Airport Authority Of India vs Hindustan Steel Works ...
2009 Latest Caselaw 4166 Del

*     IN THE HIGH COURT OF DELHI AT NEW DELHI

+     FAO(OS) No.21/2008 & CM Nos.606-607/2008

AIRPORT AUTHORITY OF INDIA.....Appellant through
                           Mr. Amarendra Sharan,
                           Sr. Adv. with Mr. P.R.
                           Tiwary & Mr. Amit Anand
                           Tiwari, Advs.
             versus

HINDUSTAN STEEL WORKS            ......Respondent through
CONSTRUCTION LTD.                Mr. C.M. Oberoi with
                                 Ms. Surekha Raman, Advs.

%                     Date of Hearing : August 21, 2009

                      Date of Decision : October 15, 2009

      CORAM:
*     HON'BLE MR. JUSTICE VIKRAMAJIT SEN
      HON'BLE MR. JUSTICE RAJIV SHAKDHER
      1. Whether reporters of local papers may be
         allowed to see the Judgment?             Yes
      2. To be referred to the Reporter or not?   Yes
      3. Whether the Judgment should be reported
         in the Digest?                           Yes

VIKRAMAJIT SEN, J.

1. This Appeal assails the Order of the learned Single

Judge dated 1.8.2007 referring the disputes and claims made

by the Plaintiff, namely, Hindustan Steel Works Construction

Limited, who is the Respondent before us, to the Permanent

Machinery of Arbitrators (PMA). It is noteworthy that both

the parties are „public sector enterprises‟ and hence ought to

have respected and implemented the legal regime set-down

by the Supreme Court in ONGC -vs- Collector of Central

Excise, 1992 Supp (2) SCC 432. It is indeed a matter of

regret that the Appellant, who is the Defendant in the Suit,

had elected not to do so and apart from spending large sums

of monies in frivolous and needless litigation, has exhausted a

large chunk of time available to the Courts, which we feel

could have been better utilized.

2. In the impugned Order, the learned Single Judge has

recorded the existence of an Arbitration Clause in the

General Conditions of Contract (GCC) which empowers the

Chairman, National Airport Authority (NAA) or the

Administrative Head of the NAA to appoint the Sole

Arbitrator. It appears that before the filing of the Suit, the

Plaintiff had made repeated efforts to have the disputes

referred to Arbitration, all of which met with no fruition due

to the obduracy on the part of NAA. In the first instance, the

Appellant/Defendant had called upon the Plaintiff to make

specific claims and when this was done, the request for

arbitration was declined on the ground that since more than

ninety days had elapsed, the request for arbitration contained

in Clause 25 of GCC has been rendered ineffectual. At this

juncture, the Plaintiff addressed a communication dated

10.2.2005 to the Secretary, Department of Public Enterprises,

requesting for a Reference of the claims to the PMA which

declined to intervene on the specious ground that the

Arbitration Clause did not contemplate a Reference of

disputes to the PMA. If ONGC is properly and

comprehensively understood, NAA should have welcomed the

PMA as the forum for a resolution of its disputes as an alter

ego, as it were, to the Cabinet Committee of Disputes. We

have been informed that the PMA has, in the interregnum

thereafter, issued notice to the parties hereto for entering

and completing the arbitration process. A suggestion,

however, was made by the PMA that the parties may agree to

fresh Arbitration Clause empowering the PMA to enter upon

the Reference. The Plaintiff‟s request to this effect was

declined by the Appellant/Defendant, leaving the former with

no alternative but to file a suit for the recovery of Rupees

2,95,75,162/-.

3. In response to the Plaint, the Appellant made a

complete turn around and has raised a Preliminary Objection

pertaining to the alleged non-maintainability of the suit in

view of the existence of the Arbitration Clause. The

submission made before the learned Single Judge was that it

was open to the Plaintiff/Respondent to invoke the provisions

of Section 11(b) of the Arbitration Act, 1996 (for short „A&C

Act‟) for the purposes of appointment of an arbitrator. In the

impugned Order it has been opined that once a Defendant

has repudiated the arbitration agreement, the Plaintiff could

pursue either of the two options - firstly, to file a suit for

recovery and secondly, to invoke Section 11 of the A&C Act.

The learned Single Judge has applied the decisions of the

Supreme Court in Datar Switchgears Ltd. -vs- Tata Finance

Ltd., (2000) 8 SCC 151 and S.B.P. & Co. -vs- Patel

Engineering Ltd., (2005) 8 SCC 618 to arrive at the

conclusion that the appointment in terms of Section 25 of the

GCC had been deliberately delayed, leaving it to the Court to

adopt the option of appointing an arbitrator itself.

