# MIS. S.B.P. AND CO v. MIS. PATEL ENGINEERING LTD. AND ANR

- **Citation:** [2005] Supp. 4 S.C.R. 688
- **Court:** Supreme Court of India
- **Decided:** 2005-10-26
- **Case number:** Civil Appeal No. 4168 of2003
- **Source:** https://unisonlegal.in/judgment/supreme-court-of-india/mis-s-b-p-and-co-v-mis-patel-engineering-ltd-and-anr-20980
- **Pages:** 91

## Headnote

A
MIS. S.B.P. AND CO.
v.
MIS. PATEL ENGINEERING LTD. AND ANR.
OCTOBER 26, 2005
B [R.C. LAHOTI, CJ., B.N. AGRA WAL, ARUN KUMAR, G.P. MATHUR, A.K.
MATHUR, P.K. BALASUBRAMANYAN AND C.K. THAKKER, JJ.]
Arbitration Act, 1940; Ss. 8, 20 and 21 !The Arbitration and
C Conciliation Act, 1996; Ss. 2(h), 2(h), 7, 9, //, /61and 34/Code of Civil
Procedure, 1908:
D
Functions performed by the Chief Justice of Supreme Court/Chief
Justices of High Courts under Section 11 of the 1996 Act-Administrative or
Judicial-Held: Judicial.
Held, Per majority:
Once a statute creates an authority, confers on it powers to adjudicate
and makes its decision final, the decision cannot be termed as purely
administrative decision-The ground a/ensuring minimum judicial
E interference by itself is not a ground to hold the power so conferred is only
an administrative power-When the power is conferred so as to decide on
the existence of the conditions justifying appointment of an arbitrator/arbitral
tribunal and is conferred on judicial authority/Chief Justice unless shown
otherwise, the Chief Justice has to act judicially-When Chief Justice is
F called upon to decide on the existence of arbitration agreement/appointment
of arbitrawr!constitution of tribunal and confronted with two different points
of view contended for by the rival parties in deciding so he .cannot be said
to be performing administrative function-Issuance of Notice to opposite
party cannot be construed to be merely an intimation but it really gives an
G opportunity of being heard-Since the Chief Justice has necessarily to apply
his mind before coming to a conclusion to appoint/not to appoint an
arbitrator, the decision so arrived at could appropriately be termed as
judicial decision.
Chief Justice exercising power to appoint an arbitrator/constitute ·
H arbitral tribunal-Interference by the tribunal-Held: Tribunal cannot go
688
(
S.B.P. AND CO. v. PATEL ENGINEERING LTD.
689
behind the decision of the Chief Justice and rule on its own jurisdiction.
A
Conferment of power on Chief Justice to appoint an arbitratorCharacteristics of-Held: It cannot be termed as persona designata as it is
conferred on a class and not on an individual-Since the intention of the
legislature is to entrust the power to the highest judicial authorities in the
State/country, the Chief Justice could designate other judge of the same B
Court but he cannot designate a District Judge to perform the functions in
terms of Section I 1, sub-section (6) of the Act.
Order of the arbitral tribunal-Challenge under Article 2261227 of the
Constitution-Held: Not permissible.
Words and Phrases:
'Court '-Meaning of
Held per minority:
c
D
When an appropriate authority after applying its mind in terms of the
circumstances enumerated in the Act arrived at a decision, the decision
cannot be considered on that basis as judicial/quasi judicial and not
administrative-The Chief Justice arrives at a decision of appointing an
arbitrator after satisfj;ing itself to the existence of an arbitration agreement E
and failure on the part of one of the parties to approve appointment of an
arbitrator-Such decision is merely of prima facie in nature and by passing
such order he does not decide lis nor contentious issues between the partiesThus performing of such functions does not make the function of the Chief
Justice as judicial/quasi judicial-The power to appoint an arbitrator is
given to the Chief Justice to ensure fairness, integrity and impartiality but F
that does not mean that the Chief Justice is exercising judicial/quasi-judicial
powers-By appointing an arbitrator, the Chief Justice is performing
administrative functions, as he is not under the obligation to act judiciallyBut he is under obligation/duty to act fairly and therefore requires to issue
notice to other party before taking a decision to appoint an arbitrator- G
Constitution of India, 1950-Articles 226 and 227.
Power of Chief Justice-Delegation-Held: Not permissible.
Power of Chief Justice to c

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A
MIS. S.B.P. AND CO.
v.
MIS. PATEL ENGINEERING LTD. AND ANR.
OCTOBER 26, 2005
B [R.C. LAHOTI, CJ., B.N. AGRA WAL, ARUN KUMAR, G.P. MATHUR, A.K.
MATHUR, P.K. BALASUBRAMANYAN AND C.K. THAKKER, JJ.]
Arbitration Act, 1940; Ss. 8, 20 and 21 !The Arbitration and
C Conciliation Act, 1996; Ss. 2(h), 2(h), 7, 9, //, /61and 34/Code of Civil
Procedure, 1908:
D
Functions performed by the Chief Justice of Supreme Court/Chief
Justices of High Courts under Section 11 of the 1996 Act-Administrative or
Judicial-Held: Judicial.
