Monday, August 24, 2015

Supreme Court on Section 42 of the Arbitration and Conciliation Act, 1996

[The following guest post is contributed by Pulkit Sharma, Advocate, Bombay High Court]

The Supreme Court has in the case of State of W.B. v Associated Contractors ((2015) 1 SCC 32) considered the applicability of Section 42 of the Arbitration and Conciliation Act, 1996 (“Act”) to applications not made before a “court” as defined under Section 2(1)(e) of the Act and has laid down the law in this regard giving details of circumstances to which the bar of Section 42 of the Act would not apply.

Relevant Facts

A contract was executed between the parties regarding execution of the work of excavation and lining of a canal in West Bengal. The contract had an arbitration clause. Respondent had approached the Calcutta High Court for seeking certain interim orders. Also, for settlement of a dispute, an application was made under Section 11 of the Act and an arbitrator was appointed by the court. The award by the arbitral tribunal in favour of the Respondents was challenged by State of WB under Section 34 of the Act before the Principal Civil Court of the Learned District Judge at Jalpaiguri, West Bengal. Against this, the Respondent filed an application under Article 227 of the Constitution challenging the jurisdiction of the District Court. The Calcutta High Court held that since parties had already submitted to the jurisdiction of the Calcutta High Court in its ordinary original civil jurisdiction in connection with different earlier proceedings arising out of the said contract, the jurisdiction of the court of the learned District Judge to entertain the said application for setting aside the award was excluded by Section 42 of the Act and that the Calcutta High Court in its ordinary original civil jurisdiction is the only court which can set aside the award. Against this, SLP was filed in the Supreme Court.

Relevant Provisions Considered by the Supreme Court

The Supreme Court considered Section 2(1)(e) of the Act which defines ‘Court’ for the purposes of the Act and Section 42 of the Act for identifying the exclusive jurisdiction of certain courts over all arbitral proceedings arising from an arbitration agreement. The court also relied on corresponding provisions of the old 1940 Arbitration Act (Section 2(c) and 31(4)) to identify departures from the language of the said provisions and identifying clear intent of the legislature in this respect. Detailed discussion on these provisions along with the text thereof is available at http://rajasthanjudicialacademy.nic.in/docs/juds/41899.pdf.

Analysis and Judgment

1.         One of the questions considered by the Supreme Court in the present case was whether the Supreme Court is a ‘Court’ under Section 2(1)(e) of the Act.  The Supreme Court observed that the definition in the Act (2(1)(e) is materially different from the one that has been provided under the 1940 Act under Section 2(c). The court considered a variety of reasons why the Supreme Court cannot possibly be considered to be ‘Court’ within the meaning of Section 2(1)(e) of the Act (refer para 20 of the judgment). Firstly, the definition provided in Section 2(1)(e) is exhaustive and recognizes only one of the two possible courts that could be ‘Court’ under Section 2(1)(e). Secondly, the words “civil court” under the 1940 Act (which could include an appellate court including the Supreme Court – though the Supreme Court in the present case expressed doubt over the proposition that the Supreme Court exercising jurisdiction under Article 136 of the Constitution is an ordinary appellate court) are not present in Section 2(1)(e) of the Act which only speaks of the Principal Civil Court of Original Jurisdiction in a district or a High Court exercising ordinary original civil jurisdiction. Thirdly, if an application could be construed to be preferred directly to the Supreme Court, then the remedy of appeal under Section 37 of the Act from applications under Section 9 and 34 of the Act would not be available and any further appeal under Article 136 of the Constitution would also not be available. Further, there is no context in Section 42 for the term ‘Court’ to be construed otherwise as defined in Section 2(1)(e) of the Act.

2.         Another question which the court considered was whether Section 42 of the Act would apply to cases where an application made in a court is found to be without jurisdiction. The court observed (relying on authorities under Section 31(4) of the old legislation) that the bar of Section 42 of the Act would not apply if it is found that the court to which the application has been made did not have the jurisdiction. Accordingly, it may also be observed that where the agreement between the parties restricted the jurisdiction to only one particular court, that court alone would have jurisdiction as neither Section 31(4) of the old act nor Section 42 of the Act contains a non obstante clause wiping out a contrary agreement between the parties. It has thus been held that applications preferred to courts outside the exclusive court agreed by the parties would also be without jurisdiction (para 22 of the judgment).

3.         The Supreme Court further analysed other relevant provisions of the Act such as Section 8 and 11 to lay down the following as regards applicability of the bar provided under Section 42 of the Act (from para 25 of the judgment):

(a)        Section 2(1)(e) contains an exhaustive definition marking out only the Principal Civil Court of original jurisdiction in a district or a High Court having original civil jurisdiction in the State, and no other court as "court" for the purpose of Part-I of the Arbitration Act, 1996.

(b)       The expression "with respect to an arbitration agreement" makes it clear that Section 42 will apply to all applications made whether before or during arbitral proceedings or after an Award is pronounced under Part-I of the 1996 Act.

(c)        However, Section 42 only applies to applications made under Part-I if they are made to a court as defined. Since applications made Under Section 8 are made to judicial authorities and since applications under Section 11 are made to the Chief Justice or his designate, the judicial authority and the Chief Justice or his designate not being court as defined, such applications would be outside Section 42.

(d)       Section 9 applications being applications made to a court and Section 34 applications to set aside arbitral awards are applications which are within Section 42.

(e)        In no circumstances can the Supreme Court be "court" for the purposes of Section 2(1)(e), and whether the Supreme Court does or does not retain seisin after appointing an Arbitrator, applications will follow the first application made before either a High Court having original jurisdiction in the State or a Principal Civil court having original jurisdiction in the district as the case may be.

(f)        Section 42 will apply to applications made after the arbitral proceedings have come to an end provided they are made under Part-I.

           (g)        If a first application is made to a court which is neither a Principal Court of original jurisdiction in a district or a High Court exercising original jurisdiction in a State, such application not being to a court as defined would be outside Section 42. Also, an application made to a court without subject matter jurisdiction would be outside Section 42.

4.         The judgment of the Calcutta High Court was found to be correct and the appeal was dismissed.


Additional Observation

One of the observations made by the Supreme Court while discussing Section 11 of the Act was that the decision of the Chief Justice or his designate [under Section 11 of the Act], not being the decision of the Supreme Court or the High Court, as the case may be, has no precedential value being a decision of the judicial authority which is not a Court of Record.

The impact of this will be analyzed by me in a subsequent post especially in the context of precedential value of judgment of the Supreme Court in Swiss Timing Limited v Organising Committee ((2014) 6 SCC 677) which held the law laid down by the Supreme Court in the case of N. Radhakrishnan v Maestro Engineers ((2010) 1 SCC 72) (holding that disputes containing allegations of serious fraud are not arbitrable) per incuriam.

The said judgment (Swiss Timing) was a decision rendered while dealing with a petition under Section 11 of the Act and in light of the above, may not now have a precedential value.

- Pulkit Sharma


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