Holding

A plea of lack of jurisdiction must be raised before the arbitral tribunal under Section 16; if not, it cannot be entertained under Section 34 unless good cause is shown, and therefore the award is valid.

Summary

Gas Authority of India Ltd. (GAIL) awarded four construction contracts to Mis Keti Construction (I) Ltd. Disputes arose and were referred to arbitration under the contract clause. GAIL sent a panel of three names for a sole arbitrator on 16 February 1999, urging the contractor to select one; the contractor later nominated its own arbitrator, Brig. Nardip Singh, without selecting from GAIL’s panel. The arbitrator appointed by GAIL, Justice N.N. Goswami, gave a ‘no‑claim’ award on 19 April 2000. The contractor filed a petition under Section 34 of the Arbitration and Conciliation Act, 1996 seeking to set aside the award on the ground that the tribunal was improperly constituted. The High Court set aside the award and directed the parties to appear before the contractor‑appointed arbitrator; GAIL appealed. The Supreme Court held that any objection to the tribunal’s jurisdiction must be raised before the tribunal under Section 16, and cannot be raised later under Section 34 unless the party shows good cause, so the award was valid and the High Court’s order was set aside, with the appeal allowed.

Issues considered

Can a party raise a jurisdictional objection to the arbitral tribunal’s composition under Section 34 after the award has been made?
Was the appointment of an arbitrator by the respondent, contrary to the panel sent by the appellant, valid under the arbitration clause?
Can the award rendered by the arbitrator appointed by the appellant be set aside on the ground of lack of jurisdiction?
How should Sections 16, 34 and 37 of the Arbitration and Conciliation Act, 1996 be interpreted with respect to competence‑competence and the timing of jurisdictional pleas?

Legislation cited

Arbitration and Conciliation Act, 1996s. 16, s. 34, s. 37

Subjects

ArbitrationJurisdictionSection 16Section 34Competence-competenceAward setting asideArbitrator appointmentContract arbitration clauseExpeditious dispute resolution

Judgment

r MIS GAS AUTHORJTY OF INDIA LTD. AND ANR. A
v.
MIS KET! CONSTRUCTION (I) LTD. AND ORS.
'.
MAY 11, 2007

[G.P. MA THUR AND LOKESHW AR SINGH PANTA, JJ.] B

Arbitration & Conciliation Act, 1996-Sections 16, 34, & 3 7-
~ Arbitrator appointed by appellant passing an award against respondent-
Petition by respondent before High Court to set aside the award on the
ground of lack ofjurisdiction-High Court allowing the petition-Correctness
c
of-Held, object and scheme of the Arbitration Act is to secure an expeditious
resolution of disputes-Plea of jurisdiction of an arbitrator must be raised
before the arbitrator under section I 6 of the Act and not under section 34
of the Act after the award is passed--On facts, no good reasons given by the
respondent for setting aside the award of the arbitrator-Hence, the award D
of the arbitrator is valid in law.
~
Appellant no. 1 awarded four construction contracts to respondent no.
>- 1. Certain disputes arose between the parties. Appellant no. 1 referred the
dispute to an Arbitrator under the arbitration clause of thi: contracts who
gave a 'no claim award'. E
Respondent No. 1 filed a petition under section 34 of the Arbitration
and Conciliation Act, 1996 before High Court for setting aside the award of
the arbitrator on the ground of jurisdiction. Respondent no. 1 contended that
it had appointed an arbitrator under arbitration agreement before the
appointment of the arbitrator is made by the appellant; and that the arbitrator F

- ~
appointed by it has already entered into reference. Appellant no. 1 contested
the petition contending that it appointed the arbitrator first for settling the
disputes relating to different contracts before the appointment of arbitrator
is made by the respondent; that it challenged the appointment of the arbitrator
by respondent no. 1 by sending a notice to the arbitrator of respondent no. 1 G
to desist from proceeding from arbitration; that respondent no. 1 never
challenged the jurisdiction of the arbitrator appointed by the appellant under
section 16 of the Act; and hence there is no ground to set aside the award of
the arbitrator. Single Judge of the High Court dismissed the petition. A

439 H
440 SUPREME COURT REPORTS (2007] 6 S.C.R.

A Division Bench of the High Court allowed the appeal preferred by Respondent
no. 1 by directing the parties to appear before the arbitrator appointed by
respondent no. 1 and proceed in accordance with law. Hence the appeal before
this Court.

Allowing the appeal, the Court
B
HELD: 1.1. The correspondence exchanged between the parties is not
like evidence in a suit or trial where a piece of evidence given in a particular
suit or trial cannot be read or taken into consideration in another suit or
trial. The stand of the appellant right from the beginning was that all the
C disputes should be referred to a single arbitrator, which will be cost effective,
economical and quick. The stand was very reasonable. There is material on
record to show that a panel of three names had already been sent by appellant
no. 1 to respondent no. 1 which was a sufficient compliance of the clause of
the agreement. There is neither any such clause in the agreement nor there
any requirement in law that for each of the contract, a separate panel ought
D to have been sent The same panel could very well be utilized for resolving
the disputes arising out of different contracts. In these circumstances,
respondent no. I was not at all erititled to nominate an arbitrator which it chose
to do subsequently. There is nothing wrong on the part of the appellant when
it intimated that a panel had already been sent earlier for appointment of a
E single arbitrator for resolution of all the disputes between the parties.
[Paras 13 and 141 [452-E-F-G; 453-D]

