2000 (10) TMI 874 - SC - Companies Law

Whether when one party had, on demand by the other party, appointed an arbitrator - though beyond the period stipulated in the contract, - the Chief Justice (or his nominee), could, when approached by the other party, appoint another (sole) arbitrator? Held that - In the light of the contentions and material, which in our opinion have a substantial bearing on the matter, and further inasmuch as this question is one arising almost constantly in a large number of cases in the various High Courts, it is desirable that this Court re-examines the matter. Therefore, direct the papers to be placed before the Hon ble Chief Justice of India for passing appropriate orders.

Issues Involved:
1. Nature of the order passed by the Chief Justice under Section 11 of the Arbitration and Conciliation Act, 1996.
2. Whether such an order is judicial or administrative in nature.
3. Reconsideration of the judgment in Konkan Railway Corpn. Ltd. v. Mehul Construction Co.
4. The applicability of Article 136 of the Constitution of India to such orders.
5. The Kompetenz-Kompetenz principle and its implications.
6. The international perspective on judicial versus administrative orders in arbitration matters.
7. Practical implications of treating such orders as administrative.

Detailed Analysis:

Nature of the Order Passed by the Chief Justice:
The primary issue revolves around the nature of the order dated 4-7-1997 by the Chief Justice of the Bombay High Court under Section 11 of the Arbitration and Conciliation Act, 1996. The Solicitor General argued that the order, which compelled the appellant-company to appoint arbitrators and rejected the plea that the matters were 'excepted matters,' is a judicial order. The contention is that such an order, even if administrative in nature, should be amenable to Article 136 of the Constitution of India.

Judicial or Administrative Nature:
The judgment in Konkan Railway Corpn. Ltd. v. Mehul Construction Co. held that orders passed by the Chief Justice under Section 11 are administrative, not judicial, even if they contain reasons and decisions on preliminary issues. The Solicitor General argued for reconsideration, citing that in several countries following the UNCITRAL model, courts decide preliminary disputes judicially before appointing arbitrators. The argument is that the power of the court to decide these issues has not been taken away by the new Act, and such orders should be considered judicial.

Reconsideration of Konkan Railway Judgment:
The Solicitor General pointed out that the judgment in Konkan Railway requires reconsideration. He argued that the observations in Sundaram Finance Ltd. v. NEPC India Ltd. were obiter dicta and not binding. Further, the judgment in Ador Samia (P.) Ltd. v. Peekay Holdings Ltd. relied on these observations incorrectly. The Solicitor General emphasized that the view taken by the three-judge bench in Konkan Railway needs to be re-evaluated.

Applicability of Article 136:
The Solicitor General contended that orders passed under Section 11 should be amenable to Article 136, arguing that the Chief Justice or his nominee performs judicial functions similar to those previously performed by courts under Section 8 of the old Arbitration Act, 1940. The contention is that such orders should be treated as judicial, thus allowing for a direct appeal to the Supreme Court under Article 136.

Kompetenz-Kompetenz Principle:
The principle allows arbitrators to decide their own jurisdiction, including objections to the existence or validity of the arbitration agreement. The Solicitor General argued that while arbitrators can decide these issues, courts should also have the power to decide preliminary disputes judicially before appointing arbitrators. This approach is consistent with practices in countries following the UNCITRAL model, where courts decide such issues to save time and costs.

International Perspective:
The judgment referenced practices in various countries like France, Austria, Sweden, Belgium, Netherlands, and the USA, where courts decide preliminary issues before appointing arbitrators. This approach is seen as efficient in terms of time and cost. The Federal Court of Australia and the English courts under the 1996 Arbitration Act also support this view.

Practical Implications:
The Solicitor General highlighted practical concerns, arguing that treating such orders as administrative could lead to prolonged litigation through multiple appeals, thus delaying arbitration proceedings. Treating the orders as judicial would streamline the process, allowing for a direct appeal to the Supreme Court under Article 136, thereby saving time and reducing costs.

Conclusion:
The Supreme Court acknowledged the substantial bearing of these contentions and the frequent occurrence of such issues in various High Courts. It directed the papers to be placed before the Chief Justice of India for appropriate orders, indicating a potential re-examination of the matter.

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