Implementing the dicta in P. Anand Gajapathi Raju -vs- P.V.G

Raju, (2000) 4 SCC 539, the learned Single Judge has

referred the parties to arbitration in respect of all the claims

of the Plaintiff/Respondent under the aegis of the PMA.

4. Even in respect of this decision the Appellant has

decided to file the present vexatious and indubitably time-

barred Appeal. The gravamen of the ONGC, that disputes

between public sector enterprises should not be brought to

Court as a last resort, has accordingly been willfully

challenged at every conceivable stage by the Appellant,

thereby wasting scarce government resources and Court

time. It would indeed be significant to make an inquiry of the

legal costs incurred by the Appellant/Defendant in the course

of this litigation. We have touched upon the merits of the case

because we are, in the first instance, called upon to decide

the Appellant‟s Application for condonation of delay in filing

the Appeal.

5. The Application filed by the Appellant seeking

condonation of delay is carelessly cryptic and blissfully devoid

of necessary details. The non-exercise of mind is palpably

clear from the statement made in paragraph 4 of the

Application which is to the effect that - "The Petitioner most

humbly pray that the delay in filing Special leave petition

may be condoned in the interest of Justice." The narration of

facts, which may be germane for the Court to reach a

decision whether or not to condone the delay in filing the

Appeal, are as follows:-

2.(a) The Hon‟ble High Court delivered its judgment on 1.8.2007. It is submitted that the application for certified copy of the impugned order was moved on 3.8.2007and the certified copy was made ready on

18.9.2007. The Advocate sent the copy to department of law, Airport Authority of India and thereafter the Department of Law sent the copy to Directorate of Engineering Southern Region. On 18.10.2007 General Manager (Engg.) informed to the General Manager Airports Authority of India. Since the present matter is purely a legal issue, therefore only legal wing can take final decision.

(b) It is after that file has been sent to Chairman Airport Authority of India to take final decision.

(c) Thereafter the Airport Authority sent the papers to advocate for drafting the FAO(OS). The drafting counsel after preparing FAO(OS) returned the file to Airport Authority of India.

(d) After receiving the reasons for day to day delay the Airport Authority of India sent the file to the drafting counsel on 23.11.2007 on the drafting counsel after preparing the applicant sent the same to the Airport Authority of India. ....

(3) That the above is sole cause of delay. There is sufficient cause which has prevented not to file present LPA within a period of 30 days. The delay was not intentional but due to aforesaid circumstances.

6. The Appellant has not considered it necessary to

disclose to the Court the "reasons for the day to day delay"

stated in paragraph 2(d) of the Application. In fact, the

reasons for delay have not been spelt out at all. Since no

reasons have been presented in the Application, referring to

the circumstances in which their Lordships had condoned the

delay in several cases, including State of Bihar -vs-

Kameshwar Prasad Singh, (2000) 9 SCC 94, can be of no avail

to the Appellant. In any event, what ought not to be lost sight

of is the fact that the learned Single Judge had referred the

parties to the arbitration of the PMA, which, in the tenor of

the ONGC decision, is best and ideally suited to resolve the

disputes between the public sector enterprises. Furthermore,

on the failure of the Appellant to appoint an arbitrator and in

light of its reliance on the Arbitration Clause in defence to the

suit for recovery filed by the Respondent, the learned Single

Judge was fully empowered to appoint an arbitrator, which is

precisely what it has done in the present case.