1.2. The whole object and scheme of the Arbitration and Conciliation
Act, 1996 is to secure an expeditious resolution of disputes. Therefore, where
a party raisesaplea that the arbitral tribunal has not been properly constituted
F or has no jurisdiction, it must do so at the threshold before the arbitral
tribunal so that remedial measures may be immediately taken and time and
expense involved in hearing of the matter before the arbitral tribunal which
may ultimately be found to be either not properly constituted or lacking in z- -
jurisdiction, in proceedings for setting aside the award, may be avoided.
[Para 18] [457-E-F)
G
1.3. Where a party has received notice and he does not raise a plea of
lack of jurisdiction before the arbitral tribunal, he must make out a strong
case why he did not do so if he chooses to move a petition for setting aside the
award under Section 34(2)(v) of the Act on the ground that the composition of
the arbitral tribunal was not in accordance with the agreement of the parties.
H If plea of jurisdiction is not taken before the arbitrator as provided in Section
GAS AUIBORITYOF INDIA LTD. v. KETI CONSTRUCTION (I) LTD. [G.P. MATHUR, J.]44 J

"'>-· 16 of the Act, such a plea cannot be permitted to be raised in proceedings A
under Section 34 of the Act for setting aside the award, unless good reasons
are shown. Though respondent no.I had ample opportunity to appear before
the arbitrator and raise a plea of jurisdiction to the effect that he had been
wrongly appointed as arbitrator by appellant no.I, yet, it chose not to do so.
This feature of the case weighs heavily against respondent no.I.
(Paras 19 and 201(457-G-H;458-AI B

-
Konkan Railway Corporation Ltd. v. Rani Construction Pvt. Ltd., (20021
I
··~
3 SCC 388; S.B.P. & Co. v. Patel Engineering Ltd., (20051 8 SCC 618 and
Sundaram Finance Ltd v. NEPC Ltd. AIR (1999) SC 565, referred to.

CIVIL APPELLATE JURISDICTION : Civil Appeal No. 2440 of2007. c
From the Final Judgment and Order dated 07 .12.2004 of the High Court
of Delhi at New Delhi in FAO(OS) No. 374 of 2003.

Mohan Parasaran, ASG., Ghanshyam and Devendra Singh for the
Appellants. D
~
P.C. Markanda, Naresh Markanda, Rajesh Markanda and Ashok K.
>- Mahajan for the Respondent.

The Judgment of the Court was delivered by
E
G.P. MA THUR, J. 1. Leave granted.

2. This appeal, by special leave, has been preferred against the judgment
and order dated 7.12.2004 ofa Division Bench of Delhi High Court by which
the appeal filed by Mis Keti Construction (I) Ltd. - Contractor (Respondent
No. I herein) under Section 37 of the Arbitration and Conciliation Act, 1996 F
..>
~ (hereinafter referred to as 'the Act') was allowed and the judgment and order
dated 20. l 0.2003 of a learned Single Judge by which the petition tiled by
respondent no. I under Section 34 of the Act was dismissed, was set aside
and the award given by the arbitrator (respondent no.2 in the present appeal)
on 19.4.2000, was also set aside. It was further directed that Brig. Nardip Singh G
(Retd.) who was appointed by respondent no. I shall proceed with the arbitration
in accordance with law and give the award.

"'"Jlc· 3. Gas Authority of India (GAIL, appellant no.I herein) awarded four
contracts for its project at Petro-Chemical Complex, Dibiyapur, District Etawah
(U.P.) to Mis Keti Construction (I) Ltd., Indore (Contractor), which is arrayed H
442 SUPREME COURT REPORTS (2007] 6 S.C.R.

A as respondent no. I in the present appeal. All the four contracts were awarded ·--<
in the year 1995 and they related to construction of certain types of houses
for GAIL Vihar Township, pre-mix bitumen carpeting and repair of roads in
GAIL Vihar Colony, construction of external sewerage line and construction
of certain residential quarters in lJPPC Complex, Dibiyapur. Certain disputes
arose between the parties regarding completion of the construction work in
B accordance with the design and cost of construction, etc. The contracts
entered into between the parties contained arbitration clause. Appellant no. I

-
referred the dispute with regard to contract dated 28.9.1995 for arbitration to
Justice N.N. Goswami (Retd.) who was formerly a Judge of Delhi High Court. i

The arbitrator gave a 'no claim award' on 19.4.2000. Respondent no. I filed a >-
c petition under Section 34 of the Act in the Delhi High Court for setting aside
the award. A learned Single Judge who heard the petition, after detailed
discussion of the material on record, found that the petition was devoid of
merits and accordingly dismissed the same by the judgment and order dated
20.10.2003. Respondent no.I then preferred an appeal before the Division
Bench of the High Court under Section 37 of the Act which allowed the same
D by the judgment and order dated 7.12.2004 and set aside the award of the
arbitrator. It was further directed in the order that parties shall appear before
Brig. Nardip Singh (Retd.) who had been nominated as arbitrator by respondent ~

no.I (contractor) and he shall proceed in accordance with law and give the -1

award.
E
4. The principal ground on which the petition under Section 34 of the
Act had been filed by respondent no. I was that it had invoked the arbitration
clause by sending a notice to appellant no. I on 17. 7.1999 and accordingly the
appellant no. I was required to send a panel of three names for arbitration
within 30 days of receipt of notice. Since appellant no. I did not respond to
F the notice and did not send a panel within 30 days, it forfeited its right to
nominate a panel and thereafter respondent no. I sent its own panel on
28.10.1999. Appellant no.I again did not make any response and did not r ....
choose anyone from the panel nominated by respondent no. I and accordingly
it informed appellant no. I on 10.12.1999 that it had selected Brig. Nardip Singh
(Retd.) as an arbitrator and the said arbitrator entered upon the reference on
G 6.1.2000. Appellant no. I appointed Justice N.N. Goswami (Retd.) as an arbitrator
subsequently on 13.1.2000 which appointment was not valid being contrary
to the terms of the agreement entered into between the parties. Respondent
no.I thus submitted that the appointment of Justice N.N. Goswami (Retd.) was · ·>(
invalid and the award given by him was liable to be set aside in view of
H Section 34(2)(v) of the Act.
GAS AUTHORITY OF INDIA LTD."· KET! CONSTRUCTION (I) LTD. [GP. MA THUR, JJ443

