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Judgment
T.V. Masilamani, J.—This Civil Revision Petition is preferred by Shriram Investment Services Limited (hereinafter called ""SISL"") the
respondent before the Arbitral Tribunal and Palki/Jeypad Investment (P) Ltd/Jeypad Investment (P) Ltd (hereinafter called ""Palki/Jeypad"") is the
claimant before the said Tribunal. This petition is filed challenging the order passed by the Arbitral Tribunal as communicated to the petitioner
herein in the letter dated 12.2.2005.
The facts leading to the filing of this revision may be set out briefly as under:-
(a) The petitioner herein started the financial institution known as ""Shriram Mutual Fund"" and issued a ""scheme"" called ""Risk Guardian-95"" and the
same was announced for public issue from October 1995 to January 1996. The second respondent herein representing the first respondent-
Palki/Jeypad showed interest in the issue floated by the SISL to the extent of nearly US $ 1 million and after discussions, SISL sent a draft
agreement regarding the investment and buy back arrangements to the first respondent company on 29.11.1995. The first respondent with certain
modifications sent a Fax dated 30.11.1995 and thereupon the agreement was entered into between SISl and Palki/Jeypad whereby the first
respondent company invested a sum of Rs. 3.5 crores in India in the aforesaid ""Risk Guardian-95"" scheme and the said amount together with the
application for 35 lakhs units of the scheme ""Risk Guardian-95"" were duly issued by the said company in due course on 24.1.1996 and the unit
certificate thereon was sent to Palki/Jeypad to its office at Mumbai.
(b) The time for buying back the units was in or about November 1996, but the same were made over to Palki/Jeypad for 2.50 crores on
23.4.1997 and for Rs. 2.06 crores on 17.7.1997. Notwithstanding the payments, 35 lakhs units were not returned back to SISL perhaps because
there was some small amount due outstanding. Since the second respondent claimed to have got 35 lakhs units transferred in the name of his family
concern and filed an application for transfer of the units in the name of the said company, SISL objected to the same and immediately thereafter,
the entire amount due to the tune of Rs. 4.56 crores had been paid by SISL as early as 1997. Even thereafter, the second respondent demanded
payment and the same was repudiated by SISL. However as per the terms of the agreement, all disputes have to be resolved at Bombay. But the
second respondent persuaded SISL to agree for arbitration at Chennai. Mr.T.L.Ram Mohan, Senior Advocate was appointed by SISL and
Palki/Jeypad appointed Mr.V.Subramanyam as arbitrators as per the said agreement and Mr.N.C.Sundarajan was subsequently appointed as
Umpire by the above mentioned Arbitrators.
(c) On receipt of the claim statement and after perusing the terms of the claim and the enclosures, SISL was unable to understand as to the various
aspects of the claim and the legal basis thereof. The petitioner herein, namely, SISL filed a preliminary counter statement dated 12.8.2004
requesting the Arbitral Tribunal to direct the claimant, namely, Palki/Jeypad to clarify and answer the point mentioned in the reply statement. On
19.8.2004, the second respondent filed a response signing the same as claimant and not even as for and on behalf of any one. Hence after filing of
the respective reply to the response and counter statement to the claim statement, the Arbitral Tribunal sent a notice for hearing on 9.10.2004. At
that stage, SISL filed a memo on 7.10.2004 u/s 16(5) of the Arbitration and Conciliation Act, 1996 (hereinafter called as ""the Act 26 of 1996"")
raising the preliminary point for taking decision with reference to the period of agreement and the legality of the continuation of the proceedings by
the Arbitral Tribunal in view of the fact that M/s. T.L. Ram Mohan, Senior Advocate sent the order directing the termination of the proceedings in
terms of Section 32(2)(c) of the Act 26 of 1996. While so, the Arbitral Tribunal consisting of Mr. N.C. Sundararajan and Mr. V. Subramanyam
passed the impugned decision dated 12.2.2005 to continue with the arbitration proceedings. Hence, the revision.
