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TMI Blog2005 (8) TMI 622X X X X Extracts X X X X X X X X Extracts X X X X ..... , but not for a full trial as directed by the impugned judgment of the High Court. The application under Section 45 would have to be determined by the trial court after arriving at the prima facie satisfaction that there exists an arbitral agreement, which is "not null and void, inoperative or incapable of being performed". If the trial court finds thus, the parties shall be referred to arbitration. The appeal is accordingly allowed and Ordered accordingly. - 5048 of 2005 - - - Dated:- 12-8-2005 - B. N. Srikrishna, J. JUDGMENT Leave granted. I have had the benefit of carefully considering the erudite judgment delivered by my esteemed and learned Brother Sabharwal. Regretfully, I find myself in the unenviable position of having to disagree with the views expressed therein. The judgment of Brother Sabharwal fully sets out the facts in the Civil Appeal arising out of Special Leave Petition (Civil) No. 3160/05 as well as the issue which arises for determination. The core issue in this case is: Whether the finding of the court made under Section 45 of the Indian Arbitration and Conciliation Act, 1996 ("the Act") that the arbitration agreement, falling within the definit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Convention, the language of which, as I have already said, has been reproduced in Section 45 of the Act. My Learned Brother strongly relies on the observations made in paragraphs 58 and 59 of Renusagar Power Co. v. General Electric Co. ("Renusagar"), which no doubt appear to suggest, in the context of Section 3 of the Foreign Awards Act, 1961 ("Foreign Awards Act") and the Arbitration Act, 1940, that the court must be fully satisfied that the arbitration agreement exists before granting stay of the proceedings. Following these observations, Brother Sabharwal in his judgment, opines that: "When words in an earlier statute have received an authoritative exposition by superior Court (interpretation of Section 3 in Renusagar s case), use of same words in a similar context in a later Act will give rise to a strong presumption that the Parliament intends that the same interpretation should also be followed for construction of these words in the later statute." With great deference to the opinion of my Learned Brother, I find myself unable to agree to this proposition. In fact, the observations in Renusagar (supra) are clearly distinguishable. In the first place, in paragraph 51 of t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... an doubt that Part II of the 1996 Act is intended to opt for the international arbitration regime to meet the challenges of international trade and commerce, nor can it be doubted that Section 45 offers a greater discretion to the court for judicial intervention at the prereference stage. Despite all this, the question would still remain as to whether the discretion available for the court for interference, even under Section 45 of the Act, should be exercised on a prima facie view of the nature of the arbitral agreement, or should it be on a final finding? Ex Visceribus Interpretation of the Statute True, that there is nothing in Section 45 which suggests that the finding as to the nature of the arbitral agreement has to be ex facie or prima facie. In my view, however, this is an inescapable inference from an ex visceribus interpretation of the statute. Sub-section (3) of Section 8 in Part I of the Act envisages that even in a situation where an application to the court has been made under sub-section (1), the arbitration may commence, continue and even an arbitral award be made. This was obviously meant to cut down delay in the conclusion of the arbitral proceedings. There is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , there is no need to take recourse to the judicial intercession available under Section 48(1)(a) of the Act. The finding of the court that the arbitration agreement is valid, operative and enforceable, if in favour of the party setting up the arbitration agreement, is not appealable under Section 50 as a matter of legislative policy. Refusing to refer parties to arbitration under Section 45, is however, made appealable under Section 50(1) (a) of the Act. Even after the court takes a prima facie view that the arbitration agreement is not vitiated on account of factors enumerated in Section 45, and the arbitrator upon a full trial holds that there is no vitiating factor in the arbitration agreement and makes an award, such an award can be challenged under Section 48(1)(a). The award will be set aside if the party against whom it is invoked satisfies the court inter alia that the agreement was not valid under the law to which the parties had subjected it or under the law of the country where the award was made. The two basic requirements, namely, expedition at the prereference stage, and a fair opportunity to contest the award after full trial, would be fully satisfied by interpr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ction where the arbitration proceeds (Japan, as in the present case) would have to reckon with the fully binding effect of a finding made under Section 45 by a competent court in India arrived at by following a summary procedure without admitting all relevant evidence. Proof of Applicable Foreign Law There is yet another strange result which may come about by holding that Section 45 requires a final finding. This can be illustrated by reference to the facts of the present case. The parties here have subjected their agreement to the laws of Japan. The question that will arise is: When a court has to make a final determinative ruling on the validity of the arbitration agreement, under which law is this issue to be tested? This question of choice of law has been conclusively decided by the judgment of this court in National Thermal Power Corporation v. Singer Company, where it was observed: "The proper law of the arbitration agreement is normally the same as the proper law of the contract. It is only in exceptional cases that it is not so even where the proper law of the contract is expressly chosen by the parties. Where, however, there is no express choice of the law governing ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... foreign law at a trial would also be obviated. Redundancy in the Statute Another undesirable result flows from the view that the court conclusively rules upon the validity of the arbitration agreement at the prereference stage. If a final finding were to be made upon the arbitration agreement, finding it valid and operative, such a finding might operate as res judicata. Thus, one ground made available by Parliament under Section 48(1)(a) to assail the award at the post-award stage, by impugning the validity of the arbitration agreement, would be totally precluded because the