SEPA RA BILITY AND COMPETENCE - COMPETENCE

DOCTRINE IN THE ARBITRAL PRO CESS.

The Development of Law on the Arbitration Tribunal’s control

on its own jurisdiction: The Law of Arbitration both nationally
and Internationally, to a large extent hinges on the principle of
respect and enforcement of commercial man’s wisdom to find his
own remedy to suit his needs. The Arbitration Process is one
such remedy which is dependent on the existence of an
arbitration agreement. In the process of development of the
Arbitral process, Courts started treating the arbitration clause in a
contract as a separate contract with an independent existence
and enjoying the same status as the contract itself. Thus the
arbitration clause assumed its own independent existence in view
of legal development. This approach enables an Arbitral Tribunal
to rule on its own jurisdiction, including on the validity of the
arbitral clause. This is described as the concept of “Party
Autonomy”, of which severability and competence-competence
are the two principles in domestic and International Commercial
Arbitration. The Arbitral process provides an efficacious
alternative dispute resolution mechanism to courts and Tribunals.
Seperability and competence-competence has evolved with
active support from Courts and legal scholars and has been
adopted to meet local national aspirations''^^ These principles
are now recognized in Clause 16 of the Model Law.

United Nation Convention popularly known as Model Law has been

treated by different Nations as a Legislative Guide to frame their local
 Since the dawn of time, it seems, dispute resolution has
been progressing lii<e a conveyor belt. This is to say that, time
and again, new and faster forms of dispute resolution are put on
the market of justice - more specially on the more flexible market
of private justice - and subsequently, apparently for inevitable
reasons, become more formalized and slower. This formalization
is due, among other factors to the quantitative increase in the use
of a given new form of dispute resolution and its correlative
standardization, and more importantly to the constant fight of the
parties for more protection during the proceedings, i.e., more
procedural guarantees. As such procedures become slower, they
cease to meet the need for expediency of dispute resolution, and
new, accelerated forms replace them’^°

The question then arises, can a clause/provision of

arbitration contained in the main underlying contract be separable
from such a contract and if the underlying contract itself is
challenged that it is void, when can this challenge be made.
Does the arbitral clause perish with it and if so, who then has
jurisdiction to decide the question. The underlying Contract could
be challenged for a variety of reasons which can be that the
Contract was void or induced by fraud or the Contract has come
to an end by its very nature or there is rescission of the Contract.

arbitration laws. The wide acceptance of this Model Law by more than
135 countries and its verbatim installation in the National statute book
enforces the uniformity belief.

Thomas Schultz: Human Rights; A Speed Bump for Arbitral

Procedures? An Exploration of Safeguards in the Acceleration of
Justice, Stockholm International Arbitration Review Vol.l
 Logic and reasoning would dictate that a “derivative” from
the “original” cannot have an independent lease of life. The
logical assumption to the above proposition is based on the
premise that arbitrators alone should adjudicate on the existence
and the validity of the arbitration agreement as otherwise why
should commercial men agree for resolution of dispute by
Arbitration. It however, would be an over simplification of the
question as to whether the arbitrator or the court must test the
validity and existence of the arbitration agreement. There could
be myriad and complex situations depending at what stage the
dispute is. The dispute at the first instance may be before the
court or before the tribunal. If the court is seized of a dispute, the
question will be whether arbitration can be initiated. If not initiated
or if the arbitration is already proceeding does the court refuse to
direct parties to arbitration. Which forum can exercise that
jurisdiction, will have to be tested on the anvil of the National
Municipal Law and the judicial interpretation of the statutory
provisions. If the arbitration clause is assumed to have an
independent and separate existence from the underlying main
contract, a party resisting arbitration may still raise legal issues as
to the very existence of the arbitration agreement. Such a legal
challenge could possibly open up a Pandora’s box with a broader
question as to whether the arbitrator can decide such a question
or does the court decide such a question.

The doctrines of Separability and competence -

competence, have attempted to resolve these legal strains by
conferring on the arbitral tribunal the power to rule on its own
jurisdiction by treating the Arbitral Clause as independent of the
Underlying Contract. This power can be exercised by the tribunal
without seeking any judicial assistance. It follows, that even if
there is a legal challenge to the underlying contract then the
court’s intervention must be restrained in order to facilitate the
smooth and expeditious conduct of the arbitration proceedings.
The need for the competence - competence is because, (a) the
arbitral allows the Arbitral Tribunal to consider and decide
objections to its own jurisdiction, expeditiously and (b) parties
agreement to arbitrate disputes about arbitrator’s jurisdiction
should be recognized and endorsed like any other agreement.

The proposition that the arbitration clause is independent

and separate from the underlying contract may lead to an
implication, that the consequences flowing from the arbitration
clause and challenge to the existence of the arbitration clause
may be subjected to the scrutiny and testing under a legal regime,
completely different from the law governing the underlying
contract. A commercial man may explicitly provide that the law
governing the underlying contract will also govern the arbitral
clause in the contract or may explicitly provide a law different from
the law governing the underlying contract in its application to the
arbitral clause In the contract.

International commercial arbitration and party autonomy got

legislative recognition in the UNCITRAL Model Law on arbitration.
The model law imposed a restriction on court intervention by
permitting it to intervene only if provided by law‘^\ The Indian
Arbitration Act, 1940, had its fair share of problems in its
implementation. It is not within the scope of this study, to dwell
into the nitty-gritty’s of the problem. Suffice it to say the lament of

Article 5 of the UNICITRAL Model law provides for court intervention

in the following words “In matters governed by this Law, no court shall
intervene except where so provided in this Law”.
the Hon’ble Supreme Court of India regarding the 1940 Act. puts
the problem in the correct perspective*^^ The Indian Parliament
in view of the experience of the working of the 1940 Act and the
commercial development around the globe stepped in to correct
the anomaly. The Arbitration and Conciliation Act, 1996 adopted
the underlying philosophy of the UNCITRAL Model Law with
qualifying words suited to the Indian jurisprudential taste.

Part I of the 1996 Act as now interpreted by judicial

pronouncement in BALCO applies only where the Seat of the
arbitration is in India including International Commercial
arbitration, provided the Seat of arbitration is in India. Section 16
of Part I Chapter IV of the Arbitration & Conciliation Act, 1996
gave statutory birth and recognition to the doctrine of seperability
and competence-competence*^^ in India. The appointment of
arbitrators, if mutually done by the contracting parties, invariably
results in all questions in dispute, including the question about the
jurisdiction of the arbitral tribunal being decided by the Tribunal.
The debate in India arises when the parties claim that there is no
consensus ad idiem regarding the underlying contract and

In Guru Nanak Foundation v Rattan Singh AIR 1981 SC 2075 at

pages 2076-77 the Supreme Court has observed that “the way that the
proceedings under the [1940] Act are conducted and without exception
challenged in the courts, has made lawyers laugh and legal
philosophers weep in view of the unending prolixity, at every stage
providing a legal trap to the unwary.”

Section 16 of the Arbitration & Conciliation Act, 1996 provides that

“(1) The arbitral Tribunal may rule on its own jurisdiction, including
ruling on any objections with respect to the existence or validity of the
arbitration agreement, and for that purpose, - (a) an arbitration clause
which forms part of a contract shall be treated as an agreement
independent of the other terms of the contract; and (b) a decision by
the arbitral Tribunal that the contract is null and void shall not entail
ipso jure the invalidity of the arbitration clause.
consequently the arbitration agreement. Obviously, the debate
needs to be settled either by the arbitrator or the traditional
courts. Courts in India have recognized the doctrine of
competence - competence as will be discussed. The doctrine of
seperability, which has a direct connection, has in some recent
judgments been referred too.

The separability and competence - competence doctrines

are often described as corollaries to each other. They serve to
maximize the effectiveness of arbitration as an efficient means of
resolving disputes. While the Separability Doctrine provides for
the autonomy of the arbitration clause the ‘competence de la
competence’ doctrine provides that the Arbitrator has the
competence to judge his own jurisdiction. The seperability
doctrine created a need for the Arbitrator to have jurisdiction to
determine the validity of the main contract as well as the
arbitration agreement.

The twin doctrines of “separability” and “competence-

competence” are distinct, but related. These principles arise from
the autonomous nature of the arbitration agreement.
“Separability” provides that certain defects in the underlying
agreement do not affect the arbitration agreement within it, unless
those defects relate specifically to the arbitration agreement.
“Competence-competence” provides an arbitral tribunal with the
power to rule on its own jurisdiction, thus avoiding any need to
wait for a court determination of the issue and allowing the
tribunal to move expeditiously to decide the merits of the dispute.
These two principles embody the concept of ‘Part Autonomy’
 The “Competence'^'^-Competence analysis should not be
confused with the principle of ‘Separability’ by which the validity of
an arbitration clause is determined independently from the validity
of the basic commercial contract in which it is encapsulated......
says nothing about the validity of the arbitration clause itself. The
fact that an arbitration clause might be valid notwithstanding
infirmities in other contract terms does not mean that the clause
necessarily will be valid, or that an arbitrator’s erroneous decision
on the clause’s validity will escape judicial scrutiny and
competence-competence intersect only in the sense that
arbitrators who rule on their own jurisdiction (like courts deciding
whether to allow an arbitration to go forward) will look to the
arbitration clause alone, not to the entirety of the contract.

In that context Justice Lightman observes that; “An aspect

of this principle is the doctrine of “Kampentenz - Kompentenz”
namely that the Arbitral Tribunal may rule as to its own jurisdiction
and in particular as to the existence of the arbitration
agreement*^^

The principle of Competence - Competence is now

universally recognized. This principle of who decides in India, in
respect of Domestic Arbitration and International Commercial
Arbitration where the Seat is India, depends on the procedure
followed as to how the Arbitral Tribunal is constituted.

Allocation of Tasks Between Courts and Arbitrators, 8 Am Rev. Int’l

Arb. 133, 142-43 (1997);
155 [SEPARABILITY AND COMPETENCE-COMPETENCE IN
INTERNATIONAL ARBITRATION; EX NIHILO NIHIM FIT? OR CAN
SOMETHING INDEED COME FROM NOTHING? - ROBERY H.
SMIT - SIMPSON THATCHER & BARILETT LLP].
Nigel Peter Albm vs. Naza Motor Trading SDN BHD (2007) 2
Lloyd’s Rep. 1.
The Law Under The Indian Arbitration Act, 1940 on the
Arbitrals Tribunal’s power to rule on its own jurisdiction:-
The position in India before the enactment of the Act of 1996,
considering the Act of 1940, was greater control by the Court over
the Arbitral proceedings. Access to an Arbitral Tribunal was only
through Court Intervention^^^ The jurisdiction of the Civil Court to
proceed with the Suit inspite of the arbitral clause was never
doubted. In Waverly Jute Mills Co. Ltd. v. Raymon & Co'^*. ,
the Apex Court held that if the Contract is illegal and void, the
arbitration clause must perish and it is for the Court to decide the
validity of the Contract. In Ramji Dayawada and Son (P) Ltd. v.
Invest lmport'^^ the Apex Court observed in the matter of stay of
Suit as under:

“When parties by Contract agree to arrange for settlement

of their disputes by a Judge of their choice, by procedure of
arbitration voluntarily agreed upon, ordinarily the Court must hold
the parties to their bargain. As a corollary, if a party to a
subsisting arbitration agreement in breach or violation of the
agreement to refer dispute to arbitration approaches the Court,
the Court would not lend its assistance to such a party and by
staying the Suit compel the party in breach to abide by its
contract. When the parties have agreed to an arbitration by a
foreign Arbitral Tribunal, the case for stay would be stronger than
If there was a domestic arbitration agreement. This proceeds on
the assumption that parties not only sought and agreed upon the

[See Section 8, 20, 23, 34, of the Indian Arbitration Act, 1940

^^®[AIR 1963 S.C. 90]

^®®[AIR 1963 S.C. 90]
forum for resolution of dispute, but also the law according to
whicii the dispute would be resolved. However, this is not an
absolute rule. Granting or refusing to grant stay, is still a matter
within the discretion of the Court. How discretion would be
exercised in a given case would depend upon various
circumstances.”

