Judgment:
ORDER
Y.P. Nargotra, J.
1. Through the medium of this petition the petitioner is seeking recall of order dated 27-9-2002 whereby in terms of Section 11 of the J & K Arbitration and Reconciliation Act, 1997, (hereinafter called the Act), application of the respondent for appointment of Arbitrator for determination of disputes through arbitration was allowed and Sh. A. N. Saraf, retired District & Sessions Judge, was appointed as Arbitrator.
2. The facts which need to be noticed are that respondent filed an application against the petitioner Under Section 11 of the Act being AAD2/2002, for seeking appointment of Arbitrator for adjudicating upon the disputes arising between the parties, out of contract allotted by the petitioner to the respondent for construction of a hotel in Katra.
3. For regulating the procedure for entertaining the request for appointment of an arbitrator Under Section 11(9) the Lord Chief Justice had formulated a scheme and Para 2 (a & b) thereof provided as follows :
2. The request to the Chief Justice under Sub-section (4) or Sub-section (5) or Sub-section (6) of Section 11 shall be accompanied by :
a) the original arbitration agreement or a duly certified copy thereof;
b) the names and addresses of the parties to the arbitration agreement.
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4. As the petition of the respondent for appointment of arbitrator was not accompanied by original arbitration agreement or certified copy thereof, the Registry recorded objection thereon and the petition was registered as defective. On 19-7-2002 defective petition came to be listed before the Mr. Justice T. S. Doabia, (since retired), Judge designated by the Lord Chief Justice and the learned designate Judge ignored the defect and ordered service of notice upon the petitioner herein. Notice was issued to the petitioner but as per report of the Registry same was not served upon him but copy Of the same was affixed at the outer door of the hotel being constructed by the respondent. The petitioner did not appear to contest the application. The respondent then moved a CMP No. 82/93 in the aforesaid petition seeking permission for placing on record copy of the agreement executed between the parties. The agreement so filed reads as under :
After final discussion between Mr. Swarn Salaria and Mr. Vishwajit Sood of the above mentioned companies Proprietor/CMD the following rates (enclosed) have been agreed to undertake the work, construction of the said HTEL SIM SAM, Katra, J & K. The detailed agreement will be signed by both the parties and this letter will be considered as a part of contract.
Please note there will be addition in any of the above mentioned rates under any circumstances and contractor will not claim the same.
5. It is pertinent to note here that the aforesaid agreement does not contain any arbitration clause. In the averments made in the application Under Section 11 of the Act filed by the respondent, the respondent has nowhere stated that there was any arbitration agreement executed between the parties. It was simply averred by him that he had made repeated requests in writing demanding the amount due and issued a notice through his advocate upon the petitioner on 7-2-2002, requesting him to agree for appointment of Sh. Darshan Gupta, retired Superintending Engineer as an arbitrator for settlement of the disputes between him and the petitioner.
6. In spite of the non-filing of the agreement the learned designate Judge by his order dated 27-9-2002 allowed the petition of the respondent and appointed Sh. A. N. Saraf, retired District and Sessions Judge, as arbitrator for adjudicating upon the disputes. The arbitrator so appointed entered upon the reference on 9-10-2002 and issued notice to the petitioner herein. On behalf of the petitioner on 27-11-2002 one Raj Kumar Asstt. Project entered appearance and paid his part of the fee to the arbitrator in terms of the Court direction. Thereafter he absented. Learned Arbitrator placed the petitioner ex parte. The petitioner then filed an application for setting aside ex parte proceedings and then again absented. It appears that the petitioner instead of participating in the proceedings any further moved the instant application seeking recall of the order of the appointment of arbitrator.
7. The case of the petitioner is that as there is no arbitration agreement existing between the parties, therefore, the respondent could not have validly invoked the provision of Section 11 of the Act and the learned designate Judge was not right in appointing the arbitrator. The stand of the respondent is that once the arbitrator has come to be appointed Under Section 11 of the Act the challenge to his Jurisdiction for adjudicating upon the disputes can only be made before the Arbitrator and it is the arbitrator alone who can rule on his jurisdiction, The application for recall of the order does not lie as there is no provision in the Act, which entitles a party to seek recalling of such an order.