Heard Mr. R. Krishnasami, learned Senior counsel appearing for the revision petitioner and Mr. T.R. Rajagopalan, learned senior counsel
appearing for the respondents.
The contentions of the learned senior counsel for the revision petitioner are as follows:-
(a) The decision of the Arbitral Tribunal to continue the arbitration proceedings is vitiated by error of law apparent on the face of the record. The
arbitration agreement dated 30.4.2004 was signed by a person, who had no legal authority and therefore the second respondent had no locus
standi to represent Palki/Jeypad as there is no such company in existence.
(b) The Arbitral Tribunal has no power to continue the proceedings beyond six months from 18.6.2004, the date of filing of the claim and therefore
the proceedings continued thereafter by the Arbitral Tribunal is illegal and without jurisdiction.
(c) The order of Mr.T.L.Ram Mohan, Senior Advocate that it was impossible to proceed with the enquiry is binding on the parties and therefore it
is impossible to continue with the proceedings. The decision of the majority of the Arbitral Tribunal is vitiated, as no reason has been assigned for
rejecting the plea of the petitioner u/s 16(2) and 16(3) of the Act 26 of 1996.
In the above circumstances, the following points arise for consideration in this revision:-
(1) Whether the revision petition filed under Article 227 of the Constitution of India is maintainable?
(2) Whether the arbitral agreement has become non-est as the Tribunal failed to pass any award within the time stipulated in the agreement
between the parties?
Point No. 1: It is not in controversy that SISL and Palki/Jeypad, namely, the revision petitioner and first respondent herein respectively agreed
mutually by an agreement dated 30.11.1995 that the first respondent has to invest Rs. 3.50 crores equivalent to US $ 1 million for the allottment of
35 lakhs units under ""Risk Guardian-95"" scheme by the revision petitioner herein at Rs. 10/- each. Similarly, it was also agreed that the first
respondent should hold the said units so allotted for a maximum period of 12 months from the date of subscription and that since the revision
petitioner herein had undertaken to enable the first respondent to sell/dispose of the said units so as to assure return of 26% p.a. net after all
expenses and brokerage at the end of subscription date or the Net Additional Value (NAV) whichever is higher. At the same time, the revision
petitioner had also agreed to bear the loss due to any adverse fluctuation in the exchange rate so as to ensure the investor a rate of return of 26%
p.a. computed from the end of 12 months period after the subscription period till the date of actual payment. Similarly, both the parties agreed that
if any dispute arose in connection with the transaction only the courts in Bombay would have jurisdiction to try and determine the suit. Further, it
was also agreed between the parties that any dispute or differences arising in connection with the transaction may be referred to arbitration by
appointing an arbitrator by each party and the arbitration should be held at Bombay in accordance with the provisions of the Arbitration Act,
1947. In the above circumstances, both the parties agreed by virtue of an arbitral agreement dated 30.4.2004 by appointing an arbitrator each and
in turn, the arbitrators appointed an Umpire as per the said agreement. Thus the impugned decision of the majority of Arbitral Tribunal is under
challenge in this revision.
Learned senior counsel for the revision petitioner/SISL has argued at the outset that this revision under Article 227 of the Constitution of India is
maintainable for the simple reason that the Arbitral Tribunal being the subordinate forum for adjudication of disputes under the supervision of the
High Court committed grave illegality in not passing a speaking order within the time stipulated in the agreement and that therefore the same is liable
to be quashed by virtue of the powers vested in this Court under the said Article.
Per contra, learned senior counsel for the respondents has taken objection to the very revision under Article 227 of the Constitution of India on
the ground that the Arbitral Tribunal constituted by an agreement between the parties herein cannot come within the meaning of a Tribunal under
the control of the High Court by virtue of the said Article. Similarly, he has also submitted that this revision is not maintainable since the revision
petitioner has to challenge only the final arbitral award that has to be passed by the Arbitral Tribunal u/s 34 of the Act 26 of 1996 and not by filing
a revision under Article 227 of the Constitution of India. Moreover, he has also strenuously contended that even though the arbitral agreement
stipulates six months time for completion of the proceedings from the date of commencement of the impugned proceedings, only on account of the
latches on the part of the revision petitioner, the delay has occurred. Therefore he has submitted that on all counts, the revision has to fail.
