Hythro Power Corporation Ltd vs Delhi Transco Ltd

approached this Court aggrieved by rejection of its application under

Section 11 of the Arbitration and Conciliation Act, 1996 (hereinafter

referred to as the "Act" for short). The learned judge of the Delhi

High Court acting as designate or nominee of the Chief Justice, in

exercise of his powers under Section 11 of the Act, by his order

dated 7.12.2000 came to the conclusion that no agreement in writing

having been executed by the parties with an arbitration clause, the

prayer made by the appellant for seeking a reference of the disputes

raised to arbitral Tribunal has to be rejected.

Aggrieved by refusal of the learned judge of the Delhi High

Court to make a reference to the arbitration, the appellant-

Corporation filed a Writ Petition in the High Court of Delhi. The

Division Bench of the High Court by the impugned order dated

29.8.2001 came to the same conclusion that there exist no written

arbitration agreement and hence the dispute between the parties

cannot be referred for arbitration under Section 11 of the Act. The

appellant-Corporation therefore has approached this Court by seeking

leave under Article 136 of the Constitution.

The factual background and nature of dispute giving rise to

the prayer for arbitration under Section 11 by the appellant-

Corporation need examination.

The respondent Delhi Transco Limited issued a notice inviting

tenders (NIT) for awarding the work of Erection, Testing and

Commissioning of balance work of 220 KV DC Tower Line from

Samaypur to Mehrauli. The NIT contained clause 25 which is a

arbitration clause. Pursuant to the NIT, the appellant submitted its

tender. The respondent issued a letter of intent in favour of the

appellant. According the appellant, the respondent also sent a

detailed letter showing acceptance of the award of the work to the

appellant. It was also indicated that all terms and conditions of the

NIT would form part of the contract.

According to the appellant, the exchange of letters and

correspondence between the parties, pursuant to the issuance of NIT

and submission of offer by the appellant and its acceptance by the

respondent constituted a contract and as the terms and conditions in

the NIT, on which the contract was awarded, contained clause 25

providing forum of arbitration, "arbitration agreement" as defined in

Section 7(4)(b) of the Act had come into existence to enable the

appellant to invoke the said arbitration clause.

Learned Senior Counsel appearing for the appellant relies on

a three-judge bench decision of this Court in Konkan Railway

Corporation Ltd. vs. Mehul Construction Co. [2000 (7) SCC

201] and the Constitution Bench Judgment of this Court in Konkan

Railway Corporation Ltd. vs. Rani Construction P.Ltd. [2002

(2) SCC 388]. On behalf of the appellant, it is argued that, as has

been held by this Court in the cases (supra), the nominee or

designate of the Chief Justice, when its power is invoked under

Section 11 of the Act, merely exercises administrative functions and,

therefore, has no jurisdiction to adjudicate upon the contentious

issues between the parties on 'the existence or the validity of the

arbitration Agreement.' It is submitted that 'arbitral tribunal' to

whom the dispute is referred is alone conferred with jurisdiction to

decide the existence or validity of the arbitration agreement as

provided in Section 16(1) of the Act.

On the facts and background of the dispute briefly indicated

above, we find that the designate of the Chief Justice acting

administratively under Section 11 and the Division Bench of the High

Court exercising powers under Article 226 of the Constitution were

clearly in error in adjudicating upon the dispute regarding 'the validity

and existence of the arbitration agreement' and holding that the

dispute was not referable to arbitration.

This Court in three-Judge Bench decision and the

Constitution-Bench decision in the case of Konkan Railway (supra)

has held that the Chief Justice or his designate under Section 11 of

the Act exercises purely administrative functions and it is not open to

him to discharge any judicial function of adjudicating the dispute

even regarding the 'existence of arbitration agreement.' Whether the

letters and exchange of correspondence between the parties,

pursuant to the NIT, can constitute a contract and an 'arbitration

agreement' can be read into the same in terms of Section 7(4)(b) of

the Act was a question solely within the jurisdiction of 'arbitral

tribunal' under Section 16 of the Act. See decision in the case of

Nimet Resources Inc. vs. Essar Steels Ltd. [2000 (7) SCC 497]

wherein Justice Rajendra Babu of this Court acting as designate of the

Chief Justice of India while exercising powers under Section 11 of the

Act, observed thus:-

"I am conscious of the fact that M.Jagannadha Rao, J. in

Wellington Associates Ltd. vs. Kirti Mehta, (2000) 4 SCC 272

held that the jurisdiction of the nominee of the Chief Justice of

India to decide the question is not excluded by Section 16 of Act

and such a power can be exercised in a suitable case. On this

basis, it is no doubt permissible under Section 11 of the Act to

decide a question as to the existence or otherwise of the

arbitration agreement but when the correspondence or

exchange of documents between the parties are not clear as to

the existence or non-existence of an arbitration agreement, in

terms of Section 7 of the Act the appropriate course would be

that the arbitrator should decide such a question under Section

16 of the Act rather the Chief Justice of India or his nominee

under Section 11 of the Act.

