Introduction
The law of arbitration was evolved to reduce the burden on courts but even today, there are so many cases pending for appointment alone all across the country. Historically, petitions under Section 11 of the Arbitration and Conciliation Act, 1996 ("Act") remained indisposed for several years in many High Courts, because of which the need for amendments arose. However, despite the Indian Courts being proactive in expediting the petitions under Section11, the progress has been slow.
A plain reading of the provision of Section 11 (6) does not allow the court to reach beyond the scope of appointing the arbitrator, when parties to the dispute have failed to agree on their own in this regard. However, Indian Courts, while dealing with Section 11 petitions, decided on issues such as arbitrability of dispute, mixed question of law and fact like limitation, existence/validity of arbitration agreement etc. Such decisions led to opening of various facets to Section 11, which was never contemplated earlier. The various decisions of the Hon'ble Courts led to a chaotic situation, specifically with respect to the scope of inquiry of the appointing court under Section 11 of the Act.
The Conflict
In essence, when the primary twin test under Section 11(6) of the Act is satisfied i.e. parties agree that there is an "arbitrable dispute" between them and that there exists a valid arbitration clause/agreement, the application under Section 11 would be maintainable.
However, the scope of inquiry under Section 11 digressed from the legislative intent by the bench of seven judges in SBP & Co. Vs. Patel Engineering Limited1where the Hon'ble Court had held that appointment of arbitrator was an exercise of judicial power and not an administrative decision. This led to uncertainties in the conduct of arbitration proceedings as it was beyond the intent of minimum judicial interference as one of the objectives of the Act.
Further, the Hon'ble Supreme Court in the judgement of National Insurance Co. Limited Vs. Boghara Ployfab2went one step ahead and laid down the issues which could or could not be decided by the appointing court while adjudicating Section 11 petitions. Therefore, the Courts expanded the scope of inquiry under Section 11 and the role of appointing court exceeded than what it was intended to be, i.e. a facilitator. This also meant more judicial interference in the arbitration process and the resultant slow disposal of matters.
Later, the Arbitration (Amendment) Act of 2015 was introduced to curb the mischief of SBP & Co. Vs. Patel Engineering Limited3 regarding the scope of Section 11(6) of the Act. Section 11-6A was introduced, which confined the scope of interference of the appointing court to mere existence of an arbitration agreement. All other issues were left to be decided by the arbitral tribunal so constituted, thereby supporting the principle of Kompetenz-Kompetenz.4 The same was supported by the judgement of M/s. Duro Felguera S.A.Vs. M/s. Gangavaram Port Limited5 wherein the Court while interpreting Section 11-6A of the Act, held that the Courts under Section 11 were allowed to see only whether an arbitration agreement existed or not, nothing more, nothing less. The same was also reaffirmed in Mayavati Trading Vs. Pradyat Deb Burman.6, where the Court overruled the decision of United India Insurance Co. Limited Vs. Antique Art Exports Private Limited7which had sought to deal with whether the claims between the parties were settled by accord and satisfaction and had held that no dispute had arisen so as to refer the same to arbitration. The court also clarified that the omission of Section 11(6A) vide the Arbitration (Amendment)Act, 2019 was not intended to undo effect of that provision.
However, the judicial intervention in Section 11 continued, as could be seen in the judgements of the Hon'ble Supreme Court in Oriental Insurance Company Limited Vs. Narbheram Power and Steel Private Limited8 (examination of conditions of contract to give effect to arbitration clause) and Garware Wall Ropes Limited Vs. Coastal Marine Construction & Engg. Limited9(examination regarding stamping of arbitration agreements) as well as that of the Hon'ble Delhi High Court in NCC Limited Vs. Indian Oil Corporation Ltd.10 and Brightstar Telecommunications Vs.. Iworld Digital Solutions Pvt. Ltd. (correlation between dispute and the arbitration agreement).
