CHLORO CONTROLS (I) P. LTD. v. SEVERN TRENT WATER PURIFICATION INC. AND ORS.

CHLORO CONTROLS (I) P. LTD. v. SEVERN TRENT 453 WATER PURIFICATION INC. [SWATANTER KUMAR, J.] Principal Agreement and in face of clause 21.3 of A the Principal Agreement, no relief could be granted on the bare reading of the plaint and reference to arbitration of the complete stated cause of action was inevitable. (v) The judgment of this Court in the case of Sukanya B (supra) does not enunciate the correct law. Severability of cause of action and parties is permissible in law, particularly, when the legislative intent is that arbitration has to receive primacy over the other remedies. Sukanya being a judgment c relatable to Part 1 (Section 8) of the 1996 Act, would not be applicable to the facts of the present case which exclusively is covered under Part II of the 1996 Act. D (vi) The 1996 Act does not contain any restriction or limitation on reference to arbitration as contained under Section 34 of the 1940 Act and therefore, the Court would be competent to pass any orders as it may deem fit and proper, in the circumstances of a given case particularly with the aid of Section 151 E of the CPC. (vii) A bare reading of the provisions of Section 3 of the 1961 Act on the one hand and Section 45 of the 1996 Act on the other clearly suggests that change F has been brought in the structure and not in the substance of the provisions. Section 3 of the 1961 Act, of course, primarily relates to stay of proceedings but demonstrates that the plaintiff claiming through or under any other person who is G a party to the arbitration agreement would be subject to the applications under the arbitration agreement. Thus, the absence of equivalent words in Section 45 of 1996 Act would not make much difference. Under Section 45, the applicant seeking H

454 SUPREME COURT REPORTS [2012] 13 S.C.R.

A reference can either be a party to the arbitration agreement or a person claiming through or under such party. It is also the contention that a defendant who is neither of these, if cannot be referred to arbitration, then such person equally cannot seek reference of others to arbitration. Such an approach would be consistent with the development of arbitration law.

51Copy pinpoint51. The contention raised before us is that Part I and Part 11 of the 1996 Act operate in different fields and no interchange or interplay is permissible. To the contra, the submission is that provisions of Part I have to be construed with Part II. On behalf of the appellant, reliance has been placed upon the judgment of this Court in the case Bhatia International v. Bulk Trading S.A. and Anr. [(2002) 4 SCC 105]. The propositions stated in the case of Bhatia International (supra) do not directly arise for consideration of this Court in the facts of the present case. Thus, we are not dealing with the dictum of the Court in Bhatia lnternational's case and application of its principles in this judgment. E It is appropriate for us to deal with the interpretation, scope and ambit of Section 45 of the 1996 Act particularly relating to an international arbitration covered under the Convention on Recognition and Enforcement of Foreign Arbitral Awards (for short, 'the New York Convention'). F

52Copy pinpoint52. Now, we shall proceed to discuss the width of Section 45 of the 1996 Act. Interpretation of Section 45 of the 1996 Act

53Copy pinpoint53. In order to invoke jurisdiction of the Court under Section G 45, the applicant should satisfy the pre-requisites stated in Section 44 of the 1996 Act.

54Copy pinpoint54. Chapter I, Part II deals with enforcement of certain foreign awards in accordance with the New York Convention, H annexed as Schedule I to the 1996 Act. As per Section 44, there

CHLORO CONTROLS (I) P. LTD. v. SEVERN TRENT 455 WATER PURIFICATION INC. [SWATANTER KUMAR, J.]

has to be an arbitration agreement in writing. To such arbitration agreement the conditions stated in Schedule I would apply. In other words, it must satisfy the requirements of Article II of Schedule I. Each contracting State shall recognize an agreement in writing under which the parties undertake to submit to arbitration their disputes in respect of a defined legal relationship, whether contractual or not, concerning a subject matter capable of settlement by arbitration. The arbitration agreement shall include an arbitration clause in a contract or an arbitration agreement signed by the parties or entered in any of the specified modes. Subject to the exceptions stated c therein, the reference shall be made.

55Copy pinpoint55. The language of Section 45 read with Schedule I of the 1996 Act is worded in favour of making a reference to arbitration when a party or any person claiming through or under him approaches the Court and the Court is satisfied that the agreement is valid, enforceable and operative. Because of the legislative intent, the mandate and purpose of the provisions of Section 45 being in favour of arbitration, the relevant provisions would have to be construed liberally to achieve that object. The question that immediately follows is as to what are the aspects which the Court should consider while dealing with an application for reference to arbitration under this provision.

56Copy pinpoint56. The 1996 Act makes it abundantly clear that Part I of the Act has been amended to bring these provisions completely in line with the UNCITRAL Model Law on International F Commercial Arbitration (for short, the 'UNCITRAL Mode Law'), while Chapter I of Part II is meant to encourage international commercial arbitration by incorporating in India, the provisions of the New York Convention. Further, the protocol on Arbitration Clauses (for short 'Geneva Convention') was also incorporated G as part of Chapter II of Part II.

57Copy pinpoint57. For proper interpretation and application of Chapter I of Part II, it is necessary that those provisions are read in conjunction with Schedule I of the Act. To examine the H

456 SUPREME COURT REPORTS [2012) 13 S.C.R.

A provisions of Section 45 without the aid of Schedule I would not be appropriate as that is the very foundation of Section 45 of the Act. The International Council for Commercial Arbitration prepared a Guide to the Interpretation of 1958 New York Convention, which lays/contains the Road Map to Article II. B Section 45 is enacted materially on the lines of Article II of this Convention. When the Court is seized with a challenge to the validity of an arbitration agreement, it would be desirable to examine the following aspects : "1. Does the arbitration agreement fall under the scope of C the Convention?

2. Is the arbitration agreement evidenced in writing?

3. Does the arbitration agreement exist and is it substantively valid?

D 4. Is there a dispute, does it arise out of a defined legal relationship, whether contractual or not, and did the parties intend to have this particular dispute settled by arbitration?

5. Is the arbitration agreement binding on the parties to the dispute that is before the Court? E

6. Is this dispute arbitrable?"

58Copy pinpoint58. According to this Guide, if these questions are answered in the affirmative, then the parties must be referred to arbitration. Of course, in addition to the above, the Court will have to adjudicate any plea, if taken by a non-applicant that the arbitration agreement is null and void, inoperative or incapable of being performed. In these three situations, if the Court answers such plea in favour of the non-applicant, the question of making a reference to arbitration would not arise and that would put the matter at rest.

59Copy pinpoint59. If the parties are referred to arbitration and award is made under these provisions of the Convention, then it shall be binding and enforceable in accordance with the provisions of H Sections 46 to 49 of the 1996 Act. The procedure prescribed under Chapter I of Part II is to take precedence and would not

CHLORO CONTROLS (I) P. LTD. v. SEVERN TRENT 457 WATER PURIFICATION INC. [SWATANTER KUMAR, J.]

be affected by the provisions contained under Part I and/or A Chapter II of Part II in terms of Section 52. This is the extent of priority that the Legislature had intended to accord to this Chapter 1 of Part 11.

60Copy pinpoint60. Amongst the initial steps, the Court is required to enquire whether the dispute at issue is covered by the 8 arbitration agreement. Stress has normally been placed upon three characteristics of arbitrations which are as follows - (1) arbitration is consensual. It is based on the parties' agreement; c (2) arbitration leads to a final and binding resolution of the dispute; and (3) arbitration is regarded as substitute for the court litigation and results in the passing of an binding award. D

61Copy pinpoint61. Mr. Nariman, learned senior counsel appearing on . behalf of the appellant, contended that in terms of Section 45 of the 1996 Act, parties to the agreement shall essentially be the parties to the suit. A stranger or a third party cannot ask E for arbitration. They have to be essentially the same. Further, the parties should have a clear intention, at the time of the contract, to submit any disputes or differences as may arise, to arbitration and then alone the reference contemplated under Section 45 can be enforced. F

62Copy pinpoint62. To the contra, Mr. Salve, the learned senior counsel appearing for respondent No. 1, submitted that the phrase "at the request of one of the parties or any person claiming through or under him" is capable of liberal construction primarily for the reason that under the 1996 Act, there is a greater obligation G to refer the matters to arbitration. In fact, the 1996 Act is the recognition of an indefeasible Right to Arbitration. Even a party which is not a signatory to the arbitration agreement can claim through the main party. Particularly, in cases of composite transactions, the approach of the Courts should be to hold the H

458 SUPREME COURT REPORTS [2012] 13 S.C.R.

A parties to the bargain of arbitration rather than permitting them to escape the reference on such pleas.

63Copy pinpoint63. At this stage itself, we would make it clear that we are primarily discussing these submissions purely on a legal basis and not with regard to the merits of the case, which we shall shortly revert to.

64Copy pinpoint64. We have already noticed that the language of Section 45 is at a substantial variance to the language of Section 8 in this regard. In Section 45, the expression 'any person' clearly refers to the legislative intent of enlarging the scope of the words beyond 'the parties' who are signatory to the arbitration agreement. Of course, such applicant should claim through or under the signatory party. Once this link is established, then the Court shall refer them to arbitration. The use of the word 'shall' would have to be given its proper meaning and cannot be equated with the word 'may', as liberally understood in its common parlance. The expression 'shall' in the language of the Section 45 is intended to require the Court to necessarily make a reference to arbitration, if the conditions of this provision are satisfied. To that extent, we find merit in the submission that th,eTe·is a greater obligation upon the judicial authority to make such reference, than it was in comparison to the 1940 Act. However, the right to reference cannot be construed strictly as an indefeasible right. One can claim the reference only upon satisfaction of the pre-requisites stated under Sections 44 and F 45 read with Schedule I of the 1996 Act. Thus, it is a legal right which has its own contours and is not an absolute right, free of any obligations/limitations.

