Ifgl Refractories Ltd vs Lindsay International Pvt. Ltd on 22 January, 2019

[Cites 67, Cited by 1]

Calcutta High Court

Ifgl Refractories Ltd vs Lindsay International Pvt. Ltd on 22 January, 2019

Bench: Soumen Sen

              IN THE HIGH COURT AT CALCUTTA
                       Original Civil Jurisdiction
                            ORIGINAL SIDE

BEFORE:
The Hon'ble JUSTICE SOUMEN SEN

                          AP No.413 of 2017

                     IFGL REFRACTORIES LTD.
                              Versus
                 LINDSAY INTERNATIONAL PVT. LTD.


For the Petitioner            : Mr. Anindya Kr. Mitra, Sr. Adv.,
                                Mr. Soumabho Ghose, Adv.,
                                Ms. Anshumala Bansal, Adv.,
                                Mr. Tanmoy Chakravarty, Adv.,
                                Ms. Arti Bhattacharyya, Adv.

For the Respondents           : Mr. S.K. Kapoor, Sr. Adv.,

Mr. Rudraman Bhattacharya, Adv., Ms. Priyanka Prasad, Adv., Mr. Ayan Roy, Adv., Mr. S.R. Kakrania, Adv.

Hearing concluded on          : 11.01.2019

Judgment on                   : 22.01.2019

Soumen Sen, J.:- This is an application under Section 11 of the Arbitration and Conciliation Act, 1996 (hereinafter "the 1996 Act") for appointment of an Arbitrator in terms of an agreement dated 1st September, 2010.

The petitioner claims to be an unpaid vendor. The petitioner contends that the respondent placed twelve purchase orders on the petitioner for supply of refractory products along with general terms and 2 conditions governing the same. The consignee to whom such products were to be delivered would be specified in such purchase orders. The petitioner has disclosed copies of such purchase orders and the general terms and conditions of the respondent which were accepted by the petitioner. It is stated that each and all of the purchase orders disclosed in the petition expressly refer to the general terms and conditions of supply of the respondent bearing no. LIPL/IFGL/GCTS/10-01 dated 1st September, 2010 and amendment no.1 thereto made by the respondent. The general terms and conditions for supply prepared by the respondent and which formed part of the contract between the parties, inter alia, contain an arbitration clause in Clause 19, which reads:

"19.1 In case BUYER and SELLER fails to reach an agreement on any dispute, controversy, interpretation of any terms, claim arising out of or in connection with General Terms & Conditions of Supply and Purchase Order or the breach, termination shall be settled by arbitration in accordance with the Rules of Arbitration of the Indian Arbitration & Conciliation Act, 1996.

19.2 Both BUYER and SELLER shall each select an arbitrator and the two (2) arbitrators thus chosen shall select an Umpire.

19.3 The award of the arbitrator(s) or Umpire, as the case may be, shall be final and binding upon the parties.

19.4 The venue of arbitration shall at Kolkata, India and the Courts in Kolkata shall have the exclusive jurisdiction.

19.5 Except for the matter which is specifically under arbitration the parties shall continue to perform their respective other obligations under any and all Purchase Orders."

A certified copy of the agreement dated 1st September, 2010 is annexed to the petition.

The petitioner contends that it had supplied materials in terms of the purchase orders supported by bills of lading obtained by the petitioner from the shipping companies in the name of the respondent as shipper/consignor and in the name of the party nominated by the respondent as consignee and other documents, namely, Customs endorsed invoices-cum-packing list of the respondent, shipping bills, invoices raised by the petitioner upon the respondent and bill of export duly endorsed by the Customs Authorities. The petitioner states that the respondent has accepted each and all of the invoices of the petitioner in respect of the aforesaid purchase orders without any demur. The prices mentioned in the purchase orders were mentioned in foreign currency, mostly Euro and/or Dollars and also other currencies depending on the country where the goods were supplied. It is stated in the petition that on comparison between the price at which the respondent received the export orders from the overseas buyers and the price as quoted in the purchase orders issued by the respondent on the petitioner, it would 4 appear that the respondent has kept a margin of 4.50% as their profit and placed purchase orders on the petitioner @ 95.50% of the price at which the respondent received the export orders from their overseas buyers.

The petitioner contends that in terms of the purchase orders, within three working days of receipt of payment by the respondent from the foreign buyers, the respondent was to effect payment to the petitioner in Indian rupees equivalent to the amount of foreign currency mentioned in the purchase orders. The respondent by email sent on 28th October, 2016 has admitted that Rs. 4.21 crore has been received from the overseas buyers to the account of IFGL Group. Out of the admitted amount of Rs. 4,21,70,432.21 shown under the heading 'IFGL Account', a sum of Rs. 207.88 lakh relate to the purchase orders forming the subject matter of this petition and the balance relate to the supplies made by IFGL Refractories Ltd. The respondent has received the aforesaid sum of Rs. 207.88 lakhs out of Rs.4,21,70,432.21 on trust for the benefit of and for being released to the petitioner company towards the price of goods supplied by the petitioner against the purchase orders mentioned in paragraph 3 of the petition. The petitioner contends that although the respondent had admitted receipt of Rs. 4.21 crore along with duty draw back amounting to Rs. 42 lakh on account of IFGL Group, they raised a wrongful plea that the matter should be mutually settled in terms of the letter dated 25th October, 2016. By the said letter, 5 a case of mutual understanding or implied contract was sought to be made up wrongfully and falsely.

On 1st August, 2016 the respondent purportedly introduced a new clause in their purchase orders issued thereafter stating that the seller would not have direct contract with any Arcelor Mittal plants or Arcelor Mittal companies and forward enquiries received to the buyer immediately.

The aforesaid purported addition of a new condition in the purchase orders on and from 1st August, 2016 is not relevant for this petition inasmuch as all the purchase orders in respect of which a claim has been made in the petition were issued prior to 1st August, 2016. None of the purchase orders mentioned in paragraph 3 of the petition contain the purported new condition.

The petitioner alleged that incorporation of the said new condition was not immediately brought to the notice of the management of the petitioner by the ministerial staff who dealt with purchase orders and shipment as they did not realise the significance thereof. When the said new condition was brought to the notice of the management of the petitioner, the petitioner immediately by a letter dated 5th October, 2016 objected to incorporation of such new conditions as the petitioner had never agreed to them.

After 5th October, 2016, the petitioner did not receive any purchase order from the respondent.

Mr. Anindya Kumar Mitra, the learned Senior Counsel appearing on behalf of the petitioner, submits that in the present application, the petitioner has prayed for reference to arbitration of disputes arising out of 12 purchase orders. The said purchase orders were issued prior to the filing of the suit and have remained unpaid. The respondent has never disputed the existence of such purchase orders. In fact, each of the purchase orders incorporate the general terms and conditions as suggested by the respondent/buyer. Each of the said purchase orders contain an arbitration clause. The said 12 purchase orders are all subject to general terms and conditions containing the arbitration clause in Clause 19. They were issued by the respondent upon the petitioner for supply of refractory materials between September, 2015 and June, 2016. Supplies were made under the purchase orders by IFGL. In October, 2016, payments against the supplies made against the said 12 purchase orders were received by the respondent from the Arcelor Mittal Companies but in spite thereof price was not paid. In view thereof, on 9th December, 2016, the petitioner issued a letter referring the disputes to arbitration under those 12 purchase orders and notice under Section 21 of the 1996 Act was duly received by the respondent but the respondent did not respond to the said notice. Since the amount had remained outstanding on 12th December, 2016, an application under Section 9 of the 1996 Act was filed and in that proceeding, an interim order was passed on 14th December, 2016. On 9th January, 2017, the respondent 7 along with two others filed a suit being C.S. No.2 of 2017 against 42 parties in which IFGL Exports is arrayed as defendant No.42. Since the applicant is of the view that the suit cannot proceed in view of the existence of the arbitration clause, an application under Section 8 of the 1996 Act was filed on 19th January, 2017. The petitioner on 14th March, 2017 has nominated its arbitrator and communicated the same to the respondent. The said respondent received the said letter on 16th March, 2017. The time to nominate arbitrator by the respondent expired on 15th April, 2017 in view thereof on 12th May, 2017, an application has been filed for appointment of an arbitrator under Section 11 of the 1996 Act.

Mr. Mitra submits that under the amended provision of Section 11 of the 1996 Act, the examination of the Court is confined to the existence of the arbitration agreement and no other matter is relevant. The present amendment has been noticed and discussed at length in a fairly recent decision in Duro Felguera, S.A. Vs. Gangavaram Port Ltd. reported in (2017) 9 SCC 729.

Mr. Mitra submits that in two separate concurring judgments, the two Hon'ble Judges of the Supreme Court have dealt with the scope, width and ambit of the amended provision, namely, Section 11(6A) of the 1996 Act and after noticing the amendment which has brought about a change of law has in no uncertain terms stated that the "intention of the legislature is crystal clear that the Court should and need only look into one aspect - the existence of an arbitration agreement". 8

Since all the purchase orders contained an arbitration clause either in itself or by reference to the general terms and conditions, the disputes are required to be referred to a panel of three arbitrators. In all the purchase orders disputes to be determined by the arbitral tribunal are very similar involving common questions of facts and law. The central question in all those 12 purchase orders is whether even after receipt of the full price from the ultimate buyer, the respondent can withhold release of amounts to the petitioner (supplier) in view of the specific condition that within three days of receipt of payment form the ultimate buyer, payment will be made to the supplier of the same goods. The other 11 purchase orders also contain similar condition. Mr. Mitra, however, submits that the petitioner has no objection in the event a single arbitrator is appointed in respect of the twelve purchase orders and a consolidated reference is made to a single arbitrator as it would minimise time and save expenses.

The respondent has opposed the application.

Mr. S.K. Kapoor, the learned Senior Counsel appearing on behalf of the respondent, has submitted that in deciding the present application, the frame of the suit filed by this respondent against 42 defendants, which include the present petitioner, is required to be taken into consideration.

Lindsay and two of its shareholders/directors have filed this suit against 42 defendants, including 37 companies of the Arcelor Mittal 9 Group and its promoter, Lakshmi Niwas Mittal (LNM). The principal case in the suit is that Lindsay and the Arcelor Mittal Group were parties to a binding arrangement under which the Arcelor Mittal Group would act through Lindsay to source any goods or services which they would require from India.