8. I have heard the learned Counsel for the parties and perused the record of the case.
9. The order of which recall is being sought by the petitioner has been passed by the learned Designate Judge undisputedly in exercise of the power vested with Lord Chief Justice delegated to him under Section 11 of the Act. The order passed cannot be treated as a judicial adjudicatory order and is in the nature of an administrative order passed in exercise of the statutory power which could be passed on the written request in the prescribed form of a party to an arbitration agreement without even putting the other party on notice.
10. In Konkan Railway Corporation Ltd. v. Rani Construction Pvt. Ltd. : [2002]1SCR728 , Para 18 the Supreme Court has observed :
There is nothing in Section 11 that requires the party other than the party making the request to be noticed. It does not contemplate a- response from that other party. It does not contemplate a decision lay the Chief Justice or his designate on any controversy that the other party may raise, even in regard to its failure to appoint an arbitrator within the period of thirty days. That the Chief Justice or his designate has to make the nomination of the arbitrator only if the period of thirty days is over does not lead to the conclusion that the decision to nominate is adjudicatory. In its request to the Chief Justice to make the appointment the party would aver that this period has passed and, ordinarily, correspondence between the parties would be annexed to bear this out. This is all that the Chief Justice or his designate has to see. That the Chief Justice or his designate has to take into account the qualification required of the arbitrator by the agreement between the parties (which ordinarily, would also be annexed to the request) and other considerations like to secure the nomination of an independent and impartial arbitrator also cannot lead to the conclusion that the Chief Justice or his designate is required to perform an adjudicatory function. That the word 'decision' is used in the matter of the request by a party to nominate an arbitrator does not of itself mean that an adjudicatory decision is contemplated.
11. Now the question is whether before passing such order is it necessary for the Chief Justice or his designate to be satisfied about the existence of a valid arbitration agreement between the parties ?
12. Settlement of disputes through arbitration is the alternate system of resolution of disputes whereby the parties to a dispute get the same settled through the intervention of a third party. The role of the Court is limited to the extent of regulating the process. For initiating an action for settlement of a dispute under ordinary law of the land the agreement between parties to the dispute is not necessary and any of the party who feels aggrieved can approach the Court and launch legal proceedings for settlement/ resolution of the dispute independently. However, for availing the alternate system of settlement of dispute through the intervention of a third party of their choice both the parties have to agree for his intervention and for accepting his decision to be final because unless they so agree no final settlement/resolution of dispute would be made and in that situation the alternate system of resolution of disputes through arbitration would become meaningless. Therefore, source of the remedy of getting settlement of disputes by parties to a dispute by the intervention of third person of their choice is the arbitration agreement and such a chosen third person called arbitrator is the creature of such agreement between the parties. It is well settled and has been held by the Supreme Court that the source of Jurisdiction of the arbitrator Is the arbitration clause in the agreement between the parties (See : [1963]3SCR209 ).
13. A reading of Sub-sections (4), (5) and (6) of Section 11 of the Act shows that they enable the Chief Justice of the High Court or his designate to appoint arbitrator and under Rule 2 of the Scheme framed by the Chief Justice a request is to be made to the Chief Justice along with the original arbitration agreement or certified copy thereof. Section 2(b) of the Act defines the 'arbitration agreement' as an agreement referred to in Section 7. Section 7 defines arbitration agreement' as follows :
Section 7. Arbitration Agreement- (1) In this part 'arbitration agreement' means an agreement by the parties to submit to arbitration all or certain disputes which have arisen or which may arise between them in respect of a defined legal relationship, whether contractual or not;
(2) An arbitration agreement may be in the form of an arbitration clause in a contract or in the form of a separate agreement;
(3) An arbitration agreement shall be in writing;
(4) An arbitration agreement is in writing if it is contained in;
(a) a document signed by the parties;
(b) An exchange of letters, telex, telegrams or other means of telecommunication which provide a record of the agreement; or
(c) an exchange of statements of claim and defence in which the existence of the agreement is alleged by one parry and not denied by the other.
14. In : AIR2000SC1379 Wellington Associates v. Kirit Mehta, it has been observed :
5. The reference in a contract to a document containing an arbitration clause constitutes an arbitration agreement if the contract is in writing and the reference is such as to make that arbitration clause part of the contract.