Held, Per majority:
Once a statute creates an authority, confers on it powers to adjudicate
and makes its decision final, the decision cannot be termed as purely
administrative decision-The ground a/ensuring minimum judicial
E interference by itself is not a ground to hold the power so conferred is only
an administrative power-When the power is conferred so as to decide on
the existence of the conditions justifying appointment of an arbitrator/arbitral
tribunal and is conferred on judicial authority/Chief Justice unless shown
otherwise, the Chief Justice has to act judicially-When Chief Justice is
F called upon to decide on the existence of arbitration agreement/appointment
of arbitrawr!constitution of tribunal and confronted with two different points
of view contended for by the rival parties in deciding so he .cannot be said
to be performing administrative function-Issuance of Notice to opposite
party cannot be construed to be merely an intimation but it really gives an
G opportunity of being heard-Since the Chief Justice has necessarily to apply
his mind before coming to a conclusion to appoint/not to appoint an
arbitrator, the decision so arrived at could appropriately be termed as
judicial decision.
Chief Justice exercising power to appoint an arbitrator/constitute ·
H arbitral tribunal-Interference by the tribunal-Held: Tribunal cannot go
688
(
S.B.P. AND CO. v. PATEL ENGINEERING LTD.
689
behind the decision of the Chief Justice and rule on its own jurisdiction.
A
Conferment of power on Chief Justice to appoint an arbitratorCharacteristics of-Held: It cannot be termed as persona designata as it is
conferred on a class and not on an individual-Since the intention of the
legislature is to entrust the power to the highest judicial authorities in the
State/country, the Chief Justice could designate other judge of the same B
Court but he cannot designate a District Judge to perform the functions in
terms of Section I 1, sub-section (6) of the Act.
Order of the arbitral tribunal-Challenge under Article 2261227 of the
Constitution-Held: Not permissible.
Words and Phrases:
'Court '-Meaning of
Held per minority:
c
D
When an appropriate authority after applying its mind in terms of the
circumstances enumerated in the Act arrived at a decision, the decision
cannot be considered on that basis as judicial/quasi judicial and not
administrative-The Chief Justice arrives at a decision of appointing an
arbitrator after satisfj;ing itself to the existence of an arbitration agreement E
and failure on the part of one of the parties to approve appointment of an
arbitrator-Such decision is merely of prima facie in nature and by passing
such order he does not decide lis nor contentious issues between the partiesThus performing of such functions does not make the function of the Chief
Justice as judicial/quasi judicial-The power to appoint an arbitrator is
given to the Chief Justice to ensure fairness, integrity and impartiality but F
that does not mean that the Chief Justice is exercising judicial/quasi-judicial
powers-By appointing an arbitrator, the Chief Justice is performing
administrative functions, as he is not under the obligation to act judiciallyBut he is under obligation/duty to act fairly and therefore requires to issue
notice to other party before taking a decision to appoint an arbitrator- G
Constitution of India, 1950-Articles 226 and 227.
Power of Chief Justice-Delegation-Held: Not permissible.
Power of Chief Justice to constitute arbitral tribunal/appoint an
arbitrator-Interference-Jurisdiction of the High Court-Held: Aggrieved H
690
SUPREME COURT REPORTS [2005] SUPP. 4 S.C.R.
A party could invoke the jurisdiction of High Court against an order passed
by the Chief Justice, however, the writ court will be circumspect in entertaining
a petition and in exercising extra ordinary jurisdiction in such cases.
Doctrines:
B
Doctrine of 'fairness '-Applicabi/ily of
Doctrine of 'Kompetenz-Kompetenz'-App/icabi/ity of
In the case of Konkan Rly. Corpn. Ltd. v. Mehul Construction Co., [2000}
7 SCC 201, three Judge Bench of this Court has taken the view that the
C function performed by the Chief Justice under Section 11 (6) of the Arbitration
and Conciliation Act is purely an administrative function; that it is neither
judicial nor quasi-judicial and the Chief Justice or his nominee while
performing such function cannot decide any contentious issue between the
parties. The decision/view was affirmed by the Constitution Bench in Konkan
D Railways Coproration Ltd. & Anr. v. Rani Construction Pvt. Ltd., [2002} 2
SCC 388. The correctness of the view is questioned in these appeals. The
question which arose for consideration in these appeals was about the nature
of the functions performed by the Chief Justice or his designate under Section
11 of the arbitration and Conciliation Act, 1996.