7. Shree Subhlaxmi Fabrics(P) Ltd. -vs- Chand Mal

Baradia, (2005) 10 SCC 704, a Two Judge Bench has held in

paragraph 14 that the question whether an Arbitration Clause

in fact existed should properly be decided by the Arbitral

Tribunal. In India Household and Healthcare Ltd. -vs- LG

Household and Healthcare Ltd., (2007) 5 SCC 510 the

learned Single Judge has observed that "as and when a

question in regard to the validity or otherwise of the

arbitration agreement arises, a judicial authority would have

the jurisdiction under certain circumstances to go into the

said question". The definitive opinion on this legal labyrinth is

available in paragraph 19 of the Seven Judge Bench decision

in Patel Engineering Ltd. which reads thus:-

19. 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 (1996) 6 SCC 385). 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. Similarly, Section 9 enables a court, obviously, as defined in the Act, when approached by a party before the commencement of an arbitral proceeding, to grant interim relief as contemplated by the section. When a party seeks an interim relief asserting that there was a dispute liable to be arbitrated upon in terms of the Act, and the opposite party disputes the existence of an arbitration agreement as defined in the Act or raises a plea that the dispute involved was not covered by the arbitration clause, or that the court which was approached had no jurisdiction to pass any order in terms of Section 9 of the Act, that court has necessarily to decide whether it has jurisdiction, whether there is an arbitration agreement which is valid in law and whether the dispute sought to be raised is covered by that agreement. There is no indication in the Act that the powers of the court are curtailed on these aspects. On the other hand, Section 9 insists that once approached in that behalf, "the court shall have the same power for making orders as it has for the purpose of and in relation to any proceeding before it". Surely, when a matter is entrusted to a civil court in the ordinary hierarchy of

courts without anything more, the procedure of that court would govern the adjudication (see R.M.A.R.A. Adaikappa Chettiar v. R. Chandrasekhara Thevar, AIR 1948 PC 12.)

8. The following observations in K.V. Aerner Cementation

India Ltd. -vs- Bajranglal Agarwal, IV(2001) SLT 535 = 2001

(6) Supreme 265 are noteworthy even though it needs to be

clarified that when a Civil Court is called upon to pass an

injunction order under Section 9 of the A&C Act, it must be

satisfied that it enjoys jurisdiction under that Act:-

....the petitioner contends that the jurisdiction of the civil Court need not be inferentially held to be ousted unless any statute on the face of it excludes the same and judged from that angle when a party assails the existence of an arbitration agreement, which would confer jurisdiction on an arbitral Tribunal, the Court committed error in not granting an order of injunction. There cannot be any dispute that in the absence of any arbitration clause in the agreement, no dispute could be referred for arbitration to an arbitral Tribunal. But, bearing in mind the very object with which the Arbitration and conciliation Act, 1996 has been enacted and the provisions thereof contained in Section 16 conferring the power

on the arbitral Tribunal to rule on its own jurisdiction including ruling on any objection with respect to existence or validity of the arbitration agreement, we have no doubt in our mind that the Civil Court cannot have jurisdiction to go into that question. A bare reading of Section 16 makes it explicitly clear that the arbitral Tribunal has the power to rule on its own jurisdiction even when any objection with respect to existence or validity of the arbitration agreement is raised and a conjoint reading of sub-sections(2), (4) and (6) of Section 16 would make it clear that such a decision would be amenable to be assailed within the ambit of Section 34 of the Act. In this view of the matter, we see no infirmity with the impugned order so as to be interfered with by this Court. The petitioner who is a party to the arbitral proceedings may raise the question of jurisdiction of the Arbitrator as well as the objection on the ground of non-existence of any arbitration agreement in the so- called dispute in question and such an objection being raised, the Arbitrator would do well in disposing of the same as a preliminary issue so that it may not be necessary to go into the entire gamut of arbitration proceedings.

9. In Patel Engineering Ltd. the Court had itself

formulated the question that had been posed before it to be

what is the nature of the function of the Chief Justice or his

designate under Section 11 of the A&C Act. Their Lordships

returned twelve conclusions, of which the fourth is pertinent

to the conundrum before us, viz. - "The Chief Justice or the

designated Judge will have the right to decide the preliminary

aspects as indicated in the earlier part of this judgment.

These will be his own jurisdiction to entertain the request,

the existence of a valid arbitration agreement, the existence

or otherwise of a live claim, the existence of the condition for

the exercise of his power and on the qualifications of the

arbitrator or arbitrators. The Chief Justice or the designated

Judge would be entitled to seek the opinion of an institution

in the matter of nominating an arbitrator qualified in terms of

Section 11(8) of the Act if the need arises but the order

appointing the arbitrator could only be that of the Chief

Justice or the designated Judge". The neat and vexed

question which arises is whether such a decision is final or

prima facie in nature, especially in view of Section 16 of the

A&C Act which imparts to the Arbitral Tribunal the power to

rule on its own jurisdiction, including ruling on any objection

with respect to the existence or validity of the arbitration

agreement. In paragraph 19 their Lordships in Patel

Engineering Ltd. (reproduced above) have opined that

before passing an interim order under Section 9 of the A&C

Act it is necessary for it to decide whether it has jurisdiction

and/or whether there is a valid arbitration agreement and/or

whether the dispute is covered by that Agreement. It appears

to us that the conclusion arrived at by the Court in such

circumstances would be binding on the Arbitral Tribunal

since the Court would not grant interim relief unless it was

positively satisfied that it possessed and could exercise

jurisdiction under the A&C Act. It appears to us that the

situation is different when the Chief Justice or his designate

discharges the functions, albeit judicial, postulated under

Section 11(6) of the A&C Act. While doing so, it may direct

parties in the direction of the Arbitral Tribunal, leaving it

open to the Arbitral Tribunal to rule on its own jurisdiction,

including ruling on any objection with respect to the

existence or validity of an arbitration agreement. This is

despite the fact that it is now well-settled that it is a judicial

function that is performed under Section 11(6) of the A&C

Act. We are of the opinion that the judge exercising powers

under Section 11(6) should clearly indicate whether it has a

prima facie or final ruling on the existence or validity of the

arbitration agreement.