Under the Act of 1940, the Civil Court was conferred power
to exercise its discretion to stay proceedings^^”. Inspite of the
arbitral clause the Court on an application made to it for staying
the suit before filing of the Written Statement or taking other steps
in the proceedings could exercise its jurisdiction and still proceed
with the Suit. Once the Arbitral Tribunal made an Award, the
Award had to be filed before the Court of competent jurisdiction
which would then after hearing the objection filed, make the
Award a decree of the Court which decree was then executable.
Thus in the matter of Reference and making the Award
enforceable, it was the Civil Court that retained jurisdiction. This is
not Court assistance, but Courts Control on the Arbitral Process.
In cases where there were issues of fraud or question of law, the
Court in the exercise of its jurisdiction could refuse to stay the
proceedings.

The issue of jurisdiction of the Civil Court under the

Arbitration Act of 1940 to entertain the Suit under Section 9 of the
C.P.C. in a case where the agreement contained an arbitral
clause was considered by the Apex Court, in Yadav
Engineers'^*. The Supreme Court held that under the Act of

Section 34 of the Act of 1940

Food Corporation of India v. Yadav Engineers A.l.R. 1982 SC 1302

1940 there is no express provision, barring the jurisdiction of the
Civil Court to entertain the Suit, where the cause of action arises
from an agreement containing an arbitral clause. The jurisdiction
of the Civil Court is also not impliedly barred, because rights to be
adjudicated are not rights created by the Act. On the contrary,
they are contractual rights or other rights at common law or
statutory rights. There is thus no implied ouster of jurisdiction of
the Civil Court. It was only in the event a party in the case of
domestic arbitration invoked the provisions of Section 34 of the
Act of 1940, could the Court direct the stay of the Suit while
exercising its discretion.

The dispute if it be of a civil nature the forum for resolution

is before one of the Courts set up for the purpose under State
Legislation. Civil Courts have been set up under State Authority
for redressal of grievances, to entertain disputes which must be of
civil nature and the cognizance of which should not be expressly
or impliedly barred. Ordinarily, therefore, whenever a dispute of a
civil nature arises, the party claiming relief can approach the
Court having jurisdiction to resolve the dispute. The party against
whom relief is sought has to be informed (summoned) of the
cognizance of the dispute being taken by the Court. Such a party
then must come forth and either admit the claim in whole or in
part, or defend the action. This is the prescribed mode of access
to justice. The Arbitration Act carves out an exception to this
general rule, that the forum for resolution of civil disputes is the
Civil Court having jurisdiction to deal with the same by providing
that the parties to a dispute by agreement between themselves,
may choose a forum of their choice for settlement of disputes
between them in preference to the State Courts’^. Ordinarily
such a contract would be void by virtue of Section 28(1) of the
Indian Contract Act, but is saved by the exceptions to that
Section.

If the parties enter into an arbitral agreement implying that

they would like the disputes covered by the agreement to be
resolved by a forum of their choice, the approach of the Court
must be to hold the parties to the Contract to their bargain. If in
breach or derogation of a solemn contract a party to an arbitration
agreement approaches the Court and if the other side involves the
Court’s jurisdiction to stay the proceedings, then by a negative
process the Court forces the parties to abide by the bargain. The
Court’s approach ordinarily has been to enforce agreements
rather than to find loopholes therein. Section 34 of the Act of 1940
clearly indicates that the parties to the contract may waive their
right of proceeding before the chosen forum. A defendant may
choose not to invoke the arbitral clause and instead choose to
have the decision of the Civil Court. In such case, it would be
presumed that both the parties do not wish to proceed with the
arbitration clause by their conduct, inasmuch as plaintiff has
moved the Court in breach of the arbitration clause and the
defendant by not invoking the arbitral clause, for the stay of the
Suit or other directions to the judicial authority to direct the parties
to arbitration, has waived its right to proceed before the arbitral
forum. Thus because of the existence of arbitral clause, there is
no ouster of jurisdiction of the Civil Court and the Civil Court

Such a claim is saved under exception 1 and II of section 28 of the

Indian Contract Act.
retains jurisdiction to liear and decide the dispute which are within
its competence.

Under the Act of 1940, the finding of the Arbitrator/

Arbitrators on arbitrability of the claim was not conclusive, as
ultimately the Court under Section 33 had to decide the issue. In
respect of Jurisdictional issue an Arbitrator cannot cloth himself
with jurisdiction to conclusively decide the issue. The settled law
is, that the existence of validity of an arbitration agreement can be
decided by the Court alone. An Arbitrator had no power or
jurisdiction to decide or adjudicate conclusively by himself. To
that extent the following observations of the Supreme Court have
to be understood.

“..... This Court held that it can hardly be within the

arbitrator’s jurisdiction to decide whether or not a condition
precedent to his jurisdiction has been fulfilled. The arbitrator had
no power to decide his own jurisdiction. The arbitrator is always
entitled to inquire whether or not he has jurisdiction to decide the
dispute'^^”.

The Supreme Court in Choube Jagdish Prasad &

another*®'^ was considering the nature of the power conferred on
a Tribunal and quoted the observations of Lord Esher, as
under;

Union of India vz. G.S. Atwal & Co. (ASANSOLE) (1996) 3 SC 492]
^®lChouble Jagdish Prasad & Another vz. Ganga Prasa Chaturvedi
AIR 1959 SC492]
^®®[Queen vz. Commissioner of Income Tax (1988) 21 QB 313]
 “These observations which relate to inferior courts or
tribunals with limited jurisdiction show that there are two
classes of cases dealing with the power of such a tribunal
(1) where the legislature entrusts a tribunal with the
jurisdiction including the jurisdiction to determine whether
the preliminary state of facts on which the exercise of its
jurisdiction depends exists and (2) where the legislature
confers jurisdiction on such tribunals to proceed in a case
where a certain state of facts exists or in shown to exist.
The difference is that in the former case the tribunal has
power to determine the facts giving it jurisdiction and in the
latter case it has only to see that a certain state of facts
exists”.

The Act of 1940 did not recognize either the doctrine of

separability ,of the Arbitral Clause or the Doctrine of Competence-
Competence. The entire Arbitral Process was dependent on the
Court from the stage of referring the dispute in issue, making the
award a rule of the Court and ultimately executing It as a decree
of the Court.

Development of Separability/Severability treating the Arbitral

Clause as Independent of the Underlying or Principal
Contract.:- The evolution of the doctrine of separability was
recognized once nations accepted court rulings and started to
enact Laws that acknowledged the doctrine of autonomy. This
was a recognition by Parliament....businessman frequently do
want the question of whether the contract was valid, or come into
existence or has become ineffective, submitted to arbitration and
that the law should not place conceptual obstacles In their way’'“ .
It has developed in England in a long line of landmark decisions.
In HeymanA Another v Darwins the House of Lords
dismissed the theory that an arbitration clause is terminated by
breach of the contract of which it was part and held thus:
“..... what is commonly called repudiation or a total breach
of contract ... does not abrogate the contract though all
further performance of the obligations undertaken by each
party in favour of the other party may cease. It (i.e. the
contract) survives for the purpose of measuring claims
arising out of the breach, and the arbitration clause
survives for determining the mode of their settlement. The
purposes of (this) contract have failed, but the arbitration
clause is not one of the purposes of the contract”.

In Harbour Assurance Co ft was held that the

arbitration clause applied to a dispute even in cases where the
agreement in which it was embedded was void for initial illegality.
It was observed there at the first instance by Steyn J., in a
passage approved by the Court of Appeal, as follows: “Once
became accepted that the arbitration clause is a separate
agreement ancillary to the Contract the logical impediment to
referring an issue of invalidity of the Contract to arbitration
disappears. Provided that the arbitration clause itself is not
directly impeached (e.g. by a non est factum plea), the arbitration

Premium Nafta Products Ltd & Others v. Fill Shipping Company Ltd
& Others [2— 7] UKHL 40
1942 A.C. 357

168
[1992] 1 Lloyd’s Rep. 81, 92
agreement is as a matter of principled legal theory capable of
surviving the invalidity of the Contract”.

Such global recognition in different national jurisdictions led

to the UNCITRAL Model Law in 1985. There was a doubt then in
English Law as to what happens if the arbitral clause itself was
impeached.

In ‘Premium Nafta Products Limited & othe^s‘^^ Lord

Hoffman observes “There was for sometime a view that
Arbitrators could never have jurisdiction to decide whether a
contract is valid. If the Contract is invalid, so was the arbitration
clause. In Overseas Union Insurance Ltd. v. A.A. iVlutuai
Internationai insurance Co. Ltd., [1988] 2 Lloyd’s Rep. 63, 66
Evans J., said that this rule “owes much to logic as it does to
authority”. But the logic of the proposition was denied by the
Court of Appeal in [Harbour Assurance Co. (UK) v. Kansa
General International Insurance Co. Ltd. (1993) QB 70] and
the question was put beyond doubt by Section 7 of the Arbitration
Act of 1996”.

If the Tribunal is to decide its own jurisdiction, it must

assume that jurisdiction. This is what precisely the doctrine of
separability allows it to do. The separability doctrine thus enables
the Arbitrator to exercise jurisdiction, to determine the validity of
the main Contract as well as the arbitration agreement. If the
Arbitral Tribunal decides that a clause is not a valid agreement to
arbitrate, then the basis for its authority disappears. In reality, if

Premium Nafta Products Ltd & Others v. Fili Shipping Company Ltd
& Others [2— 7] UKHL 40
the clause is not an enforceable agreement to arbitrate tiiat
authority was never there. The principle no doubt is a legal fiction
essential to the efficient working of the arbitral process.

The concept of separability would mean that the validity of

the arbitration clause is not dependent on the validity of the
Underlying agreement. The separability doctrine provides for the
autonomy of the arbitral clause. In the course of understanding
the development of the Separability Doctrine, the relationship
between an arbitration clause and the other terms of a contract in
which it is contained needs to be examined. Various labels have
been placed on this relationship. Separability and severability are
words which are commonly used. The French prefer to speak of
the ‘Autonomie de la clause compromissoire’. The German’s
Kompetnz-Kompetnz. An arbitration agreement can be viewed as
a special type of clause/agreement which provides as to how,
some or all disputes under a contract in which it is contained are
to be resolved. What is the effect on such a clause when the main
contract has either been performed or brought to an end by
breach of contract or challenged as being void or voidable. The
law as now settled is, that an arbitral clause survives the main
contract under the principle/doctrine of separability or severability
which in India is recognized in Section 16(1)(a)'^° separability of
the arbitral clause enables the Tribunal to rule on its own
jurisdiction.

