Holding

Section 45 requires only a prima facie determination of the existence and validity of the arbitration agreement, not a final, binding judgment.

Summary

Shin‑Etsu Chemical Co. Ltd. entered into a contract with AKSH Optifibre Ltd. containing an international arbitration clause. After the contract was terminated, the respondent sued for a declaration that the arbitration agreement was void, while the appellant sought a direction under Section 8 of the Arbitration and Conciliation Act, 1996 to refer the dispute to arbitration. The trial court referred the parties to arbitration, but the High Court held that the court should have examined the application under Section 45, which requires a determination of whether the agreement is null, void, inoperative or incapable of performance. The Supreme Court was asked whether a judicial authority must make a final, merits‑based finding on the validity of the arbitration agreement at the pre‑reference stage or merely a prima‑facie finding. By a majority, the Court held that Section 45 mandates only a prima‑facie view, to avoid delay and preserve the parties' right to contest the agreement later under Section 48. The matter was remanded to the trial court to decide the Section 45 application on a prima‑facie basis within two months. The appeal was allowed.

Issues considered

The scope of judicial power under Section 45 of the Arbitration and Conciliation Act, 1996 – whether the court must give a prima facie finding or a final, merits‑based finding on the validity of an arbitration agreement.
Whether a prima facie finding under Section 45 would preclude later challenge of the award under Section 48.
The effect of a final finding on res judicata and on the enforcement of foreign awards.

Legislation cited

Arbitration Act, 1940s. 34
Arbitration and Conciliation Act, 1996s. 44, s. 45, s. 48, s. 50, s. 8
Arbitration (Protocol and Convention) Act, 1937
Foreign Awards (Recognition and Enforcement) Act, 1961s. 3

Subjects

ArbitrationSection 45Prima facie findingInternational commercial arbitrationUNCITRAL Model LawForeign award enforcementRes judicataArbitration agreement validity

Judgment

SHIN-ETSU CHEMICAL CO. LTD. A
v.
AKSH OPTIFIBRE LTD. AND ANR.

AUGUST 12, 2005
B
[Y.K. SABHARWAL, D.M. DHARMADHIKARI AND
B.N. SRIKRJSHNA, JJ.]

Arbitration and Conciliation Act, 1996-Sections 8, 44, 45 and 50-
Respondent filing a suit before trial court for declaration and injunction
for cancellation of arbitration agree1nent being void ab intio, inoperative c
and incapable of performance-Appellant filing an application under
section 8 of the Act for direction to submit the respondent to arbitration
proceedings under the agreement-Trial Court allowing the application of
the appellant-High Court remanding back to trial court for fresh adju-
dication under section 45 of the Act-Scope of power of Judicial authority D
in deciding the validity of the arbitration agreement at pre-reference stage
contemplated under section 45 of the Act-Whether the judicial authority
should give a prima facie finding based on materials on record or a final
finding on merits after conducting a full-fledged trial-Held, as per majority
view, the judicial authority should give a prima facie finding and not a
final finding by conducting a full-fledged trial about the validity of the E
arbitration agreement to avoid inordinate delay in legal proceedings
defeating the object of the Act-Arbitration Act, 1940-Section 34; Arbi-
tration (Protocol and Convention) Act, 1937; Foreign Awards (Recognition
and Enforcement) Act, 1961-Section 3.
F
Appellant and first respondent entered into a commercial agree-
ment which contained an international arbitration clause. On termina-
tion of the agreement by the appellant, the respondent instituted a suit
before trial court claiming a decree of declaration and injunction against
the appellant for cancellation of the arbitration agreement being void
ab initio, inoperative and incapable of performance. The appellant filed G
an application in the suit, under section 8 of the Arbitration and Con-
ciliation Act, 1996 for direction to the first respondent to submit to
arbitration proceedings under the agreement. The trial court allowed
the application and referred the dispute t'o arbitration. The first re-
spondent challenged the order of the trial before High Court under H
699
700 SUPREME COURT REPORTS [2005) SUPP. 2 S.C.R.

A Article 227 of the Constitution of India. The High Court, by holding that
the trial court ought to have proceeded to examine the application of
the appellant under section 45 of the Act, set aside the order of the trial
court and remanded back for fresh adjudication.

B In appeal to this Court, the appellant contended that on combined
reading of Sections 45, 48 and 50 of the Arbitration and Conciliation
Act, 1996, the judicial authority is required only to give a prima facie
finding on examination of the documents and materials on record in-
cluding the arbitration agreement and not a final finding after conduct-
ing a full-fledged trial, and that the intention of the legislature is to avoid
C inordinate delay in the legal proceedings and the full-fledged trial for
a final finding may defeat the very purpose of the Act.

The first respondent contended that Section 45 of the Act should
be interpreted so as to give full effect to the opening non-obstante clause;
D and that if an issue is raised before the court regarding the legality or
validity of the agreement, then the court must give a finding on the issue
after conducting a full-fledged trial.

Remanding back the appeal to the trial Court, the Court

E HELD : [Per B.N. SRIKRISHNA, J]

1.1. If the court takes a prima facie view that the arbitration
agreement is not vitiated on account of factors enumerated in Section
45 of the Arbitration and Conciliation Act, 1996 and the arbitrator upon
F a full trial holds that there is no vitiating factor in the arbitration
agreement and makes an award, such an award can be challenged under
Section 48 (1) (a) of the Act. The award will be set aside if the party
against whom it is invoked satisfies the court inter alia that the agree-
ment was not valid under the law to which the parties had subjected it
or under the law of the country where the award was made. The two
G basic requirements, namely, expedition at the pre-reference stage and
a fair opportunity to contest the award after full trial would be fully
satisfied by interpreting Section 45 of the Act as enabling the court to
act on a prima facie view. [735-C, D, E)

H 1.2. If the finding made under Section 45 of the Act as to the validity
SHIN-ETSU CHEMICAL CO. LTD. v. AKSH OPTIFIBRE LTD. 701

of the arbitral agreement were to be treated as final, then the competent A
court, while entertaining an application for enforcement of a foreign
award, might decline to go into the same question. In other words, the
court before which enforcement is sought may not re-examine whether
the agreement was valid under the applicable law, on the ground that a
final judgment had been rendered on an earlier occasion by another B
competent court. The principles analogous to resjudicata might preclude
the party from raising the defence in a post-award situation under section
48(l)(a) of the Act. Hence, it would be preferable to hold that Section 45
of the Act requires only a primafacie view of the matter as to the absence
of the vitiating factors contemplated therein. (736-B, C, D]
c
1.3. If it is held that a final finding has to be given under section
45 of the Act, then it must necessarily be after a trial recording all
necessary evidence, in order ·to eliminate the likelihood of fraud, coer-
cion etc that may render the agreement void, inoperative or unenforce-
able. If the view is taken that it could be done only on the basis of D
affidavits by excluding oral evidence altogether, then it would render
injustice to the party because a final judgment would have been ren-
dered on insufficient material. An award may be challenged on the other
grounds available under Section 48 of the Act, which would have to be
tried out by a full trial by involving all kinds of evidence including oral
evidence. If that be so, then all issues, including the present issue, could E
also be tried fully after the award instead of seeking a final finding at
the pre-reference stage under Section 45 of the Act. This would be in
consonance with the ethos of the Act to avoid delay at different stages,
to centralize the court review of all disputes relating to the arbitration
at the post-award stage and also carry forward the objectives of the F
Model Law. (736-D-E; 740-A, BJ

1.4. It would not only be unfeasible to prove the applicable foreign
law exclusively through affidavits but it would also entail enormous
expenditure of time and money if it has to give a final finding after
conducting a full fledged trial on the validity of the arbitration agree- G
ment at the pre-reference stage under section 45 of the Act. If it is held
that the finding under Section 45 of the Act is only a prima facie view,
then all these difficulties could be obviated_ Neither the arbitral trib~nal
nor the court enforcing the arbitral award may consider itself bound
by the prima facie view expresoed under Section 45 of the Act. The H
702 SUPREME COURT REPORTS [2005] SUPP. 2 S.C.R.

A difficulty of having to conclusively prove the applicable foreign law at
a trial would also be obviated. [732-G; 738-D, E]

1.5. Fixing of a time limit, within which an issue can be determined
without oral evidence, may not be practical. If the applicable law is a
B foreign law, the time limit of three months is unlikely to be complied
with as it would be unfeasible. If, at the enforcement stage, a full trial
under Section 48 of the Act is permissible, it is better for the parties not
to have two trials i.e. one at the stage of Section 45 of the Act and another
at the stage of Section 48 of the Act. [748-D, E]

C 1.6. The object of dispute resolution through arbitration, including
international commercial arbitration, is expedition and that the object
or' the Act would bt: defeated if proceedings remain pending in court
even after commencing of the arbitration. Hence, at the pre-reference
stage contemplated by Section 45 of the Act, the court is required to take
D only a prima facie view for making the reference, leaving the parties to
a full trial either before the arbitral tribunal or before the court at the
post-award stage. Adopting a final and determinative approach under
Section 45 of !he Act may not only prolong the proceedings at the initial
stage but also correspondingly increase costs and uncertainty for all the
parties concerned. [748-F, G; 749-A]
E
Renusagar Power Co. v. General Electric Co., (1984] 4 SCC 679,
distinguished.

Mittal Engineering Works v. Collector of Central Excise, [1997] 1
SCC 203; Jagdish Lal v. State of Haryana, [1997) 6 SCC 538; Divisional
F Controller, KSRTC v. Mahadeva Shetty & Ors., (2003] 7 SCC 197; Mis
Amarnath Om Prakash v. State of Punjab, [1985) l SCC 345; Firm Ashok
Traders & Anr. v. Gurumukh Das Saluja, [2004) 3 SCC 155; National
Thermal Power Corporation v. Singer Company, [1992) 3 SCC 551; J.K.
Cotton Mills Spinning and Weaving Mills Co. Ltd. v. State of U.P., AIR
G (1961) SC 1170; Aswini Kumar v. Arabinda Bose, AIR (1952) SC 369;
Nathi Devi v. Radha Devi Gupta, [2005) 2 SCC 271 and Ghanshyamdas
v. Regional Assi~tant Commissioner, AIR (1964) SC 766, referred to.

G.P. Singh, Principles ofStatutory Interpretation (9th Edition 2004);
Craies on Statute Law [S.G.G. Edgar eds., 7th Edn., 1971, 1999 Indian
H Reprint], referred to.
SHIN-ETSU CHEMICAL CO. LTD. v. AKSH OPT!FIBRE LTD. 703

SMG Swedish Machine Group v. Swedish Machine Group, XVIII Y.B. A
COMM. ARB 457 [1993); Fondation M v. BanqueX, [1996) BULL. ASA
527 (Swiss Fed. Trib); FOUCHARD, GAILLARD, GOLDMAN ON
INTERNATIONAL COMMERCIAL ARBITRATION [E. Gaillard and J.
Savage, eds. 1999); Pacific International Lines (Pte.) Ltd. v. Tsinlien
Metals and Minerals Co. Ltd [XVIII Y.B. COMM. ARB. 180 (1993)] Rio B
Algom Ltd. v. Sami Steel Co. Ltd., [XVIII Y.B. COMM. ARB. 166 (1993)];
Azov Shipping Co. v. Baltic Shipping Co., (1999) I Lloyd's Rep. 68 Q.B.,
referred to.

[Per D.M DHARMADHIKRRJ, J. concurring]

I. If on a prima facie examination of the documents and material
c
on record, including the arbitration agreement on which request for
reference is made by one of the parties, the court decides to make a
reference, it may merely mention the submissions and contentions of!he
parties and summarily decide the objection if any raised on the alleged
nullity; voidness, inoperativeness or incapability of the arbitration D
agreement. In case, however, on aprimafacie 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 court is inclined to reject the request for
reference on the ground that the agr~ement is 'null and void' or 'inop- E
erative' or 'incapable of being performed' within the meaning of section
45 of the Act, the judicial authority or the court must afford full
opportunities to the parties to lead whatever documentary or oral evi-
dence they want to lead and then decide the question like a 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 F
court refuses to make a reference on the grounds available u11der 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. G
[750-A, B, C, D, EJ

[Per Y.K. SABHARWAL, J. dissenting]

HELD: I.I. fine words 'shall' and 'unless' appearing in section 45
of the Arbitration and Conciliation Act, 1996 mandates that before H
704 SUPREME COURT REPORTS (2005] SUPP. 2 S.C.R.

A referring the parties to arbitration, the judicial authority should be
satisfied that the arbitration agreement is not null and void, inoperative
or incapable of being performed. If the requirements of a statute which
prescribes the manner in which something is to be done are expressed
in negative language, i.e., if the statute enacts that it shall be done in
B such a manner and no other manner, then those requirements are in all
cases absolute and that neglect to attend to them will invalidate the
whole proceeding. [717-E, F, H, 718-A)

Konkan Railway Corpn. Ltd. & Ors. v. Mehul Construction Co., (2000)
7 SCC 201; Union ofIndia & Anr. v. G.M Kokil & Ors., [1984] Supp. SCC
C 196; Khub Chand & Ors. v. State of Rajasthan & Ors., AIR (1967) SC
1074 and Brace Transport Corporation of Monrovia, Bermuda v. Orient
Middle East Lines Ltd., Saudi Arabia & Ors., [1995] Supp. 2 SCC 280,
referred to.

