HYTHRO POWER CORPORATION LTD.versusDELHI TRANSCO LTD.

A                   HYTHRO POWER CORPORATION LTO.
                                  v.
                          DELHI TRANSCO LTD.

                                  JULY 30, 2003

B          [SHIVARAJ V. PATIL AND D.M. DHARMADHIKARJ, JJ.]


         Arbitration and Conciliation Act, 1996-Sections 11 and 16-Constitution
   of India, 1950-Article 226-Nominee or designate of Chief Justice-Dispute
C regarding validity and existence of arbitration agreement and its reference to
  arbitrator-Jurisdiction to adjudicate-Held: Designate of the Chief Justice
  acting under Section /I merely exercises administrative function thus, has no
  jurisdiction to adjudicate upon such dispute and also the High Court exercising
  power under Article 226 has no jurisdiction-Only arbitral Tribunal is
  conferred with jurisdiction to decide such dispute as provided under Section
D 16(1).
           Appellant-Corporation filed an application for reference of its
    disputes with the respondent for adjudication through the arbitration in
    accordance with arbitration clause in the alleged agreement arrived at
    between them. Single Judge of High Court acting as designate or nominee
E   of the Chief Justice, in exercise of his powers under Section 11 of the
    Arbitration and Conciliation Act, 1996 rejected the prayer as no
    agreement in writing was executed by the parties with an arbitration
    clause. Appellant-Corporation filed a writ petition. Division Bench
    dismissed the same. Hence the present appeal.
F
        Appellant-Corporation contended that when the nominee or
  designate of the Chief Justice, invokes its power under Section 11 of the
  Act, it merely exercises administrative functions and has no jurisdiction
  to adjudicate upon the contentious issues between the parties on 'the
  existence or the validity of the arbitration agreement'; and that only
G 'arbitral tribunal' is conferred with jurisdiction to decide the existence
  or validity of the arbitration agreement as provided in Section 16(1) of
  the Act.

          Allowing the appeal, the Court

H                                        940
              HYTHRO POWER CORPN. LTD. i·. DELHI TRANSCO LTD.         94}

      HELD: 1. The designate of the Chief Justice acting administratively     A
under Section It of the Arbitration and Conciliation Act, 1996 and the
Division Bench of the High Court exercising powers under Article 226 of
the Constitution erred in adjudicating upon the dispute regarding 'the
validity and existence of the arbitration agreement' and holding that the
dispute was not referable to arbitration. Appellant sought reference of its   B
disputes with the respondent/company for adjudication through the
arbitration in accordance with arbitration clause in the alleged agreement
arrived at between them. Whether an arbitration agreement can be said
to have existed by recourse to arbitration clause in the Notice Inviting
Tender was itself a dispute which deserved to be referred to the arbitral
Tribunal in accordance with the arbitration clause. Section 16 empowers       C
the arbitral Tribunal to decide the question of existence and validity of
the arbitration agreement. Thus, the order of Single Judge under Section
11 of the Act and order of Division Bench of High Court in writ petition
under Article 226 are quashed. [945-E-H; 946-A)

       Konkan Railway Corporation Ltd. v. Mehu/ Construction Co., [2000) 7    D
SCC 201; Konkan Railway Corporation Ltd. v. Rani Construction P. Ltd.,
[2002) 2 SCC 388; NimetResources Inc. v. Essar Steels Ltd., [20001 7, SCC
497 and Food Corporation ofIndia v. Indian Council ofArbitration and Ors.
etc. etc. JT 12003) 5 SC 480, referred to.
                                                                              E
      2. The case is remanded to the Chief Justice or his designate for
hearing the parties on the limited question of constitution of an arbitral
Tribunal in accordance with the arbitration clause in the NIT and for
making a reference for arbitration in accordance with Section 11 of the
Act. [946-A-B)
                                                                              F
     CIVIL APPELLATE JURISDICTION : Civil Appeal No. 5315 of 2003.

     From the Judgment and Order dated 29.8.2001 of the Delhi High Court
in C.W. No. 2675 of 2001.

     Sudhir Chandra, Dharmesh Mishra and Rajat Navet for Pradeep Kumar        G
Bakshi for the Appellant.

     Rakesh Kumar Sharma for the Respondent.

     The Judgment of the Court was delivered by
                                                                              H
    942                    SUPREME COURT REPORTS [2003] SUPP. I S.C.R.

A          DHARMADHIKARI, J. Heard learned counsel appearing for the
    parties. Leave to appeal, as prayed for. is granted.

          The appellant Hythro Power Corporation Limited has approached this
    Court aggrieved by rejection of its application under Section 11 of the
    Arbitration and Conciliation Act, 1996 (hereinafter referred to as the "Act"
B   for short). The learned judge of the Delhi High Court acting as designate or
    nominee of the Chief Justice, in exercise of his powers under Section 11 of
    the Act, by his order dated 7.12.2000 came to the conclusion that no agreement
    in writing having been executed by the parties with an arbitration clause, the
    prayer made by the appellant for seeking a reference of the disputes raised
C   to arbitral Tribunal has to be rejected.