5. The petition was contested by the appellants on the grounds, inter A
alia, that appellant no. I had already sent a panel of three names on 16.2.1999
in which the name of Justice N.N. Goswami (Retd.) was mentioned at serial
no. I and it was mentioned that disputes between the parties relating to all the
contracts be resolved by the same arbitrator. In reply to the notice of respondent
no.I, the appellants' advocate Mr. Sushi! Chauhan had sent a reply on B
31.7 .1999 asking to choose any one from the said panel. This was again
reiterated by a letter dated 15 .11.1999 when respondent no. I sent its own
panel on 28. 10.1999. The appointment of Brig. Nardip Singh (Retd.) as an
arbitrator made by respondent no. I which was communicated by its letter of
I0.12.1999 was challenged by appellant no. I by sending a letter dated
31.12.1999 and a letter was also sent in this regard to Brig. Nardip Singh C
(Retd.) to desist from proceeding with arbitration. It was further submitted
that respondent no. I did not challenge the jurisdiction of the arbitrator
appointed by appellant no. I in accordance with Section I6 of the Act. The
contractor did not at all appear before the arbitrator appointed by appellant
no.I, viz. Justice N.N. Goswami (Retd.) and did not submit any statement of
claim. In these circumstances, there was no ground for setting aside the award D
made by Justice N.N. Goswami (Retd.) on 19.4.2000 and the petition under
+ Section 34 of the Act filed by respondent no. I was liable to be dismissed.
)

6. We have heard Mr. Mohan Parasaran, Additional Solicitor General for
the appellant and Mr. P.C. Markanda, Senior Advocate for respondent no. I E
and have perused the record.

7. Gas Authority oflndia (appellant no.I herein) awarded four contracts
to Mis Keti Construction (I) Ltd. (respondent no. I herein) for various
construction work at its Petro-Chemical Complex, Dibiyapur, District Itawah
(U.P.) which were as follows :- F
"(A) Work Order No. CE/AUR/Ph-11 Extn. B. Works/ 97A/95 dated
26.5.95: Balance work of construction of C-6 and D-2 Houses at
GAIL Vihar Township, Dibiyapur;
(B) Work Order No. CE/115/Auriaya/Gail/Gail Vihar Road Work/95 G
dated I0.2.95: Construction of premix bitumen carpeting and repairs
of roads in Gail Vihar Colony and Compressor station;
(C) Work Order No. CE/137/Auriaya/Ext/SER/95 dated I.I 1.95:
Construction of external sewerage line at UPPC Nagar, Dibiyapur;
and
H
444 SUPREME COURT REPORTS [2007) 6 S.C.R.

A (D) Work Order No. CE/136/AuriayaiHousing/95 dated 28.9.95:
Construction of residential quarters Type A-25 units, Type B-105
units, Type C-55 units for UPPC Complex, Dibiyapur."

8. The dispute here pertains to contract no. (D) dated 28.9.1995. Clause
I07 of the agreement, which is relevant for the controversy in dispute reads
B as follows :

"I 07 .1 All disputes or differences whatsoever which shall at any time
arise between the parties hereto touching or concerning the WORKS
or the execution or maintenance thereof of this CONTRACT or the
rights touching or concerning the WORKS or the execution effect
c thereof or to the rights or liabilities or the construction meaning
operation or effect whether during or after completion of the
CONTRACT or whether before or after determination, foreclosure or
breach of the CONTRACT (other than those in respect of which the
decision of any person is by the CONTRACT expressed to be final
and binding) shall after written notice by either party to the
D
CONTRACT to the other of them and to the Appointing Authority
hereinafter mentioned be referred for adjudication to a sole arbitrator
to be appointed as hereinafter provided.
~.
107.2. For the purpose of appointing the sole arbitrator referred to
E above, the Appointing Authority will send within thirty days of the
receipt of the notice to the CONTRACTOR, a panel of three persons
who shall all be presently unconnected with the organization for
which the WORK is executed.

The CONTRACTOR shall on receipt of the names, as aforesaid,
F select any one of the persons named to be appointed as a sole
Arbitrator and communicate his name to the Appointing Authority
within thirty days of receipt of names. The Appointing Authority shall
thereupon without any delay appoint the said person as the sole
arbitrator. If the CONTRACTOR fails to communicate such selection
as provided above within the period specified, the Appointing Authority
G shall make the selection and appoint the selected as the Sole Arbitrator.

If the Appointing Authority fails to send to the CONTRACTOR the
panel of three names as aforesaid within the period specified, the
CONTRACTOR shall send the Appointing Authority a panel of three
names of persons who shall all be unconnected with either party. The
H
GAS AUTHORITY OF INDIA LTD. v. KETI CONSTRUCTION (I) LTD. [G.P. MATHUR, J.J445

Appointing Authority shall on receipt of the·names as aforesaid select A
any one of the persons named and appoint him as the sole arbitrator.
If the Appointing Authority fails to select the person and appoint him
as the sole Arbitrator within 30 days of the receipt of the panel and
inform the CONTRACTOR accordingly, the CONTRACTOR shall be
entitled to appoint one of the persons from the panel as the sole
arbitrator and communicate his name to the Appointing Authority. B

If the Arbitrator so appointed is unable to or unwilling to act or
\ resigns his appointment or vacates his office due to any reason
~
whatsoever, another sole arbitrator shall be appointed as aforesaid.