Craies on Statute Law; 7th Ed., referred to.
D
1.2. Under Section 8 of the Act, insofar as domestic arbitration is
concerned, the legislature intended to achieve speedy reference of dis-
putes to arbitration tribunal and left most of the matters to be raised
before the arbitrators or post award. Under SPction 45 of the Act, in
the case of international arbitration, ~owever, in its wisdom, the legis-
E
lature left the question relating to validity of arbitration agreement
being examined by the court. One of the main reasons for the departure
being the heavy expense involved in. s.uch arbitrations which may be
unnecessary if the arbitration agreement is to be invalidated in the
manner prescribed in Section 45 of the Act. Hence, adopting liberal
F approach and restricting the determination by judicial authority about
validity of agreement only from prima facie angle, would amount to
adding words to Section 45 of the Act without there being any ambiguity
or vagueness therein. (721-G, H, 722-A, BJ '·

G Pacific International Lines (Pte) Ltd. v. Tsinlien Metal and Minerals
Co. Ltd., [Year Book of Commercial Arbitration, Vol. XVIII 1993, page
180}; Rio Algom Ltd. v. Sammi Steel Co. Ltd., (Year Book of Commercial
Arbitration, Vol. XVIII 1993, page 160); Comptek Telecomm v. IVD
Corp. (XXII Y. B. COMM. ARB. 905 (1997)) and SMG Swedish Machine
Group v. Swedish Machine Group (XVIII Y.B. COMM.ARB.457(1993)),
H referred to.
SHIN-ETSI I CHEMICAL CO. LTD. v. AKSH OPTIFIBRE LTD. 705

Fouchard Gaillard Goldman on International Commercial Arbitra- A
lion-Emmanuel Gaillard and John Savage Ed. 1999, referred to.

t.3. When words in an earlier statute have received an authoritative
exposition by superior Court, use of the same words in a similar context
in a latter Act will give rise to a strong presumption that the Parliament B
intends that the same interpretation should also be followed for
construction of these words in the latter statute, Further, Part II of the
Act was enacted to update the international commercial arbitration regime
to meet the present day challenges, If the legislature intended a minimalist
role of the courts, it would have enacted Section 45 more in terms of
section 8 of the Act than its present form, [719-G-H; 720-F) C

Renusagar Power Co. Ltd. v, General Electric Co. & Anr., (1984) 4
sec 679, relied on.
Bengal Immunity Co. ltd. v. State of Bihar, [1955) 2 SCR 603, D
referred to.

1.4. lfthe court is not asked to satisfy itself as to the validity of the
agreement at a pre-award stage under Section 45 of the Act, then by
virtue of Section 48, it is given another opportunity to do so, Apart from
this, under Section 48 of the Act, the court may refuse to enforce foreign E
award on the ground other than the invalidity of the arbitration
agreement. It is well settled in law that an appeal is a creature of statute,
The legislature under Section 50 of the Act has clearly allowed appeal
only in case the judicial authority refuses to refer the parties to arbitration
or refuses to enforce the foreign award, The fact that a provision is not F
made for an appeal in case reference is made to arbitration is not a
ground to say that the court should prima facie decide the validity of the
agreement ignoring the express provisions of Section 45 of the Act. The
legislature has granted right of appeal in the event of refusal to refer
but not in the event of order being made for reference of the parties to
arbitration. This provision for appeal is not determinative of the scope G
of Section 45 of the Act to mean that the determination thereunder has
to be only prima facie. The Indian Legislature has consciously adopted
a conventional approach so a• to save the huge expense involved in
international commercial arbitration as compared to domestic arbitra-
tion. Hence, under Section 45 of the Act, the determination has to be H
706 SUPREME COURT REPORTS [2005] SUPP. 2 S.C.R.

A on merits, final and binding and not primafacie. [729-C, D, E, F, G)·

1.5. The application filed by the appellant before the trial court
would be treated as an application under Section 45 of the Act. The
parties would be given opportunity to file documents and affidavits by
B way of evidence. No oral evidence would be examined. Though the
appellant itself is responsible for the delay that has occurred because
of application under provisions which had no applicability and insist-
ence thereupon, yet, considering that the application has been pending ·
for nearly two years, it is directed for disposal within a period of two
months of the receipt of the copy of this order. (729-H; 730-A, Bl
c
1.6. Ordinarily, such cases shall be decided on the basis of affidavits
and other relevant documents and without oral evidence. There may,
however, be few exceptional cases where it may become necessary to
grant opportunity to the parties to lead oral evidence. In both eventuali-
D ties, the judicial authority is required to decide the issue expeditiously
within a fixed time frame and not to treat such matters like regular civil
suit. The object of arbitration including international commercial arbi-
tration is expedition. The object of the Act would be defeated if the
international commercial disputes remain pending in court for months
E and years before even commencement of arbitration. Accordingly, it is
directed chat any application that may be filed under Section 45 of the Act
must be decided within three months ofits filing. In rare and exceptional
cases, the judicial authority may extend the time by another three months
but by sending a report to the superior/appellate authority setting out the
reasons for such extension, It would be for the superior/appellate authority
F to issue appropriate directions to the judicial authority and/or take such
other action as may be called for. [730-C, D, E, F)

CIVIL APPELLATE JURISDICTION : Civil Appeal No. 5048 of
2005.
G
From the Judgment and Order dated 12.1.2005 of the Rajasthan High
Court in S.B.C. W.P. No. 6371 of 2003.

R.F. Nariman, Dhruv Mehta, Mohit Chaudhary, Surendra Mann, and
H Harshvardhan Jha for Mis. K.L. Mehta & Co. for the Appellant.
SHIN-ETSU CHEMICAL CO.LTD. v. AKSH OPTIFIBRE LTD. [SABHARWAL, J.] 707

S. Ganesh and Man ish Singh vi for P .V. Y ogeswaran for the Respondent A
No. I.

Sunil Dogra and Ms. Rashi Malhotra for Mis. Suresh A. Shroff & Co.
for the Respondent. 2.
B
The Judgment/Order dated of the Court were delivered by

Y.K. SABHARWAL, J.: Leave granted.

The interpretation of Section 45 of the Arbitration and Conciliation
Act, 1996 (for short 'the Act') falls for determination in this matter. Section C
45 is as under:

"45. Power ofjudicial authority to refer parties to arbitration.-
Notwithstanding anything contained in Part I or in the Code of Civil
Procedure, I 908 (5 of I 908), a judicial authority, when seized of D
an action in a matter in respect of which the parties have made an
agreement referred to in section 44, shall, at the request of one of
the parties or any person claiming through or under him, refer the
parties to arbitration, unless it finds that the said agreement is null
and void, inoperative or incapable of being performed."
E
The real question for consideration is as to the nature of adjudication
that is contemplated by Section 45 when the objection about the agreement
being "null and void, inoperative or incapable of being performed" is raised
before a judicial authority. Should the judicial authority while exercising
power under Section 45 decide the objection on a prima facie view of the F
matter and render a prima facie finding or a final finding on merits on
affording parties such opportunity as the justice of the case may demand
having regard to facts of the case?

The question is important and at the same time not free from difficulty.
World over the opinion is divided. Courts in some of the countries have G
preferred the view that the adjudication should be prima facie so as to be
raised again before arbitral forum and others have preferred a final adju-
dication.

Under Section 45 of the Act, the judicial authority has to mandatorily H
708 SUPREME COURT REPORTS [2005] SUPP. 2 S.C.R.

A refer the parties to arbitration, if conditions specified in the section are
fulfilled and agreement is not found to be null and void, inoperative or
incapable of being performed.

From Indian perspective to answer the question, first it would be useful
B to examine few other provisions of the Act besides the Preamble and the
Statement of Objects and Reasons and in that light consider the international
precedents.

The question being examined by this Court is in relation to a consoli-
dated legislation which deals with domestic arbitration, international com-
C mercial arbitration and enforcement of foreign arbitral awards. Before
enactment of the Act there were separate statutes governing the international
arbitration and domestic arbitration, naniely, the Arbitration (Protocol and
Convention) Act, 1937 (6 of 1937), The Arbitration Act, 1940 (I 0 of 1940)
and The Foreign Awards (Recognition and Enforcement) Act, 1961 (45 of
D 1961). These statutes have been repealed as provided in Section 85 of the
Act.

The 19% Act was enacted considering the international scenario as is
evident from its Preamble, which reads :

"WHEREAS the United Nations Commission on International Trade
E
Law (UNCITRAL) has adopted the UNCITRAL Model Law on
International Commercial Arbitration in 1985:

AND WHEREAS the General Assembly of the United Nations has
recommended that all countries give due consideration to the "said
F Model Law, in view of the desirability of uniformity of the law of
arbitral procedures and the specific needs of international commer-
cial arbitration practice;

AND WHEREAS the UNCITRAL has adopted the UNCITRAL
Conciliation Rules in 1980;
G
AND WHEREAS the General Assembly of the United Nations has
recommended the use of the said Rules in cases where a dispute
arises in the context of international commercial relations and the
parties seek an amicable settlement of that dispute by recourse to
H conciliation;
SHIN-ETSU CHEMICAL CO. LTD.\". AKSH OPTIFIBRE LTD. [SABHARWAL, J.J 709

AND WHEREAS the said Model Law and Rules make significant A
contribution to the establishment of a unified legal framework f~r
the fair and efficient settlement of disputes arising in international
commercial relations;

AND WHEREAS it is expedient to make law respecting arbitration B
and conciliation, taking into account the aforesaid Model Law and
Rules;"

The enforcement of foreign awards has been dealt with in Part II of
the Act which has two Chapters, Chapter I dealing with New York Conven-
tion Awards and Chapter lI dealing with Geneva Convention Awards. In this c
matter we are concerned with Chapter l which comprises of Sections 44 to
52. Section 44 defines foreign award. It is not in dispute that the present
.,. case falls under the ambit of Section 44. Section 45 has already been
extracted above. Conditions for enforcement of foreign a\vards are stipu~
lated in Section 48 under which enforcement may be refused at the request D
of the party against whom it is invoked only if that party furnishes to the
court proof as postulated in clauses (a) and (e). In addition, the enforcement
of the award may also be refused on the grounds stipulated in Section 48(2)
of the Act. Section 49 provides that where the court is satisfied that the
foreign award is enforceable under Chapter l, the award shall be deemed
to be a decree of the court. Section 50 provides as to against which orders E
an appeal shall lie. It reads as under :

"50. Appealable orders.-(!) An appeal shall lie from the order
refusing to-
F
(a) refer the parties to arbitration under section 45;

(b) enforce a foreign award under section 48, to the court
authorised by law to hear appeals from such order.

(2) No second appeal shall lie from an order passed in appeal under G
this section, but nothing in this section shall affect or take away any
right to appeal to the Supreme Court."

As can be seen fro1n above, an order refusing to refer the parties to
arbitration under Section 45 of the Act is appealable. There is, however, no H
710 SUPREME COURT REPORTS [2005) SUPP. 2 S.C.R.

A provision for filing an appeal if the judicial authority refers the parties to
arbitration.

Reference may also be made to Section 8 of the Act although it deals
with domestic arbitration. It reads thus:
B
"8. Power to refer parties to arbitration where there is an arbitra-
tion. agreement.- (1) A judicial authority before which an action
is brought in a matter which is the subject of an arbitration agree-
ment shall, if a party so applies not later than when submitting his
first statement on the substance of the dispute, refer the parties to
c arbitration.

(2) The application referred to in sub-section (1) shall not be
entertained unless it is accompanied by the original arbitration
agreement or a duly certified copy thereof.
D
(3) Notwithstanding that an application has been made under sub-
section (1) and that the issue is pending before the judicial author-
ity, an arbitration may be commenced or continued and an arbitral
award made."

E Under the Old Arbitration Act (Section 34 of Arbitration Act, 1940),
court had discretion in the matter of grant of stay of legal proceedings where
there was an arbitration agreement on being satisfied that the arbitration
agreement exists factually and legally and disputes between the parties are
in regard to the matter agreed to l\e referred to arbitration. The Court in
F exercise of its discretion could also decline an order of stay despite existence
of aforesaid conditions, depending upon the facts and circumstances of the
case. The discretion was, however, required to be exercised on well settled
judicial principles.

Section 8 of the Act is a departure from Section 34 of the old Act.
G Under this section judicial authority has no discretion. It is mandatory for
the judicial authority to refer the parties to arbitration on the existence of
conditions stipulated in the section. Unlike Section 45, the judicial authority
under Section 8 has not been conferred the power to refuse reference to
arbitration on the ground of invalidity of the agreement. It is evident that '
H the object is to avoid delay and accelerate reference to arbitration leaving
SHIN~ETSU CHEMICAL CO. LTD.'"· AKSH OPTIF!BRE LTD. [SABHARWAL, J.] 711

the parties to raise objection, if any, to the validity of the arbitration A
agreement before the arbitral forum and/or post award under Section 34 of
the Act.

