Friday, 23 August 2019

Whether civil suit is maintainable to challenge existence or validity of arbitration agreement?

 In the Judgment of this Court, in the case of
Kvaerner Cementation India Limited V. Bajranglal
Agarwal and Another1, this Court has examined the
similar issue and held that any objection with respect
to existence or validity of the arbitration agreement,
can be raised only by way of an application under
Section 16 of the Act and Civil Court cannot have
jurisdiction to go into such question.
14. Having regard to aforesaid judgment of this Court
and various communications between the parties, we are
in agreement with the submission made by the learned
senior counsel for the appellant that, if the first
respondent wants to raise an objection with regard to
existence or validity of the arbitration agreement, it
is open for the first respondent to move an application
before the arbitrator, but with such plea, he cannot
maintain a suit for declaration and injunction. Though
the Trial Court rightly rejected the interim injunction
sought for by the first respondent, the same is
erroneously reversed by the learned Additional District
Judge and such order is confirmed by the High Court, by
the impugned order.
NON-REPORTABLE
IN THE SUPREME COURT OF INDIA
CIVIL APPELLATE JURISDICTION
CIVIL APPEAL NO.6605 OF 2019

National Aluminium Company Limited Vs  Subhash Infra EngineersPvt. Ltd. 

R. Subhash Reddy, J.
Dated:August 23, 2019

1. Leave granted.
2. This civil appeal is filed by the first
defendant/National Aluminum Company Limited (NALCO),
a Government of India Enterprise, in pending Civil Suit
No. 2610 of 2015, on the file of Learned Senior Civil
Judge, Gurgaon, Haryana, aggrieved by the order dated
22.10.2016, passed in Civil Revision No.2471 of 2016
(O&M) by the High Court of Punjab & Haryana at
Chandigarh.
3. The appellant-Company, a Government of India
enterprise, has issued a tender notice on 05.05.2011,
inviting tenders for construction of Ash Pond-IV in

District Angul of Odisha State. The first respondent
herein i.e Subhash Infra Engineers Pvt. Ltd.
(for short ‘SIE’) has submitted its offer/tender on
06.06.2011. On 09.11.2011, the appellant herein has
accepted the offer/tender submitted by the first
respondent herein and issued the work order to the said
respondent. By a letter dated 18.11.2011, the appellant
addressed the first respondent to attend a kick off
meeting on 19.11.2011. As no one on behalf of first
respondent attended the meeting proposed on 19.11.2011,
the appellant again issued a letter dated 21.11.2011,
requesting the first respondent once again to come for a
kick off meeting. In response to the letter dated
21.11.2011, the first respondent/SIE herein vide letter
dated 21.11.2011, expressed his inability to execute the
work, unless certain specifications are changed/revised.
In the said letter dated 21.11.2011, the first
respondent/SIE herein has agreed that the appellant-
Company has accepted the offer made by it. Further, vide
letter dated 02.12.2011, the respondent/SIE informed the
appellant that the work order is not acceptable to them.
4. Subsequently, when the first respondent herein was
not coming forward to participate in the kick off

meeting and instead addressed a letter dated 02.12.2011,
vide letter dated 30.01.2012, the appellant-company
informed the respondent/SIE that the contract work will
be carried out, through some other agency, at the risk
and cost of the respondent/SIE. Further by letter dated
06.02.2015, the appellant-company has informed the first
respondent/SIE that it suffered a financial loss of
Rs.4,86,61,440/-(Rupees Four Crore Eighty-Six Lakh
Sixty-One Thousand Four Hundred and Forty Only). The
respondent/SIE was directed to deposit the said amount
otherwise the appellant will be forced to invoke
Arbitration Clause as per Clause 22 of NIT and Clause 87
of the General Conditions of Contract. Then, the first
respondent/SIE has disputed the claim made by the
appellant, on the ground that there is no binding
contract, that came into existence between the parties,
as such, the demand is illegal and unjustified. A letter
dated 28.02.2015 was communicated to that effect, to the
appellant.
5. Further, when the appellant-company asked the
respondent/SIE to select an arbitrator from a panel of
three names sent by it, the respondent/SIE, vide letter
dated 23.07.2015, informed the appellant that, as much

as, there is no binding contract that came into
existence between the parties, the disputes cannot be
resolved by the arbitrator.
6. The appellant herein, having regard to terms and
conditions of contract, invoked the arbitration clause,
by proceeding dated 02.09.2015 and appointed the second
respondent Shri C.R. Pradhan, who was the Former
Chairman(CMD) of the Company, as an arbitrator. The
learned arbitrator initiated the proceeding by issuing
notice dated 07.09.2015, asking the appellant, as well
as the first respondent to attend the preliminary
meeting on 09.10.2015 at Bhubaneswar.
7. On receipt of such notice issued by the arbitrator,
the first respondent herein approached the Civil Court
and filed Civil Suit No.2610 of 2015 on the file of
Senior Civil Judge, Gurgaon, seeking relief of
declaration that the appointment of second respondent,
as a sole arbitrator, is null and void. Further, relief
of permanent injunction was also sought restraining the
arbitrator, from proceeding with arbitration
proceedings. Pending suit, interim injunction sought for
is rejected by the Learned Trial Judge i.e Senior Civil
Judge, Gurgaon.