The remaining four defendants are Indian companies, viz, Vesuvius India Limited, TRL Krosaki Refractories Limited, IFGL Refractories Limited and IFGL Exports Limited (collectively, "the vendors"). The vendors were parties with whom Lindsay had entered into agreements for supply of raw material pursuant to its arrangement with the Arcelor Mittal Group.

LNM filed an application under Order VII, Rule 11 of the CPC for rejection of the plaint, as against himself. This application was dismissed by the Single Judge and the said order was affirmed by the Hon'ble Division Bench on 16.01.2018 and Special Leave Petition against the same was dismissed by the Hon'ble Supreme Court vide order dated 27.04.2018. The Hon'ble Supreme Court however, has observed that the order of dismissal would not come in the way of LNM making an application under Order 1, Rule 10 of the CPC, which he has subsequently made and is pending.

The vendors have invoked arbitration for the purpose of adjudicating their alleged claims against Lindsay on account of payment for goods sold and delivered. They have instituted applications under 10 Section 11(6) of the 1996 Act before the Calcutta High Court for appointment of an Arbitrator in view of Lindsay's failure to appoint an Arbitrator. They also made applications for interim measures under Section 9 of the 1996 Act in which certain interim arrangements have been ordered by the High Court.

Mr. Kapoor submits that the disputes concern 45 parties in total and there is no arbitration agreement covering all the parties. The disputes raised in the suit are independent and separate disputes which are not referable to arbitration. It is further submitted that the disputes between Lindsay and IFGL Exports Ltd. were settled by way of a Memorandum of Understanding ("MoU") dated 28.10.2016, which does not have an arbitration clause. Consequently, there is no live dispute in view of the MoU.

It is submitted that the objections concern the very existence of the arbitration agreement (for example, regarding the survival of the arbitration clause by virtue of the MoU dated 28.10.2016). This objection is still available with the respondent even after the amendment of the 1996 Act.

Moreover, in the present case, Lindsay has filed the suit against 42 defendants, of whom only four have made applications under Section 8 and there is no allegation that there are arbitration agreements between Lindsay and the other 38 defendants. The maintainability of such a multi-party context has been considered by the Supreme Court in 11 Sukanya Holdings (P) Ltd. v. Jayesh H. Pandya and Anr. reported in 2003 (5) SCC 531. The court held as follows:

"15.The relevant language used in Section 8 is "in a matter which is the subject matter of an arbitration agreement", Court is required to refer the parties to arbitration. Therefore, the suit should be in respect of 'a matter' which the parties have agreed to refer and which comes within the ambit of arbitration agreement. Where, however, a suit is commenced - "as to a matter" which lies outside the arbitration agreement and is also between some of the parties who are not parties to the arbitration agreement, there is no question of application of Section 8. The words 'a matter' indicates entire subject matter of the suit should be subject to arbitration agreement.

16. The next question which requires consideration is even if there is no provision for partly referring the dispute to arbitration, whether such a course is possible under Section 8 of the Act? In our view, it would be difficult to give an interpretation to Section 8 under which bifurcation of the cause of action that is to say the subject matter of the suit or in some cases bifurcation of the suit between parties who are parties to the arbitration agreement and others is possible. This would be laying down a totally new procedure not contemplated under the Act. If bifurcation of the subject matter of a suit was contemplated, the legislature would have used appropriate language to permit such a course. Since there is no such indication in the language, it follows that bifurcation of the subject matter of an action brought before a judicial authority is not allowed.

17. Secondly, such bifurcation of suit in two parts, one to be decided by the arbitral tribunal and other to be decided by the civil court would inevitably delay the proceedings. The whole purpose of speedy disposal of dispute and decreasing the cost of litigation 12 would be frustrated by such procedure. It would also increase the cost of litigation and harassment to the parties and on occasions there is possibility of conflicting judgments and orders by two different forums."

The amendment does not appear to alter the existing provision in this regard, as it continues to apply only in a situation where "an action is brought in a matter which is the subject of an arbitration agreement". It is this very phrase that was considered in Sukanya Holdings (supra) and led to the above result. The 246th Report of the Law Commission (upon which the 2015 Amendment was based) also referred to Sukanya Holdings (supra) and did not contain any indication that the Amendment sought to alter the legal position laid down therein.

It may be noted in passing that the amended Section 8 has also been considered by the Supreme Court in Ameet Lalchand Shah & Ors. v. Rishabh Enterprises & Ors. reported in 2018 SCC OnLine SC 487 wherein the Court observed as follows:-

"Arbitration and Conciliation (Amendment) Act, 2015 has brought in amendment to Section 8 to make it in line with Section 45 of the Act. In view of the observation made in Sukanya Holdings, Law Commission has made recommendation for amendment to Section 8 of the Act. Consequent to 2015 Amendment Act, Section 8 is amended as under:-

29. "Principally four amendments to Section 8(1) have been introduced by the 2015 Amendments - (i) the relevant "party" that is entitled to apply seeking reference to arbitration has been clarified/amplified to include persons claiming "through or under"

such a party to the arbitration agreement; (ii) scope of examination by the judicial authority is restricted to a finding whether "no valid arbitration agreement exists" and the nature of examination by the judicial authority is clarified to be on a "prima facie" basis; (iii) the cut-off date by which an application under Section 8 is to be presented has been defined to mean "the date of" submitting the first statement on the substance of the dispute; and (iv) the amendments are expressed to apply notwithstanding any prior judicial precedent. The proviso to Section 8(2) has been added to allow a party that does not possess the original or certified copy of the arbitration agreement on account of it being retained by the other party, to nevertheless apply under Section 8 seeking reference, and call upon the other party to produce the same." (Ref: Justice R.S. Bachawat's Law of Arbitration and Conciliation, Sixth Edition, Vol. I (Sections 1 to 34) at page 695 published by LexisNexis)."

30. Amendment to Section 8 by the Act, 2015 are to be seen in the background of the recommendations set out in the 246 th Law Commission Report. In its 246th Report, Law Commission, while recommending the amendment to Section 8, made the following observation/comment:-

"LC Comment: The words "such of the parties.... to the arbitration agreement" and proviso (i) of the amendment have been proposed in the context of the decision of the Supreme Court in Sukanya Holdings Pvt. Ltd. v. Jayesh H. Pandya and Anr. (2003) 5 SCC 531,- in cases where all the parties to the dispute are not parties to the arbitration agreement, the reference is to be rejected only where such parties are necessary parties to the action - and not if they are only proper parties, or are otherwise legal strangers to the action and have been added only to circumvent the arbitration agreement. Proviso (ii) of the amendment contemplates a two-step 14 process to be adopted by a judicial authority when considering an application seeking the reference of a pending action to arbitration.The amendment envisages that the judicial authority shall not refer the parties to arbitration only if it finds that there does not exist an arbitration agreement or that it is null and void. If the judicial authority is of the opinion that prima facie the arbitration agreement exists, then it shall refer the dispute to arbitration, and leave the existence of the arbitration agreement to be finally determined by the arbitral tribunal. However, if the judicial authority concludes that the agreement does not exist, then the conclusion will be final and not prima facie. The amendment also envisages that there shall be a conclusive determination as to whether the arbitration agreement is null and void.

31. From the language of amendment to Section 8 of the Act it is also clear that the amendment to Section 8(1) of the Act would apply notwithstanding any, judgment, decree or order of the Supreme Court or any other Court. The High Court laid emphasis upon the word ".....unless it finds that prima facie no valid agreement exists". The High Court observed that there is no arbitration agreement between Astonfield and Rishabh. After referring to Sukanya Holdings and the amended Section 8 and Section 45 of the Act, the High Court pointed out the difference in language of Section 8 and Section 45 of the Act. The High Court distinguished between Sukanya Holdings and Chloro Controls, and observed that Sukanya Holdings was not overruled by Chloro Controls. In para 23 of the impugned judgment it was held as under:

"23. ......The change in Section 8 is that the Court is to - in cases where arbitration agreements are relied on- to refer the disputes in the suit, to arbitration, "notwithstanding any judgment, decree or order of the Supreme Court or any Court, refer the parties 15 to arbitration unless it finds that prima facie no valid arbitration agreement exists". The Court is of opinion that Sukanya is not per se overruled, because the exercise of whether an arbitration agreement exists between the parties, in relation to the disputes that are the subject matter of the suit, has to be carried out. If there are causes of action that cannot be subjected to arbitration, or the suit involves adjudication of the role played by parties who are not signatories to the arbitration agreement, it has to continue because "prima facie no valid arbitration agreement exists" between such non parties and others, who are parties."

Thus as far as Lindsay's suit is concerned, it is also still open to Lindsay to resist reference to arbitration on the basis of the reasoning in Sukanya Holdings (supra).

Mr. Kapoor submits that Section 11 of the 1996 Act deals with appointment of arbitrators. Under Section 11(6), prior to the 2015 amendment, a party was entitled to approach the Chief Justice of the High Court (or, in the case of an international commercial arbitration, the Supreme Court) for appointment of an Arbitrator in the event the other party fails to act as required under the arbitration clause.

The scope of adjudication in an application under Section 11(6) was laid down in several pre-amendment judgments of the Supreme Court. Mr. Kapoor has referred to SBP and Co. v. Patel Engg. Ltd. reported at (2005) 8 SCC 678 and submits that in paragraphs 37, 39 and 47 of the report, the Hon'ble Supreme Court has indicated the questions to be determined before appointing an arbitrator. It is 16 submitted that paragraphs 39 and 47 of the report would show that it is the duty of the court to find out where reference has been sought for after the parties have agreed to a settlement as a corollary to the questions addressed in these paragraphs. Mr. Kapoor has argued that since now Memorandum of Settlement has been arrived at between the parties on 28th October, 2016 with regard to the supplies made by IFGL pursuant to purchase orders placed by IFGL on the respondent and the said Memorandum was partly acted upon, the petitioner has given a go- bye to the arbitration clause in the several purchase orders. The dispute has arisen subsequent to the MoU and in relation to the said memorandum of understanding which does not contain any arbitration clause. In such circumstances, it is the duty of the court to ascertain if there is a valid and subsisting arbitration agreement between the parties. Mr. Kapoor has also referred to decision is National Insurance Company Limited vs. Boghara Polyfab (P) Ltd. reported at (2009) 1 SCC 267 to demonstrate that SBP and Co. (supra) was followed and in fact it was reiterated that the court has to arrive at a finding that there is an arbitration agreement.

