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Kohli Brothers Thru' Partner Sandeep Kohli v. M/S Atlantis Multiplex Private Limted & Others - FIRST APPEAL FROM ORDER DEFECTIVE No. 279 of 2007 [2007] RD-AH 4662 (16 March 2007)


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First Appeal From Order No. (279) of 2007

Kohli Brothers                               ......           Appellant/Petitioner.


M/s Atlantis Multiplex Private Limited

and others.                                     ......            Defendant/Respondents

       : Present :

(Hon'ble Mr.Justice Amitava Lala & Hon'ble Mr.Justice Pankaj Mithal)


For the Appellant/Petitioner          .....            Mr. Prashant Chandra,

      Senior Advocate.

                            Mr.Govind Krishna.

For the Defendant/Respondents    .....           Mr.Vijay Bahadur Singh,

          Senior Advocate.

                                                                         Mr. Udai Pratap Singh.

Amitava Lala, J.-  This appeal is directed against an order dated 6th February, 2007 passed by the learned District Judge, Allahabad in Misc. Arbitration Case No.10 of 2007 rejecting the application under Section 9 of the Arbitration and Conciliation Act, 1996 (hereinafter called as ''Act, 1996').

Under the order impugned learned Judge held that there is no valid and lawful arbitration agreement clause in between the parties and therefore, the court lacks jurisdiction to entertain the petition under Section 9 of the Act, and for want of jurisdiction  the application is dismissed.  

Mr.Prashant Chandra, learned Senior Counsel appearing on behalf of the appellant, contended before this court that the learned court below failed to appreciate two basic questions.  Firstly, the court lacks inherent jurisdiction to decide the question of validity of the arbitration agreement which is the domain of the Arbitration Tribunal.  Secondly, if at all such court inclines to determine the jurisdiction on the proof of validity of the arbitration agreement, there should be a complete trial including oral evidence.  It cannot be decided only on exchange of affidavits.  Exchange of affidavits, in the circumstance, is nothing but statements on oath versus oath.

To narrate the case he said that the arbitration agreement is available in the supplementary letter of intent dated 18th October, 2006 made in support of earlier letter of intent dated 25th August, 2006.  

Therefore, at first we have to see the scope of the Act.  Section 7 of the Arbitration and Conciliation Act, 1996 speaks as follows:

Arbitration agreement. - (1) In this Part, "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.

(2) An arbitration agreement may be in the form of an arbitration clause in a contract or in the form of a separate agreement.

(3) An arbitration agreement shall be in writing.

(4) An arbitration agreement is in writing if it is contained in-

(a) a document signed by the parties;

(b) an exchange of letters, telex, telegrams or other means of  

telecommunication which provide a record of the agreement; or

(c) an exchange of statements of claim and defence in which the

existence of the agreement is alleged by one party and not denied by the other.

(5) The reference in a contract to a document containing an arbitration clause constitutes an arbitration agreement if the contract is in writing and the reference is such as to make that arbitration clause part of the contract.

Therefore, any document in support of the original agreement if gives indication of reference for arbitration, can be treated as part and parcel of the arbitration agreement.

Mr. Vijay Bahadur Singh, learned Senior Counsel appearing on behalf of the respondents, contended that the signatory of the supplementary letter of intent is no more a director of the company.  He resigned from the service of the respondent no.1.  Therefore, he had no authority to execute such supplementary letter of intent.  Signature on the document is an out come of collusion between appellant and the signatory.  The document is manufactured and outcome of fraud.  Out of personal grudge the erstwhile director of the company signed the document.

However, admitted position is that the document was executed on 18th October, 2006 whereas the signatory i.e. director of the company resigned from the service on 22nd December, 2006.  Therefore, execution of the document was made when the signatory was in service.

He further contended that in spite of filing the counter affidavit to the application for injunction before the court below, no rejoinder has been filed by the appellant herein.  In response thereto the appellant contended that no adequate opportunity was given by the court to file rejoinder before hearing.

In any event, we are only concerned about question of law involved herein for which filing or not filing of affidavit hardly makes any difference.  We have to see whether the court at the time of hearing the application under Section 9 of the Act for interim measure had any authority to decide the question of validity of the arbitration agreement or not.  It touches the root of the proceedings.    Section 16 of the Act clearly prescribes that the arbitral tribunal itself is competent to rule its own jurisdiction.  Therefore, apparently the arbitral tribunal but not the court in an application for interim measure is competent to decide the question of jurisdiction.  The court, in such circumstances, will proceed on the contemplation of the existing arbitration agreement.  

According to us, there is a basic difference between regular suit and arbitration.  In a regular suit time to make applications will arise only after its filing.  Therefore, there is no necessity to verify whether suit exists or not.  Reference to the court will come first followed by interlocutory application/s.  But in a case of arbitration, an interlocutory application can be made both at the pre-reference stage and post-reference stage.  Hence making an interlocutory application at a pre reference stage of arbitration under Act 1996 is unique situation.  But we cannot ignore the legislative intent based on the United Nations Commission on International Trade Law (UNCITRAL).   Such law was made model for international arbitration and our country has adopted even for the domestic arbitration.  Out of various objects for promulgation of the Act one specific object is to minimise the supervisory role of courts in the arbitral process. Therefore, the court has to be more cautious and will not be guided by the general outlook.  Court can definitely look into the document for its prima facie satisfaction about existence but cannot examine the validity of such document. It was categorically held by the Supreme Court in a judgment reported in 2000 (2) SCC 178 (Babar Ali Vs. Union of India & Ors.) that the Act is not unconstitutional merely on the ground that judicial scrutiny is not open for determining the question of jurisdiction at any penultimate stage but at a final stage.