65Copy pinpoint65. Normally, arbitration takes place between the persons who have, from the outset, been parties to both the arbitration agreement as well as the substantive contract underlining that agreement. But, it does occasionally happen that the claim is made against or by someone who is not originally named as a party. These may create some difficult situations, but certainly, they are not absolute obstructions to law/the arbitration agreement. Arbitration, thus, could be possible between a

CHLORO CONTROLS (I) P. LTD. v. SEVERN TRENT 459 WATER PURIFICATION INC. [SWATANTER KUMAR, J.]

signatory to an arbitration agreement and a third party. Of A course, heavy onus lies on that party to show that, in fact and in law, it is claiming 'through' or 'under' the signatory party as contemplated under Section 45 of the 1996 Act. Just to deal with such situations illustratively, reference can be made to the following examples in Law and Practice of Commercial B Arbitration in England (Second Edn.) by Sir Michael J. Mustill: "1. The claimant was in reality always a party to the contract, although not named in it.

2. The claimant has succeeded by operation of law to the rights of the named party.

3. The claimant has become a part to the contract in substitution for the named party by virtue of a statutory or consensual novation.

4. The original party has assigned to the claimant either the underlying contract, together with the agreement to arbitrate which it incorporates, or the benefit of a claim which has already come into existence." E

66Copy pinpoint66. Though the scope of an arbitration agreement is limited to the parties who entered into it and those claiming under or through them, the Courts under the English Law have, in certain cases, also applied the "Group of Companies Doctrine". This doctrine has developed in the international context, whereby an arbitration agreement entered into by a company, being one within a group of companies, can bind its non-signatory affiliates or sister or parent concerns, if the circumstances demonstrate that the mutual intention of all the parties was to bind both the signatories and the non-signatory affiliates. This . theory has been applied in a number of arbitratio.ns so as to justify a tribunal taking jurisdiction over a party who is not a signatory to the contract containing the arbitration agreement. ['Russell on Arbitration' (Twenty Third Edition)].

67Copy pinpoint67. This evolves the principle that a non-signatory party H

460 SUPREME COURT REPORTS [2012] 13 S.C.R.

A could be subjected to arbitration provided these transactions were with group of companies and there was a clear intention of the parties to bind both, the signatory as well as the non- signatory parties. In other words, 'intentic;>n of the parties' is a very significant feature which must be established before the scope of arbitration can be said to include the signatory as well as the non-signatory parties.

68Copy pinpoint68. A non-signatory or third party could be subjected to arbitration without their prior consent, but this would only be in exceptional cases. The Court will examine these exceptions from the touchstone of direct relationship to the party signatory to the arbitration agreement, direct commonality of the subject matter and the agreement between the parties being a composite transaction. The transaction should be of a composite nature where performance of mother agreement may not be feasible without aid, execution and performance of the supplementary or ancillary agreements, for achieving the common object and collectively having bearing on the dispute. Besides all this, the Court would have to examine whether a composite reference of such parties would serve the ends of justice. Once this exercise is completed and the Court answers the same in the affirmative, the reference of even non-signatory parties would fall within the exception afore-discussed.

69Copy pinpoint69. In a case like the present one, where origin and end of all is with the Mother or the Principal Agreement, the fact that F a party was non-signatory to one or other agreement may not be of much significance. The performance of any one of such agreements may be quite irrelevant without the performance and fulfillment of the Principal or the Mother Agreement. Besides designing the corporate management to successfully complete the joint ventures, where the parties execute different agreements but all with one primary object in mind, the Court would normally hold the parties to the bargain of arbitration and not encourage its avoidance. In cases involving execution of such multiple agreements, two essential features exist; firstly, all ancillary agreements are relatable to the mother agreement

CHLORO CONTROLS (I) P. LTD. v. SEVERN TRENT 461 WATER PURIFICATION INC. [SWATANTER KUMAR, J.]

and secondly, performance of one is so intrinsically inter-linked with the other agreements that they are incapable of being beneficially performed without performance of the others or severed from the rest. The intention of the parties to refer all the disputes between all the parties to the arbitral tribunal is one of the determinative factor. · B

70Copy pinpoint70. We may notice that this doctrine does not have universal acceptance. Some jurisdictions, for example, Switzerland, have refused to recognize the doctrine, while others have been equivocal. The doctrine has found favourable consideration in the United States and French jurisdictions. The C US Supreme Court in Ruhrgos AG v. Marathon Oil Co. [526 US 574 (1999)) discussed this doctrine at some length and relied on more traditional principles, such as, the non-signatory being an alter ego, estoppel, agency and third party beneficiaries to find jurisdiction over the non-signatories. D

71Copy pinpoint71. The Court will have to examine such pleas with greater caution and by definite reference to the language of the contract and intention of the parties. In the case of composite transactions and multiple agreements, it may again be possible to invoke such principle in accepting the pleas of non-signatory parties for reference to arbitration. Where the agreements are consequential and in the nature of a follow-up to the principal or mother agreement, the latter containing the arbitration agreement and such agreements being so intrinsically inter- mingled or inter-dependent that it is their composite performance which shall discharge the parties of their respective mutual obligations and performances, this would be a sufficient indicator of intent of the parties to refer signatory as well as non-signatory parties to arbitration. The principle of 'composite performance' would have to be gathered from the conjoint reading of the principal and supplementary agreements on the one hand and the explicit intention of the parties and the attendant circumstances on the other.

72Copy pinpoint72. As already noticed, an arbitration agreement, under H

462 SUPREME COURT REPORTS [2012] 13 S.C.R.

A Section 45 of the 1996 Act, should be evidenced in writing and in terms of Article II of Schedule 1, an agreement in writing shall include an arbitral clause in a contract or an arbitration agreement signed by the parties or contained in an exchange of letters or telegrams. Thus, the requirement that an arbitration B agreement be in writing is an expression incapable of strict construction and requires to be construed liberally, as the words of this Article provide. Even in a given circumstance, it may be possible and permissible to construe the arbitration agreement with the aid and principle of 'incorporation by reference'. Though c the New York Convention is silent on this matter, in common practice, the main contractual document may refer to standard terms and conditions or other standard forms and documents which may contain an arbitration clause and, therefore, these terms would become part of the contract between the parties by reference. The solution to such issue should be case- 0 specific. The relevant considerations to determine incorporation would be the status of parties, usages within the specific industry, etc. Cases where the main documents explicitly refer to arbitration clause included in standard terms and conditions would be more easily found in compliance with the formal requirements set out in the Article II of the New York Convention than those cases in which the main contract simply refers to the application of standard forms without any express reference to the arbitration clause. For instance, under the American Law, where standard terms and conditions referred to in a purchase order provided that the standard terms would have been attached to or form part of the purchase order, this was considered to be an incorporation of the arbitration agreement by reference. Even in other countries, the recommended criterion for incorporation is whether the parties were or should have been aware of the arbitration agreement. If the Bill of Lading, for example, specifically mentions the arbitration clause in the Charter Party Agreement, it is generally considered sufficient for incorporation. Two different approaches in its interpretation have been adopted, namely, (a) interpretation of documents approach; and (b) conflict of laws approach. Under

CHLORO CONTROLS (I) P. LTD. v. SEVERN TRENT 463 WATER PURIFICATION INC. [SWATANTER KUMAR, J.] the latter, the Court could apply either its own national law or the law governing the arbitration.

73Copy pinpoint73. In India, the law has been construed more liberally, towards accepting incorporation by reference. In the case of Owners and Parties Interested in the Vessel M. V. "Baltic Confidence" & Anr. v. State Trading Corporation of India Ltd. B & Anr. [(2001) 7 sec 473), the Court was considering the question as to whether the arbitration clause in a Charter Party Agreement was incorporated by reference in the Bill of Lading and what the intention of the parties to the Bill of Lading was. The primary document was the Bill of Lading, which, if read in the manner provided in the incorporation clause thereof, would include the arbitration clause of the Charter Party Agreement. The Court observed that while ascertaining the intention of the parties, attempt should be made to give meaning and effect to the incorporation clause and not to invalidate or frustrate it by giving it a literal, pedantic and technical reading. This Court, after considering the judgments of the courts in various other countries, held as under : "19. From the conspectus of the views expressed by courts in England and also in India, it is clear that in considering the question, whether the arbitration clause in a Charter Party Agreement was incorporated by reference in the Bill of Lading, the principal question is,,what was the intention of the parties to the Bill of Lading? For this purpose the primary document is the Bill of Lading into which the arbitration clause in the Charter Party Agreement is to be read in the manner provided in the incorporation clause of the Bm of Lading. While ascertaining the intention of the parties, attempt should be made to give meaning to the incorporation clause and to give effect to the same and not to invalidate or frustrate it giving a literal, pedantic and technical reading of the clause. If on a construction of the arbitration clause of the Charter Party Agreement as incorporated in the Bill of Lading it does not lead to inconsistency or insensibility or absurdity then effect should H

464 SUPREME COURT REPORTS [2012) 13 S.C.R.

A be given to the intention of the parties and the arbitration clause as agreed should be made binding on parties to the Bill of Lading. If the parties to the Bill of Lading being aware of the arbitration clause in the Charter Party Agreement have specifically incorporated the same in the B conditions of the Bill of Lading then the intention of the parties to abide by the arbitration clause is clear. Whether a particular dispute arising between the parties comes within the purview of the arbitration clause as incorporated in the Bill of Lading is a matter to be decided by the c arbitrator or the court. But that does not mean that despite incorporation of the arbitration clause in the Bill of Lading by specific reference the parties had not intended that the disputes arising on the Bill of Lading should be resolved by an arbitrator."

