2000 (4) TMI 755 - SC - Companies Law

Whether clause 5 amounted to an arbitration clause at all and whether such a question amounted to a dispute relating to the existence of the arbitration clause ? Whether such a question should be decided only by the arbitral Tribunal under section 16 and could not be decided by the Chief Justice of India or his designate while dealing with an application under section 11 ? If the Chief Justice or his designate could decide the said question then whether clause 5 of the agreements dated 15-8-1995 which used the words may be referred required fresh consent of the parties before areferences was made for arbitration ? Held that - Appeal dismissed. Even if the Chief Justice of India or his designate under section 11(12) is to be treated as an administrative authority the position is that when the said authority is approached seeking appointment of an arbitrator/arbitrators Tribunal under section 11 and a question is raised that there is to start with no arbitration clause at all between the parties the Chief Justice of India or his designate has to decide the said question. The words may be referred used in clause 5 read with clause 4 lead me to the conclusion that clause 5 is not a firm or mandatory arbitration clause and in my view it postulates a fresh agreement between the parties that they will go to arbitration. Point 2 is decided accordingly against the petitioner

Issues Involved:
1. Whether clause 5 amounted to an arbitration clause at all and whether such a question amounted to a dispute relating to the 'existence' of the arbitration clause?
2. If the Chief Justice or his designate could decide the said question, then whether clause 5 of the agreements dated 15-8-1995 which used the words "may be referred" required fresh 'consent' of the parties before a reference was made for arbitration?
3. Relief sought.

Detailed Analysis:

Point 1: Existence of Arbitration Clause and Jurisdiction under Section 16
The primary issue was whether clause 5 of the agreements dated 15-8-1995 constituted an arbitration clause and whether such a question should be decided by the arbitral tribunal under section 16 of the Arbitration and Conciliation Act, 1996. The petitioner argued that the word 'may' in clause 5 should be interpreted as 'shall,' thereby making arbitration mandatory. They contended that the question of the 'existence' of the arbitration agreement should be decided by the arbitral tribunal as per section 16 of the Act, which states: "The arbitral Tribunal may rule on its own jurisdiction, including ruling on any objections with respect to the existence or validity of the arbitration agreement."

However, the court noted that section 16 is an enabling provision that allows the arbitral tribunal to decide on its jurisdiction, but it does not exclude the jurisdiction of the Chief Justice of India or his designate to decide on the existence of the arbitration clause at the stage of section 11 application. The court held that it would be anomalous to refer the issue to an arbitrator without first determining whether an arbitration clause exists. Therefore, the court concluded that the Chief Justice of India or his designate has the jurisdiction to decide the question of the existence of the arbitration clause.

Point 2: Interpretation of Clause 5 and Requirement of Fresh Consent
The second issue was whether clause 5, which used the words "may be referred," required fresh consent of the parties before a reference to arbitration could be made. The court examined clause 4 and clause 5 of the agreements. Clause 4 stated that disputes would be subject to the jurisdiction of the courts in Bombay, while clause 5 mentioned that disputes "may be referred to arbitration." The court interpreted this to mean that arbitration was not the sole remedy and that parties had the option to go to civil court or arbitration, implying that fresh consent for arbitration was necessary.

The court referred to similar cases, including B. Gopal Das v. Kota Straw Board, where it was held that the use of the word 'may' indicated that fresh consent for arbitration was necessary. The court concluded that clause 5 was not a firm or mandatory arbitration clause and required a fresh agreement between the parties to go to arbitration.

Point 3: Relief
Given the findings on Point 2, the court dismissed the petition. The court acknowledged that filing a civil suit in Bombay might result in considerable delay but stated that this was no ground to construe the clause differently. The court expressed confidence that the civil court would consider any request for early disposal of the case with due consideration.

Conclusion:
The petition was dismissed without costs, with the court concluding that clause 5 of the agreements did not constitute a mandatory arbitration clause and required fresh consent from the parties to proceed with arbitration.

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