Learned senior counsel for the revision petitioner has placed strong reliance on the decision Unik Accurates Pvt. Ltd. v. Sumedha Fiscal
Services Ltd. (2003 (4) R.A.J. 571 (CAL), in support of his contention that since an application u/s 16 of the Act 26 of 1996 challenging the
validity of the arbitral proceedings and also questioning the jurisdiction of the Tribunal has to be disposed of by the Arbitral Tribunal by assigning
valid reasons and that if there is no reason assigned by the Tribunal for rejecting the claim, a petition under Article 227 of the Constitution of India
is maintainable.
Further learned senior counsel has also referred to another decision Arati Dhar v. S.K. Dutta (2003 (4) R.A.J. 98 (CAL), in support of his
further submission that without deciding the plea of jurisdiction raised by the party to the arbitration agreement, no award could be passed by the
Tribunal and in view of intrinsic infirmities in the arbitral proceedings, the Tribunal might not be able to pass an award. He has placed reliance on
the decisions National Research Development Corporation Vs. Silicon Ceramics Ltd., and State of Punjab Vs. Hardyal, to support his further
contention that since the award was not passed within 6 months time as stipulated in the arbitral agreement and since the time was not extended
beyond that period, the Tribunal has become funcus officio to pass any further award in this matter.
Per contra, learned senior counsel for the respondents has drawn the attention of this Court to the impugned order despatched by the Arbitral
Tribunal by the letter dated 12.2.2005 in support of his strenuous argument that the subjective satisfaction of Tribunal that the proceedings should
continue till the passing of the award is evident therefrom and that therefore the revision petitioner has to wait till final award is passed by the
Arbitral Tribunal so as to challenge the same in accordance with the provision u/s 34 of the Act 26 of 1996.
Before ever the rival submissions made by both sides are analysed, this Court finds it imperative to extract the impugned order hereunder so as
to appreciate the same in the light of the ratio laid down in the decisions cited by them. The order reads as under:-
Notice is hereby given that the next sitting of the Arbitral Tribunal will be held at No. 22, Krishnaswamy Avenue, Mylapore, Chennai 600 004 at
4.00 p.m. on Saturday, 19.02.2005.
In this connection, the parties may note that the Arbitral Tribunal has considered the petition of the petitioner/respondents M/s.Sriram Investment
Services Limited dated 8th September 2004 and 7th October 2004. The Arbitral Tribunal has by a majority decided to continue with the
proceedings referred for arbitration by the agreement dated 30th April 2004. The reasons for coming to this conclusion will be forming part of the
final award of the tribunal to be given later.
The parties are further informed that they may produce at the next hearing date such further evidence as they think fit for the conduct of the
proceedings.
Dated this 12th day of February 2005 at Chennai.
In view of the above said order passed by the majority of the arbitrators presiding over the Arbitral Tribunal, it is evident that they decided to
continue the proceedings referred to therein on the ground that the reasons for coming to such conclusion would be pronounced in the final award
of the Tribunal later. Therefore the learned senior counsel for the respondents has cited the decision Mangayakarasi Apparels Pvt. Ltd. v.
