The facts giving rise to this petition briefly is that the second respondent-Executive Engineer Prantiya Khand Lok Nirman Vibhag, Lalitpur entered into a contract with the applicant-firm for construction of Type-4 class building. The contract was executed on 1 March 1996. The contract contained an arbitration clause to settle dispute, if it arises, between the parties pertaining to the execution of the contract. It appears that the respondent failed to provide land to construct the building, further, did not fulfill the other conditions of the agreement, therefore, the material purchased by the applicant and advance given to the workers went waste; the applicant, therefore, incurred loss due to breach of contract. Aggrieved, applicant instituted a suit being Suit No. 218 of 1997 (M/s Rathore Builders vs. State of U.P. & another) under Section 8 of the Arbitration and Conciliation Act, 1996 (hereinafter referred to as 'the Act 1996) seeking a direction to the civil court to direct the Chief Engineer to appoint an Arbitrator as per the terms of the contract. The opposite party appeared and contested but no objection was taken regarding maintainability of the suit at the behest of the applicant under Section 8 of the Act 1996 before the civil court. Be that as it may, the trial court vide order dated 30 July 2002 directed the Chief Engineer Bundelkhand Region, Jhansi, to appoint an arbitrator as per the terms of the contract, further, the dispute be redressed by the arbitrator within a period of six months.
Pursuant thereof, the State Government, Law Department (Appointment) vide reference dated 22 June 2004 referred the dispute to the sole arbitrator Sri Vishnu Chand Gupta, Special Secretary (Judicial) and Law Adviser U.P., Govt. Lucknow. The sole arbitrator adjudicated the matter, rendered the award on 9 February 2005. The award was in favour of the applicant, thereafter, it appears that the award was filed in the pending suit before the Civil Judge (Sr. Div.), Lalitpur by the applicant for making it rule of the court. The opposite party objected to the award, however, the award was made rule of the court, purportedly under Section 34 of the Act 1996 by order dated 2 March 2009. Aggrieved, by the order passed under Section 34 of the Act, 1996, the State-respondent preferred an appeal before the Additional District Judge, Lalitpur being Civil Appeal No. 7 of 2009 (State of U.P. & another vs. M/s Rathore Builders). The appeal was contested by the applicant, learned Additional District Judge set aside the reference order, and the award rendered by the arbitrator, thus, declaring the reference order and award nullity being void ab initio as the reference order was without jurisdiction. The applicant is assailing the order dated 15 October 2015 passed by the appellate court/Additional District Judge, Lalitpur, under Article 227 of the Constitution.
The question for determination is (i) whether the applicant could have instituted a suit before the Civil Judge under Section 8 of the Act, 1996, seeking a direction to the competent authority to appoint an arbitrator; (ii) whether the Civil Judge was competent to have entertained the petition under Section 34 of the Act, 1996; (iii) whether an appeal under Section 37 of Act, 1996 would lie before the Additional District Judge.
The appellate court upon noting the facts framed the following points for determination:
(A) Whether impugned order is without jurisdiction ?
Upon considering the provisions of the Act, 1996, the Appellate Court held that the petition/suit under Section 8 of the Act, 1996 was not maintainable at the behest of the applicant before the Civil Judge, therefore, reference made by the Civil Judge was without jurisdiction, consequently, the Arbitrator was a coram non judice, and for this reason, the award was also a nullity and the consequent impugned order making the award rule of the court having been passed by a court without jurisdiction is a nullity, consequently, the appeal was allowed and the proceedings of Arbitration Case No. 218 of 1997 (M/s Rathor Builders vs. State of U.P. & another) was set aside.
Submission of the learned counsel for the applicant is that the petition was maintainable under Section 8 of the Act, 1996, further, the court had not appointed any arbitrator but had directed the competent authority to appoint an arbitrator as per the terms of the contract. Pursuant thereof, the State Government appointed a sole Arbitrator who rendered the award which was made rule of the court under Section 20 of the Arbitration Act 19401. It is sought to be urged that a plea was taken before the Additional District Judge that the appeal was not maintainable under Section 37 of the Act, 1996; the appeal would lie before the High Court.
The entire facts narrated herein above would reflect a sorry state of affairs. The petition under Section 8 would not be maintainable at the behest of the applicant-plaintiff. Constitution Bench (7 Judges), in S.B.P. & Co. vs. Patel Engineering Ltd. and another2, held that 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, the judicial authority would have to refer the parties to approach the arbitrator. Thus, the provisions of Section 8 of the Act, 1996 can be invoked by a defendant and not by the plaintiff.
The conditions which are necessarily to be satisfied under sub-sections (1) and (2) of Section 8 before the Court can exercise of its power are : (1) there is an arbitration agreement; (2) a party to the agreement brings an action in the Court against the other party; (3) subject matter of the action is the same as the subject matter of the arbitration agreement; (4) the other party moves the Court for referring the parties to arbitration before it submits his first statement on the substance of the dispute. (Ref.-- P. Anand Gajapathi Raju v. P.V.G. Raju3).
Section 8 of the new Act is not in pari materia with Section 20 of the old Act. It is only if in an action which is pending before the Court that a party applies that the matter is the subject of an arbitration agreement does the Court get jurisdiction to refer the parties to arbitration. Section 8 does not contemplate, unlike Section 20 of the old Act, a party applying to a Court for appointing an arbitrator when no matter is pending before the Court. [Ref.--Sundaram Finance Ltd Versus NEPC India Ltd.4].