Dealing with the statement of object and reasons of the Act, this Court
in Konkan Railway Corpn. ltd & Ors. v. Mehul Construction Co., [2000] B
7 sec 20 I said:

"At the outset, it must be borne in mind that prior to the 1996 Act,
the Arbitration Act of 1940, which was in force in India provided
for domestic arbitration and no provision was there to deal with the
Foreign Awards. So far as the Foreign Awards are concerned, the c
same were being dealt with by the Arbitration (Protocol and Con-
vention) Act, 1937, and the Foreign Awards (Recognition and
Enforcement) Act, 1961. The increasing growth of global trade and
the delay in disposal of cases in Courts under the normal system
in several countries made it imperative to have the perception of D
an alternative Dispute Resolution System, more particularly, in the
matter of commercial disputes. When the entire world was moving
in favour of a speedy resolution of commercial disputes, the United
Nations Commission on International Trade Law way back in 1985
adopted the Uncitral Model Law of Intern~tional Commercial Ar-
bitration and since then, number of countries have given recognj~ E
tion to that Model in their respective legislative system. With the
said Uncitral Model Law in view the present Arbitration and
Conciliation Act of 1996 has been enacted in India replacing the
Indian Arbitration Act, 1940, which was the principal legislation
on Arbitration in the country that had been enacted during the F
British Rule. The Arbitration Act of 1996 provides not only for
domestic arbitration but spreads its sweep to International Com-
mercial Arbitration too. The Indian law relating to the enforcement
ofForeign Arbitration Awards provides for greater autonomy in the
arbitral process and limits judicial intervention to a narrower cir-
cumference than under the previous law. To, attract the confidence G
of International Mercantile community and the growing volume of
India's trade and commercial relationship with the rest of the world
after the new liberalisation policy of the Government, Indian Par-
liament was persuaded to enact the Arbitration and Conciliation Act
of 1996 in Uncitral Model and, therefore, in interpreting any pro- H
712 SUPREME COURT REPORTS [2005] SUPP. 2 S.C.R.

A visions of the 1996 Act Courts must not ignore the objects and
purpose of the enactment of 1996. A bare comparison of different
provisions of the Arbitration Act of 1940 with the provisions of the
Arbitration and Conciliation Act, 1996 would unequivocally indi-
cate that 1996 Act limits intervention of Court with an arbitral
B process to the minimum and it is certainly not the legislative intent
that each and every order passed by an authority under the Act
would be a subject matter of judicial scrutiny of a Court of Law.
Under the new law the grounds on which an award of an Arbitrator
could be challenged before the Court have been severely cut down
and such challenge is now permitted on the basis of invalidity of
c the agreement, want of jurisdiction on the part of the Arbitrator or
want of proper notice to a party of the appointment of the Arbitrator
or of Arbitral proceedings. The powers of the Arbitrator have been
amplified by insertion of specific provisions of several matters.
Obstructive tactics adopted by the parties in arbitration proceedings
D are sought to be thwarted by an express provision inasmuch as if
a party knowingly keeps silent and then suddenly raises a proce-
dural objection will not be allowed to do so. The role of institutions
in promoting and organising arbitration has been recognised. The
power to nominate Arbitrators has been given to the Chief Justice
or to an institution or person designated. by him, The time limit for
E . making awards has been deleted. The existing provisions in 1940
Act relating to arbitration through intervention of Court, when there
is no suit pending or by order of the Court when there is a suit
pending, have been removed. The importance of transnational
commercial arbitration has been recognised and it has been specifi-
F cally provided that even where the arbitration is held in India, the
parties to the contract would be free to designate the law applicable
to the substance of the dispute. Under ~he new law unless the
agreement provides otherwise, the Arbitrators are required to give
reasons for the award. The award itself has now been vested with
status of a decree, inasmuch as the award itself is made executable
G as a decree and it will no longer be necessary to apply to the Court
for a decree in terms of the award. All these aim at achieving the
sole object to resolve the dispute as expeditiously as possible with
the minimum intervention of a Court of Law so that the trade and
commerce is not affected on account of litigations before a Court.
H When United Nations established the Commission on International
SHIN-ETSU CHEMICAL CO. LTD. v. AKSH OPTJFIBRE LTD. [SABHARWAL. J.J 713

Trade Law it is on account of the fact that the General Assembly A
recognised that disparities in national laws governing international
trade created obstacles to the flow of trade. The General Assembly
regarded the Commission on International Trade Law as a medium
which could play a more active role in reducing or removing the
obstacles. Such Commission, therefore, was given a mandate for B
progressive harmonization and unification of the law of Interna-
tional Trade. With that objective when Uncitral Model has been
prepared and the Parliament in our country enacted the Arbitration
and Conciliation Act of 1996 adopting Uncitral Model, it would be
appropriate to bear the said objective in mind while interpreting any
provision of the Act. The Statement of Objects and Reasons of the C
Act clearly enunciates that the main objective of the legislation was
to minimise the supervisory role of Courts in the arbitral process ... "

True, now the judicial interference has been limited to a narrower
circumference than under the old arbitration laws but the question
here is when Section 45 of the Act envisages judicial interference, D
..",~hat is the extent thereof having regard to the language of the
section and the scheme of the Act. What is the standard of review that the
judicial authority should adopt in relation to the arbitration agreement at the
initial stage of Section 45, viz.-, a prima facie finding or a final finding?
E
At this stage, we may briefly notice the Circumstances under which the
matter has come up for consideration before this Court. There is hardly any
controversy in respect of material facts necessary for examination of the
question involved. The controversy is only in regard to the power exercis-
able by a judicial authority under Section 45 of the Act.
F
Parties (Appellant and Respondent No.I) entered into an agreement
dated 16/18th November, 2000 which contained an arbitration clause as
under:

"Governing Law. This Agreement shall be governed by and con-
strued and interpreted under the laws of Japan. All disputes arising G
out of or in relation to this Agreement which cannot be settled by
mutual accord shall be settled by arbitration in Tokyo, Japan, in
accordance with the Rules of Conciliation and Arbitration of Inter-
national Chamber of Commerce. The award of arbitration shall be
final and binding upon both parties." H
714 SUPREME COURT REPORTS [2005] SUPP. 2 S~C.R.

A The appellant terminated the agreement in terms of its letter dated 31st
December, 2002. The first respondent instituted a suit claiming a decree of
declaration and injunction against the appellant for cancellation of the
document dated 16/18th November, 2000 and/or declaration that the long
term sale and purchase agreement dated I 6/18th November, 2000 including
the arbitration clause on the ground that the terms of agreement are uncon-
B scionable, unfair and unreasonable and against the public policy and the
same was entered into under undue influence and is, therefore, void ab
initio, inoperative and incapable of performance and cannot be given effect
to. The appellant made an application in the suit praying that the plaintiff
shall be directed to submit to the ongoing arbitration proceedings before the
c International Chamber of Commerce in Tokyo, Japan. The application was,
however, filed under Section 8 of the Act.

The trial court by order dated 29th September, 2003 came to the
conclusion that the application of the appellant under Section 8 of the Act
deserves to be allowed. Consequently, the parties were referred to arbitra-
,, D tion. It was urged on behalf of the appellant before the trial court that since
there is an arbitration clause in the agreement, court's jurisdiction is ex-
hausted as Section 8 is mandatory and, therefore, court must refer the dispute
to arbitration. As already noticed, unlike Section 45 the objection as to the
validity of the arbitration agreement cannot be raised as a defence to an
application filed under Section 8. This seems to be the reason for the
E
appellant insisting before the trial court that Section 8 is applicable and not
Section 45 of the Act. It is clearly not a case of filing an application under
a wrong provision. The trial court also proceeded under erroneous assump-
tion that Section 45 comes into play after the award is made as such a
submission seems to have been made by the appellant before that court.
F
The order of the trial court was challenged by the first respondent
before the High Court in a petition filed under Article 227 of the Constitution
of India, there being no provision of appeal against an order of reference
to arbitration. Even before the High Court, it was contented for the appellant
that as both Section 8 and Section 45 were applicable, the application under
G Section 8 of the Act was rightly moved before the trial court and the court ~

did not commit any error in considering the matter for reference to arbitra-
tion after application of Section 45 of the Act.

The High Court examined the question whether Section 45 has been
H applied by the trial court and, if so, in its true perspective. The High Court
SHIN-ETSU CHEMICAL CO.LTD. v. AKSH OPTIFIBRE LTD. [SABHARWAL, J.] 715

held that the trial court ought to have proceeded to examine the application A
under Section 45 of the Act which was not done. Under these circumstances,
without entering into merits of the case, the High Court directed fresh
adjudication of the application by the trial court after application of Section
45 of the Act. Consequently, by the impugned judgment, the order of the
trial court dated 29th September, 2003 was set aside and matter remanded B
for fresh decision of the trial court.

Before this Court, learned counsel for the parties have rightly taken the
stand that only Section 45 is applicable and Section 8 has no applicability.
It is evident that there has been no adjudication of the application by the
trial court in terms of Section 45 of the Act. The trial court has not gone C
into the question, prim a facie or finally, as to agreement being null and void,
inoperative or incapable of being performed, which was the objection raised
by the first respondent in reply to the application of the appellant. Thus, on
ingredients of Section 45, there was no adjudication. Therefore, the direc-
tion of the High Court for fresh adjudication of application of the appellant D
having regard to the provisions of Section 45 of the Act cannot be faulted.
It is also necessary to issue directions for expeditious adjudication of the
said application by the trial court but after first determining the scope of
adjudication in exercise of power under Section 45.

On behalf of the appellant, Mr. Nariman contends that the considera- E
tion by the judicial authority under Section 45 has to be on a prima facie
view of the matter based on examination of the plaint and any documents
attached thereto, reply to the application for reference and any documents
attached thereto and the affidavits filed by the parties. The court, on a prima
facie examination of the pleadings and documents, should come to the F
conclusion as to whether the arbitration agreement is null or void, inopera-
tive or incapable of being performed. Learned counsel submits that final
determination on merits in some cases may even require recording of
evidence and proceedings may turn out to be a full fledged trial thereby
defeating the very purpose for the enactment of the Act. It is urged that the
final determination can be made if such objections are raised before the G
arbitral forum and/or post award by the court.

On the other hand, on behalf of first respondent, Mr. Ganesh contends
that Section 45 of the Act should be interpreted so as to give full effect to
the opening non-obstante clause and to the wordings of Section 45 which H
716 SUPREME COURT REPORTS [2005] SUPP. 2 S.C.R.

A are entirely different from Section 8 in their effect and operation. It is urged
that Section 45 cannot be construed in a way that it becomes indistinguish-
able from Section 8. It is further submitted that under Section 45, if an issue
is raised'before the court regarding the legality or validity of the agreement,
then the court must give a finding on the issue. The contention is that the
court would make an order of reference to arbitration only if the arbitration
B
agreement is legal and valid. Further, it is contended that it would be a
different matter if objection as to the validity of the arbitration agreement
is not raised before the judicial authority and the party prefers to raise it
before the arbitral forum and/or post award, in the event of award being
against that party.
c
Which of the two views is correct requires determination.

[t may be noted that Section 3 of the Foreign Awards Act, 1961, before
the enactment of the Act, contained somewhat similar provision providing
for the stay of the proceedings in the court, unless the agreement was null
D and void, inoperative or incapable of being performed. The only material
difference between the said Section 3 and present Section 45, is that former
contains provision for stay of the proceedings in the 1suit and latter for
reference to be made to arbitration. That difference, for our purposes, is of
no consequence. Section 3 of the Foreign Awards Act, 1961 as amended
E by Act 47 of 1973, (omitting unnecessary words) reads as under:

"3. Stay of proceedings in respect of matters to be referred to
arbitration. - Notwithstanding anything contained in the Arbitra-
tion Act, 1940, or in the Code of Civil Procedure, 1908, if any party
to an agreement to which Articles II of Convention set forth in the
F Schedule applies, commences any legal proceedings in any court
against any other party to the agreement, in respect of any matter
agreed to be referred to arbitration in such agreement, any party to
such legal proceedings may, at any time after appearance and
before filing a written statement or taking any other step in the
proceedings, apply to the court to stay the proceeding and the court,
unless satisfied that the agreement is null and void, inoperative or
incapable of being performed or that there is not, in fact, any
dispute between the parties with regard to the matter agreed to be
referred, shall make an order staying the proceedings."

H Both the sections start with a non-obstante clause giving overriding
SHIN-ETSU CHEMICAL CO. LTD. v. AKSll OPTJFIBRE LTD. fSABHARWAL, J.] 717

effect to the provisions contained therein and making it prevail over any- A
thing to the contrary contained in the Arbitration Act, 1940 in one case, or
Part 1 of the Act in the other case or the Code of Civil Procedure. Further,
unlike Section 34 of the Arbitration Act, 1940, which confers a discretion
upon the court, as earlier noted, Section 3 uses the mandatory expression
and makes it obligatory for the court to pass an order staying the legal B
proceedings commenced by a party to the agreement if the conditions
specified therein are fulfilled.

A non-obstante clause is a legislative device which is usually implied
to give overriding effect to certain provisions over some contrary provisions
that may be found either in the same enactment or some other enactment, C
that is to say, to avoid the operation of all contrary provisions. [Union of
India & Anr. v. G.M Kokil & Ors., [1984] Supp.SCC 196].