The words in Sub-clause (1) of Section 7, 'means an agreement by the parties to submit to arbitration, in my opinion, postulate an agreement which necessarily or rather mandatorily requires the appointment of an arbitrator/arbitrators. Section 7 does not cover a case where the parties agree that they 'may' go to a suit or that they 'may' also go to arbitration.
18. Thus unless the document filed by the party before the Chief Justice of India or his designate is an 'arbitration agreement' as defined in Section 7 as explained above, requiring a reference in a mandatory sense, no reference, in my view, can be made to the arbitral Tribunal. It is as already stated, indeed implicit - if an objection is raised by the respondent before the Chief Justice of India or his designate that the so-called arbitration clause is not an arbitration clause at all falling within Section 7 - that such a question will have to be decided in the proceedings under Section 11 of the Act. Therefore the contention raised by the learned Counsel for the petitioner that the question whether Cl. 5 of the agreement amounts to an arbitration clause - is to be decided only by the arbitral Tribunal is liable to be rejected.
19. It is true that in Ador Samia Pvt. Ltd. v. Peekay Holdings Ltd. : AIR1999SC3246 it has been held that the Chief Justice or his designate under Section 11(6) acts in an administrative capacity and he has no trapping of Judicial authority, but this decision, in my view, cannot support the plea raised by the petitioner in his rejoinder. Even if the Chief Justice of India or his designate under Section 11(2) is to be treated as an administrative authority, the position is that when the said authority is approached seeking appointment of an arbitrator/arbitrators Tribunal under Section 11 and a question is raised that there is, to start with, no arbitration clause at all between the parties, the Chief Justice of India or his designate has to decide the said question.
15. Therefore it is manifest that existence of an arbitration agreement between the parties is sine qua non for exercising the power under Section 11 for appointment of an arbitrator at the request of a party.
16. Mr, Raina learned Counsel for the respondent argues that though the order under Section 11 can be passed in a case where there is an agreement between the parties but in a case where the Chief Justice or his designate appoints the arbitrator without addressing to the question of existence of the arbitration agreement, the question of existence of such agreement can alone be agitated before the arbitrator who is himself competent to rule on his jurisdiction in view of the provision contained in Section 16 of the Act, According to Mr. Raina the issue cannot be reopened at the instance of a party by seeking recall of the order made Under Section 11 of the Act. Section 16 provides :
Competence of arbitral tribunal to rule on its Jurisdiction (1)- The arbitral tribunal rule may on its own jurisdiction, including ruling on any objection with respect to the existence or validity of the arbitration agreement and for that purpose-
(a) an arbitration clause which forms part of a contract shall be treated as an agreement independent of the other than of the contract; and
(b) a decision by the arbitral tribunal that the contract is null and void shall not entail ipso jure the invalidity of the arbitration clause.
17. In Wellington Associates case : AIR2000SC1379 (supra), it was contended that the question of existence of arbitration agreement can be decided only by the arbitrator in view of Section 16. The Supreme Court held as follows (Paras 15 and 16) :
The more important question however is whether Section 16 excludes the jurisdiction of the Chief Justice of India or his designate in this behalf if a question as to the existence of the arbitration clause is raised by the respondent in his reply to the petition filed under Section 11 (I am not concerned with the question of the validity or effect of the arbitration clause, in the present case). In my view Section 16 does not take away the jurisdiction of the Chief Justice of India or his designate, if need be, to decide the question of the 'existence' of the arbitration agreement. Section 16 does not declare that except the arbitral Tribunal none else can determine such a question. Merely because the new Act permits the arbitrator to decide this question, it does not necessarily follow that at the stage of Section 11 the Chief Justice of India or his designate cannot decide question as to the existence of the arbitration clause.