E
Disposing of the appeals, the Court
HELD: Per majority (P.K. Balasubramanyan for himself, R.C. Lahoti,
CJ, B.N. Agrawal, Arun Kuinar, G.P. Mathur, and A.K. Mathur, JJ.):
1.1. Sub-Section (7) of Section 11 of the Arbitration and Conciliation
F Act, 1996 has given a finality to the decisions taken by the Chief Justice or
any person or institution designated by him in respect of matters falling under
sub-Sections (4), (5) and (6) of Section 11 of the Act. Once a statute creates
an authority, confers on it power to adjudicate and makes its decision final on
matters to be decided by it, normally, that decision cannot be said to be a purely
administrative decision. It is really a decision on its own jurisdiction for the
G exercise of the power conferred by the statute or to perform the duties imposed
by the statute. Unless, the authority satisfies itself that the conditions for
exercise of its power exist, it could not accede to a request made to it for the
exercise of the conferred power. While exercising the power or performing
the duty under Section 11(6) of the Act, the Chief Justice has to consider
H whether the conditions laid down by the section for the exercise of that power
S.B.P. & CO. v. PATEL ENGINEERING LTD.
691
or the performance of that duty, exist. Section 11(7) makes his decision on A ·
the matters entrusted to him, final. [715-D-G[
1.2. It cannot be said that when the Chief Justice decides that he has
jurisdiction to proceed with the matter, that there is an arbitration agreement
and that one of the parties to it has failed to act according to the procedure
agreed upon, he is not adjudicating on the rights of the party who is raising B
these objections. [716-D)
1.3. The duty to decide the preliminary facts enabling the exercise of
jurisdiction or power, gets all the more emphasized, Sub-Section (7) of Section
11 designates the order under sub-sections (4), (5) or (6) a 'decision' and
makes the decision of the Chief Justice final on the matters rderred to in C
that sub-Section. Thus, going by the general principles of law and the scheme
of Section 11, it is difficult to call the order of the Chief Justice merely an
administrative order and to say that the opposite side need not even be heard
before the Chief Justice exercises his power of appointing an arbitrator. Even
otherwise, when a statute confers a power or imposes a duty on the highest D -
judicial authority in the State or in the country, that authority, unless shown
otherwise, has to act judicially and has necessarily to consider whether his
power has been rightly invoked or the conditions for the performance of his
duty are shown to exist. [716-D-F)
1.4. The question, in the context of Sub-Section (7) of Section 11 is, E
what is the scope of the right conferred on the arbitral tribunal to rule upon
its own jurisdiction and the existence of the arbitration clause, envisaged by
Section 16(1), once the Chief Justice or the person designated by him had
appointed an arbitrator after satisfying himself that the conditions for the
exercise of power to appoint an arbitrator are present iii the case. Prima facie, F
it would be difficult to say that in spite of the finality conferred by sub-Section
(7) of Section 11 of the Act, to such a decision of the Chief Justice, the arbitral
tribunal can still go behind that decision and rule on its own jurisdiction or
on the existence of an arbitration clause. It also appears to be incongruous to
say that after the Chief Justice had appointed an arbitral tribunal, the arbitral
tribunal can turn round and say that the Chief Justice had no jurisdiction or G
authority to appoint the tribunal, the very creature brought into existence by
the exercise of power by its creator, the Chief Justice. [717-D-F[
2.1. The framers of the statute must certainly be taken to have been
conscious of the definition of 'court' in the Act. It is easily possible to
contemplate that they did not want the power under Section 11 to be conferred H
692
SUPREME COURT REPORTS [2005) SUPP. 4 S.C.R.
A on the District Court or the High Court exercising original jurisdiction. The
intention apparently was to confer the power on the highest judicial authority
in the State and in the country, on Chief Justices of High Courts and on the
Chief Justice of India. Such a provision is necessarily intended to add the
greate5t credibility to the arbitral process. (718-E-GI
B
2.2. Normally, when a power is conferred on the highest judicial
authority who normally performs judicial functions and is the head of the
judiciary of the State or of the country, it is difficult to assume that the power
is conferred on the Chief Justice as persona designata. Under Section 11(6),
the Chief Justice is given a power to designate another to perform the
C functions under that provision. That power has generally been designated to
a Judge of the High Court or of the Supreme Court respectively. According
to Black's Law Dictionary, Persona designata means "A person considered
as an individual rather than as a member of a class". When the power is
conferred on the Chief Justices of the High Courts, the power is conferred
on a class and not considering that person as an individual.
D
(718-H; 719-A-BI
The Central Talkies Ltd .. Kanpur v. Dwarka Prasad. (196113 SCR 495
and Mukri Gopalan v. Cheppilat Puthanpurayil Aboobacker, (19951 5 SCC
5, relied on.
E
Black's Law Dictionary and Advanced LawLexicon, 3rd Edition, 2005
by P. Ramanatha Aiyar, referred to.
2.3. If the power is a judicial power, it is obvious that the power could be
conferred only on a judicial authority and in this case, logically on another
Judge of the High Court or on a Judge of the Supreme Court. It is logical to
F consider the conferment of the power on the Chief Justice of the High Court
and on the Chief Justice of India as presiding Judges of the High Court and
the Supreme Court and the exercise of the power so conferred, is exercise of
judicial power/authority as presiding Judges of the respective courts.
1120-q
G
P. Anand Gajapathi Raju v. P. V. G. Raju, (2000] 4 SCC 539 and
Hindustan Petroleum Corporation Ltd. v. Pink City Midway Petroleum.
(200316 sec 503, relied on.