Mr. Kapoor submits that the 2015 amendment has not caused any substantive change to the provisions of Section 11(6) itself, except that the reference to "the Chief Justice" have been replaced by reference to "the Supreme Court or, as the case may be, the High Court". However, a 17 new sub-section has been inserted immediately after Section 11(6) which provides as follows:-

"(6A) The Supreme Court or, as the case may be, the High Court, while considering any application under sub-section (4) or sub-

section (5) or sub-section (6), shall, notwithstanding any judgment, decree or order of any Court, confine to the examination of the existence of an arbitration agreement." (Emphasis supplied). Mr. Kapoor has challenged the vires of Section 11(6A) of the 1996 Act by filing a supplementary affidavit. According to the learned Senior Counsel, the newly inserted Section 11(6A) is not sustainable as it is opposed to the doctrine of separation of power and curtained the role of judiciary.

The words "notwithstanding any judgment, decree or order of any court" contained in Section 11(6A) indicates that the intention of the provision was to alter the prevailing judicial interpretation of Section 11(6). It is settled law that such an exercise of legislative power can be justified only if it amended the substantive statutory provisions upon which the judicial construction has been premised. Conversely, any purported legislative overruling of judicial decision by mere declaration (without changing the underlying statutory provision) would be ultra vires the constitutionally accepted doctrine of separation of powers.

It is submitted that although the provisions of Section 11(6) had never been held to be ultra vires and therefore the Amendment Act is 18 not, strictly speaking a validating legislation, Supreme Court judgment on the constitutionality of validating Acts provide an analogous conceptual framework.

Mr. Kapoor has referred S.S. Bola v. B.D. Sardana reported in (1997) 8 SCC 522 and submits that in a similar situation, the Hon'ble Supreme Court has made the following observations:-

"174. At the outset it must be borne in mind that in the case of Sehgal [1992 Supp (1) SCC 304 : 1993 SCC (L&S) 675 : (1993) 24 ATC 559] as well as Chopra [1992 Supp (1) SCC 391 : 1992 SCC (L&S) 975 : (1992) 19 ATC 493 this Court had not invalidated any provisions of the recruitment rules but merely interpreted some provisions of the Rules for determining the inter se seniority between the direct recruits and the promotees. The Act passed by the legislature, therefore, is not a validation Act but merely an Act passed by the State Legislature giving it retrospective effect from the date the State of Haryana came into existence and consequently from the date the service in question came into existence. The power of the legislature under Article 246(3) of the Constitution to make law for the State with respect to the matters enumerated in List II of the VIIth Schedule to the Constitution is wide enough to make law determining the service conditions of the employees of the State. In the case in hand there has been no challenge to the legislative competence of the State legislature to enact the legislation in question and in our view rightly, nor there has been any challenge on the ground of contravention of Part III of the Constitution. Under the constitutional scheme the power of the legislature to make law is paramount subject to the field of legislation as enumerated in the Entries in different Lists. The function of the judiciary is to interpret 19 the law and to adjudicate the rights of the parties in accordance with law made by the legislature. When a particular Rule or the Act is interpreted by a Court of law in a specified manner and the law making authority forms the opinion that such an interpretation would adversely effect the rights of the parties and would be grossly inequitious and accordingly a new set of Rule or Law is enacted, it is very often challenged as in the present case on the ground that the legislatures have usurped the judicial power. In such a case the Court has a dedicated function to examine the new set of laws enacted by the legislatures and to find out whether in fact the legislatures have exercised the legislative power by merely declaring an earlier judicial decision to be invalid and ineffective or the legislatures have altered and changed the character of the legislation which ultimately may render the judicial decision ineffective. It cannot be disputed that the legislatures can always render a judicial decision ineffective by enacting valid law on the topic within its legislative field fundamentally altering or changing its character retrospectively as was held by this Court in the case of Indian Aluminum Company vs. The State of Kerala (1996) 7 Supreme Court Cases 637. What is really prohibited is that legislature cannot in exercise of its plenary power under Article 245 and 246 of the Constitution merely declare a decision of a Court of Law to be invalid or to be inoperative in which case it would be held to be an exercise of judicial power........" (Emphasis supplied).

Similarly, in Indian Aluminium Co. v. State of Kerela reported in (1996) 7 SCC 637, the Supreme Court stated as follows:

"36. The validity of the validating Act is to be judged by the following tests: [i] whether the legislation enacting the validating Act has competence over the subject matter; [ii] whether by validation, 20 the legislature has removed the-defect which the court had found in the previous law [iii] whether the validating law is inconsistent with the provisions of Chapter III of the Constitution. If tests are satisfied, the Act can confer jurisdiction upon the Court with retrospective effect and validate the past transactions which were declared to be unconstitutional. The legislature cannot assume power of adjudicating a case by virtue of its enactment of the law without leaving it to the judiciary to decide it with reference to the law in force. The legislature also is incompetent to overrule the decision of a Court without properly removing the base on which the judgment is founded.

56. From a resume of the above decisions the following principles would emerge:

[1] The adjudication of the rights of the parties is the essential judicial function. Legislature has to lay down the norms of conduct or rules which will govern the parties and the transaction and require the court to give effect to them;

[2] The Constitution delineated delicate balance in the exercise of the sovereign power by the Legislature, Executive and Judiciary;

[3] In a democracy governed by rule of law, the Legislature exercises the power under Articles 245 and 246 and other companion Articles read with the entries in the respective Lists in the Seventh Schedule to make the law which includes power to amend the law.

[4] Courts in their concern and endeavour to preserve judicial power equally must be guarded to maintain the delicate balance devised by the Constitution between the three sovereign functionaries. In order that rule of law permeates to fulfil constitutional objectives of establishing an egalitarian social order, the respective sovereign functionaries need free-play in their joints 21 so that the march of social progress and order remain unimpeded. The smooth balance built with delicacy must always be maintained;

[5] In its anxiety to safeguard judicial power, it is unnecessary to be overjealous and conjure up incursion into the judicial preserve invalidating the valid law competently made;

[6] The Court, therefore, need to carefully scan the law to find out: (a) whether the vice pointed out by the Court and invalidity suffered by previous law is cured complying with the legal and constitutional requirements; (b) whether the Legislature has competence to validate the law; (c) whether such validation is consistent with the rights guaranteed in Part III of the Constitution.

[7] The Court does not have the power to validate an invalid law or to legalise impost of tax illegally made and collected or to remove the norm of invalidation or provide a remedy. These are not judicial functions but the exclusive province of the legislature. Therefore they are not encroachment on judicial power.

[8] In exercising legislative power, the legislature by mere declaration, without anything more, cannot directly overrule revise or override a judicial decision. It can render judicial decision ineffective by enacting valid law on the topic within its legislative field fundamentally altering or changing its character retrospectively. The changed or altered conditions are such that the previous decision would not have been rendered by the Court, if those conditions had existed at the time of declaring the law as invalid. It is also empowered to give effect to retrospective legislation with a deeming date or with effect from a particular date. The legislature can change the character of the tax or duty from impermissible to permissible tax but the tax or levy should answer such character and the legislature is competent to recover the invalid tax validating such a tax on removing the invalid base for recovery from the subject or render the recovery from the State ineffectual. It 22 is competent for the legislature to enact the law with retrospective effect and authorise its agencies to levy and collect the tax on that basis, make the imposition of levy collected and recovery of the tax made valid, notwithstanding the declaration by the court or the direction given for recovery thereof.

[9] The consistent thread that runs through all the decisions of this Court is that the legislature cannot directly overrule the decision or make a direction as not binding on it but has power to make the decision ineffective by removing the base on which the decision was rendered, consistent with the law of the Constitution and the legislature must have competence to do the same." (Emphasis supplied).

In Jaora Sugar Mills (P) Ltd. v. State of M.P. reported in AIR 1966 SC 416, the Hon'ble Supreme Court held that a parliamentary legislation which sought to validate a state statute (which had been held to be ultra vires the legislative competence of the State) would itself be ultra vires. However, if the parliamentary legislation made substantive provisions, that were within legislative competence of parliament, and gave the same retrospective effect, such an act would be valid even if it had the effect of validating action taken under the invalid state legislation.

In State of T. N. v. State of Kerala reported in (2014) 12 SCC 696, a Constitution Bench of the Supreme Court has held as follows:

"126. On deep reflection of the above discussion, in our opinion, the constitutional principles in the context of Indian 23 Constitution relating to separation of powers between legislature, executive and judiciary may, in brief, be summarized thus :

126.5 The doctrine of separation of powers applies to the final judgments of the courts. Legislature cannot declare any decision of a court of law to be void or of no effect. It can, however, pass an amending Act to remedy the defects pointed out by a court of law or on coming to know of it aliunde. In other words, a court's decision must always bind unless the conditions on which it is based are so fundamentally altered that the decision could not have been given in the altered circumstances.

126.6 If the legislature has the power over the subject-matter and competence to make a validating law, it can at any time make such a validating law and make it retrospective. The validity of a validating law, therefore, depends upon whether the legislature possesses the competence which it claims over the subject-matter and whether in making the validation law it removes the defect which the courts had found in the existing law.

126.7 The law enacted by the legislature may apparently seem to be within its competence but yet in substance if it is shown as an attempt to interfere with the judicial process, such law may be invalidated being in breach of doctrine of separation of powers. In such situation, the legal effect of the law on a judgment or a judicial proceeding must be examined closely, having regard to legislative prescription or direction. The questions to be asked are, (i) Does the legislative prescription or legislative direction interfere with the judicial functions? (ii) Is the legislation targeted at the decided case or whether impugned law requires its application to a case already finally decided? (iii) What are the terms of law; the issues with which it deals and the nature of the judgment that has attained finality? If the answer to (i) to (ii) is in the affirmative and the consideration of aspects noted in question (iii) sufficiently 24 establishes that the impugned law interferes with the judicial functions, the Court may declare the law unconstitutional.

