Vidya Drolia vs Durga Trading Corporation

IN THE SUPREME COURT OF INDIA CIVIL APPELLATE JURISDICTION

CIVIL APPEAL NO. 2402 OF 2019

VIDYA DROLIA AND OTHERS ..... APPELLANT(S)

VERSUS

DURGA TRADING CORPORATION ..... RESPONDENT(S)

WITH

SPECIAL LEAVE PETITION (CIVIL) NOS. 5605-5606 OF 2019

AND

SPECIAL LEAVE PETITION NO. 11877 OF 2020

JUDGMENT

SANJIV KHANNA, J.

This judgment decides the reference to three Judges made

vide order dated 28th February, 2019 in Civil Appeal No. 2402 of

2019 titled Vidya Drolia and Others v. Durga Trading

Corporation,1 as it doubts the legal ratio expressed in Himangni

Enterprises v. Kamaljeet Singh Ahluwalia2 that landlord-tenant

disputes governed by the provisions of the Transfer of Property Signature Not Verified Digitally signed by SATISH KUMAR YADAV Date: 2020.12.14 19:38:59 IST Reason:

1 2019 SCC OnLine SC 358 2 (2017) 10 SCC 706

1 Act, 1882, are not arbitrable as this would be contrary to public

policy.

2. A deeper consideration of the order of reference reveals that the

issues required to be answered relate to two aspects that are

distinct and yet interconnected, namely:

(i) meaning of non-arbitrability and when the subject matter of

the dispute is not capable of being resolved through

arbitration; and

(ii) the conundrum – “who decides” – whether the court at the

reference stage or the arbitral tribunal in the arbitration

proceedings would decide the question of non-arbitrability.

The second aspect also relates to the scope and ambit of

jurisdiction of the court at the referral stage when an objection of

non-arbitrability is raised to an application under Section 8 or 11

of the Arbitration and Conciliation Act, 1996 (for short, the

‘Arbitration Act’).

3. We are not reproducing and examining the factual matrix, as we

are only answering the legal issues raised. However, we would

refer, in brief, to the legal reasoning and the ratio in Himangni

2 Enterprises and the counter view expressed in the order of

reference in Vidya Drolia.

4. Himangni Enterprises upheld the decision of the High Court and

the District Court rejecting the application filed by the defendant-

tenant under Section 8 of the Arbitration Act in a civil suit seeking

its eviction from a shop in a commercial complex in New Delhi. The

suit was also for the recovery of arrears of rent and permanent

injunction. The tenancy in question was not protected under the

rent control legislation and the rights and obligations were

governed by the Transfer of Property Act. Two Judges of this

Court held that the issue of non-arbitrability is no longer res integra

as it stood answered by decisions in Natraj Studios (P) Ltd. v.

Navrang Studios3 and Booz Allen & Hamilton Inc. v. SBI Home

Finance Ltd.4 In Natraj Studios (P) Ltd., wherein an application

under Section 8 of the Arbitration Act, 1940 was dismissed as the

tenancy was protected under the Bombay Rents, Hotel and

Lodging Houses Rates Control Act, 1947, it was observed that on

broader consideration of public policy, the arbitrator lacked

jurisdiction to decide the question whether the licensee-landlord

was entitled to seek possession. The dispute could be exclusively

3 (1981) 1 SCC 523 4 (2011) 5 SCC 532: (2011) 2 SCC (Civ) 781

3 decided by the Court of Small Causes, which alone had

jurisdiction. In Booz Allen & Hamilton Inc., it was held that in

eviction or tenancy matters governed by special statutes and

where the tenant enjoys statutory protection, only the specified

court has been conferred jurisdiction. Himangni Enterprises

relying on the said ratios holds that though the Delhi Rent Act is

not applicable, it does not follow that the Arbitration Act would be

applicable so as to confer jurisdiction on the arbitrator. Even in

cases of tenancies governed by the Transfer of Property Act, the

dispute would be triable by the civil court and not by the arbitrator.

The exemption from the applicability of the Rent Act could be

withdrawn and thereupon the rights would be governed by the rent

control legislation.

5. In Vidya Drolia, another division bench referring to Section 11(6-

A) has observed that the referral stage requirement is to only

examine ‘existence of an arbitration agreement’ and not validity of

the arbitration agreement. 246th Report of the Law Commission of

India had suggested twin examination whether the agreement

‘exists’ or is ‘null and void’, albeit the Section 11(6-A), as enacted,

requires ‘existence of an arbitration agreement’, and the

4 prerequisite that the arbitration agreement should not be ‘null and

void’ was deliberately omitted. The wording of Section 11(6-A) was

contrasted with Section 16(1) to draw distinction between ‘validity

of an arbitration agreement’ and ‘existence of an arbitration

agreement’. Reference was made to observations of Kurian

Joseph, J. in Duro Felguera, S.A v. Gangavaram Port Limited,5

to the effect that the scope of Section 11(6-A) is limited, only to see

whether an arbitration agreement exists – nothing more, nothing

less. The legislative policy and purpose are to essentially minimize

judicial intervention at the appointment stage. Referring to Sections

111, 114 and 114A of the Transfer of Property Act, it is observed

that there is nothing in this Act and law to show that a dispute

relating to the determination of lease, arrears of rent etc. cannot be

decided by an arbitrator. The grounds predicated on public policy

could be raised before the arbitrator as they could be raised before

the court. The arbitrator could well abide by the provisions of

Sections 114 and 114A, and apply the public policy considerations

for the protection of tenants as a class. Referring to Booz Allen &

Hamilton Inc., it was observed that the right in rem is a right

exercisable against the world at large and is not amenable to

5 (2017) 9 SCC 729

5 arbitration, whereas in case of rights in personam an interest is

protected against a specific individual, and is referable to

arbitration. Further, subordinate rights in personam arising from

rights in rem have always been considered to be arbitrable.

Decision in Natraj Studios (P) Ltd. was distinguishable, as the

rent control legislation being applicable, the tenancy disputes were

to be exclusively decided by the small cause court in Bombay. The

legislation had provided that no other court would have jurisdiction

to entertain any suit, proceedings or deal with such claim or

questions. The exception in the form of non-arbitrable landlord-

tenant disputes, as per Booz Allen & Hamilton Inc., was confined

only to those cases/matters governed by: (i) special statues, (ii)

where the tenant enjoys statutory protection and (iii) where only

specific courts are conferred jurisdiction to decide disputes.

Transfer of Property Act does not negate arbitrability. In Olympus

Superstructures Pvt. Ltd. v. Meena Vijay Khetan and Others,6 it

was held that there is no prohibition in the Specific Relief Act, 1963

for referring disputes relating to specific performance of contracts

to arbitration. Equally, the discretion to refuse or grant specific

performance would not militate against arbitrability. Reference was

6 (1999) 5 SCC 651

6 made to Vimal Kishor Shah and Others v. Jayesh Dinesh Shah

and Other,7 which had referred to Dhulabhai Etc. v. State of

Madhya Pradesh and Another,8 in the context of whether the

disputes under the Indian Trusts Act, 1882 were arbitrable. The

disputes under the Trusts Act were held to be non-arbitrable by

necessary implication, as the Trusts Act had conferred specific

powers on the principal judge of the civil court, which powers an

arbitrator could not exercise. The judgment in Vimal Kishor Shah

was followed by another Division Bench in Emaar MGF Land

Limited v. Aftab Singh,9 a case relating to the Consumer

Protection Act, 1986. Reasoning that the exemption from rent

control legislation can be withdrawn and thereupon Arbitration Act

would not apply, it was observed, was not a valid justification and

ground to hold that the subject matter was not arbitrable.

6. Learned counsel for the parties have primarily relied upon the

reasoning given in Himangni Enterprises and Vidya Drolia and

have referred to other case law which we would subsequently

examine. To avoid prolixity and repetition, we are not reproducing

the respective contentions and arguments, as the same would be

7 (2016) 8 SCC 788 8 (1968) 3 SCR 662 9 (2019) 12 SCC 751

7 dealt with and appreciated during the course of our reasoning.

However, we acknowledge that the oral submissions and

compilations have been of immense help. Similarly, scholarly

writings in books and articles expressing diverse views on non-

arbitrability and Who Decides Non-arbitrability have facilitated us

unclog the legal and jurisprudential nuances and contradictions to

try and resolve the issues in the context of domestic law of

arbitration in India.

7. At the outset we begin with the caveat that this judgment does not

examine and interpret the transnational provisions of arbitration in

Part II of the Arbitration Act.

Non-Arbitrability

8. Non-arbitrability is basic for arbitration as it relates to the very

jurisdiction of the arbitral tribunal. An arbitral tribunal may lack

jurisdiction for several reasons. Non-arbitrability has multiple

meanings. Booz Allen & Hamilton Inc. refers to three facets of

non-arbitrability, namely: -

“(i) Whether the disputes are capable of adjudication and settlement by arbitration? That is, whether the disputes, having regard to their nature, could be resolved by a private forum chosen by the parties (the Arbitral Tribunal) or whether they would exclusively fall within the domain of public fora (courts).

8 (ii) Whether the disputes are covered by the arbitration agreement? That is, whether the disputes are enumerated or described in the arbitration agreement as matters to be decided by arbitration or whether the disputes fall under the “excepted matters” excluded from the purview of the arbitration agreement.

(iii) Whether the parties have referred the disputes to arbitration? That is, whether the disputes fall under the scope of the submission to the Arbitral Tribunal, or whether they do not arise out of the statement of claim and the counterclaim filed before the Arbitral Tribunal. A dispute, even if it is capable of being decided by arbitration and falling within the scope of an arbitration agreement, will not be “arbitrable” if it is not enumerated in the joint list of disputes referred to arbitration, or in the absence of such a joint list of disputes, does not form part of the disputes raised in the pleadings before the Arbitral Tribunal.”

John J. Barcelo III, in his paper titled ‘Who Decides the

Arbitrator’s Jurisdiction? Separability and Competence-

Competence in Transnational Perspective’,10 in the context of

transnational commercial transactions, has divided facets relating

to non-arbitrability into seven categories:

“Stage 1# is crucial concerning whether arbitration is allowed to go forward efficaciously or is obstructed by court intervention. At Stage 1, a party opposing arbitration may raise any of a series of legal issues requiring court, rather than arbitrator, decision. These may include any or all of the following claims: (1) the container contract is invalid (for a reason that would not directly invalidate the arbitration clause); (2) no arbitration agreement came into existence between the parties; (3) an existing arbitration agreement is either

10 Vanderbilt Journal of Transnational Law, vol. 36, no.4, October 2003, p. 1115-1136

9 formally invalid (for example, not in writing) or materially invalid (for example, violative of mandatory law); (4) a disputed issue is not within the scope of the arbitration agreement; (5) mandatory law prohibits a disputed issue, though within the scope of the parties’ arbitration agreement, to be arbitrated (a special type of material invalidity respecting a specific issue fraught with public policy concerns, such as (formerly) antitrust or securities fraud); (6) some precondition for permissible arbitration has not been met (for example, a time-limit on initiating arbitration); (7) the party seeking arbitration has waived its right to arbitrate or is estopped from claiming that right.” (#Stage 1 is the referral stage.)

9. Validity of the legal ratio in Himangni Enterprises cannot be

decided without examining when a subject matter or dispute is

non-arbitrable. Understanding of the different facets of non-

arbitrability is important as it would help us appreciate the

consequences. This would assist in deciding whether the court or

the arbitral tribunal has the jurisdiction to decide the particular facet

of non-arbitrability. The jurisdiction could well depend on the nature

and type of the non-arbitrability alleged. The order of reference in

Vidya Drolia draws distinction for the purpose of exercise of

jurisdiction between non-arbitrability on account of existence and

non-arbitrability on account of the validity of an arbitration

agreement.

10

10. Arbitration is a private dispute resolution mechanism whereby two

or more parties agree to resolve their current or future disputes by

an arbitral tribunal, as an alternative to adjudication by the courts

or a public forum established by law. Parties by mutual agreement

forgo their right in law to have their disputes adjudicated in the

courts/public forum. Arbitration agreement gives contractual

authority to the arbitral tribunal to adjudicate the disputes and bind

the parties. The expression ‘arbitration agreement’ has been

defined in clause (d) of sub-section (2) to mean an agreement as

defined in Section 7 of the Arbitration Act. Section 7 of the

Arbitration Act reads:

“7. Arbitration agreement. — (1) In this Part, “arbitration agreement” means an agreement by the parties to submit to arbitration all or certain disputes which have arisen or which may arise between them in respect of a defined legal relationship, whether contractual or not.

(2) An arbitration agreement may be in the form of an arbitration clause in a contract or in the form of a separate agreement.

(3) An arbitration agreement shall be in writing.

(4) An arbitration agreement is in writing if it is contained in—

(a) a document signed by the parties;

11 (b) an exchange of letters, telex, telegrams or other means of telecommunication which provide a record of the agreement; or

(c) an exchange of statements of claim and defense in which the existence of the agreement is alleged by one party and not denied by the other.

(5) The reference in a contract to a document containing an arbitration clause constitutes an arbitration agreement if the contract is in writing and the reference is such as to make that arbitration clause part of the contract.”

11. The term ‘agreement’ is not defined in the Arbitration Act, albeit it is

defined in Section 10 of the Indian Contract Act, 1872 (for short,

the ‘Contract Act’),11 as contracts made by free consent of parties

competent to contract, for a lawful consideration and with a lawful

object, and are not thereby expressly declared to be void. Section

10 of the Contract Act also stipulates that aforesaid requirements

shall not affect any law in force in India (and not expressly

repealed) by which a contract is required to be made in writing, in

presence of witnesses or any law relating to registration of

documents. Thus, an arbitration agreement should satisfy the

mandate of Section 10 of the Contract Act, in addition to satisfying

11 10. What agreements are contracts. — All agreements are contracts if they are made by the free consent of parties competent to contract, for a lawful consideration and with a lawful object, and are not hereby expressly declared to be void. Nothing herein contained shall affect any law in force in India, and not hereby expressly repealed, by which any contract is required to be made in writing or in the presence of witnesses, or any law relating to the registration of documents.

12 other requirements stipulated in the Section 7 of the Arbitration Act.

Sections 12 to 18 of the Contract Act state when a person can be

said to be of a sound mind for the purpose of contracting and

define the expressions ‘consent’, ‘free consent’, ‘coercion’, ‘undue

influence’, ‘fraud’ and ‘misrepresentation’. Sections 19 to 23 relate

to voidability of agreements, the power to set aside contracts

induced by undue influence, when both the parties are under

mistake as to a matter of fact, effect of a mistake as to the law,

effect of a mistake by one party as to a matter of fact and what

considerations and objects are lawful and unlawful. Sections 24 to

30 relate to void contracts and Sections 26 and 27 therein state

that agreements in restraint of marriage and agreements in

restraint of trade, respectively are void, albeit Explanation (1) to

Section 27 saves agreements for not carrying out the business of

which goodwill is sold. Section 28 of the Contract Act states that

agreements in restraint of legal proceedings are void, but

Explanation (1) specifically saves contracts by which two or more

persons agree that any dispute, or one which may arise between

them, in respect of any subject or class of subjects shall be

referred to arbitration. Arbitration agreement must satisfy the

objective mandates of the law of contract to qualify as an

13 agreement. Clauses (g) and (h) of Section 2 of the Contract Act

state that an agreement not enforceable in law is void and an

agreement enforceable in law is a contract. As a sequitur, it follows

that an arbitration agreement that is not enforceable in law is void

and not legally valid.

12. Sub-section (1) to Section 7 ordains that the arbitration agreement

should be in respect of disputes arising from a defined legal

relationship, whether contractual or not. The expression ‘legal

relationship’, again not defined in the Arbitration Act, means a

relationship which gives rise to legal obligations and duties and,

therefore, confers a right. These rights may be contractual or even

non-contractual.12 Non-contractual disputes would require a

separate or submission arbitration agreement based on the cause

of action arising in tort, restitution, breach of statutory duty or some

other non-contractual cause of action.13

12 Legal relationship will be normally followed by certain immediate or remote consequences in the form of action or non-action by the judicial and executive agents of the society as distinct from purely private affairs or other events which have nothing to do with law. Legal relationship exists in every situation that is or may be procedurally asserted for a declaration or denial of a right or for imposition of a sanction or any other purpose within the scope of adjudicative action. In actual practice, objection regarding defined legal relationship is seldom raised and tested.

13 Russell on Arbitration, 24th Edition # 2-004

14

13. Sub-section (2) to Section 7 is of some importance as it states that

an arbitration clause may be in the form of a separate agreement

or form a part of the underlying or another contract. Clause (3) of

Section 7 of the Arbitration Act states that the arbitration

agreement shall be in writing, that is, the agreement should be

evidenced in writing. By clause (4) the term ‘arbitration agreement

in writing’ would include any agreement by exchange of letters,

telegrams, electronic mails or communications which provide a

record of the agreement or exchange of statements of claim and

defence in which one party claims the existence of the agreement

and the other party does not deny it. Sub-section (5) to Section 7

states that reference in a contract to a document containing an

arbitration clause would constitute a valid arbitration agreement if

the contract is in writing and reference is made to the arbitration

clause that forms a part of the contract.