Section 16(1)(a) reads'this: ‘an arbitration clause which forms part

of a contract shalla be treated as an agreement independent of other
terms of the contract; and’ ,
 The principle is also based on the presumption that the
parties have agreed to one round of dispute resolution and that is,
arbitration and not several. This is so because the arbitration
clause is treated as a separate and independent agreement
which generally survives the termination of the underlying
contract''^'. Under the doctrine, the arbitration clause constitutes a
self-contained contract collateral or ancillary to the underlying or
main contracts'll This doctrine has now been statutorily
recognized. Article 16(1) of the Model Law expressly provides
that an arbitration clause which forms part of a contract shall be
treated as an agreement independent of the other terms of the
contract. This principle is fundamental to arbitral proceedings
othenwise the whole purpose of resorting to the arbitration will be
defeated if the contrary were the case.

Doctrine of Separability has been justified on four

theoretical grounds; that it confirms to the parties intentions; that it
furthers the integrity of arbitral process; that there is legal
presumption of the existence of two agreements and that usually
.173
review is only the arbitral agreement, not the merits of dispute'

The four theoretical basis for the doctrine of separability as

articulated by Schwebel are (i) that parties entering into an arbitral
agreement generally intend that any dispute arising out of or
relating to an arbitration agreement to be settled by arbitration.
They generally do not intend to exclude disputes concerning the

Heyman&ors V Danwin Ltd, (House of Lords, 1942) A.C.357

Bermer VulkanSchiffbau and Maschinenfabrik v. South India
Shipping Corporation Ltd (1981) I Lloyds Rep 253
Janet A Rosen - [Arbitration Under Private International Law; The
Doctrine’s of Separability and Competence de la Competence -
Fordham International Law Journal, Vol. 17 Issue 3, 1993, Article 6]
validity of the container Contract. The will of the parties should be
given effect to; (II) the effect of arbitration would be compromised
if, by merely alleging the invalidity of the underlined Contract, a
party could have its contractual obligations violated. The intention
of the parties and the requirement of effective arbitration confine
to give rise to the concept of separability; (ill) the agreement
exists as a matter of legal presumption - that there are actually
two agreements contained in the Contract with an arbitration
clause and the arbitral twin survives any birth defect or acquired
disability of the principal agreement; and (iv) would be forced to
rule upon the merits of disputes contrary to the usual practice
(when national law governs an arbitration) of reviewing judicial
review of the award

There are practical and theoretical reasons behind the

rationale of Separability. From a practical point of view are the
requirements of international trade where arbitration has became
an effective method of dispute resolution and the parties need for
security. It was felt that because of the uncertainties of the
national procedural laws, that the arbitration agreement be legally
protected in order to ensure its efficiency. From a theoretical
point of view the very concept of the phrase “Arbitration
Agreement” means the existence of a separate or at any rate a
separable agreement, which can be divorced from the body of the
underlying agreement if need be.

For a long time the arbitration clause in the underlying

contract was treated as a part of the underlying contract. The

[Stephen M. Schwebel, International Arbitration: Three Salient

Problems 3-6],
legal effect was that on the contract being held to be invalid the
arbitration clause would perish with it. It is subsequent to the
judgment of the House of Lords in Heyman & another v.
Darwins Ltd that the doctrine of separability was recognized in
England.

The autonomy of arbitration Agreement or the doctrine of

separability of the arbitration clause from the contract from under
which it originates, have been widely debated in recent years.
The debate is whether the arbitration clause must follow the legal
consequences of a contract being set-aside or can it have an
independent life. On the one hand the supporters of the “lack of
autonomy” do not see reason as to why the arbitration clause
should not fall with the rest of the contract. On the other hand
the superiors of the “autonomy doctrine” hold that the arbitration
clause has its own life and, therefore, must not automatically be
affected by the possible nullity of the contract to which it belongs.
Section 16 of the Act as far as India is concerned should have
ideally put an end to that controversy. The question is, has it?

In Renusagar Power Company Ltd. vs. General

Electrical Company- Tulzapurkar, J., summed the position of law
under the 1940 Act in the following words:-
“The decided cases have made a distinction between
question as to the existence of validity of the agreement on
the one hand and its effect (scope) on the other and have
held that in case of the former those questions cannot be
decided by the Arbitrators as by sheer logic the arbitration
clause must fall along with the underlying commercial
contract which is either non-existent or illegal while in case
 of the later it will ordinarily be for the Arbitrators to decide
the effect (scope) of the arbitration agreement.

The position of the law in India under Section 16, in the

initial years of the 1996 Act following the Model Law was that the
arbitral clause survives the challenge to the underlying
agreement. However, following the interpretation in Patel
Engineering, when the Chief Justice or Designate or Judicial
Authority decide the issue of validity of the contract, the arbitral
clause must also perish. The Supreme Court of India did not
address itself to the doctrine of separability of the arbitration
clause in the context of Autonomy of the Arbitral Claims and
Section 16 of the Act, in Patel Engineering. The only discussion
is a general discussion in the context of Section 16. In para 19,
the Court held that when parties have constituted the Tribunal
then only the Arbitral Tribunal can decide the Issue of
Competence and Separability. But when Jurisdictional Issues are
decided under Section 8 and 11 before a reference is made to the
Tribunal they are final and courts be re-agitated before If the
Tribunal. A learned designated Judge of the Supreme Court in
Shin Satellite Public Co. Ltd. vs. Jain Studio Ltd*^^, did
consider the Issue of severability in the context of a clause in the
arbitration agreement but not separability of the arbitral clause.
The Agreement there contained a Clause which provided a
condition that the arbitrator’s determination is "final and binding
between the parties" and further declared that the parties have
waived the rights of appeal or objection "In any jurisdiction". This
clause was impugned being inconsistent with Section 28 of the
Contract Act as also against public policy.
 The learned designated Judge after quoting various
commentaries placed reliance on the following observation from
Chitty on Contracts:-
"(1) The general rule is that "where you cannot sever the
illegal from the legal part of a covenant, the contract is
altogether void; but, where you can sever them, whether
the illegality be created by statute or by the common law,
you may reject the bad part and retain the good."

The designate then held that “the offending part as to the

finality and restraint in approaching a Court of law which is illegal
could be separated and severed by using a 'blue pencil'". The
Court held that the “The proper test for deciding validity or
othenwise of an agreement or order is 'substantial severability'
and not 'textual divisibility'. The Court noted that “the duty of the
court to severe and separate trivial or technical part by retaining
the main or substantial part and by giving effect to the latter if it is
legal, lawful and otherwise enforceable”. The issue of severability
of the arbitral agreement was not in issue or decided.

In Worlds Sports Group Mauritius vs. M.S.M. Satellite

Singapore (Pt.) the Supreme Court was considering
separability of the arbitration clause. The Court quoted with
approval the following paragraphs in Premium Nafta Product vs.
Fill Shipping Co. Ltd., & Ors.,
“17. The principle of separability enacted in Section 7
means that the invalidity or rescission of the main contract
does not necessarily entail the invalidity or rescission of the
arbitration agreement. The Arbitration Agreement must be

176
A.I.R (2014) S.C.968
treated as a “distinct agreement” and can be void or
voidable only on tlie grounds which relate directly to the
arbitration agreement. Of course, there may be cases in
which the ground upon which the main agreement is invalid
is identical with the ground upon which the Arbitration
Agreement is invalid. For example if the main Agreement
and the Arbitration Agreement are contained in the same
document and one of the parties claims that he never
agreed to anything in the document and that his signature
was forged, that will be an attack on the validity of the
Arbitration Agreement. But the ground of attack is not that
the main Agreement was invalid. It is that the signature to
the Arbitration Agreement, as a “distinct agreement" was
forged. Similarly, if a party alleges that someone who
purports to sign as agent on his behalf had no authority
whatever to conclude any agreement on his behalf, that is
an attack on both the main agreement and the Arbitration
Agreement.”

“18. On the other hand if (as in this case) the allegation is

that the agent exceeded his authority by entering into a
main agreement in terms which were not authorized or for
improper reasons, that is not necessarily an attack on the
arbitration agreement. It would have to be shown that
whatever the terms of the main agreement or the reasons
for which the agent concluded it, he would have no
authority to enter into an arbitration agreement. Even if the
allegation is that there was no concluded agreement, for
example the terms of the main agreement remained to be
agreed (that is not necessarily an attack on the arbitration
agreement). If the arbitration clause has been agreed, the
 parties will be presumed to have intended the question of
whether there was a concluded main Agreement to be
decided by Arbitration”.

These observations which were approved, which reflect the

position in the Developed Countries, run counter to Category-1
Issues in Patel Engineering as explained in Boghara Polyfab.
These judgments are separately analysed.

In Swiss Timing Limited v. Organizing Committee,

Commonwealth Games 2010^’’, one of the issues was whether
the contract stood vitiated and is void ab initio and, therefore,
there is no basis to invoke the arbitration clause. The Court while
answering the issue observed “As a pure question of law I am
unable to accept the very broad proposition that whenever a
contract is said to be void-ab-initio, the Courts exercising
jurisdiction under Section 8 and Section 11 of the Arbitration Act,
1996 are rendered powerless to refer the disputes to arbitration”.

The Court further in answering the issues of separability

observed “....... As noticed above, the attention of this Court was
not drawn to the provision contained in Section 16 of the
Arbitration Act, 1996 in the case of N. Radhakrishnan (supra).
Section 16 provides that the Arbitral Tribunal would be competent
to rule on its own jurisdiction including ruling on any objection with
regard to existence or validity of the arbitration agreement. The
Arbitration Act emphasizes 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 further provides 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.”

The Court relied on the judgment in, Today Homes &

Infrastructure Pvt. Ltd. Vs. Ludhiana Improvement Trust &
Anr^'^l, where the Court in para. 13 has observed as under:-
“...... The issue regarding the continued existence of the
arbitration agreement, notwithstanding the main agreement
itself being declared void, was considered by the 7-Judge
Bench in SBP & Co. and it was held that an arbitration
agreement could stand independent of the main agreement
and did not necessarily become otiose, even if the main
agreement, of which it is a part, is declared void”.

Proceeding further the court observed “The same

reasoning was adopted by a member of this Bench (S.S.
Nijjar, J.) while deciding the case of Reva Electric Car
Company Private Limited Vs. Green Mobil'^^ [(2012) 2
s e e 93], wherein the provisions of Section 16(1) in the
backdrop of the doctrine of kompetenz kompetenz were
considered and it was inter alia held that under Section
16(1), the legislature makes it clear that while considering
any objection with regard to the existence or validity of the
arbitration agreement, the arbitration clause, which formed
part of the contract, had to be treated as an agreement
independent of the other terms of the contract. Reference
was made in the said judgment to the provisions of Section
16(1)(b) of the 1996 Act, which provides that even if the
arbitral tribunal concludes that the contract is null and void.

(2014) 5 SCO 68
[(2012) 2 SCO 93]
 it should not result, as a matter of law. in an automatic
invalidation of tlie arbitration clause. It was also held that
Section 16(1)(a) of the 1996 Act presumes the existence of
a valid arbitration clause and mandates the same to be
treated as an agreement independent of the other terms of
the contract. By virtue of Section 16(1)(b) of the 1996 Act,
the arbitration clause continues to be enforceable,
notwithstanding a declaration that the contract was null and
void”.