           Aggrieved by refusal of the learned judge of the Delhi High Court to
    make a reference to the arbitration, the appellant-Corporation filed a Writ
    Petition in the High Court of Delhi. The Division Bench of the High Court
    by the impugned order dated 29 .8.200 I came to the same conclusion that
D   there exist no written arbitration agreement and hence the dispute between
    the parties cannot be referred for arbitration under Section 11 of the Act. The
    appellant-Corporation therefore has approached this Court by seeking leave
    under Article 136 of the Constitution.

          The factual background and nature of dispute giving rise to the prayer
E for arbitration under Section 11 by the appellant-Corporation need examination.
          The respondent Delhi Transco Limited issued a Notice Inviting Tenders
    (NIT) for awarding the work of Erection, Testing and Commissioning of
    balance work of 220 KV DC Tower Line from Samaypur to Mehrauli. The
    NIT contained clause 25 which is anarbitration clause. Pursuant to the NIT,
F   the appellant submitted its tender. The respondent issued a letter of intent in
    favour of the appellant. According to the appellant, the respondent also sent
    a detailed letter showing acceptance of the award of the work to the appellant.
    It was also indicated that all terms and conditions of the NIT would form part
    of the contract.
G         According to the appellant, the exchange of letters and correspondence
    between the parties, pursuant to the issuance of NIT and submission of offer
    by the appellant and its acceptance by the respondent constituted a contract
    and as the terms and conditions in the NIT, on which the contract was
    awarded, contained clause 25 providing forum of arbitration, "arbitration
H   agreement" as defined in Section 7(4)(b) of the Act had come into existence
   HYTHRO POWER CORPN. LTD. r. DELHI TRANSCO LTD. [DHARMADHIKARL l]     943

to enable the appellant to invoke the said arbitration clause.                 A
       Learned Senior Counsel appearing for the appellant relies on a three-
judge bench decision of this Court in Konkan Railway Co1poratio11 ltd. v.
 Mehul Construction Co., [2000] 7 SCC 20 I and the Constitution Bench
Judgment of this Court in Konkan Railway Corporation Ltd. v. Rani
Construction P. ltd., [2002] 2 sec 388. On behalf of the appellant, it is B
argued that, as has been held by this Court in the cases (supra), the nominee
or designate of the Chief Justice, when its power is invoked under Section 11
of the Act, merely exercises administrative functions and, therefore, has no
jurisdiction to adjudicate upon the contentious issues between the parties on
'the existence or the validity of the arbitration Agreement.' It is submitted C
that 'arbitral tribunal' to whom the dispute is referred is alone conferred with
jurisdiction to decide the existence or validity of the arbitration agreement as
provided in Section 16( I) of the Act.

      On the facts and background of the dispute briefly indicated above, we
find that the designate of the Chief Justice acting administratively under     D
Section 11 and the Division Bench of the High Court exercising powers
under Article 226 of the Constitution were clearly in error in adjudicating
upon the dispute regarding 'the validity and existence of the arbitration
agreement' and holding that the dispute was not referable to arbitration.

       This Court in three-Judge Bench decision and the Constitution-Bench E
decision in the case of Konkan Railway (supra) has held that the Chief Justice
or his designate under Section 11 of the Act exercises purely administrative
functions and it is not open to him to discharge any judicial function of
adjudicating the dispute even regarding the 'existence of arbitration agreement.'
Whether the letters and exchange of correspondence between the parties, F
pursuant to the NIT, can constitute a contract and an 'arbitration agreement'
can be read into the same in terms of Section 7(4)(b) of the Act was a
question solely within the jurisdiction of 'arbitral tribunal' under Section 16
of the Act. See decision in the case of Nimet Resources Inc. v. Essar Steels
Ltd., (2000] 7 SCC 497 wherein Justice Rajendra Babu of this Court acting
as designate of the Chief Justice of India while exercising powers under G
Section 11 of the Act, observed thus:-

       "! am conscious of the fact that M. Jagannadha Rao, J. in Wellington
       Associates Ltd v. Kirti Mehta, [2000] 4 SCC 272 held that the
       jurisdiction of the nominee of the Chief Justice of India to decide the
       question is not excluded by Section 16 of Act and such a power can H
                                                                                        I-




    944                   SUPREME COURT REPORTS (2003] SUPP. I S.C.R.

A          be exercised in a suitable case. On this basis, it is no doubt permissible
           under Section 11 of the Act to decide a question as to the existence
           or otherwise of the arbitration agreement but when the correspondence
           or exchange of documents between the parties are not clear as to the
           existence or non-existence of an arbitration agreement, in terms of
           Section 7 of the Act the appropriate course would be that the arbitrator
B          should decide such a question under Section 16 of the Act rather the
           Chief Justice of India or his nominee under Section 11 of the Act.