14. Questions as to the existence of an arbitration agreement also

arise when a party opposing the reference raises plea of novation

of contract by entering into a new contract in substitution of the

original or ‘accord and satisfaction’ by acceptance of modified

obligations in discharge of the contract by performance or simple

15 termination by express or implied consent. Similar plea of

discharge can be raised opposing an application for reference on

the ground that the claim is long barred and dead or there are no

outstanding disputes as the parties have accepted part

performance or have absolved the other side from performance,

fully or partly, on account of frustration or otherwise. The

contention is that once the original contract stands extinguished,

abandoned, repudiated or substituted, the arbitration clause in the

underlying/original contract perishes with it.

15. Arbitration being a matter of contract, the parties are entitled to fix

boundaries as to confer and limit the jurisdiction and legal authority

of the arbitrator. An arbitration agreement can be comprehensive

and broad to include any dispute or could be confined to specific

disputes. The issue of scope of arbitrator’s jurisdiction invariably

arises when the disputes that are arbitrable are enumerated or the

arbitration agreement provides for exclusions as in case of

‘excepted matters’. The arbitration agreement may be valid, but

the arbitral tribunal in view of the will of the parties expressed in

the arbitration agreement, may not have jurisdiction to adjudicate

16 the dispute. The will of the parties as to the scope of arbitration is a

subjective act and personal to the parties.

16. Another facet, not highlighted earlier, arises from the dictum in

Sukanya Holdings (P) Ltd. v. Jayesh H. Pandya and Another,14

a decision upholding rejection of an application under Section 8, on

the ground that there is no provision in the Arbitration Act to

bifurcate and divide the causes or parties, that is, the subject

matter of the suit/judicial proceedings, and parties to the arbitration

agreement. The suit should be in respect of a ‘matter’ which the

parties have agreed to refer and which comes within the ambit of

the arbitration agreement. The words ‘a matter’, it was interpreted,

would indicate that the entire subject matter of the suit should be

subject to arbitration agreement. Bifurcation of subject matter or

causes of action in the suit is not permissible and contemplated.

Similarly, the parties to the suit should be bound by the arbitration

agreement, as there is no provision in the Arbitration Act to compel

third persons who have not exercised the option to give up the

right to have access to courts and be bound by the arbitration

clause. This would violate party autonomy and consensual nature

14 (2003) 5 SCC 531

17 of arbitration. Bifurcation in such cases would result in a suit

being divided into two parts, one being decided by the arbitral

tribunal, and the other by the court or judicial authorities. This

would defeat the entire purpose and inevitably delay the

proceedings and increase cost of litigation, cause harassment and

on occasions give rise to conflicting judgments and orders by two

different fora. Cause of action in relation to the subject matter

relates to the scope of the arbitration agreement and whether the

dispute can be resolved by arbitration. Second mandate relating to

common parties exposits the inherent limitation of the arbitration

process which is consensual and mutual, an aspect we would

subsequently examine.

17. A two Judges’ Bench in Booz Allen & Hamilton Inc., while

interpreting the dictum in Sukanya Holdings (P) Ltd., had drawn a

distinction between ambit and scope of judicial inquiry while

deciding an application under Section 8(1) of the Arbitration Act

which is filed in pending civil suit/judicial proceedings and an

application for reference of the dispute to arbitration under Section

11 of the Arbitration Act. In Booz Allen & Hamilton Inc. it was

observed:

18

“32. The nature and scope of issues arising for consideration in an application under Section 11 of the Act for appointment of arbitrators, are far narrower than those arising in an application under Section 8 of the Act, seeking reference of the parties to a suit to arbitration. While considering an application under Section 11 of the Act, the Chief Justice or his designate would not embark upon an examination of the issue of “arbitrability” or appropriateness of adjudication by a private forum, once he finds that there was an arbitration agreement between or among the parties, and would leave the issue of arbitrability for the decision of the Arbitral Tribunal. If the arbitrator wrongly holds that the dispute is arbitrable, the aggrieved party will have to challenge the award by filing an application under Section 34 of the Act, relying upon sub-section (2)(b)(i) of that section.”

However, in SBP & Co. v. Patel Engineering Ltd. and

Another,15 the majority judgment of the Constitution Bench of

seven Judges had noticed the complementary nature of Sections 8

and 11 of the Arbitration Act, and has observed:

“16. We may at this stage notice the complementary nature of Sections 8 and 11. Where there is an arbitration agreement between the parties and one of the parties, ignoring it, files an action before a judicial authority and the other party raises the objection that there is an arbitration clause, the judicial authority has to consider that objection and if the objection is found sustainable to refer the parties to arbitration. The expression used in this section is “shall” and this Court in P. Anand Gajapathi Raju v. P.V.G. Raju and in Hindustan Petroleum Corpn. Ltd. v. Pinkcity Midway Petroleums has held that the judicial authority is bound to refer the matter to arbitration once the existence of a valid arbitration clause is established. Thus, the judicial authority is entitled to, has to and is 15 (2005) 8 SCC 618

19 bound to decide the jurisdictional issue raised before it, before making or declining to make a reference.

Section 11 only covers another situation. Where one of the parties has refused to act in terms of the arbitration agreement, the other party moves the Chief Justice under Section 11 of the Act to have an arbitrator appointed and the first party objects, it would be incongruous to hold that the Chief Justice cannot decide the question of his own jurisdiction to appoint an arbitrator when in a parallel situation, the judicial authority can do so. Obviously, the highest judicial authority has to decide that question and his competence to decide cannot be questioned. If it is held that the Chief Justice has no right or duty to decide the question or cannot decide the question, it will lead to an anomalous situation in that a judicial authority under Section 8 can decide, but not a Chief Justice under Section 11, though the nature of the objection is the same and the consequence of accepting the objection in one case and rejecting it in the other, is also the same, namely, sending the parties to arbitration. The interpretation of Section 11 that we have adopted would not give room for such an anomaly.”

We are clearly bound by the dictum of the Constitutional

Bench judgment in Patel Engineering Ltd. that the scope and

ambit of court’s jurisdiction under Section 8 or 11 of the Arbitration

Act is similar. An application under Section 11 of the Arbitration Act

need not set out in detail the disputes or the claims and may briefly

refer to the subject matter or broad contours of the dispute.

However, where judicial proceedings are initiated and pending,

specific details of the claims and disputes are normally pleaded

and, therefore, the court or the judicial authority has the advantage

20 of these details. There is a difference between a non-arbitrable

claim and non-arbitrable subject matter. Former may arise on

account of scope of the arbitration agreement and also when the

claim is not capable of being resolved through arbitration.

Generally non-arbitrability of the subject matter would relate to

non-arbitrability in law. Further, the decision in Sukanya Holdings

(P) Ltd. has to be read along with subsequent judgment of this

Court in Chloro Controls India Private Limited v. Severn Trent

Water Purification Inc. and Others.16 The effect of amendment

by Act 3 of 2016 with retrospective effect from 20.10.2015 on

Sections 8 and 11 of the Arbitration Act with the stipulation that the

amendments apply notwithstanding any earlier judgment has been

examined by us under the heading Who Decides Non-arbitrability.

18. Sub-section (3) to Section 2 of the Arbitration Act states:

“Section 2(3)- this Part shall not affect any other law for the time being in force by virtue of which certain disputes may not be submitted to arbitration.”

The Arbitration Act clearly recognizes and accepts that

certain disputes or subjects are not capable of being resolved by

arbitration. Similarly, Section 34(2)(b)(i) of the Arbitration Act states

that the courts may set aside awards when they find that “the

16 (2013) 1 SCC 641

21 subject matter of the dispute is not capable of settlement by

arbitration”. However, the two sub-sections conspicuously do not

enumerate or categorize non-arbitrable matters or state the

principles for determining when a dispute is non-arbitrable by

virtue of any other law17 for the time being in force. It is left to the

courts by ex visceribus actus to formulate the principles for

determining non-arbitrability. As, exclusion from arbitrability is

predominantly a matter of case law, we begin by examining the

case law on the subject.

19. In Booz Allen & Hamilton Inc., elucidating on the question of non-

arbitrability of a dispute, it has been observed:

“35. The Arbitral Tribunals are private fora chosen voluntarily by the parties to the dispute, to adjudicate their disputes in place of courts and tribunals which are public fora constituted under the laws of the country. Every civil or commercial dispute, either contractual or non-contractual, which can be decided by a court, is in principle capable of being adjudicated and resolved by arbitration unless the jurisdiction of the Arbitral Tribunals is excluded either expressly or by necessary implication. Adjudication of certain categories of proceedings are reserved by the legislature exclusively for public fora as a matter of public policy. Certain other categories of cases, though not expressly reserved for adjudication by public fora (courts and tribunals), may by necessary implication stand excluded from the purview of private fora. Consequently, where the cause/dispute is inarbitrable, the court where a suit is pending, will refuse to refer the parties to arbitration, under Section 17 Section 34(2)(b)(i) of the Arbitration Act

22 8 of the Act, even if the parties might have agreed upon arbitration as the forum for settlement of such disputes.

xx xx xx

37. It may be noticed that the cases referred to above relate to actions in rem. A right in rem is a right exercisable against the world at large, as contrasted from a right in personam which is an interest protected solely against specific individuals. Actions in personam refer to actions determining the rights and interests of the parties themselves in the subject-

matter of the case, whereas actions in rem refer to actions determining the title to property and the rights of the parties, not merely among themselves but also against all persons at any time claiming an interest in that property. Correspondingly, a judgment in personam refers to a judgment against a person as distinguished from a judgment against a thing, right or status and a judgment in rem refers to a judgment that determines the status or condition of property which operates directly on the property itself. (Vide Black’s Law Dictionary.)

38. Generally and traditionally all disputes relating to rights in personam are considered to be amenable to arbitration; and all disputes relating to rights in rem are required to be adjudicated by courts and public tribunals, being unsuited for private arbitration. This is not however a rigid or inflexible rule. Disputes relating to subordinate rights in personam arising from rights in rem have always been considered to be arbitrable.”

Booz Allen & Hamilton Inc. states that civil or commercial

dispute, whether contractual or non-contractual, which can be

decided by a court, is in principle capable of being adjudicated and

resolved by an arbitral tribunal unless the jurisdiction of the arbitral

tribunal is either expressly or by necessary implication excluded.

23 Legislature is entitled to exclusively reserve certain category of

proceedings for public forums, be it a court or a forum created or

empowered by the State to the exclusion of private forum.

Exclusion of the jurisdiction of the arbitral tribunal are matters of

public policy. When public policy mandates and states that a case

or a dispute is non-arbitrable, the court would not allow an

application under Section 8 (or even Section 11 as observed

supra) even if the parties have agreed upon arbitration as the

mechanism for settlement of such disputes.

20. Exclusion or non-arbitrability when clearly expressed would pose

no difficulty and should be respected. However, exclusion or non-

arbitrability of subjects or disputes from the purview of a private

forum like arbitration by necessary implication requires setting out

the principles that should be applied.

21. Booz Allen & Hamilton Inc. draws a distinction between actions

in personam, that is, actions which determine the rights and

interests of parties themselves in the subject matter of the case,

and actions in rem which refer to actions determining the title of the

property and the rights of the parties not merely amongst

themselves but also against all the persons at any time claiming an

24 interest in that property. Rights in personam are considered to be

amenable to arbitration and disputes regarding rights in rem are

required to be adjudicated by the courts and public tribunals. The

latter actions are unsuitable for private arbitration. Disputes

relating to subordinate rights in personam arising from rights in

rem are considered to be arbitrable. Paragraph 36 of the judgment

in Booz Allen & Hamilton Inc. refers to certain examples of non-

arbitrable disputes and reads:

“36. The well-recognised examples of non-arbitrable disputes are: (i) disputes relating to rights and liabilities which give rise to or arise out of criminal offenses; (ii) matrimonial disputes relating to divorce, judicial separation, restitution of conjugal rights, child custody; (iii) guardianship matters; (iv) insolvency and winding-up matters; (v) testamentary matters (grant of probate, letters of administration and succession certificate); and (vi) eviction or tenancy matters governed by special statutes where the tenant enjoys statutory protection against eviction and only the specified courts are conferred jurisdiction to grant eviction or decide the disputes.”

22. Landlord-tenant disputes governed by rent control legislation are

not actions in rem, yet they are non-arbitrable. In Booz Allen &

Hamilton Inc. reference was made to Russell on Arbitration (22nd

Edition) in Para 2.007 at Page 28 wherein the author has observed

that certain matters in English Law are reserved for the court alone

and if an arbitral tribunal purports to deal with them the resulting

25 award would be unenforceable. These matters would include

where the type of remedy required is not one which the arbitral

tribunal is empowered to give. Reference was made to Law and

Practice of Commercial Arbitration in England (2nd Ed. 1989) by

Mustill and Boyd which states that certain types of remedies which

the arbitrator can award are limited by consideration of public

policy and as arbitrator is appointed by the parties and not by the

State. Arbitrator cannot impose fine, give imprisonment, commit a

person for contempt or issue a writ of subpoena nor can he make

an award binding on third parties and affect public at large, such as

a judgment in rem. Mustill and Boyd in their 2001 Companion

Volume have observed that axiomatically rights that are valid as

against the whole world, cannot be a subject of private arbitration,

although subordinate rights in personam derived from such rights

may be ruled upon by the arbitrators. Therefore, rights under a

patent license may be arbitrated but the validity of the underlying

patent may not be arbitrable. Similarly, an arbitrator who derives its

power from a private agreement between A and B, plainly has no

jurisdiction to bind a third person by a decision on whether the

patent is valid or not, for no one else has mandated him to make

26 the decision and the decision which attempts to do so would be

useless.

23. Analysing provisions of Order XXXIV of the Code of Civil

Procedure, 1908, Booz Allen & Hamilton Inc. holds that this

Order not only relates to execution of a decree, it provides for

preliminary and final decrees to satisfy the substantive rights of

mortgagees with reference to their mortgage security. The

provisions of Transfer of Property Act read with the Code relating

to mortgage suits makes it clear that all persons having interest

either in the mortgage security or in the right of redemption have to

be joined as parties whether they are parties to the mortgage or

not. The object of the provisions is to avoid multiplicity of

suits/proceedings and to enable all the interested persons to raise

their defences and claims, which are to be taken note of while

dealing with the claim in the mortgage suit. By passing a

preliminary decree or final decree, the court adjudicates, adjusts

and safeguards the interests of not only the mortgager or

mortgagee but also puisne/mesne mortgagees, persons entitled to

the equity of redemption, persons having an interest in the

mortgaged property, auction-purchasers and persons in

27 possession, which an arbitral tribunal cannot do. Therefore, a suit

for foreclosure or redemption of mortgage property can be dealt

with by a public forum and not by a private forum.

24. D.Y. Chandrachud, J. in A. Ayyasamy v. A. Paramasivam and

Others,18 referring to the dictum in Booz Allen & Hamilton Inc.,

has made two important comments:

“35...This Court held that this class of actions operates in rem, which is a right exercisable against the world at large as contrasted with a right in personam which is an interest protected against specified individuals. All disputes relating to rights in personam are considered to be amenable to arbitration while rights in rem are required to be adjudicated by courts and public tribunals...

xx xx xx

38. Hence, in addition to various classes of disputes which are generally considered by the courts as appropriate for decision by public fora, there are classes of disputes which fall within the exclusive domain of special fora under legislation which confers exclusive jurisdiction to the exclusion of an ordinarily civil court. That such disputes are not arbitrable dovetails with the general principle that a dispute which is capable of adjudication by an ordinary civil court is also capable of being resolved by arbitration.

However, if the jurisdiction of an ordinary civil court is excluded by the conferment of exclusive jurisdiction on a specified court or tribunal as a matter of public policy such a dispute would not then be capable of resolution by arbitration.”

18 (2016) 10 SCC 386

28

25. In Vimal Kishor Shah disputes relating to private trusts, trustees,

and beneficiaries of the trust and the Trusts Act were held to be

non-arbitrable. The Order of Reference explains why disputes

under the Trusts Act are non-arbitrable by necessary implication,

for which reference was made to few sections of the Trusts Act to

demonstrate how the disputes could not be made the subject

matter of arbitration. The reasoning is illustrative and elucidating: -

“27...Under Section 34 of the Indian Trusts Act, a trustee may, without instituting a suit, apply by petition to a principal Civil Court of original jurisdiction for its opinion, advice, or direction on any present questions respecting management or administration of trust property, subject to other conditions laid down in the Section. Obviously, an arbitrator cannot possibly give such opinion, advice, or direction. Under Section 46, a trustee who has accepted the trust, cannot afterward renounce it, except, inter alia, with the permission of a principal Civil Court of original jurisdiction. This again cannot be the subject matter of arbitration. Equally, under Section 49 of the Indian Trusts Act, where a discretionary power conferred on a trustee is not exercised reasonably and in good faith, only a principal Civil Court of original jurisdiction can control such power, again making it clear that a private consensual adjudicator has no part in the scheme of this Act. Under Section 53, no trustee may, without the permission of a principal Civil Court of original jurisdiction, buy or become mortgagee or lessee of the trust property or any part thereof. Here again, such permission can only be given by an arm of the State, namely, the principal Civil Court of original jurisdiction. Under Section 74 of the Indian Trusts Act,

29 under certain circumstances, a beneficiary may apply by petition to a principal Civil Court of original jurisdiction for the appointment of a trustee or a new trustee, and the Court may appoint such trustee accordingly. Here again, such an appointment cannot possibly be by a consensual adjudicator. It can only be done by a petition to a principal Civil Court of original jurisdiction. Also, it is important to note that it is not any civil court that has jurisdiction, but only one designated court, namely, a principal Civil Court of original jurisdiction. All this goes to show that by necessary implication, disputes arising under the Indian Trusts Act cannot possibly be referred to arbitration.”