74Copy pinpoint74. Reference can also be made to the judgment of this Court in the case of Olympus Superstructure Pvt. Ltd. v. Meena Vijay Khetan & Ors. [(1999) 5 SCC 651), where the parties had entered into a purchase agreement for the purchase of flats. The main agreement contained the arbitration clause E (clause 39). The parties also entered into three different Interior Design Agreements, which also contained arbitration clauses. The main agreement was terminated due to disputes about payment and non-grant of possession. These disputes were referred to arbitration. A sole arbitrator was appointed to make awards in this respect. Inter alia, the question was raised as to whether the disputes under the Interior Design Agreements were subject to their independent arbitration clauses or whether one and the same reference was permissible under the main agreement. It was argued that the reference under clause 39 of the main agreement could not permit the arbitrator to deal with the disputes relating to Interior Design Agreements and the award was void. The Court, however, took the view that parties had entered into multiple agreements for a common object and the expression 'other matters ... connected with' appearing in clause 39 would permit such a reference. The H

CHLORO CONTROLS (I) P. LTD. v. SEVERN TRENT 465 WATER PURIFICATION INC. [SWATANTER KUMAR, J.]

Court held as under : A "30. If there is a situation where there are disputes and differences in connection with the main agreement and also disputes in regard to "other matters" "connected" with the subject-matter of the main agreement then in such a situation, in our view, we are governed by the general 8 arbitration clause 39 of the main agreement under which disputes under the main agreement and disputes connected therewith can be referred to the same arbitral tribunal. This clause 39 no doubt does not refer to any named arbitrators. So far as clause 5 of the Interior Design C Agreement is concerned, it refers to disputes and differences arising from that agreement which can be referred to named arbitrators and the said clause 5, in our opinion, comes into play only in a situation where there are no disputes and differences in relation to the main D agreement and the disputes and differences are solely confined to the Interior Design Agreement. That, in our view, is the true intention of the parties and that is the only way by which the general arbitration provision in clause 39 of the main agreement and the arbitration provision for a E named arbitrator contained in clause 5 of the Interior Design Agreement can be harmonised or reconciled. Therefore, in a case like the present where the disputes and differences cover the main agreement as well as the Interior Design Agreement, - (that there are disputes arising under the main agreement and the Interior Design Agreement is not in dispute) - it is the general arbitration clause 39 in the main agreement that governs because the questions arise also in regard to disputes relating to the overlapping items in the schedule to the main agreement and the Interior Design Agreement, as detailed earlier. There cannot be conflicting awards in regard to items which overlap in the two agreements. Such a situation was never contemplated by the parties. The intention of the . parties when they incorporated clause 39 in the main H

466 SUPREME COURT REPORTS [2012] 13 S.C.R.

A agreement and clause 5 in the Interior Design Agreement was that the former clause was to apply to situations when there were disputes arising under both agreements and the latter was to apply to a situation where there were no disputes or differences arising under the main contract but B the disputes and differences were confined only to the Interior Design Agreement. A case containing two agreements with arbitration clauses arose before this Court in Agarwal Engg. Co. v. Technoimpex Hungarian Machine Industries Foreign Trade Co. There were c arbitration clauses in two contracts, one for sale of two machines to the appellant and the other appointing the appellant as sales representative. On the facts of the case, it was held that both the clauses operated separately and this conclusion was based on the specific clause in the sale contract that it was the "sole repository" of the sale transaction of the two machines. Krishna Iyer, J. held that if that were so, then there was no jurisdiction for travelling beyond the sale contract. The language of the other agreement appointing the appellant as sales representative was prospective and related to a sales agency and "later purchases", other than the purchases of these two machines. There was therefore no overlapping. The case before us and the above case exemplify contrary situations. In one case the disputes are connected and in the other they are distinct and not connected. Thus, in the present case, clause 39 of the main agreement applies. Points 1 and 2 are decided accordingly in favour of the respondents."

75Copy pinpoint75. The Court also took the view that a dispute relating to specific performance of a contract in relation to immoveable property could be referred to arbitration and Section 34(2)(b)(i) of the 1996 Act was not attracted. This finding of the Court clearly supports the view that where the law does not prohibit the exercise of a particular power, either the Arbitral Tribunal or the Court could exercise such power. The Court, while taking H

CHLORO CONTROLS (I) P. LTD. v. SEVERN TRENT 467 WATER PURIFICATION INC. [SWATANTER KUMAR, J.]

this view, has obviously rejected the contention that a contract A for specific performance was not capable of settlement by arbitration under the Indian law in view of the statutory provisions. Such contention having been rejected, supports the view that we have taken. THRESHOLD REVIEW B •

76Copy pinpoint76. 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 C 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 0 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.

77Copy pinpoint77. 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 ofthe kompetenz kompetenz principle is that H

468 SUPREME COURT REPORTS [2012] 13 S.C.R.

A 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 dispute is not before an arbitral tribunal, the Court must also decline jurisdiction unless the arbitration agreement is patently B void, inoperative or incapable of being performed.

78Copy pinpoint78. 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 C 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 D 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 E Company & Ors. (AIR 1996 SC 2140)].

79Copy pinpoint79. Alan Redfern and Martin Hunter in Law and Practice of International Commercial Arbitration, (Fourth Edition) have opined that when several parties are involved in a dispute, it is usually considered desirable that the dispute should be dealt with in the same proceedings rather than in a series of separate proceedings. In general terms, this saves time, money, multiplicity of litigation and more importantly, avoids the possibility of conflicting decisions on the same issues of fact and law since all issues are determined by the same arbitral tribunal at the same time. In proceedings before national courts, it is generally possible to join additional parties or to consolidate separate sets of proceedings. In arbitration, however, this is difficult, sometimes impossible, to achieve this because the arbitral process is based upon the agreement of the parties.

CHLORO CONTROLS (I) P. LTD. v. SEVERN TRENT 469 WATER PURIFICATION INC. [SWATANTER KUMAR, J.]

80Copy pinpoint80. Where there is multi-party arbitration, it may be because there are several parties to one contract or it may be because there are several contracts with different parties that have a bearing on the matter in dispute. It is helpful to distinguish between the two. Where there are several parties to one contract, like a joint venture or some other legal relationship of similar kind and the contract contains an arbitration clause, when a dispute arises, the members of the consortium or the joint venture may decide that they would each like to appoint an arbitrator. In distinction thereto, in cases involving several contracts with different parties, a different problem arises. They may have different issues in dispute. Each one of them will be operating under different contracts often with different choice of law and arbitration clauses and yet, any dispute between say the employer and the main contractor is likely to involve or affect one or more of the suppliers or sub- o contractors, even under other contracts. What happens when the dispute between an employer and the main contractor is referred to arbitration, and the main contractor wishes to join the sub-contractor in the proceedings, on the basis that if there is any liability established, the main contractor is entitled to pass E on such liability to the sub-contractor? This was the issue raised in the Adgas case {Abu Dhabi Gas Liquefaction Co. Ltd. v. Eastern Bechtel Corp. (1982] 2 Lloyd's Rep. 425, CA}. Adgas was the owner of a plant that produced liquefied natural gas in the Arabian Gulf. The company started arbitration in England F against the main contractors under an international construction contract, alleging that one of the huge tanks that had been constructed to store the gas was defective. The main contractor denied liability but added that, if the tank was defective, it was the fault of the Japanese sub-contractor. Adgas brought ad hoc arbitration proceedings against the main contractor before a G sole arbitrator in London. The main contractor then brought separate arbitration proceedings, also in London, against the Japanese sub-contractor.

81Copy pinpoint81. There is little doubt that if the matter had been litigated H

470 SUPREME COURT REPORTS [2012] 13 S.C.R.

A in an English court, the Japanese company would have been joined as a party to the action. However, Adgas did not agree that the Japanese sub-contractor should be brought into its arbitration with the main contractor, since this would have lengthened and complicated the proceedings. The Japanese B sub-contractor also did not agree to be joined. It preferred to await the outcome of the main arbitration, to see whether or not there was a case to answer.

82Copy pinpoint82. Lord Denning, giving judgment in the English Court of Appeal, plainly wished that an order could be made C consolidating the two sets of arbitral proceedings so as to save time and money and to avoid the risk of inconsistent awards: "As we have often pointed out, there is a danger in having two separate arbitrations in a case like this. You might get inconsistent findings if there were two separate arbitrators. D This has been said in many cases ... it is most undesirable that there should be inconsistent findings by two separate arbitrators on virtually the self-same question, such as causation. It is very desirable that everything should be done to avoid such a circumstance [Abu Dhabi Gas, E op.cit.at 427]"

83Copy pinpoint83. We have already referred to the contention of Mr. Fali S. Nariman, the learned senior counsel appearing for the appellant, that the provisions of Section 45 of the 1996 Act are somewhat similar to Article 11(3) of the New York Convention and the expression 'parties' in that Section would mean that 'all parties to the action' before the Court have to be the parties to the arbitration agreement. If some of them are parties to the agreement, while the others are not, Section 45 does not contemplate the applicable procedure and the status of the non- signatories. The consequences of all parties not being common to the action and arbitration proceedings are, as illustrated above, multiplicity of proceedings and frustration of the intended 'one stop action'. The Rule of Mischief would support such interpretation. Even if some unnecessary parties are added to

CHLORO CONTROLS (I) P. LTD. v. SEVERN TRENT 471 WATER PURIFICATION INC. [SWATANTER KUMAR, J.]

the action, the Court can always strike out such parties and even the cause of action in terms of the provisions of the CPC. However, where such parties cannot be struck off, there the proceedings must continue only before the Court.

