ABOUT THE AUTHOR
The author is a Bhopal national Law University graduate. Having graduated from the university the author joined the prestigious Haryana judicial services. After having served for a period of five years the author opted for practicing before the honorable Punjab and Haryana High Court at Chandigarh as an independent council. The author has been practicing at the Chandigarh High Court since 2013 and is handling matters pertaining to the Criminal law, civil law, arbitration and other fields of law.
“Who Decides”?
The Question of Arbitrability
Whether the Courts at the reference stage or the Arbitral tribunal.
The only simple meaning which comes to the mind of any student of law upon hearing the term “Arbitration”; would be, that it is a private dispute resolution mechanism, whereby two or more parties agree to solve their current or future disputes by an arbitral tribunal, as an alternative to adjudication by the Courts or a public forum established by law.
The most important aspect of arbitration is that; the parties by mutual agreement forgo their right in law to have their disputes adjudicated in the courts/public forum.
This mutual agreement is the bedrock of initiation of any arbitration proceedings or we could say; it is “sine qua non” for arbitration proceedings to initiate. This mutual agreement is defined by the Arbitration and Conciliation Act 1996 (Henceforth mentioned as “The Act”) as Arbitration Agreement[1]. Though the Act; does not define anywhere the meaning of the term “Agreement” but it would be safe to say it holds the same meaning as defined in the Contract Act, 1872, as a contract made by the free consent of the parties competent to contract, for a lawful consideration and with a lawful object[2].
Relevance of the Arbitration Agreement:
To enter into any commercial relationship the parties enter into an agreement and execute a contract. Such a contract could be divided into two parts; one part which deals with the recitals pertaining to commercial relationship, including the obligations and duties of each party and; the other part is the aspect of the determination of the said contract, if the need may ever arise, and the procedure governing the same, and if the parties to the contract so mutually agree to submit to the process of Arbitration with a view to govern all disputes and claims which may arise from the said contract.
It is safe to say that an arbitration agreement within a contract can be termed as a separate contract in itself. The plain reading of the Act, would be that whenever a dispute arises between parties, they are free to approach an appropriate judicial forum to get their dispute resolved, but if the parties have opted for an arbitration agreement, then they can approach a tribunal for getting the matter in dispute resolved. Therefore, only and only if there is a valid arbitration agreement in the contract then the matter could be referred for the arbitration.
Kompentz-KompetenzPrinciple:
Kometenz -Kompetenz or competence- competence is an international principle of arbitration, which deals with and establishes the concept of the supremacy of the arbitral tribunals to decide and rule on the aspect of its own jurisdictions. The concept establishes the primacy of the arbitral tribunal for deciding its own jurisdictions. The existence of the said principle and global acceptance to the same is a decisive indication towards the concept of completion of entire process of dispute resolution with permissibility of minimal interference of the courts or any judicial authority within the domain of the arbitral tribunal jurisdictions.
The Act also unequivocally restricts the judicial intervention[3] of the courts in the process of the arbitration. The Indian vision of the Act also has adopted the above principle and gives ample powers to the arbitral tribunal in deciding upon its own jurisdictions[4], even in cases where there is an initial objection to the arbitrability of an agreement. The Act doesn’t provide for any interference of the courts in the decision making of the arbitral tribunal when the parties to the contract have decided to submit themselves to the process of arbitration and the tribunal decides upon the arbitrability of the agreement and provides only to interfere at the culmination of the proceedings when the award so passed is challenged[5].
Arbitrability of an Agreement:
To put it simply, arbitrability refers to the ability of a dispute to constitute the subject matter of the arbitration. It pertains to the jurisdictional aspects of a dispute. It goes beyond the preliminary determination of the legal validity of the arbitration agreement and tries to ascertain whether the dispute is capable of being adjudicated by a private forum instead of courts[6]. Arbitrability in essence, is a matter of national public policy[7]. As public policy can differ from one country to another, the arbitrability of a particular dispute may vary considerably from jurisdiction to jurisdiction[8].
The concept of arbitrability owes its origin to the Geneva Convention on the Execution of Foreign Arbitral Awards, 1927. Which through its expression “capable of settlement by arbitration” prescribed it as a necessary pre-condition for enforcement of a foreign award in a state[9].
In the Indian scenario the Act does not specify any category of disputes which are excluded from its applicability[10]. Therefore, in principle, the general mandate of the act is to allow all kinds of civil disputes “whether contractual or not” to be settled through arbitration[11]. However, the Act itself creates a rider to this general rule mentioned above by creating a non obstante clause[12], and thereby restricting the overriding effect of the Act. As far as the issue of non-arbitrability is concerned, if raised by the parties who have both chosen to go for the arbitral tribunal mutually, the said aspect would be taken care of by the tribunal itself in the light of the Kompetenz Kompetenz principle as discussed above.