Section 45 uses the expression 'shall' in respect of referring the parties
to arbitration, unless judicial authority finds that the said agreement is null D
and void, inoperative or incapable of being performed. The term 'shall' in
its ordinary significance is mandatory and the court shall ordinarily give that
interpretation unless such an interpretation leads to some absurd or incon-
venient consequence or be at variance with the intent of the legislature, to
be collected from other parts of the statute. [Khub Chand & Ors. v. State
of Rajasrhan & Ors., AIR (1967) SC 1074]. E

The words 'shall' and 'unless' appearing in Section 45 man.dates that
before referring the parties to arbitration, the judicial authority should be
satisfied that the arbitration agreement is not null and void, inoperative or
incapable of being performed. Jn Brace Transport Corporation of Monrovia, F
Bermuda v. Orient Middle East lines ltd., Saudi Arabia & Ors., [1995]
Supp. 2 SCC 280 at 286, this Court held :

"The court of a contracting State, when seized of an action in a
matter in respect of which the parties have made an agreement
within the meaning of Article II shall upon the request of one of G
the parties, refer to arbitration, unless it finds the agreement is null
and void, inoperative or incapable of being performed."

Jfthe requirements of a statute which prescribes the manner in which
something is to be done are expressed in negative language, that is to say, H
718 SUPREME COURT REPORTS (2005] SUPP. 2 S.C.R.

A if the statute enacts that it shall be done in such a manner and no other
manner, it has been laid down that those requirements are in all cases
absolute, and that neglect to attend to them will invalidate the whole pro-
ceeding. [Craies on Statute Law; 7th Ed., at page 263].

B Section 45 is clear; there is no doubt, ambiguity or vagueness in it.

Now, I may refer to decision in Renusagar Power Co. Ltd. v. General
Electric Co. & Anr., [ 1984] 4 SCC 679 in which interpretation of Section
3 of the Foreign A wards Act, 196 l came up for consideration. One of the
parties to the arbitration agreement invoked the arbitration clause while the
c other party filed a suit seeking declaration that claims referred to the
arbitration were beyond the scope of the arbitration agreement and the other
party is not entitled to refer the claims to the arbitration and making
consequential prayers for injunction restraining the party invoking arbitra-
tion clause and the arbitrator from pr9ceeding with the matter and obtained
D an interim order. The other party filed a petition under Section 3 of the
Foreign Awards (Recognition and Enforcement) Act, 196 l seeking the stay
of the proceedings in the suit and praying for vacating the interim relief
granted in the matter. Learned Single Judge of the High Court allowed the
petition under Section 3 and granted stay of proceedings in the suit and
vacated the interim relief. The order was maintainea by the Division Bench.
E Before this Court, it was argued that a stay, if granted in a petition under
Section 3, would render the suit dead for all purposes and there would be
nothing left to be decided in the suit either because the suit is stayed
indefinitely or alternatively because the decision on the issue would operate
as res judicata in the suit, and, therefore, no relief of stay should be granted
F which will have such effect merely on a prima facie view or a pro tanto
finding on the issue of arbitrability of the claims. In other words, the
contention was that a Section 3 petition could not be a proper stage to decide
the issue of arbitrability of the claims but the same should be decided in the
suit when it will be finally tried.

G While rejecting this contention it was held that :

"if regard be had to the provisions of Section 3 as well as the legal
position arising under decided cases the contention will be found
to be devoid of any substance. It may be that a stay of the suit either
H under Section 3 of the Foreign Awards Act or under Section 34 of
SHlN-ETSU CHEMICAL CO. LTD. v. AKSH OPTIFIBRE LTD. [SABHARWAL, J.] 719

the Arbitration Act, 1940 may have the effect of finally disposing A
of the suit for all practical purposes as pointed out by the Allahabad
High Court. But that is no reason why the relief of stay should be
refused by the Court if the concerned legal provision requires the
court to do so. Here we are concerned with Section 3 which makes
it obligatory upon the Court to stay the legal proceedings if the B
conditions of the section are satisfied and what is more the section
itself requires that before any stay is granted the Court should be
satisfied that the arbitration agreement is valid, operative and
capable ofbeing performed and that there are disputes between the
parties with regard to the matters agreed to be referred to arbitra-
tion [conditions (v) and (vi) mentioned earlier]. In other words, the C
section itself indicates that the proper stage at which the Court has
to be fully satisfied about these conditions is before granting the
relief of stay in a Section 3 petition and there is no question of the
Court getting satisfied about these conditions on any prima facie
view or a pro tanto finding thereon. Parties have to put their entire D
material before the Court on these issues (whichever may be raised)
and the Court has to record its finding thereon after considering
such material. "
(Emphasis supplied by us)

In Para 59 the Court further observed that : E

"It may be stated that though Section 34 of the Arbitration Act,
1940 confers a discretion upon the Court in the matter of granting
stay of legal proceedings where there is an arbitration agreement,
it cannot be disputed that before granting the stay the Court has to F
satisfy itself that arbitration agreement exists factually and legally
and that the disputes between the parties are in regard to the maters
agreed to be referred to arbitration."

The question is : did the Parliament intend differently while using the
terminology in Section 45 as it did? When words in an earlier statute have G
received an authoritative exposition by superior Court (interpretation of
Section 3 in Renusagar 's case), use of same words in a similar context in
a later Act will give rise to a strong presumption that the Parliament intends
that the same interpretation should also be followed for construction of these
words in the later statute : H
720 SUPREME COURT REPORTS [2005] SUPP. 2 S.C.R.

A "D' Emden v. Pedder, [1904] 1 C.L.R. 91, 100 per Griffiths C.J.:
"When a particular form of legislative enactment which has re-
ceived authoritative interpretation, whether by judicial decision or
by a long course of practice, is adopted in the framing of a later
statute, it is a sound rule of construction to hold that the words so
adopted were intended by the legislature to bear the meaning which
B
had been so put upon them."

"According to Lord Macmillian, 'if an Act of Parliament referring
to the same subject, and passed with the same purpose, and for the
same object, the safe and well-known rule of construction is to
c assume that the legislature when using well-known words upon
which there have been well-known decisions uses those words in
the sense which the decisions have attached to them'."

In Bengal Immunity Co. Ltd. v. State of Bihar, [1955] 2 SCR 603,
D Venkatarama Aiyer, J. stated that :

"It is a well-settled rule of construction that when a statute is
repealed and re-enacted and words in the repealed statute are re-
produced in the new statute, they ~hould be interpreted in the sense
which had been judicially put on them under the repealed Act,
E because the legislature is presumed to be acquainted with the
construction which the courts have put upon the words, and when
they repeat the same words, they must be taken to have accepted
the interpretation put on them by the court as correctly reflecting
the legislative mind."
F
Further, Part II of the Act was enacted to update the international
commercial arbitration regime to meet the present day challenges. If the
legislature intended a minimalist role of the courts, it would have enacted
Section 45 more in terms of Section 8 than its present form.

G Section 3 of the Foreign Awards Act above noticed" was analogous to
Article II (3) of the 'New York Convention which is in the following terms:

"Article II of the New York Convention

H 1. ***
SHIN-ETSU CHEMICAL CO. LID. v. AKSH OPTIFIBRE LTD. [SABHAR\VAL, J.] 721

2. ••• A

3. The court of a Contracting State, when seized of an action in a
matter in respect of which the parties have made an agreement
within the meaning of this article, at the request of one of the
parties, refer the parties to arbitration, unless it finds that the said B
agreement is null and void, inoperative or incapable of being per-
formed."

The aforesaid provision has been substantially reproduced in Section
45.
c
Clearly Section 45 casts an obligation upon the judicial authority when
seized of the matter to reco~d a finding as to the validity of the arbitration
agreement as stipulated in the Section and there is nothing to suggest either
from the language of the section or otherwise that the finding to be recorded
is to be only ex facie or prima facie. D
It is true that Section 5 limits judicial intervention in the manner
provided therein. It accelerates the arbitral process by curtailing chances of
delay that may be caused in court proceedings. But, at the same time, it is
also clear that though Sections 8 and 45 both deal with the power of judicial
authority to refer parties to arbitration, in the former which deals with E
domestic arbitration, no provision has been made for examining at that stage
the validity of the arbitration agreement whereas under Section 45 which
deals with arbitrations to which New York Convention applies, a specific
provision has been made to examine the validity of the arbitration agreement
in the manner provided in Section 45. Both provisions are differently F
structured albeit the purpose of both is to refer parties to arbitration but in
one case domestic arbitration and in other case international arbitration.
Unlike Section 8 which provides that the application shall be moved not later ·
than when submitting the first statement of the substance of the dispute,
under Section 45 there is no such limitation. The apparent reason is that
insofar as domestic arbitration is concerned, the legislature intended to G
achieve speedy reference of disputes to arbitration tribunal and left most of
the matters to be raised before the arbitrators or post award. In case of
foreign arbitration, however, in its wisdom the legislature left the question
relating to validity of arbitration agreement being examined by the court.
One of the main reasons for the departure being the heavy expense involved H
722 SUPREME COURT REPORTS [2005) SUPP. 2 S.C.R.

A in such arbitrations which may be unnecessary if the arbitration agreement
is to be invalidated in the manner prescribed in Section 45.

In view of the aforesaid, adopting liberal approach and restricting the
determination by judicial authority about validity of agreement only from
B prima facie angle, would amount to adding words to Section 45 without
there being any ambiguity or vagueness therein.

The traditional approach has been to allow a court, where a dispute has
been brought despite an arbitration agreement, to fully rule on the existence
and validity of the arbitration agreement. This approach would ensure that
c the parties are not proceeding on an invalid agreement as this would be a
fruitless exercise involving much time and expenditure. In some countries,
however, the traditional approach has changed. The liberal.~pproach which
seems to be gaining increasing popularity in many legal systems both
statutorily as well as through judicial interpretation is to restrict the review
D of validity of arbitration agreement at a prima facie level. For final review
the,parties may raise issue before arbitral forum or post award.

The 1987 Swiss Private International Law Statute stipulates that "if the
parties have concluded an arbitration agreement covering an arbitrable
dispute, a Swiss court seized of it shall decline jurisdiction unless: b. the •
E court finds that the arbitral agreement is null and void, inoperative or
incapable of being performed" (Article 7). These provisions could easily be
read as implying that a court seized of the merits of a dispute in spite of
the existence of an arbitration agreement would have to fully address the
question of that agreement's effectiveness. However, after some hesitation,
F the Swiss Federal Tribunal decided to interpret them as restricting the
court's review at the outset of proceedings to a prima facie verification of
the existence and effectiveness of the arbitration clause. (Fouchard Gaillard
Goldman on International Commercial Arbitration-Emmanuel Gaillard and
John Savage Ed. l 999 - Para 675, Page 409)

G According to the French Code of Civil Procedure (which applies to
both domestic and international arbitration), the courts are obliged to decline
jurisdiction where an arbitration agreement exists, provided that tile merits
of the dispute have already been put before an arbitral tribunal. Even where
the dispute is not before an arbitral tribunal, the French Courts must also
H decline jurisdiction unless the arbitration agreementis "patently void". This
SHN-ETSU CHEMICAL CO. LTD. v. AKSH OPTIFIBRE LTD. [SABHARWAL, J.J 723

in substance amounts to a prima facie review of the existence and validity A
of the arbitration agreement. Similarly, Art.VI (2) of the European Conven-
tion on International Commercial Arbitration ( 1961) adopts a prima facie
standard by providing that courts shall not determine the initial validity/
existence of the arbitration agreement unless there are "good and substantial
reasons to the contrary''.
B
The Geneva Protocol on Arbitration Clauses in Commercial Matters
(1923) (Art.IV, Para l), the New York Convention (Art.II, Para 3) as well
as the UNCITRAL, Model Law (Art.VIII) like Section 45 of the Act have
similarly ambiguous phraseology capable of either interpretation. It is true
that courts in two common law jurisdictions, Ontario and Hong Kong, both C
of which have based their law on the UNCITRAL Model Law (like India),
have adopted a liberal approach to the issue.

In Pacific International lines (Pte) ltd v. Tsinlien Metal and Minerals
Co. Ltd, the High Court of Hong Kong (Year Book of Commercial Arbi- D
!ration, Vol. XVlll, 1993, pg.180) was concerned with the issue as to
whether on the facts of the case there was an arbitration agreement within
the meaning of Article 7 of the UNCITRAL Model Law, which deals with
the definition and form of arbitration agreement and reads thus :

"Article 7. Definition and form of arbitration agreement E

( l) "Arbitration agreement" is an agreement by the parties to
submit to arbitration all or certain disputes which have arisen or
which may arise between them in respect of a defined legal rela-
tionship, whether contractual or not. An arbitration agreement may F
be in the form of an arbitration clause in a contract or in the form
of a separate agreement.

(2) The arbitration agreement shall be in writing. An agreement
is in writing if it is contained in a document signed by the parties
or in an exchange of letters, telex, telegrams or other means of G
telecommunications which provide a record of the agreement, or
in an exchange of statements of claim and defence in which the
existence of an agreement is alleged by one party and not denied
by another. The reference in a contract to a document containing
an arbitration clause constitutes an arbitration agreement provided H
724 SUPREME COURT REPORTS [2005] SUPP. 2 S.C.R.

A that the contract is in writing and the reference is such as to make
that clause part of the contract."

The parties entered into a charter party agreement containing an arbi-
tration clause through a broker. The ship company raised a claim for certain
sum of money. The arbitration clause provided that one arbitrator was to
B
be nominated by the shipping company and the other by the charters. The
charters failed to appoint its arbitrator, whereupon, the shipping company
approached the High Court to appoint an arbitrator on behalf of the charters.
The charters objected that there was no valid arbitral clause between the
parties. It was the contention of the charters that they entered into charter
c party agreement with the broker and not with the shipping company who
deny having given the brokers any authority to enter into an agreement. The
{
Court laid down the proposition that "if the court is satisfied that there is
a 'plainly arguable' case to support the proposition and there was an arbi-
tration agreement which complies with Article 7 of the Model Law, the
D Court should proceed to appoint the arbitrator in the full knowledge that the
defendants will not be precluded from raising the point before the arbitrator
and having the matter re-considered by the court consequent upon that
preliminary ruling."