Additionally the learned Senior Counsel appearing for the appellant, cited the judgments reported in (2004) 3 SCC 447 (Secur Industries Ltd. Vs Godrej & Boyce Manufacturing Co. Ltd. and Another) and (2005) 7 SCC 234 (SHIN-ETSU Chemical Co. Ltd. Vs Aksh Optifibre Ltd. and Another) in support of his case but according to us, it has touch and go impact.  In 2004 (3) SCC 447 (supra) it was held that Part I of the 1996 Act deals with domestic arbitrations.  The proceedings before the Council, therefore, are proceedings under the 1996 Act, pursuant to a deemed agreement between the parties to the dispute.  With the applicability of Part I of the 1996 Act in all its force, the extent of judicial intervention in arbitrations is limited by the non obstante provisions of Section 5 of the 1996 Act.  According to us, such observation is neither made for arbitral forum nor made for the judicial authority within the part.  The court either under Section 9 or under Section 34 or under Section 37 of the 1996 Act cannot be said to be a judicial authority outside the purview of Part 1.  Factually in such case a regular suit was filed challenging the validity of claim petition filed before the Council.  There the Supreme Court observed that in view of Section 5 of the 1996 Act no court could intervene in the arbitration proceedings except under the part.  Therefore, the meaning of the court in the above case is the judicial authority hearing the suit matters and the meaning of the court herein is judicial authority under Section 9 i.e. within the Part 1 of 1996 Act.  

So far as the ratio of 2005 (7) SCC 234 (Supra) is concerned, the discussion is made with regard to Section 45 of the Act, which deals with the international arbitration making a difference with the domestic arbitration as per Section 8 of the same.  As per Section 45, judicial authority is empowered to determine the validity and existence of the arbitration agreement.  The Bench differed between the majority and minority views.  But the Bench was uniform on a point that in case of domestic arbitration the judicial authority has no discretion under Section 8.  The members of the Bench differed only on the point whether examination of the agreement about its validity will be determined at first by the judicial authority without awaiting for its finality or the arbitration will be allowed to go on and ultimately when final decision will be arrived, then the question will be considered.  Majority view held that in case it is to be determined at a pre-reference stage, a prima facie view for refusing an arbitration agreement cannot be good enough but examination in-depth by a full fledged trial with oral evidence is needed.  Court finally held if such intention is allowed to be accepted then all international commercial arbitration can be defeated totally by a bogus allegation that the agreement is forged and fabricated.

In the present case, neither we are considering the cause arising out of a regular suit when the arbitration agreement is pre-existing nor dealing with the international arbitration under Section 45 of the 1996 Act.  Judicial authority is restricted under Section 8 of the Act.  Learned Judge exercised its authority not vested in it.  Therefore, the question of competency of the judicial authority comes first then the scrutiny.  The learned Judge committed an error by examining the validity of the agreement without determining his own authority.  In a case of regular suit, the authority lies with the court itself, therefore, there is no bar for such court to determine it at any preliminary stage which is otherwise different from the 1996 Act. It may be seen to be absurd by one but we cannot proceed beyond the scope of the law.  It was the minority view of the Supreme Court in respect of international arbitration which was in effect turned down by the majority in the above referred case.  

According to us, the court will only proceed on the basis of contemplation that there is an existence of the arbitration agreement upon looking into it.  As per Section 9 of Act, an application for interim measure can be made either before or during arbitral proceedings or at the time after making the arbitral award.  Section 16(1) of the Act speaks that the arbitral tribunal is competent to decide the objection or validity of the arbitration agreement.

To make the position further clear we say that when at a post reference stage an application for interim measure can be entertained by the court keeping the question of jurisdiction or validity of the arbitration agreement open for the arbitral tribunal, why the same cannot be made at a pre-reference stage on a prima facie view is unknown to this Court.  

In the instant case, a factual aspect was brought by the learned Senior Counsel appearing for the respondent by saying that the agreement is the out come of fraud, collusion, etc.  But according to us, fraud and collusion has to be established by the rule of evidence.  Unless it is established, apprehension of fraud and collusion cannot be any ground for determination of jurisdiction.  Incidentally it can be said that there is no justiciable cause  for such collusion or fraud since arbitration clause is a matter of forum not a subjective cause of action.  If the forum for arbitration is not available, forum for regular civil suit/proceedings can be available.

Hence, in totality we are of the view that the order impugned passed by the learned District Judge dated 6th February,2007 is not sustainable at all and liable to be set aside.  Accordingly, the order impugned is set aside.  Therefore, there is no embargo upon the court below to proceed with the matter on merit.

The appeal is allowed.  

However, no order is passed as to costs.  

(Justice Amitava Lala )

I agree.

(Justice Pankaj Mithal)





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