2.4. The judicial authority is entitled to, has to and bound to decide the
jurisdictional issue raised before it, before making or declining to make a
H reference. Section 11 only covers another situation. Where one of the parties
S.B.P. & CO. v. PA TEL ENGINEERING LTD.
693
has refused to act in terms of the arbitration agreement, the other party moves A
the Chief Justice under Section l l of the Act to have an arbitrator appointed
and the first party objects, it would be incongruous to hold that the Chief
Justice cannot decide the question of his own jurisdiction to appoint an
arbitrator when in a parallel situation, the judicial authority can do so.
Obviously, the highest judicial authority has to decide that question and his B
competence to decide cannot be questioned. If it is held that the Chief Justice
has no right or duty to decide the question or cannot decide the question, it
will lead to an anomalous situation in that a judicial authority under Section
8 can decide, but not a Chief Justice under Section 11, though the nature of
the objection is the same and the consequence of accepting the objection in
one case and rejecting it in the other, is also the same, namely, sending the C
parties to arbitration. [720-G-H; 721-A-B)
2.5. Looking at the scheme of the 1996 Act as a whole and the object
with which it was enacted, replacing the Arbitration Act of 1940, it seems to
be proper to view the conferment of power on the Chief Justice as the
conferment of a judicial power to decide on the existence of the conditions D
justifying the constitution of an arbitral tribunal. [721-H; 722-A]
Supreme Court Advocates on Record Association v. Union of India.,
11993[ 4 sec 441 at 668, relied on.
2.6. It is true that the power under Section 11 (6) of the Act is not E
conferred on the Supreme Court or on the High Court, but it is conferred on
the Chief Justice of India or the Chief Justice of the High Court One possible
reason for specifying the authority as the Chief Justice, could be that if it
were merely the conferment of the power on the High Court, or the Supreme
Court, the matter would be governed by the normal procedure of that Court, F
including the right of appeal and the Parliament obviously wanted to avoid
that situation, since one of the objects was to restrict the interference by
Courts in the arbitral process. Therefore, the power was conferred on the
highest judicial authority in the country and in the State in their capacities
as Chief Justices. They have been conferred the power or the right to pass an
order contemplated by Section 11 of the Act. [722-C-D)
G
3.1. Section 16 of the Act is said to be the recognition of the principle
of Kompetenz-Kompetenz. The fact that the arbitral tribunal has the
competence to rule on its own jurisdiction and to define the contours of its
jurisdiction, only means that when such issues arise before it, the Tribunal
H
694
SUPREME COURT REPORTS [2005] SUPP. 4 S.C.R.
A can and possibly, ought to decide them. This can happen when the parties have
gone to the arbitral tribunal without recourse to Section 8 or 11 of the Act.
But where the jurisdictional issues are decided under these Sections, before
a reference is made, Section 16 cannot be held to empower the arbitral tribunal
to ignore the decision given by the judicial authority or the Chief Justice
before the reference to it was made. The competence to decide does not enable
B the arbitral tribunal to get over the finality conferred on an order passed prior
to its entering upon the reference by the very statute that creates it. That is
the posit.ion arising out of Section 11(7) of the Act read with Section 16 thereof.
The finality given to the order of the Chief Justice on the matters within his
competence under Section 11 of the Act, are incapable of being reopened before
C the arbitral tribunal. (723-F-H; 724-A]
3.2. In the case of Konkan Railway what is considered is only the fact
that under Section 16, the arbitral tribunal has the right to rule on its own
jurisdiction and any objection, with respect to the existence or validity of the
arbitration agreement. What is the impact of Section 11(7) of the Act on the
D arbitral tribunal constituted by an order under Section 11(6) of the Act, was
not considered. Obviously, this was because of the view taken in that decision
that the Chief Justice is not expected to decide anything while entertaining a
request under Section 11(6) of the Act and is only performing an administi;ative
function in appointing an arbitral tribunal. Once it is held that there is an
E adjudicatory function entrusted to the Chief Justice by the Act, obviously, the
right of the arbitral tribunal to go behind the order passed by the Chief Justice
would take another hue and would be controlled by Section 11(7) of the Act.
It was thus held that an order passed under Section 11(6) of the Act, by the
Chief Justice of the High Court or his nominee, was an administrative order,
its purpose being the speedy disposal of commercial disputes and that such
F an order could not be subjected to judicial review under Article 136 of the
Constitution of India. Even an order refusing to appoint an arbitrator would
not be amenable to the jurisdiction of the Supreme Court under Article 136
of the Constitution. A petition under Article 32 of the Constitution was also
not maintainable. But, an order refusing to appoint an arbitrator made by the
G Chief Justice could be challenged before the High Court under Article 226
of the Constitution. What seems to have persuaded this Court was the fact
that the statement of objects and reasons of the Act clearly enunciated that
the main object of the legislature was to minimize the supervisory role of
courts in arbitral process. Since Section 16 empowers the arbitral tribunal
to rule on its own jurisdiction including ruling on objections with respect to
H the existence or validity of an arbitration agreement, a party would have the
S.B.P. & CO. v. PATEL ENGINEERING LTD.