The learned designated Judge considering Sections

5 and 16 then observed “....... A conjoint reading of
Sections 5 and Section 16 would make it clear that all
matters including the issue as to whether the main contract
was void/voidable can be referred to arbitration. Otherwise,
it would be a handy tool available to the unscrupulous
parties to avoid arbitration, by raising the bogey of the
underlying contract being void”.

Finally the designated Judge held that “in cases,

where the Court can come to a conclusion that the contract
is void without receiving any evidence, it would be justified
in declining reference to arbitration but such cases would
be few and isolated”.

The ruling may be welcome to those disappointed by the

Patel Engineering judgment. The point is, is it correct? The ratio
decedendi of Swiss Timing would be, that the Chief Justice or the
Designate or Judicial Authority, can decide the issue of the
voidability of the agreement only as a prima-facie consideration,
and the issue has to be finally decided by the Arbitral Tribunal

139
unless on the face of it, it is void. If this is how the Supreme
Court has understood the issue of ‘existence of a valid Arbitration
Agreement’, then to that extent the category (1) issue as laid
down in Patel Engineering would be only a preliminary
consideration as to “whether there is an arbitration agreement in
existence and the issue, whether the underlying contract or
Agreement within which it is contained is void, unless on the face
of it can be said to be void, will have to be decided by the Arbitral
Tribunal. This finding of the designated Judge is contrary to the
finding in para 19 of the Judgment in Patel Engineering and also
contrary to para 21 of the judgment in Boghara Polyfab. The
attempt in World Sports and Swiss Timing is an attempt by
Smaller Benches at least in matters of International Commercial
Arbitration to have all disputes decided by the Arbitral Tribunal.
The judgment in World Sports and' Indo-Swiss clearly are in
conflict with the views expressed by Larger Benches and thus per
incurium.

The consequence of the judgment in Patel Engineering,

has resulted in more than one Forum deciding the issue of
Competence - Competence and Severability. When the Tribunal
decides without intervention of the court, the Act of 1996
recognizes the principle of Party Autonomy. When the Chief
Justice his Designate or the Court or Judicial Authority decides a
challenge to the invalidity of the underlying Agreement or the
arbitral clauses or agreement, and upholds the challenge, the
arbitral clause perishes with the underlying contract or if
contained in an independent agreement that agreement perishes.
The Separability Doctrine in India is not in tune with Article 16 of
the Model Law. Judicial interpretation has resulted in greater
supervision by the Court on the Arbitral process in India.
 The principle of Party Autonomy whicli includes the
doctrine of Competence - Competence and has developed over a
period of time to meet the needs of businessmen, who wanted all
disputes arising in the course of their contractual obligations, to
be decided by a Tribunal of their choice. Parties preferred to opt
for a Tribunal as it assures them neutrality, expertise and privacy.
An added factor in choosing the Seat would be the efficiency of
the Law of the Seat of the Arbitration. The Competence -
Competence doctrine is consistent that the parties impliedly or
expressly intended that all disputes arising out of the relationship
be arbitrated, including disputes on jurisdictional issues. The
Competence - Competence doctrine enables Arbitrators to
consider and decide all challenges to their own jurisdiction to
enable them to proceed with the arbitration. The doctrine of
Competence - Competence essentially confers jurisdiction on
Arbitrators to rule on their own jurisdiction. Putting it differently.
Arbitrators can now decide a challenge to their own jurisdiction.
This power developed by Courts has now been conferred by
Statue on an Arbitral Tribunal so as to enable the Tribunal to
decide at the threshold so that remedial measures can be
immediately resorted to. The Competence - Competence
doctrine is a practical necessity as it serves as a mechanism to
promote unhindered arbitration process. The arbitration process
does not stop in the face of the challenge to the authority of the
arbitrator to hear the dispute.

The decision by the Arbitrators, The Chief Justice or

Designate or the Judicial Authority on jurisdictional issue is not
final except the decision of the Chief Justice of India or his
designate. The decision of the Chief Justice of the High Court or
his Designate is subject to an appeal to tiie Supreme Court
(Special Leave); the decision of the Judicial Authority, will depend
on who is deciding the Issues, whether a Civil Court or other
Judicial Authority and will depend on the remedies under the
relevant statues. The decision of the Arbitrator is subject to
judicial review under the Act'^”.

The doctrine of Competence - Competence basically works

on the principle, as to “who decides” jurisdictional questions. A
jurisdictional question goes to the very root of the arbitrator’s
authority to adjudicate the dispute. Even if decided by the
arbitrator in most national jurisdictions, a challenge is available
before the traditional courts. National Legislation differs as to at
what stage the intervention should be. The timings of the courts
intervention to affirm or reverse the arbitrator’s decision on
jurisdictional issues may result in quick relief or mischief. If the
judicial forum is called upon to intervene, the question then to be
answered will be, should the court accede to such a request and
stop the arbitration or the judicial forum by exercising restraint
should allow the arbitration to conclude finally and then allow the
party to raise a challenge to the jurisdictional issue. Thus the
“competence - competence” doctrine which is sometimes also
referred to “Kompentz - Kompentz” or “Competence - de la
Competence” describes the principle that an Arbitral Tribunal may
rule on his own jurisdiction, meaning that the Tribunal can
independently determine its powers to resolve certain disputes
without having to apply to a Court for authorization. Modern
International Commercial Arbitration embraces this principle and
the Arbitrator’s right to rule on his own jurisdiction is one of the

See Section 16 and 34 of the Arbitration and Conciliation Act, 1996.

reasons, why arbitration has flourished over the past several
decades.

“Originally the Kompetence - Kompetence principle meant

that the Arbitral Tribunal was the only judge of its own jurisdiction
(the German School). A qualification rapidly occurred: the
arbitrator is the first judge of the tribunal’s jurisdiction, subject to
the final determination to be performed by the Competent Court
(the French School). The French School is the accepted
paradigm and this is currently being revisted in Mexico and the
United States^®^”

“Gerold Herrmann, “explains the interplay between the Court and

the Arbitrator through his “First Short Theory” the Arbitrator will
have to first “Short” at assessing the validity of the arbitration
agreement, subject to the Second (and final) “Shot of the
respective courts.

Section 16 of the Act, 1996, gives statutory recognition to

this doctrine. The power of the Arbitral Tribunal to decide
jurisdictional issues has been accepted in Section 16 of the Act of
1996. Section 16(1) specifically confers power on the Tribunal to
rule on its own jurisdiction, including ruling on any objection with
respect to the existence or validity of the arbitration agreement.
The Section further lays down that for that purpose the arbitration
clause which forms the part of the contract shall be treated as an
agreement independent of other terms of the contract; and the
decision by the Arbitral Tribunal that the contract is null and void

The Competence - Competence Principle, Revisted Francisco

Gonzalez De Cossfo Journal of International Arbitration 24(3) 231-248,
2007 Kluwer Law International
will not entail ipso jure the invalidity of the arbitration clause. The
scope of Section 16 came up for consideration in Rani
Construction Private Limited. The Court in Rani Construction^^^
noted that the object was to avoid multiplicity of proceedings and
to allow one Tribunal to decide all issues between the parties and
to direct the parties to proceed before the forum of their choice.
The Court observed that Section 16 is not confined to the width of
jurisdiction, but goes to the very root of the jurisdiction.

When we speak of Tribunal ruling on its own jurisdiction**^

that is (a) whether there is valid arbitration Agreement; (b)
whether the Tribunal is properly constituted; (c) what matters
have been submitted to arbitration in accordance with Arbitration
Agreement.

“This is a power inherent in the appointment of an Arbitral

Tribunal, indeed is an essential power of the Arbitral Tribunal is to
carry out its task properly. An Arbitral Tribunal must be able to
look at the arbitration Agreement, the term of his appointment and
any relevant evidence in order to decide whether or not a
particular claim of the series of claims comes within his
jurisdiction. The Arbitral Tribunal on this issue may be overruled
subsequently by competent national Court; but this does not
prevent the Arbitral Tribunal making the decision in the “first
place’'“”.

[(2002) 2 SCO 388.

[Russel 23^^* Edition para 5-062

Redfern Hunter On International Arbitration 5*” Edition para 5.98
 A long time ago it was observed by Devile “It is not the
law that Arbitrators, if their jurisdiction is challenged or questions,
are bound immediately to refuse to act until their jurisdiction has
been determined by some Court which has power to determine
finally, nor is it the law that they are bound to go on without
investigating the merits of the challenge and to determine the
matter in dispute leaving the question of their jurisdiction to be
held over until it is determined by some Court which had power to
determine it. They might then be merely wasting their time and
everybody else. They are not able to take over all those process.
They are entitled to enquire into the merits of the issue whether
they have jurisdiction or not, not for the purpose of reaching any
conclusion which may be binding upon the parties - because that
they cannot do - but for the purpose of satisfying themselves as
a preliminary matter about whether they ought to go with the
arbitration or not”.

“Fouchard is of the opinion that competence of the Arbitral

Tribunal to rule on its own jurisdiction should rather be viewed as
“the principle of legality”. (“Principe de liceite”). For a principle of
validity is bereft of meaning unless it merely implies a simple
presumption of validity which forms basis of the competence of
the Arbitral Tribunal to rule on this matter. “Be that as it may, as
Gaillard has pointed out: “while nowadays the principle of
Competence - Competence is very largely recognized..... this

[Christopher Brown Ltd. vs. Genossen Sahaft Oester Reichischer

Waldbesitzer Holzwirtschaft Sbetinribe Registrierte GmdH, 1954 1
QB 8 at 12-13]
appearance of unanimity, conceals a number of deep
divergences^^^.”

There are of course critics wlio observe wliy sliould the^

arbitrator be allowed to decide jurisdictional issues as his
authority is derived exclusively from the parties’ arbitration
agreement. This is based on an incorrect assumption that the
decision of the Arbitrator is final. The decision is always subject
to the Courts jurisdiction to finally decide the issue. Yet another
reason as cited by Robert H. Smit'^’ is “as a practicable matter, it
is unrealistic to accept Arbitrators to rule objectively on challenges
to their jurisdiction because they have financial interest in
sustaining the jurisdiction in order to earn fees for adjudicating the
merits of the parties disputes.

“Some jurisdictions (e.g. France, India) promotes that an

Arbitral Tribunal generally has competence - competence to
initially decide virtually all jurisdictional disputes, (sometime
referred to as the “Positive effects of competence - competence
or ‘‘positive competence - competence"), subject to eventual
judicial review. National Courts in these jurisdictions are not
empowered to consider jurisdictional objection on an interlocutory
stage, but must await arbitrator’s initial jurisdictional decisions.
This latter limitation on the Interlocutory Competence of national

Comparative Law of International Arbitration (Poudret Besson,

Second Edition p.459 p.388)]

[See Separability and Competence - Competence in International

Arbitration, Ex-NIHILO NIHIL FIT? OR CAN SOMETHING INDEED
COME FROM NOTHING? ROBERT H. SMITH SIMPSON THACHER 7
BARTLETT LLP. [American Bar Association, Section on International
Law and Practice Spring Meeting May 7-10 2002 Washington, D.C.]
146
Courts is sometime referred to “negative effects of competence -
competence” or “negative competence^®*”.

In some jurisdictions the Arbitral Tribunal has competence

- competence, to consider jurisdictional challenges, but
interlocutory judicial consideration of the same challenges are
permitted at any time including prior to an Arbitral Tribunal’s
jurisdictional decision. These jurisdictions recognize the
Arbitrator’s positive competence - competence, but do not accord
significance to negative effects of competence - competence
(Sweden, China).