10. We cannot lose sight of the fact that an appointment

made under Section 11(6) of the A&C Act is not appealable,

as would be evident from a reading of Section 37 of the said

Act. In this context, we think it necessary to briefly discuss

Ludhiana Improvement Trust -vs- Today Homes and

Infrastructure Pvt. Ltd., (2008) 10 SCC 715 to dispel any

discussion on this very interesting aspect of the law. Their

Lordships had clarified that all appointments made under

Section 11(6) of the A&C Act prior to Patel Engineering

Ltd. would be valid, leaving it to the parties to raise

objections to the existence or validity of an arbitration

agreement before the Arbitral Tribunal. Their Lordships have

not stated that post Patel Engineering Ltd. the statutory

provisions of Section 16 have been rendered otiose. A

harmonious construction of both provisions convinces us to

conclude that while exercising its judicial functions under

Section 11(6), the Judge may give either a prima facie or a

final finding on that point. To this, we add that as presently

advised, we will lean towards a prima facie character of the

opinion, leaving it to the Arbitral Tribunal to give a detailed

final finding. The enunciation in Shin-Etsu Chemical Ltd. -vs-

Aksh Optfiber Ltd., AIR 2005 SC 3766 : (2005) 7 SCC 234

should be noted here even though it was in the context of

Section 45 of the A&C Act. Firstly, their Lordships opined

that the ratio of General Electric Company -vs- Renusagar

Power Company, (1984) 4 SCC 679 could not be extrapolated

into cases post A&C Act because the avowed intention of the

Legislature was to minimize curial interference in

arbitrations since it would invariably cause delays in the final

adjudication of disputes. Secondly, if the decision to refer

parties to the Arbitral Tribunal was not prima facie but final,

the challenge to the Award on this ground would be

foreclosed because of res judicata. This would work injustice

for the reason that a final finding would have been given on

insufficient material and not after a full-fledged adjudication.

We think it proper to reiterate that Patel Engineering Ltd.

prescribes that before granting relief under Section 9 of the

A&C Act the Court must be fully satisfied with regard to the

existence of an arbitration clause (see paragraph 19). Their

Lordships did not opine that this finality should be present in

other decisions under the A&C Act. This position commends

itself to us also, Firstly for the reason that by virtue of Section

34(2)(a)(ii) as well as Section 48(1) of the A&C Act an

arbitral award may be set aside by the Court if the arbitration

agreement is not valid under the applicable law; Secondly,

for the reason that Section 16 of the A&C Act, which extends

the legislative intent of minimal curial interference by

enabling the Arbitral Tribunal to rule on any objections with

respect to existence or validity of the arbitration agreement

or even on its own jurisdiction etc., would become otiose.

Finally, the avenue to assail the conclusion of the Arbitral

Tribunal on this point either under Section 34 or Section 48

of the A&C Act should not be rendered untraversable. In

these circumstances, it is built into the statutory framework

that a Court will have a final say on the important aspect of

the existence or validity of an arbitration agreement.

11. As no grounds or facts whatsoever have been disclosed

which we may have seen as sufficient for condoning the delay

in preferring the present Appeal, it is liable for dismissal on

this short ground. However, assuming that delay stands

condoned, we are of the view that the Appeal is not

maintainable, leaving it to the parties to raise all issues

available to them in law before the Arbitral Tribunal. It is

ordered accordingly. Pending applications also stand

dismissed. Furthermore, since both the parties are public

sector enterprises, we are convinced that they cannot have

any cavil to the resolution of their disputes by the PMA, of the

Bureau of Public Enterprises, which functions under the

Central Government.

12. Since the adversaries are public sector enterprises, we

would not like to compound the immense wastage of finances

by imposing costs.

13. A copy of this Order be dispatched to the PMA for

further requisite action on expeditious speed.

                                        ( VIKRAMAJIT SEN )
                                             JUDGE




                                        ( RAJIV SHAKDHER )
October 15, 2009                                  JUDGE
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