In Vidya Drolia Vs. Durga Trading Corporation11("Vidya Drolia"), the Hon'ble Supreme Court once again attempted to settle the law on the extent of inquiry and interference at the stage of Section 11. It held that interference of the appointing court was justified only when it was ex-facie certain that there was no valid arbitration agreement between the parties or that the arbitration agreement was non-existent. While the court emphasized on a "prima facie" examination, it observed that "for legitimate reasons, to prevent wastage of public and private resources" the court "can exercise judicial discretion to conduct an intense yet summary prima facie review while remaining conscious that it is to assist the arbitration procedure and not usurp jurisdiction of the arbitral tribunal."
By way of this judgement, the Court delved into the question of whether arbitrability of disputes could be examined at the referral stage and in doing so, it once again expanded the scope of judicial discretion by providing leeway to examine the legitimate reasons in order to exercise such discretion. As such, the scope of examination at Section 11 stage was no longer limited to merely examining whether there existed an arbitration agreement between the parties.
The reasoning adopted in Vidya Drolia saw reference and reliance by various courts, specifically by the Supreme Court in the judgement of DLF Home Developers Limited Vs. Rajpura Homes Private Limited12where the Court further widened the scope of interference and included determination of "core preliminary issues" at the referral stage itself. This approach seemed to be in direct contradiction to the legislative intent of reducing the judicial interference in arbitration proceedings.
In Sanjiv Kukreja Vs. Seema Kukreja13 the Hon'ble Supreme Court of India while setting aside the judgement of the High Court held that whether the MoU had been novated by the SHA required a detailed consideration of the clauses of the two Agreements, together with the surrounding circumstances in which these Agreements were entered into, and a full consideration of the law on the subject and none of this could be done given the limited jurisdiction of a court under Section 11 of the 1996 Act.
However, the interpretation of the provision saw a shift again in the judgement in NTPC Limited Vs. SPML Infra Limited14, wherein it was held that the Court under Section 11(6) was not expected to act mechanically merely to deliver a purported dispute raised by an applicant at the doors of the chosen arbitrator and the limited scrutiny through the "eye of the needle" was necessary and compelling.
The Resolution
The scope of judicial inquiry once again surfaced when the Hon'ble Supreme Court of India considered the issue surrounding the admissibility of unstamped or insufficiently stamped instrument in evidence in the case of In Re: Interplay between Arbitration Agreements under the Arbitration and Conciliation Act 1996 and the Indian Stamp Act 189915. The Court overruled the judgement of Garware Wall Ropes Limited Vs. Coastal Marine Construction & Engg. Limited16and held that obligating the courts to deal with issues like stamping of agreements at the stage of Section 8 or Section 11 would be against the legislative intent behind the Act. This ruling could not have come at a better time in order to settle the dust behind the extent of interference at referral stage. In essence, the judgement steered away the appointing court from deciding issues and reinstated the principle of Kompetenz- Kompetenz as enshrined in Section 16 of the Act.
The legal position was solidified by the Hon'ble Supreme Court of India in SBI General Insurance Co. Ltd. Vs. Krish Spinning17wherein it has been held that the scope of enquiry under Section 11 of the Act is confined to ascertaining whether there exists an arbitration agreement between the parties. The said judgment also clarified that the issue as to whether there had been any accord and satisfaction was itself an aspect that was to be gone into by a duly constituted arbitral tribunal.
In this judgement, the Hon'ble Supreme Court of India comprehensively explained the scope and standard of scrutiny of the appointing court while adjudicating upon a Section 11 petition. It was observed that the arbitral tribunal is the preferred first authority to look into the questions of arbitrability and jurisdiction, and the courts at the referral stage should not venture into contested questions involving complex facts. The Court in Paragraph 114 held "In view of the observations made by this Court in In Re: Interplay (supra), it is clear that the scope of enquiry at the stage of appointment of arbitrator is limited to the scrutiny of prima facie existence of the arbitration agreement, and nothing else. For this reason, we find it difficult to hold that the observations made in Vidya Drolia (supra) and adopted in NTPC v. SPML (supra) that the jurisdiction of the referral court when dealing with the issue of "accord and satisfaction" under Section 11 extends to weeding out ex-facie non-arbitrable and frivolous disputes would continue to apply despite the subsequent decision in In Re: Interplay (supra).""