157.The question whether or not the legislature has usurped the judicial power or enacted a law in breach of separation of powers principle would depend on facts of each case after considering the real effect of law on a judgment or a judicial proceeding. One of the tests for determining whether a judgment is nullified is to see whether the law and the judgment are inconsistent and irreconcilable so that both cannot stand together. ... When the impugned law is not a validation law, there is no question of the legislature removing the defect, as the Court has not found any vice in the existing law and declared such law to be bad." (emphasis supplied) Applying these principles to the present case, it is submitted that Section 11(6A) should be regarded as ultra-vires since it is clearly overruling judicial pronouncements without making any substantive alternation to the law.

It is submitted that Section 11(6A) has been considered by the Supreme Court in Duro Felguera (supra). Paragraph 20 is referred to in which Justice Banumathi held -

"..........as per [Section 11(6A)] which the power of the court is confined only to examine the existence of the arbitration agreement"

(emphasis supplied).

Mr. Kapoor has referred to Paragraphs 48 and 59 in the concurring opinion by Justice Kurian Joseph, which reads:-

"48. Section 11(6-A) added by the 2015 Amendment, reads as follows:

....... From a reading of Section 11(6A), the intention of the legislature is crystal clear i.e. the Court should and need only look into one aspect- the existence of an arbitration agreement. What are the factors for deciding as to whether there is an arbitration agreement is the next question. The resolution to that is simple - it needs to be seen if the agreement contains a clause which provides for arbitration pertaining to the disputes which have arisen between the parties to the agreement.

59. The scope of the power under Section 11 (6) of the 1996 Act was considerably wide in view of the decisions in SBP and Co.

(SBP and Co. v. Patel Engg. Ltd. (2005) 8 SCC 618) and Boghara Polyfab [National Insurance Co. Ltd. v. Boghara Polyfab (P) Ltd. (2009) 1 SCC 267: (2009) 1 SCC (Civ) 117]. This position continued till the amendment brought about in 2015. After the amendment, all that the Courts need to see is whether an arbitration agreement exists - nothing more, nothing less. The legislative policy and purpose is essentially to minimize the Court's intervention at the stage of appointing the arbitrator and this intention as incorporated in Section 11 (6A) ought to be respected." (Emphasis supplied). It is submitted that in Duro Felguera (supra), neither side offered any argument at all about the vires of the section or the other constitutional aspects and due to absence of argument both the learned Judges only examined the issue as to whether or not there was novation in the facts and circumstances of that case. In other words both judges looked beyond the question of existence of an arbitration agreement, which inference is elsewhere discussed in the judgment. The reference to text books made by the learned Judge was not cited by counsel. 26

Mr. Kapoor makes a valiant attempt to persuade this court to hold that such stray sentences like, "the court should look at the existence of an arbitration agreement" is an obiter dicta and not binding upon this court. It is submitted that in Duro Felguera (supra), the observations on the scope and ambit of the new provision were not called for and no adjudication about the same was in issue or sought by either side. In this regard Mr. Kapoor has placed reliance on the following decisions:-

i. Janapada Sabha Chhindwara v. Central Provinces Syndicate Ltd. and Anr. reported in 1970 (1) SCC 509 para 10 [5 Judges] ii. Kunjukutty Sahib v. State of Kerela and Anr. reported in 1972 (2) SCC 364 para 27 [5 Judges] iii. Raval and Co. v. K.G. Ramachandran and Ors. reported in 1974 (1) SCC 424 para 25 [5 Judges] iv. ADM, Jabalpur v. Shivkant Shukla reported in 1976 (2) SCC 521 [5 Judges] v. Vijay Kumar Sharma and Ors. v. State of Karnataka and Ors. reported in 1990 (2) SCC 562 para 38 [3 Judges] vi. Shin-Etsu Chemical Co. Ltd. v. Aksh Optifibre Ltd. and Anr. reported in 2005 (7) SCC 234 para 69 vii. Girnar Traders v. State of Maharashtra and Ors.

reported in 2007 (7) SCC 555 para 53 viii. Official Liquidator v. Dayanand and Ors. reported in 2008 (10) SCC 1 para 77 ix. Subhash Chandra and Anr. v. Delhi Subordinate Services Selection Board and Ors. reported in 2009 (15) SCC 458 para 110 27 x. K.P. Manu v. Chairman, Scrutiny Committee for Verification of Community Certificate reported in 2015 (4) SCC 1 para 19, 21, 37 xi. Fibre Boards Pvt. Ltd. v. CIT Bangalore reported in 2015 (10) SCC 333 para 31 xii. Supreme Court Advocates-on-Record Association and Anr. v. Union of India reported in 2016 (5) SCC 1 para 817, 882 It is submitted that where words in a statute have received an authoritative exposition by the superior court use of the same words in a similar context in a later statute gives rise to a strong presumption that Parliament intended that the same interpretation should be followed for construction of those words in a later statute. In the instant case, the words in sub-sections 4, 5, 6 and 7 have not been changed. They must therefore receive the same interpretation as before. Moreover, the same earlier decisions still continue to be followed in cases decided after the amendment. SBP and Co. (supra), Boghara Polyfab (supra), Sukanya Holdings (supra) and other cases are all still good law and applied and followed by the Supreme Court itself. Therefore, the law stated in these decisions must be regarded as good law and binding precedents for the purpose of any ongoing litigation. The ratio in Sukanya Holdings (supra) still holds the field and no attempt has been made to take away the substratum of the said decision. Therefore at any rate the same cases should be applied in deciding the present case also.

Mr. Kapoor has relied upon a Supreme Court decision in Ameet Lalchand (supra) and submits that the decision of Sukanya Holdings (supra) was noticed, considered and approved.

Mr. Kapoor has argued that the reliefs against IFGL in the suit, namely, prayer (B), (E), (H), (O), (R), (T) and (V) cannot be the subject of arbitration. Moreover, the Courts have consistently held that bifurcation and splitting of causes of action is not permissible. In this case, each purchase order contains a very restricted arbitration clause that can be related only to the particular order in question and nothing more than that. In other words, the arbitration clause has a limited ambit and scope. In this case only a minuscule part, if at all, is referable under the limited arbitration agreement. The Courts have recognized that there is no scope to bifurcate the suit into two parts, i.e. to refer a part of the disputes to be decided by the arbitrator leaving the bulk of disputes to be decided by the Hon'ble Court. The majority of claims against IFGL per se, and ignoring the tortious claims involving several third parties, are not referable to arbitration at all. In this regard, Mr. Kapoor has relied upon the following decisions:-

i) Sukanya Holdings (P) Ltd. v. Jayesh H. Pandya and Anr. reported in 2003 (5) SCC 531

ii) Rashtriya Ispat Nigam Ltd. and Anr. v. Verma Transport Co. reported in 2006(7) SCC 275

iii) India Household and Healthcare Ltd. v. LG Household and Healthcare Ltd. reported in 2007 (5) SCC 510 29

iv) Tulip Hotels Pvt. Ltd. and Anr. v. Trade Wings Ltd. and Ors. reported in (2010) 2 Arb LR 286 (Bom)

v) Booz Allen Hamilton Inc. v. SBI Home Finance Ltd. and Ors. reported in 2011 (5) SCC 532.

Mr. Kapoor has argued that the MoU already fully covers all disputes about the amounts receivable under the purchase orders. Therefore, the arbitration agreement in this case stands extinguished. There was compete novation; followed by a fresh accord and there was also satisfaction in part. The MoU resolved all issues and it contained no arbitration clause. Therefore, the right to arbitration was abandoned and is gone.

Moreover, of critical importance is the fact that taking advantage of the four orders of Court, the claims were substantially recovered. The MoU supersedes the Purchase orders and there is not even a whisper as to incorporating the arbitration clause by reference.

Mr. Kapoor has argued that the petitioner has obtained huge benefits under the interlocutory orders and, therefore, elected to go by way of suit and abjured arbitration. In this connection, Mr. Kapoor has relied upon the following decisions:-

i) Mussammat Gulab Koer v. Badshah Bahadur reported in 10 CLJ 420: 13 CWN 1197

ii) Mani Lal Guzrati v. Harendra Lal Roy reported in (1910) 12 CLJ 556

iii) Scarf v. Jardine reported in 1882 (7) AC 345 30

iv) Jai Singh v. Union of India and Ors. reported in 1977 (1) SCC 1

v) Delhi Gate Auto Service Station and Anr. v. Bharat Petroleum Corportation Ltd., Agra and Ors. reported in 2009(16) SCC 766

vi) Mumbai International Airport vs M/S Golden Chariot Airport & Anr reported in 2010 (10) SCC 422

vii) Booz Allen Hamilton Inc. v. SBI Home Finance Ltd. and Ors. reported in 2011 (5) SCC 532 It is submitted that if both the arbitration as well as the suit are allowed to proceed, there is every likelihood of a conflict of decisions.

Moreover, in view of the allegations or fraud in the plaint the disputes are not referable to arbitration. On such considerations, Mr. Kapoor has prayed for dismissal of the petition.

In reply, Mr. Mitra has submitted that although it is argued that there has been novation of arbitration agreement by the MoU dated 28.10.2016, this case has not been made out in and is really contrary to the affidavit-in-opposition of the respondent. In the affidavit-in- opposition, specific case has been made out that the said MoU is an independent agreement. Therefore, no case of arbitration agreement being novated by the independent MOU can be considered.

After amendment of the Arbitration and Conciliation Act, 1996 made with effect from 24th October, 2015, sub-section 6(A) has been incorporated into Section 11. Under this sub-section 6(A), the court is to 31 confine its consideration only to existence of the arbitration agreement as laid down by the Hon'ble Supreme Court in the case reported in Duro Felguera (supra). The existence of the arbitration agreement is not disputed in this case. Therefore, reference should be made without further consideration. Mr. Mitra strenuously argued that question of ultra vires in this case should not be allowed to be raised in view of clear judgment of Hon'ble Supreme Court on sub-section 6(A) in Duro Felguera (supra). There are two separate judgments by two learned Judges but both the learned Judges have concurred and have clearly laid down the law after introduction of sub-section 6(A). Both the learned Judges have held that after Section 11 (6A) being introduced, the court is only to see the existence of the arbitration agreement and if the arbitration agreement exists, matter is to be referred to arbitration. Thus it is implicit in the judgment of the Hon'ble Supreme Court that sub- section (6A) is valid and intra vires. Therefore, the question of validity of sub-section (6A) cannot be raised before High Court. In this context, reliance is placed upon Ballabhadas Mathurdas Lakhani and Ors. v. Municipal Committee, MalKapoor reported in (1970) 2 SCC 267: AIR 1970 SC 1002.

