Arbitrations in India are subject to frequent judicial intervention throughout their tenuous lifespans, whether at the stage of interim relief, constitution of an arbitral tribunal or challenge to an award. This is likely due to the widespread prevalence and acceptance of ad-hoc arbitrations as the preferred mode of arbitration. These intervention points have been regarded as one of the reasons for substantial delay in the process of arbitration in India by the 246th Report of the Law Commission of India.
A referral court's power to constitute an arbitral tribunal under Section 11 of the Arbitration and Conciliation Act, 1996 ("Act") where the parties have failed to appoint an arbitrator/s, has been subject to much scrutiny by the Supreme Court of India. This has been accentuated in recent times on account of a pressing need to unclog judicial bottlenecks. A by-product of this frequent judicial scrutiny is divergent and often contradictory decisions on the scope of inquiry while appointing arbitrators under Section 11 of the Act.
When the Act came into force, referral courts were empowered to appoint an arbitrator upon a request being made by a party as per Section 11(6) of the Act. However, the scope of inquiry prior to such appointment was not delineated or restricted by the Act.
In the absence of a restriction, most courts undertook a wider scope of inquiry at the stage of appointment. The judicial mindset at the time is reflected in the seven-Judge bench decision of the Supreme Court in SBP & Co. vs. Patel Engg. Ltd.1 which held that the referral court's power to appoint an arbitrator was not administrative but judicial in nature and that such power extended to deciding issues such as the existence of a valid arbitration agreement as well as the existence of a live claim. This was reinforced and expanded upon in National Insurance Co. Ltd. vs. Boghara Polyfab (P) Ltd. 2
This approach understandably led to substantial delays at the very inception of the arbitration process. The 246th Law Commission Report highlighted the issue, which eventually culminated into the introduction of Section 11 (6-A) of the Act under the Arbitration and Conciliation (Amendment) Act, 2015 ("2015 Amendment"). The insertion of Section 11(6-A) in the Act restricted the scope of inquiry to the examination of the "existence of an arbitration agreement".3 However, even after this amendment, there was a lack of uniformity in judicial decision making.
Post the 2015 Amendment, the statutory restriction to the scope of inquiry [by way of Section 11(6-A) of the Act] was recognized by the Supreme Court in Duro Felguera, SA vs. Gangavaram Port Ltd.4. It was held that referral courts were to merely enquire into the existence of an arbitration agreement, when considering an application for appointment of an arbitrator, nothing more, nothing less. It was observed that the legislative intent to minimise court intervention at the stage of appointing the arbitrator ought to be respected.
However, in 2019, the Supreme Court in United India Insurance Co. Ltd. vs. Antique Art Exports (P) Ltd.5 held that a referral court may look into 'prima facie evidence' to assess whether the claim was settled by accord and satisfaction of the parties, even prior to appointment of the arbitrator, and the findings in Duro Felguera (supra) were distinguished. The findings in Antique Art (supra) were soon overruled in Mayavati Trading (P) Ltd. vs. Pradyut Deb Burman6 and the Supreme Court reaffirmed the findings of Duro Felguera (supra), aligning the position with the 2015 Amendment.
Meanwhile, a division bench of the Supreme Court in Garware Wall Ropes Ltd. vs. Coastal Marine Constructions & Engg. Ltd.7 while hearing an application under Section 11 of the Act, ruled that an unstamped agreement is not enforceable in law and such an inquiry could be made be at the preliminary stage of constitution of a tribunal in order to assess the existence of the arbitration agreement 'in law'.
Additionally, in Vidya Drolia vs. Durga Trading Corpn.8, a three-Judge bench of the Supreme Court delved into the effect of the 2015 Amendment vis-à-vis the standard of judicial scrutiny by a referral court in assessing non-arbitrability of claims / subject matter of a dispute. It was held that referral courts could conduct a prima facie examination to weed out 'manifestly and ex facie non-existent and invalid' arbitration agreements as well as non-arbitrable disputes.
The ratio laid down in Vidya Drolia (supra) was followed and expanded upon in Indian Oil Corpn. Ltd. vs. NCC Ltd.9 where it was held that the non-arbitrability of a claim inter alia on account of the language of an arbitration agreement could be considered by a referral court. This position was followed in NTPC vs. SPML Infra Ltd.10 where it was held that primary inquiry by a referral court could pertain to the existence and validity of the arbitration agreement as well as to non-arbitrability of the dispute.
While these decisions emphasized the concept of limited prima facie review by the referral court, the scope of inquiry that could conducted by them stood visibly enlarged.
In 2023, a seven-Judge bench of the Supreme Court in In Re: Interplay Between Arbitration Agreements under the Arbitration and Conciliation Act 1966 and the Stamp Act 189911 settled the debate as to the scope of inquiry that could be undertaken. It conclusively held that a referral court was required to look only into the 'existence of the agreement and nothing else' and that substantive objections pertaining to existence and validity of the agreement on the basis of evidence must necessarily be left to the arbitral tribunal for adjudication.
Contrary to the judgment above, a three-Judge bench judgment in Arif Azim Co. Ltd. vs. Aptech Ltd.12 rendered as late as March 2024, followed the position of law in Vidya Drolia (supra) and held that a referral court could conduct a prima facie evidentiary review to reject non-arbitral or dead claims.
In July 2024, a three-Judge bench of the Supreme Court, in SBI General Insurance Co. Ltd. vs. Krish Spg.13, reconsidered the scope of power of referral courts in light of Section 11(6-A) of the Act and the judgments referred to above, and settled the position of law. It was clarified by the Supreme Court that the scope of inquiry at the stage of appointment of arbitrator was limited to the scrutiny of prima facie existence of the arbitration agreement. The observations made in Vidya Drolia (supra) and Indian Oil (supra) were overruled to the extent that that they held that a referral court could review issues pertaining to non-arbitrability of a claim and the findings in In Re: Interplay (supra) were affirmed. Moreover, the findings in Arif Azim (supra) were overruled to the extent that they held that the arbitrability of claims could be assessed by the referral court by conducting a prima facie evidentiary review.
In September 2024, the position laid down in In Re: Interplay (supra) was affirmed by three-judge benches of the Supreme Court in Cox and Kings vs. SAP India Pvt. Ltd. & Anr.14 and Ajay Madhusadan Patel & Ors. vs. Jyotrindra S. Patel & Ors.15. It was also affirmed that any preliminary objections beyond the existence of the arbitration agreement were required to be ruled upon by the arbitral tribunal upon its constitution, and not by the referral court.
The upshot of the above discussion is that the Supreme Court of India has in keeping with the legislative intent of the 2015 Amendment, confirmed that a referral court has a minimal role to play in the appointment of an arbitrator under Section 11 of the Act and that objections of any kind including regarding arbitrability must be decided by the arbitral tribunal.
Footnotes
1. 2005 8 SCC 618
2. 2009 1 SCC 267
3. It is worthwhile to note that Section 11(6-A) of the Act has been proposed to be omitted by Section 3(v) of the Arbitration and Conciliation (Amendment) Act, 2019, however, the same is pending notification. Therefore, Section 11(6-A) remains in force, as on date.
4. 2017 9 SCC 729
5. 2019 5 SCC 362
6. 2019 8 SCC 714
7. 2019 9 SCC 209
8. 2021 2 SCC 1
9. 2023 2 SCC 539
10. 2023 9 SCC 385
11. 2024 6 SCC 1
12. 2024 5 SCC 313
13. 2024 SCC OnLine SC 1754
14. (2025) 1 SCC 611
15. Arbitration Petition No. 19 of 2024
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