8. Against the order of the Trial Court, refusing to
grant injunction orders, the first respondent approached
the District Court. The Appellate Court i.e the
Additional District Judge, Gurgaon, vide order dated
25.01.2016, allowed the appeal and granted the
injunction, restraining the second respondent-arbitrator
from proceeding further, pursuant to notice dated
07.09.2015. When the appellant herein has questioned
such order by way of Civil Revision No. 2471 of 2016,
before the High Court of Punjab and Haryana at
Chandigarh, the same is dismissed vide order dated
22.10.2016. Hence this appeal by way of Special Leave.
9. We have heard the Sri Ashok K. Gupta, learned
senior counsel appearing for the appellant and Sri Manoj
Swarup, learned counsel for the first respondent, though
the second respondent is served, there is no appearance
on his behalf. We have perused the impugned order and
other material placed on record.
10. It is the case of the appellant, that as much as
the appellant has accepted offer/tender submitted by
respondent, it is a concluded contract and is an
arbitration agreement within the meaning of Section 7
of the Arbitration and Conciliation Act, 1996 (for

short, ‘the Act’). On the other hand, it is the case of
the respondent, as acceptance was not unconditional, it
does not amount to a binding contract between the
appellant and the first respondent, as such, the
arbitrator has no jurisdiction to decide the lis between
the parties. Mainly, it was a case of the appellant that
as much as the acceptance of the bid will conclude the
contract and having regard to terms and conditions of
NIT and General Conditions of Contract, it is a binding
contract between the parties, as such, dispute is to be
resolved only by way of arbitration.
11. The learned counsel for the appellant has placed
reliance on judgment in the case of Kvaerner
Cementation India Limited V. Bajranglal Agarwal and
Another1.
12. It is a case of the appellant-Company that even if
the first respondent disputes the jurisdiction of the
arbitrator, it is open for the first respondent to move
an application before the arbitrator under Section 16 of
the Act, but at the same time, the suit filed by the
first respondent, for declaration and injunction is not
maintainable.
1 2012(5) SCC, 214.

13. In the Judgment of this Court, in the case of
Kvaerner Cementation India Limited V. Bajranglal
Agarwal and Another1, this Court has examined the
similar issue and held that any objection with respect
to existence or validity of the arbitration agreement,
can be raised only by way of an application under
Section 16 of the Act and Civil Court cannot have
jurisdiction to go into such question.
14. Having regard to aforesaid judgment of this Court
and various communications between the parties, we are
in agreement with the submission made by the learned
senior counsel for the appellant that, if the first
respondent wants to raise an objection with regard to
existence or validity of the arbitration agreement, it
is open for the first respondent to move an application
before the arbitrator, but with such plea, he cannot
maintain a suit for declaration and injunction. Though
the Trial Court rightly rejected the interim injunction
sought for by the first respondent, the same is
erroneously reversed by the learned Additional District
Judge and such order is confirmed by the High Court, by
the impugned order.

15. As we are of the view that the order passed by the
Additional District Judge and the High Court are not in
conformity with the law on the subject and are contrary
to judgment of this Court as referred above, the
impugned order is liable to be set aside by vacating the
injunction orders.
16. At the same time, it is to be noted that when the
first respondent has not responded to select one of the
members as an arbitrator, from the panel, the appellant
has appointed Sri C.R. Pradhan, former Chairman-cum-
Managing Director of the company itself as an
arbitrator, who has commenced arbitration proceedings.
Having regard to the Fifth Schedule introduced, by Act 3
of 2016 to the Act, second respondent cannot be
continued as an arbitrator, to adjudicate the lis
between the parties.
17. For the aforesaid reasons, we allow this Civil
Appeal and set aside the impugned order dated 22.10.2016
passed in C.R. No.2471 of 2016, by the High Court of
Delhi. Further we also quash the appointment of second
respondent, as an Arbitrator.
18. Learned counsels on both sides, have consented and
requested this Court to appoint an arbitrator, for

resolution of dispute. In view of such request and
consent of the learned counsels on both sides, we
appoint Hon’ble Mr. Justice M.L. Mehta, Former Judge of
Delhi High Court, as an arbitrator, to adjudicate the
disputes between the parties. It is open for the learned
arbitrator to fix his own fees.
19. We also make it clear that if the first respondent
disputes the jurisdiction of the arbitrator, it is open
for it to file appropriate application before the
arbitrator under Section 16 of the Act. If any such
application is filed, same is to be decided on its own
merits in accordance with law, uninfluenced by, any of
the observations and findings recorded by this Court.
20. We direct the Registry to communicate a copy of
this order to Hon’ble Mr. Justice M.L. Mehta.
.....................J.
[Abhay Manohar Sapre
.....................J.
[R. Subhash Reddy]
New Delhi;
August 23, 2019

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