26. In Emaar MGF Land Limited, the Division Bench referred to the

object and the purpose behind the Consumer Protection Act, 1986

as a law that meets the long-felt necessity of protecting the

common man as a consumer against wrongs and misdeeds for

which the remedy under the ordinary law has become illusory as

the enforcement machinery does not move, or moves ineffectively

or inefficiently. Thus, to remove helplessness and empower

consumers against powerful businesses and the might of the

public bodies, the enactment has constituted consumer forums

with extensive and wide powers to award, wherever appropriate,

compensations to the consumers and to impose penalties for non-

compliance with their orders. The Consumer Protection Act has

30 specific provisions for execution and effective implementation of

their orders which powers are far greater than the power of the

ordinary civil court. After referring to the amendments made to

Sections 8 and 11 of Arbitration Act by Act No. 3 of 2016, it was

observed that the amendments cannot be given such expansive

meaning so as to inundate entire regime of special legislation

where such disputes are not arbitrable. This amendment was not

intended to side-line or override the settled law on non-arbitrability.

Reference was made to an earlier decision in Premier

Automobiles Ltd. v. Kamlekar Shantaram Wadke of Bombay

and Others19 wherein examining Section 9 of the Code of Civil

Procedure in the context of rights and remedies under Industrial

Disputes Act, 1947 it was observed that the legislature has made

provisions for the investigation and settlement of industrial disputes

between unions representing the workmen and the management.

The authorities constituted under the Act have extensive powers in

the matter of industrial disputes. Labour Court and Tribunal can lay

down new industrial policy for industrial peace and order, or

reinstatement of dismissed workmen, which no civil court can do.

For this, the provisions of Industrial Disputes Act completely oust

19 (1976) 1 SCC 496

31 the jurisdiction of the civil court for trial of the industrial disputes.

The intent of the legislature is to protect the interest of workmen

and consumers in larger public interest in the form of special rights

and by constituting a judicial forum with powers that a civil court or

an arbitrator cannot exercise. Neither the workmen nor consumers

can waive their right to approach the statutory judicial forums by

opting for arbitration.

27. In Olympus Superstructures Pvt. Ltd., this Court had held that

an arbitrator can grant specific performance as there is no

prohibition in the Specific Relief Act, 1963. This decision on the

question of arbitrability has observed, and in our humble opinion

rightly, as under:

“34. In our opinion, the view taken by the Punjab, Bombay and Calcutta High Courts is the correct one and the view taken by the Delhi High Court is not correct. We are of the view that the right to specific performance of an agreement of sale deals with contractual rights and it is certainly open to the parties to agree — with a view to shorten litigation in regular courts — to refer the issues relating to specific performance to arbitration. There is no prohibition in the Specific Relief Act, 1963 that issues relating to specific performance of a contract relating to immovable property cannot be referred to arbitration. Nor is there such a prohibition contained in the Arbitration and Conciliation Act, 1996 as contrasted with Section 15 of the English Arbitration Act, 1950 or Section 48(5)(b) of the English Arbitration Act, 1996 which contained a prohibition relating to specific 32 performance of contracts concerning immovable property.

35. It is stated in Halsbury's Laws of England, 4th Edn., (Arbitration, Vol. 2, para 503) as follows:

“503. Nature of the dispute or difference.—The dispute or difference which the parties to an arbitration agreement agree to refer must consist of a justiciable issue triable civilly. A fair test of this is whether the difference can be compromised lawfully by way of accord and satisfaction (Cf. Bac Abr Arbitrament and Award A).”

28. In V.H. Patel & Company and Others v. Hirubhai Himabhai

Patel and Others,20 this Court has held that in deference to the

arbitration clause covering all matters there was no principle of law

or provision that bars an arbitrator from deciding whether the

dissolution of a partnership is just and equitable.

29. Having examined and analysed the judgments, we would coalesce

and crystalize the legal principles for determining non-arbitrability.

We begin by drawing principles that draw distinction between

adjudication of actions in rem and adjudication of actions in

personam.

30. A judgment is a formal expression of conclusive adjudication of the

rights and liabilities of the parties. The judgment may operate in

20 (2000) 4 SCC 368

33 two ways, in rem or in personam. Section 41 of the Indian

Evidence Act, 1872 on the question of relevancy of judgments in

the context of conclusiveness of a judgment, order or decree

provides:

“41. Relevancy of certain judgments in probate, etc., jurisdiction.—A final judgment, order or decree of a competent Court, in the exercise of probate, matrimonial admiralty or insolvency jurisdiction which confers upon or takes away from any person any legal character, or which declares any person to be entitled to any such character, or to be entitled to any specific thing, not as against any specified person but absolutely, is relevant when the existence of any such legal character, or the title of any such person to any such thing, is relevant.

Such judgment, order or decree is conclusive proof— that any legal character, which it confers accrued at the time when such judgment, order or decree came into operation;

that any legal character, to which it declares any such person to be entitled, accrued to that person at the time when such judgment, [order or decree] declares it to have accrued to that person;

that any legal character which it takes away from any such person ceased at the time from which such judgment, [order or decree] declared that it had ceased or should cease;

and that anything to which it declares any person to be so entitled was the property of that person at the time from which such judgment, [order or decree] declares that it had been or should be his property."

34 A judgment in rem determines the status of a person or thing

as distinct from the particular interest in it of a party to the litigation;

and such a judgment is conclusive evidence for and against all

persons whether parties, privies or strangers of the matter actually

decided. Such a judgment “settles the destiny of the res itself” and

binds all persons claiming an interest in the property inconsistent

with the judgment even though pronounced in their absence. 21 By

contrast, a judgment in personam, “although it may concern a res,

merely determines the rights of the litigants inter se to the res”.22

Distinction between judgments in rem and judgments in personam

turns on their power as res judicata,23 i.e. judgment in rem would

operate as res judicata against the world, and judgment in

personam would operate as res judicata only against the parties in

dispute. Use of expressions “rights in rem” and “rights in

personam” may not be correct for determining non-arbitrability

because of the inter-play between rights in rem and rights in

personam. Many a times, a right in rem results in an enforceable

right in personam. Booz Allen & Hamilton Inc. refers to the

statement by Mustill and Boyd that the subordinate rights in

21 G.C. Cheshire & P.M. North, Private International Law 12th ed. by North & Fawcett (London:

Butterworth's, 1992, p. 362

22 Ibid 23 G.C. Cheshire & P.M. North, Private International Law 12th ed. by North & Fawcett (London:

Butterworth's, 1992

35 personam derived from rights in rem can be ruled upon by the

arbitrators, which is apposite. Therefore, a claim for infringement of

copyright against a particular person is arbitrable, though in some

manner the arbitrator would examine the right to copyright, a right

in rem. Arbitration by necessary implication excludes actions in

rem.

31. Exclusion of actions in rem from arbitration, exposits the intrinsic

limits of arbitration as a private dispute resolution mechanism,

which is only binding on ‘the parties’ to the arbitration agreement.

The courts established by law on the other hand enjoy jurisdiction

by default and do not require mutual agreement for conferring

jurisdiction. The arbitral tribunals not being courts of law or

established under the auspices of the State cannot act judicially so

as to affect those who are not bound by the arbitration clause.

Arbitration is unsuitable when it has erga omnes effect, that is, it

affects the rights and liabilities of persons who are not bound by

the arbitration agreement. Equally arbitration as a decentralized

mode of dispute resolution is unsuitable when the subject matter or

a dispute in the factual background, requires collective adjudication

before one court or forum. Certain disputes as a class, or

36 sometimes the dispute in the given facts, can be efficiently

resolved only through collective litigation proceedings. Contractual

and consensual nature of arbitration underpins its ambit and

scope. Authority and power being derived from an agreement

cannot bind and is non-effective against non-signatories. An

arbitration agreement between two or more parties would be limpid

and inexpedient in situations when the subject matter or dispute

affects the rights and interests of third parties or without presence

of others, an effective and enforceable award is not possible.

Prime objective of arbitration to secure just, fair and effective

resolution of disputes, without unnecessary delay and with least

expense, is crippled and mutilated when the rights and liabilities of

persons who have not consented to arbitration are affected or the

collective resolution of the disputes by including non-parties is

required. Arbitration agreement as an alternative to public fora

should not be enforced when it is futile, ineffective, and would be a

no result exercise.24

32. Sovereign functions of the State being inalienable and non-

delegable are non-arbitrable as the State alone has the exclusive

24 Prof. Stavros Brekoulakis – ‘On Arbitrability: Persisting Misconceptions and New Areas of Concern’

37 right and duty to perform such functions. 25 For example, it is

generally accepted that monopoly rights can only be granted by

the State. Correctness and validity of the State or sovereign

functions cannot be made a direct subject matter of a private

adjudicatory process. Sovereign functions for the purpose of

Arbitration Act would extend to exercise of executive power in

different fields including commerce and economic, legislation in all

forms, taxation, eminent domain and police powers which includes

maintenance of law and order, internal security, grant of pardon

etc., as distinguished from commercial activities, economic

adventures and welfare activities.26 Similarly, decisions and

adjudicatory functions of the State that have public interest

element like the legitimacy of marriage, citizenship, winding up of

companies, grant of patents, etc. are non-arbitrable, unless the

statute in relation to a regulatory or adjudicatory mechanism either

expressly or by clear implication permits arbitration. In these

matters the State enjoys monopoly in dispute resolution.

33. Fourth principle of non-arbitrability is alluded to in the Order of

Reference, which makes specific reference to Vimal Kishor Shah,

25 Ajar Raib – Defining Contours of the Public Policy Exception – A New Test for Arbitrability 26 Common Cause v. Union of India, (1999) 6 SCC 667 and Agricultural Produce Market Committee v. Ashok Harikuni & Another, (2000) 8 SCC 61.

38 which decision quotes from Dhulabhai, a case which dealt with

exclusion of jurisdiction of civil courts under Section 9 of the Civil

Procedure Code. The second condition in Dhulabhai reads as

under:

“32. (2) Where there is an express bar of the jurisdiction of the court, an examination of the scheme of the particular Act to find the adequacy or the sufficiency of the remedies provided may be relevant but is not decisive to sustain the jurisdiction of the civil court.

Where there is no express exclusion the examination of the remedies and the scheme of the particular Act to find out the intendment becomes necessary and the result of the inquiry may be decisive. In the latter case, it is necessary to see if the statute creates a special right or a liability and provides for the determination of the right or liability and further lays down that all questions about the said right and liability shall be determined by the tribunals so constituted, and whether remedies normally associated with actions in civil courts are prescribed by the said statute or not.”

The order of reference notes that Dhulabhai refers to three

categories mentioned in Wolverhampton New Waterworks Co. v.

Hawkesford,27 to the following effect:

“There are three classes of cases in which a liability may be established founded upon a statute. One is, where there was a liability existing at common law, and that liability is affirmed by a statute which gives a special and peculiar form of remedy different from the remedy which existed at common law; there, unless the statute contains words which expressly or by

27 9 [1859] 6 C.B. (NS) 336

39 necessary implication exclude the common law remedy, and the party suing has his election to pursue either that or the statutory remedy. The second class of cases is, where the statute gives the right to sue merely, but provides no particular form of remedy:

there, the party can only proceed by action at common law. But there is a third class, viz. where a liability not existing at common law is created by a statute which at the same time gives a special and particular remedy for enforcing it.”

Dhulabhai’s case is not directly applicable as it relates to

exclusion of jurisdiction of civil courts, albeit we respectfully agree

with the Order of Reference that the condition No. 2 is apposite

while examining the question of non-arbitrability. Implied legislative

intention to exclude arbitration can be seen if it appears that the

statute creates a special right or a liability and provides for

determination of the right and liability to be dealt with by the

specified courts or the tribunals specially constituted in that behalf

and further lays down that all questions about the said right and

liability shall be determined by the court or tribunals so empowered

and vested with exclusive jurisdiction. Therefore, mere creation of

a specific forum as a substitute for civil court or specifying the civil

court, may not be enough to accept the inference of implicit non-

arbitrability. Conferment of jurisdiction on a specific court or

creation of a public forum though eminently significant, may not be

40 the decisive test to answer and decide whether arbitrability is

impliedly barred.

34. Implicit non-arbitrability is established when by mandatory law the

parties are quintessentially barred from contracting out and waiving

the adjudication by the designated court or the specified public

forum. There is no choice. The person who insists on the remedy

must seek his remedy before the forum stated in the statute and

before no other forum. In Transcore v. Union of India and

Another,28 this Court had examined the doctrine of election in the

context whether an order under proviso to Section 19(1) of the

Recovery of Debts Due to Banks and Financial Institutions

Act,1993 (the ‘DRT Act’) is a condition precedent to taking

recourse to the Securitisation and Reconstruction of Financial

Assets and Enforcement of Security Interest Act, 2002 (the ‘NPA

Act’). For analysing the scope and remedies under the two Acts, it

was held that NPA Act is an additional remedy which is not

inconsistent with the DRT Act, and reference was made to the

doctrine of election in the following terms:

“64. In the light of the above discussion, we now examine the doctrine of election. There are three

28 (2008) 1 SCC 125

41 elements of election, namely, existence of two or more remedies; inconsistencies between such remedies and a choice of one of them. If anyone of the three elements is not there, the doctrine will not apply. According to American Jurisprudence, 2d, Vol. 25, p. 652, if in truth there is only one remedy, then the doctrine of election does not apply. In the present case, as stated above, the NPA Act is an additional remedy to the DRT Act. Together they constitute one remedy and, therefore, the doctrine of election does not apply. Even according to Snell's Principles of Equity (31st Edn., p. 119), the doctrine of election of remedies is applicable only when there are two or more co-existent remedies available to the litigants at the time of election which are repugnant and inconsistent. In any event, there is no repugnancy nor inconsistency between the two remedies, therefore, the doctrine of election has no application.”

Doctrine of election to select arbitration as a dispute

resolution mechanism by mutual agreement is available only if the

law accepts existence of arbitration as an alternative remedy and

freedom to choose is available. There should not be any

inconsistency or repugnancy between the provisions of the

mandatory law and arbitration as an alternative. Conversely and in

a given case when there is repugnancy and inconsistency, the right

of choice and election to arbitrate is denied. This requires

examining the “text of the statute, the legislative history, and

‘inherent conflict’ between arbitration and the statute’s underlying

purpose”29 with reference to the nature and type of special rights

29 Jennifer L. Peresie, Reducing the Presumption of Arbitrability.

42 conferred and power and authority given to the courts or public

forum to effectuate and enforce these rights and the orders

passed. When arbitration cannot enforce and apply such rights or

the award cannot be implemented and enforced in the manner as

provided and mandated by law, the right of election to choose

arbitration in preference to the courts or public forum is either

completely denied or could be curtailed. In essence, it is necessary

to examine if the statute creates a special right or liability and

provides for the determination of each right or liability by the

specified court or the public forum so constituted, and whether the

remedies beyond the ordinary domain of the civil courts are

prescribed. When the answer is affirmative, arbitration in the

absence of special reason is contraindicated. The dispute is non-

arbitrable.

35. In M.D. Frozen Foods Exports Private Limited and Others v.

Hero Fincorp Limited,30 and following this judgment in Indiabulls

Housing Finance Limited v. Deccan Chronicle Holdings

Limited and Others,31 it has been held that even prior arbitration

proceedings are not a bar to proceedings under the NPA Act. The

30 (2017) 16 SCC 741 31 (2018) 14 SCC 783

43 NPA Act sets out an expeditious, procedural methodology enabling

the financial institutions to take possession and sell secured

properties for non-payment of the dues. Such powers, it is obvious,

cannot be exercised through the arbitral proceedings.

36. In Transcore, on the powers of the Debt Recovery Tribunal (DRT)

under the DRT Act, it was observed:

“18. On analysing the above provisions of the DRT Act, we find that the said Act is a complete code by itself as far as recovery of debt is concerned. It provides for various modes of recovery. It incorporates even the provisions of the Second and Third Schedules to the Income Tax Act, 1961. Therefore, the debt due under the recovery certificate can be recovered in various ways. The remedies mentioned therein are complementary to each other. The DRT Act provides for adjudication. It provides for adjudication of disputes as far as the debt due is concerned. It covers secured as well as unsecured debts. However, it does not rule out the applicability of the provisions of the TP Act, in particular, Sections 69 and 69-A of that Act. Further, in cases where the debt is secured by a pledge of shares or immovable properties, with the passage of time and delay in the DRT proceedings, the value of the pledged assets or mortgaged properties invariably falls. On account of inflation, the value of the assets in the hands of the bank/FI invariably depletes which, in turn, leads to asset-liability mismatch. These contingencies are not taken care of by the DRT Act and, therefore, Parliament had to enact the NPA Act, 2002.”

Consistent with the above, observations in Transcore on the

power of the DRT conferred by the DRT Act and the principle

enunciated in the present judgment, we must overrule the

44 judgment of the Full Bench of the Delhi High Court in HDFC Bank

Ltd. v. Satpal Singh Bakshi,32 which holds that matters covered

under the DRT Act are arbitrable. It is necessary to overrule this

decision and clarify the legal position as the decision in HDFC

Bank Ltd. has been referred to in M.D. Frozen Foods Exports

Private Limited, but not examined in light of the legal principles

relating to non-arbitrability. Decision in HDFC Bank Ltd. holds that

only actions in rem are non-arbitrable, which as elucidated above

is the correct legal position. However, non-arbitrability may arise in

case the implicit prohibition in the statute, conferring and creating

special rights to be adjudicated by the courts/public fora, which

right including enforcement of order/provisions cannot be enforced

and applied in case of arbitration. To hold that the claims of banks

and financial institutions covered under the DRT Act are arbitrable

would deprive and deny these institutions of the specific rights

including the modes of recovery specified in the DRT Act.

