Arbitration: Supreme Court Suggests Amendments To Sections 11(7), 37 To Bring Section 8 & 11 At Par On Appealability

‘The amendments to Section 11(7) & 37 of the Arbitration and Conciliation Act, 1996 might be necessary so that the orders passed under Section 8 & 11 are brought on par as far as appealability is concerned has been observed the Supreme Court.

The power of a court to refer parties in Section 8; was amended in 2015 which is to state that; such reference should not be made unless the court finds that prima facie a valid arbitration agreement exists.

Section 37 was also amended in 2015; which is to allow for appeals against an order refusing to refer parties to arbitration under Section 8.

these amendments were made on the basis of recommendations of the Law Commission of India.

However, no amendment to date has been made to Section 37; to allow an appeal against an order refusing to appoint an arbitrator; under Section 11 of the Act,  despite the fact that such a recommendation was also made by the Law Commission.

As per the Supreme Court judgment in the matter of Vidya Drolia v Durga Trading Corporation; the Courts have to enter a prima facie satisfaction under both Section 8 and 11 regarding the existence of a valid arbitration agreement. While a finding against the existence of arbitration agreement under Section 8 is appealable and not appealable under Section 11.

In the case Pravin Electricals Pvt Ltd v Galaxy Infra and Engineering Pvt Ltd;

this was described as an “anomaly” by a division bench comprising Justices RF Nariman, BR Gavai, and Hrishikesh Roy; & made this observation while considering a special leave petition filed against an order of a single bench of the Delhi High Court which appointed an arbitrator under Section 11(6) of the Act.

The Court found on facts that; the conclusive finding of the single judge regarding the existence of arbitration agreement was incorrect.

After considering the complexity of facts; the top court observed; the question of the validity of the arbitration agreement has to be left to the arbitrator.

“…we set aside the impugned judgment of the Delhi High Court in so far as it conclusively finds that there is an Arbitration Agreement between the parties”, the bench observed.

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