The Court after examining the documents aud taking into account the
E commercial reality of the situation came to the conclusion that the plaintiffs,
i.e., shipping company has made out a 'strongly arguable case' in support
of the existence of an arbitration agreement. The Court fmther observed that
"obviously it has not been possible for me to go into this in any great detail
and indeed the whole matter has been dealt with affidavit evidence. Despite
F the fact that there is no document before me, which shows that World Ace
were held out or authorized by the defendant to act for them in relation to
its fixture. I cannot believe that such documentation does not exist. The
arbitrator will have to go into this matter and sort it out but for my part and
I am satisfied at this stage that Article 7 of the Model Law has been complied
G with and that there is an arbitration agreement between these parties". Thus,
the court found the arbitral clause as existing and valid and referred the
dispute to arbitration and granted time to the charters to appoint its arbitra-
tor.

The court decided the matter on the basis of the affidavits, as it was
H not possible for it to examine in detail the documents since the parties failed
SHlN-ETSU CHEMICAL CO.LTD. v. AKSH OPTIFIBRE LTD. {SABHARWAL, J.] 725

to produce the document containing the authorization given to the broi<.er A
to act on behalf of the shipping company. Therefore, the court has referred
to the commercial reality as well as the affidavits of the parties to arrive at
the conclusion that there was an arbitration agreement. The court has adapted
the standard of"plainly arguable case" or "strongly arguable case" since the
arbitral tribunal would examine the issue once again. Therefore, it cannot B
be stated as a general rule that in every case there should be a "plainly
arguable case" or "strongly arguable case", since the legislations in other
jurisdictions may not provide for such a provision. More over, the case did
not concern directly with Article 8 of the UNCITRAL Model Law, the court
was concerned with Article 7 of the UNCITRAL Model Law dealing with
definition and form of the arbitration agreement. c
Apart from the fact that the Arbitration and Conciliation Act, 1996 is
not a complete adaptation of the UNCITRAL Model Law, the scheme/
provisions of the Hong Kong Arbitration Ordinance are different from the
Arbitration and Conciliation Act, 1996. Therefore it may not be appropriate D
to follow the decisions interpreting the provisions of UNCITRAL Model
Law or Hong Kong Arbitration Ordinance. Section 6 of the Hong Kong
Arbitration Ordinance is similar to Section 32 of the Eqglish Arbitration Act
1996, which is not present in the Arbitration and Conciliation Act 1996. It
reads as under :
E
"(!) Subject to subsections (2) and (3), article 8 of the UNCITRAL
Model Law (Arbitration agreement and substantive claim before
court) applies to a matter that is the subject of a domestic arbitration
agreement in the same way as it applies to a matter that is the
subject of an international arbitration agreement. F
(2) Subject to subsection (3), if a party to an arbitration agreement
that provides for the arbitration of a dispute involving a claim or
other matter this is within the jurisdiction of the Labour Tribunal
or a person claiming through or under such a party, commences
legal proceedings in any court against any other party to the agree- G
ment or any person claiming through or under that other part)', in
respect of any matter agreed to be referred, and any party to those
legal proceedings applies to that court after appearance and before
delivering any pleadings or taking any other step in the proceed-
ings, to stay the proceedings, the court or a judge of that court may H
726 SUPREME COURT REPORTS [2005] SUPP. 2 S.C.R.

A make an order staying the proceedings, if satisfied that-

(a) there is no sufficient reason why the matter should not be
referred in accordance with the agreement, and

(b) the applicant was ready and willing at the time the proceedings
B
were commenced to do all things necessary for the proper conduct
of the arbitration, and remains so.

(3) Subsections (1) and (2) have effect subject to section 15 of the
Control of Exemption Clauses Ordinance (Cap 71 ).
c
(Replaced 75 of 1996 s. 9)"

Section 23 A of the Hong Kong Arbitration Ordinance provides for the
determination of preliminary point of law by the court and there is a: no
D analogous provision in the Arbitration and conciliation Act 1996.

It is clear from a plain reading of Hong Kong and English provisions
that both confer discretion on the court, unlike Section 45 of the Act, which
is mandatory. It is evident from the words 'may' and 'satisfied' used in Hong
Kong provision and also from the language used in Section 32 of the English
E Arbitration Act, 1996, that the intention in the said two jurisdictions was
to confer on court discretionary powers indicative of limited review from
prima facie point of view.

In Rio Algom Ltd. v. Sammi Steel Co. Ltd., Ontario Court of Justice,
F General Division (Year book of Commercial Arbitratio;-., Vol. XVIII, I 993,
Page 166) dealt with Article 16 of the UNCITRAL Model Law dealing with
the competence of arbitral tribunal to rule on it-; jurisdiction which reads
as under:

"Article 16. Competence ofarbitral tribunal to rule on its jurisdiction
G
(I) The arbitral tribunal may rule on its own jurisdiction, includ-
ing any objections with respect to the existence or validity of the
arbitration agreement. For that purpose, an arbitration clause which
forms part of a contract shall be treated as an agreement independ-
H ent of the other terms of the contract. A decision by the arbitral
SHIN-ETSU CHEMICAL CO. LTD. r. AKSH OPTIFIBRE LID. [SABHARWAL, J.] 727

tribunal that the contract is null and void shall not entail ipso jure A
the invalidity of the arbitration clause.

(2) A plea that the arbitral tribunal does not have jurisdiction shall
be raised not later than the submission of the statement of defence.
A party is not precluded from raising such a plea by the fact that B
he has appointed, or participated in the appointment of, an arbitra-
tor. A plea that the arbitral tribunal is exceeding the scope of its
authority shall be raised as soon as the matter alleged to be beyond
the scope of its authority is raised during the arbitral proceedings.
The arbitral tribunal may, in either case, admit a later plea if it
considers the delay justified. C

(3) The arbitral tribunal may rule on a plea referred to in para-
graph (2) of this article either as a preliminary question or in an
award on the merits. If the arbitral tribunal rules as a preliminary
question that it has jurisdiction, any party may request, within 30 D
days after having received notice of that ruling, the court specified
in article 6 to decide the matter, which decision shall be subject to
no appeal; while such a request is pending, the arbitral tribunal may
continue the arbitral proceedings and make an award."

; ::ifn pursuance of an arbitration agreement, one of the parties referred E
the dispute to the arbitrator whereas the other party commenced an action
before the court challenging the jurisdiction of the arbitrator to arbitrate the
issues and for an order staying the arbitration proceedings. The Court
ordered the trial of issues raising matters of the contract interpretation
affecting arbitrator's jurisdiction. On appeal, it was held that issues defining F
the scope of the arbitration agreement, which raise matters of contract
interpretation, ought to be resolved by the arbitrators in the first instance
before resort to the courts. The Court observed that 'what appears to me of
significance is that the Model Law reflects an emphasis in favour of arbi-
tration in the first instance in international commercial arbitrations to which
it applies'. The Courts in matters of contract interpretation as such are G
limited in that they do not appear to have a role in determining matters of
law or construction;jurisdiction and scope of authority are for the arbitrator
to determine in the first instance, subject to later recourse to set aside the
ruling or award. The role of the court before arbitration appears to be
confined to determining whether the arbitration clause is null and void, H
728 SUPREME COURT REPORTS [2005] SUPP. 2 S.C.R.

A inoperative or incapable of being performed (Article 8), if not it is manda-
tory to send the parties to arbitration. Thus, it was observed that the issue
of validity of the arbitration agreement is to be determined by the court.
However, there is no reference as to whether the court should take a prima
facie view or a final view.
B
The 1996 English Arbitration Act adopted a slightly different solution,
whereby the courts may only rule on the issue of jurisdiction with the
agreement of the parties or, if the parties do not agree, with the consent of
the arbitral tribunal. In this latter case, the court must also find that its
decision is liable to save substantial cost, that the application was made
C promptly, and that there is a valid reason for the claim to be heard by a court
(Sec.32). (Fouchard (supra) Para 675 Page 409).

The American approach also favours traditional approach of final
review of court. (Comptek Telecomm v. IVD Corp., XXII Y.B. COMM.
D ARB.905 (1997) decided on August 1, 1995 and SMG Swedish Machine
Group v. Swedish Machine Group, XVIII Y.B. COMM.ARB.457 .0993)
decided on January 4, 1991.

It may be noted that both approaches have its own advantage and
disadvantage. The approach whereby the court finally decides on merits on
E the issue of existence and validity of the arbitration agreement results to a
certain degree time and cost avoidance. It may prevent parties to wait for
several months or in some cases years before knowing the final outcome
of the dispute regarding jurisdiction. It will often take that long for the
arbitrators and then the courts to reach their decisions. The same consid-
F erations of cost and time explain the position taken in English Law which ··
under Section 32(2) of the 1996 English Arbitration Act provides that the
parties may agree (or, if the parties fail to agree, the arbitral tribunal may
agree) that it would be more efficient to have the question resolved imme-
diately by the courts. (Fouchard (supra) Para 678, Page 410)

G I may also deal with the contention urged on behalf of the appellant
that only prima facie finding is required to be given on combined reading
of Sections 45, 48 and 50 from which it can be culled out that a party who
has suffered an award can always challenge the same under Section 48 on
the ground that the arbitration agreement is null and void. This read in
H conjunction with the right of appeal given under Section 50 and the power
SHIN-ETSU CHEMICAL CO.LTD. i·. AKSH OPTIFIBRE LTD. [SABHARWAL. J.J 729

of the arbitrator to rule on his own jurisdiction clearly shows the intent of A
the legislature to avoid delay which would be inevitable if it has to be a final
decision and it would defeat the object of soon placing all material before
the arbitration tribunal. I am afraid that this cannot be accepted as the real
puroose of Section 48 is to ensure that at some stage whether pre-award,
post award or both, a judicial authority must decide the validity, operation, B
capability of performance of the arbitration agreement. In various cases the
parties may not resort to Section 45 in the first place, and to overcome such
eventuality, the legislature has enacted Section 48(\)(a). In other words, if
the court is not asked to satisfy itself as to the validity of the agreement at
a pre-award stage (Section 45), then by virtue of Section 48, it is given
another opportunity to do so. Apart from this, under Section 48, the court C
may refuse to enforce the foreign award on the ground other than the
invalidity of the arbitration agreement. As far as the question of Section 50
is concerned, it is well settled in law that an appeal is a creature of statute
(Mis M Ramnarain (P) ltd & Anr. v. State Trading Corporation of India
ltd., [I 983] 3 SCC 75) and a right to appeal inheres in no one (Gujarat Agro D
• Industries Co. ltd v. Municipal Corporation of the City of Ahmedabad &
'· Ors., [I 999] 4 SCC 468). The legislature under Section 50 has clearly
allowed appeal only in case the judicial authority refuses to refer the parties
to arbitration or refuses to enforce the foreign award. The fact that a
provision is not made for an appeal in case reference is made to arbitration
is not a ground to say that the court should prima facie decide the validity E
of the agreement ignoring the express provisions of Section 45. The legis-
lature has granted right of appeal in the event of refusal to refer but not in
the event of order being made for reference of the parties to arbitration. This
provision for appeal is not determinative of the scope of Section 45 to mean
that the determination thereunder has to be only prima facie.
F
I am of the view that Indian Legislature has consciously adopted a
conventional approach so as to save the huge expense involved in interna-
tional commercial arbitration as compared to domestic arbitration.

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

Turning to the present case, I direct that the application filed by the
appellant before the trial court would be treated as an application under
Section 45 of the Act. Having regard to the nature of controversy in the H
730 SUPREME COURT REPORTS [2005] SUPP. 2 S.C.R.

A present case, parties would be given opportunity to file documents and
affidavits by way of evidence.No oral evidence would be examined. Though
the appellant itself is responsible for the delay that has occurred because of
application under provisions which had no applicability and insistence
thereupon, yet, considering that the application has been pending for nearly
two years, I direct its disposal within a period of two months of the receipt
B
of the copy of this order.

Before concluding, this Court also deems it necessary to issue general
directions for expeditious disposal of petitions/applications filed so as to
challenge the validity of the arbitration agreement under Section 45. Ordi-
c narily, such cases shall be decided on the basis of affidavits and other
relevant documents and without oral evidence. There may, however, be few
exceptional cases where it may become necessary to grant opportunity to
the parties to lead oral evidence. In both eventualities, the judicial authority
is required to decide the issue expeditiously within a fix timeframe and not
D to treat such matters like regular civil suit.

The object of arbitration including international commercial arbitra-
tion is expedition. The object of the Act would be defeated if the interna-
tional commercial disputes remain pending in court for months and years
before even commencement of arbitration.
E
Accordingly, I direct that any application that may be filed under
Section 45 of the Act must be decided within three months of its filing. In
rare and exceptional cases, the judicial authority may. extend the time by
another three months but by sending a report to the superior/appellate
F authority setting out the reasons for such extension. It would be for the
superior/appellate authority to issue appropriate directions to the judicial
authority and/or take such other action as may be called for.

