2003 (7) TMI 497 - SC - Companies Law

Whether on the facts mentioned 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 - Held that - Section 16 empowers the Arbitral Tribunal to decide the question of existence and validity of the arbitration agreement. Thus The present appeal therefore deserves to succeed and is hereby allowed.

Summary

Issues:
1. Rejection of application under section 11 of the Arbitration and Conciliation Act, 1996.
2. Existence of a written arbitration agreement.
3. Jurisdiction of the Chief Justice or his designate under section 11.
4. Interpretation of arbitration clauses in contracts.
5. Adjudicatory role of the courts in arbitration disputes.

Analysis:
1. The appellant, a corporation, approached the Supreme Court aggrieved by the rejection of its application under section 11 of the Arbitration and Conciliation Act, 1996. The Delhi High Court, through its judge, concluded that no written arbitration agreement existed between the parties, leading to the rejection of the appellant's plea for arbitration reference.

2. The appellant contended that an arbitration agreement was formed through the exchange of letters and correspondence between the parties after the respondent issued a notice inviting tenders with an arbitration clause. The appellant believed that the terms and conditions of the tender formed a contract with an arbitration clause, enabling them to invoke arbitration.

3. The Supreme Court emphasized that the Chief Justice or his designate, when acting under section 11, exercises administrative functions and lacks the jurisdiction to adjudicate on the existence or validity of an arbitration agreement. The Court cited previous decisions to support the view that only the Arbitral Tribunal can decide on such matters as per section 16 of the Act.

4. The Court found errors in the judgments of the Delhi High Court and the Chief Justice's designate for adjudicating on the dispute's validity and existence of the arbitration agreement. It reiterated that contentious issues regarding arbitration agreements should be left to the Arbitral Tribunal, as per established legal principles.

5. The Supreme Court allowed the appeal, quashed the previous orders, and remanded the case for the Chief Justice or his designate to consider the constitution of an Arbitral Tribunal in line with the arbitration clause. The Court highlighted the importance of minimizing the supervisory role of courts in arbitration matters and leaving contentious issues for the Arbitral Tribunal to decide, in accordance with the legislative intent of the Arbitration and Conciliation Act, 1996.