The WORK under the CONTRACT shall, however, continue during c
the Arbitration proceedings and no payment due or payable to the
CONTRACTOR shall be withheld on account of such proceedings.

The Arbitratm· shall be deemed to have entered on the reference
on the date he issues notice to both the parties fixing the date of the
first hearing. D
-+ The Arbitrator may, from time to time, with the consent of the
; parties, enlarge the time for making and publishing the award.

The venue of the arbitration shall be New Delhi.

The fees, if any, of the Arbitrator shall, if required to be paid
E
before the award is made and published, be paid half AND half by
each of the parties. The costs of the reference and of the award
including the fees, if any, of the Arbitrator shall be in the discretion
of the Arbitrator who may direct to and by whom and in what manner,
such costs or any part thereof shall be paid and may fix or settle the F

- ~
amount of costs to be so paid.

The award of the Arbitrator shall be final and binding on both the
parties.

Subject to aforesaid the provisions of the Arbitration Act, 1940 or any
G
statutory modification or re-enactment thereof and the rules made
thereunder, and for the time being in force, shall apply to the arbitration
proceedings under this clause."

""" A perusal of clause I07 would show that on a dispute being raised by
the contractor, the appointing authority was required to send a panel of three H
446 SUPREME COURT REPORTS (2007] 6 S.C.R.

A names to the contractor and he was entitled to select anyone of them as sole
arbitrator and to communicate his decision to the appointing authority within
30 days. Thereafter, the appointing authority was under an obligation to
appoint the said person as sole arbitrator. However, ifthe appointing authority
failed to send the panel of three names within the stipulated period, the
contractor was given the option to send a panel of three names to appellant
B no. I, which was required to select anyone of them and communicate the said
fact within 30 days.

9. The plea taken by respondent no. I is that the completion certificate
with regard to the work in dispute was issued on 24.1.1998 and it wrote
C several times for settling the accounts. It invoked the arbitration clause on
17. 7.1999 by sending a letter to the appointing authority to send a panel but
as there was no response, it sent its own panel of three names on 28.10.1999
and finally informed vide letter dated I0.12.1999 that it had nominated Brig.
Nardip Singh (Retd.) as the arbitrator. Voluminous correspondence was
exchanged between the parties and many such letters were placed on record
D before the learned Single Judge of the High Court. It appears that some
dispute had been raised by respondent no. I regarding balance work of
construction of C-6 and D-2 numbers of houses at GAIL Vihar Township at
Dibiyapur and a letter had been sent by it to appellant no.I on 16.1.1999. A
reply was given on behalf of appellant no. I to respondent no. I on 16.2.1999,
E relevant part of which reads as under :-
"S!r,

This has reference to your letter vide ref. no.IND.KT.44(6)/99
DATED 16/1/99, we would like to bring to your kind notice that you
have not so far informed us the nature of disputes you want to refer
F for resolution by the Arbitrator.

However, in the meantime, we are suggesting you a panel of three .,_
persons to select one of them as Sole Arbitrator :

I. Mr. Justice N.N. Goswami Retd. Judge Delhi High Court
G
2. Dr. Avtar Singh Professor of Law

3. Mr. Harish Chandra Director General CPWD (Retd.) & Ex. Member
UPSC

Further, it is suggested to appoint the same Arbitrator and to club
H
GAS AUTHORITY OF INDIA LTD."· KETI CONSTRUCTION (I) LTD. [G.P. MATHUR. J.J447

the Arbitration proceedings in both the matters so as to reduce on A
cost and time incurred in the said Arbitration.

Accordingly, you are called upon to select any one of the above
named persons as Sole Arbitrator in both the matters."

10. The evidence on record shows that in connection with the dispute B
with regard to all the four contracts several meetings had taken place in the
office of GAIL also and in the office of their consultant, M/s C.P. Kukreja &
Associates in which the representatives of respondent no. I had participated.
'
-k This fact is not in dispute that several meetings did take place to resolve the
dispute regarding all the four contracts between the representatives of appellant
no. I and respondent no. I. The Senior Manager (Civil) of appellant no. I sent c
a letter dated 15.11.1999 to respondent no. I which has considerable bearing
on the controversy in hand and, therefore, the same is being reproduced
below:-

"Ref.:CE/GAIL/99 November 15, 1999
D
Mis Keti Constructions (I) Ltd.
3116, Sneh Nagar, Main Road
'i'
Opp. Sapna Sangeeta Theatre
> Indore (MP).
SUBJECT: DISPUTES RELATING TO :
E
(A) WORK ORDER NO.: CE/AUR/PH-II EXTN. B. WORKS/97A/95
DA TED 26.05.95.
BALANCE WORK OF CONSTRUCTION OF C-6 AND D-2 NOS.
OF HOUSES AT GAIL VIHAR TOWNSHIP, DIBIY APUR;
(B) WORK ORDER NO. CFJI 15/AURIAYAIGAIIJ GAIL VIHARROAD
F
WORK/95 DATED 10.02.95
.- -..or
CONSTRUCTION OF PREMIX BITUMEN CARPETING AND
REPAIRS OF ROADS IN GAIL VIHAR COLONY AND
COMPRESSOR STATION.
G
(C) WORK ORDER NO. CE/13 7IAURIA YA/EXTI SER/95 DA TED
1.11.95:
CONSTRUCTION OF EXTERNAL SEWERAGE LINE AT UPPC
NAGAR, DIBIYAPUR.
H
448 SUPREME COURT REPORTS [2007] 6 S.C.R.