Sundaram Finance Ltd. (2002 (3) R.A.J. 212 (MAD) in support of his further contention that in a similar case, this Court rendered the judgment
that the revision under Article 227 of the Constitution of India questioning any order passed by the Arbitral Tribunal constituted in a private
arbitration is not maintainable and that the High Court is not justified in exercising the power of judicial review or superintendence of such orders
passed by the non-statutory arbitral tribunal under Article 227 of the Constitution of India. In the judgment, E. Padmanabhan, J. laid down the ratio
(vide) paragraph 26 disagreeing with the view taken by the Bombay High Court in M/s. Anuptech Equipments Private Ltd. Vs. M/s. Ganpati Co-
op. Housing Society Ltd. and others, in a similar case and the same reads as under:-
This Court is not persuaded to accept the said view taken by REBELLOW, J., and this Court respectfully disagree with the said view of the
Bombay High Court in the light of the above cited pronouncements of the Apex Court. The Arbitrator appointed as a result of the arbitration
clause agreed to between the independent parties, though referred to as arbitral tribunal, they are not ""other authorities"", nor they are amenable to
writ jurisdiction, nor this Court under Article 226/227 could exercise supervisory jurisdiction in respect of those arbitrators. A private arbitration is
governed by the terms of the agreement and in case of any grievance, the provisions of The Arbitration and Conciliation Act, 1996 could be
invoked to redress the grievance in respect of the proceedings before the private arbitrator or any proceedings which are not in exercise of
statutory arbitration or statutory confirmation, but by virtue of private arbitration, a contractual stipulation agreed to between the parties.
Learned senior counsel for the respondents has also submitted that the decisions relied on by the learned senior counsel for the revision
petitioner, National Research Development Corporation Vs. Silicon Ceramics Ltd., and Unik Accurates Pvt. Ltd. v. Sumedha Fiscal Services Ltd.
2003 (4) R.A.J. 571 (CAL) have got only persuasive legal force, but on the contrary, the decision rendered by this Court referred supra has to be
followed, since after considering number of decisions rendered by the other High Courts as well as by the Supreme Court, this Court reiterated the
principle of law in the penultimate paragraph 41 and it reads as under:-
On a detailed consideration as set out above, this Court answers the point formulated as hereunder:-
Point (A) that the revision under Article 227 is not maintainable.
Point (B) that the rejection of the memo by the Arbitrator or the refusal to stay the proceedings is not liable to be interfered.
In this context, he has also cited the decision S.B.P. & CO v. Patel Engineering Ltd. 2005 (8) S.C.C. 618 wherein the Honourable Supreme
Court consisting of 7 Judges Bench laid down the ratio on the aspect of the matter in paragraph 45 as under:-
The object of minimising judicial intervention while the matter is in the process of being arbitrated upon, will certainly be defeated if the High Court
could be approached under Article 227 or under Article 226 of the Constitution against every order made by the Arbitral Tribunal. Therefore, it is
necessary to indicate that once the arbitration has commenced in the Arbitral Tribunal, the parties have to wait until the award is pronounced
unless, of course, a right of appeal is available to them u/s 37 of the Act even at an earlier stage.
It is therefore necessary to extract Section 16(2) and (3) and Section 37(2)(a) of the Act 26 of 1996 hereunder:-
Competence of arbitral tribunal to rule on its jurisdiction.-- (1) The arbitral tribunal may rule on its own jurisdiction, including ruling on any
objections with respect to the existence or validity of the arbitration agreement, and for that purpose,--
(a) .. ..
(b) .. ..
(2) A plea that the arbitral tribunal does not have jurisdiction shall be raised not later than the submission of the statement of defence; however, a
party shall not be precluded from raising such a plea merely because that he has appointed, or participated in the appointment of, an arbitrator.
(3) A plea that the arbitral tribunal is exceeding the scope of its authority shall be raised as soon as the matter alleged to be beyond the scope of its
authority is raised during the arbitral proceedings.
Appealable orders.-- (1) An appeal shall lie from the following orders (and from no others) to the Court authorised by law to hear appeals
from original decrees of the Court passing the order, namely:-
(a) .. ..
(b) .. ..
(2) An appeal shall also lie to a Court from an order of the arbitral tribunal--
(a) accepting the plea referred to in Sub-section (2) or Sub-section (3) of Section 16; or
(b) granting or refusing to grant an interim measure u/s 17.
Thus it is clear that even if the Arbitral Tribunal in this case passed an order accepting the contention of the revision petitioner herein, he could only
file an appeal u/s 37(2)(a) of the Act 26 of 1996.