On the scope of powers of the referral court at the stage of Section 11(6), the Hon'ble Supreme Court in the judgement ofCox and Kings Ltd. Vs. Sap India Private Limited18 referred to the case of Lombardi Engg. Ltd. Vs. Uttarakhand Jal Vidyut Nigam Ltd.19where it was observed that "Taking cognizance of the legislative change, this Court in Duro Felguera, S.A. v. Gangavaram Port Ltd. noted that post 2015 Amendment, the jurisdiction of the Court Under Section 11(6) of the 1996 Act is limited to examining whether an arbitration agreement exists between the parties - "nothing more, nothing less." Accordingly, upon being satisfied on the requirement of prima facie existence of arbitration agreement, it allowed the Section 11 petition and directed the parties to raise all objections in law before the arbitral tribunal.
Following the aforesaid, the Hon'ble Delhi High Court in the case of Apollo Supply Chain Pvt. Limited Vs. M/s. Jalan Transolutions (India) Limited20, while dealing with disputes arising in the context of Service Agreement for Freight under Management, relied upon the aforesaid judgement of SBI General Insurance Co. Ltd. Vs.. Krish Spinning21and held that since the existence of the arbitration agreement was undisputed, there was no impediment to appointing a Sole Arbitrator to adjudicate the disputes between the parties. In Kamal Builders vs. K.K. Spun India Limited22 as well as Willus Infrastructure Pvt. Limited Vs. Anikar Infrastructure Development Company Private Limited23 a similar approach has been adopted.
Conclusion
The judgement of SBI General Insurance Co. Ltd. Vs. Krish Spinning24 has significantly reduced the burden on courts and brought the necessary clarity w.r.t Section 11 petitions. Presently, the simple rule to be followed is to look for the existence of an arbitration agreement. If it is positive, the appointment of arbitrator shall follow and the role of the court would come to an end. The objections raised by parties such as disputes not being arbitrable and/or barred by limitation would be issues to be dealt by the arbitral tribunal. In doing so, the Court has resurrected the original position, as envisaged under the Act, which got diluted due to the probable apprehension of abuse of the process of arbitration without judicial interference regarding preliminary issues. But going forward, it is hoped that the aforesaid decisions would expedite the appointment applications pending before Courts and faster disposal of new cases of appointment, so that the timeline provided under the Act are followed and arbitrations are conducted efficiently.
Footnotes
1 (2005) 8 SCC 618
2 (2009) 1 SCC 267
3 Supra, Note 1.
4 Uttarakhand Purv Sainik Kalyan Nigam Limited Vs. Northern Coal Field Limited, (2020) 2 SCC 455
5 (2017) 9 SCC 729
6 (2019) 8 SCC 714
7 (2019) 5 SCC 362
8 AIR 2018 SC 2295
9 2019 SCC OnLine SC 515.
10 2019 SCC OnLine Del 6964.
11 (2021) 2 SCC 1
12 Arbitration Petition Nos. 16 of 2020 and 17 of 2020, decided on 22.09.2021 - SC
13 AIR 2021 SC 1979
14 AIR 2023 SC 1974
15 2023 SCC OnLine SC 1666
16 Supra., Note 9.
17 Civil Appeal No. 7821 of 2024 (Arising out of SLP (C) No. 3792 of 2024) and Civil Appeal No. 7822 of 2024 (Arising out of SLP (C) No. 7220 of 2024), decided on 18.07.2024
18 Arbitration Petition No. 38 of 2020, decided on 09.09.2024 - SC
19 (2024) 4 SCC 341
20 Arb. P. 1241 of 2024, decided on 20.11.2024 - DELHC
21 Supra., Note 4.
22 Arb. P. 1212/2024, decided on 25.11.2024 - DELHC
23 Arb. P. 1298/2024, decided on 25.11.2024 - DELHC
24 Supra. Note 15.
Disclaimer: This article was first published in the S&A Law Offices - 'Indian Legal Impetus' newsletter in December 2024.