A (D) WORK ORDER NO. CE/136/AURIA YAl HOUSING/95 DA TED
28.9.95
CONSTRUCTION OF RESIDENTIAL QUARTERS TYPE A-25
UNITS, TYPE 8-105 UNITS, TYPE C-55 UNITS FOR UPPC
COMPLEX, DIBIYAPUR.-----------
B
Dear Sir,

Kindly recall various meetings held in our office and also in the office
of Consultant, Mis C.P. Kukreja Associates in respect of the above
referred contracts and the disputes arising therefrom, wherein it was
c agreed between us to settle the disputes amicably and through
discussions. Despite this clear understanding, you had vide your
letters dated 25.08.98 invoked Arbitration clause in respect of Work
Order Nos. : (I) CFJAUR/PH-IIIEXTN. B. WORK/97A/95 dated 26.05.95
relating to balance work of Construction of C-6 and D-2 number of
D houses at GAIL Vihar Township of Dibiyapur and (2) CFJI 15/
AURIAYA/GAIL/GAIL VIHAR ROAD WORK/95 dated I02.95 relating
to construction of premix bitumen carpeting and repairs of roads in
Gail Vihar Colony & Compressor Station.

Subsequently, vide your letters dated 5.10.98 in respect of the above
E work orders, you submitted a panel of three Arbitrators asking us to
select one of them to act as Sole Arbitrator on the above two cases.
However, we responded to your communications vide our letters
dated 16.02.99 and as per the terms of the contract suggested the
following panel of three distinguished persons :-

F I. Mr. Justice N.N. Goswami (R) Judge Delhi High Court

2. Dr. Avtar Singh, (V) Prof. of Law, IIM, Lucknow.

3. Mr. Harish Chandra, Director General CPWD (Retd.) & Ex-Member,
UPSC.
G You were requested to select any of them to act as Sole Arbitrator.
However, no action has been taken by you so far and even the issues
which seem to have been resolved by discussions have not been -
confirmed, keeping the matters pending unnecessarily.

During our meetings, we have suggested to you that all the disputes
H
GAS AUIBORITY OF INDIA LTD. v. KETI CONSTRUCTION (I) LTD. [G.P. MATHUR.J.J449

~
arising out of the above contracts which cannot be settled by mutual A
discussions, may be referred to a Sole Arbitrator selected by you
from among the panel of distinguished persons mentioned above, so
that the resolution of disputes by reference to Arbitration becomes
cost effective, economical and quick.

In view of the above, you are requested once again to select any of B
the persons mentioned herein to act as a Sole Arbitrator in all the
above disputes.

~' Assuring you of our best co-operation at all times.

Yours faithfully, c
Sd/-
(P.K. Sarkar)
Sr. Manager (Civil)"
11. It may be noted that the above noted letter of 15.11.1999 was written D
by the Senior Manager (Civil) of appellant no. I in connection with the disputes
relating to all the four contracts, viz. (A), (B), (C) and (D). In this letter
1' reference was made to the earlier letter dated 16.2.1999 sent by appellant no. I
)
and the same panel of three names in which name of Justice N.N. Goswami
(Retd.) was at serial no. I was reiterated. The last paragraph of the above
quoted letter is very important where it was clearly mentioned that the dispute E
arising out of the four contracts which cannot be mutually settled may be
referred to a sole arbitrator selected by respondent no. I from amongst the
persons mentioned in the panel so that the resolution of disputes by reference
to arbitration becomes cost effective, economical and quick. Towards the end
of the letter a request was made to respondent no. I to select anyone of the F
persons mentioned in the said letter to act as sole arbitrator in all the above
.. -.. disputes, which means all the disputes relating to contract nos.(A), (B), (C)
and (D). It is, therefore, clear that a panel of three names had been sent by
the appellant to respondent no. I on 16.2.1999 which was categorically reiterated
in the letter dated 15.11.1999, sent by the Senior Manager (Civil) of Gas
Authority of India Ltd. (appellant no. I) to respondent no. I. This letter was G
not confined to any particular contract but specifically referred to all the four
• contracts including the disputed contract no.(D) dated 28.9.1995. The stand
of appellant no. I was quite reasonable that if all the disputes were referred
to a single arbitrator, the arbitration proceedings would be cost effective,
economical and quick. After receipt of this letter dated 15.11.1999, wherein the H
450 SUPREME COURT REPORTS (2007] 6 S.C.R.

A earlier panel communicated vide letter dated 16.2.1999 had been reiterated,
there was no occasion for respondent no. I to appoint Brig. Nardip Singh
(Retd.) as arbitrator by sending a communication to that effect subsequently
on 10.12.1999. The stand of the appellant had been made very clear and
explicit by the aforesaid two letters and it was not required to respond again
B specifically to the letter dated 28.10.1999 sent by respondent no. I to select
an arbitrator from the panel intimated by it. The stand of respondent no. I to
the effect that as the appellant did not respond to its letter dated 28.10.1999,
it selected Brig. Nardip Singh (Retd.) by sending a communication on 10.12.1999
is. therefore, wholly unjustified.

