Shamon Engineering Corporation vs Tetulia Coke Plant (P) Ltd.

D.G.R. Patnaik, J.—Heard Sri Animesh Kranti Ghosal, learned senior advocate for the petitioner and Sri Vinod Poddar, senior advocate for the respondent.

The petitioner in this writ application has challenged the order dated 24.11.2007 (Annexure-7) passed by the Sole Arbitrator in relation to the Arbitration Proceeding concerning disputes arising out of Work Order No. TC PL/05-06/N-003 dated 17.02.2006 and Purchase Order No. TC PL/05-06/N-002 dated 21.02.2006, whereby the objection taken by the petitioner against initiation and continuation of the Arbitration Proceeding was rejected.

The main ground of challenge in this writ application is that the initiation of the arbitration proceeding by the Arbitrator is without jurisdiction on account of the fact that there is no arbitration agreement whatsoever between the parties by which disputes arising between them in relation to the contract, could be referred for resolution through arbitration. Further ground is that the appointment of the Sole Arbitrator by the respondent without the consent of the petitioner is also illegal and therefore, such appointment of Arbitrator is without jurisdiction.

Facts of the case in brief is that the respondents had awarded a work order dated 17.02.2006 (Annexure-1) to the petitioner- company, for designing, fabrication, erection and commissioning of Bunker for crushed coal including supporting structure, in accordance with the specification mentioned in the work order. Payment for the work executed was to be made at the rates specified in the work order in respect of the various items of work. In the process of execution of the work order, the petitioner was required to supply all the requisite materials except the electric motors including cables and G.I. Sheets to cover the walkways and galleries. A similar work order was again issued on 21.02.2006 for same nature of job as per specification stipulated in the order and at rates agreed to between the parties, itemwise. Both the work orders were to be executed and completed by the petitioner within the dates stipulated in the orders. The work orders were followed by a separate purchase order dated 21.02.2006 (Annexure-2) under which the petitioner was to supply the various items mentioned in the order for the purpose of use and application in executing the work of erection and commissioning of 3 Nos. Belt Cooper of 100mm width and 30MT/Hr capacity complete with supporting structures to handle coal/crushed coal. The rates for the individual items of supply were agreed upon and mentioned in the purchase order. Certain terms and conditions relating to the purchase order were stipulated in the purchase order itself and duly signed by the representatives of both the parties.

Subsequently, a dispute arose when the respondent complained that despite the fact that time was the essence of contract for executing and completing the work order, the petitioner had delayed the completion of the work in spite of the fullest cooperation extended by the respondent and causing thereby, loss and damage to the respondents. Alleging that the petitioner had committed breach of contract by failing to execute and complete the work order within the time stipulated, respondent demanded refund of the advance amount obtained by the petitioner together with damages. The petitioner in its turn, made a counter claim for payment of money. The dispute remaining unresolved, the respondent, in purported exercise of their right, as per Clause 17 of the purchase order, appointed Sri R.A. Chamaria, Advocate, Jharkhand High Court, Ranchi as the Sole Arbitrator to adjudicate upon the dispute between the parties with reference to the contract and to submit its Award. Intimation of the appointment of the Arbitrator was duly conveyed to the petitioner by a written notice.

Upon such appointment, the Arbitrator issued notice to both the parties requiring the respondent / complainant to submit the details of its contract and directing the petitioner to submit his written objections in respect of the disputes raised. The petitioner replied by filing a detailed objection against the very initiation and continuation of the arbitration proceeding by the Arbitrator on the ground that the appointment of the Arbitrator and exercise of such jurisdiction by the Arbitrator, is totally illegal and not within the scope of the terms of contract between the parties and that, there being no arbitration agreement between the parties concerning the work order and even in the purchase order, the dispute arising out of the contract cannot be referred for resolution through arbitration.

Upon considering the objections as raised by the petitioner, the Sole Arbitrator by the impugned order, while rejecting the objections raised by the petitioner, has observed that the Arbitrator did have the jurisdiction to entertain and decide upon the disputes arising between the parties out of the contract, referred to him.

Assailing the impugned order of the Sole Arbitrator, Shri Animesh Kranti Ghosal, learned senior advocate for the petitioner would argue on the following two grounds namely

(1) That the Arbitral Tribunal has assumed jurisdiction which he did not have.

(2) That the Arbitral Tribunal has over stepped the limits of its jurisdiction.

