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Judgment
A.C. Agarwal, C.J.—The short question that has been raised in the present appeal is in respect of validity or otherwise of an arbitration
agreement, which is said to have been entered into between the appellant and the respondent on the 10th March, 1993. Based on the arbitration
agreement, respondent filed in this court O.P. No. 196 of 1998 for making a reference of the disputes to arbitration. The said O.P. was heard and
decided by the learned single Judge who, by his judgment and order dated 8th April, 1999, has referred the arbitral disputes to Mr. Justice K.M.
Natarajan, a retired Judge of this Court. Before the learned single. Judge, the appellant had raised a challenge a regard to the validity of the arbitral
agreement. It was contended on behalf of the appellant that the stamp paper which contained the arbitration agreement had been purchased on
24th April, 1993. Recitals in the agreement show that the same was executed prior to the date of the purchase, i.e. on the 10th of March, 1993.
The agreement is purported to have been signed one year prior to the date of execution of the agreement. The learned single Judge, by the
impugned judgment and order, has declined to decide the aforesaid contention raised on behalf of the appellant in regard to; the validity of the
arbitral agreement and has'' proceeded to appoint the arbitrator. The aforesaid judgment and order is impugned in the present appeal.
Mr. S.K. Rakhunathan, learned counsel appearing on behalf of the appellant; strenuously urged that the appellant has not entered into an
arbitration agreement. The aforesaid contradictions appearing in the arbitration agreement are so glaring that the same is fabrication even to a
necked eye? Since the appellant has not agreed to refer the disputes to arbitration, they cannot be forced to submit themselves to arbitration. Mr.
S.K. Rakhunathan has further contended that when a dispute of the present nature is raised before the Court, the court is duty-bound to give its
rulings on the said issue. Court would not be justified in referring the dispute to arbitration without first being satisfied that a Valid arbitral
agreement exists between the parties. Court cannot function as a slot-machine. Court is not expected to pass an order of reference mechanically
without applying its mind and without being satisfied that there exists a valid arbitration agreement between the parties. The learned single Judge,
according to learned counsel, has seriously erred in making a mechanical reference of disputes to arbitration without giving a finding on the
aforesaid issue, viz. whether there exists a valid agreement for arbitration at all?
In order to decide the aforesaid question, which has been raised for our consideration, it is necessary to refer to some of the provisions of the
Arbitration and Conciliation Act, 1996 (hereinafter referred to as ""1996 Act"") as also the Arbitration Act, 1940 (hereinafter referred to as ""1940
Act"").
Sec. 16 of the 1996 Act, in so far as it is relevant for the enquiry on hand, provides as under:
The arbitral tribunal may rule on its own jurisdiction, including ruling on any objections with respect to the existence or validity of the arbitration
agreement, and for that purpose, -
(a) an arbitration clauses which forms a part of a contract shall be treated as an agreement Independent of the other terms 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.
The aforesaid provisions of Sec. 16 appearing in 1996 Act indicates that it is the arbitral tribunal which has been conferred with the jurisdiction and
the power to give a decision on the existence validity or otherwise of a arbitral agreement. It is pertinent to note that the aforesaid provisions of
Sec. 16 of 1996 Act were conspicuously absent in the 1940 Act.
The provisions of Sec. 33 of the 1940 Act provides as under:
Arbitration agreement or award to be contested by application - Any party to an arbitration or of any person claiming under him desiring to
challenge the existence or validity of an arbitration agreement or an award or to have the effect of either determined shall apply to the Court, and
the Court shall decide the question of affidavits:
Provided that where the Court deems it just and expedient, it may set down the application for hearing on other evidence also, and it may pass
such orders for discovery and particulars as it may do in a suit.
The aforesaid provisions of Sec. 33 in the 1940 Act therefore confers jurisdiction upon the Court to give its finding as to the existence or the
validity or otherwise of an arbitral agreement where a party to the proceedings raises a challenge in regard to the same. The said provision is now
conspicuously absent in the 1996 Act.
Sec. 32 of the 1940 Act provides as under:
Bar to suits contesting arbitration agreement or award. - Notwithstanding any law for the time being in force, no suit shall lie on any ground
whatsoever for a decision upon the existence, effect or validity of an arbitration agreement or award, nor shall any arbitration agreement or award
be enforced, set aside, amended, modified or in any way affected otherwise than as provided in this Act.
The aforesaid provisions contained in Sec. 32 of the 1940 Act therefore bars the filing of a suit seeking a decision upon the existence, effect or
validity of an arbitral agreement. However, the said issue is permitted to be raised by filing of an application under Sec. 33 of the 1940 Act. The
aforesaid provisions of both the Sections 32 and 33 of the 1940 Act are conspicuously absent in the 1996 Act.
The provisions of Sec. 30 of the 1940 Act provides for grounds for setting aside an award and the same, in so far as it is relevant for enquiry on
hand, provides that an award shall not be set aside except on one or more of the following grounds, viz., (a)....., (b)...., (c) that an award has been
improperly procured or is otherwise invalid. The words ""or"" is otherwise invalid"" appearing in Sec. 30(c) of the 1940 Act have been held to be
wide enough to include the ground that there was no valid or subsisting arbitral agreement as held in A.R. Savkur Vs. Amritlal Kalidas and Others,
Saha and Co. Vs. Ishar Singh Kripal Singh and Co., ; Devendra Singh v. Kalyan Singh, AIR 1978 Raj. 134; Ismail v. Hansraj, AIR 1955 Raj
153; Prem Sagar Chawla v. Tarn Chand AIR 1968 Delhi 21 (FB).
In 1996 Act, Sec 34 which deals with the application for setting aside arbitral award, the ground that the arbitral agreement is not valid under
the law to which the parties have subjected it has been made a specific ground for setting aside the award by having recourse to Court.
The scheme of 1996 Act therefore is clear and unambiguous and the same seeks to cut short the time spent in Civil Courts where arbitral
agreements have been entered into and awards passed by the arbitrators are sought to be challenged. The object of the 1996 Act is to provide for
speedier remedy than that was available under the 1940 Act. Experience showed that lot of time was consumed in litigations particularly before the
Civil Courts where the validity of the arbitral agreement was invariably challenged and reference to arbitration was delayed thereby causing
hardships to the P(sic) seeking relief through arbitration. The 1996 Act seeks to provide for unified framework for the fair and efficient settlement
of disputes through arbitration within a time frame.
In the circumstances, the disputes as to the validity or otherwise of an arbitral agreement has now been taken away from the Courts and has
been conferred upon the arbitrators thus saving the time which was otherwise spend before a reference could, validly be made by the Courts under
the 1940 Act. Under the scheme of the 1996 Act, the moment an arbitral agreement is brought before the Court, a reference is required to be
made to arbitration. Disputes regarding the validity or otherwise of an arbitral agreement are now required to be decided by the arbitrators.
Whether there subsists a valid arbitral agreement or not is now for the decision of the arbitrators and the same is no longer within the domain of the
Courts. A safe guard has undoubtedly been provided that even if the arbitrator decides that an arbitration agreement is valid, the award can
successfully be challenged under Sec. 34 of the 1996 Act on the ground that there does not exited a valid arbitration agreement. In the
circumstances, we hold that no fault can be found with the judgment and order of the learned single judge in baking the reference to arbitration.
The present appeal, in the circumstances, we find, is devoid of merit. The same is accordingly summarily dismissed.