Yet other legal system adopt various middle grounds (e.g.

UNCITRAL MODEL LAW), (United States, England) recognizing
the arbitrator’s “positive” competence - competence, but
permitting interlocutory judicial consideration of jurisdictional
issues in some, but not all, circumstances. As detailed below
these legal systems adopt different treatments of jurisdictional
objections depending on the nature of the parties, arbitration
agreement, the nature of the jurisdictional objection to that
agreement and the variations and equities of the particular case.

Similar variations also exist with respect to the effects of an

arbitral Tribunal’s jurisdictional decision about its own jurisdiction.
In Germany where the doctrine formula originated the
competence - competence doctrine was historically understood
as recognizing the Arbitral Tribunal’s jurisdiction to finally decide
questions regarding its own jurisdiction without the possibility of
subsequent judicial review (so called ”definito” or “real”

Gary Born para 7.01 pg.1049

Kompetenz - Kompetenz). In contrast competence -
competence is understood in many jurisdictions as referring to
Tribunal’s power, preliminary to render a decision on its
jurisdiction, but subject to a measure of subsequent judicial
review'*^

This discussion may support the Indian Supreme Court’s

view in Patel Engineering. The view however is diversed from
Parliamentary Intendment. The Supreme Court proceeded to
examine the issue without weighing the effect of Section 16 on
the interpretation given to Section 16. The view in Rani
Construction on the contrary, represented the correct view of
Parliamentary intendment

The advantage of the Arbitral Tribunal being conferred with

powers to decide jurisdictional issues is that the parties cannot
delay the arbitral proceedings indefinitely, by making challenges
which may be unmeritorious or lacking credibility. The
jurisdictional issues in India have been categorized into two
categories in Boghara Polyfab Pvt. Ltd as culled out from Patel
Engineering. These are category (1) Issue (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. Category 2 Issues (a) whether the claim is a
dead long - barred claim or a live claim; (b) whether the parties
have concluded the contract/transaction by recording satisfaction
of their mutual rights and obligations or by receiving the final
payment without objection.

Bom para 7.01 pgs. 1049, 1050

 It was presumed that (b) in category (1) issues in the
existence of an Arbitration Agreement would include a challenge
to the validity of the Arbitration Agreement as also the validity of
the arbitral clauses. This has now been being explained and
crystallized in Boghara Polyfab*^”. In Booz Allen'^', it has been
held that the Chief Justice or designate must also decide whether
the claims are arbitrable before the Arbitral Tribunal. If they are
rights in personam they are arbitrable, if they are rights in rem,
they are non-arbitrable. Patel Engineering’^^ has held that
jurisdictional issues can be decided, by the Tribunal when parties
approach the Tribunal without intervention of the Court. In such
cases the Tribunal would decide all jurisdictional issues under
Section 16 of the Act. (Para 46(ix). When the Chief Justice or the
designate Judge is approached under Section 11 for the
constitution of the Tribunal it is for the Chief Justice or the
designate Judge to decide all preliminary aspects (para 46(iv).
What happens when the matter Is before a Judicial Authority has
not been categorized in para 46, but from the observations it is
clear that when the matter is before a judicial authority and a
dispute is raised as to jurisdictional question, it is the judicial
authority who would decide the jurisdictional issues (under
Section 8 of the Act). This aspect was considered in para 18 of
the judgment where the Court observed:- “A judicial authority, in
the absence of any restriction under the Act is necessary to
decide, whether in fact, there is existence of valid Arbitration

[(2009) 1SCC 267, para 21, the Court has understood Patel
Engineering to mean ruling on the validity of the underlying agreement.
Booz Allen and Homelton Inc v. SBl Home Finance Ltd & Others
(2011) 5SGC 532.
(2005) 8S C C 618
Agreement and whether the dispute which is sought to be raised
before it, is covered by the Arbitration Clause‘^^”.

In N. Radhakrishnan*^'’ it was also held that grounds

available to stay a suit as were available under the Act of 1940,
continue to be available also under the 1996 Act and a Civil Court
is not prevented from proceeding with the suit, despite an
Arbitration Clause if dispute involves serious questions of law or
complicated question of fact, adjudication, and which would
depend upon detailed oral and documentary evidence. Thus,
allegations regarding clandestine issue of business under some
other name, issue of bogus bills, manipulation of accounts,
carrying on similar business without consent of other partner are
serious allegations of fraud, misrepresentation, etc., and,
therefore, application for reference to Arbitrator is liable to be
rejected. The Court made these observations without considering
Category (111) issues in Boghara Polyfab. This judgment has now
been held to be per incuriam in Swiss Timing Ltd v. Organizing
Committee Commonwealth Games, 2010, Delhi*^^

The doctrine of competence in its applicability to Section 45

of the Act was considered In Shin - Etsu Chemical Co. Ltd. vs.
Aksh Optlfibre Ltd. & Anr*^^ A Bench consisting of 3 Judges
gave three distinct opinions. The minority view (Sabharwal J.)
was that the application challenging the validity of the Agreement
should be done by giving parties opportunity to file documents
and affidavits by way of evidence. No oral evidence was allowed

(2 0 0 5 )8 8 0 0 618
(2010) 1 8 0 0 72
(2014) 6 8 0 0 677
(2006) 2 8 0 0 628
to be led. The majority took the view that the trial Court should
take prima facie view of the matter and permit parties to lead
evidence documentary or oral like a Tribunal on preliminary issue.
Commenting on this Judgment, Paul Whitley observes: “In my
view both the views are wrong, against the underlying principal of
law “Least Judicial Interference in International Commercial
Arbitration”. The further observations are that “The Court had a
simple solution of directing the parties before the Arbitrator for
decision on all the questions and allow the full-fledged challenge
after the award was made*^^. In Chloro Controls’^® the Supreme
Court has now hold that the Jurisdictional Issues must be finally
decided, by the judicial Authority. There are thus two conflicting
views of Co-ordinate Benches.

These judgments have been analyzed separately

hereinafter. All these judgments show a discordant note on the
doctrine of competence, as was envisaged under Section 16 of
the Act when India adopted Article 16 of the Model Code. It is not
that Parliament could not have allowed courts to decide
jurisdictional issues. Parliament’s intention appears to be that the
Tribunal must first decide the issue. That different jurisdictions
deal with who decides at different stages has been recognized.
Born observes^^’ “Despite this broad international acceptance of
the Competence - Competence doctrine there is almost equally
broad disagreement and uncertainty concerning determining

Arbitration in India [Talk to the European Branch of the 0.1. Arb. &
Sallee d’Ulcio Italy, Q^’/l 0*'' April. 2005]
Chloro Controls India Pvt. Ltd. vs. Seven Trent Water Purification
Inc. and Others (2013) 1SCC 641

Gary B. Born International Commercial Arbitration, 2"'^ Edition, Vol. 1

para 7.01 page 1048
application and the precise consequences witli unusual diversity
leading to legal system take widely divergent approaches to the
benefits of the Arbitral Tribunals competence - competence and
the related allegation of jurisdictional competence between
Arbitrators and national Courts.”

The Competence - Competence doctrine has both positive

and negative effect. The Positive effect of competence -
competence is that the Arbitral Tribunal has power to consider
and decide jurisdictional objections; the negative effect of
competence - competence is the exclusion of judicial authority to
decide jurisdictional objections at least until the Arbitral Tribunal
has made jurisdictional Award.

The Law of Competence - Competence in India has

acquired a hybrid character. It discloses both the positive and
negative effects. Positive when the Tribunal decides all
jurisdictional issues and negative when the issues are left for the
determination by judicial authorities whether under Section 8,11,
or 45. The result that has come out of this judicial legislation is
that it can be said that India is not one of those countries who
have adopted the Model Law. Though Gary Born has described
the Competence - Competence doctrine, in India in its positive
effect, the judgment in Patel Engineering and Section 37, has not
been fully considered in drawing that conclusion.

UNCITRAL CODE, And Adoption Of Its Principles By the

Indian Parliament:- Article 16 recognizes the principle of
Competence - Competence which constitutes one of the main
objects of the model law. This principle includes the Tribunal’s
power to rule on its own jurisdiction and the separability doctrine.
As these are a fundamental part of the model law, any exclusion
or significant departure from the essence of these principles,
preclude an adopting legislation from claiming it to be in
conformity with the model law^”°. The importance of these
fundamental provisions of the model law has been clearly
recognized by the adopting states. Many States have adopted
Article 16 verbatim. Other States have at least included the
principles of Competence - Competence and separability in their
arbitration statutes. These are a few states WWe Indonesia which
has not adopted the principles of Article 16. Article 16 as its core
consists of three parts. Article 16(1) encompasses the principle of
Competence - Competence and provides that the arbitral clause
which forms part of the underlying agreement shall be treated as
an agreement independent of the other terms of the contract.
The Arbitral Tribunal may rule of its own jurisdiction including any
objection with respect to the existence or validity of the arbitration
agreement. The Article further provides that a decision by the
Arbitral Tribunal that the contract is null and void does not ipso
facts result in the invalidity of the arbitration clause. The other
two parts are basically procedural in nature. The clause survives
as it has its own independent existence. The core of Article 16
lies in Article 16(1).

The Indian Parliament has adopted both the principles of

competence - competence and separability in Article 16(1) of the
Act of 1996. In respect of procedural matters, the only difference
made by the Indian Parliament is that if the plea of jurisdiction is

India had adopted the principles of Article 16, but on account of

judicial legislation in Patel Engineering, the basic principle of Model
Law is not followed in India when judicial authorities decide
jurisdictional issues.
rejected, the Arbitral Tribunal is to proceed and the challenge to
the decision is available under Section 34 at the time the final
Award is passed. Otherwise, Section 16 encompasses the basic
principles as contained in Article 16 of the model law. Dr. Peter
Binder notes^”' “with the adoption of the principle of Competence
- Competence and by granting an arbitrator the power to rule on
his own jurisdiction, the adopting state demonstrates its undivided
support for international commercial arbitration. Therefore, a
country enacting model law confirmed legislation without Article
16 could not rightfully advertise its arbitration law as being truly in
conformity with the model law”. On this aspect a referring to the
Commission would be necessary report, “it was ultimately for
each state, when adopting the model law, to decide whether it
wish to accept the principle of competance competance and, if so,
possibly express in the text that the parties could exclude or limit
that power”^“l This freedom was given to the adopting countries,
so that they apply the basic principles in terms of their needs and
necessities.

The principle of Competence - Competence finds its echo

in Article 16(1)(a) of the 1996 Act and the principle of separability
in Section 16(1)(b) of the same Act. The problem in India as
discussed earlier has been, the Court’s intervention in the arbitral
process and not assistance in the arbitral process. In Patel
Engineering, the Supreme Court has unwittingly propounded a
view that the principle of competence - competence would be
only applicable when the Tribunal is constituted by the Parties
without any intervention. But when the procedure for constitution
of the Tribunal commences on an application under Section 11 or

Peter Binder para 4.007 pg.213

Peter Binder page 4-007 pg.215
reference to a Tribunal under Section 8 or 45, the Chief Justice or
his designate or the judicial authority can rule on the issue of
jurisdiction, including the validity of the contract as also the
arbitral clause. This gives a go by to the authority of the arbitral
clause. This interpretation defeats the concept of ‘Part Autonomy’,
as the jurisdiction of the Tribunal is now limited to only those
cases where the Arbitral process commences when the parties
themselves constitute the arbitral tribunal, without the assistance
under Section 11 or referral under Section 8 or 45.