The argument that the law as laid down by the Hon'ble Supreme Court in judgment reported in Duro Felguera (supra) regarding sub- section (6A) is merely obiter dicta, is without any merit and should not be entertained at all.

Firstly, it is not obiter. The Supreme Court very clearly considered sub-section (6A) and gave its interpretation of this sub-section and then both the learned Judges have laid down the law that in considering an application under Section 11 - only existence of arbitration agreement is to be seen. It is the ratio decidendi. Mr. Mitra has referred to paragraphs 18, 48 and 56 of the report in support of his submission. Secondly, in any event, obiter dicta of Supreme Court judgment is binding on High Courts. The learned Senior Counsel in this regard has relied upon Palitana Sugar Mills (P) Ltd. and Anr. v. State of Gujarat and Ors. reported in (2004) 12 SCC 645 (paragraph 62) and submits that in the said decision the Supreme Court has laid down that if High Court ignores an observation of Supreme Court on the ground that it is obiter, that will amount to contempt of Supreme Court. Thirdly, it is not obiter because interpretation of sub-section (6A) was necessary for determination of scope and ambit of the application under Section 11 of the Arbitration and Conciliation Act which was being considered by the Hon'ble Supreme Court. It was necessary for the Supreme Court to consider the effect of this sub-section (6A) which Supreme Court has done after considering and referring to two previous judgments on Section 11 of the Arbitration and Conciliation Act delivered prior to the amendment of 2015. After considering the decisions in S.B.P. & Co vs Patel Engineering Ltd. & Anr. reported in (2005) 8 SCC 618 and National Insurance Co. Ltd. v. Boghara Polyfab (P) Ltd. reported in 33 (2009) 1 SCC 267 the Supreme Court laid down in Duro Felguera (supra) that the position of law as laid down in SBP and Co. (supra) and Boghara Polyfab (supra) continued till the amendment was brought about in 2015 and "after amendment the court needs to see whether an arbitration agreement exists - nothing more, nothing less. The legislative policy and purpose is essentially to limit the court's intervention at the stage of appointment of arbitrator and this intention is incorporated in sub-section (6A) ought to be respected".

The Supreme Court has explained that the legislative amendment of the 1996 Act by the Act of 2015 is essentially to minimize court's intervention at the stage of appointing arbitrator, and this intention ought to be respected. The decision in SBP and Co. (supra) and Boghara Polyfab (supra) case have not at all been overruled. The ratio of those two judgments will continue to govern the applications made under Section 11 of the Arbitration and Conciliation Act until 24th October, 2015 when the Amendment Act came into effect. The Amendment Act of 2015 has changed the basis of law and has laid down that consideration of applications under Section 11 of the Arbitration and Conciliation Act should be made only by considering the question of existence of the arbitration agreement. This is to minimize the court's interference at the stage of initiation of arbitration proceedings under Section 11 of the Arbitration and Conciliation Act. 34

The judgments referred to by the respondent all lay down the proposition that it is settled law that "legislature is incompetent to overrule a decision of a court without properly removing the base on which the judgment is founded." But in this case, the basis of law has been changed not retrospectively but prospectively with effect from the date of commencement of the Amendment Act namely 24th October, 2015. The Supreme Court has explained in Duro Felguera (supra) that the view of the decisions in SBP and Co. (supra) and Boghara Polyfab (supra) is continued till the amendment brought about in 2015 and after the amendment, all that the court needs to see is whether an arbitration agreement exists, nothing more nothing less. The legislature has not at all overruled any of the said earlier judgments but only amended the basis of law for consideration of applications under Section 11 of the Arbitration and Conciliation Act.

It is to be borne in mind that this Amendment Act 3 of 2016 which replaced the ordinance is an amendment of a piece of legislation. It is not a validating Act. This Amendment Act does not seek to validate any act or decision enacted or delivered prior to 24th October, 2015 in a manner inconsistent with the earlier judgments reported in SBP and Co. (supra) and Boghara Polyfab (supra). A number of judgments referred to by the respondent referring to Validating Acts have no relevance. In fact, the judgments cited by the respondent will support the proposition that the legislature by way of amendment has taken away the base of law 35 as laid down by the previous judgments. It is most important to note that this Amendment Act is prospective i.e. effective from the date of the ordinance and not retrospective at all.

The judgments on the proposition that obiter dicta are not binding does not deal with the question as to whether obiter of Supreme Court is binding on High Courts. All these judgments merely deal with a situation when the Supreme Court was considering the previous judgments of the Supreme Court and whether those observations are obiter or not. In the instant case, that question does not arise. It is submitted that in paragraph 62 of Palitana Sugar Mills (supra), the Supreme Court has clearly held that a High Court cannot ignore even an obiter dicta of the Supreme Court. If law is laid down by Supreme Court by way of obiter dicta, it will be binding on the High Court. The decision of the Supreme Court in Duro Felguera (supra) is cannot be said to be an obiter. It is ratio decidendi.

It is further submitted by the petitioner that the reference made to the judgment in Sukanya Holdings (supra) is unnecessary as it is a case under Section 8 of the Arbitration and Conciliation Act. Arguments made by the respondent regarding Section 8 of the Arbitration and Conciliation Act, which is wholly unnecessary and it is contended that this will only confuse the issue. A separate application under Section 8 of the Arbitration and Conciliation Act is pending for hearing. In the instant application under Section 11 of the Arbitration and Conciliation Act, no 36 prayer has at all been made for reference of CS No. 2 of 2017 or any suit to arbitration. It is submitted that there is a clear distinction between Section 8 and 11 of the Arbitration and Conciliation Act and any attempt to confuse the issue should be avoided.

The question of an appointment of an arbitrator under sub-section 6A of Section 11 of the Act needs to be considered on the basis of the objections raised by Mr. Kapoor. The said Section is a departure from the earlier Section relating to appointment of arbitrators. In fact, a substantial part of Section 11 was amended by insertion of various sub- sections including sub-section (6A) by the Arbitration and Conciliation Amendment Act, 2015 with effect from 23rd October, 2015. The amended Section reads:-

"S.11(6A) - The Supreme Court or, as the case may be, the High Court, while considering any application under sub-section (4) or sub-section (5) or sub-section (6), shall, notwithstanding any judgment, decree or order of any Court, confine to the examination of the existence of an arbitration agreement."

There have been significant changes brought about to the Act by the Arbitration and Conciliation (Amendment) Act, 2015 with effect from 23rd October, 2015. The object of the amendment is to ensure minimum intervention of the court in arbitration proceedings. The experience in the past showed that considerable time was consumed in court before commencement of arbitration proceedings under the unamended Act, 37 although the said Act was enacted for speedy disposal of arbitration matters with least intervention of the court. In order to reassure and reaffirm that the party must respect, be bound by and adhere to the agreement by which they have agreed to resolve their dispute by arbitration with least intervention by court, significant changes have been introduced in the Act.

The Statement of Objects and Reasons enumerated under the Arbitration and Conciliation (Amendment) Bill, 2015 is reproduced herein below:-

"STATEMENT OF OBJECTS AND REASONS The general law relating to arbitration is contained in the Arbitration and Conciliation Act, 1996 (hereinafter referred to as the Act). The Act, which is based on the UNCITRAL Model Law on International Commercial Arbitration, as adopted in 1985 by the United Nations Commission on International Trade Law (UNCITRAL), applies to both international as well to domestic arbitration.

2. The Act was enacted to provide for speedy disposal of cases relating to arbitration with least court intervention. With the passage of time, some difficulties in the applicability of the Act have been noticed. Interpretation of the provisions of the Act by courts in some cases have resulted in delay of disposal of arbitration proceedings and increase in interference of courts in arbitration matters, which tend to defeat the object of the Act. With a view to overcome the difficulties, the matter was referred to the Law Commission of India, which examined the issue in detail and submitted its 176th Report. On the basis of the said report, the Arbitration and Conciliation (Amendment) Bill, 2003 was introduced in the Rajya Sabha on 22nd December, 2003. The said Bill was referred to the Department-

related Parliamentary Standing Committee on Personnel, Public Grievances, Law and Justice for examination and Report. The said Committee, submitted its Report to the Parliament on 4th August, 2005, wherein the Committee recommended that since many provisions of the said Bill were contentious, the Bill may be withdrawn and a fresh legislation may be brought after considering its recommendations. Accordingly, the said Bill was withdrawn from the Rajya Sabha.

3. On a reference made again in pursuance of the above, the Law Commission examined and submitted its 246th Report on "Amendments to the Arbitration and Conciliation Act, 1996" in August, 2014 and recommended various amendments in the Act. The proposed amendments to the Act would facilitate and encourage Alternative Dispute Mechanism, especially arbitration, for settlement of disputes in a more user-friendly, cost effective and expeditious disposal of cases since India is committed to improve its legal framework to obviate in disposal of cases.

4. As India has been ranked at 178 out of 189 nations in the world in contract enforcement, it is high time that urgent steps are taken to facilitate quick enforcement of contracts, easy recovery of monetary claims and award of just compensation for damages suffered and reduce the pendency of cases in courts and hasten the process of dispute resolution through arbitration, so as to encourage investment and economic activity.

5. As Parliament was not in session and immediate steps were required to be taken to make necessary amendments to the Arbitration and Conciliation Act, 1996 to attract foreign investment by projecting India as an investor friendly country having a sound legal framework, the President was pleased to promulgate the Arbitration and Conciliation (Amendment) Ordinance, 2015.

6. It is proposed to introduce the Arbitration and Conciliation (Amendment) Bill, 2015, to replace the Arbitration and Conciliation (Amendment) Ordinance, 2015, which inter alia, provides for the following, namely:--

xxx xxx xxx

(iv) to provide that while considering any application for appointment of arbitrator, the High Court or the Supreme Court shall examine the existence of a prima facie arbitration agreement and not other issues;

xxx xxx xxx

7. The amendments proposed in the Bill will ensure that arbitration process becomes more user-friendly, cost effective and lead to expeditious disposal of cases.......