Therefore, the claims covered by the DRT Act are non-arbitrable

as there is a prohibition against waiver of jurisdiction of the DRT by

necessary implication. The legislation has overwritten the

contractual right to arbitration.

32 2013 (134) DRJ 566 (FB)

45

37. In Natraj Studios (P) Ltd., a case under the Arbitration Act,1940, it

was observed that on broader consideration of public policy the

disputes were non-arbitrable. In N. Radhakrishnan v. Maestro

Engineers and Others,33 reliance was placed on the following

observations in Abdul Kadir Samshuddin Bubere v. Madhav

Prabharkar Oak and Another:34

“There is no doubt that when a serious allegation of fraud is laid against the party and the party who charged with the fraud desires that the matter should be tried in the open court it would be sufficient cause for the court for the court not to order an arbitration agreement to be filed and not to make the reference.”

N. Radhakrishnan upheld the order rejecting the application

under Section 8 of the Arbitration Act on the ground that it would

be in furtherance of justice that the allegations as to fraud and

manipulation of finances in the partnership firm are tried in the

court of law which is more competent and has means to decide a

complicated matter. However, in A. Ayyasamy, notwithstanding

the allegations of fraud, the civil appeal was allowed, the civil suit

was stayed and reference to arbitration under Section 8 of the

Arbitration Act was made. A.K. Sikri J. held that the Arbitration Act

does not make any specific provision for excluding any category of 33 (2010) 1 SCC 72 34 AIR 1962 SC 406

46 disputes terming them as non-arbitrable but there are a number of

pronouncements which hold that fraud is one such category where

the dispute would be considered as non-arbitrable. Elucidating on

the exclusion, he observed that pleading of a mere allegation of

fraud by one party is not enough. The allegation of fraud should be

such which makes a virtual case of a criminal offence. On the

question of non-arbitrability when there are allegations of fraud, he

observed:

“25... finds that there are very serious allegations of fraud which make a virtual case of criminal offense or where allegations of fraud are so complicated that it becomes absolutely essential that such complex issues can be decided only by the civil court on the appreciation of the voluminous evidence that needs to be produced, the court can sidetrack the agreement by dismissing the application under Section 8 and proceed with the suit on merits. It can be so done also in those cases where there are serious allegations of forgery/fabrication of documents in support of the plea of fraud or where fraud is alleged against the arbitration provision itself or is of such a nature that permeates the entire contract, including the agreement to arbitrate, meaning thereby in those cases where fraud goes to the validity of the contract itself of the entire contract which contains the arbitration clause or the validity of the arbitration clause itself...Such categories of non-arbitrable subjects are carved out by the courts, keeping in mind the principle of common law that certain disputes which are of public nature, etc. are not capable of adjudication and settlement by arbitration and for resolution of such disputes, courts i.e. public fora, are better suited than a private forum of arbitration...”

47 D.Y. Chandrachud, J. in his concurring judgment unclasped

the mandatory nature of Section 8 of the Arbitration Act to observe

that allegations of fraud can be made a subject matter of

arbitration by relying on Russell on Arbitration, Redfer Hunter on

International Arbitration and Gary B. Born in International

Commercial Arbitration. Reliance was placed on the principle of

separation and legal effect of the doctrine of competence-

competence, to observe:

“13. Once an application in due compliance with Section 8 of the Arbitration Act is filed, the approach of the civil court should be not to see whether the court has jurisdiction. It should be to see whether its jurisdiction has been ousted. There is a lot of difference between the two approaches. Once it is brought to the notice of the court that its jurisdiction has been taken away in terms of the procedure prescribed under a special statute, the civil court should first see whether there is ouster of jurisdiction in terms or compliance with the procedure under the special statute. The general law should yield to the special law — generalia specialibus non derogant. In such a situation, the approach shall not be to see whether there is still jurisdiction in the civil court under the general law. Such approaches would only delay the resolution of disputes and complicate the redressal of grievance and of course unnecessarily increase the pendency in the court.”

xx xx xx

43. Hence, the allegations of criminal wrongdoing or of statutory violation would not detract from the jurisdiction of the Arbitral Tribunal to resolve a dispute arising out of a civil or contractual relationship on the

48 basis of the jurisdiction conferred by the arbitration agreement.”

Elucidating and summarising the legal position,

D.Y.Chandrachud J. has observed:

“53. The Arbitration and Conciliation Act, 1996, should in my view be interpreted so as to bring in line the principles underlying its interpretation in a manner that is consistent with prevailing approaches in the common law world. Jurisprudence in India must evolve towards strengthening the institutional efficacy of arbitration. Deference to a forum chosen by parties as a complete remedy for resolving all their claims is but part of that evolution. Minimising the intervention of courts is again a recognition of the same principle.”

38. Arbitrability as noticed above in essence is a matter of national

policy.35 A statute, on the basis of public policy, can expressly or

by implication restrict or prohibit arbitrability of disputes. To this

extent there is uniformity and consensus. However, N.

Radhakrishnan while accepting that the dispute may be arbitrable

under the applicable mandatory law, holds that the dispute would

be non-arbitrable on public policy consideration if it relates to

serious allegations of fraud. The two views in A. Ayyasamy

exposit the predicament on the role of public policy in deciding the

question of law of non-arbitrability. Whether a subject matter or a

dispute should be held as non-arbitrable on public policy is vexed

35 A Second Look at Arbitrability: Approaches to Arbitration in the United States, Switzerland and Germany by Patrick M. Baron and Stefan Liniger

49 and not free from difficulty as reflected in the strong opinions

expressed in the judgments. Indeed, under the Arbitration Act,

1940, the case law in view of the statutory discretion under sub-

section (4) to Sections 20 and 34 clearly supports and accepts the

role and relevance of public policy. Legal position under the

Arbitration Act as examined under the heading ‘Who decides non-

arbitrability’, however, is different.

39. We begin by examining sub-clauses (i) and (ii) of clause (b) to

Sub-section (2) to Section 34, which read as under:

“34. Application for setting aside arbitral award. –

xx xx xx

(2) An arbitral award may be set aside by the Court only if –

(a) ...

(b) the Court finds that––

(i) the subject-matter of the dispute is not capable of settlement by arbitration under the law for the time being in fore, or

(ii) the arbitral award is in conflict with the public policy of India.

Explanation 1. ––For the avoidance of any doubt, it is clarified that an award is in conflict with the public policy of India, only if, ––

50

(i) the making of the award was induced or affected by fraud or corruption or was in violation of section 75 or section 81; or

(ii) it is in contravention with the fundamental policy of Indian law; or

(iii) it is in conflict with the most basic notions of morality or justice.

Explanation 2. ––For the avoidance of doubt, the test as to whether there is a contravention with the fundamental policy of Indian law shall not entail a review on the merits of the dispute.”

Section 34(2)(b) consists of two sub-clauses both accrediting

the court with the power to set aside an award. Under sub-clause

(i) an award is liable to be set aside when the subject matter is not

capable of settlement by arbitration under law for the time being in

force. Under sub-clause (ii) an award can be set aside if it is in

conflict with the public policy of India. As per Explanation No. 1, an

award is in conflict with the public policy of India only if it was

induced or affected by fraud, corruption, etc. or it is in

contravention with the fundamental policy of Indian law or is in

conflict with the most basic notions of morality or justice.

Explanation 2 cautions the courts not to review on the merits of the

case while examining the question whether an award is in

contravention with the fundamental policy of law. Therefore,

conflict with the public policy of India and a subject matter of

51 dispute not capable of settlement by arbitration, are two separate

and independent grounds on which the court can set aside the

award. Reference to public policy in Booz Allen & Hamilton Inc.

and in the present matter and non-arbitrability of the subject matter

is completely different and has nothing in common with the public

policy of India referred to in sub-clause (ii) of Section 34(2)(b) of

the Arbitration Act. Public policy in the context of non-arbitrability

refers to public policy as reflected in the enactment, that is,

whether the enactment confers exclusive jurisdiction to the

specified court or the special forum and prohibits recourse to

arbitration. Public policy in the context of sub-clause(ii) to Section

34(2)(b) refers to the public policy of the enactment, defining and

fixing rights and obligations, and application of those rights and

obligations by the arbitrator. Statutes unfailingly have a public

purpose or policy which is the basis and purpose behind the

legislation. Application of mandatory law to the merits of the case

do not imply that the right to arbitrate is taken away. Mandatory law

may require a particular substantive rule to be applied, but this

would not preclude arbitration. Implied non-arbitrability requires

prohibition against waiver of jurisdiction, which happens when a

statute gives special rights or obligations and creates or stipulates

52 an exclusive forum for adjudication and enforcement. An arbitrator,

like the court, is equally bound by the public policy behind the

statute while examining the claim on merits. The public policy in

case of non-arbitrability would relate to conferment of exclusive

jurisdiction on the court or the special forum set up by law for

decision making. Non-arbitrability question cannot be answered by

examining whether the statute has a public policy objective which

invariably every statue would have. There is a general presumption

in favour of arbitrability, which is not excluded simply because the

dispute is permeated by applicability of mandatory law. Violation of

public policy by the arbitrator could well result in setting aside the

award on the ground of failure to follow the fundamental policy of

law in India, but not on the ground that the subject matter of the

dispute was non-arbitrable.

40. However, the above discussion would not be a complete answer to

N. Radhakrishnan that if justice demands, then notwithstanding

the arbitration clause, the dispute would be tried in the open court.

To accept this reasoning one would have to agree that arbitration is

a flawed and compromised dispute resolution mechanism that can

be forgone when public interest or public policy demands the

53 dispute should be tried and decided in the court of law. The public

policy argument proceeds on the foundation and principle that

arbitration is inferior to court adjudication as: (i) fact finding process

in arbitration is not equivalent to judicial fact finding, which is far

more comprehensive and in-depth; (ii) there is limited or lack of

reasoning in awards; (iii) arbitrators enjoy and exercise extensive

and unhindered powers and therefore are prone in making

arbitrary and despotic decisions; (iv) there is no appeal process in

arbitration which combined with the (iii) above and limited review of

an arbitral award in post-award court proceedings, arbitration may

have devastating consequences for the losing party and

undermines justice; (v) arbitration proceedings are usually private

and confidential; (vi) arbitrators are unfit to address issues arising

out of the economic power disparity or social concerns; 36 (vii)

business and industry, by adopting and compulsorily applying

arbitration process, leave the vulnerable and weaker sections with

little or no meaningful choice but to accept arbitration. A few people

realize and understand the importance of loss of their right to

access the court of law or public forum, which are impartial, just

36 (i) to (vi) from Prof. Stavros Brekoulakis – On Arbitrability: Persisting Misconceptions and New Area of Concern.

54 and fair;37 and (viii) arbitration is expensive and costly in

comparison to court adjudication.38

41. While it would not be correct to dispel the grounds as mere

conjectures and baseless, it would be grossly irrational and

completely wrong to mistrust and treat arbitration as flawed and

inferior adjudication procedure unfit to deal with the public policy

aspects of a legislation. Arbitrators, like the courts, are equally

bound to resolve and decide disputes in accordance with the public

policy of the law. Possibility of failure to abide by public policy

consideration in a legislation, which otherwise does not expressly

or by necessary implication exclude arbitration, cannot form the

basis to overwrite and nullify the arbitration agreement. This would

be contrary to and defeat the legislative intent reflected in the

public policy objective behind the Arbitration Act. Arbitration has

considerable advantages as it gives freedom to the parties to

choose an arbitrator of their choice, and it is informal, flexible and

quick. Simplicity, informality and expedition are hallmarks of

arbitration. Arbitrators are required to be impartial and

independent, adhere to natural justice, and follow a fair and just

37 (vii) from the preamble of the text of the bill of 2007 Arbitration Fairness Act as was written by the sponsor and submitted to the House for consideration 38 Union of India v. Singh Builders Syndicate, (2009) 4 SCC 523.

55 procedure. Arbitrators are normally experts in the subject and

perform their tasks by referring to facts, evidence, and relevant

case law. Complexity is not sufficient to ward off arbitration. In

terms of the mandate of Section 89 of the Civil Procedure Code

and the object and purpose behind the Arbitration Act and the

mandatory language of Sections 8 and 11, the mutually agreed

arbitration clauses must be enforced. The language of Sections 8

and 11 of the Arbitration Act are peremptory in nature. Arbitration

Act has been enacted to promote arbitration as a transparent, fair,

and just alternative to court adjudication. Public policy is to

encourage and strengthen arbitration to resolve and settle

economic, commercial and civil disputes. Amendments from time

to time have addressed the issues and corrected the inadequacies

and flaws in the arbitration procedure. It is for the stakeholders,

including the arbitrators, to assure that the arbitration is as

impartial, just, and fair as court adjudication. It is also the duty of

the courts at the post-award stage to selectively yet effectively

exercise the limited jurisdiction, within the four corners of Section

34(2)(b)(ii) read with Explanation 1 and 2 and check any conflict

with the fundamental policy of the applicable law. We would

56 subsequently refer to the ‘second look’ 39 principle which is

applicable in three specific situations dealing with arbitrability as

per the mandate of Section 34 of the Arbitration Act.

42. Recently, the Supreme Court of Canada in TELUS

Communications Inc. v. Avraham Wellman,40 while conceding

that arbitration as a method of dispute resolution was met with

“overt hostility” for a long time on public policy grounds as it ousts

jurisdiction of courts, observed that the new legislation, the

Arbitration Act of 1991, marks a departure as it encourages parties

to adopt arbitration in commercial and other matters. By putting

party autonomy on a high pedestal, the Act mandates that the

parties to a valid arbitration agreement must abide by the

consensual and agreed mode of dispute resolution. The courts

must show due respect to arbitration agreements particularly in

commercial settings by staying the court proceedings, unless the

legislative language is to the contrary. The principle of party

autonomy goes hand in hand with the principle of limited court

intervention, this being the fundamental principle underlying

modern arbitration law. Party autonomy is weaker in non-

39 Mitsubishi Motors Corp v. Soler Chrysler Plymouth Inc, 473 U.S. 614 S Ct 3346 (1985) (U.S. Supreme Court, 2 July 1985) 40 (2019) SCC 19 (CanLII)

57 negotiated “take it or leave it” contracts and, therefore, the

legislature can through statutes shield the weakest and vulnerable

contracting parties like consumers. This is not so in negotiated

agreements or even in adhesion contracts having an arbitration

clause in commercial settings. Virtues of commercial and civil

arbitration have been recognised and accepted and the courts

even encourage the use of arbitration.

43. A recent judgment of this Court in Avitel Post Studioz Limited

and Others v. HSBC PI Holdings (Mauritius) Limited 41 has

examined the law on invocation of ‘fraud exception’ in great detail

and holds that N. Radhakrishnan as a precedent has no legs to

stand on. We respectfully concur with the said view and also the

observations made in paragraph 14 of the judgment in Avitel Post

Studioz Limited, which quotes observations in Rashid Raza v.

Sadaf Akhthar42:

“4. The principles of law laid down in this appeal make a distinction between serious allegations of forgery/ fabrication in support of the plea of fraud as opposed to “simple allegations”. Two working tests laid down in para 25 are: (1) does this plea permeate the entire contract and above all, the agreement of arbitration, rendering it void, or (2) whether the allegations of fraud touch upon the internal affairs of the parties inter se having no implication in the public domain.” 41 Civil Appeal No. 5145 of 2016 and connected matters, decided on 19.08.2020 42 (2019) 8 SCC 710

58 to observe in Avitel Post Studioz Limited:

“it is clear that serious allegations of fraud arise only if either of the two tests laid down are satisfied and not otherwise. The first test is satisfied only when it can be said that the arbitration clause or agreement itself cannot be said to exist in a clear case in which the court finds that the party against whom breach is alleged cannot be said to have entered into the agreement relating to arbitration at all. The second test can be said to have been met in cases in which allegations are made against the State or its instrumentalities of arbitrary, fraudulent, or mala fide conduct, thus, necessitating the hearing of the case by a writ court in which questions are raised which are not predominantly questions arising from the contract itself or breach thereof but questions arising in the public law domain.”

The judgment in Avitel Post Studioz Limited interprets

Section 17 of the Contract Act to hold that Section 17 would apply

if the contract itself is obtained by fraud or cheating. Thereby, a

distinction is made between a contract obtained by fraud, and post-

contract fraud and cheating. The latter would fall outside Section

17 of the Contract Act and, therefore, the remedy for damages

would be available and not the remedy for treating the contract

itself as void.

44. In Deccan Paper Mills Co. Ltd. v. Regency Mahavir

Properties43, legal proceedings for cancellation of documents

43 Civil Appeal No. 5147 of 2016, decided on 19.08.2020

59 under Section 31 of the Specific Relief Act, 1963 were held to be

actions in personam and not actions in rem. Significantly, the

judgment refers to the definition of action in rem by R.H. Graveson

(Conflict of Laws 98, 7th ed. 1974), which reads as under:

“An action in rem is one in which the judgment of the Court determines the title to property and the rights of the parties, not merely as between themselves, but also as against all persons at any time dealing with them or with the property upon which the Court had adjudicated.”