At what stage has the jurisdictional issue to be raised.

Section 16(2) sets out that the plea should be raised not latter
than the submission of the statement of defence however the
parties shall not be precluded from raising such a plea merely
because the party had appointed or participated in the
appointment of an arbitrator. Section 16(3) requires it to be
raised during the arbitral proceedings (as soon as the matter
alleged to be beyond the scope of the authorities raised in the
arbitral proceedings). A discretion however is left with the Tribunal
under Section 16(4) to entertain a plea later if it considers the
delay justifiable. Thus the Tribunal can decide the issue at the
earliest available opportunity or even thereafter in the course of
the arbitral proceedings.

The Indian Parliament though had adopted all the principles

of Model Law, the interpretation by the Supreme Court as
discussed earlier has negated the principle of Part Autonomy.
Modern Arbitration has succeeded were Part Autonomy has been
accepted by National Legislation and Courts. This Arbitral
Process in India, whatever may be the good intention of the
Supreme Court, by creating multiple jurisdictions to decide

155
jurisdictional issues is a step back in expeditious disposed of ttie
proceedings and negation of the principle of ‘Party Autonomy’.
The issue in India is not of passing the baton, the problem that
has arisen is ‘who holds the ‘baton’ and when will the ‘court hand
over the baton’ to the Arbitral Tribunal.

An analysis of Some Judgments of the Supreme Court:-

Some leading judgments on the power exercised by the Chief
Justice or his designate under Section 11(5) and the judicial
Authority under Section 45, will be analysed for the Impact they
have had on the doctrine of severability and competence -
competence.

An analysis of the Judgment in Patel Engineering^”^ and as

understood in Boghara Polyfab^®'*

The Issues:- The Court was answering the reference as to the

nature of the function of the Chief Justice or his designate under
Section 11(5) and what is the scope of that power; The Court in
Rani Constructions had held that the power exercised under
Section 11(5) was administrative.

The Reasoning:- In Chapter II, Patel Engineering has been

analysed only in the context of Section 11(5), whether the
function is administrative or judiciaP”^. The Court has held that the
power exercised by the Chief Justice or his designate is
adjudicatory and consequently the order is Judicial. The process

203 S.B.P. & Co., v/s. Patel Engineering (2005) 8 SCC 618
National Insurance Co. Ltd. vs. Boghara Polyfab Ltd (2009) 1 SCC
267
225 Competence-Competence and Separability- Chapter 8, International
Arbitration and International Connmercial Law: Synergy, Convergence
and Evolution, 2011
of reasoning has been, that when a power is conferred on the
Chief Justice of the High Courts, the power is conferred on a
class and not considering that person as an individual. The
power being Judicial could only be conferred on a Judicial
authority and thus logically only on another Judge of the High
Court^°^ From the questions framed the issue of Doctrine of
Separability was not directly in issue as also the Doctrine of
Competence —Competence. The Court did not address itself to
the independence and survival of the arbitral clause in the context
of invalidity of the underlying Contract; and consequent doctrine
of competence - competence, that the Tribunal can decide all
Jurisdictional Issues. Section 16 was considered only in the
context of the Arbitral Tribunals jurisdiction under Section 16^°’,
and that too in a passing reference in the majority Judgment. The
principle of competence - competence was only noted in
Paragraph 16. The Court held that the Doctrine of Competence -
Competence only means that, when without judicial intervention
such issues arise before the Tribunal then only can it decide all
issues. This could happen when the parties have gone to the
Arbitral Tribunal without recourse to Section 8 or Section 11 of the
Act. Where the Chief Justice or judicial Authority was
approached either under Section 11 or Section 8, they had to
decide the Jurisdictional Issues^"*. Thus, a dual jurisdictional
system has been created. One when the matter has to be
considered under Sections 8 and 11 before giving effect to the
arbitral clause; and the other when the parties directly approach
the Tribunal under Section 16. This had consequential effect on

Patel Engineers.
Patel Engineers
These are Category I and Category II Issues, as now culled out in
National Insurance Co. Ltd. vs. Boghara Polyfab Ltd (2009) 1 SCC 267
the remedies. The Court held that when the Chief Justice of the
High Court or designate decide the jurisdictional issues, an
Appeal lies to the Supreme Court under Article 136. When an
order is passed by the Chief Justice of India or his designate, no
Appeal would lie making the order of the Chief justice of India or
his designate ‘omnipotent’. When the order emanates from the
Tribunal upholding the jurisdictional challenge, an Appeal lies
under Section 37(2)(a) of the Act. If the plea of jurisdiction is
negated, it is open to the party to challenge the findings in the
application for setting aside the Award in accordance with Section
34.

In the minority Judgment the Learned Judge in his dissent,

noted that “Kompetenz - Kompetenz” is a widely accepted feature
of Modern International Arbitration, and allows the Arbitral
Tribunal to decide its own jurisdiction, including ruling on any
objection with respect to the existence or validity of the Arbitration
agreement subject to final review by a competent Court of law,
i.e. subject to Section 34 of the Act”.

Analysis:- Patel Engineering In the majority Judgment did not

consider the impact on the doctrine of Severability and
Competence - Competence, the view of Courts In other
jurisdictions or views of scholars on this aspect of the law. The
judgment has not impacted the Tribunals powers to decide on its
own jurisdiction including jurisdiction to decide on the validity of
the arbitration agreement. The Judgment has however, restricted
this aspect of the arbitral process, only when the Arbitral Tribunal
Is constituted, without the intervention of the Chief Justice or
designate, under Section 11(5) or judicial authority under Section
8. The judgment has thus encouraged parties who seek to delay
the Arbitration Process by not agreeing to tlie Constitution of tlie
Tribunal to raise jurisdictional issues before the Chief Justice
under Section 11 or Judicial Authority under section 8, defeating
the basic principle behind Section 16, that all issues must be
decided by one authority.

Under Category I, Issues the Chief Justice or his designate

can alone decide the existence of a valid arbitration agreement
which includes a challenge to its validity. To that extent, the
consequences of the Chief Justice or his designate holding that
the underlying Contract is void, would be that the arbitral clause
perishes with the Contract. So also the judicial authority under
Section 8. On the other hand in a similar exercise by the Arbitral
Tribunal that the Contract is null and void, will not entail ipso jure
the invalidity of the arbitration clause. Thus under Section 11(5),
on the Chief Justice or the designate or the Judicial Authority
holding that the Contract is null and void, the entire Contract
perishes including the arbitral clause. On the contrary, when the
Tribunal decides, the arbitration clause is treated as an
independent agreement and survives even if the Underlying
Contract is held to be null and void. The decision by the Chief
Justice or the designate 'or the Judicial Authority that the Contract
is void, does not have the protection of Section 16(1)(bf°^ The
Judgment has created two different jurisdictions to decide
jurisdictional issues resulting in one case, recognizing the
doctrine . of ‘Party Autonomy’ and in other rejection of that
doctrine. This was not the Parliamentary intent nor of the drafters

Section 16(1)(b) “a decision by the Arbitral Tribunal that the contract

is null and void shall not entail ipso Jure the invalidity of the arbitration
clause”
of the model law. This also defeats the Courts own observations
that the object of the Act was to ensure an arbitral procedure that
is fair, efficient and capable of meeting the needs of the
concerned arbitration.

The judgment in respect of the same issue has created

plurality of remedies in respect of a finding or decision on the
same issue but rendered by different authorities, totally negate
the concept of party autonomy which includes the Doctrine of
Severability and the consequential Doctrine of Competence -
Competence, recognized in the Model Law and adopted and
enacted into Law, by Parliament of India. The object and purpose
of Section 16 was to confer jurisdiction on the Arbitral Tribunal, to
the exclusion of the Courts, so as to give effect to the intention of
the parties who had agreed that all issues be decided by the
Arbitral Tribunal when they agreed for arbitration.

This Judgment was considered in National Insurance Co.

Ltd. vs. Boghara Polyfab Private Limited,^’® Boghara Polyfab
has explained Patel Engineering as to who decides what issues
before reference to the Arbitral Tribunal. The issues have been
divided into three categories:-

“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.

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 dead (long-barred) claim or a

live claim.

(b) Whether the parties have concluded the

contract/transaction by recording satisfaction of their
mutual rights and obligation or by receiving the final
payment without objection.

22.3 The issues (third category) which the Chief Justice/his

designate should leave exclusively to the Arbitral Tribunal
are:

(i) Whether a claim made falls within the arbitration

clause (as for example, a matter which is reserved
for final decision of a departmental authority and
excepted or excluded from arbitration).

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

The Bench which was bound by Patel Engineering, by

giving a discretion to decide Category II Issues to the Chief
Justice or designate, has to an extent narrowed the impact of
Patel Engineering, on the doctrine of Severability and
Competence - Competence. Though Patel Engineering did not
expressly say that the validity of the Arbitration agreement could
be decided by the Chi^f Justice or his Designates or Judicial
Authorities, the Court in para 21 has so understood by holding
that the issues as to whether the arbitration agreement is valid or
whether the contract in which the arbitration clause is found is
null-and-void, and if so, whether the invalidity extends to the
arbitration clause also, are to be decided by those authorities.

Analysis of the judgment in Booz Ailen and Hamilton

Inc. vs. SB I Home Finance Limited and others^*’. The Court
proceeded to consider as to what issues are arbitrable, i.e. which
are capable of being adjudicated by a Private Forum (Arbitral
Tribunal) and what are non-arbitrable issues. Two distinct
categories have been carved out. Rights in rem have been held to
be non-arbitrable. Some of these rights which are identified are,
(1) disputes relating to rights and liabilities which give rise to or
arise out of criminal offences; (ii) matrimonial disputes relating to
divorce, judicial separation, restitution of conjugal rights, child
custody: (iii) guardianship matters; (iv) insolvency and winding-up
matters; (v) testamentary matters (grant of probate, letters of
administration and succession certificates); and (vi) eviction or
tenancy matters governed by special statutes where the tenant
enjoys statutory protection against eviction and only the specified
courts are conferred jurisdiction to grant eviction or decide the
disputes. The Court has then explained that though rights in rem
are required to be adjudicated by Courts and Public Tribunals, it
is not a rigid or inflexible rule and disputes relating to subordinate
rights in ‘personam’ arising from rights in rem have always been

211
[(2011) 5 SCO 532]
considered to be arbitrable”. The High Court of Bombay^’^ has
taken the view that even ieave-and-licence Agreement, under the
IVlaharashtra Rent Control Act, where there is a provision for
arbitration, it cannot be resorted to. The High Court did not
consider whether it was ‘right in rem or Personam’ or if it was a
pre-existing Civil right, but merely proceeded on the footing that it
was a special law.

Analysis of the Judgment in N. Radhakrishnan^*^ A further

setback to the Doctrine of Competence - Competence, was post
the Judgment in N. Radhakrishna. The Court without considering
Category III Issues as explained in Boghara Polyfab and the
effect on the competence principle, proceeded to approve the
view taken by the Madras High Court.