Furthermore, the issue of non-arbitrability could be raised at three stages. First, before the courts on an application for reference[13] or for stay of pending judicial proceedings and reference[14]; secondly before the arbitral tribunal during the course of the arbitration proceedings; or thirdly, before the court at the stage of the challenge to the award[15].
Who decides non-arbitrability remains a vexed question that does not have a straightforward universal answer, as would be apparent from opinions in the at-variance Indian case laws on this subject. To some extent, the answer depends on how much jurisdiction the enactment gives to the arbitrator to decide their own jurisdiction as well as the court’s jurisdiction at the reference stage and in the post award proceedings. It also depends upon the jurisdiction bestowed by the enactment, viz. the facet of non-arbitrability in question, the scope of the arbitration agreement and authority conferred on the arbitrator.
We would try and examine the jurisdiction of the courts to evaluate the non-arbitrability of an agreement at the first stage i.e., the pre reference stage[16], through various case laws as decided by the Supreme Court of India which would show the paradigm shift in the approach of the courts in India while treading on this issue, with international conventions and various amendments in the backdrop as guiding principles.
Pre-Amendment case study (Pre 2015 Amendment).
The basic feature weighed in the mind of the legislature while framing the Arbitration and Conciliation Act, 1996 was that a comprehensive Act should be prepared which covers domestic as well as the international arbitration with minimal supervisory role of the courts in the arbitral process[17].On the jurisdiction of the court at the referral stage, views of the Supreme Court of India, have differed and there have been statutory amendments to modify and obliterate the legal effect of the court decisions.
In the pre amendment Act, legislative scheme provided that if the parties have agreed to procedure for the appointment of arbitrator, then the appointment had to be made according to the agreement. In case there was no consensus among the parties regarding the appointment of the arbitrator, then the default power lied with the Chief Justice or any person or institution designated by him[18].
Initially when this question came before the courts then the view taken was that the power conferred upon the chief justice in the Act to appoint an arbitrator, is only an administrative power, it cannot be termed as the judicial or quasi-judicial power, and therefore no power or jurisdiction is conferred upon the Chief Justice while exercising power under the act to decide any contentious issue[19]. The decision of the Supreme Court, was in coherence with the new act as well was largely based upon the UNCITRAL model law which provides for the minimal judicial interference.
This view of the Full Bench of the Supreme Court was though in the line of minimal judicial interference principle, but was widely criticised and was overruled by the subsequent decision of the Constitutional Bench of the Supreme Court with ratio of 5:1, the minority view still upheld the findings of the earlier decision but the majority view was taken that the functions of the chief justice cannot be termed as administrative functions as the act attaches a finality to the decision[20] of the chief justice, and whenever a decision of a judicial authority achieves finality then the same is judicial decision only which requires statutory measures to challenge the same.
The view was taken that in order to give judicial finding to any aspect the courts have to go in details on all the aspects and including the arbitrability of the arbitration agreement., and the scope of the interference of the courts was widened significantly, and it was in these subsequent decisions it was held that the function exercised by the Chief Justice is not administrative in nature but is purely judicial in nature[21].
Although the wording of the section of the act regarding the appointment of arbitrator is innocuous, but the courts interpreted and drew its powers from other provisions of the act[22], wherein the scope of specific interference of the courts was provided and the courts subsumed these powers while exercising the power of appointment of arbitrator and started looking into the aspect of the arbitrability of the agreement in a more contentious manner.
In the subsequent cases the courts further widened the scope of intereference and further identified and classified the preliminary issues which the chief justice is bound to decide[23].
Post Amendment Case Study: Amendment of 2015.
The 1996 Act was amended by the Arbitration and Conciliation (Amendment) Act, 2015 which came into force with effect from 23.10.2015. The said amendment was based on the recommendations of the 246th Report of the Law Commission of India.
The 2015 Amendment Act made three significant changes : (i) It replaced the Chief Justice of the High Court as the appointing authority for exercising the default power of appointment in the case of domestic arbitrations, by the concerned High Court; and, in respect of international commercial arbitrations, the default power would be exercised by the Supreme Court, in place of the Chief Justice of India. (ii) It inserted sub-section (6A) and (6B) in Section 11[24]. (iii) Sub-section (6B) was inserted to provide that the designation of any person or institution, by either the Supreme Court or High Court, as the appointing authority under Section 11, would not be regarded as a delegation of judicial power.
The effect of the amendment was that if the existence of the arbitration agreement was not in dispute, all other issues would be left for the arbitral tribunal to decide. This was in effect reinforcement of the doctrine of kompetenz-kompetenz, which empowers the tribunal to rule on its own jurisdiction, including any objections with respect to the validity of the arbitration agreement; and thereby minimize judicial intervention at the pre-reference stage.
