M/S. UTTARAKHAND PURV SAINIK KALYAN NIGAM LIMITED versus NORTHERN COAL FIELD LIMITED on 27 November 2019

1. The issue which has arisen for consideration is whether theHigh Court was justified in rejecting the application filed under Section11 for reference to arbitration, on the ground that it was barred by limi-Btation.

2. The factual background of the case arises from an agreementdated 21.12.2010 entered into between the parties, under which thePetitioner – Contractor was to provide security to the Respondent –Company around the clock on need basis, as per the agreed contractualCrates.

The Agreement contained an arbitration clause which reads asfollows :

“13. Arbitration :

D13.1 If any dispute, difference, question or disagreement shallat any time hereafter arise between the parties heretoor the respective or assigns in connection with orarising out of or in respect of contract, application ofprovision thereof, anything there-under contained orarising there-under or as to rights, liabilities or dutiesEof the said parties hereunder or any matter whatsoeverincidental to this contract shall be referred to the soleArbitration of the person appointed by Director (Pers.)of NCL. CONTRACTOR shall have no objection to anysuch appointment that the arbitrator so appointed is anFemployee of NCL or that he had dealt with the matter towhich the contract related and that in the course of hisduties as NCLemployees he has expressed views on allor any of the matter of disputes or difference.

13.2 If the arbitrator to whom the matter is originally byGreferred dies or refused to act or resigns for anyreason from the position of arbitrator, it shall belawful, for Director (Pers.) of NCL to appoint anotherperson to act as Arbitrator. Such person shall be

entitled to proceed with the reference from the stage atwhich it was left by his predecessor or to precededenovo.

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13.3 It is agreed that no person other than the personappointed by Directed (Pers.) of NCL as aforesaid shallact as Arbitrator.

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13.4 It is term of the contract that the CONTRACTOR shallnot stop the work under this contract and the work shallcontinue whether the arbitration proceedings werecommenced or not.

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13.5 It is term of this contract that the parties invoking thearbitration shall specify the dispute to be referred forarbitration.

13.6 The Arbitrator shall give reasoned award in respect ofeach of the difference referred to him. The award asaforesaid shall be final and binding on all the partiesDto this contract in accordance with the law.

13.7 The venue of arbitration shall at Singrauli in India andsubject as aforesaid, the provisions of IndianArbitration and Conciliation Act, 1996 and anystatutory modification or reenactment thereof and rulesmade there-under and for the time being in force shallapply to the arbitration proceedings under this clause.”

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3. Disputes arose between the parties with respect to payment ofamounts under the contract by the Respondent – Company, and thededuction of the security amount from the running bills.

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The Petitioner – Contractor issued a Legal Notice dated29.05.2013demanding payment of amounts to the tune of Rs. 1,43,69,309/- alongwith interest from the Respondent – Company.

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4. On 09.03.2016, the Petitioner – Contractor issued a Notice ofArbitration calling upon the Respondent – Company to nominate a SoleArbitrator in terms of the arbitration clause, to adjudicate the disputesbetween the parties.

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AThe Respondent – Company did not respond to the Notice dated09.03.2016.

5. The Petitioner – Contractor sent a further notice on 30.05.2016to the Respondent – Company proposing the name of Mr. Jai Singh, aretired Additional District Judge for appointment as the Sole Arbitrator.

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The Respondent – Company did not respond to this Notice aswell.

6. The Petitioner – Contractor filed an Application on 20.09.2016,under Section 11 invoking the default power of the High Court to makethe appointment of a sole arbitrator.

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7. The High Court vide the impugned Order held that the claimsof the Petitioner – Contractor were barred by limitation, and thereforeanarbitrator could not be appointed under Section 11 of the 1996 Act.

8. Aggrieved by the impugned Order dated 11.01.2018, theDPetitioner has filed the present Special Leave Petition before this Court.

9. We have heard learned Counsel for the parties and perused thepleadings.

9.1 Section 21 of the 1996 Act provides that arbitral proceedingscommence on the date on which a request for disputes to beEreferred to arbitration is received by the respondent.

9.2. In the present case, the Notice of Arbitration was issued bythe Petitioner – Contractor to the Respondent – Company on09.03.2016.

The invocation took place after Section 11 was amended by theF2015 Amendment Act, which came into force on 23.10.2015,the amended provision would be applicable to the presentcase.

9.3. The 2015 Amendment Act brought about a significant changein the appointment process under Section 11 : first, theGdefault power of appointment shifted from the Chief Justiceof the High Court in arbitrations governed by Part I of theAct, to the High Court; second, the scope of jurisdiction H

under sub-section (6A) of Section 11 was confined to theexamination of the existence of the arbitration agreement atthe pre-reference stage.

9.4. Prior to the coming into force of the 2015 Amendment Act,much controversy had surrounded the nature of the power ofappointment by the Chief Justice, or his designate underSection 11.