Issue:- The High Court had held that the power of Civil Court
to refuse to stay a Suit in view of arbitration clause in existence
on grounds available under the Act of 1940, continue to be
available under the Act of 1996 as well and the Civil Court is not
prevented from proceeding with the Suit despite an arbitration
clause. The Issue was not invalidity of the Partnership
Agreement or the Arbitral Clause on the ground of fraud but fraud
in the conduct of business which would fall in Category 111Issues.

The Findings:-
The Supreme Court approved the statement of law in Para
25, which reads as under: “25. The learned counsel for the

Central Warehousing Corporation v Fortpoint Automotive Pvt. Ltd.

2010(1) Bom C.R. 560.
N. Radhakrishnan v. Maestro Engineers and Others 2010 1 SCC
respondents further elaborated his contention citing the decision
of the High Court of Judicature at Madras in ”H. G. Oomor Sait v.
G. Asiam Sait” wherein it was held”.

“25. The learned counsei for the respondent further

elaborated his contention citing the decision of the High Court of
Judicature of iVladras in H.G. Oomor Sait v. O. Aslam Sait^’"*,
wherein it was held;

“Power of Civil Court to refuse to stay a suit in view of

arbitration clause on existence of certain grounds available under
the 1940 Act continues to be available under the 1996 Act as well
and the Civil Court is not prevented from proceeding with the Suit
despite an arbitration clause if dispute involves serious questions
of law or complicated questions of fact adjudication of which
would depend upon detailed oral and documentary evidence.

The Civil Court can refuse to refer the matter to arbitration if

complicated questions of fact or law is involved or where
allegation of fraud is made.

Allegations regarding clandestine operation of business

under some other name, issue of bogus bills, manipulation of
accounts, carrying on similar business without consent of other
partner are serious allegations of fraud, misrepresentation, etc.,
and therefore application for reference to Arbitrator is liable to be
rejected.

We are in consonance with the above referred decision

made by the High Court in the matter concerned”.
 There is no discussion as to why the Court has approved
the judgment of the IVladras High Court.

Comments:- The Supreme Court failed to note that The

IVIadras High Court in its Judgment did not consider the ratio of P.
Anand Gajapathi Raju v. P. V. G. Raju^*^ which was binding on
it, which had held that the Judicial Authority is bound to refer the
matter to arbitration once the existence of a valid arbitration
clause is established. Thus on this count alone the judgment was
per incuriam considering Article of the Constitution of India.
It neither considered the impact of Section 5 or Section 8 of the
Act of 1996.

While approving the Judgment of the Madras High Court by

its Judgment dated October 22, 2009, the Court did not consider
the Judgment in Sukanya Holdings (P) Ltd. vs. Jayesh Pandya
and another^*'^, wherein in Para 19, another Co-ordinate Bench,
had held, that:- “Lastly considering the language used in Section
8, in our view, it Is not necessary to refer to the decisions
rendered by various High Courts interpreting Section 34 of the
Indian Arbitration Act, 1940, which gave a discretion to the Court
to stay proceedings in a case where dispute is required to be
referred to arbitration”.

Thus, the Court in clear and unequivocal terms had stated

the law, that Judgments of the High Courts which had relied on

(2 0 0 0 )4 8 0 0 539.
Article 141 of the Constitution of India reads as under.” Law
declared by Supreme Court to be binding on all courts: The law
declared by the Supreme Court shalla be binding on all courts within
the territory of India.”
(2003) 5 s e e 531
Section 34 (1940 Act) would no longer be good law for
interpreting Section 8 of the Act, 1996. The Judgment in H.G.
Oomor and Another was decided by the Madras High Court on
28/6/2001 and the Court had relied on the Judgment in [Abdul
Kadir Shamsuddin Bubere vs. Madhav Prabhakar Oak and
another^^®], where the Supreme Court was considering the issue
of stay of a Suit in respect of an application made under Section
20 of the Act of 1940. This principle also applied to cases coming
under Section 34 of the Act of 1940. Clearly therefore, the
Supreme Court in ‘N. Radhakrishnan’ did not note that Judgments
of the High Courts which applied the principle either of Section 20
or Section 34 of the Act of 1940 to Section 8 of the New Act could
not be relied upon.

Fraud under the Indian Contract Act like misrepresentation,

undue influence and coercion gives rise to ‘voidable contracts’
and not ‘void contracts’. If the ratio of ‘N. Radhakrishnan’ is to
apply in cases of fraud and misrepresentation, on a parity of
reasoning it could extend to apply in cases of undue influence,
misrepresentation and coercion. Radhakrishnan does not restrict
itself to ‘only fraud and misrepresentation’ but goes much further
to hold that even where serious questions of law or complicated
questions of fact arise, the Civil Court can refuse to refer the
matter to arbitration. It also does not restrict it to a challenge to
the underlying contract or the arbitral clause.

This Judgment in N. Radhakrishnan, thus would be per

incuriam being to the judgment in Patel Engineering and
explained in Bdghara Polyfab as the issue in N.Radhakrishnan

2^®AIR 1962 8 0 406

falls within the Category 111 Issues, which are exclusive to the
Arbitral Tribunal. In Oomer Sait, the issue was not invalidating
the contract on the ground of fraud, but the plea of fraud was in
the conduct of the business. In other words on the merits of the
matter.

The Supreme Court recently^'^ restricted the applicability of

the ratio of ‘Radhakrishnan’ only to domestic arbitrations and not
to international commercial arbitration. The Court has observed
as under: “where allegations of fraud in procurement or
performance of a Contract are alleged, there appears to be no
reason for the Arbitral Tribunal to decline jurisdiction”. The Court
further in Para 32, has held “As herein already held Section 45 of
the Act does not provide that the Court will not refer the parties to
arbitration if the allegations of fraud have to be inquired into.
Section 45 provides that only if the Court finds that the arbitration
agreement is null and void, inoperative or incapable the Court can
refer the parties to arbitration”. These observations can only
mean a prima facie consideration of the allegations and not final
determination whilst exercising discretion, leaving it to the
Tribunal to deal with the issue of fraud etc. These observations
prima-facie are in conflict with the findings on Category I Issues in
Patel Engineering.

N. Radhakrishna has now been held to be per incuriam and

by the Designate Judge of the Supreme Court, in Sw iss Timing
Limited v/z. Organising Committee, Common Wealth Games,
2010, Delhi. The Issue was whether the contract stands vitiated
and is void-ab-initio in a matter of International Commercial
Arbitration and tlierefore tlie learned Designate could not refer the
matter to Arbitration.

The Courts reasons for so holding are:- The Court while

considering the issue considered the judgment of Oomer Sait, of
the Madras High Court. The Learned Designate Judge found that
Radhakrishna ran counter to the observations laid down in
Hindustan Petroleum Corporation Ltd v. Pink City iViidway
Petroieums^^” which was not distinguished in N. Radhakrishnan
and that P Anad Gajapathi Raju & Ors was not even brought to
the notice of the Court considered. The learned Designate has
observed that Section 16 was also not considered. The learned
Designate judge was considering a case of International
Commercial Arbitration where N. Radhakrishnan had been held to
be no longer applicable and N. Radhakrishnan had been
confined to Domestic Arbitration. The position in law would be
that ratio-decedenti of N. Radhakrishnan is no longer applicable,
even in domestic arbitrations. With due respect, N.
Radhakrishnan would not be per incuriam for not considering a
Co-ordinate Board Judgment but because it was without
considering Category III Issues in Patel Engineering.

Analysis of Chioro-controls^^’:- The judgment in Chloro

Controls deals with two important issues relating to International
Arbitration. Firstly, it introduced the ‘Group of Companies
Doctrine’ into Indian law. Secondly, it held that a court while
referring the matter under section 45 shall make a final
determination binding both on the tribunal and at the enforcement

22° (2003)6 8 0 0 503.

221 Ohioro Oontrols India Pvt. Ltd v. Seven Trent Water Purification Inc.
and Others (2013)1 SCO 641
stage. Here we shall be discussing the second aspect. This
judgment by a Bench of Three Judges was considering the
judgment in Shin-Estu Chennicals Co Ltd., v Aksh Optifitre
of another co-ordinate Bench.

Competence-Competence
The second question before the Court related to the scope
of inquiry and the binding value of a decision while
referring/refusing to refer a matter to arbitration under section 45
of the Arbitration Act.

a) The judgment in Shin-etsu did not decide the issue of

whether a reference to arbitration must be made after
a prima-facie or final determination?

The initial question that the Court had to deal with

was whether this issue had been settled by the
decision in Shin-etsu. Shin-etsu was a decision of
three judges of the Supreme Court of India that
stated that a court was only required to make a prima
facie determination before referring a matter to
arbitration. In Chlorocontrols, the Court held that
Shin-etsu had not decided this question as the third
judge (Justice Dharmadhikari) had not agreed either
with Justice Srikrishna not Justice Sabharwal.
Therefore, it treated the issue as open, and
proceeded to decide the issue on that basis.

i) What did Shin-etsu decide?

222
[(2005) 7 SCO 234)
 From a reading of Shin-etsu, it is clear that the
majority opinion of the Court was that while mailing a
reference to arbitration only a prima facie
determination is to be made. However if the Court on
a prima facie finding refuses a request for arbitration,
it is required to conduct a detailed inquiry and set out
an elaborate reasoned Order. However, the third
judge. Justice Dharmadhikari did not go into the
question of whether such a refusal would be binding
on the tribunal or an Indian Court in Enforcement
proceeding.

In his judgment, Srikrishna stated that:

"... I am of the view that, the correct approach to be
adopted under section 45 at the pre-reference stage,
is one of a prima facie finding by the trial court as to
the validity or otherwise of the arbitration agreement.”

The Court in Chlorocontrols noted that this view of Justice

Srikrishna was based on the idea that there was;
"...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, ...if it were to be held that the
finding of the couri: under Section 45 should be a
final, determinative conclusion,, then it is obvious that
until such a pronouncement is made, the arbitral
proceedings would have to be in limbo.”

Justice Dharmadhikari, partly agreed with the judgment of

Justice Srikrishna. His separate opinion was couched in the
following terms:
 7 respectfully Agree with learned Brother Srikrishna J
only to the extent that if on prima facie examination
of the documents and material on record, including
the arbitration agreement on which request for
reference is made by one of the parties, the Judicial
authority or the court decides to make a reference, it
may merely mention the submissions and
contentions of the parties and summarily decide the
objection if any raised on the alleged nullity,
voidness, inoperativeness or incapability of the
arbitration agreement.

On the question of the nature of inquiry when the court rejected

the reference to arbitration, he stated that:
“In case, however, on a prima facie view of the
matter, which is required to be objectively taken on
the basis of material and evidence produced by the
parties on the record of the case, the Judicial
authority including a regular civil couri:, is inclined to
reject the request for reference on the ground that
the agreement is 'null and void' or 'inoperative' or
'incapable of being performed' within the meaning of
section 45 of the Act, the Judicial authority or the
couri: must afford full opportunities to the parties to
lead whatever documentary or oral evidence they
want to lead and then decide the question like trial of
a preliminary issue on Jurisdiction or limitation in
regular civil suit and pass an elaborate reasoned
order Where a Judicial authority or the couri refuses
to make a reference on the grounds available under
section 45 of the Act, it is necessary for the Judicial
 authority or ttie court wtiicti 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.