695
opportunity to raise his grievance against that decision either immediately A
or while challenging the award after it was pronounced. Since it was not proper
to encourage a party to an arbitration, to frustrate the entire purpose of the
Act by adopting dilatory tactics by approaching the court even against the
order of appointment of an arbitrator, it was necessary to take the view that
the order was administrative in nature. This was all the more so, since the
nature of the function performed by the Chief Justice was essentially to aid B
the constitution of the arbitral tribunal immediately and the legislature having
consciously chosen to confer the power on the Chief Justice and not on the
court, it was apparent that the order was an administrative order. However, it
has to be pointed out that this Court did not discus or consider the nature of
the power that the Chief Justice is called upon to exercise. Merely because C
the main purpose was the constitution of an arbitral tribunal, it could not be
taken that the exercise of power is an administrative power.
1724-A-C; 726-F-H; 727-A-CJ
Konkan Railway Corpn. ltd. & Anr. v. Rani Construction Pvt. ltd.,
1200212 SCC 388; Sundaram Finance ltd. v. NEPC India ltd, [199912 SCC D
479; Ador Samia Private limited v, Peekay Holdings limited and Ors., 119991
8 SCC 572; Wellington Associates ltd. v. Kirit Mehta, 12000] 4 SCC 272;
Konkan Railway Corporation ltd. v. Mehul Construction Co., [20001 7 SCC
201; Ador Samia Private limited v. Peekay Holdings limited and Ors., [1999]
8 SCC 572 and Sundaram Finance ltd. v. NEPC India ltd., [19991 2 SCC
479, distinguished.
3.4. While constituting an arbitral tribunal, on the scheme of the Act,
E
the Chief Justice has to consider whether he as the Chief Justice has
jurisdiction in relation to the contract, whether there was an arbitration
agreement in terms of Section 7 of the Act and whether the person before
him with the request, is a party to the arbitration agreement. On coming to a F
conclusion on these aspects, he has to enquire whether the conditions for
exercise of his power under Section 11(6) of the Act exist in the case and
only on being satisfied in that behalf, he could appoint an arbitrator or an
arbitral tribunal on the basis of the request. [727-D-EI
3.5. It is difficult to say that when one of the parties raises an objection G
that there is no arbitration agreement, raises an objection that the person
who has come forward with a request is not a party to the arbitration
agreement, the Chief Justice can come to a conclusion on those objections
without following an adjudicatory process. It is also not correct to say that by
the mere constitution of an arbitral tribunal the rights of parties are not H
696
SUPREME COURT REPORTS [2005) SUPP. 4 S.C.R .
. . , A affected. Dragging a party to an arbitration when there existed no arbitration
agreement or when there existed no arbitrable dispute, can certainly affect
the right of that party and even on monetary terms, impose on him a serious
liability for meeting the expenses of the arbitration, even if it be preliminary
expenses and his objection is upheld by the arbitral tribunal. Therefore, it
B cannot be said that no adjudication is involved in the constitution of an arbitral
tribunal.1727-E-F; G, H; 728-A]
3.6. It is also somewhat incongruous to permit the order of the Chief
Justice under Section 11(6) of the Act being subjected to scrutiny ~oder
Article 226 of the Constitution at the hands of another Judge of the High
C Court. In the absence of any conferment of an appellate power, it may not be
possible to say that a certiorari would lie against the decision of the High
Court in the very same High Court. Even in the case of an international
arbitration, the decision of the Chief Justice oflndia would be amenable to
challenge under Article 226 of the Constitution before a High Court. While
construing the scope of the power under Section 11 (6), it will not be out of
D place for the court to bear this aspect in mind, since after all, courts follow
or attempt to follow certain judicial norms and that precludes such challenges.
In other countries where UNCITRAL model was being followed, the court
could decide such issues judicially and need not mechanically appoint an
arbitrator. [728-B-D-G [
E
3. 7. There are situations where preliminary issues would have to be
decided by the court rather than by the arbitrator. If the order of the Chief
Justice or his nominees were to be treated as an administrative one, it could
be challenged before the single Judge of the High Court, then before a Division
Bench and then the Supreme Court under Article 136 of the Constitution, a
F result that would cause further delay in arbitral proceedings, something
sought to be prevented by the Act. An order under Section 11 of the Act did
not relate to the administrative functions of the Chief Justice or of the Chief
Justice of India. The question whether the Chief Justice could entertain the
application under Section 11(6) of the Act could not be left to the decision of
the arbitral tribunal constituted by him on entertaining such an application;
G that adequate attention was not paid to the requirement of the Chief Justice
having to decide that there is an arbitration agreement in terms of Section 7
of the Act before he could exercise his power under Section 11(6) of the Act
and its implication. The aspect, whether there was an arbitration agreement,
was not merely a jurisdictional fact for commencing the arbitration itself,
H but it was also a jurisdictional fact for appointing an arbitrator on a motion
S.B.P. & CO. v. PATEL ENGINEERING LTD.