One can say that the amendments to Section 11 were brought in to legislatively overrule the line of judgments including SBP & Co[25]., BogharaPolyfab[26], etc., which had enlarged the scope of power of the appointing authority judicial authority to decide various issues at the pre-reference stage.
Pot amendment, as expected there was rush to approach the courts with the changed scenario because of the amendments which tried to overrule the judgments passed and re-emphasized by the Constitutional Benches of the Supreme Court of India in various subsequent decisions and would not be incorrect to suggest, that held their ground as Law of the land.[27] In this backdrop sub-section (6A) of the Act came up for consideration in a case before the Supreme Court of India , wherein then view taken was that the legislative policy was to minimize judicial intervention at the appointment stage.
The Supreme Court while taking a parading shift, may be keeping in mind the legislative intent as well as the international conventions, to have minimal courts interference being a key to the success of the arbitration law, while upholding the spirit of the amendment, held that in an application under Section 11, the Court should only look into the existence of the arbitration agreement, before making the reference[28]. Post the 2015 amendments, all that the courts are required to examine is whether an arbitration agreement is in existence nothing more, nothing less.
The Courts had the occasion to examine the issue of the curtailment of the scope of interference by the Courts, under Section 11(6A) of the Act and the Courts post amendment continued adopting a very narrow approach while interfering at the stage of reference and the Supreme Court further adopting the Will of the legislature for the minimal judicial interference construed the section 11(6A) in the most narrow sense and opined that the examination of the existence of an arbitration agreement is to be seen in a very narrow sense[29].
The courts in the post amendment era were also mindful of the law commission in its 246th report which also recommended that the scope of judicial intervention is only restricted to situations[30] where the court/judicial authority finds that the arbitration agreement does not exists or is null and void. The intervention was only limited in the event when the judicial authority is prima facie satisfied that the arbitration agreement is invalid or null and void[31].
Position post amendment of 2019:
The position of the interference of the Courts post amendment on 2015 as discussed above was immensely narrowed to only examine the fact regarding the prima facie validity of the arbitration agreement as the legislature in its wisdom amended Section 11 while adding Section 6(A) & 6(B) starting with a, non obstante clause which overruled all the earlier judicial decisions of the Supreme Court of India vide which the Courts widened the scope of intervention in the arbitration agreements at the reference stage, while completely defeating the mandate of law.
The legislature again amended the Arbitration & Conciliation Act, bringing substantial changes in the Act. The legislature explicitly[32] laid down the principles limiting the intervention of the courts which, though, were already implicit in the Act. The amendment omitted the most controversial section[33] (in a sense restricting the courts authority).
Post the amendment, the Courts again had an opportunity to examine the amendments made in the light of the scope of interference which the Courts have at the pre-reference stage, the Courts owing to the amendment in section 45 of the Act which now explicitly mentions that judicial intervention is limited only to an extent to see only a prima facie arbitrability of the agreement.
The Supreme Court of India while examining the issue concluded that the Court must undertake a primary first review only to weed out manifestly ex-facie, non-existent and invalid arbitration agreements or non-arbitrable disputes.
The Courts now have restricted themselves at a pre-reference stage to cut the deadwood where dismissal is bare faced and pellucid, when on the facts and law.[34] This is in fact an affirmation of the position of the Supreme Court in the law expounded by the Supreme Court in post 2015 amendment also. The law expounded and followed by the Supreme Court post 2015 amendment continued to hold the field and has not resurrected to the pre 2015 amendment position, where they widened the scope of interference.
Thus, the Courts have settled the legal position in this regard that it is only the very limited category of cases where there is not even a vestige of doubt that the claim is ex-facie time barred or that the dispute is non-arbitrable then, and only then the court may decline to make the reference.
The reverse corollary of the position expounded by the Courts would be that if there is even the slightest doubt, the rule is to refer the disputes to arbitration. Otherwise, it would be considered as an encroachment upon the domain which is essentially a matter to be determined by the Arbitral Tribunal.[35]
Concluding Remarks:
In India the concept of the arbitration dates long back. The Arbitration Act, 1940 was the first legislation passed by the parliament in this regard. But due to the advent of the commercial globalisation and India became; the biggest market for the commercial transactions all over the world the need was felt to be at par with the other commercial jurisdictions and also need was felt for the universal accepted system for the redressal of the disputes which is amicable in nature and also in the time bound manner, as the time is the biggest concern for any commercial transaction.