8. The Bill seeks to replace the aforesaid Ordinance." NOTES ON CLAUSES xxx xxx xxx Clause 4 of the Bill seeks to amend section 8 of the principal Act to specify that the judicial authority shall refer the parties to arbitration unless it finds that prima facie no valid arbitration agreement exits. A proviso below sub-section (2) is inserted to provide that where the original arbitration agreement or certified copy thereof is not available with the party who apply under sub-section (1), and is retained by the other party, such party shall file a copy of the arbitration agreement along with application under sub-section (1) praying the Court to call upon the other party to produce the original arbitration agreement or its duly certified copy before the Court." (emphasis supplied) 40 Prior to the amendment of Section 11 of the Act by which Section 11(6A) was inserted, two decisions of the Hon'ble Supreme Court were ruling the field. The first decision is SBP and Co. (supra) and the second decision in Boghara Polyfab (supra).

In SBP & Co. (supra) under the unamended provision, a seven- Judge Constitution Bench has laid down the considerations for appointment of an arbitrator by the Chief Justice or designate in paragraphs 37, 39 and 47 which state:-

"37. ....... There have been cases where claims for appointment of an arbitrator based on an arbitration agreement are made ten or twenty years after the period of the contract has come to an end. There have been cases where the appointment of an arbitrator has been sought, after the parties had settled the accounts and the concerned party had certified that he had no further claims against the other contracting party. In other words, there have been occasions when dead claims are sought to be resurrected. There have been cases where assertions are made of the existence of arbitration agreements when, in fact, such existence is strongly disputed by the other side who appears on issuance of notice. Controversies are also raised as to whether the claim that is sought to be put forward comes within the purview of the concerned arbitration clause at all. The Chief Justice has necessarily to apply his mind to these aspects before coming to a conclusion one way or the other and before proceeding to appoint an arbitrator or declining to appoint an arbitrator.

39. It is necessary to define what exactly the Chief Justice, approached with an application under Section 11 of the Act, is to decide at that stage. Obviously, he has to decide his own jurisdiction 41 in the sense, whether the party making the motion has approached the right High Court. He has to decide whether there is an arbitration agreement, as defined in the Act and whether the person who has made the request before him, is a party to such an agreement. It is necessary to indicate that he can also decide the question whether the claim was a dead one; or a long barred claim that was sought to be resurrected and whether the parties have concluded the transaction by recording satisfaction of their mutual rights and obligations or by receiving the final payment without objection. It may not be possible at that stage, to decide whether a live claim made, is one which comes within the purview of the arbitration clause. It will be appropriate to leave that question to be decided by the arbitral tribunal on taking evidence, along with the merits of the claims involved in the arbitration.

47. (iv) The Chief Justice or the designated judge will have the right to decide the preliminary aspects as indicated in the earlier part of this judgment. These will be, his own jurisdiction, to entertain the request, the existence of a valid arbitration agreement, the existence or otherwise of a live claim, the existence of the condition for the exercise of his power and on the qualifications of the arbitrator or arbitrators."

The judgment in SBP & Co. (supra) was later on considered in Boghara Polyfab (supra) where the Supreme Court formulated the following three categories of adjudication:-

"The issues (first category) which Chief Justice/his designate will have to decide are:

(a) Whether the party making the application has approached the appropriate High Court.

(b) Whether there is an arbitration agreement and whether the party who has applied under Section 11 of the Act, is a party to such an agreement.

The issues (second category) which the Chief Justice/his designate may choose to decide (or leave them to the decision of the arbitral tribunal) are:

(a) Whether the claim is a dead (long barred) claim or a live claim.

(b) Whether the parties have concluded the contract/ transaction by recording satisfaction of their mutual rights and obligation or by receiving the final payment without objection.

The issues (third category) which the Chief Justice/his designate should leave exclusively to the arbitral tribunal are:

(i) Whether a claim made falls within the arbitration clause (as for example, a matter which is reserved for final decision of a departmental authority and excepted or excluded from arbitration).

(ii) Merits or any claim involved in the arbitration."

In a fairly recent decision of the Hon'ble Supreme Court in Duro Felguera (supra), it was observed that the position of law as laid down in SBP & Co. (supra) and Boghara Polyfab (supra) shall continue till the amendment was brought about in 2015 and "after the amendment, all that the courts need to see is whether an arbitration agreement exists - nothing more, nothing less. The legislative policy and purpose is essentially to minimize the Court's intervention at the stage of appointing the arbitrator and this intention as incorporated in Section 11(6-A) ought to be respected".

The scope and extent of the power of the High Court and the Supreme Court under section 11(6) and 11(6-A) of the Act has been discussed in Duro Felgura (supra) upon taking into consideration the Statement of Objects and Reasons of the Amendment Bill of 2015.

On a plain reading of the said Section it appears that in considering any application for appointment of an arbitrator under sub- section 4 or 5 or sub-section 6 of Section 11, the High Court shall notwithstanding any judgment, decree or order of any Court confine its examination to the existence of an arbitration agreement. The said Section completely excludes the examination by a Court of any judgment, decree or order of any Court between the parties and the only scope of enquiry is to find out if there is existence of an arbitration agreement. Mr. Kapoor during his argument has relied upon a three-Bench judgment of the Hon'ble Supreme Court in United India Insurance Co. Ltd. Vs. Hyundai Engineering and Construction Co. Ltd. reported in 2018 SCC Online SC 1045 where in Paragraph 12 of the said decision while making a reference to Duro Felguera (supra), the Hon'ble Supreme Court has stated that the exposition of the said decision is a general observation about the effect of the amended provision and not specific to the issue under consideration. The said decision, in my view, does not in any manner assist the respondent as it was noticed that a similar clause in the insurance policy came up for consideration before a three-Judge Bench of the Supreme Court in Oriented Insurance Co. Ltd. v. 44 Narbheram Power and Steel Private Ltd. reported in (2018) 6 SCC 943 following the exposition in Vulcan Insurance Co. Ltd. v. Maharaja Singh reported in (1976) 1 SCC 943 which again is a three-Judge Bench decision, having construed clause similar to the said clause of the insurance policy held that there can be no arbitration in cases where the insurance company disputes or does not accept liability under or in respect of the policy which, however, is not the case here. In the said decision, the arbitration clause which is Clause 7, inter alia, clearly stipulated that no difference or dispute shall be referable to the arbitration if the company has disputed or not accepted liability under or in respect of the policy. On the face of it, there is a clear bar to refer any dispute if the insurance company has disputed or not accepted the liability. The decision in United India Insurance Co. (supra) does not apply in the present scenario since the arbitration clause in the said case was a conditional clause, which would not apply if the insurance company disputed or did not accept the liability, whereas in the present scenario, the arbitration clause is absolute and all disputes under it is required to be referred to arbitration. Seen in this light, the arbitration clause in the present case is similar to the clause in Duro Felguera (supra) which also contained a clause that was absolute, and therefore this Court ought to follow the guideline laid down in the concurring opinions in Duro Felguera (supra) that the Court ought to limit its examination to the existence of an arbitration agreement. 45

In the instant case, the defence that by reason of MoU dated 28th October, 2016, the disputes between Lindsay and IFGL was settled and any dispute arising out of the MoU needs to be decided in the suit and not by arbitration as the MoU does not contain any arbitration clause is not a matter to be gone into or required to be decided at this stage having regard to a clear and specific direction in the Section itself that the Court shall confine its examination as to the existence of an arbitration agreement. It cannot be said that the dispute is ex facie not referable to arbitration as there is no such clause similar to United Insurance Company Ltd. (supra). In Duro Felguera (supra), in two concurring judgments, the Hon'ble Judges have discussed the scope, ambit and width of Section 11(6A). Justice Banumathi has noticed the changes brought about by the Arbitration and Conciliation Amendment Act, 2015 in Paragraphs 18 to 20. In paragraph 18 of the report, it is inter alia stated - "Now as far as sub-section (6-A) of section 11, the power of the court has now been restricted only to see whether there exists an arbitration agreement". In paragraph 19 of the report, the Hon'ble Supreme Court has agreed with the view of as expressed the textbook "Law Relating to Arbitration and Conciliation" by Dr. P.C. Markanda, which inter alia reads:

"The changes made by the Amending Act are as follows:

1. The words 'Chief Justice or any person or institution designated by him' shall be substituted by the words 'the Supreme Court or, as the case may be, the High Court or any person or institution 46 designated by such Court'. Thus, now it is not only the Chief Justice who can hear applications under Section 11, the power can be delegated to any judge as well.

2. As per sub-section (6-A), the power of the Court has now been restricted only to examination of the existence of an arbitration agreement. Earlier, the Chief Justice had been given the power to examine other aspects as well, i.e. limitation, whether the claims were referable for arbitration etc. in terms of the judgments of the Supreme Court in SBP and Co. v. Patel Engineering Ltd., (2005) 8 SCC 618; and National Insurance Co. Ltd. V. Boghara Polyfab Pvt.

Ltd., (2009) 1 SCC 267. Now all preliminary issues have been left for the arbitral tribunal to decide in terms of Section 16 of the Act." (emphasis supplied) In paragraph 20 of the report, it is reiterated that "since the dispute between the parties arose in 2016, the amended provision of sub-section (6-A) of Section 11 shall govern the issue, as per which the power of the Court is confined only to examine the existence of the arbitration agreement". (emphasis supplied) In the said judgment, it is stated that all preliminary issues including the plea of limitation have been left for the arbitral tribunal to decide in terms of Section 16 of the Act has been approved. In a concurring judgment, Justice Kurian Joseph has clearly stated that from a reading of Section 11(6-A), the intention of the legislature is crystal clear i.e. the court should and need only look into one aspect - the existence of an arbitration agreement. What are the factors for deciding as to whether there is an arbitration agreement is the next question. The 47 resolution to that is simple - it needs to be seen if the agreement contains a clause which provides for arbitration pertaining to the disputes which have arisen between the parties to the agreement.

In Paragraph 56 onwards, the cases of Section 11(6-A) of the 1996 Act was discussed in which it is stated:-

"56. Having said that, this being one of the first cases on Section 11(6A) of the 1996 Act before this Court, I feel it appropriate to briefly outline the scope and extent of the power of the High Court and the Supreme Court under Sections 11(6) and 11(6A).