697
under Section 11(6) of the Act. The Chief Justice could appoint an arbitrator A
in exercise of his power only if there existed an arbitration agreement and
without holding that there was an agreement, it would not be open to him to
appoint an arbitrator saying that he was appointing an arbitrator since he
has been moved in that behalf and the applicant before him asserts that there
is an arbitration agreement. Acceptance of such an argument would reduce B
the high judicial authority entrusted with the power to appoint an arbitrator,
an automaton and sub-servient to the arbitral tribunal which he himself brings
into existence. Our system of law does not contemplate such a situation.
1728-G-H; 729-A, F-H; 730-A)
Naresh Shridhar Mirajkar and Ors. v. State of Maharashtra and Anr. C
11966) 3 SCR 744 and Rupa Ashok Hurra v. Ashok Hurra and Anr., 12002) 4
sec 388, relied on.
3.8. The ground of ensuring minimum judicial intervention by itself is
not a ground to hold that the power exercised by the Chief Justice is only an
administrative function. 1730-EI
D
3.9. In a case where the objection to jurisdiction or the existence of an
arbitration agreement is overruled by the arbitral tribunal, the party has to
participate in the arbitration proceedings extending over a period of time by
incurring substantial expenditure and then to come to court with an application
under Section 34 of the Arbitration Act seeking the setting aside of the award E
on the ground that there was no arbitration agreement or that there was
nothing to be arbitrated upon when the tribunal was constituted. Though this
may avoid intervention by court until the award is pronounced, it does mean
considerable expenditure and time spent by the party before the arbitral
tribunal. On the other hand, if even at the initial stage, the Chief Justice
judicially pronounces that he has jurisdiction to appoint an arbitrator, that F
there is an arbitration agreement between the parties, that there was a live
and subsisting dispute for being referred to arbitration and constitutes the
tribunal as envisaged, on being satisfied of the existence of the conditions for
the exercise of his power, ensuring that the arbitrator is a qualified arbitrator,
that will put an end to a host of disputes between the parties, leaving the party G
aggrieved with a remedy of approaching this Court under Article 136 of the
Constitution. That would give this Court, an opportunity of scrutinizing the
decision of the Chief Justice on merits and deciding whether it calls for
interference in exercise of its plenary power. Once this Court declines to
interfere with the adjudication of the Chief Justice to the extent it is made, it
becomes final.1730-G, H; 731-A-CI
H
A
698
SUPREME COURT REPORTS [2005] SUPP. 4 S.C.R.
4.1. An appointment of an arbitral tribunal in terms of Section 11 of
the Act, is based on a power derived from a statute and the statute itself
prescribes the conditions that should exist for the exercise of that power. In
the process of exercise of that power, obviously the parties would have the
right of being heard and when the existence of the conditions for the exercise
B of the power are found on accepting or overruling the contentions of one of
the parties it necessarily amounts to an order, judicial in nature, having
finality subject to any available judicial challenge as envisaged by the Act or
any other statute or the Constitution. Looked at from that point of view also,
it seems to be appropriate to hold that the Chief Justice exercises a judicial
power while appointing an arbitrator.[731-H; 732-A-B]
c
4.2. In the matter of deciding his own jurisdiction and in the matter of
deciding on the existence of an arbitration agreement, the Chief Justice when
confronted with two points of view presented by the rival parties, is called upon
to decide between them and the decision vitally affects the rights of the parties
in that, either the claim for appointing an arbitral tribunal leading to an award
D is denied to a party or the claim to have an arbitration proceeding set in motion
for entertaining a claim is facilitated by the Chief Justice. In this context, it
is not possible to say that the Chief Justice is merely exercising an
administrative function when called upon to appoint an arbitrator and that he
need not even issue notice to opposite side before appointing an arbitrator.
E
[734-D, E, F]
Shankar/al Aggarwal and Ors. v. Shankar Lal Poddar and Ors., (1964]
I SCR 717, referred to.
Attorney Geenral of the Gambia v. Pierre Sarr N'jie, (1961) Appeal Cases
F 617 and Myers v. Elman, per lord Wright. referred to.
4.3. It is fundamental to the procedural jurisprudence, that the right of
no person shall be affected without he being heard. This necessarily imposes
an obligation on the Chief Justice to issue notice to the opposite party when
he is moved under Section 11 of the Act. The notice to the opposite party cannot
G be considered to be merely an intimation to that party of the filing of the
arbitration application and the passing of an administrative order appointing
an arbitrator or an arbitra1 tribunal. It is really the giving of an opportunity
of being heard. [734-F-Gl
4.4. The Chief Justice has necessarily to apply his mind to various
H aspects before coming to a conclusion one way or the other and before
S.B.P.&CO. v. PATEL ENGINEERING LTD.
699
proceeding to appoint an arbitrator or declining to appoint an arbitrator. A
Obviously, this is an adjudicatory process. An opportunity of hearing to both
parties is a must. Even in administrative functions if rights are affected, rules
of natural justice step in. Therefore, findings in the case of Konkan Railway
that no notice need be issued to the opposite party to give him an opportunity
of being heard before appointing an arbitrator, has to be held to be not
sustainable. (735-B-D]
B
Konkan Railway Corpn. ltd. & Anr. v. Rani Construction Pvt. Ltd..