C 12. There is contemporaneous evidence which shows that a number of
meetings had taken place between the representatives of appellant no. I and
the representatives of respondent no. I, wherein effort was made to resolve
the disputes without reference to arbitration and an understanding had been
reached between the parties that unresolved disputes of all the four contracts
shall be referred to a sole arbitrator to make the arbitration proceedings quick
D and cost effective. After respondent no. I had sent the letter dated I 0.12.1999
to the appellant that it had nominated Brig. Nardip Singh (Retd.) for the
purpose of arbitration, the Senior Deputy Manager (Law) of appellant no. I
sent a letter to him on 31.12.1999 requesting him to desist from entering upon
the reference or taking any further steps in view of the fact that in the meeting
E held between the representatives of the two organisations, it was clearly
agreed that the matter shall be referred to a sole arbitrator and respondent
no. l was expected to select a name from the panel suggested by appellant
no. l. The letter is self-eloquent and is being reproduced below :-

"December 31, 1999
F Brig. Nardip Singh
Chief Engineer, MES (Retd)
B-64, Sector 30
NOIDA
Dear Sir,
G Sub : Letter by Keti Const. Ltd JNDIKT!U908/99 dated 20.12.99 in
the matter of construction of residential quarters of UPPC,
Dibiyapur, Etawah, U.P.

This has reference to the captioned communication on the subject
cited above.
H
GAS AUTHORITY OF INDIA LTD. v. KETI CONSTRUCTION (I) LTD. [G.P. MA THUR, JJ45 I

,
"'. .
Mis Keti Constructions have been awarded contracts by GAIL for A
execution of a number of its projects. In relation to some of which
contracts including the contract in question now sought to be placed
before you, certain disputes are alleged to remain outstanding, as per
Keti Constructions.

Keti Constructions made their requests for resolution of interse B
disputes with GAIL by reference to Arbitration, including in the contract
in question.
~ Upon receipt of these requests of Keti Constructions by GAIL, GAIL
J...
made suggestion for resolution of disputes by a Sole Arbitrator and
sent to Keti Constructions a panel of three distinguished persons who c
may be appointed as Sole Arbitrator. Thereupon, Keti Constructions
came forward for negotiations. During these discussions/negotiation,
,- the representatives of Keti Const ·uctions were repeatedly suggested
to refer all unresolved issues of various contracts to a Sole Arbitrator
selected by them from amongst the panel suggested by GAIL.
D
Representatives of Keti Constructions agreed to our suggestion as
it was less time consuming and GAIL in turn took liberal view on
-, various issues with clear objective of resolving these disputes without
reference to arbitration. These efforts yielded results and the requests
for arbitration of Keti Constructions were withdrawn by them.
E
As all these matters were between two organisations and it was
clearly agreed by the parties to refer unresolved disputes of all
contracts to a sole arbitrator to make the arbitration proceedings
quick and cost effective. We would have expected Keti Constructions
to have sent a name from the panel suggested by GAIL in accordance
with the spirit of the discussions held and the principles accepted F
therein for resolution of interse disputes, which have been acted upon
-;:, as aforesaid.

Unfortunately, Keti Constructions has unHaterally sought to nominate
your goodself, despite the overwhelming record to the contrary.
G
In this factual background we request you to desist from entering
upon the reference or taking any further steps in pursuance to the
captioned communication, keeping the cherished values you have
maintained in high esteem all through your distinguished career in
armed forces.
H
452 SUPREME COURT REPORTS [2007) 6 S.C.R.

A Assuring you of our best attention at all times.

Yours faithfully,

Sd/-
(CH. HARNA TH )
B SR. DY. MANAGER (LAW)
CC to
Keti Constructions (I) Ltd.
31/6, Sneh Nagar, Main Road Opposite Sapna Sangeeta Theatre
INDORE 452 00 I (M.P.)"
C 13. It may be noted that the four contracts (A), (B), (C) and (D) were
awarded on different dates in quick succession between I0.2.1995 and I. I I .1995
and related to various construction works in Petro-Chemical Complex, Dibiapur,
District Etawah (U.P.). The terms of the agreement have to be understood in
a broad commonsense manner. The material placed on record before the
D learned Single Judge shows that the discussion which took place in the
meetings held between the representatives of appellant no. I and representatives
of respondent no.I were not confined to the dispute relating to a single
contract, but they related to disputes concerning all the four contracts. It will
not be proper to segregate or compartmentalize the correspondence exchanged
..
between the parties as if a particular letter was confined to a particular
E contract alone. The correspondence exchanged between the parties is not like
evidence in a suit or trial where a piece of evidence given in a particular suit
or trial cannot be read or taken into consideration in another suit or trial. The
stand of the appellant right from the be ginning was that all the disputes
should be referred to a single arbitrator, which will be cost effective, economical
F and quick. There can be no doubt this stand was very reasonable. Appellant
no.I had sent a panel on 16.2.1999, which was reiterated in the communication
dated 15.11.1999. In these circumstances, respondent no.I was not at all
entitled to nominate Brig. Nardip Singh (Retd.) as an arbitrator which it chose
to do subsequently on 10.12.1999. We do not find anything wrong on the part
of the appellant when it intimated vide letter dated 15.11.1999 that a panel had
G already been sent earlier on 16.2.1999 for appointment of a single arbitrator
for resolution of all the disputes between the parties.

14. According to the appellants, after respondent no. I had sent the
notice .dated 17.7.1999 invoking the arbitration clause, a reply thereto was
given on their behalf by Mr. Sushi! Chauhan, Advocate, on 31.7.1999 wherein
H it was mentioned as under :
GAS AUTHORITY OF INDIA LTD. "· KETI CONSTRUCTION (I) LTD. [GP. MA THUR, J.J453

~
"Ref Your letter IND/KT/522199 dated 17. 7.99 A
Pursuant to the discussions held on various occasions by you and
my client, GAIL officials with regard to settlement of disputes and
appointment of sole arbitrator, I am instructed by my client, Gas
Authority of India Ltd. (GAIL) to call upon you to select the sole
arbitrator from the names of three distinguished persons already B
suggested by my clients during discussion$ in response to your
notices. Please take further necessary action."