57. This Court in S.B.P & Co v. Patel Engineering Ltd and Another reported in (2005) 8 SCC 618 overruled Konkan Railway Corpn. Ltd. and others v. Mehul Construction Co.; (2000) 7 SCC 201 and Konkan Railway Corpn. Ltd. & another. v. Rani Construction Pvt. Ltd.; (2002) 2 SCC 388 to hold that the power to appoint an arbitrator under Section 11 is a judicial power and not a mere administrative function. The conclusion in the decision as summarized by Balasubramanyan, J. speaking for the majority reads as follows:

"47. We, therefore, sum up our conclusions as follows:

(i) The power exercised by the Chief Justice of the High Court or the Chief Justice of India under Section 11(6) of the Act is not an administrative power. It is a judicial power.

(ii) The power under Section 11(6) of the Act, in its entirety, could be delegated, by the Chief Justice of the High Court only to another Judge of that Court and by the Chief Justice of India to another Judge of the Supreme Court.

(iii) In case of designation of a Judge of the High Court or of the Supreme Court, the power that is exercised by the designated Judge would be that of the Chief Justice as conferred by the statute.

(iv) The Chief Justice or the designated Judge will have the right to decide the preliminary aspects as indicated in the earlier part of this judgment. These will be his own jurisdiction to entertain the request, the existence of a valid arbitration agreement, the existence or otherwise of a live claim, the existence of the condition for the exercise of his power and on the qualifications of the arbitrator or arbitrators. The Chief Justice or the designated Judge would be entitled to seek the opinion of an institution in the matter of nominating an arbitrator qualified in terms of Section 11(8) of the Act if the need arises but the order appointing the arbitrator could only be that of the Chief Justice or the designated Judge.

(v) Designation of a District Judge as the authority under Section 11(6) of the Act by the Chief Justice of the High Court is not warranted on the scheme of the Act.

(vi) Once the matter reaches the Arbitral Tribunal or the sole arbitrator, the High Court would not interfere with the orders passed by the arbitrator or the Arbitral Tribunal during the course of the arbitration proceedings and the parties could approach the Court only in terms of Section 37 of the Act or in terms of Section 34 of the Act.

(vii) Since an order passed by the Chief Justice of the High Court or by the designated Judge of that Court is a judicial order, an appeal will lie against that order only 49 under Article 136 of the Constitution to the Supreme Court.

(viii) There can be no appeal against an order of the Chief Justice of India or a Judge of the Supreme Court designated by him while entertaining an application under Section 11(6) of the Act.

(ix) In a case where an Arbitral Tribunal has been constituted by the 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 16 of the Act.

(x) Since all were guided by the decision of this Court in Konkan Rly. Corpn. Ltd. v. Rani Construction (P) Ltd.

and orders under Section 11(6) of the Act have been made based on the position adopted in that decision, we clarify that appointments of arbitrators or Arbitral Tribunals thus far made, are to be treated as valid, all objections being left to be decided under Section 16 of the Act. As and from this date, the position as adopted in this judgment will govern even pending applications under Section 11(6) of the Act.

(xi) Where District Judges had been designated by the Chief Justice of the High Court under Section 11(6) of the Act, the appointment orders thus far made by them will be treated as valid; but applications if any pending before them as on this date will stand transferred, to be dealt with by the Chief Justice of the High Court concerned or a Judge of that Court designated by the Chief Justice.

(xii) The decision in Konkan Rly. Corpn. Ltd. v. Rani Construction (P) Ltd is overruled." (Emphasis Supplied) 50

58. This position was further clarified in National Insurance Company Limited v. Boghara Polyfab Private Limited; (2009) 1 SCC 267. To quote:

"22. Where the intervention of the court is sought for appointment of an Arbitral Tribunal under Section 11, the duty of the Chief Justice or his designate is defined in SBP & Co. This Court identified and segregated the preliminary issues that may arise for consideration in an application under Section 11 of the Act into three categories, that is, (i) issues which the Chief Justice or his designate is bound to decide; (ii) issues which he can also decide, that is, issues which he may choose to decide; and (iii) issues which should be left to the Arbitral Tribunal to decide.

22.1. The issues (first category) which the Chief Justice/his designate will have to decide are:

(a) Whether the party making the application has approached the appropriate High Court.

(b) Whether there is an arbitration agreement and whether the party who has applied under Section 11of the Act, is a party to such an agreement.

22.2. The issues (second category) which the Chief Justice/his designate may choose to decide (or leave them to the decision of the Arbitral Tribunal) are:

(a) Whether the claim is a dead (long-barred) claim or a live claim.

(b) Whether the parties have concluded the contract/transaction by recording satisfaction of their mutual rights and obligation or by receiving the final payment without objection.

22.3. The issues (third category) which the Chief Justice/his designate should leave exclusively to the Arbitral Tribunal are:

(i) Whether a claim made falls within the arbitration clause (as for example, a matter which is reserved for final decision of a departmental authority and excepted or excluded from arbitration).

(ii) Merits or any claim involved in the arbitration."

59.The scope of the power under Section 11 (6) of the 1996 Act was considerably wide in view of the decisions in SBP and Co. (supra) and Boghara Polyfab (supra). This position continued till the amendment brought about in 2015. After the amendment, all that the Courts need to see is whether an arbitration agreement exists - nothing more, nothing less. The legislative policy and purpose is essentially to minimize the Court's intervention at the stage of appointing the arbitrator and this intention as incorporated in Section 11 (6A) ought to be respected."

The views of the Judges are quite clear that the Court needs to see whether an arbitration agreement exists. Whether there has been any novation to the original contract, it is a matter for the arbitrator to decide in the said proceeding. In this context, it is apposite to refer to the decision of the Hon'ble Supreme Court in Chloro Controls India (P) Ltd. v. Severn Trent Water Purification Inc. reported in (2013) 1 SCC 641, which although was rendered in relation with section 45 of the unamended Act, considered the jurisdiction of the Court in relation to a dispute in paragraphs 83-85, which read:-

"83. Where the Court which, on its judicial side, is seized of an action in a matter in respect of which the parties have made an arbitration agreement, once the required ingredients are satisfied, it would refer the parties to arbitration but for the situation where it comes to the conclusion that the agreement is null and void, inoperative or incapable of being performed. These expressions have to be construed somewhat strictly so as to ensure that the Court returns a finding with certainty and on the correct premise of law and fact as it has the effect of depriving the party of its right of reference to arbitration. But once the Court finds that the agreement is valid then it must make the reference, without any further exercise of discretion {refer General Electric Co. v. Renusagar Power Co. [(1987) 4 SCC 137]}. These are the issues which go to the root of the matter and their determination at the threshold would prevent multiplicity of litigation and would even prevent futile exercise of proceedings before the arbitral tribunal.

84. The issue of whether the courts are empowered to review the existence and validity of the arbitration agreement prior to reference is more controversial. A majority of the countries admit to the positive effect of kompetenz kompetenz principle, which requires that the arbitral tribunal must exercise jurisdiction over the dispute under the arbitration agreement. Thus, challenge to the existence or validity of the arbitration agreement will not prevent the arbitral tribunal from proceeding with hearing and ruling upon its jurisdiction. If it retains jurisdiction, making of an award on the substance of the dispute would be permissible without waiting for the outcome of any court action aimed at deciding the issue of the jurisdiction. The negative effect of the kompetenz kompetenz principle is that arbitrators are entitled to be the first to determine their jurisdiction which is later reviewable by the court, when there is action to enforce or set aside the arbitral award. Where the 53 dispute is not before an arbitral tribunal, the Court must also decline jurisdiction unless the arbitration agreement is patently void, inoperative or incapable of being performed.

85. This is the position of law in France and in some other countries, but as far as the Indian Law is concerned, Section 45 is a legislative mandate and does not admit of any ambiguity. We must take note of the aspect of Indian law that Chapter I of Part II of the 1996 Act does not contain any provision analogous to Section 8(3) under Part I of the Act. In other words, under the Indian Law, greater obligation is cast upon the Courts to determine whether the agreement is valid, operative and capable of being performed at the threshold itself. Such challenge has to be a serious challenge to the substantive contract or to the agreement, as in the absence of such challenge, it has to be found that the agreement was valid, operative and capable of being performed; the dispute would be referred to arbitration. [State of Orissa v. Klockner and Company & Ors. (AIR 1996 SC 2140)]."

The scheme of the Arbitration Act, 1940 and the 1996 Act before the recent amendment has been considered in Kalpana Kothary v. Sudha Yadav reported at (2002) 1 SCC 203, where it is observed -

" 8........ In striking contrast to the said scheme underlying the provisions of the 1940 Act, in the new 1996 Act, there is no provision corresponding to Section 34 of the old Act and Section 8 of the Act mandates that the Judicial Authority before which an action has been brought in respect of a matter, which is the subject-matter of an arbitration agreement, shall refer the parties to arbitration if a party to such an agreement applies not later than when submitting his first statement. The provisions of the Act do not envisage the specific 54 obtaining of any stay as under the 1940 Act, for the reason that not only the direction to make reference is mandatory but not withstanding the pendency of the proceedings before the Judicial Authority or the making of an application under Section 8 (1) of the Act, the arbitration proceedings are enabled, under Section 8 (3) of the Act to be commenced or continued and an arbitral award also made unhampered by such pendency. We have to test the order under appeal on this basis." (emphasis supplied) The unamended sections 8 and 11 of the Act came up for consideration in Praveen Enterprises (supra). In paragraphs 13 and 39 of the report, the distinction has been explained in the following words:

"13. `Reference to arbitration' can be in respect of reference of disputes between the parties to arbitration, or may simply mean referring the parties to arbitration. Section 8 of the Act is an example of referring the parties to arbitration. While section 11 contemplates appointment of arbitrator [vide sub-sections (4), (5) and (9)] or taking necessary measure as per the appointment procedure under the arbitration agreement [vide sub-section (6)], section 8 of the Act does not provide for appointment of an arbitrator, nor referring of any disputes to arbitration, but merely requires the judicial authority before whom an action is brought in a matter in regard to which there is an arbitration agreement, to refer the parties to arbitration. When the judicial authority finds that the subject matter of the suit is covered by a valid arbitration agreement between the parties to the suit, it will refer the parties to arbitration, by refusing to decide the action brought before it and leaving it to the parties to have recourse to their remedies by arbitration. When such an order is made, parties may either agree upon an arbitrator and refer their 55 disputes to him, or failing agreement, file an application under section 11 of the Act for appointment of an arbitrator. The judicial authority `referring the parties to arbitration' under section 8 of the Act, has no power to appoint an arbitrator. It may however record the consent of parties to appoint an agreed arbitrator.