Thus, a Court could, after conducting a prima facie inquiry, refer

the matter to arbitration. On the other hand, if after such a prima
facie inquiry the Court does not refer the matter to arbitration, it is
required to conduct a detailed enquiry and pass an elaborate
reasoned Order. The question then arises as to what will be the
binding value of this Order i.e. will it be binding on the tribunal or
a Court in proceedings under Section 48 of the Arbitration Act. In
respect of this question Dharmadhakari stated as follows;
"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 reexamination before the arbitral
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 left open for consideration
in an appropriate case where such a question is
directly raised and decided by the court."

He thus kept the question open and expressed no opinion on the

point. He also did specifically address the binding effect of the
determination made while choosing to refer the matter to
Arbitration. However, since this was to be a prima facie
determination and as sucii a determination can never be finally
binding the same would not be binding on a tribunal or an
enforcing court.

Thus, the opinions of the judges can be set out in a table as

under:
No. Issue Justice Justice Justice
Srikrishna Sabharwal Dhrarmadhikari

1. Inquiry if Prima facie Full inquiry Prima facie inquiry

referring inquiry

2. Inquiry if Prima facie Full inquiry Full inquiry

rejecting inquiry
reference

3. Binding Can never be Binding No opinion

value of binding
rejection

ii) What is the import of the Court’s reading of Shin-

etsu?
The Chlorocontrol decision held that the decision of a
Court under section 45 of the Act shall be final and
binding on the Tribunal and the enforcing Court. In
one crucial respect however this finding remains
ambiguous - does the above principle apply only to
situations where a request for arbitration has been
refused, or is it applicable even when a reference is
made? This uncertainty arises out of a key part of
the judgment that analyses Shin-etsu. The said part
of the opinion is as under;
 “126. Dharmadhikari, J., the third member of the
Bench, while agreeing with the view of Srii<rishna, J.
and noticing, “Where a judicial authority or the court
refuses to niake 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 ...”

The Court in Chlorocontrols therefore did not seek to

overrule the decision in Shin-etsu, but merely sought
to restrict itself to an area that the judges opined that
that Shin-etsu left open.

One view, would be that the judgment in Chloro is restricted only

to the case when a Court refuses to refer the matter to arbitration
i.e. issue 3 in Shin-etsu.

A second view however, would indicate that the judgment is

not restricted only to situation where a reference to arbitration is
rejected, but even when a matter is referred to arbitration. It is
contended that the finding of Justice Dharmadikari that
“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” is not restricted to a rejection of a reference but is made in

174
the widest terms. Thus, rightly or wrongly, this view suggests that
the judgment in Chlorocontrols interpreted Justice
Dharmadhakari’s judgment as expressing no view either on the
binding value of a reference to arbitration a refusal to so refer a
matter.

A correct construction of Chlorocontrols would therefore

necessitate adoption of the first view. The judgment in
Chlorocontols did not seek to distinguish Shin-etsu on a question
of law, or purport to take a different view from it. The judgment in
Chlorocontrols also does not anywhere explicitly state that it is
applicable to a situation when a matter is referred to arbitration. In
such circumstances, an interpretation of Chlorocontrols that best
upholds the principles in Shin-etsu must therefore be adopted.
Adopting the second view, would in effect overrule Shin-etsu by
seeking to interpret it. Given that both decisions are of co-ordinate
strengths of 3 judges apiece, a harmonious construction would be
to adopt the first view.

A strong argument can however also be made for adopting

the second view. The language and tenor of the decision in
Chlorocontrols, while dealing with the concept of Competence-
Competence is general in nature. Apart from the initial discussion
about restricting itself to the part of Shin-etsu on which Justice
Dharmadhikari expressed no opinion, it does not seek to limit the
application of the principles set out therein. Nevertheless, being
the decision of a co-ordinate bench of the Supreme Court, it
cannot be read to overrule the decision in Shin-Estu especially if it
does not purport to do so.
b) The question of Competence-Competence in
International Arbitration.

The views on the doctrine of Competence-Competence as

set out in Chlorocontrols are of great importance and must
be examined in the scheme of the Act, the New York
Convention, and the commonly understood principles of
international arbitration. Is the rejection of the principle of
competence-competence in International Arbitration (i.e. an
arbitration not seated in India) in consonance with the
above principles? The authors of leading commentaries
answer the question in the negative (Born, International
Commercial Arbitration] Poudret and Besson, Comparative
Law of International Arbitration). A determination of the
jurisdictional question of arbitability by a non-seat Court can
never bind the tribunal, or a foreign court.

In international arbitration, the extent of jurisdiction of

various courts can appear complex, given the various
stages of the arbitration process and the possible
involvement of multiple courts, as well as the tribunal.
There are three possible sets of institutions that have
jurisdiction over the arbitration: i) The Tribunal; ii) The Court
of the Seat; and iii) Other Courts. The nature of their
respective jurisdiction is set out in detail below:

(i) The Arbitral Tribunal

The jurisdiction of the Tribunal arises out of the
doctrine of Competence- Competence (Sec. 30,
English Arbitration Act; Section 16, Indian Arbitration
Act). The doctrine of Competence-Competence
states that the Arbitral Tribunal has the ability to
determine its own jurisdiction, including the
existence/validity of the arbitration clause.

According to this doctrine, therefore, a court can only

make a prima facie determination prior to the
determination of the issue by the arbitrator.

It Is for the tribunal to then determine the Issue and

such a decision will be final unless set aside by the
court of the seat. (New York Convention Article V (1)
(e))

The Court of the Seat

Among the various Courts that may be involved in an
international arbitration, the court of the Seat has
primary jurisdiction. It Is only the Court of the seat
that has the right to set aside and thereby control the
functioning of the tribunal {New Yorl< Convention Art.
V. 1 (e)). Other Courts may merely refuse to enforce
the award within their jurisdiction. From this
difference it appears that only rulings of the Court of
the seat of arbitration can have International effect.

While this distinction relates primarily to the setting-

aside/enforcement of an award. It also Is relevant to
the question of jurisdiction in relation to arbitability at
any other stage of the proceedings (i.e. whether the
arbitration clause is applicable to the dispute). The
control of the Courts of the seat over the arbitration
would mean that under the New York Convention
 and the UNCITRAL Model Law, only the Court of the
seat could bind the tribunal or any other Court.

Put in another way, this means that only the Court of

the seat is the Court of competent jurisdiction to
decide the question of arbitability (or any other
question) finally, if it chooses to do so. The decisions
of other courts will not be final and therefore will not
have a preclusive effect in courts outside their
territorial jurisdiction.

(iii) Other National Courts

Courts of all other countries can be said to have
secondary jurisdiction in relation to arbitration
proceedings. This means that the said courts have
jurisdiction to stay cases before them in breach of an
arbitration agreement, or to enforce/refuse
enforcement of an arbitration award within their
jurisdiction (See UNCITRAL Model Law). In rare
cases such courts also grant anti-suit injunctions
restraining parties from breaching an arbitration
agreement^^^

However, these decisions do not have a preclusive

effect outside their own territory. (Gary Born
International Commercial Arbitration pg. 2969;
Poudret and Besson, Comparative Law of

It must be noted that in the situation of anti-suit injunctions, the

jurisdiction of the Court arises out of the presence of the defendant
within its jurisdiction and not due to any extraterritorial effect of the
Court’s order.
 International Arbitration). An arbitral tribunal is not
bound to consider the contents of these decisions
when deciding the jurisdictional question. The
tribunal is only subject to the control of the courts of
the seat.

If a Court of secondary jurisdiction is final, that would

amount to usurping the jurisdiction of Court of the seat/the
arbitral tribunal. This would violate of the New York
Convention and the UNCITRAL Model Law that provide for
the primary control of the seat over the arbitration.

The above discussion on why a decision of a Court

of secondary jurisdiction could never bind the Tribunal/a
foreign court can be summarized as follows;
• Given the scheme of the Arbitration Act, The New
York Convention, and the Model Law, a decision
of a Court of secondary jurisdiction can never be
final qua the Tribunal, or a foreign Court.

• Any decision of a Court of secondary jurisdiction

that attempts to finally decide a question of
jurisdiction so as to preclude another court would
violate international law and thus not be res
judicata for the purposes of Section 13 (c)of the
CPC.

• A Court of secondary jurisdiction does not have

inherent jurisdiction to finally decide the question
of arbitability so as to bind the Tribunal or Courts,
internationally. If the judgment of a Court of
 secondary jurisdiction attempts to do so, such
action would be witlnout jurisdiction and therefore
not constitute res judicata or issue estoppel.
(Section 13 (a) CPC).

Lastly, if the determination by a Court of secondary

jurisdiction is held to be final, it may lead to absurd
results. Consider the following illustrations:

• If a suit is stayed/referred to arbitration in a third

country on a decision on the jurisdictional
question, will Indian courts be bound to refer the
matter to Arbitration under section 45?

• If the equivalent of a section 45 is dismissed in a

third country, are Indian courts bound to reject a
section 45?

If an anti-suit injunction in aid of arbitration is

refused/vacated by a Court of secondary
urisdiction, is every Court in the world or the
Arbitration Tribunal precluded from deciding the
issue of arbitability at any stage of the
proceedings?

If the issue of arbitability (in any proceeding) has

been determined by a court of secondary
jurisdiction, will the court of the seat be bound by
it while determining whether to set aside the
award?
 If a decision of a secondary court were binding on the
Tribunal/ a foreign court, the answer to the above
questions would be in the affirmative. This can never be
the case. Therefore, the decision of an Indian Court
under section45 can never bind the Tribunal.

c) The effect of BALCO v. Kaiser Aluminium on the

decision in Chlorocontrols.

Without getting into the debate about which parts of

BALCO are prospective and which are retrospective, it is
doubtful that the logic in Chlorocontrols would survive the
reasoning in the said judgment.

The decision in Chlorocontrols also relies heavily on the

earlier decision of the Supreme Court in SBP v. Patel
Engineering, which was in respect of Section 11, under
Part-1. Given the interrelation between Part-1 and Part-ll of
the Act, as laid down in Bhatia International and Venture
Global, it held that Patel Engineering would have a bearing
on the interpretation of Part-ll of the Act. The judgment in
BALCO^^"* specifically restored the separation between
Part-1 and Part-ll of the Arbitration Act. In light of the same,
under the BALCO Judgment, reliance cannot be placed on
Patel Engineering to interpret Part-ll of the Act. A large
basis for the justification in Chloro Controls does not
survive the decision in BALCO, on this ground alone.

Most importantly, BALCO confirmed the primacy of the seat

of Arbitration and in light thereof, there can no question of a
non-seat state binding the Tribunal or a foreign Court. As
 explained earlier, the primacy of the seat of arbitration
would imply that it is only the seat of arbitration that can
bind the tribunal or courts internationally. Therefore, while
the Chlorocontrols decision has been made under the pre-
BALCO regime, the decision is contrary to the fundamental
basis of BALCO.

(d) The Supreme Court in the context of Section 45, in

World Sport Group (Mauritius) Ltd. v. M.S.IVI.
Satellite has restricted the Judgment in N.
Radhakrishna to domestic arbitration only and not to
International Commercial Arbitration.

Between Balco and World Sport Group, the authority of Chloro-

control is considerably weakened.

The Supreme Court of India, in the Researchers opinion, if only

had recognized party autonomy which encompasses the
principles of separability and competence-competence would
have come out of the web it has created in the Law of Arbitration.
All Issues would then have been dealt with by the Tribunal with a
final review by the National Courts. When the world has moved
away from Court control to accepting party autonomy, in India, the
Court has increased its control on the arbitral process by playing
a hyper active role.