A seven judge constitution bench of this Court in SBP & Co. v.Patel Engineering Ltd.,[1] defined the scope of power of the ChiefJustice under Section 11. The Court held that the scope of powerexercised under Section 11 was to first decide :

i. whether there was a valid arbitration agreement; and

ii.whether the person who has made the request under Section11, was a party to the arbitration agreement; and

iii. whether the party making the motion had approached theappropriate High Court.

Further, the Chief Justice was required to decide all thresholdissues with respect to jurisdiction, the existence of the agreement, whetherthe claim was a dead one; or a time-barred claim sought to beresurrected; or whether the parties had concluded the transaction byrecording satisfaction of their mutual rights and obligations, and receivedthe final payment without objection, under Section 11, at thepre-reference stage.

The decision in Patel Engineering (supra) was followed by thisCourt in Boghara Polyfab[2], Master Construction[3], and otherdecisions.

9.5 The Law Commission in the246[th] Report[4] recommended that:

“the Commission has recommended amendments to sections 8and 11 of the Arbitration and Conciliation Act, 1996. The 1 (2005) 8 SCC 618.

2National Insurance Co. v. Boghara Polyfab (P) Ltd. (2009) 1 SCC 267.

3Union of India & Ors. v. Master Construction Co. (2011) 12 SCC 349.

4Amendments to the Arbitration & Conciliation Act, 1996,Report No. 246, LawCommission of India (August 2014), p. 20.

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Ascope of the judicial intervention is only restricted tosituations where the Court/Judicial Authority finds that thearbitration agreement does not exist or is null and void. In sofar as the nature of intervention is concerned, it isrecommended that in the event the Court/Judicial Authority isprima facie satisfied against the argument challenging theBarbitration agreement, it shall appoint the arbitrator and/orrefer the parties to arbitration, as the case may be. Theamendment envisages that the judicial authority shall notrefer the parties to arbitration only if it finds that there doesnot exist an arbitration agreement or that it is null and void.CIf the judicial authority is of the opinion that prima facie thearbitration agreement exists, then it shall refer the dispute toarbitration, and leave the existence of the arbitrationagreement to be finally determined by the arbitral tribunal.”

D9.6. Based on the recommendations of the Law Commission,Section 11 was substantially amended by the 2015Amendment Act, to overcome the effect of all previous judg-ments rendered on the scope of power by a non obstante clause,and to reinforce the kompetenz-kompetenz principle enshrinedEin Section 16 of the 1996 Act.The 2015 Amendment Act inserted sub-section (6A) to Section11 which provides that:

“The Supreme Court or, as the case may be, the High Court,while considering any application under sub-section (4) orFsub-section (5) or sub-section (6), shall, notwithstanding anyjudgment, decree or order of any Court, confine to theexamination of the existence of an arbitration agreement.”

By virtue of the non obstante clause incorporated in SectionG11(6A),previous judgments rendered in Patel Engineering (supra) andBoghara Polyfab (supra), were legislatively over-ruled. The scope ofexamination is now confined only to the existence of the arbitrationagreement at the Section 11 stage, and nothing more.

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M/S. UTTARAKHAND PURV SAINIK KALYAN NIGAM LTD.v. NORTHERN COAL FIELD LTD. [INDU MALHOTRA, J.]

9.7 Reliance is placed on the judgment in Duro Felguera S.A. v.Gangavaram Port Limited,[5 ]wherein this Court held that :

“From a reading of Section 11(6A), the intention of thelegislature is crystal clear i.e. the Court should and need onlylook into one aspect-the existence of an arbitrationagreement.What are the factors for deciding as to whetherthere is an arbitration agreement is the next question. Theresolution to that is simple-it needs to be seen if theagreement contains a Clause which provides for arbitrationpertaining to the disputes which have arisen between theparties to the agreement.”

9.8 In view of the legislative mandate contained in Section 11(6A),the Court is now required only to examine the existence of thearbitration agreement. All other preliminary or thresholdissues are left to be decided by the arbitrator under Section 16,which enshrines the Kompetenz-Kompetenz principle.

9.9. The doctrine of “Kompetenz-Kompetenz”, also referred to as“Compétence-Compétence”, or “Compétence de larecognized”, implies that the arbitral tribunal is empoweredand has the competence to rule on its own jurisdiction,including determining all jurisdictional issues, and the exist-ence or validity of the arbitration agreement. This doctrine isintended to minimize judicial intervention, so that the arbitralprocess is not thwarted at the threshold, when a preliminaryobjection is raised by one of the parties.

The doctrine of kompetenz-kompetenz is, however, subject tothe exceptioni.e. when the arbitration agreement itself is impeached asbeing procured by fraud or deception. This exception would also applyto cases where the parties in the process of negotiation, may haveentered into a draft agreement as an antecedent step prior to executing 5 (2017) 9 SCC 729.

Refer to T.R.F. Ltd. v. Energo Engineering Projects Ltd. (2017) 8 SCC 377.

