2002 (11) TMI 688 - HC - Companies Law

Issues Involved:
1. Jurisdiction of the Civil Court in the presence of an arbitral clause.
2. Validity of the arbitration agreement and whether it can be challenged in Civil Court.
3. Appropriateness of granting an injunction to restrain parties from proceeding with arbitration.

Detailed Analysis:

1. Jurisdiction of the Civil Court in the Presence of an Arbitral Clause:
The judgment discusses the jurisdiction of Civil Courts under the Arbitration and Conciliation Act, 1996, specifically sections 8, 16, and 45, read with section 9 of the Code of Civil Procedure, 1908. Despite the presence of an arbitral clause, the Civil Court retains jurisdiction to entertain suits and decide disputes. Section 8 mandates that if the subject matter of the suit is covered by an arbitral clause, the court must direct the parties to arbitration. However, section 16 empowers the arbitral tribunal to rule on its jurisdiction, including the validity of the arbitration agreement. The judgment references the Supreme Court's decision in P. Anand Gajapathy Raju v. P.V.G. Raju and Konkan Railway Corpn. Ltd. v. Rani Construction (I) Ltd. to support this interpretation.

2. Validity of the Arbitration Agreement:
The court examines whether a Civil Court can proceed with a suit challenging the validity of an arbitration agreement under section 45 of the Arbitration and Conciliation Act, 1996. Section 45 allows the court to examine if the arbitration agreement is "null and void, inoperative or incapable of being performed" before referring parties to arbitration. The judgment discusses the doctrine of severability, which treats the arbitration clause as an independent agreement, even if the main contract is deemed invalid. This doctrine is recognized under both Indian and English law, as seen in Harbour Assurance Co. (UK) Ltd. v. Kansa General International Insurance Co. Ltd. and Prima Paint Corpn. v. Flood & Conklin Mfg. Co.. The court concludes that the arbitral tribunal has jurisdiction to decide on the validity of the arbitration agreement.

3. Appropriateness of Granting an Injunction:
The court considers whether it is appropriate to grant an injunction to restrain the respondents from proceeding with arbitration. The judgment notes that the arbitral clauses in the agreements specify that disputes shall be governed by English law and arbitration shall be conducted in the UK. The court refers to Russell on Arbitration and various English cases, including Heyman v. Darwins Ltd. and Rremer Vulkan Schiffbau Und Maschinenfabrik v. South India Shipping Corpn., to highlight that English law does not favor consolidation of arbitral proceedings without party agreement. The court finds no prima facie evidence that the arbitration clauses are invalid. The court also notes that the appellants have invoked the arbitral process, indicating acquiescence. Consequently, the court denies the injunction, allowing the arbitral proceedings to continue.

Conclusion:
The appeal is dismissed, affirming that:
- Civil Courts retain jurisdiction even with an arbitral clause, but must refer parties to arbitration if conditions under section 8 are met.
- The validity of the arbitration agreement can be challenged in Civil Court under section 45, but the arbitral tribunal has the authority to rule on its jurisdiction.
- An injunction to restrain arbitration is inappropriate if the arbitral clause is valid and the parties have chosen arbitration as their dispute resolution forum.

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