(2002) 2 SCC 388 and Konkan Railway Corporation Ltd. v. Mehul
Construction Co., (2000) 7 SCC 201, referred to.
Ridge v. Baldwin, (1963) 2 ALL ER 66, referred to.
4.5. It is true that finality under Section I I (7) of the Act is attached
only to a decision of the Chief Justice on a matter entrusted by sub-Section
c
(4) or sub-Section (5) or sub-Section (6) of that Section. The finality, at first
blush, could be said to be only on the decision on these matters. But the basic D
requirement for exercising his power under Section I 1(6), is the existence
of an arbitration agreement in terms of Section 7 of the Act and the applicant
before the Chief Justice being shown to be a party to such an agreement. It
would also include the question of the existence of jurisdiction in him to
entertain the request and an enquiry whether at least a part of the cause of
action has arisen within the concerned State. Therefore, a decision on E
jurisdiction and on the existence of the arbitration agreement and of the
person making the request being a party to that agreement and the subsistence
of an arbitrable dispute require to be decided and the decision on these aspects
is a prelude to the Chief Justice considering whether the requirements of
sub-Section (4), sub-Section (5) or sub-Section (6) of Section 11 are satisfied F
when approached with the request for appointment of an arbitrator. It is
difficult to understand the finality as referred to in Section 11(7) as excluding
the decision on his competence and the locus standi of the party who seeks to
invoke his jurisdiction to appoint an arbitrator. Viewed from that angle, the
decision on all these aspects rendered by the Chief Justice would attain finality
and it is obvious that the decision on these aspects could be taken only after G
notice to the parties and after hearing them. (735-D, G, H; 736-A-B)
5. Taking note of Section 5 of the Act and the finality attached by Section
11 (7) of the Act to the order of the Chief Justices of High Courts and the
Chief Justice of India and the conclusion arrived at that the adjudication is
judicial in nature, it is obvious that no person other than a Judge and no non- H
700
SUPREME COURT REPORTS [2005) SUPP. 4 S.C.R.
A judicial body can be designated for entertaining an application for appointing
an arbitrator under Section 11(6) of the Act or for appointing an arbitrator.
The judicial powers are to be exercised by the judicial authorities and not by
non-judicial authorities. This scheme cannot be taken to have been given the
go-by by the provisions in the Act. Therefore, what the Chief Justice can do
under Section 11(6) of the Act is to seek the help of a non-judicial body to
B point out a suitable person as an arbitrator in the context of Section 11(8) of
the Act and on getting the necessary information, if it is acceptable, to name
that person as the arbitrator or the set of persons as the arbitral tribunal.
Since the intention of the statute is to entrust the power to the highest judicial
authorities in the State and in the country, the Chief Justice cannot designate
C a district judge to perform the functions under Section 11(6) of the Act.
(737-A-C, EJ
6.1, The arbitral tribunal is after all, the creature of a contract between
the parties, the arbitration agreement, even though if the occasion arises,
the Chief Justice may constitute it based on the contract between the parties.
D But that would not alter the status of the arbitral tribunal. It will still be a
forum chosen by the parties by agreement. Therefore the stand adopted by
some of the High Courts that any order passed by the arbitral tribunal is
capable of being corrected by the High Court under Article 226 or 227 of the
Constitution of India is disapproved as not permissible. (739-8, CJ
E
F
6.2. It is clarified that appointments of arbitrators or arbitral tribunals
thus far made, are to be treated as valid, all objections being left to be decided
under Section 16 of the Act. As and from this date, the position as adopted in
this judgment will govern even pending applications under Section 11(6) of
the Act. (740-H; 741-AJ
6.3. Where District Judges had been designated by the Chief Justice of
the High Court under Section 11(6) of the Act, the appointment orders thus
far made by them will be treated as valid; but applications if any pending before
them as on this date will stand transferred, to be dealt l\ith by the Chief Justice
of the concerned High Court or a Judge of that court designated by the Chief
G Justice. (741-BI
H
6.4. The decision in Konkan Railway Corpn. Ltd. & Anr. v. Rani
Construction Pvt. ltd., (20021 2 SCC 388 is overruled.
Per minority (C.K. Thakker, J.):
S.B.P. & CO. v. PATEL ENGINEERING LTD.
701
I.I. The argument that wherever a statute requires certain matters to A
be taken into account and the authority is obliged to apply its mind to those
considerations, the action, decision or adjudication must be held judicial or
quasi-judicial is based on misconception. This is not the legal position. It is
settled law that in several cases, an appropriate authority may have to consider
the circumstances laid down in the Act, apply its mind and then to take a
decision. Such decision may affect one or the other party and may have far B
reaching consequences. But from that it cannot be concluded that the decision
is judicial or quasi-judicial and not administrative. [753-F-G[
State of Madras v. C.P. Sarthy, [1953[ SCR334 AIR (1953) SC 53; Prem
Kakar v. State of Haryana, [1976[ 3 SCR 1010; Sultan Singh v. State of C
Haryana, [1996] 2 SCC 66 and Secretary Indian Tea Association v. Ajit Kumar
Baral, [2000[ 3 SCC 93, referred to.