84Copy pinpoint84. Thus, the provisions of Section 45 cannot be effectively applied or even invoked. Unlike Section 24 of the 1940 Act, B under the 1996 Act the Court has not been given the power to refer to arbitration some of the parties from amongst the parties to the suit. Section 24 of 1940 Act vested the Court with the discretion that where the Court thought fit, it could refer such matters and parties to arbitration provided the same could be separated from the rest of the subject matter of the suit. Absence of such provision in the 1996 Act clearly suggests that the Legislature intended not to permit bifurcated or partial references of dispute or parties to arbitration. Without prejudice to this contention, it was also the argument that it would not be appropriate and even permissible to make reference to arbitration when the issues and parties in action are not covered by the arbitration agreement. Referring to the consequences of all parties not being common to the action before the Court and arbitration, the disadvantages are: E a) There would be multiplicity of litigation; b) Application of principle of one stop action would not be possible; and c) It will frustrate the application of the Rule of Mischief. F The Court can prevent the mischief by striking out unnecessary parties or causes of action.

85Copy pinpoint85. It would, thus, imply that a stranger or a third party cannot ask for arbitration. The expression 'claiming through or under' will have to be construed strictly and restricted to the G parties to the arbitration agreement.

86Copy pinpoint86. Another issue raised before the Court is that there is possibility of the arbitration proceedings going on simultaneously with the suit, which would result in rendering H

472 SUPREME COURT REPORTS [2012) 13 S.C.R.

A passing of conflicting orders possible. This would be contrary to the public policy of India that Indian courts can give effect to the foreign awards which are in conflict with judgment of the Indian courts.

87Copy pinpoint87. To the contra, Mr. Salve, learned senior counsel 8 appearing for respondent No.1, contended that the expressions 'parties to arbitration', 'any person claiming through or under him' and 'at the request of one of the party' appearing in Section 45 are wide enough to include some or all the parties and even non-signatory parties for the purposes of making a reference to arbitration. It is also the contention that on the true construction of Sections 44, 45 and 46 of the 1996 Act, it is not possible to accept the contention of the appellant that all the parties to an action have to be parties to the arbitration agreement as well as the Court proceedings. This would be opposed to the principle that parties should be held to their bargain of arbitration. The Court always has the choice to make appropriate orders in exercise of inherent powers to bifurcate the reference or even stay the proceedings in a suit pending before it till the conclusion of the arbitration proceedings or otherwise. According to Mr. Salve, if the interpretation advanced by Mr. Nariman is accepted, then mischief will be encouraged which would frustrate the arbitration agreement because a party not desirous of going to arbitration would initiate civil proceedings and add non-signatory as well as unnecessary parties to the suit with a view to avoid arbitration. This would completely frustrate the legislative object underlining the 1996 Act. Non-signatory parties can even be deemed to be parties to the arbitration agreement and may successfully pray for referral to arbitration.

88Copy pinpoint88. As noticed above, the legislative intent and essence of the 1996 Act was to bring domestic as well as international commercial arbitration in conson;:ince with the UNCITRAL Model Rules, the New York Convention and the Geneva Convention. The New York Convention was physically before the Legislature and available for its consideration when it

CHLORO CONTROLS (I) P. LTD. v. SEVERN TRENT 4 73 WATER PURIFICATION INC. [SWATANTER KUMAR, J.]

enacted the 1996 Act. Article II of the Convention provides that each contracting State shall recognise an agreement and submit to arbitration all or any differences which have arisen or which may arise between them in respect of a defined legal relationship, whether contractual or not concerning a subject matter capable of settlement by arb~ration. Once the agreement is there and the Court is seized of an action in relation to such subject matter, then on the request of one of the parties, it would refer the parties to arbitration unless the agreement is null and void, inoperative or incapable of performance.

89Copy pinpoint89. Still, the legislature opted to word Section 45 C somewhat dissimilarly. Section 8 of the 1996 Act also uses the expression 'parties' simpliciter without any extension. In significant contra-distinction, Section 45 uses the expression 'one of the parties or any person claiming through or under him' and 'refer the parties to arbitration'. whereas the rest of the language of Section 45 is similar to that of Article 11(3) of the New York Contention. The Court cannot ignore this aspect and has to give due weightage to the legislative intent. It is a settled rule of interpretation that every word used by the Legislature in a provision should be given its due meaning. To us, it appears that the Legislature intended to give a liberal meaning to this expression.

90Copy pinpoint90. The language of Section 45 has wider import. It refers to the request of a party and then refers to an arbitral tribunal, while under Section 8(3) it is upon the application of one of the parties that the court may refer the parties to arbitration. There is some element of similarity in the language of Section 8 and Section 45 read with Article 11(3). The language and expressions used in Section 45, 'any person claiming through or under him' including in legal proceedings may seek reference of all parties to arbitration. Once the words used by the Legislature are of wider connotation or the very language of section is structured with liberal protection then such provision should normally be construed liberally.

91Copy pinpoint91. Examined from the point of view of the legislative H

474 SUPREME COURT REPORTS [2012) 13 S.C.R.

A object and the intent of the framers of the statute, i.e., the necessity to encourage arbitration, the Court is required to exercise its jurisdiction in a pending action, to hold the parties to the arbitration clause and not to permit them to avoid their bargain of arbitration by bringing civil action involving B multifarious cause of action, parties and prayers. Legal Relationship

92Copy pinpoint92. Now, we should examine the scope of concept of 'legal relationship' as incorporated in Article 11(1) of the New York C Convention vis-a-vis the expression 'any person claiming through or under him' appearing in Section 45 of the 1996 Act. Article 11(1) and (3) have to be read in conjunction with Section 45 of the Act. Both these expressions have to be read in harmony with each other. Once they are so read, it will be evident that the expression "legal relationship" connotes the 0 relationship of the party with the person claiming through or under him. A person may not be signatory to an arbitration agreement, but his cause of action may be directly relatable to that contract and thus, he may be claiming through or under one of those parties. It is also stated in the Law and Practice of E International Commercial Arbitration, Alan Redfern and Martin Hunter (supra), that for the purposes of both the New York Convention and the UNCITRAL Model Law, it is sufficient that there should be a defined "legal relationship" between the parties, whether contractual or not. Plainly there has to be some contractual relationship between the parties, since there must be some arbitration agreement to form the basis of the arbitral proceedings. Given the existence of such an agreement, the dispute submitted to arbitration may be governed by the principles of delictual or tortuous liability rather than by the law of contract.

93Copy pinpoint93. In the case of Roussel - Uclaf v. G.D. Searle & Co. Ltd. And G.D. Searle & Co. [1978 Vol. 1 LLR 225], the Court held: H "The argument does not admit of much elaboration, but I

CHLORO CONTROLS (I) P. LTD. v. SEVERN TRENT 475 WATER PURIFICATION INC. [SWATANTER KUMAR, J.] see no reason why these words in the Act should be construed so narrowly as to exclude a wholly-owned subsidiary company claiming, as here, a right to sell patented articles which it has obtained from and been ordered to sell by its parent. Of course, if the arbitration proceedings so decide, it may eventually turn out that the parent company is at fault and not entitled to sell the articles in question at all; and, if so, the subsidiary will be equally at fault. But, if the parent is blameless, it seems only common sense that the subsidiary should be equally blameless. The two parties and their actions are, in my c judgment, so closely related on the facts in this case that it would be right to hold that the subsidiary can establish that it is within the purview of the arbitration clause, on the basis that it is "claiming through or under" the parent to do what it is in fact doing whether ultimately held to be 0 wrongful or not."

94Copy pinpoint94. However, the view expressed by the Court in the above case does not find approval in the decision of the Court of Appeal in the case of City of London v. Sancheti [(2009) 1 Lloyds Law Reports 116]. In paragraph 34, it was held that the view in the case of Roussel Uclaf need not be followed and stay could not be obtained against a party to an arbitration agreement or a person claiming through or under such a party, as mere local or commercial connection is not sufficient. But the Court of Appeal hastened to add that, in cases such as the one of Mr. Sancheti, the Corporation of London was not party to the arbitration agreement, but the relevant party is the United Kingdom Government. The fact that in certain circumstances, the State may be responsible under international law for the acts of one of its local authorities, or may have to take steps to redress wrongs committed by one of the local authorities, does not make the local authority a party to the arbitration agreement.

95Copy pinpoint95. Having examined both the above-stated views, we are of the considered opinion that it will be the facts of a given case that would act as precept to the jurisdictional forum as to H

476 SUPREME COURT REPORTS [2012] 13 S.C.R.

A whether any of the stated principles should be adopted or not. If in the facts of a given case, it is not possible to construe that the person approaching the forum is a party to the arbitration agreement or ~ person claiming through or under such party, then the case 'would not fall within the ambit and scope of the B provisions of the section and it may not be possible for the Court to permit reference to arbitration at the behest of or against such party.

96Copy pinpoint96. We have already referred to the judgments of various courts, that state that arbitration could be possible between a C signatory to an agreement and a third party. Of course, heavy onus lies on that party to show that in fact and in law, it is claiming under or through a signatory party, as contemplated under Section 45 of the 1996 Act.

97Copy pinpoint97. Michael J. Mustill and Stewart C. Boyd in The Law and D Practice of Commercial Arbitration in England have observed that the applicant must show that the person whose claim he seeks to stay is either a party to the arbitration agreement or a person claiming through or under such a party. It is further noticed that it occasionally happens that the plaintiff is not E himself a party to the arbitration agreement on which the application is founded. This may arise in the following situations: (i) The plaintiff has acquired the rights, which the action is brought to enforce, from someone who is a party to an arbitration agreement with the defendant; F (ii) The plaintiff is bringing the action on behalf of someone else, who is a party to an arbitration agreement with the defendant. (iii) When the expression used in the provision, the words 'claiming under plaintiff relate to substantive right which is being asserted.

