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Judgment
CM No. 4412/2011 in FAO(OS) No. 113/2011
Allowed, subject to all just exceptions.
FAO(OS) No. 113/2011 & CM No. 4411/2011
This Appeal u/s 10 of the Delhi High Court Rules (sic. Act), 1966 has been filed for setting aside the impugned Order dated 10.1.2011 passed by the learned Single Judge. The Appellant/Plaintiff had filed a Suit for Recovery of Rs. 1,79,92,366/- in which the Defendant had filed the subject application, IA No. 15811/2008, under Sections 5 and 8 of the Arbitration & Conciliation Act, 1996 (A&C Act for short). It has been prayed in the said application that the parties be referred to arbitration, predicated on the existence of an Arbitration Clause between them. In the Reply to the said application, it has been pleaded, inter alia, that "in absence of valid arbitration clause in the contract agreement the present application becomes futile and hence the dispute thereafter cannot be referred to arbitration, and the same is not binding upon the parties...."
In the impugned Order, the learned Single Judge has applied P. Anand Gajapathi Raju and Others Vs. P.V.G. Raju (Died) and Others, wherein their Lordships have opined that Section 8 of the A&C Act is preemptory in nature and, therefore, obligates the Court to refer the parties to arbitration at the very earliest. The learned Single Judge has also followed the decision i The Branch Manager, Magma Leasing and Finance Limited and Another Vs. Potluri Madhavilata and Another, wherein their Lordships had opined that "Section 8 is in the form of legislative command to the court and once the prerequisite conditions as aforesaid are satisfied, the court must refer the parties to arbitration".
This very question had also arisen for consideration of the Supreme Court in Shin-Etsu Chemical Co. Ltd. Vs. Aksh Optifibre Ltd. and Another, . The decision is important for the two principles that have been laid down. Firstly, that at the pre-reference stage, the Court is required to take only a prima facie view on the issue of validity/invalidity of the arbitration agreement for making the reference; and secondly for the proposition that an order referring parties to arbitration is not susceptible to any alteration by way of an appeal. In Shin-Etsu, the Court was seized with an international arbitration and, therefore, Section 45 of the A&C Act was in contemplation. But that should make no material difference; in fact, the observations should apply in added vigor where the arbitration is domestic in nature. Furthermore, domestic arbitration is regulated so far as the availability of an appeal by Section 37 of the A&C Act is concerned which does not postulate any appeal from an order u/s 8 of the A&C Act. The following observations of Court require reproduction:
Another undesirable result flows from the view that the court conclusively rules upon the validity of the arbitration agreement at the pre-reference 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 judicator. Thus, one ground made available by Parliament u/s 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 u/s 45 on the said issue would be final. The approach suggested by Brother Sabharwal, J. 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 u/s 45.
In addition to these, we may add the pronouncement in S.B.P. and Co. Vs. Patel Engineering Ltd. and Another, wherein the Court observed thus:
It is also not possible to accept the argument that there is an exclusive conferment of jurisdiction on the Arbitral Tribunal, to decide on the existence or validity of the arbitration agreement. Section 8 of the Act contemplates a judicial authority before which an action is brought in a matter which is the subject of an arbitration agreement, on the terms specified therein, to refer the dispute to arbitration. A judicial authority as such is not defined in the Act. It would certainly include the court as defined in Section 2(e) of the Act and would also, in our opinion, include other courts and may even include a special tribunal like the Consumer Forum (see Fair Air Engineers (P) Ltd. v. N.K. Modi). When the Defendant to an action before a judicial authority raises the plea that there is an arbitration agreement and the subject-matter of the claim is covered by the agreement and the Plaintiff or the person who has approached the judicial authority for relief, disputes the same, the judicial authority, in the absence of any restriction in the Act, has necessarily to decide whether, in fact, there is in existence a valid arbitration agreement and whether the dispute that is sought to be raised before it, is covered by the arbitration clause. It is difficult to contemplate that the judicial authority has also to act mechanically or has merely to see the original arbitration agreement produced before it, and mechanically refer the parties to an arbitration.
A perusal of Section 8 of the A&C Act discloses that it would have efficacy even in a suit for recovery of money. The learned Single Judge has complied with the mandate of the statute contained in this Section. Section 37 of the A&C Act deals with maintainability of appeals and does not enable an order u/s 8 of the A&C Act to be challenged by way of an appeal. The answer is obvious. The spirit of the A&C Act is to minimize the interference of civil Courts in disputes which are governed by an Arbitration Clause. Parties have, therefore, to be directed to submit their disputes to adjudication before the Arbitral Tribunal as agreed upon between them. Since an order of reference can be prima facie or final, it is open to agitate the existence or maintainability or efficacy of an Arbitration Clause before the Arbitral Tribunal itself whose pronouncements will be amenable to assault by way of an appeal. The availability of Section 10 of the Delhi High Court Act in the context of the A&C Act has been considered by this Court in Union of India (UOI) Vs. Mohindra Supply Company, Union of India Vs. A.S. Dhupia and Another, , Shyam Telecom Ltd. v. A.R.M. Ltd. 2008(3) Arb.L.R. 615 (Del) and Wee Aar Constructive Builders v. Simplex Concrete Piles (India) Ltd. 2010 II AD (Del) 382.
To make the analysis comprehensive, we may notice the decision of the Division Bench in Bharat Heavy Electricals Ltd. v. C.N. Garg 88 (2000) DLT 242. This decision makes a distinction between appeals emanating from orders under the A&C Act and those arising from other orders. The Division Bench held that an appeal is maintainable in respect of orders which have not been passed under the A&C Act. Similar conclusions have also been arrived at by a Division Bench of the Calcutta High Court in Modi Korea Telecommunication Ltd. Vs. Appcon Consultants Pvt. Ltd., This presumably would be via Order XLIII of the Code of Civil Procedure, 1908 or Section 10 of the Delhi High Court Act. The impugned Order falls squarely within the ambit of Section 8 of the A&C Act and cannot be construed to be de hors it. The impugned Order is, therefore, not amenable to the present Appeal.
Ms. Malvika Rajkotia, learned Counsel for the Appellant, has relied upon a Division Bench judgment in Maltexmalsters Private Ltd. Vs. Allied Engineers, . In doing so, however, the learned Counsel has lost sight of the fact that that decision was rendered in the context of Arbitration Act, 1940, the provisions of which are materially different.
Learned Counsel has also submitted that the Appellant is willing to affix ad valorem Court Fee so that the present Appeal can be altered into a Regular First Appeal. That would not rescue the present Appeal from the vice of non-maintainability. We are reminded of the opinion of the Supreme Court in SBP & Co. to the effect that the only possible avenue of attack is by way of a SLP under Article 136 of the Constitution of India.
The Appeal is not maintainable and ought to be dismissed with costs. We, however, desist from imposing costs. Appeal is dismissed. CM No. 4411/2011 is also dismissed.