1.2. It cannot be gainsaid that there must be an 'arbitration agreement'
between the parties. It also cannot be denied that there must be default o_r
failure on the part of one party to appoint an arbitrator. But that will not make D
the function performed by the C!Jiedustice as judicial or quasi-judicial.
_ Therefore, when the question as to composition of Arbitral Tribunal and
appointment of an arbitrator comes up for consideration, it can safely be
assumed that there is an arbitration agreement, inasmuch as it is in
consonance with the legislative scheme and the question as to the appointment E
of arbitrator arises only in view of such agreement. Moreover, before
exercising the power to appoint an arbitrator, the Chief Justice must peruse
the relevant record relating to an agreement and failure by one party in
making an appointment which would enable him to act. There is, however, no
doubt that at that stage, the satisfaction required is merely of prima facie
nature and the Chief Justice does not decide !is nor contentious issues between F
the parties. Section 11 of the Arbitration and Conciliation Act neither
contemplates detailed inquiry, nor trial nor findings on controversial or
contested matters. [755-C-E[
Wellington Associates Ltd v. Kirit Mehta, [2000[ 4 SCC 272; Malaysian
Airlines System v. Stic Travels (P) Ltd, [2001[ l SCC 509; Nimeet Resources G
INC v. Essar Steels Ltd, [2000[ SCC 497 and Shin Etsu Chemical Co. ltd v.
Aksh Optifibre Ltd. & Anr. (2005[ 7 SCC 234, referred to.
Report on Arbitration and Conciliation (Amendment) Bill, 2001 and
International Commercial Arbitration (1994 edn.) by Fouchard, Gaillard and
H
702
SUPREME COURT REPORTS (2005) SUPP. 4 S.C.R.
A Goldman, referred to.
1.3. Sub-section (7) of Section 11 of the Act, no doubt, uses the term
'decision'. But the Chief Justice forms primafacie opinion as to the fulfillment
of conditions specified in sub-section (6). The decision neither contemplates
adjudication of /is between two or more parties nor resolves controversial and
B contentious issues. It merely requires the Chief Justice to take an appropriate
action keeping in view the provisions of Part II and sub-sections (1), (4) and
(5) of Section 11. Regarding matters which the Chief Justice is expected to
consider, such as qualification, independence and impartiality of arbitrator,
they are statutory provisions and the Chief Justice is obliged to keep them in
C view as per mandate of the Legislature. The said fact, however, does not make
the function of the Chief Justice judicial or quasi-judicial. (756-H; 757-A-B)
2. Finality of an order has nothing to do with the nature off unction to
be performed by the Chief Justice. Several statutes declare an order passed,
decision taken or declaration made by the competent authority 'final' or 'final
D and conclusive' or 'final and conclusive and is not open to challenge in any
court'. This. is known as 'statutory finality' and such clauses require to be
interpreted in juxta-position of constitutional provisions. As a general rule,
no appeal, revision or review lies against an order which has been treated by
a statute as 'final'. It may not be challenged by instituting a civil suit in certain
cases. But such finality rnnnot take away the jurisdiction of High Courts or
E the Supreme Court and judicial review is available against 'final' orders a/be.it
on limited grounds. [757-E-G]
Vide Somvanti v. State of Punjab, (1963] 2 SCR 774; AIR 1963 SC 154
and Neelima Misra v. Harvinder Kaur Painta/ and Ors., (1990] 2 SCC 746,
F referred to.
3.1. There is another important reason as to why the function of the
Chief Justice under Section 11 of the 1996 Act should be considered
administrative. All the three sub-sections, (4), (5) and (6) of Section 11
empower the Chief Justice or 'any person or institution designated by him'
G to exercise the power of the Chief Justice. No provision similar to the one in
hand was present in the Arbitration Act, 1940. Parliament, therefore, has
consciously and intentionally made the present arrangement for the first time
allowing exercise of the power by the Chief Justice himself or through 'any
person or institution designated by him' since the function is admini.strative
in character and is required to be performed on primafacie satisfaction under
H
---
S.B.P.&CO. v. PATEL ENGINEERING LTD.
703
sub-section (6) of Section l l of the Act. 1757-G-H; 758-A)
3.2. The provision under Section 16 of the 1996 Act appears to have
been made to prevent dilatory tactics and abuse of immediate right to approach
A
the court. If an aggrieved party has right to move the court, it would not have
been possible to preclude the court from granting stay or interim relief which
would bring the arbitration proceedings to a grinding halt. The provisions of B
Section 16 (6) read with Section 5 make the legal position clear, unambiguous
and free from doubt. 1758-D-E]
3.3. Section 16 (1) of the Act incorporates the well-known doctrine of
Kompetenz - Kompetenz or competence de la competence.