98Copy pinpoint98. The requirements can scarcely be interpreted in their literal sense, this would mean that a person could claim a stay even though not a party to the arbitration agreement. However,

CHLORO CONTROLS (I) P. LTD. v. SEVERN TRENT 4 77 WATER PURIFICATION INC. [SWATANTER KUMAR, J.] the applicant must be party to the agreement against whom legal proceedings have been initiated rather than a party as intervenor.

99Copy pinpoint99. Joinder of non signatory parties to arbitration is not unknown to the arbitration jurisprudence. Even the ICCA's Guide to the Interpretation of the 1958 New York Convention B also provides for such situation, stating that when the question arises as to whether binding a non-signatory to an arbitration agreement could be read as being in conflict with the requirement of written agreement under Article I of the Convention, the most compelling answer is "no" and the same C is supported by a number of reasons.

100Copy pinpoint100. Various legal basis may be applied to bind a non- signatory to an arbitration agreement. The first theory is that of implied consent, third party beneficiaries, guarantors, 0 assignment and other transfer mechanisms of contractual rights. This theory relies on the discernible intentions of the parties and, to a large extent, on good faith principle. They apply to private as well as public legal entities. The second theory includes the legal doctrines of agent-principal relations, apparent authority, E piercing of veil (also called the "alter ego"), joint venture relations, succession and estoppel. They do not rely on the parties' intention but rather on the force of the applicable law.

101Copy pinpoint101. We may also notice the Canadian case of The City of Prince George v. A.L. Sims & Sons Ltd. [YCA XXlll (1998), F 223] wherein the Court took the view that an arbitration agreement is neither inoperative nor incapable of being performed if a multi-party dispute arises and not all parties are bound by the arbitration agreement: the parties bound by the arbitration agreement are to be referred to arbitration and court G proceedings may continue with respect to the other parties, even if this creates a risk of conflicting decisions.

102Copy pinpoint102. We have already discussed that under the Group of Companies Doctrine, an arbitration agreement entered into by a company within a group of companies can bind its non- H

478 SUPREME COURT REPORTS [2012) 13 S.C.R.

A signatory affiliates, if the circumstances demonstrate that the mutual intention of the parties was to bind both the signatory as well as the non-signatory parties.

103Copy pinpoint103. The question of formal validity of the arbitration agreement is independent of the nature of parties to the agreement, which is a matter that belongs to the merits and is not subject to substantive assessment. Once it is determined that a valid arbitration agreement exists, it is a different step to establish which parties are bound by it. Third parties, who are not explicitly mentioned in an arbitration agreement made in writing, may enter into its ratione personae scope. Furthermore, the Convention does not prevent consent to arbitrate from being provided by a person on behalf of another, a notion which is at the root of the theory of implied consent.

104Copy pinpoint104. If one analyses the above cases and the authors' D views, it becomes abundantly clear that reference of even non- signatory parties to arbitration agreement can be made. It may be the result of implied or specific consent or judicial determination. Normally, the parties to the arbitration agreement calling for arbitral reference should be the same as those to E the an action. But this general concept is subject to exceptions which are that when a third party, i.e. non-signatory party, is claiming or is sued as being directly affected through a party to the arbitration agreement and there are principal and subsidiary agreements, and such third party is signatory to a F subsidiary agreement and not to the mother or principal agreement which contains the arbitration clause, then depending upon the facts and circumstances of the given case, it may be possible to say that even such third party can be referred to arbitration.

105Copy pinpoint105. In the present case, the corporate structure of the respondent companies as well as that of the appellant companies clearly demonstrates a legal relationship which not only is inter-legal relationship but also intra-legal relationship between the parties to the lis or persons claiming under them. H They have contractual relationship which arises out of the

CHLORO CONTROLS (I) P. LTD. v. SEVERN TRENT 4 79 WATER PURIFICATION INC. [SWATANTER KUMAR, J.]

various contracts that spell out the terms, obligations and roles of the respective parties which they were expected to perform for attaining the object of successful completion of the joint venture agreement. This joint venture project was not dependant on any single agreement but was capable of being achieved only upon fulfillment of all these agreements. If one floats a joint venture company, one must essentially know-how to manage it and what shall be the methodology adopted for its management. If one manages it well, one must know what goods the said company is to produce and with what technical knowhow. Even if these requisites are satisfied, then also one c is required to know, how to create market, distribute and export such goods. It is nothing but one single chain consisting of different components. The parties may choose to sign different agreements to effectively implement various aforementioned facets right from managing to making profits in a joint venture 0 company. A party may not be signatory to an agreement but its execution may directly be relatable to the main contract even though he claims through or under one of the main party to the agreement. In such situations, the parties would aim at achieving the object of making their bargain successful, by execution of various agreel!lents, like in the present case.

106Copy pinpoint106. The New York Convention clearly postulates that there should be a defined legal relationship between the parties, whether contractual or not, in relation to the differences that may have arisen concerning the subject matter capable of settlement of arbitration. We have referred to a number of judgments of the various courts to emphasize that in given circumstances, if the ingredients above-noted exist, reference to arbitration of a signatory and even a third party is possible. Though heavy onus lies on the person seeking such reference, multiple and multi-party agreements between the parties to the arbitration agreement or persons claiming through or under such parties is neither impracticable nor impermissible.

107Copy pinpoint107. Next, we are to examine the issue whether the cause of action in a suit can be bifurcated and a partial reference may H

480 SUPREME COURT REPORTS [2012) 13 S.C.R.

A be made by the Court. Whatever be the answer to this question, a necessary corollary is as to whether the Court should or should not stay the proceedings in the suit? Further, this may give rise to three different situations. Firstly, while making reference of the subject matter to arbitration, whether a the suit may still survive, partially or otherwise; secondly, whether the suit, still pending before the Court, should be stayed completely; and lastly, whether both the arbitration and the suit proceedings could be permitted to proceed simultaneously in accordance with law.

108Copy pinpoint108. Mr. Nariman, the learned senior counsel, while relying upon the judgments in the cases of Tumock v. Sartoris [1888 (43) Chancery Division, 1955 SCR 862], Taunton-Collins v. Cromie & Anr., [1964 Vol.1 Weekly Law Reports 633] and Sumitomo Corporation v. COS Financial Services (Mauritius) D Ltd. and Others [(2008) 4 SCC 91]again emphasized that the parties to the agreement have to be parties to the suit and also that the cause of action cannot be bifurcated unless there was a specific provision in the 1996 Act itself permitting such bifurcation or splitting of cause of action. He also contended that there is no provision like Sections 21 and 24 of the 1940 Act in the 1996 Act and thus, it supports the view that bifurcation . of cause of action is impermissible and such reference to arbitration is not permissible.

109Copy pinpoint109. In the case of Tumock (supra), the Court had stated that it was not right to cut up that litigation into two actions, one to be tried before the arbitrator and the other to be tried elsewhere, as in that case matters in respect of which the damages were claimed by the plaintiff could not be referred to arbitration because questions arising as to the construction of the agreement and provisions in the lease deed were involved and they did not fall within the power of the arbitrator in face of the arbitration agreement. In the case of Taunton-Collins (supra), the Court again expressed the view that it was undesirable that there should be two proceedings before two different tribuna!s, i.e., the official referee and an Arbitrator, as

CHLORO CONTROLS (I) P. LTD. v. SEVERN TRENT 481 WATER PURIFICATION INC. [SWATANTER KUMAR, J.]

they may reach inconsistent findings. A

110Copy pinpoint110. This Court dealt with the provisions of the 1940 Act, in the case of Anderson Wright Ltd. v. Moran & Company [1955 SCR 862], and described the conditions to be satisfied before a stay can be granted in terms of Section 34 of the 1940 Act. The Court also held that it was within the jurisdiction of the 8 Court to determine a question whether the plaintiff was a party to the contract containing the arbitration clause or not. Still in the case of Sumitomo Corporation (supra), this Court primarily declined the reference to arbitration for the reason that the disputes stated in the petition did not fall within the ambit of the arbitration clause contained in the agreement between the parties and also that the Joint Venture Agreement did not itself contain a specific arbitration clause. An observation was also made in paragraph 20 of the judgment that the 'party' would mean 'the party to the judicial proceeding should be a party to the arbitration agreement.

