2003 (7) TMI 490 - SC - Companies Law

Whether under the existing arbitration clause the dispute between the parties is arbitrable in accordance with I.C.A. Rules? Whether the Registrar, I.C.A. has any jurisdiction to direct the claimant to get fresh agreement signed. If so, what is the effect of failure to obtain such fresh agreement and in such case which will be the forum for adjudication of dispute between the parties? Whether the Registrar, I.C.A., in asking for the new requirement under question Nos. I & II as above, is justified in his decision not to proceed with the case further, and also to ask the Petitioner F.C.I. to seek approval of Respondent Nos. 2 and 3 for appointment of a common Arbitrator upon the F.C.I. for obtaining consent from Respondent Nos. 2 and 3 afresh in this respect? Held that - Appeal allowed. It just and more appropriate, proper and reasonable both in law and in equity and interests of justice to direct ICA to forthwith and not later than sixty days from this date nominate the Arbitrator as sought for by the appellants and place the matters before such Arbitrator, leaving open to the parties to raise and pursue all objections and contentions and thereby seek for the decision of the Arbitrator as envisaged under section 16 of the 1996 Act, besides getting adjudication of the respective disputes in these cases on merits and in accordance with law. Both parties will have leave and liberties to do so before the Arbitrator on being nominated/appointed by the ICA, pursuant to these orders.

Summary

Issues Involved:
1. Arbitrability of disputes under the existing arbitration clause in accordance with ICA Rules.
2. Jurisdiction of the Registrar, ICA, to direct fresh agreement signing.
3. Justification of the Registrar, ICA's decision not to proceed without fresh consent.

Issue-wise Detailed Analysis:

1. Arbitrability of disputes under the existing arbitration clause in accordance with ICA Rules:

The Food Corporation of India (FCI) entered into agreements with Millers for the storage-cum-milling of paddy into rice, which included an arbitration clause for dispute resolution through the Indian Council of Arbitration (ICA). The arbitration clause specified that disputes would be settled by arbitration in accordance with ICA rules, and the Senior Regional Manager/Zonal Manager of FCI would appoint an arbitrator from the ICA panel. Despite FCI's efforts to initiate arbitration, ICA required fresh consent from the Millers, leading FCI to seek adjudication from the Delhi High Court. The High Court held that the arbitration clause required the appointment of an arbitrator by FCI, not ICA, and thus, the petitions were not maintainable. The Supreme Court, however, emphasized that the arbitration clause and ICA rules should be harmoniously construed to facilitate dispute resolution through arbitration.

2. Jurisdiction of the Registrar, ICA, to direct fresh agreement signing:

The FCI contended that the ICA's direction to obtain fresh agreement for arbitration was contrary to law and that the arbitral proceedings had already commenced. The High Court, however, found that the arbitration clause required the appointment of an arbitrator by FCI and that ICA could only proceed with consent from both parties. The Supreme Court, however, noted that the ICA's insistence on fresh consent was unjustified, especially since FCI had consistently requested ICA to nominate the arbitrator. The Court highlighted that issues related to the jurisdiction of the arbitral tribunal and the validity of the arbitration agreement should be decided by the tribunal itself under Section 16 of the Arbitration and Conciliation Act, 1996.

3. Justification of the Registrar, ICA's decision not to proceed without fresh consent:

The ICA's refusal to proceed with arbitration without fresh consent from the Millers was challenged by FCI. The High Court supported ICA's decision, stating that the arbitration clause required FCI to appoint the arbitrator, and ICA could only proceed with mutual consent. The Supreme Court, however, directed ICA to nominate an arbitrator within sixty days, allowing the arbitral tribunal to decide on the validity and jurisdictional issues. The Court emphasized that the legislative intent of the 1996 Act was to minimize court intervention in the arbitral process and ensure prompt constitution of the arbitral tribunal.

Conclusion:

The Supreme Court allowed the appeals, directing ICA to nominate an arbitrator and place the matters before the tribunal. The Court left it open for the parties to raise all objections and contentions before the arbitrator, emphasizing the need to minimize judicial intervention and facilitate arbitration as intended by the Arbitration and Conciliation Act, 1996. The appeals were disposed of with each party bearing its own costs.