I take this view because the power that is exercised by the

nominee of the Chief Justice of India under Section 11 of the Act

is in the nature of an administrative order. In such a case,

unless the Chief Justice of India or his nominee can be

absolutely sure that there exists no arbitration agreement

between the parties it would be difficult to state that there

should be no reference to arbitration. Further such a view may

not be conclusive in view of the nature of the powers that are

exercised under Section 11(6) of the Act."

In the latest decision of two-Judge Bench of this Court in the

case of Food Corporation of India vs. Indian Council of

Arbitration & Ors. etc. etc., [JT 2003 (5) SC 480], similar view

was taken. In that case reference of dispute to arbitration was

opposed on the ground that under the arbitration clause the arbitrator

was to be nominated by the Food Corporation of India as the

employer and not by the Indian Council of Arbitration which was the

institution from whose panel the arbitrator was to be selected. The

designate of the Chief Justice under Section 11 refused to make a

reference and the High Court in Writ Petition by an elaborate

judgment expressed its opinion on the dispute that the Food

Corporation of India should have nominated the arbitrator from the

panel of Indian Council of arbitration. In the context of that dispute,

this Court observed thus:

"Unfortunately, the High Court in this case seems to have

proceeded to adopt an adjudicatory role and returned a verdict

recording reasons as to the very existence or otherwise of the

agreement as well as the tenability and legality or otherwise of

making a reference to an arbitrator."

…………………………………………………………………..

"As indicated earlier even assuming without accepting for

purposes of consideration that there is any infirmity in the

arbitration clause which go to undermine as claimed by the

respondents the legality, propriety and validity of the

constitution of the Tribunal and/or even if there be any

objections as to the existence of an enforceable or valid

arbitration agreement, it had to be adjudicated by the very

Arbitral Tribunal after a reference is made to it on being so

constituted and it is not for the ICA or the learned Judge in the

High Court to undertake this impermissible adjudicatory task of

adjudging highly contentious issues between the parties. As

observed by the Constitution Bench of this Court, there is

nothing in Section 11 of the 1996 Act that requires the party

other than the party making the request to be noticed and that

it does neither contemplate a response from the other party nor

contemplate any decision by the Chief Justice or his nominee on

any controversy that the other party may raise, even in regard

to its failure to appoint an Arbitrator within the stipulated

period. The legislative intent underlying the 1996 Act is to

minimize the supervisory role of courts in arbitral process and

nominate/appoint the Arbitrator without wasting time, leaving

all contentious issues to be urged and agitated before the

Arbitral Tribunal itself. Even under the old law, common sense

approach alone was commended for being adopted in construing

an arbitration clause more to perpetuate the intention of parties

to get their disputes resolved through the alternate disputes

redressal method of arbitration rather than thwart it by adopting

a narrow, pedantic and legalistic interpretation.

Keeping in view the law as settled by this Court, the

designate of the Chief Justice acting under Section 11 of the Act and

the Division Bench of the High Court in exercise of power under Article

226 of the Constitution both acted under a misconception of law and

wrongly held that the disputes were not referable to the arbitration.

The appellant sought reference of its disputes with the respondent/

company for adjudication through the arbitration in accordance with

arbitration clause in the alleged agreement arrived at between them.

Whether on the facts mentioned above an arbitration agreement can

be said to have existed by recourse to arbitration clause in NIT was

itself a dispute which deserved to be referred to the arbitral Tribunal

in accordance with the arbitration clause. Section 16 empowers the

arbitral Tribunal to decide the question of existence and validity of the

arbitration agreement.

The present appeal, therefore, deserves to succeed and is

hereby allowed.

The impugned order of the learned Single Judge passed

under Section 11 of the Act and the order of Division Bench of the

High Court in Writ Petition under Article 226, both are quashed. The

case is remanded to the Chief Justice or his designate for hearing the

parties on the limited question of constitution of an arbitral Tribunal in

accordance with the arbitration clause in the NIT and for making a

reference for arbitration in accordance with section 11 of the Act. The

costs incurred by the parties in this case shall abide the final results of

the arbitration proceedings.