45. In view of the above discussion, we would like to propound a four-

fold test for determining when the subject matter of a dispute in an

arbitration agreement is not arbitrable:

(1) when cause of action and subject matter of the dispute relates to actions in rem, that do not pertain to subordinate rights in personam that arise from rights in rem.

(2) when cause of action and subject matter of the dispute affects third party rights; have erga omnes effect; require centralized adjudication, and mutual adjudication would not be appropriate and enforceable;

(3) when cause of action and subject matter of the dispute relates to inalienable sovereign and public interest functions of the State and hence mutual adjudication would be unenforceable; and (4) when the subject-matter of the dispute is expressly or by necessary implication non-arbitrable as per mandatory statute(s).

These tests are not watertight compartments; they dovetail

and overlap, albeit when applied holistically and pragmatically will 60 help and assist in determining and ascertaining with great degree

of certainty when as per law in India, a dispute or subject matter is

non-arbitrable. Only when the answer is affirmative that the

subject matter of the dispute would be non-arbitrable.

However, the aforesaid principles have to be applied with

care and caution as observed in Olympus Superstructures Pvt.

Ltd.:

“35...Reference is made there to certain disputes like criminal offences of a public nature, disputes arising out of illegal agreements and disputes relating to status, such as divorce, which cannot be referred to arbitration. It has, however, been held that if in respect of fats relating to a criminal matter, say, physical injury, if there is a right to damages for personal injury, then such a dispute can be referred to arbitration (Keir v. Leeman). Similarly, it has been held that a husband and a wife may refer to arbitration the terms on which they shall separate, because they can make a valid agreement between themselves on that matter (Soilleux v. Herbst, Wilson v. Wilson and Cahill v. Cahill).”

46. Applying the above principles to determine non-arbitrability, it is

apparent that insolvency or intracompany disputes have to be

addressed by a centralized forum, be the court or a special forum,

which would be more efficient and has complete jurisdiction to

efficaciously and fully dispose of the entire matter. They are also

actions in rem. Similarly, grant and issue of patents and

registration of trademarks are exclusive matters falling within the

61 sovereign or government functions and have erga omnes effect.

Such grants confer monopoly rights. They are non-arbitrable.

Criminal cases again are not arbitrable as they relate to sovereign

functions of the State. Further, violations of criminal law are

offenses against the State and not just against the victim.

Matrimonial disputes relating to the dissolution of marriage,

restitution of conjugal rights etc. are not arbitrable as they fall

within the ambit of sovereign functions and do not have any

commercial and economic value. The decisions have erga omnes

effect. Matters relating to probate, testamentary matter etc. are

actions in rem and are a declaration to the world at large and

hence are non-arbitrable.

47. In view of the aforesaid discussions, we overrule the ratio in N.

Radhakrishnan inter alia observing that allegations of fraud can

be made a subject matter of arbitration when they relate to a civil

dispute. This is subject to the caveat that fraud, which would vitiate

and invalidate the arbitration clause, is an aspect relating to non-

arbitrability. We have also set aside the Full Bench decision of the

Delhi High Court in the case of HDFC Bank Ltd. which holds that

62 the disputes which are to be adjudicated by the DRT under the

DRT Act are arbitrable. They are non-arbitrable.

48. Landlord-tenant disputes governed by the Transfer of Property Act

are arbitrable as they are not actions in rem but pertain to

subordinate rights in personam that arise from rights in rem. Such

actions normally would not affect third-party rights or have erga

omnes affect or require centralized adjudication. An award passed

deciding landlord-tenant disputes can be executed and enforced

like a decree of the civil court. Landlord-tenant disputes do not

relate to inalienable and sovereign functions of the State. The

provisions of the Transfer of Property Act do not expressly or by

necessary implication bar arbitration. Transfer of Property Act, like

all other Acts, has a public purpose, that is, to regulate landlord-

tenant relationships and the arbitrator would be bound by the

provisions, including provisions which enure and protect the

tenants.

49. In view of the aforesaid, we overrule the ratio laid down in

Himangni Enterprises and hold that landlord-tenant disputes are

arbitrable as the Transfer of Property Act does not forbid or

63 foreclose arbitration. However, landlord-tenant disputes covered

and governed by rent control legislation would not be arbitrable

when specific court or forum has been given exclusive jurisdiction

to apply and decide special rights and obligations. Such rights and

obligations can only be adjudicated and enforced by the specified

court/forum, and not through arbitration.

Who decides non-arbitrability?

50. Lord Mustill’s well-known comparison of the relationship between

courts and arbitrators to a relay race, reads:

“Ideally, the handling of arbitrable disputes should resemble a relay race. In the initial stages, before the arbitrators are seized of the dispute, the baton is in the grasp of the court; for at that stage there is no other organisation which could take steps to prevent the arbitration agreement for being ineffectual. When the arbitrators take charge they take over the baton and retain it until they have made an award. At this point, having no longer a function to fill, the arbitrators hand back the baton so that the court can in case of need lend its coercive powers to the enforcement of the award.”

Thus, the legal problem of allocation of decision-making

authority between courts and arbitral tribunals.

51. Issue of non-arbitrability can be raised at three stages. First,

before the court on an application for reference under Section 11

or for stay of pending judicial proceedings and reference under

64 Section 8 of the Arbitration Act; 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 or its

enforcement. Therefore, the question – ‘Who decides non-

arbitrability?’ and, in particular, the jurisdiction of the court at the

first look stage, that is, the referral stage.

52. Who decides the question of non-arbitrability? - a jurisdictional

question is a technical legal issue, and requires clarity when

applied to facts to avoid bootstrapping and confusion. The doubt

as to who has the jurisdiction to decide could hinder, stray, and

delay a many arbitration proceedings. Unfortunately, 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

65 question, the scope of the arbitration agreement and authority

conferred on the arbitrator.

53. Under the Arbitration Act, 1940, the jurisdiction to settle and decide

non-arbitrability issues relating to existence, validity, scope as well

as whether the subject matter was capable of arbitration, with

possible exception in case of termination, novation, frustration and

‘accord and satisfaction’ when contested on facts, was determined

and decided at the first or at the reference stage by the courts.

The principle being that the court should be satisfied about the

existence of a valid arbitration agreement and that the disputes

have arisen with regard to the subject matter of the arbitration

agreement. At this stage, the court would be, however, not

concerned with the merits or sustainability of the disputes. Despite

best efforts to contain obstructive tactics, adjudication and final

decision of non-arbitrability issues at the reference stage would

invariably stop, derail and thwart the proceedings in the courts for

years.

54. The Arbitration Act based upon the UNCITRAL Model Law

introduced an entirely new regimen with the objective to promote

arbitration in commercial and economic matters as an alternative

66 dispute resolution mechanism that is fair, responsive and efficient

to contemporary requirements. One of the primary objectives of the

Arbitration Act is to reduce and minimize the supervisory role of

courts. Accordingly, the statutory powers of the arbitral tribunal to

deal with and decide jurisdictional issues of non-arbitrability were

amplified and the principles of separation and competence-

competence were incorporated, while the courts retained some

power to have a ‘second look’ in the post-award challenge

proceeding. On the jurisdiction of the court at the referral stage,

views of this Court have differed and there have been statutory

amendments to modify and obliterate the legal effect of the court

decisions.

55. The legal position as to who decides the question of non-

arbitrability under the Arbitration Act can be divided into four

phases. The first phase was from the enforcement of the

Arbitration Act till the decision of the Constitution Bench of seven

Judges in Patel Engineering Ltd. on 26th October 2005. For

nearly ten years, the ratio expressed in Konkan Railway Corpn.

Ltd. and Others v. Mehul Construction Co.,44 affirmed by the

44 (2000) 7 SCC 201

67 Constitution Bench of five Judges in Konkan Railway

Construction Ltd. and Another v. Rani Construction Pvt. Ltd.,45

had prevailed. The second phase commenced with the decision in

Patel Engineering Ltd. till the legislative amendments, which

were made to substantially reduce court interference and overrule

the legal effect of Patel Engineering Ltd. vide Act 3 of 2016 with

retrospective effect from 23rd October 2015. The third phase

commenced with effect from 23rd October 2015 and continued till

the enactment of Act 33 of 2019 with effect from 9 th August 2019,

from where commenced the fourth phase, with a clear intent to

promote institutionalized arbitration rather than ad hoc arbitration.

The amendments introduced by Act 33 of 2019 have been partially

implemented and enforced. In the present case, we are primarily

concerned with the legal position in the third phase with effect from

23rd October 2015 when amendments by Act 3 of 2016 became

operative.

56. We begin by reproducing the relevant statutory provisions, namely,

Sections 8, 11, 16, sub-sections (1) and (2) to Section 34 including

clause (b), which has been partly quoted in paragraph 39 above,

and sub-sections (1), (2), (3) to Section 43 of the Arbitration Act.

45 (2002) 2 SCC 388

68 For the sake of clarity and convenience, we are reproducing below

the provisions of Sections 8 and 11 of the Arbitration Act in a

tabulated form as Sections 8 and 11 were amended by Act 3 of

2016 with retrospective effect from 23rd October, 2015 and Section

11 has undergone another amendment vide Act 33 of 2019 with

effect from 9th August, 2019.

Section 8, pre and post Act 3 of 2016, read as under:

SECTION 8 SECTION 8 (before Act 3 of 2016) (post Act 3 of 2016)

8. Power to refer parties to arbitration where 8. Power to refer parties to arbitration there is an arbitration agreement. — where there is an arbitration agreement. —

(1) A judicial authority before which an action is (1) A judicial authority, before which an brought in a matter which is the subject of an action is brought in a matter which is the arbitration agreement shall, if a party so applies subject of an arbitration agreement shall, if not later than when submitting his first statement a party to the arbitration agreement or any on the substance of the dispute, refer the parties person claiming through or under him, so to arbitration. applies not later than the date of submitting his first statement on the substance of the dispute, then, notwithstanding any judgment, decree or order of the Supreme Court or any court, refer the parties to arbitration unless it finds that prima facie no valid arbitration agreement exists.]

69 (2) The application referred to in sub-section (1) (2) The application referred to in sub- shall not be entertained unless it is accompanied section (1) shall not be entertained unless by the original arbitration agreement or a duly it is accompanied by the original arbitration certified copy thereof. agreement or a duly certified copy thereof.

[Provided that where the original arbitration agreement or a certified copy thereof is not available with the party applying for reference to arbitration under sub-section (1), and the said agreement or certified copy is retained by the other party to that agreement, then, the party so applying shall file such application along with a copy of the arbitration agreement and a petition praying the Court to call upon the other party to produce the original arbitration agreement or its duly certified copy before that Court.]

(3) Notwithstanding that an application has been (3) Notwithstanding that an application has made under sub-section (1) and that the issue is been made under sub-section (1) and that pending before the judicial authority, an arbitration the issue is pending before the judicial may be commenced or continued and an arbitral authority, an arbitration may be award made. commenced or continued and an arbitral award made.

xx xx xx

Section 11, pre and post amendments vide Act 3 of 2016 and

Act 33 of 2019, reads as under:

SECTION 11 SECTION 11 SECTION 11 (before Act 3 of 2016) (post Act 3 of 2016) (post Act 33 of 2019) 11. Appointment of 11. Appointment of 11. Appointment of arbitrators. – arbitrators. – arbitrators. — (1) A person of any nationality (1) A person of any nationality (1) A person of any nationality may be an arbitrator, unless may be an arbitrator, unless may be an arbitrator, unless otherwise agreed by the otherwise agreed by the otherwise agreed by the parties. parties. parties. (2) Subject to sub-section (6), (2) Subject to sub-section (6), (2) Subject to sub-section (6), the parties are free to agree the parties are free to agree the parties are free to agree on a procedure for appointing on a procedure for appointing on a procedure for appointing the arbitrator or arbitrators. the arbitrator or arbitrators. the arbitrator or arbitrators. (3) Failing any agreement (3) Failing any agreement (3) Failing any agreement referred to in sub-section (2), referred to in sub-section (2), referred to in sub-section (2), in an arbitration with three in an arbitration with three in an arbitration with three arbitrators, each party shall arbitrations, each party shall arbitrators, each party shall appoint one arbitrator, and the appoint one arbitrator, and the appoint one arbitrator, and the two appointed arbitrators shall two appointed arbitrators shall

70

appoint the third arbitrator appoint the third arbitrator two appointed arbitrators shall who shall act as the presiding who shall act as the presiding appoint the third arbitrator arbitrator. arbitrator. who shall act as the presiding arbitrator.

(3-A) The Supreme Court and the High Court shall have the power to designate, arbitral institutions, from time to time, which have been graded by the Council under Section 43- I, for the purposes of this Act:

Provided that in respect of those High Court jurisdictions, where no graded arbitral institution are available, then, the Chief Justice of the concerned High Court may maintain a panel of arbitrators for discharging the functions and duties of arbitral institution and any reference to the arbitrator shall be deemed to be an arbitral institution for the purposes of this section and the arbitrator appointed by a party shall be entitled to such fee at the rate as specified in the Fourth Schedule:

Provided further that the Chief Justice of the concerned High Court may, from time to time, review the panel of arbitrators.]

(4) If the appointment (4) If the appointment (4) If [the appointment shall procedure in sub-section (3) procedure in sub-section (3) be made, on an application of applies and–– applies and –– the party, by the arbitral

(a) a party fails to appoint an (a) a party fails to appoint an institution designated by the arbitrator within thirty days arbitrator within thirty days Supreme Court, in case of from the receipt of a request from the receipt of a request international commercial to do so from the other party; to do so from the other party; arbitration, or by the High or or Court, in case of arbitrations

(b) the two appointed (b) the two appointed other than international arbitrators fail to agree on the arbitrators fail to agree on the commercial arbitration, as the third arbitrator within thirty third arbitrator within thirty case may be].

days from the date of their days from the date of their appointment, the appointment appointment, the appointment shall be made, upon request shall be made, upon request of a party, by the Chief Justice of a party, by the Supreme or any person or institution Court or, as the case may be, designated by him. the High Court or any person or institution designated by such Court.

(5) Failing any agreement (5) Failing any agreement (5) Failing any agreement referred to in sub-section (2), referred to in sub-section (2),

71 in an arbitration with a sole in an arbitration with a sole referred to in sub-section (2), arbitrator, if the parties fail to arbitrator, if the parties fail to in an arbitration with a sole agree on the arbitrator within agree on the arbitrator within arbitrator, if the parties fail to thirty days from receipt of a thirty days from receipt of a agree on the arbitrator within request by one party from the request by one party from the thirty days from receipt of a other party to so agree the other party to so agree the request by one party from the appointment shall be made, appointment shall be made, other party to so agree [the upon request of a party, by upon request of a party, by appointment shall be made on the Chief Justice or any the Supreme Court or, as the an application of the party in person or institution case may be, the High Court accordance with the designated by him. or any person or institution provisions contained in sub-

designated by such Court. section (4)].

(6) Where, under an (6) Where, under an (6) Where, under an appointment procedure appointment procedure appointment procedure agreed upon by the parties,–– agreed upon by the parties,–– agreed upon by the parties,—

(a) a party fails to act as (a) a party fails to act as (a) a party fails to act as required under that required under that required under that procedure; or procedure; or procedure; or

(b) the parties, or the two (b) the parties, or the two

(b) the parties, or the two appointed arbitrators, fail to appointed arbitrators, fail to appointed arbitrators, fail to reach an agreement expected reach an agreement expected reach an agreement expected of them under that procedure; of them under that procedure;

of them under that procedure;

or or or (c) a person, including an (c) a person, including an institution, fails to perform any institution, fails to perform any (c) a person, including an function entrusted to him or it function entrusted to him or it institution, fails to perform any under that procedure, a party under that procedure, a party function entrusted to him or it may request the Chief Justice may request the Supreme under that procedure, a [the or any person or institution Court or, as the case may be, appointment shall be made, designated by him to take the the High Court or any person on an application of the party, necessary measure, unless or institution designated by by the arbitral institution the agreement on the such Court to take the designated by the Supreme appointment procedure necessary measure, unless Court, in case of international provides other means for the agreement on the commercial arbitration, or by securing the appointment. appointment procedure the High Court, in case of provides other means for arbitrations other than securing the appointment. international commercial arbitration, as the case may be] to take the necessary measure, unless the agreement on the appointment procedure provides other means for securing the appointment.

(6-A) The Supreme Court or, (6-A) [* * *] as the case may be, the High Court, while considering any application under sub-section (4) or sub-section (5) or sub- NA section (6), shall, notwithstanding any judgment, decree or order of any Court, confine to the examination of the existence of an arbitration agreement.

72 (6B) The designation of any (6-B) The designation of any person or institution by the person or institution by the Supreme Court or, as the Supreme Court or, as the case may be, the High Court, case may be, the High Court, for the purposes of this for the purposes of this NA section shall not be regarded section shall not be regarded as a delegation of judicial as a delegation of judicial power by the Supreme Court power by the Supreme Court or the High Court. or the High court.]

