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Wellington
Associates Ltd. vs. Kirit Mehta
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(Whether Chief Justice or his designate can decide a challenge
to the
“existence” of the arbitration clause under
Section 11 of the Act of 1996)
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Case Reference
:
Arbitration Petition No.9 of 1999 decided on April
4, 2000
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.
Judges :
Justice M.Jagannadha Rao
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Parties :
Wellington Associates Ltd.(Petitioner) Vs.Kirit Mehta(Respondent).
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Question of Law :
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| Whether the Chief Justice of India or
his designate has the power to decide on the question of “existence”
of an arbitration clause in an agreement, when a petition is
filed by a party under Section 11 of the Act of 1996 for appointment
of Arbitrator? |
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Gist of the Case:
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The Petitioner entered into two agreements
with the Respondent to purchase some shares of an Indian company,
for which the Respondent was Promoter and Managing Director,
for a specified sum with an assurance by the Respondent to buy-back
the shares after an year. As the Respondent failed to buy back
the shares after an year in terms of the agreements, the Petitioner
issued a notice to the Respondent for referring the disputes
and differences to arbitration and called upon him to appoint
his Arbitrator. The Respondent sent his reply raising various
contentions, one of which was that clause 5 of their agreements
used the words “it is also agreed” that the dispute
“may” be referred to arbitration and as such it
was only an enabling provision and not mandatory. The Petitioner
thereafter filed a petition under Section 11 of the Act of 1996
seeking appointment of Arbitrator on behalf of the Respondent.
The Respondent contended that the word “may” in
clause 5 of their agreements meant that both the parties had
to give their fresh consent before arbitration proceedings could
begin and that the Supreme Court had the power to decide whether
clause 5 was an arbitration clause or not.
Dismissing the petition, the Supreme Court held that Section
16 of the Act of 1996 permits the Arbitral Tribunal to decide
a question relating to the “existence” of the arbitration
clause, but it does not take away the jurisdiction of the Chief
Justice of India or his designate to decide the question of
the “existence” of the arbitration agreement, since
it does not declare that except the Arbitral Tribunal none else
can determine such a question. It is well settled and has been
repeatedly held that the source of the jurisdiction of the Arbitrator
is the arbitration clause. If there is a dispute raised at the
stage of application under Section 11 of the Act of 1996 that
there is no arbitration clause at all, then it will be absurd
to refer the very issue to an Arbitrator without deciding whether
there is an arbitration clause at all between the parties, to
start with. Therefore, the Supreme Court held that the Chief
Justice of India or his designate has the power to decide the
question of “existence” of the arbitration clause
in an agreement.
The Supreme Court also held that the words in sub-section (1)
of Section 7 of the Act of 1996 “means an agreement by
the parties to submit to arbitration” postulates an agreement
which necessarily or mandatorily requires appointment of an
arbitrator/ arbitrators. Section 7 does not cover that they
“may” go to a suit or that they “may”
also go to arbitration. It was stated under clause 4 of the
agreements between the parties that in case of disputes the
civil courts at Bombay are to be approached by way of a suit.
Under clause 5 of the agreements it was stated that “it
is also agreed” that the dispute “may” be
referred to arbitration implying that the parties need not necessarily
go to civil court but can also go before an Arbitrator. The
Supreme Court held that reading clause 4 together with clause
5 it is not the intention of the parties that arbitration is
to be the sole remedy and fresh agreement between the parties
is necessary to go for arbitration.
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Citation :
(2000) 4 SCC 272
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