(8) SCC 618 , SBP and Co. vs. Patel Engineering Ltd., if the situation so demands. But every request under section 11 of the 1996 Act may not call for a definitive opinion to be expressed on the validity of the arbitration agreement or the arbitrability of the disputes between the parties. While it is imperative that a Chief Justice or his designate decides the issue if the physical existence of the arbitration agreement is called into question, a more tentative view may be taken by the Chief Justice or his designate if it is the efficacy of the arbitration agreement (generally, or qua the disputes) that is challenged. 7. IT would be profitable, in the context, to refer to the relevant passage from the majority opinion rendered in SBP and Co: "16. We may at this stage notice the complementary nature of Sections 8 and 11. 7. IT would be profitable, in the context, to refer to the relevant passage from the majority opinion rendered in SBP and Co: "16. We may at this stage notice the complementary nature of Sections 8 and 11. Where there is an arbitration agreement between the parties and one of the parties, ignoring it, files an action before a judicial authority and the other party raises the objection that there is an arbitration clause, the judicial authority has to consider that objection and if the objection is found sustainable to refer the parties to arbitration. The expression used in this section is "shall" and this Court in P. Anand Gajapathi Raju vs. P.V.G. Raju, 2000(4) SCC 539 and in Hindustan Petroleum Corpn. Ltd. vs. Pinkcity Midway Petroleums, 2003(6) SCC 503 has held that the judicial authority is bound to refer the matter to arbitration once the existence of a valid arbitration clause is established. Thus, the judicial authority is entitled to, has to and is 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 has refused to act in terms of the arbitration agreement, the other party moves the Chief Justice under section 11 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. If it 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. The interpretation of section 11 that we have adopted would not give room for such an anomaly. "17. The interpretation of section 11 that we have adopted would not give room for such an anomaly. "17. Section 11(6) does enable the Chief Justice to designate any person or institution to take the necessary measures on an application made under section 11(6) of the Act. This power to designate recognised in the Chief Justice, has led to an argument that a judicial decision-making is negatived, in taking the necessary measures on an application, under section 11(6) of the Act. IT is pointed out that the Chief Justice may designate even an institution like the Chamber of Commerce or the Institute of Engineers and they are not judicial authorities. Here, we find substance in the argument of Mr F.S. Nariman, learned Senior Counsel that in the context of section 5 of the Act excluding judicial intervention except as provided in the Act, the designation contemplated is not for the purpose of deciding the preliminary facts justifying the exercise of power to appoint an arbitrator, but only for the purpose of nominating to the Chief Justice a suitable person to be appointed as arbitrator, especially, in the context of section 11(8) of the Act. One of the objects of conferring power on the highest judicial authority in the State or in the country for constituting the Arbitral Tribunal, is to ensure credibility in the entire arbitration process and looked at from that point of view, it is difficult to accept the contention that the Chief Justice could designate a non-judicial body like the Chamber of Commerce to decide on the existence of an arbitration agreement and so on, which are decisions, normally, judicial or quasi-judicial in nature. Where a Chief Justice designates not a Judge, but another person or an institution to nominate an Arbitral Tribunal, that can be done only after questions as to jurisdiction, existence of the agreement and the like, are decided first by him or his nominee Judge and what is left to be done is only to nominate the members for constituting the Arbitral Tribunal. Looking at the scheme of the 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. The departure from the UNCITRAL Model regarding the conferment of the power cannot be said to be conclusive or significant in the circumstances. Observations of this Court in paras 389 and 391 in Supreme Court Advocates on Record Assn. vs. Union of India, 1993(4) SCC 441 ] (SCC at p. 668) support the argument that the expression "Chief Justice" is used in the sense of collectivity of Judges of the Supreme Court and the High Courts respectively." 8. THE majority view expressed in SBP and Co. is that the Chief Justice or his designate discharges a judicial function in deciding a request under section 11 of the 1996 Act. THE judgment overruled a previous Constitution Bench decision in the judgment reported at 2002(2) SCC 388 , Konkan Railway Corporation Ltd. vs. Rani Construction (P) Ltd., which had found that the authority exercised under Section 11 of the 1996 Act was purely administrative in character. Yet, in SBP and Co. the Constitution Bench made a distinction in the authority exercised under section 11 of the 1996 Act by bifurcating the provision into two stages. Paragraph 17 of the report clearly lays down that the nomination of an arbitral tribunal or the constitution thereof can be by a person or an institution designated by the Chief Justice, but "that can be done only after questions as to jurisdiction, existence of the agreement and the like, are decided first by him (the Chief Justice) or his nominee Judge and what is left to be done is only to nominate the members for constituting the Arbitral Tribunal." 9. SBP and Co. says that sections 8 and 11 of the 1996 Act are complimentary; but it does not follow - whether from the statute or from the majority opinion - that the one is the mirror image of the other. Though the nature of the assessment under either provision may be similar, but there is a difference in degrees. A pronouncement by the judicial authority on an application under section 8 of the Act can leave no room for further adjudication on the issues covered thereby; but the Chief Justice or his designate exercising authority under section 11 of the Act has more flexibility than a judicial authority which is in seisin of an action that has been instituted apparently in breach of the arbitration agreement which a party to the action seeks to enforce. On receipt of an application under section 8 of the 1996 Act, the judicial authority has to conclusively decide as to whether the subject-matter of the action before such judicial authority is capable of being adjudicated under the arbitration agreement which is cited. The judicial authority then has not only to decide on the existence