In the examination of the Court’s authority under Section 11 of the Act concerning the appointment of arbitrators, the Supreme Court, in S.B.P. & Co. vs. Patel Engineering Ltd. & Ors., ruled that the power exercised by the Chief Justices of High Courts or the Chief Justice of India is judicial rather than administrative. The Court affirmed that in exercising this power, the Chief Justice or designated Judge must have jurisdiction to assess the validity of the arbitration agreement, the existence of a live claim, and conditions such as the qualifications, independence, and impartiality of arbitrators. With an increasing scope of judicial involvement, the Law Commission of India, in its 246th Report, recommended restricting judicial intervention to a prima facie evaluation of the existence of an arbitration agreement. Subsequently, the Arbitration & Conciliation (Amendment) Act, 2015 [referred to as the “2015 Amendment Act”], was enacted to significantly curtail judicial interference in arbitrator appointments by limiting the Court’s role to verifying the existence of an arbitration agreement. This Act introduced Section 11(6-A), nullifying prior Supreme Court precedents in Patel Engineering Ltd. and National Insurance Co. Ltd. cases.
Post the 2015 Amendment Act
New judicial pronouncements further reduced Court intervention during Section 11 applications. The Supreme Court emphasized in Duro Felguera S.A. vs. Gangavaram Port Ltd. that the legislative intent post-2015 is clear: Courts should only verify the existence of an arbitration agreement during Section 11 applications. However, subsequent Supreme Court decisions presented varied perspectives.
In the case of Vidya Drolia and Ors. vs. Durga Trading Corporation, the Supreme Court distinguished between the “existence” and “validity” of an arbitration agreement, indicating the need for a definitive decision by a three-judge bench on whether “existence” includes excluding arbitration clauses in non-arbitrable subject matters. These conflicting decisions were subsequently reconciled by the Supreme Court in Mayavati Trading Pvt. Ltd. vs. Pradyuat Deb Burman, which reviewed the Law Commission’s Report, the High-Level Committee’s Report on Arbitration Mechanism Institutionalization, and the 2015 Amendment Bill’s Statement of Objects and Reasons. The Court concluded that post-2015, the Court’s authority under Section 11 of the Act is strictly confined to examining the existence of the arbitration agreement.
The 2019 Amendment Act
On August 9, 2019, the President of India ratified it, aiming to expand judicial scope by removing sub-section (6-A) from Section 11 of the Act. However, while the Act was published on the same date, its enforcement was postponed until the Central Government issued a notification. The Central Government subsequently implemented all amendments through Gazette Notification dated August 30, 2019, excluding Sections 2, 3, 10, 12, 14, and 16 of the 2019 Amendment Act. Consequently, amendments to Sections 2, 11, and 50 of the Act, as well as the Fourth Schedule and the insertion of Part IA ‘Arbitration Council of India’ and the Eighth Schedule, have not been enforced. As Section 3 of the 2019 Amendment Act (amending Section 11 of the Act) remains unnotified by the Central Government, the omission of sub-section (6-A) from Section 11 of the principal Act has not yet come into effect. Post the 2019 Amendment Act, recent Supreme Court decisions indicate a broader interpretation of Section 11(6-A), allowing Courts a more expansive scope of inquiry during Section 11 applications.
While Section 11(6-A) remains in force, implying that Courts are limited to examining the existence of an arbitration agreement, recent court rulings have broadened this scope. In Vidya Drolia and Ors. vs. Durga Trading Corporation, the Supreme Court ruled that under Sections 8 and 11 of the Act, Courts are required not only to ascertain the existence of an arbitration agreement but also to assess its prima facie validity. This includes determining whether the arbitration agreement was in writing, whether it was contained in exchanges such as letters or telecommunications, whether the core contractual elements of the arbitration agreement were met, and on rare occasions, whether the subject matter of the dispute is arbitrable.
Accordingly, Courts at the referral stage must apply a prima facie test based on these principles. In cases involving debatable or disputable facts, Courts should enforce the arbitration agreement, recognizing the arbitral tribunal’s primary jurisdiction to resolve disputes, including issues of jurisdiction and arbitrability.
The Supreme Court further clarified that Courts may only intervene at the Section 11 stage in rare cases where the arbitration agreement is clearly nonexistent, invalid, or the disputes are non-arbitrable. This limited review aims to prevent parties from being compelled to arbitrate non-arbitrable matters. The Court highlighted significant disparities between the statutory schemes of amended Section 8 and Section 11(6-A) of the Act, requiring reconciliation to eliminate inconsistencies in these similar provisions.
Following Vidya Drolia, the Supreme Court in DLF Home Developers vs. Rajapura Homes Pvt. Ltd. and Anr. stressed that Courts should not mechanically appoint arbitrators but should address core preliminary issues within the framework of Section 11(6-A). This review is intended to streamline the arbitration process rather than usurp the arbitral tribunal’s jurisdiction. Additionally, in Indian Oil Corpn. Ltd. vs. NCC Ltd., the Supreme Court noted that while the arbitral tribunal has the authority to decide disputes, including issues of jurisdiction and arbitrability, Courts may also consider these matters during Section 11 applications if the facts are clear and specific clauses in the agreement exclude certain issues from arbitration. Courts can conduct a prima facie test concerning the ‘accord and satisfaction’ of claims at this stage.
Applying these principles, the Delhi High Court, in its October 6, 2022, judgment in Janta Associates and Co. Ltd. vs. Indian Oil Foundation and Ors. declined to refer disputes to arbitration, citing an excepted matter clause in the agreement excluding certain disputes from arbitration. Similarly, on November 16, 2022, in Vikram Bakshi vs. Sonia Khosla & Anr. the Delhi High Court dismissed a Section 11 petition, ruling intra-company disputes non-arbitrable.
Conclusion:
Recent Supreme Court rulings have expanded the scope of judicial intervention at the Section 11 application stage. This scope could further widen with the Central Government’s notification of the amendment to Section 11 under the 2019 Amendment Act, removing sub-section (6A). This potential expansion contrasts with the legislative intent of Section 5 of the Act, as noted by the author, and to some extent undermines the fundamental principle of party autonomy in arbitration.
By: Esha