In view of the above principles of law laid down in the said decisions and the provisions of law, learned senior counsel for the respondents has
submitted that firstly, the arbitral tribunal constituted between the parties herein by an agreement in relation to commercial transaction among
themselves cannot be brought under the purview of the powers of superintendence vested in the High Court under Article 227 of the Constitution
of India. In this connection, he has relied on the judgment of the Supreme Court in A.C. Companies v. P.N. Sharma AIR 1965 S.C.C. 1595
wherein the Apex Court laid down the criteria to determine whether the tribunal falls within the purview of the said Article or not. The relevant
principle of law laid down therein in paragraph 9 of the judgment may be extracted hereunder:-
Judicial functions and judicial powers are one of the essential attributes of a sovereign State and on considerations of policy, the State transfers its
judicial functions and powers mainly to the courts established by the Constitution; but that does not affect the competence of the State by
appropriate measures, to transfer a part of its judicial powers and functions to tribunals by entrusting to them the task of adjudicating upon special
matters and disputes between parties. It is really not possible or even expedient to attempt to describe exhaustively the features which are common
to the tribunals and the Courts and features which are distinct and separate. The basic and the fundamental feature which is common to both the
Courts and the tribunals is that they discharge judicial functions and exercise judicial powers which inherently vest in a sovereign State.
Learned senior counsel for the respondents has also relied on the judgment of the Supreme Court in The Engineering Mazdoor Sabha
Representing Workmen Employed Under the Hind Cycles Ltd. and Another Vs. The Hind Cycles Ltd., Bombay, wherein the dictum of law on
this aspect of the matter has been reiterated by the Apex Court in paragraph 5 as follows:-
The distinction between purely administrative or execute acts and judicial or quasi-judicial acts has been considered by the Court on several
occasions. In the case of Province of Bombay Vs. Kusaldas S. Advani and Others, Mahajan, J. observed that the question whether an act is a
judicial or a quasi-judicial one or a purely executive act depends on the terms of the particular rules and the nature, scope and effect of the
particular powers in exercise of which the act may be done and would, therefore depend on the facts and circumstances of each case. Courts of
law established by the State decide cases brought before them judicially and the decisions thus recorded by them fall obviously under the category
of judicial decisions. Administrative or executive bodies, on the other hand, are often called upon to reach decisions in several matters in a purely
administrative or executive manner and these decisions fall clearly under the category of administrative or executive orders. Even Judges have, in
certain matters, to act administratively, while administrative or executive authorities may have to act quasi-judicially in dealing with some matters
entrusted to their jurisdiction. Where an authority is required to act judicially either by an express provision of the statute under which it acts or by
necessary implication of the said statute, the decisions of such an authority generally amount to quasi-judicial decisions. Where, however, the
executive or administrative bodies are not required to act judicially and are competent to deal with issues referred to them administratively, their
conclusions cannot be treated as quasi-judicial conclusions. No doubt, even while acting administratively, the authorities must act bona fide, but
that is different from saying that they must act judicially.
Relying on the above principles of law enunciated by the Apex Court on the aspect of the matter under consideration, learned senior counsel
for the respondents has strenuously contended that in any view of the matter, the arbitral tribunal cannot be termed as a judicial or quasi judicial
body constituted under any authority of the State and that therefore the Tribunal is excluded from the purview of the powers vested in the High
Court under Article 227 of the Constitution of India.
Though the learned senior counsel for the revision petitioner has no quarrel over the said principles of law enunciated by the Apex Court and
then followed by this Court in the above decisions, has contended that since the Arbitral Tribunal has not passed any speaking order in accordance
with law, the revision petitioner is entitled to invoke the jurisdiction of this Court under Article 227 of the Constitution of India. As has been rightly
distinguished by the learned senior counsel for the respondents, the principle of law laid down by the Supreme Court in Mukhtiar Singh and
another Vs. State of Punjab, relied on by the learned senior counsel for the revision petitioner cannot help to advance his case for the simple
reason that the said decision was rendered in connection with the judgment of the Special Court Constituted under the Terrorist Affected Areas
(Special Courts) Act 1984 in the appeal by special leave challenging the conviction and sentence imposed by the Special Court on the appellant
therein and therefore he has contended that while analysing the judgment rendered by the Special Court, the Apex Court was constrained to make
an observation with reference to the decision rendered by the special court. Hence he has urged that on facts, the said principle of law laid down
therein cannot be invoked in this case. On a careful reading of the said decision, this Court is of the opinion that the contention of the learned senior
counsel for the respondents deserves acceptance.