Appointment of arbitrator or arbitrators is governed only by the provisions of Section 11 of 1996 Act. Section 8 does not enable the court to appoint an arbitrator, as was the case under Section 20 of old Act. When an application under Section 8 is filed in court and the conditions provided under the section are satisfied, Court is bound to refer the parties to arbitration. The court is not called upon to require the parties to name the arbitrator or arbitrators and refer the dispute to that arbitrator. It only provides for an order referring the parties to arbitration. (Ref.-- M. Vijaya Narayanan v M. Prabhakaran5).
Chapter VII of the Act provides recourse against an arbitral award, sub-clause 1 of Section 34 contemplates that the aggrieved party may take recourse to the "court" against arbitral award by making an application for setting aside of the award in accordance with sub-section (2) and (3).
Section 36 contained in Chapter VIII provides for enforcement of award where the time provided for making an application to set aside the arbitral award under Section 34 has expired or such application having been made, has been refused, the award shall be enforced under Code of Civil Procedure (CPC) in the same manner as if it were a decree of the Court. Section 37 provides for appeal, inter alia, from an order to set aside or refuse to set aside an arbitral award under Section 34. The court competent to hear the appeals would be the court authorized by law to hear the appeals from original decrees of the court passing the order.
The forum of the appellate court necessarily must be determined in reference to the definition of 'court' in section 2(1)(e) of the Act 1996.
Section 2(1)(e) would define the 'court' to mean principal civil court of original jurisdiction in a district and includes High Court in exercise of its ordinary original civil jurisdiction, having jurisdiction to decide the questions forming the subject matter of the arbitration, if the same had been the subject matter of a suit, but does not include any civil court of a grade inferior to such principal Civil Court or any Court of small causes. If the High Court does not exercise original civil jurisdiction, it would not be a "court" within the meaning of said provisions.(Vide Pandey & Co. Builders Pvt. Ltd Vs. State of Bihar6).
Section 9 also confers powers upon the 'court' to grant interim measure, section 14 again refers the 'court'. By the expression court used in various provisions of the Act is meant that District Court i.e. principal civil court of original jurisdiction in a district, which would have jurisdiction to decide, if a suit had been brought in regard to subject matter of reference. High Court of Allahabad, does not exercise original civil jurisdiction, therefore, is not court as defined under Section 2(e), hence, application under Section 34 to set aside an award is not entertainable in the High Court of Allahabad. The District Judge, and not his subordinate, is the Principal Civil Court. (Vide Deepak Mitra Vs. District Judge, Allahabad7).
If during the pendency of the proceedings in the court parties have entered into an arbitration agreement then they have to proceed in accordance with the provisions of the new Act and when award is made it is a decree and it cannot be filed in the High Court and it has to be filed in the court as defined in clause (e) of Section 2 of the Act, 1996 for its enforcement as a decree under Section 36 of the Act, 1996. If there is challenge to the award recourse has to be under Section 34 of the new Act. (Ref.-- Tamil Nadu Electricity Board v Sumathi8).
The existing provisions in old Act relating to arbitration through intervention of Court, when there is no suit pending or by order of the court when there is a suit pending, have since been removed.
As per scheme of Act, 1996 the power to appoint Arbitrator in the event of the competent authority under the contract refusing to do so, is with the Chief Justice of the High Court under Section 11(6) of the Act, 1996. (Ref.-- Konkan Railway Corpn. Ltd. v Mehul Construction Co.9).
Section 85 of Act, 1996 repeals the old Act but the provisions of repealed enactment will continue to apply in relation to arbitral proceedings which commenced on or before 25 January 1996. The arbitral proceedings pending at the commencement of Act, 1996 are saved from the application of the present Act, but even an arbitral award which may be given subsequently after the commencement of Act, 1996 in those arbitral proceedings, would be saved from the provisions of the Act, 1996. In Thyssen Stahlunion GMBH V. Steel Authority of India Ltd.10, the Supreme Court held that the saving by Section 85(2)(a) is not only of the arbitral proceedings but also of the provisions of the old Act for the enforcement of award under that Act. The date when the arbitration agreement was entered into will not be material. An arbitration agreement, although entered into before the Act, 1996 came into force, would be governed by the present Act. The test of commencement of arbitral proceedings is given in Section 21 of the Act, 1996; the arbitral proceedings commence on the date on which request for referring the dispute for arbitration is received by the parties, unless otherwise agreed by the parties. (Ref. -- Shetty's Construction Co. Pvt. Ltd. v. Konkan Railway Construction11).
Having due regard to the facts and circumstances of the case, it is apparent that the entire proceedings since its inception was gross misuse of process of law and forum. The judicial authority acted without jurisdiction. The State-respondent failed to assist the court by bring to the notice of the Court that the proceeding was not maintainable under Section 8 of the Act, 1996 at the behest of the applicant. The remedy available was under Section 11(6) by approaching the Chief Justice of the High Court. The award upon being rendered by the sole arbitrator was made rule of the court under Section 20 of the old Act which was not permissible as old Act had no application in view of Section 85 of Act, 1996. Thereafter, the appeal was filed under Section 37 of Act, 1996 before the Additional District Judge which itself was not maintainable. I am, therefore, of the opinion that the entire proceedings initiated at the behest of the applicant is void ab initio. The impugned order does not call for interference as upon being set aside would revive orders which otherwise is void ab initio. For the reasons stated herein above, this Court under Article 227 of the Constitution declines to interfere with the impugned order.
The petition is accordingly dismissed.
No order as to costs.
Order Date :- 10.2.2016 Mukesh Kr.