(7) A decision on a matter (7) A decision on a matter (7) [* * *] entrusted by sub-section (4) entrusted by sub-section (4) or sub-section (5) or sub- or sub-section (5) or sub- section (6) to the Chief Justice section (6) to the Supreme or the person or institution Court or, as the case may be, designated by him is final. the High Court or the person or institution designated by such Court is final and no appeal including Letters Patent Appeal shall lie against such decision. (8) The Chief Justice or the (8) The Supreme Court or, as (8) [The arbitral institution person or institution the case may be, the High referred to in sub-sections (4), designated by him, in Court or the person or (5) and (6)], before appointing appointing an arbitrator, shall institution designated by such an arbitrator, shall seek a have due regard to–– Court, before appointing an disclosure in writing from the (a) any qualifications required arbitrator, shall seek a prospective arbitrator in terms of the arbitrator by the disclosure in writing from the of sub-section (1) of Section agreement of the parties; and prospective arbitrator in terms 12, and have due regard to— (b) other considerations as of sub-section (1) of section (a) any qualifications required are likely to secure the 12, and have due regard to–– for the arbitrator by the appointment of any (a) any qualifications required agreement of the parties; and independent and impartial for the arbitrator by the (b) the contents of the arbitrator. agreement of the parties; and disclosure and other (b) the contents of the considerations as are likely to disclosure and other secure the appointment of an considerations as are likely to independent and impartial secure the appointment of an arbitrator.] independent and impartial arbitrator.

(9) In the case of appointment (9) In the case of appointment (9) In the case of appointment of sole or third arbitrator in an of sole or third arbitrator in an of sole or third arbitrator in an international commercial international commercial international commercial arbitration, the Chief Justice arbitration, the Supreme Court arbitration, [the arbitral of India or the person or or the person or institution institution designated by the institution designated by him designated by that Court may Supreme Court] may appoint may appoint an arbitrator of a appoint an arbitrator of a an arbitrator of a nationality nationality other than the nationality other than the other than the nationalities of nationalities of the parties nationalities of the parties the parties where the parties where the parties belong to where the parties belong to belong to different different nationalities. different nationalities. nationalities.

(10) The Chief Justice may (10) The Supreme Court or, (10) [* * *] make such scheme1 as he as the case may be, the High may deem appropriate for Court, may make such dealing with matters entrusted scheme as the said Court

73

by sun-section (4) or sub- may deed appropriate for section (5) or sub-section (6) dealing with matters entrusted to him. by sub-section (4) or sub-

section (5) or sub-section (6), to it.

(11) Where more than one (11) Where more than one (11) Where more than one request has been made under request has been made under request has been made under sub-section (4) or sub-section sub-section (4) or sub-section sub-section (4) or sub-section (5) or sub-section (6) to the (5) or sub-section (6) to 3 (5) or sub-section (6) to Chief Justices of different different High Courts or their different arbitral institutions, High Courts or their designates, the High Court or the arbitral institution to which designates, the Chief Justice its designate to whom the the request has been first or his designate to whom the request has been first made made under the relevant sub- request has been first made under the relevant sub-section section shall be competent to under the relevant sub-section shall alone be competent to appoint. shall alone be competent to decide on the request decide on the request.

(12) (a) Where the matters (12) (a) Where the matters (12) Where the matter referred to in sub-sections (4), referred to in sub-sections (4), referred to in sub-sections (4), (5), (6), (7), (8) and (10) arise (5), (6), (7), (8) and sub- (5), (6) and (8) arise in an in an international commercial section (10) arise in an international commercial arbitration, the reference to international commercial arbitration or any other Chief Justice in those sub- arbitration, the reference to arbitration, the reference to sections shall be construed as the Supreme Court or, as the the arbitral institution in those a reference to the Chief case may be, the High Court sub-sections shall be Justice of India in those sub-sections shall be construed as a reference to

(b) Where the matters construed as a reference to the arbitral institution referred to in sub-sections (4), the Supreme Court; and (b) designated under sub-section (5), (6), (7), (8) and (10) arise where the matters referred to (3-A). in any other arbitration, the in sub-sections (4), (5), (6), reference to Chief Justice in (7), (8) and sub-section (10) those sub-sections shall be arise in any other arbitration, construed as a reference to the reference to the Supreme the Chief Justice of the High Court or, as the case may be, Court within whose local limits the High Court in those the principal Civil Court subsections shall be referred to in clause (e) of construed as a reference to sub-section (1) of section 2 is the High Court within whose situate and, where the High local limits the principal Civil Court itself is the Court Court referred to in clause (e) referred to in that clause, to of sub-section (1) of section 2 the Chief Justice of that High is situate, and where the High Court. Court itself is the Court referred to in that clause, to that High Court.

NA (13) An application made (13) An application made under this section for under this section for appointment of an arbitrator or appointment of an arbitrator or arbitrators shall be disposed arbitrators shall be disposed of by the Supreme Court or of by the arbitral institution the High Court or the person within a period of thirty days or institution designated by from the date of service of such Court, as the case may notice on the opposite party. be, as expeditiously as possible and an endeavour shall be made to dispose of the matter within a period of

74 sixty days from the date of service of notice on the opposite party.

(14) For the purpose of (14) The arbitral institution determination of the fees of shall determine the fees of the the arbitral tribunal and the arbitral tribunal and the manner of its payment to the manner of its payment to the arbitral tribunal, the High arbitral tribunal subject to the Court may frame such rules rates specified in the Fourth as may be necessary, after Schedule.

taking into consideration the rates specified in the Fourth Schedule. Explanation.–– For NA the removal of doubts, it is hereby clarified that this sub-

section shall not apply to international commercial arbitration and in arbitrations (other than international commercial arbitration) in case where parties have agreed for determination of fees as per the rules of an arbitral institution.

xx xx xx

Section 16 of the Arbitration Act reads as under:

“16. Competence of arbitral tribunal to rule on its jurisdiction.— (1) The arbitral tribunal may rule on its own jurisdiction, including ruling on any objections with respect to the existence or validity of the arbitration agreement, and for that purpose,—

(a) an arbitration clause which forms part of a contract shall be treated as an agreement independent of the other terms of the contract; and

(b) a decision by the arbitral tribunal that the contract is null and void shall not entail ipso jure the invalidity of the arbitration clause.

(2) A plea that the arbitral tribunal does not have jurisdiction shall be raised not later than the submission of the statement of defense; however, a party shall not be precluded from raising such a plea merely because that he has appointed, or participated in the appointment of, an arbitrator.

75 (3) A plea that the arbitral tribunal is exceeding the scope of its authority shall be raised as soon as the matter alleged to be beyond the scope of its authority is raised during the arbitral proceedings.

(4) The arbitral tribunal may, in either of the cases referred to in sub-section (2) or sub-section (3), admit a later plea if it considers the delay justified.

(5) The arbitral tribunal shall decide on a plea referred to in sub-section (2) or sub-section (3) and, where the arbitral tribunal takes a decision rejecting the plea, continue with the arbitral proceedings and make an arbitral award.

(6) A party aggrieved by such an arbitral award may make an application for setting aside such an arbitral award in accordance with section 34.

xx xx xx"

Sub-sections (1) and (2) of Section 34 of the Arbitration Act read

as under:

“34. Application for setting aside arbitral award.— (1) Recourse to a Court against an arbitral award may be made only by an application for setting aside such award in accordance with sub-section (2) and sub-

section (3).

(2) An arbitral award may be set aside by the Court only if—

(a) the party making the application establishes on the basis of the record of the arbitral tribunal that —

(i) a party was under some incapacity, or

(ii) the arbitration agreement is not valid under the law to which the parties have subjected it or, failing any

76 indication thereon, under the law for the time being in force; or

(iii) the party making the application was not given proper notice of the appointment of an arbitrator or of the arbitral proceedings or was otherwise unable to present his case; or

(iv) the arbitral award deals with a dispute not contemplated by or not falling within the terms of the submission to arbitration, or it contains decisions on matters beyond the scope of the submission to arbitration:

Provided that, if the decisions on matters submitted to arbitration can be separated from those not so submitted, only that part of the arbitral award which contains decisions on matters not submitted to arbitration may be set aside; or

(v) the composition of the arbitral tribunal or the arbitral procedure was not in accordance with the agreement of the parties, unless such agreement was in conflict with a provision of this Part from which the parties cannot derogate, or, failing such agreement, was not in accordance with this Part; or

(b) the Court finds that—

(i) the subject-matter of the dispute is not capable of settlement by arbitration under the law for the time being in force, or

(ii) the arbitral award is in conflict with the public policy of India.

Explanation 1—For the avoidance of any doubt, it is clarified that an award is in conflict with the public policy of India, only if,—

77

(i) the making of the award was induced or affected by fraud or corruption or was in violation of section 75 or section 81; or

(ii) it is in contravention with the fundamental policy of Indian law; or

(iii) it is in conflict with the most basic notions of morality or justice.

Explanation 2—For the avoidance of doubt, the test as to whether there is a contravention with the fundamental policy of Indian law shall not entail a review on the merits of the dispute.”

xx xx xx

Sub-sections (1), (2) and (3) of Section 43 of the Arbitration

Act reads as under:

“43. Limitations. – (1) The Limitation Act, 1963 (36 of 1963), shall apply to arbitrations as it applies to proceedings in Courts.

(2) For the purposes of this section and the Limitation Act, 1963 (36 of 1963), an arbitration shall be deemed to have commenced on the date referred in section

21.

(3) Where an arbitration agreement to submit future disputes to arbitration provides that any claim to which the agreement applies shall be barred unless the agreement, and a dispute arises to which the agreement applies, the Court , if it is of opinion that in the circumstances of the case undue hardship would otherwise be caused, and notwithstanding that the time so fixed has expired, may on such terms, if any, as the justice of the case may require, extend the time for such period as it thinks proper.”

78

57. In, Rani Construction Pvt. Ltd. the Constitution Bench reiterated

the earlier view expressed in Mehul Construction Co., that an

order appointing an arbitrator under Section 11 of the Arbitration

Act is an administrative order that did not mandate notice and

hearing of the other party. Being an administrative order, the Chief

Justice or his nominee do not decide any preliminary issue, or the

issue of non-arbitrability, validity and existence of the arbitration

agreement, which are to be decided by the arbitrator at the first

instance.

58. However, a Constitution Bench of seven Judges vide majority

judgment in Patel Engineering Ltd. overruled this ratio and held:

“38… But the basic requirement for exercising his power under Section 11(6), is the existence of an arbitration agreement in terms of Section 7 of the Act and the applicant before the Chief Justice being shown to be a party to such an agreement. It would also include the question of the existence of jurisdiction in him to entertain the request and an enquiry whether at least a part of the cause of action has arisen within the State concerned. Therefore, a decision on jurisdiction and on the existence of the arbitration agreement and of the person making the request being a party to that agreement and the subsistence of an arbitrable dispute require to be decided and the decision on these aspects is a prelude to the Chief Justice considering whether the requirements of sub-section (4), sub-section (5) or sub-section (6) of Section 11 are satisfied when approached with the request for appointment of an arbitrator......

79 39. It is necessary to define what exactly the Chief Justice, approached with an application under Section 11 of the Act, is to decide at that stage. Obviously, he has to decide his own jurisdiction in the sense whether the party making the motion has approached the right High Court. He has to decide whether there is an arbitration agreement, as defined in the Act and whether the person who has made the request before him, is a party to such an agreement. It is necessary to indicate that he can also decide the question whether the claim was a dead one; or a long-barred claim that was sought to be resurrected and whether the parties have concluded the transaction by recording satisfaction of their mutual rights and obligations or by receiving the final payment without objection. It may not be possible at that stage, to decide whether a live claim made, is one which comes within the purview of the arbitration clause. It will be appropriate to leave that question to be decided by the Arbitral Tribunal on taking evidence, along with the merits of the claims involved in the arbitration. The Chief Justice has to decide whether the applicant has satisfied the conditions for appointing an arbitrator under Section 11(6) of the Act. For the purpose of taking a decision on these aspects, the Chief Justice can either proceed on the basis of affidavits and the documents produced or take such evidence or get such evidence recorded, as may be necessary. We think that adoption of this procedure in the context of the Act would best serve the purpose sought to be achieved by the Act of expediting the process of arbitration, without too many approaches to the court at various stages of the proceedings before the Arbitral Tribunal.”

In Patel Engineering Ltd., the Court also held that Section

16 of the Arbitration Act makes explicit, what is otherwise implicit,

that the arbitral tribunal has jurisdiction to rule on its own

jurisdiction, including ruling on objections to existence or validity of

80 the arbitration agreement, but this provision would apply when the

parties have gone to the arbitral tribunal without recourse to

Sections 8 or 11 of the Arbitration Act and not when the court at

the reference stage has decided the jurisdictional issues. Decision

of the court at the referral stage would be final and binding on the

arbitral tribunal. Majority judgment also clarified that when an

arbitral tribunal has been constituted by the parties without having

taken recourse to a court order, the arbitral tribunal will have

jurisdiction to decide all matters contemplated by Section 16 of the

Arbitration Act.

59. In National Insurance Company Limited v. Boghara Polyfab

Private Limited,46 a two Judges’ Bench of this Court, elucidating

on Patel Engineering Ltd., had identified and segregated the

issues that arise for consideration in an application under Section

11 of the Arbitration Act into three categories, viz. (i) issues which

the Chief Justice or his designate is bound to decide; (ii) issues

which he can also decide, that is, issues which he may choose to

decide or leave it to the arbitral tribunal to decide; and (iii) issues

46 (2009) 1 SCC 267

81 which should be left to the arbitral tribunal to decide, and thereafter

had enumerated them as under:

“22.1 The issues (first category) which the Chief Justice/his designate will have to decide are:

(a) Whether the party making the application has approached the appropriate High Court.

(b) Whether there is an arbitration agreement and whether the party who has applied under Section 11 of the Act, is a party to such an agreement.

22.2 The issues (second category) which the Chief Justice/his designate may choose to decide (or leave them to the decision of the Arbitral Tribunal) are:

(a) Whether the claim is a dead (long-barred) claim or a live claim.

(b) Whether the parties have concluded the contract/transaction by recording satisfaction of their mutual rights and obligation or by receiving the final payment without objection.

22.3 The issues (third category) which the Chief Justice/his designate should leave exclusively to the Arbitral Tribunal are:

(i) Whether a claim made falls within the arbitration clause (as for example, a matter which is reserved for final decision of a departmental authority and excepted or excluded from arbitration).

(ii) Merits or any claim involved in the arbitration.”

23. It is clear from the scheme of the Act as explained by this Court in SBP & Co., that in regard to issues falling under the second category, if raised in any application under Section 11 of the Act, the Chief Justice/his designate may decide them, if necessary, by taking evidence. Alternatively, he may leave those 82 issues open with a direction to the Arbitral Tribunal to decide the same. If the Chief Justice or his designate chooses to examine the issue and decides it, the Arbitral Tribunal cannot re-examine the same issue. The Chief Justice/his designate will, in choosing whether he will decide such issue or leave it to the Arbitral Tribunal, be guided by the object of the Act (that is expediting the arbitration process with minimum judicial intervention). Where allegations of forgery/fabrication are made in regard to the document recording discharge of contract by full and final settlement, it would be appropriate if the Chief Justice/his designate decides the issue.”

24. What is however clear is when a respondent contends that the dispute is not arbitrable on account of discharge of the contract under a settlement agreement or discharge voucher or no-claim certificate, and the claimant contends that it was obtained by fraud, coercion or undue influence, the issue will have to be decided either by the Chief Justice/his designate in the proceedings under Section 11 of the Act or by the Arbitral Tribunal as directed by the order under Section 11 of the Act. A claim for arbitration cannot be rejected merely or solely on the ground that a settlement agreement or discharge voucher had been executed by the claimant, if its validity is disputed by the claimant.”

60. The issues included in the first category were: whether the party

making the application had approached the appropriate High

Court, that is, the jurisdictional High Court; whether there is an

arbitration agreement and whether the person who had applied

under Section 11 is a party to such agreement. This would include

the question whether the defendant or the opposite party is a party

83 to the arbitration agreement or bound by the arbitration agreement

in terms of Section 7 of the Arbitration Act. With respect to the

second category, the Court observed that the Chief Justice or his

designate may decide the issue, if necessary, by taking evidence

or in the alternative may leave the issues open with the direction to

the arbitral tribunal to decide the same. Where the Chief Justice or

his designate examines the issue and decides it, the arbitral

tribunal cannot re-examine the issue. The Chief Justice or his

designate would exercise this choice being guided by the object of

the Arbitration Act, that is, expediting the arbitration process with

minimum judicial intervention. Where dispute arises on account of

settlement agreement, discharge voucher, no claim certificate

amounting to discharge or accord and satisfaction, and the other

side contends that such certificates were obtained by fraud,

coercion or undue influence, the issue will have to be decided

either by the Chief Justice or his designate in proceedings under

Section 11 or by the arbitral tribunal as directed by the order under

Section 11 of the Act. A claim for arbitration cannot be rejected

merely or solely on the ground that the settlement agreement or

discharge voucher had been executed if its validity is disputed. The

third category would cover all other questions within the arbitration

84 clause, which the court believed are within the exclusive

jurisdiction of the arbitral tribunal at the first stage. This was

explained by giving an example of a matter purportedly reserved

for the final determination of the departmental authority or

excepted or excluded matters. It would also include merits of any

claim involved in arbitration.

61. Paragraph 22 of Boghara Polyfab Private Limited, if read

carefully, states that the factors to be considered while deciding an

application under Sections 8 and 11 of the Arbitration Act would

require an examination of whether there exists an arbitration

agreement, that is, the agreement provides for arbitration

proceedings in respect of disputes which have arisen between the

parties to the agreement. The latter portion requires the court to

apply its mind whether the disputes which have arisen can be

settled by the arbitration agreement. The aforesaid observations,

in our opinion, would be in conformity with the majority decision of

the Constitution Bench in Patel Engineering Ltd. wherein it was

observed that Sections 8 and 11 of the Arbitration Act are

complimentary in nature and the Court, while exercising powers

under the two Sections on whether the matter should be referred to

85 arbitration, enjoys equal powers, otherwise, it would lead to an

anomalous situation in that a judicial authority has wider power

under Section 8 but lesser power of examination under Section 11.