'
---'...
Respondent No. I has seriously challenged the receipt of the letter
dated 31.7.1999 sent by Mr. Sushi! Chauhan. It has been urged that the said
letter was not sent by registered post and was not received by them. We c
have, therefore, not taken into consideration the said letter. There is other
material on record to show that a panel of three names had already been sent
by appellant no. I to respondent no. I which was a sufficient compliance of
the clause of the agreement. There is neither any such clause in the agreement
nor there is any requirement in law that for each of the contract (A), (B), (C)
D
and (D) a separate panel ought to have been sent. The same panel could very
well be utilized for resolving the disputes arising out of the four contracts.
~
In fact, as suggested on behalf of the appellant, it would have been more
., convenient, time saving and economical to have the same person as arbitrator
in resolving the disputes between the parties with regard to all the contracts.
The view to the contrary taken by the Division Bench of the High Court is E
clearly erroneous in law.

15. Appellant no.I sent a communication to Justice N.N. Goswami (Retd.)
on 13.1.2000 appointing him as sole arbitrator for resolution of disputes
relating to the contract in question and a copy of this letter was also sent
to respondent no.I. Justice N.N. Goswami (Retd.) then entered upon the F
reference and sent notices to the parties on 11.2.2000 to appear before him
~
on 6.3.2000. Respondent no. I, however, chose no< to put in appearance before
Justice N.N. Goswami (Retd.). On 28.3.2000, the arbitrator passed an order
holding that his appointment as arbitrator was in accordance with the terms
of the agreement, but in the interest of justice he would give another notice G
to respondent no. I. The relevant part of the order passed by him reads as
under:

'y
"In terms of my order dated 6.3.2000, Mis Gas Authority have
produced the complete file. On perusal of the file and after hearing Mr.
,.
Chauhan, Primafacie I am satisfied that my appointment as Arbitrator H
454 SUPREME COURT REPORTS [2007] 6 S.C.R.

A is in accordance with the tenns of Agreement between the parties. I
would have proceeded further, but in the interest of justice I feel that
one final notice be served on Mis Keti Constructions before publishing
the Award.

To come up on April 18, 2000 at 6.30 p.m. The parties may file their
B statements of claim before the next date of hearing."

Since respondent no. I did not appear on the date fixed, the arbitrator
passed an order fixing 19 .4.2000 as the next date of hearing. A no claim award
was finally given by him on 19.4.2000.

C 16. Respondent no. I did not at all appear before the arbitrator appointed
by appellant no. I. Respondent no. I neither filed any statement of claim nor
raised any plea of jurisdiction before the arbitrator. Section 16 of the Act says
that the arbitral tribunal may rule on its own jurisdiction, including ruling on
any objections with respect to the existence or validity of the arbitration
D agreement. In Konkan Railway Corporation Ltd v. Rani Construction Pvt.
Ltd., [2002] 2 SCC 388 in para 21 a Constitution Bench of 5 learned Judges
has ruled that if the arbitral Tribunal has been improperly constituted, it would
be open to the aggrieved party to require the Arbitral Tribunal to rule on its
own jurisdiction in view of Section 16 of the Act. It was also observed that
the expression used in Sub-section (I) that the "Arbitral Tribunal may rule on
E any objections with respect to the existence or validity of the arbitration
agreement" shows that the Arbitral Tribunal's authority under Section 16 is
not confined to the width of its jurisdiction, but goes to the very root of its
jurisdiction and there is no impediment in contending before the Arbitral
Tribunal that it had been wrongly constituted. This decision has been partly
overruled on another point by a larger bench of 7 learned Judges in S.B.P.
F & Co. v. Patel Engineering Ltd. (2005) 8 sec 618, but the aforesaid view has
not been dissented from or reversed. This will be evident from the conclusions
arrived at by the larger bench which have been summarized in para 47 of the
report and sub-para (ix) thereof reads as under :-

"In a case where an Arbitral Tribunal has been constituted by the
G parties without having recourse to Section 11(6) of the Act, the
Arbitral Tribunal will have the jurisdiction to decide all matters as
contemplated by Section ! 6 of the Act."

17. It will be useful to take note of the preamble of the Arbitration and ...
H Conciliation Act, 1996 which reads as under :-
GAS AUTHORITY OF INDIA LTD.<. KET! CONSTRUCTION (I) LTD. [G.P. MATHUR, J.)455
~
...
~- WHEREAS the United Nations Commission on International Trade A
Law (UNCITRAL) has adopted the UNCITRAL Model Law on
International Commercial Arbitration in 1985;
"
AND WHEREAS the General Assembly of the United Nations has
recommended that all countries give due consideration to the said
Model Law, in view of the desirability of uniformity of the law of B
arbitral procedures and the specific needs of international commercial
arbitration practice;
•
.i..._ AND WHEREAS the UNCITRAL has adopted the UNCITRAL
Conciliation Rules in 1980;

AND WHEREAS the General Assembly of the United Nations has
c
recommended the use of the said Rules in cases where a dispute
arises in the context of international commercial relations and the
parties seek an amicable settlement of that dispute by recourse to
conciliation;
D
AND WHEREAS the said Model Law and Rules make significant
~
contribution to the establishment of a unified legal framework for the
.., fair and efficient settlement of disputes arising in international
commercial relations;

AND WHEREAS it is expedient to make law respecting arbitration E
and conciliation, taking into account the aforesaid Model Law and
Rules;

The Preamble of the Act makes it amply clear that the Parliament has
enacted the Arbitration and Conciliation Act, 1996 almost on the same lines
as the Model Law, which was drafted by United Nations Commission on F
International Trade Law. In Sundaram Finance Ltd v. NEPC Ltd AIR (1999)
_, -f SC 565 it has been observed that the provisions of the Arbitration and
Conciliation Act, 1996 should be interpreted keeping in mind the Model Law
as the concept under the present Act has undergone a complete change. It
will, therefore, be useful to take note of the corresponding provisions of the
UNCITRAL Model Law. Article 16 of the Model Law, which corresponds to
G
Section 16 of the Act, is being reproduced below :

UNCITRAL Model Law

"Article 16. Competence to rule on own jurisd;ction.-
H
456 SUPREME COURT REPORTS [2007] 6 S.C.R.