Elaborating the grounds, learned Counsel explains that there being no arbitration clause and/or arbitration agreement in respect of work order dated 17.02.2006, the disputes which admittedly arose on account of alleged non-execution of the work order within stipulated time, could not be referred for resolution through process of arbitration.

Learned Counsel explains in this context that as would be obvious from the bare reading of the work order (Annexure-1), it does not contain any clause relating to the resolution of dispute arising out of the contract through arbitration. Learned Counsel argues further that the Arbitrator had erroneously recorded a finding that the purported arbitration clause mentioned in the purchase order (Annexure-2) is applicable in relation to the work order also. Learned Counsel would explain that the purchase order was issued on a much later date after the date of the work order and further, that the Clause 17 of the purchase order, as mentioned on its reverse page, would not in itself constitute an arbitration agreement. The impugned order rejecting the objections taken by the petitioner, according to the learned Counsel, is totally arbitrary and without application of mind to the specific objection concerning the jurisdiction of the Arbitral Tribunal.

Learned Counsel would further argue that in terms of the definition of Arbitral Agreement as laid under the provisions of the Arbitration and Conciliation Act, 1996, an 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. Reference in a contract to a document containing any arbitration clause, constitutes an arbitration agreement when the contract is in writing and make such arbitration clause, part of the contract. Learned Counsel argues that in the present case, there is no such arbitration agreement at all. Clause 17 of the purchase order would not therefore come within the purview of "Arbitration Agreement" in as much as the condition for supply of goods is one contract and the arbitration clause cannot be deemed as part of the contract or an arbitration agreement.

Learned Counsel would next argue that against the impugned order, the petitioner has no efficacious remedy except by way of the present writ application. Learned Counsel explains that Section 16(4) of the Arbitration and Conciliation Act provides that the Arbitral Tribunal may admit a plea contained in Section 16(3) of the Act and in that case, aggrieved party can immediately file an objection u/s 37(2)(a) of the Act against the order of the Arbitral Tribunal but no such corresponding efficacious remedy is available if the Arbitrator passes an order u/s 16(5) of the Act. The only remedy available to the aggrieved party is u/s 34 of the Act and for which, he would have to await for the passing of the award by the Arbitrator.

The respondent in its counter affidavit has not only denied and disputed the entire claim of the petitioner but has also challenged the very maintainability of this writ application.

Sri Vinod Poddar, learned senior advocate for the respondent would argue that the impugned order was passed by the Arbitral Tribunal under the provisions of Section 16 of the Arbitration and Conciliation Act, 1996, which vests power to the tribunal to rule on its own jurisdiction, including ruling on any objections with respect to the validity of the arbitration agreement and also on the objection that the tribunal is exceeding the scope of its authority. Where the Arbitral Tribunal takes a decision rejecting the objections/pleas, it is entitled to continue the proceeding and to make an arbitration award and the remedy available thereafter to the aggrieved party, is u/s 34 of the Act for setting aside the arbitral order. According to the learned Counsel, such being the scheme of the Act, the only remedy available to the petitioner is under the provisions of Section 34 of the Act and not by way of invoking the writ jurisdiction of this Court. To buttress his argument, learned Counsel would refer to and rely upon the judgement of the Supreme Court in the case of S.B.P. and Co. Vs. Patel Engineering Ltd. and Another, .

Learned Counsel would explain that the grounds based on factual position advanced by the petitioner are totally misconceived and misleading. Sri Poddar would explain that both the work order and the purchase order have to be read jointly in view of the fact that while in the work order itself, the petitioner was required to supply the materials required for execution of the work order, the supply order relates to such articles which were to be supplied by the petitioner. The purchase order was issued for the purpose of specifying the rates and the terms and conditions of supply. Learned Counsel adds that Clause 17 as mentioned in the purchase order, constitutes an arbitration clause under which disputes arising out of the contract between the parties, including the dispute arising out of the work order, can be referred for resolution to a Sole Arbitrator. The respondent having exercised its right by appointing the Sole Arbitrator and intimating the petitioner of such appointment, there was no necessity for obtaining any prior consent of the petitioner for making such appointment of the Sole Arbitrator.