The appeal is disposed of in the above terms.

G SRIKRISHNA, J. : Leave granted.

I have had the benefit of carefully considering the erudite judgment
delivered by my esteemed and learned Brother Sabharwal. Regretfully, I
find myself in the unenviable position of having to disagree with the views
H expressed therein.
SHIN-ETSU CHEMICAL CO. LTD. v. AKSH OPTJFIBRE LTD. [SRJKRISHNA, !.) 731

The judgment of Brother Sabharwal fully sets out the facts in the Civil A
Appeal arising out of Special Leave Petition (Civil) No. 3160/05 as well as
the issue which arises for determination. The core issue in this case is:
Whether the finding of the court made under Section 45 of the Indian
Arbitration and Conciliation Act, 1996 ("the Act") that the arbitration
ai;reement, falling within the definition of Section 44 of the Act, is or is not B
"null and void, inoperative or incapable of being performed" should be a
final expression of the view of the court or should it be a prima facie view
formed without a full-fledged trial ?

Ambiguity in the Wording of Section 45
c
The contrast in language between Section 8 and 45 of the Act has been
rightly noticed by my Learned Brother. Section 8, which leaves no discre-
tion in the court in the matter of referring parties to arbitration, does not
apply to the present case, as we are concerned with Part II of the Act. On
the other hand, Section 45 which is directly applicable to the present case, D
empowers the court to refuse a reference to arbitration if it "finds" that the
arbitration agreement is "null and void, inoperative or incapable of being
performed".

This Court in Konkan Railways Corporation Ltd. & Ors. v. Mis Mehul
Construction Co.' pointed out that Parliament had clearly indicated that the E
Act had substantially adopted the Model Law on International Commercial
Arbitration 1985 ("the Model Law") which had been drafted by the United
Nations Commission on Internationai Trade Law ("UNCITRAL"). The
objective, as the court observed, was to pursue the "progressive harmoni-
zation and unification of the Law of International Trade"'. It is further F
pointed out in the said judgment that, it would be appropriate to bear the
said objective in mind while interpreting any provision of the Act. Indeed,
Section 45 of the Act is pari materia, not only with Article 8 of the Model
Law but also with Article 2(3) of the New York Convention on the Rec-
ognition and Enforcement of Foreign Arbitral Awards 1958 ("the New York
Convention"). G

However, even while bearing these objectives in mind, there is signifi-

1. [20001 7 sec 201.
2. Ibid. at p. 206 (para 4), per Pattanaik, J. (as he then was). H
732 SUPREME COURT REPORTS [2005] SUPP. 2 S.C.R.

A cant difficulty in interpreting the provisions of Section 45 of the Act, which
envisages pre-reference judicial interference with the arbitral process, as
there is no determinative indicator to ascertain whether the finding of the
court under Section 45 should be based on a prima facie view or on the result
of a final decision rendered in the trial court.
B The Judgment in Renusagar

A survey of the situation in other jurisdictions has been made in the
judgment of Brother Sabharwal, and I refrain from duplicating his efforts,
except to point out that two distinct stands are possible on the wording of
C Article 2(3) of the New York Convention, the language of which, as I have
already said, has been reproduced in Section 45 of the Act. My Learned
Brother strongly relies on the observations made in paragraphs 58 and 59
of Renusagar Power Co. v. General Electric Co. 3 ("Renusagar "), which no
doubt appear to suggest, in the context of Section 3 of the Foreign Awards
D Act, 1961 ("Foreign Awards Act") and the Arbitration Act, 1940, that the
court must be fully satisfied that the arbitration agreement exists before
granting stay of the proceedings. Following these observations, Brother
Sabharwal in his judgment, opines that:

"When words in an earlier statute have received an authoritative
E exposition by superior Court (interpretation of Section 3 in
Renusagar's case), use of same words in a similar context in a later
Act will give rise to a strong presumption that the Parliament
intends that the same interpretation should also be followed for
construction of these words in the later statute."

F With great deference to the opinion of my Learned Brother, I find
myself unable to agree to this proposition. In fact, the observations in
Renusagar (supra) are clearly distinguishable. In the first place, in paragraph
51 of the judgment, the learned Judges set forth six propositions as the
conditions required to be fulfilled for invoking Section 3 of the Foreign
G Awards Act, which incidentally has been repealed by the Act. What is of
relevance is proposition No. 5, which the court states as follows:

"(v) the Court has to be satisfied that the agreement is valid,
operative and capable of being performed; this relates to the

H 3. [1984] 4 sec 679.
SHIN-ETSU CHEMICAL CO.LTD. v. AKSH OPTIFIBRE LTD. [SRIKRISHNA, J.J 733

satisfaction about the "existence and validity" of the arbitration A
agreement. (In the instant case these questions do not arise) "4

After having said so, the court proceeded to make the observations in
paragraph 58, which have been referred to and highlighted by my Learned
Brother. In my respectful view, if the court thinks that an issue does not B
arise, then any observation made with regard to such an issue would be
purely obiter dictum. It is a well settled proposition that the ratio decidendi
of a case is the principle of law that decided the dispute in the facts of the
case and, therefore, a decision cannot be relied upon in support of a propo-
sition that it did not decide.' An apt observation about this principle was
made in Mis Amarnath Nath Om Prakash v. State of Punjab' : C

"We consider it proper to say, as we have already said in other
cases, that judgments of courts are not be construed as statutes. To
interpret words, phrases and provisions of a statute, it may become
necessary for Judges to embark into lengthy discussions but the D
discussion is meant to explain and not to define. Judges interpret
statutes, they do not interpret judgments. They interpret words of
statutes; their words are not to be interpreted as statutes .... It is
needless to repeat the oft-quoted truism of Lord Halsbury that a
case is only a authority for what it actually decides and not for what
may seem to follow logically from it." 7 E

Further, decisions rendered under the Arbitration Act, 1940 or under
the Foreign Award Act should be considered with caution as the Act pur-
ports to bring a new approach to arbitration, as has been observed in Firm
Ashok Traders & Anr. v. Gurumukh Das Saluja' : F

4. Ibid. at p. 725 (para 51) per Tulzapurkar, J. (emphasis supplied).

5. Mittal Engineering U'orks v. Collector of Central Excise, [1997] l SCC 203 at p. 207
(para 8); Jagdish Lal v. State of Haryana, (1997] 6 SCC 538 at p. 560 (para 17);
Divisional Controller, KSRTC v. Mahadeva Shetty & Ors., [2003] 7 SCC 197 at p. 206
~m G
6. (19851 1 sec 345.
7. Ibid. at p. 363 (paras 10 and 11), per Chinnappa Reddy, J. Similar observations were
also made in, Union of India v. Amrit Lal Manchanda, {2004] 3 SCC 75 at pp. 83-84
(paras 15-18).

8. 120041 3 sec 155. H
734 SUPREME COURT REPORTS [2005] SUPP. 2 S.C.R.

A "The A&C Act, 1996 is a Jong leap in the direction of alternate
dispute resolution systems. It is based on (sic) UNCITRAL Model.
The decided cases under the preceding Act of 1940 have to be
applied with caution for determining the issues arising for decision
under the new Act. "9
B Secondly, no one can doubt that Part II of the 1996 Act is intended
to opt for the international arbitration regime to meet the challenges of
international trade and commerce, nor can it be doubted that Section 45
offers a greater discretion to the court for judicial intervention at the pre-
reference stage. Despite all this, the question would still remain as to
C whether the discretion available for the court for interference, even under
Section 45 of the Act, s!iould be exercised on a prima facie view of the
nature of the arbitral agreement, or should it be on a final finding?

Ex Visceribus Interpretation of the Statute

D True, that there is nothing in Section 45 which suggests that the finding
as to the nature of the arbitral agreement has to be ex facie or prima facie.
In my view, however, this is an inescapable inference from an ex visceribus
interpretation of the statute. Sub-section (3) of Section 8 in Part I of the Act
envisages that even in a situation where an apf)lication to the court has been
E made under sub-section ( l ), the arbitration may commence, continue and
even an arbitral award be made. This was obviously meant to cut down delay
in the conclusion of the arbitral proceedings. There is conspicuous absence
of a corresponding provision either in Section 45 or in the rest of the
provisions in Part II. This legitimately gives rise to an inference that once
the arbitral agreement has been subjected to scrutiny before the court under
F Section 45 of the Act, conceivably, the arbitral proceedings could be stayed
till the decision of the court on the nature of the arbitral agreement. If it were
to be held that the finding of the court under Section 45 should be a final,
determinative conclusion, then it is obvious that, until such a pronounce-
ment is made, the arbitral proceedings would have to be in limbo. This
G evidently defeats the credo and ethos of the Act, which is to enable expe-
ditious arbitration without avoidable intervention by judicial authorities.

The absence in Part II of the Act of a provision corresponding to
Section 5 in Part I has been highlighted as.supportive of the view that greater

H 9. Ibid. at 165 (para 13) (;?mphasis supplied)
SHIN-ETSU CHEMICAL CO.LTD. v. AKSH OPTIFIBRE LID. {SRIK.RISHNA, J.] 735

judicial intervention is contemplated in Part II of the Act. The question that A
has arisen before the Court is not the presence or absence of judicial
intervention; it is one with regard to the manner in which the said judicial
intervention should proceed-whether on a final view or prima facie view
of the factors enumerated in Section 45 of the Act.

There are distinct advantages in veering to the view that Section 45
B
does not require a final determinative finding by the Court. First, under the
Rules of Arbitration of the International Chamber of Commerce (as in force
with effect from 1.1.1998), as in the present case, invariably the arbitral
tribunal is vested with the power to rule upon its own jurisdiction. Even if
the court takes the view that the arbitral agreement is not vitiated or that c
it is not invalid, inoperative or unenforceable, based upon purely a prima
facie view, nothing prevents the arbitrator from trying the issue fully and
rendering a final decision thereupon. If the arbitrator finds the agreement
valid, there is no problem as the arbitration will proceed and the award will
be made. However, if the arbitrator finds the agreement invalid, inoperative
or void, this means that the party who wanted to proceed for arbitration was D
given an opportunity of proceeding to arbitration, and the arbitrator after
fully trying the issue has found that there no scope for arbitration. Since the
arbitrator's finding would not be an enforceable award, there is no need to
take recourse to the judicial intercession available under Section 48(l)(a)
of the Act. E
The finding of the court that the arbitration agreement is valid, opera-
tive and enforceable, if in favour of the party setting up the arbitration
agreement, is not appealable under Section 50 as a matter of legislative
policy. Refusing to refer parties to arbitration under Section 45, is however,
made appealable under Section 50(1) (a) of the Act. Even after the court F
takes a prima facie view that the arbitration agreement is not vitiated on
accou'1t of factors enumerated in Section 45, and the arbitrator upon a full
trial holds that there is no vitiating factor in the arbitration agreement and
makes an award, such an award can be challenged under Section 48(l)(a).

-
The award will be set aside if the party against whom it is invoked satisfies
the court inter a/ia that the agreement was not valid under the law to which
G
the parties had subjected it or under the law of the country where the award
was made. The two basic requirements, namely, expedition at the pre-
reference stage, and a fair opportunity to contest the award after full trial,
would be fully satisfied by interpreting Section 45 as enabling the court to
act on a prima facie view. H
736 SUPREME COURT REPORTS [2005] SUPP. 2 S.C.R.

A Res Judicata and Unfairness

If the finding made under Section 45 as to the validity of the arbitral
agreement were to be treated as final, then the competent court while
entertaining an application for enforcement of a foreign award might decline
B to go into the same question. In other words, the court before which enforce-
ment is sought may not re-examine whether the agreement was valid under
the applicable law, on the ground that a final judgment had been rendered
on an earlier occasion by another competent court. The principles analogous
to res judicata (even though the Code of Civil Procedure, 1908 does not
directly apply) might preclude the party from raising the defence under
c clause (a) of sub section (1) of Section 48.

When a party raises the issue as to the validity of the agreement in an
application under Section 45, the court must either hold a full-fledged trial
and give a final finding or give a prima facie finding on that issue. If we
D were to hold that a final finding has to be given, then it must necessarily
be after a trial recording all necessary evidence, in order to eliminate the
likelihood of fraud, coercion etc that may render the agreement void, inop-
erative or unenforceable. If we were to take the view that it could be done
only on the basis of affidavits by excluding oral evidence altogether, I am
afraid, it would render injustice to the party because a final judgment would
E have been rendered on insufficient material.

Moreover, since principles analogous to res judicata may operate, as
mentioned earlier, such a party may not even be heard in a post-award
situation under Section 48(1 )(a) on the same issue as the finding given under
F Section 45 would be treated as final and binding. For this reason also, I am
of the view that, it would be preferable to hold that Section 45 requires only
a prima facie view of the matter as to the absence of the vitiating factors
contemplated therein.

Treating the finding under Section 45 as final results in a paradoxical
G situation. A final decision rendered by the competent court on the nature
of the arbitral agreement may have to be ignored by the arbitral tribunal,
which would be entitled to decide the issue afresh on the material presented
to it. It may also lead to another curious result, that the competent court in
the jurisdiction where the arbitration proceeds (Japan, as in the present case)
H would have to reckon with the fully binding effect of a finding made under
SHIN-ETSU CHEMICAL CO.LTD. l'. AKSH OPTIFIBRE LTD. [SRIKRISHNA, J.] 737

Section 45 by a competent court in India arrived at by following a summary A
procedure without admitting all relevant evidence.