A (I) The Arbitral Tribunal has the power to rule on its own jurisdiction.
including any objections with respect to the existence or validity of
the arbitration agreement. For the purpose, an arbitration clause which
forms part of a contract shall be treated as an agreement independent
of the other terms of the contract. A decision by the Arbitral Tribunal
that the contract is null and void shall not entail ipso jure the invalidity
B of the arbitration clause.

(2) A plea that the Arbitral Tribunal does not have jurisdiction shall
be raised not later than in the statement of defence. A party is not
precluded from raising such a plea by the fact that he has appointed,
or participated in the appointment of, an arbitrator. A plea that the
c Arbitral Tribunal is exceeding the scope of its authority shall be raised
promptly after the Arbitral Tribunal has indicated its intention to
decide on the matter alleged to be beyond the scope of its authority.
The Arbitral Tribunal may, in either case, admit a later plea if it
considers the delay justified.
D
(3) The Arbitral Tribunal may rule on a plea referred to in paragraph
(2) of this article either as a preliminary question or in an award on
the merits. In either case, a ruling by the Arbitral Tribunal that it has
jurisdiction may be contested by any party only in an action for
setting aside the arbitral award."
E
The commentary on the three paragraphs of the Model Law has been
given under the headings A, B, C and D. Note I under heading A and Note
11 under heading D, which are relevant for the controversy in hand, are being
reproduced below :

F "A. "Kompetenz-kompetenz" and separability doctrine, paragraph (I).

I. Article 16 adopts the important principle that it is initially and
primarily for the Arbitral Tribunal itself to determine whether it has
jurisdiction, subject to ultimate Court control (see below paras 12-14).
Paragraph ( 1) grants the Arbitral Tribunal the power to rule on its own
G jurisdiction. Including any objections with respect to the existence or
validity of the arbitration agreement. This power, often referred to as
"Kompetenz-kompetenz", is an essential and widely accepted feature
of modem international arbitration but, at present is not yet recognised
in all national laws.
H D. Ruling by Arbitral Tribunal and judicial control, paragraph (3) [Corr.
GAS AUTHORITY OF INDIA LTD. v. KETICONSTRUCTION (I) LTD. [G.P. MATI!UR, l.J457

to Section 16(5), (6)] A
11. Objections to the Arbitral Tribunal's jurisdiction go to the very
foundation of the arbitration. Jurisdictional questions are, thus,
antecedent to matters of substance and usually ruled upon first in a
separate decision, in order to avoid possible waste of time and costs.
However, in some cases, in particular, where the question of jurisdiction B
is intertwined with the substantive issue, it may be appropriate to
combine the ruling on jurisdiction with partial or complete decision on
the merits of the case. Article 16 (3 ), therefore, grants the Arbitral
Tribunal discretion to rule on a plea referred to in paragraph (2) either
as a preliminary question or in an award on the merits. C
So, the commentary on the Model Law which was drafted by UNCITRAL
and has been adopted by many countries including India shows that where
a party asserts that the arbitral tribunal has not been properly constituted or
it has no jurisdiction, then such a plea must be raised before the arbitral
tribunal right at the beginning and normally not later than in the statement D
of defence.

18. The whole object and scheme of the Act is to secure an expeditious
resolution of disputes. Therefore, where a party raises a plea that the arbitral
tribunal has not been properly constituted or has no jurisdiction, it must do E
so at the threshold before the arbitral tribunal so that remedial measures may
be immediately taken and time and expense involved in hearing of the matter
before the arbitral tribunal which may ultimately be found to be either not
properly constituted or lacking in jurisdiction, in proceedings for setting aside
the award, may be avoided. The commentary on Model Law clearly illustrates
the aforesaid legal position. F
19. Where a party has received notice and he does not raise a plea of
lack of jurisdiction before the arbitral tribunal, he must make out a strong case
why he did not do so if he chooses to move a petition for setting aside the
award under Section 34(2)(v) of the Act on the ground that the composition G
of the arbitral tribunal was not in accordance with the agreement of the
parties. If plea of jurisdiction is not taken before the arbitrator as provided
in Section 16 of the Act, such a plea cannot be permitted to be raised in
proceedings under Section 34 of the Act for setting aside the award, unless
good reasons are shown.
H
20. Though respondent no. I had ample opportunity to appear before
458 SUPREME COURT REPORTS [2007] 6 S.C.R.

A Justice N.N. Goswami (Retd.) and raise a plea of jurisdiction to the effect that
he had been wrongly appointed as arbitrator by appellant no. I, yet, it chose
not to do so. This feature of the case weighs heavily against respondent no. I.
The learned Single Judge has taken this fact as an additional ground for
rejecting the petition filed by respondent no. I under Section 34 of the Act
B and we are in agreement with the said view.

21. For the reasons discussed above, the appeal is allowed with costs
throughout and the judgment and order dated 7.12.2004 of the Division Bench
of the High Court is set aside. The judgment and order dated 20.10.2003 of
the learned Single Judge dismissing the petition under Section 34 of the Act,
C which was filed by respondent no. I, is affirmed.

B.S. Appeal allowed.

-