The interpretation put on Section 16 by the petitioner's counsel that only the arbitral tribunal can decide about the 'existence' of the arbitration clause is not acceptable for other reasons also apart from the result flowing from the use of the word 'may' in Section 16. The acceptance of the said contention will, as I shall presently show, create serious problems in practice. As Saville, L. J. started in a speech at Middle Temple Hall on July 8, 1996, 'Question of jurisdiction of the Tribunal cannot be left (unless the parties agreed) to the Tribunal itself, for that would be classic case of pulling oneself up by one's own bootstraps. 'A practical approach to Arbitration Law, Keren Tweeddale and Andrew Tweeddale (1999) Blackstone Press Ltd.) (p. 75). Let us take this very case. If indeed Cl. 5 does not amount to an 'arbitration agreement' it will in my view be anomalous to ask the arbitrator to decide the question whether Cl. 5 is at all an arbitration clause. It is well settled and has been repeatedly held that the source of the jurisdiction of the arbitrator is the arbitration Clause (See Weaverly Jute Mills case : [1963]3SCR209 above referred to). When that is the position the arbitrator cannot in all situations be the sole authority to decide upon the 'existence' of the arbitration clause. Supposing again, the contract between the parties which contained the arbitration clause remained at the stage of negotiation and there was no concluded contract at all. Then in such a case also there is no point in appointing an arbitrator and asking him to decide the question as to the existence of the arbitration clause. But I may point out that there can be some other situations where the question as to the 'existence' of an arbitration clause can be decided by the arbitrator. Take a case where the matter has gone to the arbitrator without the intervention of an application under Section 11. Obviously if the question as to the existence of the arbitration clause is raised before the arbitral Tribunal it has power to decide the question. Again in a case where the initial existence of the arbitration clause is not in issue at the time of Section 11 application but a point is raised before the arbitral Tribunal that the said clause or the contract in which it is contained has ceased to be in force, then in such a case, the arbitrator can decide whether the arbitration clause has ceased to be in force. A question may be raised before the arbitrator that the whole contract including the arbitration clause is void. Now Section 16 of the new Act permits the arbitral Tribunal to treat the arbitration clause as an independent clause and Section 16 says that the arbitration clause does not perish even if the main contract is declared to be null and void. Keeping these latter and other similar situations apart, I am of the view that in cases where - to start with - there is a dispute raised at the stage of the application under Section 11 that there is no arbitration clause at all, then it will be absurd to refer the very issue to an arbitrator without deciding whether there is an arbitration clause at all between the parties to start with. In my view, in the present situation, the jurisdiction of the Chief Justice of India or his designate to decide the question as to the 'existence' of the arbitration clause cannot be doubted and cannot be said to be excluded by Section 16.
18. Thus it is also evident that Section 16 does not exclude the jurisdiction of Chief Justice or his designate to go into the question of existence of arbitration agreement while considering the request for appointment of the arbitrator under Section 11. If the opposite party is on notice before the question of the applicant for appointment of arbitrator is considered by the Chief Justice or his designate, such party is entitled to raise objection regarding the existence of the arbitration agreement. If such an objection is raised the same may be decided before an order Under Section 11 of the Act is passed or may itself be referred for decision to the arbitrator. If such party has been put on notice, he, in my considered opinion, can seek recall of the order made in his absence provided he has not submitted himself to the Jurisdiction of the arbitrator, irrespective of the fact that he is also entitled to raise such objection before the arbitrator itself in terms of Section 16 of the Act. In such a case the Chief Justice or designate Judge possesses inherent Jurisdiction for recalling an order of appointment of an Arbitrator on the principal that the authority which has jurisdiction to pass a non-adjudicatory order also has the inherent power to review or to consider the order and to recall the same if deemed proper.
19. But a party who has been put on notice and has not contested the application on merits and submitted to the jurisdiction of the Arbitrator would not be entitled to seek recall of the order on the ground of non-existence of the arbitration agreement. The only forum available for raising such objection shall be before the Arbitrator Under Section 16 of the Act.
20. In the present case the petitioner was put on notice. The contention of Mr. Gupta learned Counsel for the petitioner is that the petitioner was not duly and validly served with the notice. Without going into the question of sufficiency of service of the notice the fact that the petitioner has already submitted to the jurisdiction of the Arbitrator cannot be disputed and therefore he ought to have raised the objection to the jurisdiction of the arbitrator before the arbitrator himself. He cannot be permitted to turn around and say that order of appointment of arbitrator be recalled. By not approaching the designate Judge before submitting to the jurisdiction of the Arbitrator he has lost his right of getting the objection of non-existence of agreement decided from the designate Judge.
21. For the aforesaid reasons there is no merit In this petition which is accordingly dismissed.