62. In Arasmeta Captive Power Company Private Limited and

Another v. Lafarge India Private Limited,47 this Court had

examined whether there is any conflict between Patel

Engineering Ltd. and Boghara Polyfab Private Limited on the

question of the scope of inquiry while deciding an application under

Section 11(6) of the Arbitration Act. The Division Bench in

Arasmeta Captive Power Co. Pvt. Ltd. had referred to paragraph

39 and sub-para (iv) of paragraph 47 in Patel Engineering Ltd., to

observe:

“18. On a careful reading of para 39 and Conclusion

(iv), as set out in para 47 of SBP case [SBP & Co. v. Patel Engg. Ltd., (2005) 8 SCC 618] , it is limpid that for the purpose of setting into motion the arbitral procedure the Chief Justice or his designate is required to decide the issues, namely, (i) territorial jurisdiction, (ii) existence of an arbitration agreement between the parties, (iii) existence or otherwise of a live claim, and (iv) existence of the conditions for exercise of power and further satisfaction as regards the qualification of the arbitrator. That apart, under certain circumstances the Chief Justice or his designate is also required to see whether a long-

barred claim is sought to be restricted and whether the parties had concluded the transaction by 47 (2013) 15 SCC 414

86 recording satisfaction of the mutual rights and obligations or by receiving the final payment without objection.”

Thereafter, reference was made to the opinion expressed in

judgment in Shree Ram Mills Ltd. v. Utility Premises (P) Ltd.,48

which it was contented had taken a different view from one in

Boghara Polyfab Private Limited. Disagreeing, the Court

referred to the three Judge Bench decision in Chloro Controls

India Private Limited which had considered the issue whether

there was any variance between Shree Ram Mills Ltd. and

Boghara Polyfab Private Limited, to hold that there was none

and both the judgments are capable of being read in harmony to

bring in line with the law declared in Patel Engineering Ltd. In

particular, a reference was made to the following portion of the

paragraph 27 of Shree Ram Mills Ltd. and paragraph 119 of

Chloro Controls India Private Limited which read as under:

“27. … If the Chief Justice does not, in the strict sense, decide the issue, in that event it is for him to locate such issue and record his satisfaction that such issue exists between the parties. It is only in that sense that the finding on a live issue is given. Even at the cost of repetition we must state that it is only for the purpose of finding out whether the arbitral procedure has to be started that the Chief Justice has to record satisfaction that there remains a live issue in between the parties. The same thing is about the limitation which is always a mixed question of law and

48 (2007) 4 SCC 599

87 fact. The Chief Justice only has to record his satisfaction that prima facie the issue has not become dead by the lapse of time or that any party to the agreement has not slept over its rights beyond the time permitted by law to agitate those issues covered by the agreement. It is for this reason that it was pointed out in the above paragraph that it would be appropriate sometimes to leave the question regarding the live claim to be decided by the Arbitral Tribunal. All that he has to do is to record his satisfaction that the parties have not closed their rights and the matter has not been barred by limitation. Thus, where the Chief Justice comes to a finding that there exists a live issue, then naturally this finding would include a finding that the respective claims of the parties have not become barred by limitation.”

xx xx xx

“119. Thus, the Bench while explaining the judgment of this Court in SBP [SBP & Co. v. Patel Engg. Ltd., (2005) 8 SCC 618] has stated that the Chief Justice may not decide certain issues finally and upon recording satisfaction that prima facie the issue has not become dead even leave it for the Arbitral Tribunal to decide.”

In Arasmeta Captive Power Co. (P) Ltd., elucidating on the

question whether the dispute was arbitrable within the scope of the

arbitration clause should be decided by the Chief Justice/designate

Judge or by the arbitrator, this Court has observed:

“... The stress laid thereon may be innovative but when the learned Judges themselves have culled out the ratio decidendi in para 39, it is extremely difficult to state that the principle stated in SBP [SBP & Co. v. Patel Engg. Ltd., (2005) 8 SCC 618] requires the Chief Justice or his designate to decide the controversy when raised pertaining to arbitrability of the disputes. Or to express an opinion on excepted

88 matters. Such an inference by syllogistic process is likely to usher in catastrophe in jurisprudence developed in this field. We are disposed to think so as it is not apposite to pick up a line from here and there from the judgment or to choose one observation from here or there for raising it to the status of “the ratio decidendi”. That is most likely to pave one on the path of danger and it is to be scrupulously avoided. The propositions set out in SBP, in our opinion, have been correctly understood by the two-Judge Bench in Boghara Polyfab (P) Ltd. and the same have been appositely approved by the three-Judge Bench in Chloro Controls India (P) Ltd. and we respectfully concur with the same. We find no substance in the submission that the said decisions require reconsideration, for certain observations made in SBP, were not noticed. We may hasten to add that the three-Judge Bench has been satisfied that the ratio decidendi of the judgment in SBP is really inhered in para 39 of the judgment.”

63. B.N. Srikrishna, J. in Shin-Etsu Chemical Co. Ltd. v. Aksh

Optifibre Ltd. and Another,49 a case relating to transnational

arbitration under the New York Convention, had invoked the

principle of ex visceribus actus for interpretation of the Arbitration

Act. Sub-section (3) of Section 8 of the Arbitration Act envisages

that even in a situation where an application to the court has been

made in a pending proceeding, arbitration proceedings may

commence and continue and even an award can be made. Section

16, it was held, incorporates the principles of separation and

competence-competence thereby clearly indicating that the

49 (2005) 7 SCC 234

89 arbitrator can decide his or her own jurisdiction even when the

validity of the main contract or the arbitration agreement is

challenged. Section 34 states that the Court can go into three

different aspects of arbitrability at the post-award stage. Therefore,

the Arbitration Act itself envisages that the arbitral tribunal should

rule on the questions of non-arbitrability subject to the second look

of the court post the award. This helps in expeditious and quick

disposal of matters before the court at the first stage while

reserving the court’s power to examine the three facets of

arbitrability at the third stage. This also prevents the possibility of

a multiplicity of trials, an aspect highlighted in Sukanya Holdings

(P) Ltd. On the ambit of the Court’s jurisdiction at the reference

stage, it was observed that the correct approach to the review of

the arbitration agreement would be restricted to prima facie finding

that there exists an arbitration agreement that is not null and void,

inoperative or incapable of being performed. The key rationale for

holding that the courts’ review of the arbitration agreement should

be limited to a prima facie standard is the principle of competence-

competence. Further, were the courts are to be empowered to

fully scrutinize the arbitration agreement an arbitral proceeding

would have to be stayed until such time that the court seized of the

90 matter renders a decision on the arbitration agreement. If the

finding of the courts would be a final and determinative conclusion,

then it is obvious that, until such a pronouncement is made, the

arbitral proceedings would have to hang in abeyance. This

evidently would defeat the credo and ethos of the Arbitration Act,

which is to enable expeditious arbitration without avoidable

intervention by the judicial authorities. As a result, the approach to

be adopted at the reference stage is whether it is ‘plainly arguable’

that the arbitration agreement is in existence. The judgment laid

emphasis on the fact that the rule of priority in favour of the

arbitrators is counter-balanced by the courts’ power to review the

existence and validity of the arbitration agreement at the end of the

arbitral process. It was elucidated:

“Even if the court takes the view that the arbitral agreement is not vitiated or that it is not invalid, inoperative or unenforceable, based upon purely a prima facie view, nothing prevents the arbitrator from trying the issue fully and rendering a final decision thereupon … Even after the court takes a prima facie view that the arbitration agreement is not vitiated on account of factors enumerated in Section 45, and the arbitrator upon a full trial holds that there is no vitiating factor in the arbitration agreement and makes an award, such an award can be challenged under Section 48(1)(a). The award will be set aside if the party against whom it is invoked satisfies the court inter alia that the agreement was not valid under the law to which the parties had subjected it or under the law of the country where the award was made. The

91 two basic requirements, namely, expedition at the pre-

reference stage, and a fair opportunity to contest the award after full trial, would be fully satisfied by the interpreting Section 45 as enabling the court to act on a prima facie view.

[T]he object of the Act would be defeated if the proceedings remain pending in the court even after commencing of the arbitration. It is precisely for this reason that I am inclined to the view that at the pre- reference stage contemplated by Section 45, the court is required to take only a prima facie view for making the reference, leaving the parties to a full trial either before the Arbitral Tribunal or before the court at the post-award stage.”

D.M. Dharmadhikari, J. in his partly concurring opinion

agreed with the view expressed by B.N. Srikrishna, J. on most of

the above aspects with the following reservation:

“112. Whether such a decision of the judicial authority or the court, of refusal to make a reference on grounds permissible under Section 45 of the Act would be subjected to further re-examination before the Arbitral Tribunal or the court in which eventually the award comes up for enforcement in accordance with Section 48(1)(a) of the Act, is a legal question of sufficient complexity and in my considered opinion since that question does not directly arise on the facts of the present case, it should be left open for consideration in an appropriate case where such a question is directly raised and decided by the court.”

While Y.K.Sabharwal, J. (as His Lordship then was) dissented.

64. We would now refer to decisions of this court post enforcement of

Act 3 of 2016 with effect from 23 rd October,2015. Reference Order

observes that “one moot question that therefore arises, and which

92 needs to be authoritatively decided by a Bench of three learned

Judges, is whether the word ‘existence’ would include weeding-out

arbitration clauses in agreements which indicate that the subject

matter is incapable of arbitration”. Thereafter paragraph 59 from

Duro Felguera S.A. as to the scope of Section 11(6-A) is quoted.

65. In Mayavati Trading Private Limited v. Pradyuat Deb Burman,50

a three Judge Bench has held that the legislature by inserting sub-

section (6-A) to Section 11 and making amendments to Section 8

by Act 3 of 2016 has legislatively introduced a new regime so as to

dilute and legislatively overrule the effect and ratio of the judgment

of this Court in Patel Engineering Ltd. Reliance was placed on

paragraph 48 and 59 in Duro Felguera S.A. The concluding

paragraph in Mayavati Trading Private Limited records:

“10. This being the position, it is clear that the law prior to the 2015 Amendment that has been laid down by this Court, which would have included going into whether accord and satisfaction has taken place, has now been legislatively overruled. This being the position, it is difficult to agree with the reasoning contained in the aforesaid judgment, as Section 11(6- A) is confined to the examination of the existence of an arbitration agreement and is to be understood in the narrow sense as has been laid down in the judgment in Duro Felguera, SA.”

50 (2019) 8 SCC 714

93

66. Paragraph 48 and paragraph 59 of Duro Felguera, S.A. referred

to above, read as under:

“48...From a reading of Section 11(6-A), the intention of the legislature is crystal clear i.e. the court should and need only look into one aspect—the existence of an arbitration agreement. What are the factors for deciding as to whether there is an arbitration agreement is the next question. The resolution to that is simple—it needs to be seen if the agreement contains a clause which provides for arbitration pertaining to the disputes which have arisen between the parties to the agreement.

xx xx xx

59. The scope of the power under Section 11(6) of the 1996 Act was considerably wide in view of the decisions in SBP and Co. and Boghara Polyfab . This position continued till the amendment brought about in 2015. After the amendment, all that the courts need to see is whether an arbitration agreement exists— nothing more, nothing less. The legislative policy and purpose is essentially to minimise the Court's intervention at the stage of appointing the arbitrator and this intention as incorporated in Section 11(6-A) ought to be respected.”

67. Dr. D.Y. Chandrachud, J. in A. Ayyasamy observed that Section 8

of the Arbitration Act has made a departure from Article 8 of

UNCITRAL Model Law as the former uses the expression ‘judicial

authority’ rather than court and the words “unless it finds that the

agreement is null and void, inoperative and incapable of being

performed” mentioned in Article 8 do not find place in Section 8.

94 Section 16 empowers the arbitral tribunal to rule upon its own

jurisdiction, including the ruling with respect to the existence or

validity of the arbitration agreement. Further clause (b) to Section

16(1) stipulates that a decision by an arbitral tribunal that the main

contract is void, will not entail ipso jure the invalidity of the

arbitration clause. The arbitration agreement survives for

determining whether the contract in which the arbitration clause is

embodied is null and void, which would include voidability. The

severability doctrine in arbitration is of crucial significance.

Reference was made to the judgment of the U.K. Court of Appeal

in Fiona Trust and Holding Corpn. v. Privalov,51 which judgment

was affirmed by the House of Lords in Filli Shipping Co. Limited

v. Premium Nafta Products Ltd.,52 to highlight that the arbitration

clause should be liberally construed in favour of one-stop

arbitration. Mere allegation that the agent had no authority to enter

into the main contract is not necessarily an attack on the arbitration

agreement. The principle of severability treats arbitration

agreement as a distinct agreement that can be void or voidable

only on the ground that relates to the arbitration agreement.

Reference was also made to the opinion of Scalia, J. of the

51 (2007) 1 All ER (Comm) 891 : 2007 Bus LR 686 (CA) 52 2007 UKHL 40 : 2007 Bus LR 1719 (HL)

95 Supreme Court of America in Buckeye Check Cashing Inc. v.

Cardegna53 that arbitration agreement is severable from the

remainder of the contract and unless the challenge is to the

arbitration clause itself, the issue of contract’s validity should be

considered by the arbitrator in the first instance. In conclusion, it

was observed:

“48. The basic principle which must guide judicial decision-making is that arbitration is essentially a voluntary assumption of an obligation by contracting parties to resolve their disputes through a private tribunal. The intent of the parties is expressed in the terms of their agreement. Where commercial entities and persons of business enter into such dealings, they do so with a knowledge of the efficacy of the arbitral process. The commercial understanding is reflected in the terms of the agreement between the parties. The duty of the court is to impart to that commercial understanding a sense of business efficacy.

xx xx xx

53. The Arbitration and Conciliation Act, 1996, should in my view be interpreted so as to bring in line the principles underlying its interpretation in a manner that is consistent with prevailing approaches in the common law world. Jurisprudence in India must evolve towards strengthening the institutional efficacy of arbitration. Deference to a forum chosen by parties as a complete remedy for resolving all their claims is but part of that evolution. Minimising the intervention of courts is again a recognition of the same principle.”

53 163 L Ed 2d 1038 : 546 US 440 (2006) : 2006 SCC OnLine US SC 14

96

68. In Garware Wall Ropes Limited v. Coastal Marine

Constructions and Engineering Limited,54 the question related

to the effect of an arbitration clause contained in the master

contract which was required to be stamped. The second part of

Section 7(2) was applicable. The issue was whether the judge

hearing the Section 11 application should impound the main

contract and ensure that duty and penalty, if any, are paid or in

view of sub-section (6-A) to Section 11 this issue should be

examined and decided by the arbitrator. The argument drawing

distinction between validity and existence was raised before the

Court (see paragraph 5 which records the contention) but was

rejected for several reasons, including the reasoning given in Patel

Engineering Ltd., to hold that it is difficult to accede to the

argument that Section 16 of the Arbitration Act makes it clear that

an arbitration agreement has an independent existence of its own.

Secondly, on the connect between existence and validity of an

arbitration agreement, it was observed:

“20. Looked at from a slightly different angle, an arbitration agreement which is contained in an agreement or conveyance is dealt with in Section 7(2) of the 1996 Act. We are concerned with the first part of Section 7(2) on the facts of the present case, and therefore, the arbitration clause that is contained in

54 (2019) 9 SCC 209

97 the sub-contract in question is the subject-matter of the present appeal. It is significant that an arbitration agreement may be in the form of an arbitration clause “in a contract”.

21. Sections 2(a), 2(b), 2(g) and 2(h) of the Contract Act, 1872 (the Contract Act) read as under:

“2. Interpretation clause.—In this Act the following words and expressions are used in the following senses, unless a contrary intention appears from the context—

(a) When one person signifies to another his willingness to do or to abstain from doing anything, with a view to obtaining the assent of that other to such act or abstinence, he is said to make a proposal;

(b) When the person to whom the proposal is made signifies his assent thereto, the proposal is said to be accepted. A proposal, when accepted, becomes a promise;

xx xx xx

(g) An agreement not enforceable by law is said to be void;

(h) An agreement enforceable by law is a contract;

22. When an arbitration clause is contained “in a contract”, it is significant that the agreement only becomes a contract if it is enforceable by law. We have seen how, under the Stamp Act, an agreement does not become a contract, namely, that it is not enforceable in law, unless it is duly stamped. Therefore, even a plain reading of Section 11(6-A), when read with Section 7(2) of the 1996 Act and Section 2(h) of the Contract Act, would make it clear that an arbitration clause in an agreement would not exist when it is not enforceable by law. This is also an

98 indicator that SMS Tea Estates has, in no manner, been touched by the amendment of Section 11(6-A).”

Thereafter, reference was made to paragraph 83 in Enercon

(India) Ltd. v. Enercon GmbH55 wherein the concept of

separability of arbitration clause or agreement from the underlying

contract was dealt with, and it was observed that it is necessary to

ensure that the intention of the parties does not evaporate into thin

air when there is a challenge to the legality, validity, finality, or

breach of the underlying contract. This is the mandate of Section

16 of the Arbitration Act which accepts the concept that the main

contract and the arbitration agreement form two different contracts.