111Copy pinpoint111. It will be appropriate to refer to the contentions of Mr. Salve, the learned senior counsel. According to him, reference, even of the non-signatory party, could be made to arbitration and upon such reference the proceedings in an action before the Court should be stayed. The principle of bifurcation of cause of action, as contemplated under the CPC, cannot stricto sensu apply to Section 45 of the 1996 Act in view of the non-obstante language of the Section. He also contended that parties or issues, even if outside the scope of the arbitration agreement, would not per se render the arbitration clause inoperative. Even if there is no specific provision for staying the proceedings in the suit under the 1996 Act, still in exercise of its inherent powers, the Court can direct stay of the suit proceedings or pass such other appropriate orders as the court may deem fit. G

112Copy pinpoint112. We would prefer to first deal with the precedents of this Court cited before us. As far as Sumitomo Corporation (supra) is concerned, it was a case dealing with the matter where the proceedings under Section 397-398 of the H

482 SUPREME COURT REPORTS [2012] 13 S.C.R.

A Companies Act had been initiated and the Company Law Board had passed an order. Whether the appeal against such order would lie to the High Court was the principal question involved in that case. The denial of arbitration reference, as already noticed, was based upon the reasoning that disputes B related to the joint venture agreement to which the parties were not signatory and the said agreement did not even contain the arbitration clause. On the other hand, it was the other agreement entered into by different parties which contained the arbitration clause. As already noticed, in paragraph 20, the c Court had observed that a party to an arbitration agreement has to be a party to the judicial proceedings and then alone it will fall within the ambit of Section 2(h) of the 1996 Act. As far as the first issue is concerned, we shall shortly proceed to discuss it when we discuss the merits of this case, m light of the principles stated in this judgment. However, the observations 0 made by the learned Bench in the case of Sumitomo Corporation (supra) do not appear to be correct. Section 2(h) only says that 'party' means a party to an arbitration agreement. This expression falls in the Chapter dealing with definitions and would have to be construed along with the other relevant provisions of the Act. When we read Section 45 in light of Section 2(h), the interpretation given by the Court in the case of Sumitomo Corporation (supra) does not stand to the test of reasoning. Section 45 in explicit language permits the parties who are claiming through or under a main party to the arbitration agreement to seek reference to arbitration. This is so, by fiction of law, contemplated in the provision of Section 45 of the 1996 Act.

113Copy pinpoint113. We have already discussed above that the language of Section 45 is incapable of being construed narrowly and must be given expanded meaning to achieve the twin objects of arbitration, i.e., firstly, the parties should be held to their bargain of arbitration and secondly, the legislative intent behind incorporating the New York Convention as part of Section 44 H of the Act must be protected. Moreover, paragraph 20 of the

CHLORO CONTROLS (I) P. LTD. v. SEVERN TRENT 483 WATER PURIFICATION INC. [SWATANTER KUMAR, J.]

judgment of Sumitomo Corporation (supra) does not state any principle of law and in any event it records no reasons for arriving at such a conclusion. In fact, that was not even directly the issue before the Court so as to operate as a binding precedent. For these reasons, respectfully but without hesitation, we are constrained to hold that the conclusion or the statement made in paragraph 20 of this judgment does not enunciate the correct law. Scope of jurisdiction while referring the parties to arbitration

114Copy pinpoint114. An application for appointment of arbitral tribunal c under Section 45 of the 1996 Act would also be governed by the provisions of Section 11 (6) of the Act. This question is no more res integra and has been settled by decision of a Constitution Bench of seven Judges of this Court in the case of SBP and Co. v. Patel Engineering Ltd. and Anr. [(2005) 8 SCC 618], wherein this Court held that power exercised by the Chief Justice is not an administrative power. It is a judicial power. It is a settled principle that the Chief Justice or his designate Judge will decide preliminary aspects which would attain finality unless otherwise directed to be decided by the arbitral tribunal. In para 39 of the judgment, the Court held as under: "39. It is necessary to define what exactly the Chief Justice, approached with an application under Section 11 of the F Act, is to decide at that stage. Obviously, he has to decide his own jurisdiction 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 G 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 H

484 SUPREME COURT REPORTS (2012] 13 S.C.R.

A 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 B question to be decided by the Arbitral Tribunal on taking evidence, along with the merits of the claims involved in the arbitration. The Chief Justice has to decide whether the applicant has satisfied the conditions for appointing an arbitrator under Section 11 (6) of the Act. For the purpose c of taking a decision on these aspects, the Chief Justice can either proceed on the basis of affidavits and the documents produced or take such evidence or get such evidence recorded, as may be necessary. We think that adoption of this procedure in the context of the Act would best serve the purpose sought to be achieved by the Act D of expediting the process of arbitration, without too many approaches to the court at various stages of the proceedings before the Arbitral Tribunal."

115Copy pinpoint115. This aspect of the arbitration law was explained by a E two Judge Bench of this Court in the case of Shree Ram Mills Ltd. v. Utility Premises (P) Ltd. ((2007) 4 SCC 599] wherein, while referring to the judgment in SBP & Co. (supra) particularly the above paragraph, this Court held that the scope of order under Section 11 of the 1996 Act would take in its ambit the F issue regarding territorial jurisdiction and the existence of the arbitration agreement. The Court noticed that if these issues are not decided by the Chief Justice or his designate, there would be no question of proceeding with the arbitration. It held as under: G "27 ... Thus, the Chief Justice has to decide about the territorial jurisdiction and also whether there exists an arbitration agreement between the parties and whether such party has approached the court for appointment of the arbitrator. The Chief Justice has to examine as to whether the claim is a dead one or in the sense whether

CHLORO CONTROLS (I) P. LTD. v. SEVERN TRENT 485 WATER PURIFICATION INC. [SWATANTER KUMAR, J.]

the parties have already concluded the transaction and have recorded satisfaction of their mutual rights and obligations or whether the parties concerned have recorded their satisfaction regarding the financial claims. In examining this if the parties have recorded their satisfaction regarding the financial claims, there will be no question of any issue remaining. It is in this sense that the Chief Justice has to examine as to whether there remains anything to be decided between the parties in respect of the agreement and whether the parties are still at issue on any such matter. If the Chief Justice does not, in the strict c sense, decide the issue, in that event it is for him to locate such issue and record his satisfaction that such issue exists between the parties. It is only in that sense that the finding on a live issue is given. Even at the cost of repetition we must state that it is only for the purpose of finding out 0 whether the arbitral procedure has to be started that the Chief Justice has to record satisfaction that there remains a live issue in between the parties. The same thing is about the limitation which is always a mixed question of law and fact. The Chief Justice only has to record his satisfaction that prima facie the issue has not become dead by the lapse of time or that any party to the agreement has not slept over its rights beyond the time permitted by law to agitate those issues covered by the agreement. It is for this reason that it was pointed out in the above para that it would be appropriate sometimes to leave the question regarding the live claim to be decided by the Arbitral Tribunal. All that he has to do is to record his satisfaction that the parties have not closed their rights and the matter has not been barred by limitation. Thus. where the Chief Justice comes to a finding that there exists G a live issue. then naturally this finding would include a finding that the respective claims of the parties have not become barred by limitation. (emphasis supplied)" H

486 SUPREME COURT REPORTS [2012) 13 S.C.R.

116Copy pinpoint116. Thus, the Bench while explaining the judgment of this Court in SBP & Co. (supra) has stated that the Chief Justice may not decide certain issues finally and upon recording satisfaction that prima facie the issue has not become dead even leave it for the arbitral tribunal to decide.

117Copy pinpoint117. In National Insurance Co. Ltd. v. Boghara Po/yfab (P) Ltd. ((2009) 1 SCC 267), another equi-bench of this Court after discussing various judgments of this Court, explained SBP & Co. (supra) in relation to scope of powers of the Chief Justice and/or his designate while exercising jurisdiction under Section C 11 (6), held as follows : "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 11 of the Act, is a party to such an agreement. G 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. H

CHLORO CONTROLS (I) P. LTD. v. SEVERN TRENT 487 WATER PURIFICATION INC. [SWATANTER KUMAR, J.]

(b) Whether the parties have concluded the contract/ A 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 B 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 C excepted or excluded from arbitration). (ii) Merits or any claim involved in the arbitration."

118Copy pinpoint118. We may notice that at first blush, the judgment in the case of Shree Ram Mills (supra) is at some variance with the judgment in the case of National Insurance Co. Ltd. (supra) D but when examined in depth, keeping in view the judgment in the case of SBP & Co. (supra) and provisions of Section 11 (6) of the 1996 Act, both these judgments are found to be free from contradiction and capable of being read in harmony in order to bring them in line with the statutory law declared by the.larger E Bench in SBP & Co. (supra). The expressions "Chief Justice does not in strict sense decide the issue" or "is prima facie satisfied", will have to be construed in the facts and circumstances of a given case. Where the Chief Justice or his designate actually decides the issue, then it can no longer be prima facie, but would be a decision binding in law. On such an issue, the Arbitral Tribunal will have no jurisdiction to re- determine the issue. In the case of Shree Ram Mills (supra), the Court held that the Chief Justice could record a finding where the issue between the parties was still alive or was dead by lapse of time. Where it prima facie found the issue to be alive, the Court could leave the question of limitation and also open to be decided by the arbitral tribunal.

119Copy pinpoint119. The above expressions are mere observations of the H

488 SUPREME COURT REPORTS [2012] 13 S.C.R.

A Court and do not fit into the contours of the principle of ratio decidendi of the judgment. The issues in regard to validity or existence of the arbitration agreement, the application not satisfying the ingredients of Section 11 (6) of the 1996 Act and claims being barred by time etc. are the matters which can be B adjudicated by the Chief Justice or his designate. Once the parties are heard on such issues and the matter is determined in accordance with law, then such a finding can only be disturbed by the Court of competent jurisdiction and cannot be reopened before the arbitral tribunal. In SBP & Co. (supra), the c Seven Judge Bench clearly stated, "the finality given to the order of the Chief Justice on the matter5 within his competence under Section 11 of the Act are incapable of being reopened before . the arbitral tribunal". Certainly the Bench dealing with the case of Shree Ram Mills (supra) did not intend to lay down any law in direct conflict with the Seven Judge Bench judgment in SBP 0 & Co. (supra). In the reasoning given in Shree Ram Mills' case, the Court has clearly stated that matters of existence and binding nature of arbitration agreement and other matters mentioned therein are to be decided by the Chief Justice or his designate and the same is in line with the judgment of this Court in the E case of SBP & Co. (supra). It will neither be permissible nor in consonance with the doctrine of precedent that passing observations by the Bench should be construed as the law while completely ignoring the ratio decidendi of that very judgment. We may also notice that the judgment in Shree Ram F Mills (supra) was not brought to the notice of the Bench which pronounced the judgment in the case of National Insurance Co. Ltd. (supra).