and validity of the arbitration agreement, but also on the efficacy thereof, at least, in so far as the subject-matter of the action before the judicial authority is concerned. The judicial authority can scarcely take a prima facie view of the matter and refer the parties to arbitration with the issue left open to be decided before the arbitral tribunal. This is because section 8 of the 1996 Act contemplates that the action before the judicial authority would come to an end upon the judicial authority allowing a petition under section 8 of the 1996 Act. 10. THERE is a little latitude available to the Chief Justice or his designate under section 11 of the 1996 Act. Upon a request under such provision being received, there is yet no action before any civil forum on the substance of the disputes between the parties. The Chief Justice or his designate has to ascertain the physical existence of the arbitration agreement - this is a matter which can never be left to any arbitral tribunal - but as to the legal efficacy or validity of the arbitration agreement or as to whether the arbitration agreement is capable of accommodating all the disputes that have arisen between the parties, a prima facie view may be taken by the Chief Justice or his designate and the matter could be left to the arbitral tribunal for a definitive finding. This has to be the approach adopted in view of the scheme of the 1996 Act. Section 5 of the 1996 Act limits the extent of judicial intervention in matters pertaining to an arbitration only to the extent as permitted by the statute. Both sections 13 and 16 of the Act give the arbitrator or the arbitral tribunal the primacy to adjudicate upon the eligibility of the members on the arbitral tribunal; the arbitrability of the disputes; and, the scope of the arbitration agreement. Both sections 13 and 16 of the Act give the arbitrator or the arbitral tribunal the primacy to adjudicate upon the eligibility of the members on the arbitral tribunal; the arbitrability of the disputes; and, the scope of the arbitration agreement. Though, following SBP and Co., the Chief Justice or his designate is deemed to exercise judicial functions while dealing with a request under section 11 of the 1996 Act, if it is possible for the request to be dealt with without impinging on the authority conferred by the statute on the arbitral tribunal, it should be the endeavour of the Chief Justice or his designate to steer clear of matters that are within the exclusive domain of the arbitrator and yet dispose of the request. 11. IN an unreported judgment rendered by this Court on September 27, 2007 in AP No. 306 of 2006 (Verdant Project vs. Dipankar Sen), it was held as follows: "Under section 16 of the 1996 Act, the matters as to the validity and existence of the arbitration agreement and all ancillary points can be taken up for adjudication by the arbitrator. Though the Chief Justice's designate exercising judicial function under section 11 of the 1996 Act can look into matters as to the existence and validity of the arbitration agreement, the extent of enquiry that has to be conducted is preliminary. Once it is prima facie found, and there is no doubt in this case as the contesting respondent has not denied having executed the agreement of October 5, 2005, that an agreement was entered into and such agreement apparently includes an arbitration clause, the Chief Justice's designate under section 11 of the 1996 Act will yield to the arbitrator in accordance with the provisions of section 16. "Section 5 of the 1996 Act requires a Court to interfere in matters covered by Part I of the Act only to the extent expressly provided by the provisions of the said Act. True, the powers under section 11 which were once recognized to be ministerial or administrative powers have now been recognized as judicial function, but the extent of enquiry will be limited nonetheless. If an absurd arbitration agreement or a document which will not meet the test under section 7 is relied upon by a person making a request under section 11. If an absurd arbitration agreement or a document which will not meet the test under section 7 is relied upon by a person making a request under section 11. such matter can be conclusively pronounced upon by the Chief Justice's designate upon receipt of the request under section 11. If, however, there is some material to prima facie satisfy the Chief Justice's designate as to the existence of the arbitration agreement, the more serious matters as to the validity and existence thereof have to await the adjudication that has to be conducted by the arbitrator." 12. THE 1996 Act does not stipulate what disputes are arbitrable and those which are not. Booz Allen and Hamilton Inc. is instructive on such score where it enumerates the classes of disputes that would not be arbitrable. THE 1996 Act, however, recognizes that there are disputes that are incapable of adjudication in arbitration. Section 34(2)(b)(i) of the Act makes an award unenforceable if the reference included matters which were "not capable of settlement by arbitration under the law for the time being in force." As noticed earlier, it is only a particular class of disputes pertaining to eviction that would require adjudication in the specified for a and would not be amenable to arbitration. 13. IN the present case, the assessment of the defence raised by the respondent - that the respondent is entitled to protection under the 1997 Act - would decide the entirety of the disputes between the parties. That would amount to usurping the authority of the arbitrator that the parties conferred on their consensual forum when they entered into the agreement. It is possible that a prima facie view on the matter is taken at this stage, and the arbitral tribunal is left free to decide the issue on an application under section 16 of the 1996 Act that may be carried before the tribunal by the respondent, as to whether the respondent is entitled to protection under the 1997 Act. 14. ACCORDINGLY, the matter is directed to be placed before the Hon'ble Designate of the Hon'ble the Chief Justice for the constitution of an arbitral in accordance with the arbitration agreement between the parties to adjudicate upon the disputes covered thereby. 15. 14. ACCORDINGLY, the matter is directed to be placed before the Hon'ble Designate of the Hon'ble the Chief Justice for the constitution of an arbitral in accordance with the arbitration agreement between the parties to adjudicate upon the disputes covered thereby. 15. IT is made clear that the mere reference of the disputes to the arbitral tribunal cannot be cited as a bar to the arbitral tribunal entertaining any application as to its jurisdiction that may be filed by the respondent. 16. URGENT certified photocopies of this order, if applied for, be supplied to the parties subject to compliance with all requisite formalities.