LEXICON FINANCE LIMITED Vs. UNION OF INDIA

JUDGEMENT

(1.) IN this writ petition, the petitioner-M/s. Lexicon Finance Limited has challenged the vires of Section 16 (5) of the Arbitration and Conciliation act, 1996 (for short 'the Act' ).

(2.) THE necessary facts as stated are that the petitioner is a public limited company incorporated under the Companies Act, having its registered office at Mumbai and the 2nd respondent is also a company registered under the Companies Act, having its registered office at Manipal, Karnataka. The 2nd respondent claims to have advanced finance by way of bill of discounting on various dates during February 1998 to march 1999 to the petitioner and has entered into a Bill Discounting agreement on 15-12-1998 with the petitioner, which contains an Arbitration Clause for settlement of disputes between the parties. The 2nd respondent claims to have issued a notice to the petitioner demanding payment of Rs. 33,06,794/- on 1-4-2000 and on failure to make payment referred the dispute to the Sole Arbitrator Sri A. S. N. Hebbar, 3rd respondent herein, as per Clause 9 of the terms and conditions of the agreement, and subsequently a notice was issued to the petitioner. On receipt of notice the petitioner appeared before the Arbitrator and filed an application under Section 16 of the Act denying the agreement and stating that the Arbitrator has no jurisdiction and as such the matter was posted for deciding the preliminary issue of jurisdiction. The learned Arbitrator held an enquiry on the preliminary point. After recording the evidence of both the parties, on appreciation of oral and documentary evidence, he rejected the preliminary objection of the petitioner vide order dated 6-10-2001 and held the arbitration reference was validly made and the Arbitrator has jurisdiction and therefore ordered that the enquiry shall proceed and a copy of the same was received by the petitioner on 19-10-2001. It is against the order dated 6-10-2001 passed by the Arbitrator, the present writ petition is filed praying to declare Section 16 (5) of the Act as ultra vires of the Constitution.

(3.) LEARNED Counsel for the petitioner contended that the agreement iated 15-12-1998 is void and therefore the clause providing for arbitration in the said agreement is not in existence as per the decision of the hon'ble Supreme Court of India in the case of Waverly Jute Mills Company Limited v Raymon and Company (India) Private Limited; as such the Arbitrator has no jurisdiction. Secondly, he contended that Section 16 (5) of the Act is ultra vires the Constitution of India as the same is inequitable and violates the principles of natural justice, and as an aggrieved party is left without any effective remedy except to go through the entire trial which is unconstitutional. Therefore, he contends the same is liable to be struck down as ultra vires the Constitution.