120Copy pinpoint120. As far as the classification carved out by the Court in the case of National Insurance Co. Ltd. (supra) are G concerned, it draws its origin from paragraph 39 of the judgment in the case of SBP & Co. (supra) wherein the Constitution Bench of the Court had observed that "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 H

CHLORO CONTROLS (I) P. LTD. v. SEVERN TRENT 489 WATER PURIFICATION INC. [SWATANTER KUMAR, J.]

more appropriate to leave the seriously disputed questions to be decided by the Arbitral Tribunal on taking evidence along with the merits of the claim, subject matter of the arbitration."

121Copy pinpoint121. The foundation for category (2) in para 22 of the National Insurance Company Ltd. (supra) is directly relatable to para 39 of the judgment of this court in SBP & Co. (supra) and matters falling in that category are those which, depending on the facts and circumstances of a given case, could be decided by the Chief Justice or his designate or even may be left for the decision of the arbitrator, provided there exists a binding arbitration agreement between the parties. Similar is the approach of the Bench in the case of Shree Ram Mills (supra) and that is why in paragraph 27 thereof, the Court has recorded that it would be appropriate sometimes to leave the question regarding the claim being alive to be decided by the arbitral tribunal and the Chief Justice may record his satisfaction that parties have not closed their rights and the matter has not been barred by limitation.

122Copy pinpoint122. As already noticed, the observations made by the Court have to be construed and read to support the ratio decidendi of the judgment. Observations in a judgment which are stared upon by the judgment of a larger bench would not constitute valid precedent as it will be hit by the doctrine of staire decisis. In the case of the Shri Ram Mills (supra) surely the Bench did not intend to lay down the law or state a proposition which is directly in conflict with the judgment of the F Constitution Bench of this Court in the case of SBP & Co. (supra).

123Copy pinpoint123. We have no reason to differ with the classification carved out in the case of National Insurance Co. (supra) as it is very much in conformity with the judgment of the Constitution G Bench in the case of SBP (supra). The question that follows from the above discussion is as to whether the views recorded by the judicial forum at the threshold would be final and binding on the parties or would they constitute the prima facie view. This again has been a matter of some debate before this Court. A H

490 SUPREME COURT REPORTS [2012] 13 S.C.R.

A three Judge Bench of this Court in the case of Shin-Etsu Chemical Co. Ltd. v. Mis. Aksh Optifibre Ltd. & Anr. [(2005) 7 sec 234] was dealing with an application for reference under Section 45 of the 1996 Act and consequently, determination of validity of arbitration agreement which B contained the arbitration clause governed by the ICC Rules in Tokyo, Japan. The appellant before this Court had terminated the agreement in that case. The respondent filed a suit claiming a decree of declaration and injunction against the appellant for cancellation of the agreement which contained the arbitration c clause. In that very suit, the appellant also prayed that this long term sale and purchase agreement, which included the arbitration clause be declared void ab initio, inoperative and incapable of being performed on the ground that the said agreement contained unconscionable, unfair and unreasonable terms; was against public policy and was entered into under 0 undue influence. The appellant had also filed an application under Section 8 of the 1996 Act for reference to arbitration. Some controversy arose before the Trial Court as well as before the High Court as to whether the application was one under Section 8 or Section 45 but when the matter came up before E this Court, the counsel appearing for both the parties rightly took the stand that only Section 45 was applicable and Section 8 had no application. In this case, the Court was primarily concerned and dwelled upon the question whether an order .. refusing reference to arbitration was appealable under Section F 50 of the 1996 Act and what would be its effect.

124Copy pinpoint124. We are not really concerned with the merits of that case but certainly are required to deal with the limited question whether the findings recorded by the referring Court are of final nature, or are merely prima facie and thus, capable of being re-adjudicated by the arbitral tribunal. Where the Court records a finding that the agreement containing the arbitration clause or the arbitration clause itself is null and void, inoperative or incapable of being performed on merits of the case, it would decline the reference. Then the channel of legal remedy available to the party against whom the reference has been

CHLORO CONTROLS (I) P. LTD. v. SEVERN TRENT 491 WATER PURIFICATION INC. [SWATANTER KUMAR, J.]

declined would be to take recourse to an appeal under Section A 50(1 )(a) of the 1996 Act. The Arbitral Tribunal in such situations does not deliver any determination on the issues in the case. However, in the event that the referring Court deals with such an issue and returns a finding that objections to reference were not tenable, thus rejecting, the plea on merits, then the issue B arises as to whether the arbitral tribunal can re-examine the question of the agreement being null and void, inoperative or incapable of performance, all over again. Sabharwal, J., after deliberating upon the approaches of different courts under the English and the American legal systems, stated that both the c approaches have their own advantages and disadvantages. The approach whereby the courts finally decide on merits in relation to the issue of existence and validity of the arbitration agreement would result to a large extent in avoiding delay and increased cost. It would not be for the parties to wait for months 0 or years before knowing the final outcome of the disputes regarding jurisdiction alone. Then, he held as follows : "56. I am of the view that the Indian Legislature has consciously adopted a conventional approach so as to save the huge expense involved in international commercial E arbitration as compared to domestic arbitration.

57. In view of the aforesaid discussion, I am of the view that under Section 45 of the Act, the determination has to be on merits, final and binding and not prima facie." F

125Copy pinpoint125. However, Srikrishna, J. took a somewhat different view and noticing the truth that there is nothing in Section 45 to suggest that a finding as to the nature of the arbitration agreement has to be ex facie or prima facie, observed that if it were to be held that the finding of the court under Section 45 should be a final, determinative conclusion, then it is obvious G that until such a pronouncement is made, the arbitral proceedings would have to be in limbo. So, he held as follows

"105. I fully agree with my learned Brother's view that the H

492 SUPREME COURT REPORTS [2012] 13 S.C.R.

A object of dispute resolution through arbitration, including international commercial arbitration, is expedition and that the object of the Act would be defeated if proceedings remain pending in the court even after commencing of the arbitration. It is precisely for this reason that I am inclined B to the view that at the pre-reference stage contemplated by SectioJl 45, the court is required to take only a prima facie view for making the reference, leaving the parties to a full trial either before the Arbitral Tribunal or before the court at the post-award stage."

126Copy pinpoint126. Dharmadhikari, J., the third member of the Bench, while agreeing with the view of Srikrishna, J. and noticing, "Where a judicial authority or the court refuses to make a reference on the grounds available under Section 45 of the Act, it is necessary for the judicial authority or the court which is seized of the matter to pass a reasoned order as the same is subject to appeal to the appellate court under Section 50(1)(a) of the Act and further appeal to this Court under sub-section (2) of the said section." expressed no view on the issue of prima facie or finality of the finding recorded on the pre-reference stage, he left the question open in the following paragraph : "112. Whether such a decision of the judicial authority or the court, of refusal to make a reference on grounds permissible under Section 45 of the Act would be subjected to further re-examination before the Arbitral F Tribunal or the court in which eventually the award comes up for enforcement in accordance with Section 48(1 )(a) of the Act, is a legal question of sufficient complexity and in my considered opinion since that question does not directly arise on the facts of the present case, it should be G left open for consideration in an appropriate case where such a question is directly raised and decided by the court."

127Copy pinpoint127. The judgment of this Court in Shin-Etsu Chemical Co. Ltd. (supra) preceded the judgment of this Court in the case H

CHLORO CONTROLS (I) P. LTD. v. SEVERN TRENT 493 WATER PURIFICATION INC. [SWATANTER KUMAR, J.]

of SBP & Co. (supra). Though the Constitution Bench in the A latter case referred to this judgment in paragraph 89 of the judgment but did not discuss the merits or otherwise of the case presumably for absence of any conflict. However, as already noticed, the Court clearly took the view that the findings returned by the Chief Justice while exercising his judicial powers under B Section 11 relatable to Section 8 are final and not open to be questioned by the arbitral tribunal. Sections 8 and 45 of the 1996 Act are provisions independent of each other. But for the purposes of reference to arbitration, in bo.th cases, the applicant has to pray for a reference before the Chief Justice c or his designate in terms of Section 11 of the 1996 Act. We may refer to the exact terminology used by the larger Bench in SBP & Co. (supra) in relation to the finality of such matters, as reflected in para 12 of the judgment which reads as under: "12. Section 16 of the Act only makes explicit what is even otherwise implicit, namely, that the Arbitral Tribunal constituted under the Act has the jurisdiction to rule on its own jurisdiction, including ruling on objections with respect to the existence or validity of the arbitration agreement. Sub-section (1) also directs that an arbitration clause which forms part of a contract shall be treated as an agreement independent of the other terms of the contract. It also clarifies that a decision by the Arbitral Tribunal that the contract is null and void shall not entail ipso jure the invalidity of the arbitration clause. Sub-section (2) of F Section 16 enjoins that a party wanting to raise a plea that the Arbitral Tribunal does not have jurisdiction, has to raise that objection not later than the submission of the statement of defence, and that the party shall not be precluded from raising the plea of jurisdiction merely because he has appointed or participated in the appointment of an arbitrator. Sub-section (3) lays down that a plea that the Arbitral Tribunal is exceeding the scope of its authority, shall be raised as soon as the matter alleged to be beyond the scope of its authority is raised during the arbitral proceedings. When the Tribunal decides these two