Proof of Applicable Foreign law

There is yet another strange result which may come about by holding B
that Section 45 requires a final finding. This can be illustrated by reference
to the facts of the present case. The parties here have subjected their
agreement to the laws of Japan. The question that will arise is: When a court
has to make a final determinative ruling on the validity of the arbitration
agreement, under which law is this issue to be tested? This question of
choice of law has been conclusively decided by the judgment of this court C
in National Thermal Power Corporation v. Singer Company," where it was
observed:

"The proper law of the arbitration agreement is normally the same
as the proper law of the contract. It is only in exceptional cases that D
it is not so even where the proper law of the contract is expressly
chosen by the parties. Where, however, there is no express choice
of the law governing the contract as a whole, of the arbitration
agreement as such, a presumption may arise that the law of the
country where the arbitration is agreed to be held is the proper law
of the arbitration agreement. But that is only a rebuttable presump- E
tion."11

Thus, the proper law of the arbitration agreement is the substantive law
governing the contract itself. In the present case, to effectively decide
whether the arbitration agreement is "null and void, inoperative or incapable F
of being performed", the court would have to apply the law to which the
contract has been expressly subjected, namely, Japanese law. Obviously,
proof of Japanese law (as applicable to arbitration agreements) would have
to be rendered on the lines of proving facts in a trial.

It would not only be unfeasible to prove foreign law exclusively G
through affidavits, but it would also entail enormous expenditure of time
and money. Fouchard, Gaillard, Goldman on International Commercial

1o. [1992] 3 sec 551.
11. Ibid. p. 563 (para 23), per Thommen, J. H

-
738 SUPREME COURT REPORTS [2005] SUPP. 2 S.C.R.

A Arbitration highlights that this problem as best exemplified in the U.S. case
of SMG Swedish Machine Group v. Swedish Machine Group. 12 In this case,
it was held by the U.S. court that the validity or existence of the arbitration
agreement would have to be conclusively determined by the court itself at
the pre-award stage. The law applicable to the arl.iitration agreement was
B Swedish law and therefore the validity of the agreement had to be deter-
mined in accordance with this law. The court reviewed the Swedish law
opinions submitted by both parties, but found them poorly documented.
When parties submitted new opinions, these were found to be mutually
contradictory. Finally, the court had to conduct a hearing where parties
could provide proof of their true intentions as to the issue. 13 Thus, similar
C difficulties, delays and costs may be encountered by the trial court in the
present case if it has to give a final finding (after conducting a full-fledged
trial) on the validity of the arbitration agreement at the pre-reference stage
under Section 45.

D On the other hand, if one were to take the view that the finding under
Section 45 is only a prima facie view, then all these difficulties could be
obviated. Neither the arbitral tribunal, nor the court enforcing the arbitral
award may consider itself bound by the prima facie view expressed under
Section 45 of the Act. The difficulty of having to conclusively prove the
applicable foreign law at a trial would also be obviated.
E
Redundancy in the Statute

Another undesirable result flows from the view that the court conclu-
sively rules upon the validity of the arbitration agreement at the pre-refer-
F ence stage. If a final finding were to be made upon the arbitration agreement,
finding it valid and operative, such a finding might operate as res judicata.
Thus, one ground made available by Parliament under Section 48(1)(a) to
assail the award at the post·award stage, by impugning the validity of the
arbitration agreement, would be totally precluded because the finding under
Section 45 on the said issue would be final. The approach suggested by
G Brother Sabharwal would, therefore, preclude this ground in cases where
Section 45 is in fact resorted to by parties. Indeed, the present case is such

12. XVIII Y.B. COMM. ARB. 457 (1993) (decided on 4.1.1991).

13. See, FOUCHARD, GAlLLARD, GOLDMAN ON INTERNATIONAL COMMERCIAL
H ARBITRATION (E. Gaillard and J. Savage, eds. 1999) at p. 411-412 (para 680).
SHIN-ETSU CHEMICAL CO.LTD. v. AKSH OPTIFIBRE LTD. [SRJKRISHNA, J.) 739

a case, where the ground might be precluded if a final finding were to be A
arrived at by the trial court in the application under Section 45.

It is a well accepted principle of statutory interpretation that a court
must make every effort to give effect to all words in a statute since Parlia-
ment cannot be held to have been wasting its words or saying something B
in vain. 14 Only in exceptional situations can this be departed from. In JK.
Cotton Mills Spinning and Weaving Mills Co. Ltd. v. State of UP.," it was
observed:

"In the interpretation of statutes the courts always presume that the
legislature inserted every part thereof for a purpose and the legis- C
lative intention is that every part of the statute should have effect.""

This principle has received widespread acceptance by this court in
numerous decisions.17 If the approach suggested by Brother Sabharwal in
interpreting Section 45 were to be adopted, it could effectively make a part D
of the provision in Section 48(1)(a) redundant; an outcome which Parlia-
ment could surely have not intended.

Possibility of Multiple Trials

It appears to me that, at the post-award stage, at least, the finding has E
to be recorded on a full trial of the relevant issue under Section 48(1)(a).
If this be so, I see no special advantage in taking the view that the finding
under Section 45 should be anything other than a prima facie finding.

Even if the view were to be taken that the finding under Section 45 F
of the Act would be a final finding not amenable to reiteration under Section
48(1)(a) at the time of the attempt to enforce the award, it is quite possible

14. See. for e::ample, G.P. SINGH, PRINCIPLES OF STATUTORY INTERPRETATION
(9th edn., 2004) at p. 68; CRAIES ON STATUTE LAW (S.G.G Edgar eds., 7th edn., .
1971 1999 Indian Reprint) at pp. 193-107. G
15. AIR (1961) SC 1170.
16. Ibid. at p. 1174 (para 7).
11. See, for example, Aswini Kumar v. Arabinda Bose, AIR (1952) SC 369 at p. 377
(para 26); /l.'athi Devi v. Radha Devi Gupta, [2005] 2 SCC 271 at p. 277 {para 14);
G!tanshyamdas v. Regional Assistant Commissioner, AlR (1964) SC 766 at p. 772
~~1s~ H
740 SUPREME COURT REPORTS [2005] SUPP. 2 S.C.R.

A that the award may be challenged on the other grounds available under
'
Section 48. As I have already said, this challenge will have to be tried out
by a full trial by involving all kinds of evidence (including oral evidence).
If that be so, then all issues including the present issue could be tried fully
after the award instead of seeking a final finding at the pre-reference stage
B under Section 45 of the Act. This would be in consonance with the ethos
of the Act to avoid delay at different stages, to centralize the court review
of all disputes relating to the arbitration at the post-award stage, and also
carry forward the objectives of the Model Law.

Approach in Foreign Jurisdictions
c
The importance of carrying forward the objectives underlying the
Model Law can hardly be gainsaid. There is evident dearth of guiding Indian
precedent which might be useful in interpreting Section 45 of the Act.
Hence, it becomes necessary to seek light from foreign judgments interpret-
D ing corresponding provisions that have been modeled on the Model Law.
Now, for a survey of such foreign precedents.

It has rightly been noticed in the judgment of Brother Sabharwal that
different countries have approached tpe issue depending on their substantive
and processual laws. It has been noticed that the situation under the French
E Code of Civil Procedure favours a prima facie view, since under the Statute
if the dispute is not before an arbitral tribunal, the French Courts must
decline jurisdiction unless the arbitration agreement is "patently void".

Similarly, Article 7 of the 1987 Swiss Private International Law Statute
F stipulates that the courts decline jurisdiction" ... b. unless the court finds that
the arbitral agreement is null and void, inoperative or incapable of being
performed". This has been interpreted by the Swiss Federal Tribunal as
restricting the courts review at the start of the proceedings to a prima facie
verification of the existence and effectiveness of the arbitration clause. 18

G As far as the U.S. jurisdiction is concerned, the statute there, which
deals both with the substantive law and the law of procedure, is worded

18. See, Foundation M. v. Banque X., 1996 BULL. ASA 527 (SWISS Fed. Trib., Apr. 29,
1996) cited from FOUCHARD, GAILLARD, GOLDMAN ON INTERNATIONAL
COMMERCIAL ARBITRATION (E. Gaillard and J. Savage, eds. 1999) at p. 409 (para)
H 675).
SHIN-ETSUCHEMICAL CO. LTD. v. AKSH OPTIFIBRE LTD. [SRIKRJSHNA, J.J 741

differently from the Act. Indeed, not all jurisdictions in the U.S. have even A
modeled their law on the Model Law and U.S. cases must be approached
with great caution. The U.S. position is, therefore, not very helpful in
resolving the issue before us.

It has been noticed in Brother Sabharwal' s judgment that in at least
two common law jurisdictions, Ontario and Hong Kong, both of which have B
based their law on the Model Law (like India), the courts have adopted a
'liberal approach' to the issue, namely, that of primafacie view as to the
existence and non-vitiation of the arbitral agreemeat, before making a
reference. The Hong Kong and Ontario judgments will be examined pres-
ently. c
The Hong Kong Judgment

There is no doubt that in Pacific International lines (Pte.) Ltd v.
Tsinlien Metals and Minerals Co. Ltd., 19 ("Pacific International Lines") the
High Court of Hong Kong was concerned precise1y with the issue as to D
whether there was a valid arbitration agreement within the meaning of
Article 7 of the Model Law. The court was of the view that there was a
"plainly arguable" case to support the proposition that there was an arbi-
tration agreement that complied with Article 7 of the Model Law. The Court
observed:
E
"It follows, therefore, that if I am satisfied that there is a plainly
arguable case to support the proposition and there was an arbitra-
tion agreement which complies with Art. 7 of the Model Law, I
should proceed to appoint the arbitrator in the full knowledge that
the defendants will not be precluded from raising the point before
the arbitrator and having the matter reconsidered by the court
F
consequent upon that preliminary ruling."20

Further, the court held:

"I am quite satisfied that the plaintiffs have made out a strongly
arguable case in support of an arbitration agreement which com-
G
plies Article 7 of the Model Law." 21

19. XVlll Y.B. COMM. ARB. 180 (1993) (decided on l.7.1992).

20. Ibid. at p. 185 (par 18), per Kaplan, J.
21. Ibid. at p. 185 (para 19, per Kaplan, J. H
742 SUPREME COURT REPORTS [2005] SUPP. 2 S.C.R.

A In my reading of the case, the Hong Kong High Court was squarely
concerned with the issue as to whether the arbitration agreement complied
with Article 7 of the Model Law or not. This became relevant because under
Article 8 the Court was empowered to decide as to the existence or otherwise
of the arbitral agreement and Article 7 required the agreement to be in the
B form prescribed by that Article itself. With respect, it would be incorrect
to distinguish the case on the ground that it was not concerned with Article
8 of the Model Law. In my view, the court was directly concerned with the
validity of the arbitration agreement as it was argued that the arbitration
agreement did not comply with Article 7 and, therefore, was invalid.

C The second ground of distinction sought to be made by my learned
Brother is that the Hong Kong Arbitration Ordinance ("the Hong Kong
Ordinance") was based upon the English Arbitration Act, 1996 ("the English
Act") and that the Hong Kong judgment was in the special context of these
statutes. In particular, my Learned Brother holds that Section 6 of the Hong
D Kong Ordinance is similar to Section 32 of the English Act (both of which
are not present in our Act), as a distinguishing feature rendering the Hong
Kong judgment inapplicable to the present case. To clear the air, I quote
below both the concern~d provisions.

The Hong Kong Ordinance:
E
"Section 6 Court to refer matter to arbitration in certain cases

(I) Subject to subsections (2) and (3), article 8 of the UNCITRAL
Model Law (Arbitration agreement and substantive claim before
F court) applies to a matter that is the subject of a domestic arbitration
agreement in the same way as it applies to a matter that is the
subject of an international arbitration agreement.

(2) Subject to subsection (3), if a party to an arbitration agreement
that provides for the arbitration of a dispute involving a claim or
G other matter this is within the jurisdiction of the Labour Tribunal
or a person claiming through or under such a party, commences
legal proceedings in any court against any other party to the agree-
ment or any person claiming through or under that other party, in
respect of any matter agreed to be referred, and any party to those
H legal proceedings applies to that court after appearance and before
SHIN-ETSU CHEMICAL CO.LTD. v. AKSH OPTIFIBRE LTD. (SRIKRISHNA, J.J 743

delivering any pleadings or taking any other step in the proceed- A
ings, to stay the proceedings, the court or a judge of that court may
make an order staying the proceedings, if satisfied that-

(a) there is no sufficient reason why the matter should not be
referred in accordance with the agreement; and
B
(b) the applicant was ready and willing at the time the pro-
ceedings were commenced to do all things necessary for the
proper conduct of the arbitration, and remains so.

(3) Subsections (I) and (2) have effect subject to section 15 of the C
Control of Exemption Clauses Ordinance (Cap 71)."

The English Act:

"Section 32. -Determination ofpreliminary point ofjurisdiction.
D
(I) The court may, on the application of a party to arbitral proceed-
ings (upon notice to the other parties), determine any question as
to the substantive jurisdiction of the tribunal. A party may lose the
right to object (see section 73).