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Athe final contract. The draft agreement would be a mere proposal toarbitrate, and not an unequivocal acceptance of the terms of theagreement. Section 7 of the Contract Act, 1872 requires the acceptanceof a contract to be absolute and unqualified[6].If an arbitration agreementis not valid or non-existent, the arbitral tribunal cannot assumejurisdiction to adjudicate upon the disputes. Appointment of an arbitratorBmay be refused if the arbitration agreement is not in writing, or thedisputes are beyond the scope of the arbitration agreement.

Article V(1)(a) of the New York Convention states thatrecognition and enforcement of an award may be refused if thearbitration agreement ‘is not valid under the law to which the partiesChave subjected it or, failing any indication thereon, under the law of thecountry where the award was made’.

9.10. The legislative intent underlying the 1996 Act is partyautonomy and minimal judicial intervention in the arbitralprocess. Under this regime, once the arbitrator is appointed,Dor the tribunal is constituted, all issues and objections are to bedecided by the arbitral tribunal.

9.11. In view of the provisions of Section 16, and the legislativepolicy to restrict judicial intervention at the pre-reference stage,the issue of limitation would require to be decided by thearbitrator.ESub-section (1) of Section 16 provides that the arbitral tribunalmay rule on its own jurisdiction, “including any objections” with respectto the existence or validity of the arbitration agreement. Section 16 is asan inclusive provision, which would comprehend all preliminary issuestouching upon the jurisdiction of the arbitral tribunal. The issue ofFlimitation is a jurisdictional issue, which would be required to be decidedby the arbitrator under Section 16, and not the High Court at thepre-reference stage under Section 11 of the Act. Once the existence ofthe arbitration agreement is not disputed, all issues, includingjurisdictional objections are to be decided by the arbitrator.

G9.12. In the present case, the issue of limitation was raised by theRespondent – Company to oppose the appointment of thearbitrator under Section 11 before the High Court.

6Dresser Rand SA v. Bindal Agro-Chem Ltd. (2006) 1 SCC 751.See also BSNL v. Telephone Cables Ltd. (2010) 5 SCC 213.Refer to PSA Mumbai Investments PTE Ltd. v. Board of Trustees of the JawaharlalHNehru Port Trust & Anr. (2018) 10 SCC 525.

Limitation is a mixed question of fact and law. In ITW SignodeIndia Ltd. v. Collector of Central Excise[7] a three judge bench of thisCourt held that the question of limitation involves a question ofjurisdiction. The findings on the issue of limitation would be ajurisdictional issue. Such a jurisdictional issue is to be determined havingregard to the facts and the law.

Reliance is also placed on the judgment of this Court in NTPC v.Siemens Atkein Gesell Schaft[8], wherein it was held that the arbitraltribunal would deal with limitation under Section 16 of the 1996 Act. Ifthe tribunal finds that the claim is a dead one, or that the claim wasbarred by limitation, the adjudication of these issues would be on themerits of the claim. Under sub-section (5) of Section 16, the tribunal hasthe obligation to decide the plea; and if it rejects the plea, the arbitralproceedings would continue, and the tribunal would make the award.Under sub-section (6) a party aggrieved by such an arbitral award maychallenge the award under Section 34.

In M/s. Indian Farmers Fertilizers Cooperative Ltd. v. BhadraProducts[9] this Court held that the issue of limitation being ajurisdictional issue, the same has to be decided by the tribunal underSection 16, which is based on Article 16 of the UNCITRAL Model Lawwhich enshrines the Kompetenze principle.

10. In view of the aforesaid discussion, we set aside the impugnedjudgment and order dated 11.01.2018 passed by the High Court, anddirect that the issue of limitation be decided by the arbitral tribunal.

11. With the consent of Counsel for the parties, we appointMr. Justice (Retd.) A. M. Sapre, former Judge of this Court, as the SoleArbitrator, subject to the declarations being made under Section 12 ofthe 1996 Act (as amended)with respect to the independence andimpartiality of the arbitrator, and the ability to devote sufficient time tocomplete the arbitration within the period specified by Section 29A ofthe 1996 Act.

12. The arbitration agreement states that the arbitration will beatSingrauli, Madhya Pradesh. Consequently, the seat of arbitration is atSingrauli, subject to any modification that may be made by consent of 7 (2004) 3 SCC 48

8 (2007) 4 SCC 4519 (2018) 2 SCC 534.

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Athe parties. The arbitrator is, however, at liberty to conduct theproceedings at a convenient venue as per the convenience of thearbitrator and the parties if so required.

The Arbitrator will be paid fees in accordance with the FourthSchedule of the 1996 Act. Both parties will share the costs of theBarbitration equally.

13. The Registry is directed to despatch a copy of this Order toMr. Justice (Retd.) A. M. Sapre, Former Judge, Supreme Court of Indiaat the following address:

“Mr. Justice (Retd.) A. M. Sapre,CFormer Judge, Supreme Court of India,C-203, Second FloorSarvodaya EnclaveNew Delhi – 110017Tel No.: 011-40254823Mob. No.: [REDACTED]"D

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The parties are directed to appear before the learned Arbitratoron 02.12.2019 at 2 p.m.

The matter is disposed of accordingly.

Devika Gujral

Matter disposed of.

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