494 SUPREME COURT REPORTS [2012] 13 S.C.R.

A questions, namely, the question of jurisdiction and the question of exceeding the scope of authority or either of them, the same is open to immediate challenge in an appeal, when the objection is upheld and only in an appeal against the final award, when the objection is overruled. B Sub-section (5) enjoins that if the Arbitral Tribunal overrules the objections under sub-section (2) or (3), it should continue with the arbitral proceedings and make an arbitral award. Sub-section (6) provides that a party aggrieved by such an arbitral award overruling the plea on lack of c jurisdiction and the exceeding of the scope of authority, may make an application on these grounds for setting aside the award in accordance with Section 34 of the Act. The question, in the context of sub-section (7) of Section 11 is, what is the scope of the right conferred on the D Arbitral Tribunal to rule upon its own jurisdiction and the existence of the arbitration clause, envisaged by Section 16(1 ), once the Chief Justice or the person designated by him had appointed an arbitrator after satisfying himself that the conditions for the exercise of power to appoint an arbitrator are present in the case. Prima facie, it would be difficult to say that in spite of the finality conferred by sub- section (7) of Section 11 of the Act, to such a decision of the Chief Justice, the Arbitral Tribunal can still go behind that decision and rule on its own jurisdiction or on the existence of an arbitration clause. It also appears to us to be incongruous to say that after the Chief Justice had appointed an Arbitral Tribunal. the Arbitral Tribunal can turn round and say that the Chief Justice had no jurisdiction or authority to appoint the Tribunal. the very creature brought into existence by the exercise of power by its creator. the G Chief Justice. The argument of the learned Senior Counsel. Mr K.K. Venugopal that Section 16 has full play only when an Arbitral Tribunal is constituted without intervention under Section 11 (6) of the Act. is one way of reconciling that provision with Section 11 of the Act. H especially in the context of sub-section (7) thereof. We are

CHLORO CONTROLS (I) P. LTD. v. SEVERN TRENT 495 WAIER PURIFICATION INC. [SWATANTER KUMAR, J.]

inclined to the view that the decision of the Chief Justice A on the issue of jurisdiction and the existence of a valid arbitration agreement would be binding on the parties when the matter goes to the Arbitral Tribunal and at subsequent stages of the proceeding except in an appeal in the Supreme Court in the case of the decision being by the Chief Justice of the High Court or by a Judge of the High Court designated by him." (Emphasis supplied)

128Copy pinpoint128. We are conscious of the fact that the above dictum of the Court is in relation to the scope and application of Section 11 of the 1996 Act. It has been held in various judgments of this Court but more particularly in the case of SBP (supra) which is binding on us that before making a reference, the Court has to dispose of the objections as contemplated 0 under Section 8 or Section 45, as the case may be, and wherever needed upon filing of affidavits. Thus, to an extent, the law laid down by this Court on Section 11 shall be attracted to an international arbitration which takes place in India as well as domestic arbitration. This, of course, would be applicable at pre-award stage. Thus, there exists a direct legal link, limited to that extent.

129Copy pinpoint129. We are not oblivious of the principle 'Kompetenz kompetenz'. It requires the arbitral tribunal to rule on its own jurisdiction and at the first instance. One school of thought propagates that it has duly the positive effect as it enables the arbitrator to rule on its own jurisdiction as it widely recognized international arbitration. However, the negative effect is equally important, that the Courts are deprived of their jurisdiction. The arbitrators are to be not the sole judge but first judge, of their jurisdiction. In other words, it is to allow them to come to a decision on their own jurisdiction prior to any court or other judicial authority and thereby limit the jurisdiction of the national courts to review the award. The kompetenz kompetenz rule, thus, concerned not only is the positive but also the negative effect of the arbitration agreement. (refer Fouchard Gaillard H

496 SUPREME COURT REPORTS [2012] 13 S.C.R.

A Goldman on International Commercial Arbitration]

130Copy pinpoint130. This policy has found a favourable mention with reference to the New York Convention in some of the countries. This is one aspect. The more important aspect as far as Chapter I of Part II of the 1996 Act is concerned, is the absence 8 of any provision like Section 16 appearing in Part I of the same Act. Section 16 contemplates that the arbitrator may determine its own jurisdiction. Absence of such a provision in Part II, Chapter I is suggestive of the requirement for the Court to determine the ingredients of Section 45, at the threshold itself. C It is expected of the Court to answer the question of validity of the arbitration agreement, if a plea is raised that the agreement containing the arbitration clause or the arbitration clause itself is null and void, inoperative or incapable of being performed. Such determination by the Court in accordance with law would certainly attain finality and would not be open to question by the arbitral tribunal, even as per the principle of prudence. It will prevent multiplicity to litigation and re-agitating of same issues over and over again. The underlining principle of finality in Section 11 (7) would be applicable with equal force while dealing with the interpretation of Sections 8 and 45. Further, it. may be noted that even the judgment of this Court in SBP & Co. (supra) takes a view in favour of finality of determination by the Court despite the language of Section 16 in Part I of the 1996 Act. Thus, there could hardly be any possibility for the F Court to take any other view in relation to an application under Section 45 of the 1996 Act. Since, the categorization referred to by this Court in the case of National Insurance Company Ltd. (supra) is founded on the decision by the larger Bench of the Court in the case of SBP & Co. (supra), we see no reason to express any different view. The categorization falling under para 22.1 of the National Insurance Company case (supra) would certainly be answered by the Court before it makes a reference while under para 22.2 of that case, the Court may exercise its discretion and decide the dispute itself or refer the dispute to the arbitral tribunal. Still, under the cases falling under

CHLORO CONTROLS (I) P. LTD. v. SEVERN TRENT 497 WATER PURIFICATION INC. [SWATANTER KUMAR, J.]

para 22.3, the Court is expected to leave the determination of such dispute upon the arbitral tribunal itself. But wherever the Court decides in terms of categories mentioned in paras 22.1 and 22.2, the decision of the Court is unreviewable by the arbitral tribunal. 8

131Copy pinpoint131. Another very significant aspect of adjudicating the matters initiated with reference to Section 45 of the 1996 Act, at the threshold of judicial proceedings, is that the finality of the decision in regard to the fundamental iss:.ies stated under Section 45 would further the cause of justice and interest of the parties as well. To illustratively demonstrate it, we may give an example. Where party 'A' is seeking reference to arbitration and party 'B' raises objections going to the very root of the matter that the arbitration agreement is null and void, inoperative and incapable of being performed, such objections, if left open and not decided finally at the threshold itself may result in not only parties being compelled to pursue arbitration proceedings by spending time, money and efforts but even the arbitral tribunal would have to spend valuable time in adjudicating the complex issues relating to the dispute between the parties, that may finally prove to be in vain and futile. Such adjudication by the arbitral tribunal may be rendered ineffective or even a nullity in the event the courts upon filing of an award and at execution stage held that agreement between the parties was null and void inoperative and incapable of being performed. The Court may also hold that the arbitral tribunal had no jurisdiction to entertain and decide the issues between the parties. The issue of jurisdiction normally is a mixed question of law and facts. Occasionally, it may also be a question of law alone. It will be appropriate to decide such questions at the beginning of the proceedings itself and they should have finality. Even when the arbitration law in India contained the provision like Section 34 of the 1940 Act which was somewhat similar to Section 4 of the English Arbitration Act, 1889, this Court in the case of Anderson Wright Ltd. (supra) took the view that while dealing with the question of grant or refusal of stay as contemplated H

498 SUPREME COURT REPORTS [2012) 13 S.C.R.

A under Section 34 of the 1940 Act, it would be incumbent upon the Court to decide first of all whether there is a binding agreement for arbitration between the parties to the suit or not. Applying the analogy thereof will fortify the view that determination of fundamental issues as contemplated under B Section 45 of the 1996 Act at the very first instance by the judicial forum is not only appropriate but is also the legislative intent. Even, the language of Section 45 of the 1996 Act suggests that unless the Court finds that an agreement is null and void, inoperative and incapable of being performed, it shall c refer the parties to arbitration. Correctness of Law stated in Sukanya

132Copy pinpoint132. Though rival contentions have been raised before us on the correctness of the judgment of this Court in Sukanya Holdings Pvt. Ltd. (supra), Mr. Salve vehemently tried to D persuade us to hold that this judgment does not state the correct exposition of law and to that effect it needs to be clarified by this Court in the present case. On the contrary, Mr. Nariman argued that this judgment states the correct law and, in fact, the principles stated should be applied to the present case. E

133Copy pinpoint133. The ambit and scope of Section 45 of the 1996 Act, we shall be discussing shortly but at this stage itself, we would make it clear that it is not necessary for us to examine the correctness or otherwise of the judgment in the case of F Sukanya (supra). This we say for varied reasons. Firstly, Sukanya was a judgment of this Court in a case arising under Section 8 Part I of the 1996 Act while the present case relates to Section 45 Part II of the Act. As such that case may have no application to the present case. Secondly, in that case the Court was concerned with the disputes of a partnership concern. A G suit had been filed for dissolution of partnership firm and accounts also challenging the conveyance deed executed by the partnership firm in favour of one of the parties to the suit. The Court noticing the facts of the case emphasized that where the subject matter of the suit includes subject matter for H arbitration agreement as well as other disputes, the Court did

CHLORO CONTROLS (I) P. LTD. v. SEVERN TRENT 499 WATER PURIFICATION INC. [SWATANTER KUMAR, J.]

not refer the matter to arbitration in terms of Section 8 of the A Act. In the case in hand, there is a mother agreement and there are other ancillary agreements to the mother agreement. It is a case of composite transaction between the same parties or the parties claiming through or under them falling under Section 45 of the Act. Thus, the dictum stated in para 13 of the judgment B of Sukanya would not apply to the present case. Thirdly, on facts, the judgment in Sukanya's case, has no application to the case in hand.

134Copy pinpoint134. Thus, we decline to examine the merit or otherwise of this contention. C On Merits