(2) An application under this section shall not be considered unless- E
(a) it is made with the agreement in writing of all the other
parties to the proceedings, or

(b) it is made with the permission of the tribunal and the court
is satisfied - F
(i) that the determination of the question is likely to
produce substantial savings in costs,

(ii) that the application was made without delay, and
G
(iii) that there is good reason why the matter should be
decided by the court.

(3) An application under this section, unless made with the agree-
ment of all the other parties to the proceedings, shall state the H
744 SUPREME COURT REPORTS [2005] SUPP. 2 S.C.R.

A grounds on which it is said that the matter should be decided by
the court.

(4) Unless otherwise agreed by the parties, the arbitral tribunal may
continue the arbitral proceedings and make an award while an
application to the court under this section is pending.
B
(5) Unless the court gives leave, no appeal lies from a decision of
the court whether the conditions specified in subsection (2) are met.

(6) The decision of the court on the question of jurisdiction shall •'
I

c be treated as a judgment of the court for the purposes of an appeal.
But no appeal lies without the leave of the court which shall not
be given unless the court considers that the question involves a
point of law which is one of general importance or is one which
for some other special reason should be considered by the Court
of Appeal."
D
On a comparative reading of Section 6 of the Hong Kong Ordinance
and Section 32 of the English Act, it appears to me that the two are neither
similar, nor resemble each other, the purposes of the two sections being
totally different. This distinction made by Brother Sabharwal, with respect,
E appears to be unsupportable.

On the other hand, what corresponds to Section 32 of the English Act
is Section 23A of the Hong Kong Ordinance, which is reproduced below:

"Section 2 3A Determination ofpreliminary point of law by Court
F
(I) Subject to subsection (2) and section 23B, on an application to
the Court made by any of the parties to a reference-

(a) with the consent of an arbitrator who has entered on the
'reference or, if an umpire has enter~id" on the reference, with
G his consent, or

(b) with the consent of all the other parties,

the Court shall have jurisdiction to determine any question of law
H arising in the course of the reference.
SHIN-ETSU CHEMICAL CO. LID. v. AKSH OPTIFIBRE LTD. [SRIKRISHNA, J.] 745

(2) The Court shall not entertain an application under subsection A
(l)(a) with respect to any question of law unless it is satisfied that-

(a) the determination of the application might produce sub-
stantial savings in costs to the parties; and

(b) the question of law is one in respect of which leave to B
appeal would be likely to be given under section 23(3)(b).

(3) A decision of the Court under subsection (I) shall be deemed
to be a judgment of the Court within the meaning of section 14 of
the High Court Ordinance (Cap 4) (appeals to the Court of Appeal),
but no appeal shall lie from such a decision unless the Court or the
c
Court of Appeal gives leave. (Amended 25 of 1998 s. 2)

(4) (Repealed 64 of 1989 s. 15)"

Courts under both Section 32 of the English Act as well as Section 23A D
of the Hong Kong Arbitration Ordinance, can make a determination of
preliminary point of jurisdiction with the 'consent of all the parties' or
atleast with the 'consent of the arbitrator' and only upon being satisfied that
the determination of the application might reduce substantially the costs to
the parties, and the question oflaw is one in which leave is likely to be given.
E
The Hong Kong decision has also been distinguished on the ground
that Section 23A of the Hong Kong Ordinance specifically provides for
determination of the preliminary issue by the court and that there is no
similar provision in the Act. With respect, this distinction may also not be
valid. In the first place, the judgment in Pacific International lines (supra) F
was rendered in the year 1992; it does not make any reference whatsoever
to Section 23A of the Hong Kong Ordinance. Nor does it appear from the
judgment that there was any analogous provision when the Hong Kong High
Court decided the matter. Indeed, all references in the judgment are to the
provisions of the Model Law. Moreover, if Section 23A had been applicable,
it would have been wholly unnecessary for the court to express its opinion G
on an interpretation of Article 7 or 8 of the Model Law as it could straighta-
way have relied on Section 23A. In my view, the Hong Kong judgment
squarely deals with the issue before us and conclusively holds that the
approach to be adopted is whether it is a "plainly arguable" that the arbi-
tration agreement was in existence. H
746 SUPREME COURT REPORTS [2005] SUPP. 2 S.C.R.

A The Ontario Judgment

The Ontario Court of Justice in Rio Algom Ltd. v. Sarni Steel Co. Ltd. 22
dealt with Article 16 of the Model Law with regard to the competence of
the arbitral tribunal to rule on its jurisdiction and the court's own powers
B at the preliminary stage. Article 16 has been quoted in Learned Brother
Sabharwal's judgment. The court expressed its categorical opinion on the
relevant issue in the following words:

"What appears to me of significance is that the Model Law reflects
an emphasis in favour of arbitration in the first instance in inter-
c national commercial arbitrations to which it applies (of which it is
common ground this is one). The courts in matters of contract
interpretation as such are limited in that they do not appear to have
a role in determining matters of law or construction; jurisdiction
and scope of authority are for the arbitrator to determine in the first
D instance, subject to later recourse to set aside the ruling or award.
The role of the court before arbitration appears to be confined to
determining whether the arbitration clause is null and void, inop-
erative or incapable of being performed (Art. 8) - if not it is
mandatory to send the parties to arbitration. Kane, J. did not follow
E this course - he referred questions of the construction of the agree-
ment to trial without apparent reference to the condition specified
in Art. 8; these issues to be tried relate to matters of law, including
jurisdiction and scope of the arbitrator's authority, but not, so far
as I can see, to the issues for the court to determine under Art. 8.
It seems to me be at least arguable that the matters referred to trial
F are not matters that permit the intervention of the court in the light
of Art. 5, (supra)." 23

In my view, this is a clear and unequivocal expression on the part of
the court on the issue before us. Indeed, the Ontario Court has clearly held
G that the court in the matter of interpretation of the existence and non-
vitiation of the arbitral agreement has only a prima facie jurisdiction and
is not required to render a final decision at that stage.

22. XVIII Y.C. COMM. ARB. 166 (1993) (decided on l.3.1991).
H 23. Ibid. at pp. 170-171 (para 13).
SHIN-ETSU CHEMICAL CO. LTD. v. AKSH OPTIFIBRE LTD. [SRIKRISHNA, J.] 747

The English Judgment A

The English judgment in Azov Shipping Co. v. Baltic Shipping Co., 24
raised a different issue altogether. The case of the applicant before the court
was that he was not a party to the arbitral agreement, which contained the
arbitration clause, and, despite this, the arbitrator had delivered an award
B
in favour of the other party. The arbitrator after a full trial found that there
was a valid arbitration agreement and that he had jurisdiction over the
parties. There was a challenge to the award. The issue before the court was:
Where a full-scale hearing on jurisdiction had been completed before the
arbitrator, and there was a challenge to the award, whether the jurisdiction
of the arbitrator could be challenged with complete oral evidence and cross- c
examination so the challenge in effect became a full hearing of what had
already occurred before the arbitrator?

The court allowed the application and held that even at the post-award
stage, it was permissible to lead oral evidence to demonstrate that the D
arbitrator had no jurisdiction. The point of distinction is that the court was
dealing with a challenge at a post-award stage. There could be no doubt that,
at that stage the finding on the jurisdictional issue or the existence of
vitiating factors has to be rendered only after complete trial and has to be
a final finding. Further, the observations of the court were perfectly in
consonance of Sections 32 and 67 of the English Act which are not in any E
manner reflected in the Act.

Consequences of the Mollificatory Suggestions

The suggestions made by Learned Brother Sabharwal to mollify some F
of the obvious drawbacks of the approach that he adopts, also needs closer
scrutiny. He has suggested a trial by affidavits as well as a fixed time-frame
to reduce the possible delays ensuing from a protracted trial at the pre-
reference stage. In my view, any attempt to mollify the significant adverse
consequences of the determinative approach by enabling the court to render
final judgment only on the basis of affidavits, albeit within a fixed time- G
frame, may prove counter-productive.

There are several instances where affidavit evidence cannot aid in

24. [1999] I Lloyds Rep. 68 (Q.B.). H
748 SUPREME COURT REPORTS [2005] SUPP. 2 S.C.R.

A making a final determinative finding on the issue. For instance, where a
defence taken is that the signature of a party was forged or that agreement
itself is entirely fabricated, I cannot conceive of the issue being satisfactorily
determined fully and finally merely on the basis of affidavits without oral
evidence. Correspondingly, if courts at the preliminary stage were to admit
B oral evidence, simply because forgery or the like is pleaded, the conse-
quences are still troublesome. In fact, if the view postulated by learned
Brother Sabharwal were to prevail, then all international commercial arbi-
trations can be defeated by a totally bogus defence that the agreement is
forged or fabricated. If such a defence were to be allowed, it would nec-
essarily require a full-fledged trial (with oral evidence) at the pre-reference
c stage with all its consequential delay and expense. On the other hand, if only
a prima facie view were to be taken, then the issue could still be examined
in-depth after a full trial either before the arbitral tribunal or at any rate under
Section 48(1 )(a) when the enforceability of the ensuing award is questioned.

D I am afraid that the suggestion of fixing a time limit, within which an
issue can be determined without oral evidence, may also not be practical.
As pointed out earlier, if the applicable law is a foreign law (which is not
an uncommon feature in international commercial contracts), the time limit
of three months is unlikely to be complied with as it would be unfeasible.
In any event, since it is undoubted that at the enforcement stage a full trial
E under Section 48 is permissible, parties are none the better by having two
trials i.e. one at the stage of Section 45, and another at the stage of Section
48.

I fully agree with my Learned Brother's view that the object of dispute
F resolution through arbitration, including international commercial arbitra-
tion, is expedition and that the object of the Act would be defeated if
proceedings remain pending in court even after commencing of the arbitra-
tion. It is precisely for this reason that I am inclined to the view that at the
pre-reference stage contemplated by Section 45, the court is required to take
only a prima facie view for making the reference, leaving the parties to a
G full trial either before the arbitral tribunal or before the court at the post-
award stage.

Undoubtedly, an international commercial arbitration involves huge
expenses, particularly where the parties have subjected the contract to a
H foreign law. But, that cannot be a deterrent to this Court from pronouncing
SHIN-ETSU CHEMICAL CO. LTD. v. AKSH OPTIFIBRE LTD. [DHARMADHIKARI, J.] 749

on the correct approach to be adopted under Section 45 of the Act. In fact, A
as I have pointed out, adopting a final and determinative approach under
Section 45 may not only prolong proceedings at the initial stage but also
correspondingly increase costs and uncertainty for all the parties concerned.
Finally, having regard to the structure of the Act, consequences arising from
particular interpretations, judgments in other jurisdictions, as well as the B
opinion of learned authors on the subject," 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.

For all these reasons, I respectfully differ from the judgment of my C
esteemed Brother Sabharwal. I am of the view that the present matter needs
to be remitted to the trial court, but not for a full trial as directed by the
impugned judgment of the High Court. The application under Section 45
would have to be determined by the trial court after arriving at the prima
facie satisfaction that there exists an arbitral agreement, which is "not null D
and void, inoperative or incapable of being performed''.' If the trial court
finds thus, the parties shall be referred to arbitration.

The appeal is accordingly allowed and Ordered accordingly.

DHARMADHIKARI, J. : Leave granted. E

I have carefully gone through very elaborate and well-considered
opinions differing with each other of learned Brethren Y. K. Sabharwal and
B. N. Srikrishna JJ.
F
With utmost resp,ct to both of them, I am inclined to agree with the
view expressed by learned Brother Srikrishna J. but only with a rider and
a partly different reason which may I state below:-

The main issue is regarding the scope of power of any judicial authority
including a regular civil court under section 45 of the Act in making or G
25. See, for example, FOUCHARD, GAILLARD, GOOLMAN ON INTERNATIONAL
COMMERCIAL ARBITRATION (E. Gaillard and J. Savage, eds. 1999) al pp. 412-
412 (para 682) as well as JULIAN D.M. LEW ET AL., COMPARATIVE INTER-
NATIONAL COMMERCIAL ARBITRATION (2003) ATP. 346 (para 14-53) who
support the prima facie approach. H
750 SUPREME COURT REPORTS [2005) SUPP. 2 S.C.R.

A refusing a reference of dispute arising from an international arbitration
agreement governed by the provisions contained in Part III Chapter-I of the
Act of 1996. I 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 refer-
B ence 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 agree-
ment. 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
C produced by the parties on the record of the case, the judicial authority
including a regular civil court, 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 court must afford full opportunities to the parties
D 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 court refuses to make a reference on the grounds
available under section 45 of the Act, it is necessary for the judicial authority
or the court wnich is seized of the matter, to pass a reasoned order as the
E same is subject to appeal to the appellate court under section 50(l)(a) of the
Act and further appeal to this Court under sub-section (2) of the said section.

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
F 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( I)( 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
G and decided by the court.

With this addition, I agree with the view expressed by learned Brother
Srikrishna J., and with his conclusion that the matter should be remitted to
the original court for a fresh decision in the light of the view ~xpressed by
H this Court.
SHIN-ETSU CHEMICAL CO. LID. '· AKSH OPTIFIBRE LID. [DHARMADHIKARI, J.] 75 J

ORDER A
The direction of the High Court in the impugned judgment remanding
the application under Sectin 45 of the Arbitration and Conciliation Act,
1996, for fresh decision by the trial court is confirmed. On remand, the trial
court would decide the application in the light of the majority opinion within B
two months of receipt of the judgment of this Court.

B.S. Appeal disposed of.