Arbitration Tribunal has Jurisdiction in Contact Dispute

The Delhi High Court on 18 Feb 2013 in M/S Sai Consulting Engineers Pvt. vs Rail Vikas Nigam Ltd & Ors held that Arbitrators shall decide whether the dispute can be arbitral or not i.e. whether the dispute can be decided by the Arbitral Tribunal or whether Arbitral Tribunal has the jurisdiction in a dispute.

Section 16 of the Arbitration and Conciliation Act, 1996 confers power on the Arbitrator to decide whether he has the jurisdiction to decide a matter. Judge Manmohan Singh was hearing the case where the Respondent Company controlled by the government had by order dated 1st October 2012 imposed ban of 5 years (Blacklisting) on the Petitioner Company. The Petitioner and the Respondents had entered in to agreement where under the Petitioner were to supervise construction of roadbeds, etc in Chhattisgarh.

The respondent Company had issued a show-cause notice to the petitioner to impose a ban citing irregularities on the basis of the report. The Petitioner had responded to show- cause notice by reply and appeared for a hearing. The respondents thereafter passed order on 1st Oct 2012 banning the appellants for 5 years for business. The petitioner thereafter sought stay on this order of ban and averred in the petition they had appointed an arbitrator in view of the arbitrable dispute and the respondent have bypassed the said procedure for resolution of dispute and illegally passed the order.

The Petitioner contended that blacklisting of its company was on the ground of the alleged breach of contract and hence any dispute in regard to performance of the contract should be decided in accordance to the mechanism provided under the contract for dispute –resolution i.e. breach should be decided in arbitration by arbitrator.

The Court observed that the blacklisting of the appellants was passed on second show cause notice by referring to the various clauses of the agreement and hence the submission of the respondents that the question of Blacklisting cannot be subject matter of Arbitral Dispute as it is meant for future contracts cannot be accepted.

The Court also decided the issue of "double jeopardy" that was alleged by the Petitioner in the matter. Judge Manmohan Singh rejected the contention of the petitioner that double jeopardy was caused as both show-cause notices had common allegations. The court observed there were some common allegations that were present in both the notices and the petitioner had suffered a ban on the account of it but the respondent received additional evidence and the final report (on irregularities) later on and the second show-cause notice was issued on the basis of this said evidence and hence the contention of double jeopardy cannot be accepted.

The court also decided on the issue of territorial jurisdiction of the court. The respondents alleged that this Court did not have the jurisdiction to entertain the present petition as the work was carried out in Chhattisgarh. The Court relying on the ratio held in Bharat Aluminium Co v. Kaiser Aluminium Technical services held that the courts where the seat of arbitration is situated shall have supervisory jurisdiction and this shall be irrespective of the fact that contract has to be performed somewhere else.

The Court observed that Show-cause notice were issued from Delhi, all correspondences were issued from Delhi and even Arbitration proceedings are conducted at Delhi indicating that Delhi as the seat of arbitration and thereby conferring jurisdiction of courts of Delhi to entertain present petition.

The Court in the proceedings also ruled that Petitioner was not found guilty of some irregularity and hence was exonerated of the said charge and thereby upon considering the facts and circumstance of the case reduced the ban imposed on the Petitioner from 5 years to 2 years. The Court also granted liberty to both the parties to move an application for interim relief under Section 17 of the Arbitration Act as per the law.