The present Arbitration Act, 1996, is based on the UNCITRAL (United Nations Commission on International Trade Law); a body of the United Nations, to which India is also a member, came up with the Model law of Arbitration, 1985, as a need was felt that; a uniform process should be adopted globally, by the member states in their Arbitration, laws, based upon the Model law as formulated by the UNCITRAL. Based upon the Model Law of the UNCITRAL the present Act, of 1996 was enacted, which, keeping in view the global commercial integrity and in the interest of the commercial contracts, has been repeatedly amended.
The United General Assembly, in its plenary meeting on 12th December, 1985, passed a resolution, recognising the arbitration as the most effective method in settling the disputes arising in the international commercial relations. On this analogy the UNCITRAL drafted the model law and the same was adopted by India in the Act, 1996. The basic feature of the arbitration law is that; there should be minimal interference by the courts in the process of the arbitration, the reason behind the same is that; the courts are already clogged and time is the essence of any commercial relations, therefore; if there is too much interference of the courts in the arbitration process then the whole purpose of setting up an alternate dispute resolution system would fail.
Therefore, initially the courts had a more conservative approach and; were widening the scope of the interference, but post 2015 amendment of the act; the courts in India have restricted their scope of interference at the pre-reference stage, and; the law now settled being that, courts could interfere, only if prima facie an arbitration agreement is void, otherwise there has to be absolutely no interference. The courts in India have now adopted the approach when faced with a situation at the pre reference stage “ when in doubt-refer for arbitration”.
[1] Section 7 of the Arbitration and Conciliation Act 1996.
[2] Section 10 of the Indian Contract Act, 1872.
[3] Section 5 of the Arbitration and Conciliation Act, 1996.
[4] Section 16 -do-
[5] Section 34 of the Arbitration and Conciliation Act.
[6] Anand Kumar Singh, Arbitrability of disputes in India: the changing Landscape of Exclusive Jurisdiction Discourse, 7(1)NLUJ Law Review 70(2020).
[7] Public policy is an institutionalized proposal to solve relevant and real-world problems, guided by a conception . https://en.wikipedia.org/wiki/Public_policy#cite_note-Lassance-1
[8] A Second Look at Arbitrability: Approaches to Arbitration in the United States, Switzerland and Germany by Patrick M. Baron and Stefan Liniger
[9] ARTICLE 1 part (b) That the subject-matter of the award is capable of settlement by arbitration under the law of the country in which the award is sought to be relied upon. Geneva Convention 1927 – CONVENTION ON THE EXECUTION OF FOREIGN ARBITRAL AWARDS SIGNED AT GENEVA ON THE TWENTY SIXTH DAY OF SEPTEMBER, NINETEEN HUNDRED AND TWENTY-SEVEN
[10]A. Ayyasamy v. A Paramasivam, (2016) 10 SCC 386
[11] Section 7 of the Act.
[12] Section 2(3) of the Act
[13] Section 11-do-
[14] Section 8-do-
[15] Section 34 -do-
[16] Section 11 of the Arbitration and Conciliation Act, 1996
[17]Arbitration and Conciliation Bill, 1995
[18] Section 11(4) Arbitration and Conciliation Act, 1996.
[19]Konkan Railway Corpn. Ltd. &anr. v. Rani Construction Pvt. Ltd., 2002(1) RCR (Civil) 845 (SC) : [(2002)2 SCC 388]
[20] Section 11(7) of the act
[21]SBP & Co. v. Patel Engineering Ltd., (2005) 8 SCC 618
[22] Section 45 and 8 of the Act
[23]National Insurance Co. Ltd. v. BogharaPolyfabPvt. Ltd., (2009) 1 SCC 267
[24] Section 11 (6)(A)(B) of the 2015 Amended Act.
[25] Supra at footnote 15
[26] Supra at footnote 19
[27] Article 141 of the Constitution of India.
[28]DuroFelguera SA v. Gangavaram Port Ltd., (2017) 9 SCC 729
[29] Mayawati Trading Co. Pvt. Ltd. Vs. Pradyut Dev Burman (2019(8) SCC, 714
[30] Section 8 and Section 11 of the Arbitration and Conciliation Act, 1996 (as amended in 2015)
[31] Uttrakhand Purv Sainik Kalyan Nigam Vs. Northern Cold Field Ltd., 2020(2) SCC, 455
[32] Amended Section 45 of the Arbitration & Conciliation Act, 1996 (2019 Amendment) “In Section 45 of the Principal Act for the words ‘unless it finds’, the words ‘unless it prima facie finds’ was substituted”.
[33] Section 11(6A) (6B) omitted
[34] Vidya Drolia Vs. Durga Trading Corporation 2021(2) SCC, 1.
[35] Bharat Sanchar Nigam Ltd. Vs. M/s Nortel Networks India Pvt. Ltd., 2021 (5) SCC, 738.
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