39. Reliance was placed upon certain observations in the decision of the House of Lords in Heyman v. Darwins Ltd.-- 1942 AC 356. We extract below the paragraph containing the relied upon observations:

"The law permits the parties to a contract to include in it as one of its terms an agreement to refer to arbitration disputes which may arise in connection with it, and the court of England enforce such a reference by staying legal proceedings in respect of any matter agreed to be referred "if satisfied that there is no sufficient reason why the matter should not be referred in accordance with the submission." Arbitration Act, 1889, sec. 4. Where proceedings at law are instituted by one of the parties to a contract containing an arbitration clause and the other party, founding on the clause, applies for a stay, the first thing to be ascertained is the precise nature of the dispute which has arisen The next question is whether the dispute is one which falls within the terms of the arbitration clause. Then sometimes the question is raised whether the arbitration clause is still effective or whether something has happened to render it no longer operative. Finally, the nature of the dispute being ascertained, it having been held to fall within the terms of the arbitration clause, and the clause having been found to be still effective, there remains for the court the question whether there is any sufficient reason why the matter in dispute should not be referred to arbitration."(emphasis supplied) 56

40. The said observations were made while examining whether a suit should be stayed at the instance of the defendant on the ground that there was an arbitration agreement between the parties. If a party to an arbitration agreement files a civil suit and the defendant contends that the suit should be stayed and the parties should be referred to arbitration, necessarily, the court will have to find out what exactly is the subject matter of the suit, whether it would fall within the scope of the arbitration clause, whether the arbitration clause was valid and effective and lastly whether there was sufficient reason as to why the subject matter of the suit should not be referred to arbitration. The observations made in Heymen, in the context of an application seeking stay of further proceedings in a suit, are not relevant in respect of an application under section 11 of the Act. This Court has repeatedly held that the questions for consideration in an application under section 8 by a civil court in a suit are different from the questions for consideration under section 11 of the Act. The said decision is therefore of no assistance."

Section 8(3) of the Act permits commencement or continuation of an arbitral proceeding notwithstanding pendency of any application under Section 8 of the Act. Section 8(3) of the Act came up for consideration in Vijay Kumar Sharma vs. Raghunandan Sharma reported at (2010) 2 SCC 486, where it is observed -

"It is evident from sub-section (3) of section 8 that the pendency of an application under section 8 before any court will not come in the way of an arbitration being commenced or continued and an arbitral award being made. The obvious intention of this provision is that 57 neither the filing of any suit by any party to the arbitration agreement nor any application being made by the other party under section 8 to the court, should obstruct or preclude a party from initiating any proceedings for appointment of an arbitrator or proceeding with the arbitration before the Arbitral Tribunal. Having regard to the specific provision in section 8(3) providing that the pendency of an application under section 8(1) will not come in the way of an arbitration being commenced or continued, we are of the view that an application under section 11 or section 15(2) of the Act, for appointment of an arbitrator, will not be barred by pendency of an application under Section 8 of the Act in any suit, nor will the Designate of the Chief Justice be precluded from considering and disposing of an application under Section 11 or 15(2) of the Act." (emphasis supplied) Recently Section 8 of the Act has undergone an amendment.

Section 8(1) of the Act, after amendment reads:-

"A judicial authority, before which an action is brought in a matter which is the subject of an arbitration agreement shall, if a party to the arbitration agreement or any person claiming through or under him, so applies not later than the date of submitting his first statement on the substance of the dispute, then, notwithstanding any judgment, decree or order of the Supreme Court or any Court, refer the parties to arbitration unless it finds that prima facie no valid arbitration agreement exists."

The earlier Section 8(1) of the Act read:-

"A judicial authority before which an action is brought in a matter which is the subject of an arbitration agreement shall, if a party so applies not later than when submitting his first statement on the substance of the dispute, refer the parties to arbitration."

The amended provision came up for consideration in Ameet Lalchand Shah and others vs. Rishabh Enterpirses and another reported in 2018 SCC Online SC 487. The decision in Sukanya Holding (supra) was considered in the light of the aforesaid amendment. On consideration of the amended Section 8 of the Act, it was held:

"29. Principally four amendments to Section 8(1) have been introduced by the 2015 Amendments - (i) the relevant "party" that is entitled to apply seeking reference to arbitration has been clarified/amplified to include persons claiming "through or under"

such a party to the arbitration agreement; (ii) scope of examination by the judicial authority is restricted to a finding whether "no valid arbitration agreement exists" and the nature of examination by the judicial authority is clarified to be on a "prima facie" basis; (iii) the cut-off date by which an application under Section 8 is to be presented has been defined to mean "the date of" submitting the first statement on the substance of the dispute; and (iv) the amendments are expressed to apply notwithstanding any prior judicial precedent. The proviso to Section 8(2) has been added to allow a party that does not possess the original or certified copy of the arbitration agreement on account of it being retained by the other party, to nevertheless apply under Section 8 seeking reference, and call upon 59 the other party to produce the same." (Ref: Justice R.S. Bachawat's Law of Arbitration and Conciliation, Sixth Edition, Vol. I (Sections 1 to 34) at page 695 published by LexisNexis).

"LC Comment: The words "such of the parties.... to the arbitration agreement" and proviso (i) of the amendment have been proposed in the context of the decision of the Supreme Court in Sukanya Holdings Pvt. Ltd. v. Jayesh H. Pandya and Anr. (2003) 5 SCC 531,- in cases where all the parties to the dispute are not parties to the arbitration agreement, the reference is to be rejected only where such parties are necessary parties to the action - and not if they are only proper parties, or are otherwise legal strangers to the action and have been added only to circumvent the arbitration agreement. Proviso (ii) of the amendment contemplates a two- step process to be adopted by a judicial authority when considering an application seeking the reference of a pending action to arbitration. The amendment envisages that the judicial authority shall not refer the parties to arbitration only if it finds that there does not exist an arbitration agreement or that it is null and void. If the judicial authority is of the opinion that prima facie the arbitration agreement exists, then it shall refer the dispute to arbitration, and leave the existence of the arbitration agreement to be finally determined by the arbitral tribunal. However, if the judicial authority concludes that the agreement does not exist, then the conclusion will be final and 60 not prima facie. The amendment also envisages that there shall be a conclusive determination as to whether the arbitration agreement is null and void.

xxx

31. The language of amendment to Section 8 of the Act is clear that the amendment to Section 8(1) of the Act would apply notwithstanding any prayer, judgment, decree or order of the Supreme Court or any other Court." (emphasis supplied) The reference to Section 8 of the Act and the decisions on the said Section have been referred to only for the limited purpose of understanding whether the considerations for referring the dispute of the parties to arbitration is the same as that of a proceeding under section 11 of the Act. The considerations are completely different.

At this stage, it is not necessary to consider whether there has been a novation of contract or the entire disputes between the parties have been settled by way of a MoU. The bifurcation of the disputes between the parties is also not a matter to be considered in an application under Section 11 of the Arbitration and Conciliation Act, 1996. There is no dispute between the parties that a valid arbitration agreement exists between the parties. The existence of the arbitration agreements is admitted. The respondent is resisting the reference on other grounds, namely, that the majority of claims against IFGL per se, ignoring the tortious claims involving several parties are not referable to 61 arbitration. The principal claim against IFGL is that IFGL has acted contrary to the understanding between the parties and on and from September, 2016 has illegally sought to enter into a contract with Arcelor Mittal Companies in breach of obligations. This is, in my view, not a factor to be considered at this stage.

The argument of Mr. Kapoor that sub-section 6A of section 11 of the Act is ultra vires as as it is opposed to the doctrine of separation of power and curtailed the role of the judiciary cannot be gone into at this stage in view of the fact that in Duro Felguero (supra), in paragraphs 18, 19, 20, 47, 48, 56, 57 and 59, the Hon'ble Supreme Court considered the changes brought about by the Arbitration and Conciliation (Amendment) Act, 2015, amongst others, in relation to appointment of an arbitrator under section 11 of the 1996 Act; and the said judgment is binding on this Court. Although Mr. Kapoor has contended that the pronouncement in Duro Felguero (supra) - that the Court ought to confine its examination to the existence of an arbitration agreement - is obiter and not binding on this Court, the said argument cannot be accepted in view of the discussion made above inasmuch as even an obiter of a Supreme Court is binding on the High Court, as held in Palitana Sugar Mills (supra), where it is stated -

"62. It is well settled that the judgments of this Court are binding on all the authorities under Article 142 of the Constitution of India and it is not open to any authority to ignore a binding judgment of this Court on the ground that the full facts had not been placed before 62 this court and/or the judgment of this Court in the earlier proceedings had only collaterally or incidentally decided the issues raised in the show cause notices. Such an attempt to belittle the judgments and the orders of this Court, to say the least, is plainly perverse and amounts to gross contempt of this Court. We are pained to say that the then Deputy Collector has scant respect for the orders passed by the Apex Court."

Under such circumstances, the application is allowed. Hon'ble Justice Jyotirmay Bhattacharya, former Chief Justice, High Court, Calcutta is appointed as the sole arbitrator. The Hon'ble Justice Bhattacharya is requested to fix commensurate remuneration, at the fist sitting of the parties, to be shared by the parties in equal measure at the first instance, subject to the directions as to the costs as may be contained in the final Award. The learned arbitrator is requested to conclude the reference within a period of twelve months of the statement of claim being lodged before him.

Urgent Photostat certified copy of this judgment, if applied for, be given to the parties on an usual undertaking.

(Soumen Sen, J.) Later:

Mr. Rudraman Bhattacharya, learned Counsel for the respondent has prayed for stay of operation of the order.

The order shall remain stayed for a period of two weeks from date.

(Soumen Sen, J.)

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Calcutta High Court