Learned Counsel for the petitioner would want to rebut the above arguments of the learned Counsel for the respondent by asserting that the judgement in the case of SBP & Co. would not apply to the facts of the present case firstly, because the main issue before the full bench of the Apex Court was with reference to the nature of function of the Chief Justice or his designates u/s 11 of the Arbitration and Conciliation Act, 1996. Furthermore, in absence of an arbitration agreement between the parties, the assumption of jurisdiction by the Arbitrator, would itself be illegal and any order passed by the Arbitrator being beyond his jurisdiction, would certainly be amenable to interference by this Court in exercise of its writ jurisdiction under Article 226 and 227 of the Constitution of India.

Having considered the grounds and the explanatory arguments submitted by the learned Counsel for the petitioner, in my opinion, none of the grounds are tenable nor is the instant writ application maintainable for the relief claimed.

Section 16 as contained in Chapter 4 of the Arbitration and Conciliation Act, 1996 relates to jurisdiction of Arbitral Tribunal and the competence of the Arbitral Tribunal to rule on its own jurisdiction.

Section 16 of the Act reads as under:

Competence of arbitral tribunal to rule on its jurisdiction - (1) 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 clause which forms 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.

(2) A plea that the arbitral tribunal does not have jurisdiction shall be raised not later than the submission of the statement of defence; however, a party shall not be precluded from raising such a plea merely because that he has appointed, or participated in the appointment of, an arbitrator.

(3) A plea that the arbitral tribunal is exceeding the scope of its authority shall be raised as soon as the matter alleged to be beyond the scope of its authority is raised during the arbitral proceedings.

(4) The arbitral tribunal may, in either of the cases referred to in Sub-section (2) or Sub-section (3), admit a later plea if it considers the delay justified.

(5) The arbitral tribunal shall decide on a plea referred to in Sub-section (2) or Sub-section (3) and, where the arbitral tribunal takes a decision rejecting the plea, continue with the arbitral proceedings and make an arbitral award.

(6) A party aggrieved by such an arbitral award may make an application for setting aside such an arbitral award in accordance with Section 34.

It is manifest that the Arbitral Tribunal has the competence to decide on the objections/pleas raised by the parties in terms of Sub Section (2) or Sub Section (3) of Section 16 and may reject such pleas and continue with the arbitral proceeding and make an arbitral award. The aggrieved party, by such an arbitral award, may make an application for setting aside the award in accordance with the provisions of Section 34 of the Act.

The Act, under the provisions of Section 37, provides a right of appeal against any order passed by the Arbitral Tribunal. Such is the scheme of the Act which lays down an inbuilt mechanism for remedy to the aggrieved party against any order passed by the Arbitral Tribunal. This is the view categorically expressed by the Supreme Court in the case of SBP & Co. (Supra). The orders passed by the Arbitral Tribunal are therefore not amenable to the writ jurisdiction of this Court either under Article 226 or 227 of the Constitution of India.

The contention of the learned Counsel that the principle laid down by the Supreme Court in the case of SBP & Co. (Supra) would apply only where there exists an arbitration agreement between the parties to the contract, is not disputed but this plea would not apply to the facts of the present case. The respondent in this case has resorted to Clause 17 of the purchase order claiming the same to be an arbitration agreement between the parties, covering both, the work order and purchase order, and intended to refer all disputes to arbitration as per the provisions of Arbitration and Conciliation Act and claiming further, that the authority to appoint the Arbitrator, under the clause vests thereby exclusively with the purchaser namely the respondent. The contrary stand taken by the petitioner that the purported arbitration clause in the purchase order does not strictly constitute an arbitration agreement and that even otherwise, since the dispute is entirely in respect of the breach of the conditions of the work order, and the work order containing no such clause of arbitration, it cannot be clubbed with the purchase order, is virtually, its objection which is within the competence of the Arbitrator to decide under the provisions of Section 16 of the Act. The impugned order of the Arbitral Tribunal indicates that on the premise that it has been appointed as Sole Arbitrator, the Arbitral Tribunal has exercised its powers to decide upon the objections and pleas raised by the petitioner concerning the jurisdiction of the tribunal and also the limits of the tribunal''s jurisdiction. The Arbitral Tribunal has thereafter declared to continue with the arbitral proceeding by fixing several dates of meeting for the parties to attend. Under such circumstances, the remedy against the impugned order is available to the petitioner only under the provisions of Section 16(6) of the Act.

In the light of the above discussions, in my opinion, this writ application is not maintainable. Accordingly, this writ application is dismissed. The petitioner shall however be at liberty to avail the remedies available under the Act.