LexSHIN-ETSU CHEMICAL CO. LTD. versus AKSH OPTIFIBRE LTD. AND ANR.
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SHIN-ETSU CHEMICAL CO. LTD. v. AKSH OPTIFIBRE LTD. AND ANR. AUGUST 12, 2005 [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 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 A B c 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 G 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 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
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