finding under Section 45 on the said issue would be final. The approach suggested by Brother Sabharwal would, therefore, preclude this ground in cases where Section 45 is in fact resorted to by parties. Indeed, the present case is such a case, where the ground might be precluded if a final finding were to be arrived at by the trial court in the application under Section 45. It is a well accepted principle of statutory interpretation that a court must make every effort to give effect to all words in a statute since Parliament cannot be held to have been wasting its words or saying something in vain. Only ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... arwal that different countries have approached the issue depending on their substantive and processual laws. It has been noticed that the situation under the French Code of Civil Procedure favours a prima facie view, since under the Statute if the dispute is not before an arbitral tribunal, the French Courts must decline jurisdiction unless the arbitration agreement is "patently void". Similarly, Article 7 of the 1987 Swiss Private International Law Statute stipulates that the courts decline jurisdiction " b. unless the court finds that the arbitral agreement is null and void, inoperative or incapable of being performed". This has been interpreted by the Swiss Federal Tribunal as restricting the courts review at the start of the proceedings to a prima facie verification of the existence and effectiveness of the arbitration clause. As far as the U.S. jurisdiction is concerned, the statute there, which deals both with the substantive law and the law of procedure, is worded differently from the Act. Indeed, not all jurisdictions in the U.S. have even modeled their law on the Model Law and U.S. cases must be approached with great caution. The U.S position is, therefore, not very he ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ond ground of distinction sought to be made by my learned Brother is that the Hong Kong Arbitration Ordinance ("the Hong Kong Ordinance") was based upon the English Arbitration Act, 1996 ("the English Act") and that the Hong Kong judgment was in the special context of these statutes. In particular, my Learned Brother holds that Section 6 of the Hong Kong Ordinance is similar to Section 32 of the English Act (both of which are not present in our Act), as a distinguishing feature rendering the Hong Kong judgment inapplicable to the present case. To clear the air, I quote below both the concerned provisions. The Hong Kong Ordinance: "Section 6 Court to refer matter to arbitration in certain cases (1) Subject to subsections (2) and (3), article 8 of the UNCITRAL Model Law (Arbitration agreement and substantive claim before court) applies to a matter that is the subject of a domestic arbitration agreement in the same way as it applies to a matter that is the subject of an international arbitration agreement. (2) Subject to subsection (3), if a party to an arbitration agreement that provides for the arbitration of a dispute involving a claim or other matter this is within the jur ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ment of the court for the purposes of an appeal. But no appeal lies without the leave of the court which shall not be given unless the court considers that the question involves a point of law which is one of general importance or is one which for some other special reason should be considered by the Court of Appeal." On a comparative reading of Section 6 of the Hong Kong Ordinance and Section 32 of the English Act, it appears to me that the two are neither similar, nor resemble each other, the purposes of the two sections being totally different. This distinction made by Brother Sabharwal, with respect, appears to be unsupportable. On the other hand, what corresponds to Section 32 of the English Act is Section 23A of the Hong Kong Ordinance, which is reproduced below: "Section 23A Determination of preliminary point of law by Court (1) Subject to subsection (2) and section 23B, on an application to the Court made by any of the parties to a reference- (a) with the consent of an arbitrator who has entered on the reference or, if an umpire has entered on the reference, with his consent, or (b) with the consent of all the other parties, the Court shall have jurisdiction t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... io Judgment The Ontario Court of Justice in Rio Algom Ltd. v. Sami Steel Co. Ltd. dealt with Article 16 of the Model Law with regard to the competence of the arbitral tribunal to rule on its jurisdiction and the court s own powers at the preliminary stage. Article 16 has been quoted in Learned Brother Sabharwal s judgment. The court expressed its categorical opinion on the relevant issue in the following words: "What appears to me of significance is that the Model Law reflects an emphasis in favour of arbitration in the first instance in international commercial arbitrations to which it applies (of which it is common ground this is one). The courts in matters of contract interpretation as such are limited in that they do not appear to have a role in determining matters of law or construction; jurisdiction and scope of authority are for the arbitrator to determine in the first instance, subject to later recourse to set aside the ruling or award. The role of the court before arbitration appears to be confined to determining whether the arbitration clause is null and void, inoperative or incapable of being performed (Art. 8) if not it is mandatory to send the parties to arbitrat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in the Act. Consequences of the Mollificatory Suggestions The suggestions made by Learned Brother Sabharwal to mollify some of the obvious drawbacks of the approach that he adopts, also needs closer scrutiny. He has suggested a trial by affidavits as well as a fixed time-frame to reduce the possible delays ensuing from a protracted trial at the prereference stage. In my view, any attempt to mollify the significant adverse consequences of the determinative approach by enabling the court to render final judgment only on the basis of affidavits, albeit within a fixed timeframe, may prove counter-productive. There are several instances where affidavit evidence cannot aid in making a final determinative finding on the issue. For instance, where a defence taken is that the signature of a party was forged or that agreement itself is entirely fabricated, I cannot conceive of the issue being satisfactorily determined fully and finally merely on the basis of affidavits without oral evidence. Correspondingly, if courts at the preliminary stage were to admit oral evidence, simply because forgery or the like is pleaded, the consequences are still troublesome. In fact, if the view postulat ..... X X X X Extracts X X X X X X X X Extracts X X X X
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