           I take this view because the power that is exercised by the nominee
           of the Chief Justice of India under Section 11 of the Act is in the
           nature of an administrative order. In such a case, unless the Chief
c          Justice of India or his nominee can be absolutely sure that there exists
           no arbitration agreement between the parties it would be difficult to
           state that there should be no reference to arbitration. Further such a
           view may not be conclusive in view of the nature of the powers that
           are exercised under Section 11 (6) of the Act."
D
          In the latest decision of two-Judge Bench of this Court in the case of
    Food Corporation of India v. Indian Council of Arbitration and Ors. etc.
    etc., JT (2003) 5 SC 480, similar view was taken. In that case reference of
  dispute to arbitration was opposed on the ground that under the arbitration
  clause the arbitrator was to be nominated by the Food Corporation of India
E as the employer and not by the Indian Council of Arbitration which was the
  institution from whose panel the arbitrator was to be selected. The designate
  of the Chief Justice under Section 11 refused to make a reference and the
  High Court in Writ Petition by an elaborate judgment expressed its opinion
  on the dispute that the Food Corporation of India should have nominated the
F arbitrator from the panel of Indian Council of Arbitration. In the context of
  that dispute, this Court observed thus:

           "Unfortunately, the High Court in this case seems to have proceeded
           to adopt an adjudicatory role and returned a verdict recording reasons
           as to the very existence or otherwise of the agreement as well as the
G          tenability and legality or otherwise of making a reference to an
           arbitrator."



           "As indicated earlier even assuming without accepting for purposes
           of consideration that there is any infirmity in the arbitration clause
H
        HYTHRO POWER CORPN. LTD."· DELHI TRANSCO LTD. [DHARMADHIKARI, J]       945

             which go to undermine as claimed by the respondents the legality, A
             propriety and validity of the constitution of the Tribunal and/or even
' t          if there be any objections as to the existence of an enforceable or
             valid arbitration agreement, it had to be adjudicated by the very Arbitral
             Tribunal after a reference is made to it on being so constituted and
             it is not for the ICA or the learned Judge in the High Court to undertake B
             this impermissible adjudicatory task of adjudging highly contentious
             issues between the parties. As observed by the Constitution Bench of
             this Court, there is nothing in Section 11 of the 1996 Act that requires
             the party other than the party making the request to be noticed and
             that it does neither contemplate a response from the other party nor
             contemplate any decision by the Chief Justice or his nominee on any C
             controversy that the other party may raise, even in regard to its failure
             to appoint an Arbitrator within the stipulated period. The legislative
             intent underlying the 1996 Act is to minimize the supervisory role of .
             courts in arbitral process and nominate/appoint the Arbitrator without
             wasting time, leaving all contentious issues to be urged and agitated
             before the Arbitral Tribunal itself. Even under the old law, common D
             sense approach alone was commended for being adopted in construing
             an arbitration clause more to perpetuate the intention of parties to get
             their disputes resolved through the alternate disputes redressal me!hod
             of arbitration rather than thwart it by adopting a narrow, pedantic and
             legalistic interpretation."                                                E
            Keeping in view the law as settled by this Court, the designate of the
      Chief Justice acting under Section 11 of the Act and the Division Bench of
      the High Court in exercise of power under Article 226 of the Constitution
      both acted under.a misconception of law and wrongly held that the disputes
      were not referable to the arbitration. The appellant sought reference of its F
      disputes with the respondent/ company for adjudication through the arbitration
      in accordance with arbitration clause in the alleged agreement arrived at
      between them. Whether on the facts mentioned above an arbitration agreement
      can be said to have existed by recourse to arbitration clause in NIT was itself
      a dispute which deserved to be referred to the arbitral Tribunal in accordance G
      with the arbitration clause. Section 16 empowers the arbitral Tribunal to
      decide the question of existence and validity of the arbitration agreement.

           The present appeal, therefore, deserves to succeed and is hereby allowed.

            The impugned order of the learned Single Judge passed under Section        H
    946                     SUPREME COURT REPORTS [2003] SUPP. 1 S.C.R.

A 11 of the Act and the order of the Division Bench of the High Court in Writ
    Petition under Article 226, both are quashed. The case is remanded to the
    Chief Justice or his designate for hearing the parties on the limited question
    of constitution of an arbitral Tribunal in accordance with the arbitration clause
    in the NIT and for making a reference for arbitration in accordance with
B   Section 11 of the Act. The costs incurred by the parties in this case shall
    abide the final results of the arbitration proceedings.

    N.J.                                                           Appeal allowed.