Similarly, in the case reported in Ajantha Industries and Others Vs. Central Board of Direct Taxes, New Delhi and Others, also, the Apex
Court had an occasion to decide the Appeal by Special Leave with reference to the decision of the High Court of Andhra Pradesh questioning the
validity of the order of the Central Board of Direct Taxes under the Income Tax Act wherein it was held that requirement of recording reasons u/s
127(1) of the Income Tax Act 1961 is mandatory and that no communication thereof is not saved by showing that reasons exist in the file, although
not communicated to the assessee. Hence, it was held by the Apex Court that recording of reasons and disclosure of the same is not mere
formality. In the above circumstances, learned senior counsel for the respondents has rightly contended that the said principle of law laid down with
reference to that particular case by the Apex Court cannot be made applicable to the facts of the case on hand.
In this context, learned senior counsel for respondents has drawn the attention of this Court to the facts of the case reported in 2002 (3) R.A.J.
212 (MAD) referred supra, to show that in that case also, the revision was preferred as against the order of rejection of memo by one of the
arbitrators appointed under the commercial transaction between the parties therein in terms of the bilateral hire purchase agreement entered into
between them and therefore he has argued and in my opinion rightly that here in this case also, the rejection of the contention raised by the revision
petitioner by the majority of arbitral tribunal in the impugned communication cannot be questioned by means of this revision petition under Article
227 of the Constitution of India. It follows that the revision petition has to be dismissed as not maintainable.
Point No. 2: The next contention of the learned senior counsel for the revision petitioner is that since the arbitral tribunal failed to pass the
award within the stipulated time and inasmuch as the other arbitrator has given a dissenting order, the petition has to be ordered as prayed for. Per
contra, learned senior counsel for the respondents has cited the decision Nagar Palika, Mirzapur Vs. The Mirzapur Elect. Supply Co. Ltd., in
support of his contention that since the conduct of the parties is a major factor to waive the extension of time given by the court, time should be
taken as extended. On the contrary, according to him, in this case, the revision petitioner filed the objection calling for a preliminary finding before
the Arbitral Tribunal within time and since the Tribunal heard both the parties in connection with such application within time and reserved for
orders, in view of the ratio of the decision cited above, the time should be considered as extended even though the impugned order was passed
beyond the stipulated time of six months.
A careful perusal of the records of the case would disclose that the arbitrators who passed the impugned order upon the application filed by
the revision petitioner heard both the parties and reserved the orders within the time stipulated in the arbitral agreement. However since the order
was passed on 12.2.2005 to continue the arbitral proceedings referred to for arbitration reserving the reasons to be assigned in the final award
cannot be a ground to contend that the arbitral proceedings is barred by limitation. As has been held by the Apex Court in the decision referred
supra, the time should be taken as extended on account of the conduct on the part of the revision petitioner in filing the application before the
arbitral proceedings questioning the very agreement of the constitution of the Arbitral Tribunal itself on various grounds. In any view of the matter,
the revision petitioner has to wait till the final award is passed so as to enable him to question the same under the provision of Section 34 of the Act
26 of 1996.
For the foregoing reasons, the above points are answered that this revision petition under Article 227 of the Constitution of India is not
maintainable and that the rejection of the objection raised by the revision petitioner by the majority of the Arbitral Tribunal is not liable to be
challenged in this revision. Therefore this Civil Revision Petition is dismissed. Consequently, the connected C.M.Ps. are closed. However, there is
no order as to costs.