CASE NO.:
Appeal (civil) 1151-1152 of 2001
PETITIONER:
Union of India & Another
RESPONDENT:
Raunaq International Ltd
DATE OF JUDGMENT: 08/05/2008
BENCH:
Tarun Chatterjee & Dalveer Bhandari
JUDGMENT
JUDGMENT
NON-REPORTABLE
IN THE SUPREME COURT OF INDIA
CIVIL APPEALLTE JURISDICTION
CIVIL APPEAL NOs.1151-1152 OF 2001. Union of India & Another .. Appellants
Versus Raunaq International Ltd. .. Respondent
JUDGMENT
Dalveer Bhandari, J. 1. These civil appeals are directed against the judgment of the Madhya Pradesh High Court of Judicature at Jabalpur delivered in Miscellaneous Appeal Nos.479/1996 and 501/1996 dated Ist December, 1999. 2. The legal issue involved in these appeals is:
"Whether the Court while deciding the application
under section 20 of the Arbitration Act, 1940 can
consider the issue as to what is arbitrable and what
is not arbitrable, or judicial officer’s role is only
ministerial or mechanical in nature i.e. referring the
dispute to arbitrator if there is an arbitration
agreement and some disputes have arisen out of
the contract between the parties?" 3. Brief facts which are necessary to dispose of these appeals are as under:-
In the present case, the respondent/contractor had demanded arbitration as per clause 64 of the General Conditions of the Contract and had raised five claims. 4. The appellants herein agreed to refer for arbitration only claim no.4 and the rest of the claims were "excepted" matters and were specifically excluded from the purview of the arbitration by virtue of clause 63 of the General Conditions of the Contract as well as by virtue of Special Conditions of the Contract. 5. The respondent thereafter approached the District Judge by filing an application under section 20 of the Arbitration Act, 1940 for the appointment of two independent arbitrators for settling all his five claims. The District Judge vide his judgment/order dated 11.12.1995 referred claims no.3, 4 & 5 to be considered for arbitration by the arbitrators already appointed for considering the claim no.4. 6. Being aggrieved, both the appellants as well as the respondent/contractor approached the High Court. The High Court vide impugned judgment dated 01.12.1999 held that the Additional District Judge should have referred all the five claims raised by the respondent/contractor to be decided by the arbitrator in accordance with law. 7. According to the learned Judges of the High Court, the order passed by the Additional District Judge is not sustainable in law. The relevant findings of the High Court are reproduced as under:
"Now the question is whether the learned Additional
District Judge could have gone into the question
whether the claims made by the claimant are
arbitrable or not or they are excepted or they fall in
the category of excepted items. In our considered
opinion, at that stage, the Civil Court has only a
jurisdiction to decide a very limited question
whether there is arbitration agreement or not and
the issues which have been raised are subject
matter of the agreement or not. Once it is decided
by the District Court that there is an arbitration
agreement and the difference has arisen out of the
agreement, thereafter the act of the Court is only
ministerial to refer the matter to the arbitrator." 8. The High Court further held that according to section 20 of the 1940 Act, it is clear that the court need not enter into other matters after it is decided that there is an arbitration agreement and the difference has arisen from the agreement. It has to forward the case, good or bad, to the arbitrator. The High Court further held that the court should not take it upon itself the task of deciding which items are arbitrable or not. The High Court observed as under:-
"It is not the function of the Court to see that
certain items fall under the excepted or non
excepted category and whether the claim is vague or
justified or not. This is not the stage of the Court to
enter into that adjudication. The jurisdiction of the
Court comes to an end the moment it is decided
that there is an arbitration agreement and the
difference has arisen out of the agreement. It is
only administrative or ministerial job of the court to
refer the matter to Arbitrator." 9. The learned counsel appearing for the Union of India submitted that in view of the pronouncement of this court in General Manager, Northern Railway & Another v. Sarvesh Chopra (2002) 4 SCC 45, the controversy is no longer res integra. This court had an occasion to deal with exactly similar controversy. This court observed as under:
"10. ...While dealing with a petition under Section
20, the court has to examine: (i) whether there is an
arbitration agreement between the parties, (ii)
whether the difference which has arisen is one to
which the arbitration agreement applies, and (iii)
whether there is a cause, shown to be sufficient, to
decline an order of reference to the arbitrator. The
word "agreement" finding place in the expression
"where a difference has arisen to which the
agreement applies", in sub-section (1) of Section 20
means "arbitration agreement". The reference to an
arbitrator on a petition filed under Section 20 is not
a function to be discharged mechanically or
ministerially by the court; it is a consequence of
judicial determination, the court having applied its
mind to the requirements of Section 20 and formed
an opinion, that the difference sought to be referred
to arbitral adjudication is one to which the
arbitration agreement applies. ..." This court further referred to the passage from celebrated book on Arbitration by Russell (21st Edn. 1997 para 1-027 at p. 15). We deem it appropriate to reproduce the said passage as under:-
"Arbitrability.--The issue of arbitrability can arise at
three stages in an arbitration; first, on an
application to stay the arbitration, when the
opposing party claims that the Tribunal lacks the
authority to determine a dispute because it is not
arbitrable, second, in the course of the arbitral
proceedings on the hearing of an objection that the
Tribunal lacks substantive jurisdiction and third,
on an application to challenge the award or to
oppose its enforcement. The New York Convention,
for example, refers to non-arbitrability as a ground
for a court refusing to recognize and enforce an
award." While concluding the matter, this court in the aforementioned case observed as under:-
"17. ... (i) while deciding a petition under Section
20 of the Arbitration Act, 1940, the court is obliged
to examine whether a difference which is sought to
be referred to arbitration is one to which the
arbitration agreement applies. If it is a matter
excepted from the arbitration agreement, the court
shall be justified in withholding the reference, (ii) to
be an excepted matter it is not necessary that a
departmental or an "in-house" remedy for
settlement of claim must be provided by the
contract. Merely for the absence of provision for in-
house settlement of the claim, the claim does not
cease to be an excepted matter, and (iii) an issue as
to arbitrability of claim is available for
determination at all the three stages -- while
making reference to arbitration, in the course of
arbitral proceedings and while making the award a
rule of the court." 10. In view of the clear enunciation of law, these appeals are allowed and consequently, the impugned judgment of the Division Bench of the High Court delivered in Miscellaneous Appeal Nos.479/1996 and 501/1996 is set aside and the order of the learned Addl. District Judge is restored. 11. In the facts and circumstances of the case, we direct the parties to bear their own costs.
...............................J.
(Tarun Chatterjee)
...............................J.
(Dalveer Bhandari) New Delhi; May 8, 2008.