It is true that support of the national courts would be required to

ensure the success of arbitration but this would not detract from

the legitimacy or independence of the collateral arbitration

agreement even if it is contained in a contract, which is claimed to

be void or voidable or un-concluded. However, this judgment was

distinguished in Garware Wall Ropes Limited as a case relating

to the controversy whether an arbitration clause was to apply even

if there is no concluded contract, but the finding was to the

contrary as the case was within the second part and not under the

first part of Section 7(2) of the Arbitration Act. In Enercon (India)

55 (2014) 5 SCC 1 : (2014) 3 SCC (Civ) 59

99 Ltd., on facts it was held that the arbitration clause was separate

from the main contract as the disputes relating to the intellectual

property right license agreement were arbitrable. Thereafter,

reference was made to the decision in United India Insurance

Co. Ltd. v. Hyundai Engg. & Construction Co. Ltd. 56 and it was

observed that the arbitration clause was identical as in Oriental

Insurance Company Limited v. Narbheram Power and Steel

Private Limited57 with the conditional expression of intent only

when the liability was unequivocally admitted by the insurer and

the dispute was related to the quantum to be paid under the policy.

On the question of ‘existence’ and ‘validity’, the Bench held:

“29. This judgment in Hyundai Engg. case is important in that what was specifically under consideration was an arbitration clause which would get activated only if an insurer admits or accepts liability. Since on facts it was found that the insurer repudiated the claim, though an arbitration clause did “exist”, so to speak, in the policy, it would not exist in law, as was held in that judgment, when one important fact is introduced, namely, that the insurer has not admitted or accepted liability. Likewise, in the facts of the present case, it is clear that the arbitration clause that is contained in the sub-contract would not “exist” as a matter of law until the sub-contract is duly stamped, as has been held by us above. The argument that Section 11(6-A) deals with “existence”, as opposed to Section 8, Section 16 and Section 45, which deal with “validity” of an arbitration agreement is answered by this Court's understanding of the

56 (2018) 17 SCC 607 : (2019) 2 SCC (Civ) 530 57 (2018) 6 SCC 534

100 expression “existence” in Hyundai Engg. case, as followed by us.”

69. In Narbheram Power and Steel Private Limited, a three Judges’

Bench of this Court had decided the Civil Appeal arising from an

application under Section 11(6) of the Arbitration Act in an

insurance contract. Primarily relying upon the decision of three

Judges’ Bench in Vulcan Insurance Co. Ltd. v. Maharaj Singh

and Another,58 it was held that the disputes were not arbitrable as

in terms of the arbitration clause as the insurer had disputed and

not accepted the liability. The arbitration clause applies only if

there is a dispute pertaining to the quantum. This decision, though

dated 2nd May 2018, did not refer to Section 11(6-A) of the

Arbitration Act and interpret the same. The Civil Appeal had arisen

from the correspondence exchanged between the insurance

company and the insured in the years 2013 and 2014. However,

reference was made to the concurring opinion of Dr. D.Y.

Chandrachud, J. in A. Ayyasamy, and it was observed that the

decision was not applicable to the case at hand. The decision in

Chloro Controls India Private Limited was held to be not

remotely relevant for deciding the lis in the said case.

58 (1976) 1 SCC 943 101

70. This decision in Narbheram Power and Steel Private Limited

was followed in Hyundai Engg. & Construction Co. Ltd., wherein

a similar arbitration clause had come up for consideration.

However, in this case, reference was made to Section 11(6-A) of

the Arbitration Act. It is, therefore, clear that on two occasions, in

Narbheram Power and Steel Private Limited and Hyundai

Engineering and Construction Company Limited, a three

Judges’ Bench of this Court affirmatively and in clear terms held

that the question of non-arbitrability relating to the enquiry whether

the dispute was governed by the arbitration clause, can be

examined by the courts at the reference stage and may not be left

unanswered to be examined and decided by the arbitral tribunal.

These are decisions by a Bench of three Judges and, as noticed

above, were quoted with affirmation in Garware Wall Ropes

Limited by a Bench of two Judges.

71. In M/s. PSA Mumbai Investments PTE. Limited v. The Board of

Trustees of the Jawaharlal Nehru Port Trust and Another,59 a

division bench of this Court, after referring to in detail the global

invitation of request for qualification and the request for proposal,

came to the conclusion that the arbitration clause in the request for

59 Civil Appeal No. 9352 of 2018 decided on 11th September 2018.

102 qualification documents would not be applicable and govern the

disputes. Therefore, the respondent was left to pursue its claim

before an appropriate forum, in accordance with law. The decision

was made at the first or the referral stage.

72. At this stage we would like to refer to different views expressed by

scholars on the subject, which also refer to the legal position in

different countries. Stavros Brekoulakis in his paper titled On

Arbitrability: Persisting Misconceptions and New Areas of Concern

accepts that as per prevailing view in-arbitrability of the subject

matter of the arbitration agreement renders the arbitration

agreement invalid. However, he argues that in-arbitrability of the

subject matter is an issue concerning jurisdiction of arbitral tribunal

rather than the validity of the arbitration agreement. Referring to

Article V(1)(a) and Article V(2)(a) of the New York Convention, he

draws a distinction between in-arbitrability and invalidity.

Arbitration agreements are sui generis contracts with both

contractual and jurisdictional features. The latter is wider in scope.

The courts at the referral stage may review only whatever is

related to the formation of the arbitration agreement as a

substantive contract, that is, contractual aspects of the arbitration

103 agreement and jurisdictional aspects of the arbitration agreement

should be left to the arbitral tribunal. In other words, at the stage of

referral, the courts may review only whatever is related to the

formation of the arbitration agreement (the contractual aspects of

the arbitration agreement) and the issues relating to the

jurisdictional aspects of the arbitration agreement, which as per the

author includes the question relating to non-arbitrability of the

claims, should be under the exclusive jurisdiction of the arbitral

tribunals. Thus, distinction is drawn between validity in terms of

substantive and formal validity of an arbitration agreement as

contractual aspects; and whether a claim is non-arbitrable. The

latter question would be arbitrable and not for the courts to decide

at the referral stage. However, on referring to Articles II(1) and II(3)

of the New York Convention the author did observe that it seems to

include arbitrability of subject matter within the essential meaning

of an arbitration agreement.

73. Emmanuel Gaillard and Yas Banifatemi in Negative Effect of

Competence-Competence: The Rule of Priority in Favour of the

Arbitrators observe that it is the basic requirement that the parties

to the arbitration agreement should honour their undertaking to

104 submit to the arbitration any dispute covered by the agreement.

This entails the consequence that the courts are prohibited from

hearing such disputes. On the question of courts’ interference at

the reference stage in terms of Article II(3) of the New York

Convention, they are of the opinion that there is no indication

provided as to the standard that should be applied for such

determination, that is, whether the courts are required to conduct

in-depth investigation into the merits of the existence and validity of

the arbitration agreement and issue a final decision on the

question, or the court should restrict itself to prima facie verification

that the arbitration agreement exists and is valid, and reserve its

full review until the time when there is an action to enforce or set

aside the arbitral award. The question, in effect, is one of timing

and to the extent the courts are entitled to review the existence

and validity of the arbitration agreement. The answer, they

observe, is found in the notion of competence-competence, one of

the founding principles of the international arbitration law that

provides the arbitrators with power to rule on their own jurisdiction

and embodies the mirroring effect that the court should refrain from

engaging in examination of the arbitrator’s jurisdiction before the

arbitrators themselves have an opportunity to do so. This, they

105 state, by no means suggests that the domestic courts relinquish

their power to review the existence and validity of an arbitration

agreement which is first left to the arbitrators to rule. The courts

enjoy the power of scrutiny after the award is rendered. They have

referred to decisions of the higher courts of Switzerland, 60 England,

France, Canada and India (Shin-Etsu Chemical Co. Ltd.) to

observe that the court’s review at the first stage is limited to prima

facie verification of existence and validity of the arbitration clause

without the question being analysed in detail which the tribunal is

empowered to decide when necessary. At the reference stage, the

court shall decline jurisdiction if the summary examination of the

arbitration agreement does not allow it to find that the agreement is

null and void, inoperative and incapable of being performed. The

Canadian courts, apply the general rule that in any case involving

an arbitration clause, a challenge to arbitrator’s jurisdiction must be

resolved first by the arbitrator and the court will depart from this

rule of systematic referral of arbitration only if the challenge to

arbitrator’s jurisdiction is solely based on a question of law.

Exercise of court’s jurisdiction in the latter case would be justified

as the court is the forum to which the parties first apply when 60 Article 5 of the Concordat (domestic law) provides that any dispute concerning rights the parties may freely dispose of is capable of resolution by arbitration, unless the subject matter of the dispute falls within the exclusive jurisdiction of a state authority by virtue of mandatory law.

106 requesting for referral and that the arbitrator’s jurisdiction regarding

his or her jurisdiction can be reviewed by the court. Further, it

allows the court to decide the legal argument for once and for all

and avoids duplication of a strictly legal debate. Another condition

is that the court must be satisfied that the challenge to the

arbitrator’s jurisdiction is not a delaying tactic and that it will not

unduly impair the conduct of arbitration proceedings. This means

that the court, when considering one of the exceptions, may allow

the arbitrator to rule on his or her competence as would be best for

the arbitration process.

74. Referring to the House of Lords decision in Premium Nafta

Products Ltd., the authors have observed that the decision

reaffirms the principle of severability of an arbitration agreement

and the proper approach is to stay the court proceedings in favour

of arbitration. Lord Hoffmann speaking for the House of Lords in

Premium Nafta Products Ltd. has observed:

“to determine on the evidence before the court that [an arbitration agreement] does exist in which case (if the disputes fall within the terms of that agreement) a stay must be granted, in the light of the mandatory ‘shall’ in section 9(4). It is this mandatory provision which is the statutory enactment of the relevant article of the New York Convention, to which the United Kingdom is a party.”

107 xx xx xx

“the arbitrators are, ‘in general’, recognised the right ‘to be the first tribunal to consider whether they have jurisdiction to determine the dispute’ are limited by the requirement that a valid arbitration agreement exist, as well as the further requirements that the arbitration agreement be ‘wide enough to comprise the relevant dispute’ and that the arbitration agreement not be ‘directly impeached by whatever ground... to attack the invalidity of the contract in which the arbitration clause is contained’. In other words, to the extent that the English courts retain a degree of scrutiny as regards the existence, validity and scope of the arbitration agreement, the question of the extent to which English courts will give effect to the negative effect of competence-competence remains uncertain.”

75. John J. Barcelo III, in his paper titled ‘Who Decides the Arbitrator’s

Jurisdiction? Separability and Competence-Competence in

Transnational Perspective’, observes that the greater the number

of issues required to be fully adjudicated at Stage I, the greater is

the potential for disruption of the arbitration process by an

obstructing party even in case of a genuine agreement to

arbitration. An extremely pro-arbitration approach with no or

minimal judicial scrutiny might send all the questions to the

arbitrators. At the same time arbitration is no holy grail and not all

parties resisting arbitration are obstructionists. A party must have

its say in the court, unless he has agreed to arbitrate. A good legal

order must decide what weight be given to these competing values

and how to structure the process to maximize overall value by 108 reducing opportunities for obstructionism while preserving

legitimate claims for reasonably prompt judicial decision. Referring

to the competence-competence and severability principles the

author has observed: -

“Competence-competence thus addresses the “who decides” question on a broader scale and is more central to resolving the policy tension between protecting arbitration from obstruction, on one hand, and preserving legitimate disputes over arbitrator jurisdiction for a prompt court hearing, on the other... Whereas separability is universally accepted, competence-competence is controversial and has spawned a range of different national responses.”

The French approach, as the paper notes, is that if an

arbitral tribunal is already seized of the matter, the court will refuse

jurisdiction and leave questions as to existence, validity and scope

of the arbitration agreement to the arbitrators. However, if the

arbitral tribunal is not yet seized of the matter, the court will

undertake a limited scrutiny of the challenge and will retain

jurisdiction only if the arbitration agreement is manifestly null. The

German Law of Kompetenz-Kompetenz prior to the new 1998

German Arbitration Act was relatively unique, or arguably so, as

some commentaries maintain that when express power to decide

their jurisdiction is conferred on the arbitrator, then it would exclude

judicial scrutiny at state 1 and stage 3. However, the 1998

109 German Arbitration Act based upon UNCITRAL Model Law, states

that the court may only decide the arbitrator’s jurisdiction if

requested to do so before the arbitral tribunal is constituted. The

German Law expostulates preference for the arbitrator to decide

the jurisdiction in an interim award. Referring to the UNCITRAL

Model Law, reference is made to the competence-competence as

spelled in Article 8(1) which directly deals with judicial review at

Stage I, which is limited to the existence of a valid arbitration

agreement. It postulates that the parties shall be referred to

arbitration, unless the court finds that the agreement is null and

void, inoperative or incapable of being performed. This, the author

feels, could be read as authorizing full judicial determination and

settlement of arbitration agreement’s existence and validity. Article

16 (1) embodies the positive competence-competence concept

and Articles 16(3) and 8(2) enact a partial negative competence-

competence principle. The latter allows arbitration proceedings to

go forward despite the court consideration of the arbitrator’s

jurisdiction. Article 16(3) encourages outcome by expressly

empowering arbitrators to rule over their jurisdiction as a

preliminary question. The British Arbitration Act of 1996 based on

the Model Law requires the court to stay the legal proceedings,

110 ‘unless satisfied’ that the arbitration agreement is null and void,

inoperative or incapable of being performed. “Unless satisfied”, the

author observes, is closer to “unless it is manifest”, rather than it is

to the Model Law terminology “unless it finds”. The British Act

allows the arbitrator to render his/her decision on jurisdiction either

in the preliminary award or in the final award, but allows the parties

to insist the arbitrators for preliminary and an early decision as a

check against wasteful proceedings. The paper also deals with the

American approach in domestic and international arbitration. In

domestic law the issues of arbitrability have been divided into

procedural and substantial objections. Procedural arbitrability

issues include whether a time limit for bringing a claim has been

observed or whether a party has waived its right to arbitrate and

also issues like waiver or estoppel thereby denying a party from

claiming the right or any pre-condition for invoking arbitration has

not been made, etc. These issues are ‘gateway questions’ 61 that

are presumptively for the arbitrator to decide and not for the courts

to decide, at least at the first stage. The substantive aspects are

those wherein the court at the first stage would go into prima facie

examination. Substantive issues pertaining to the validity and

61 First Options of Chicago v. Kaplan, 514 U.S. 938 (1995) and Howsam v. Dean Witter Reynolds, Inc., 537 U.S. 79 (2002).

111 existence of the arbitration agreement (Legal position in domestic

law post- Buckeye Check Cashing Inc. is explained below.) He

observes that the United States Supreme Court has frequently

been more receptive to international as opposed to domestic

agreements. An important consideration being that international

agreements are commercial and involve sophisticated, generally

well-advised parties and there is a need for uniformity of

interpretation under the New York Convention.

76. The United States Supreme Court in Buckeye Check Cashing

Inc., relying on earlier decisions in Prima Paint Corpn. v. Flood

& Conklin Mfg. Co.62 and Southland Corpn. v. Keating,63 in

respect of the domestic American law has clarified the legal

position as establishing the following propositions:

“First, as a matter of substantive federal arbitration law, an arbitration provision is severable from the remainder of the contract. Second, unless the challenge is to the arbitration clause itself, the issue of the contract’s validity is considered by the arbitrator in the first instance...Applying them to this case, we conclude that because respondents challenge the Agreement, but not specifically its arbitration provisions, those provisions are enforceable apart from the remainder of the contract. The challenge should therefore be considered by an arbitrator, not a court.”

62 18 L Ed 2d 1270: 388 US 395 (1967): 1967 SCC OnLine US SC 160 63 79 L Ed. 2d 1: 465 US 1 (1984): 1984 SCC OnLine US SC 19

112 However, these observations have to be read with caution as

American law states that:

“(a) party aggrieved by the alleged failure... of another to arbitrate... (the) court shall hear the parties, and upon being satisfied that the making of the agreement for arbitration or the failure to comply therewith is not an issue, the court shall make an order directing the parties to arbitration....if the making of the arbitration agreement or the failure, neglect or refusal to perform the same be in issue, the court shall proceed summarily to the trial thereof.”

Therefore, in case of issue, if in the trial the court determines

that arbitration agreement was not made it does not order the

parties to arbitration. However, this principle does not apply when

the arbitration clause is contained in a ‘container contract’ by the

application of ‘separability’ doctrine. In Buckeye Check Cashing

Inc., the US Supreme Court held that separability doctrine applies

to both voidable and void ‘container contract’ with an arbitration

agreement. Distinction is drawn and different principles apply to

‘container contract’ with an arbitration clause, and stand-alone

arbitration agreement.64 Buckeye Check Cashing Inc. ruled that

courts must send to arbitrators any “challenge to the validity of the

contract as a whole,” (the container contract), while courts

themselves must resolve any challenge directed “specifically to the

64 Prof. Stephen J. Ware in Arbitration Law’s Separability Doctrine After Buckeye Check Cashing, Inc. v. Cardegna

113 arbitration clause”. When arbitrators hear any challenge to the

container contract’s validity, Buckeye Check Cashing Inc.

cautioned:

“The issue of the contract’s validity is different from the issue of whether any agreement between the alleged obligor and oblige was ever concluded.”

77. Prof. Alan Scott Rau65 questions the “abstract distinction between

‘invalidity and nonexistence” as “nothing”. The author while

supporting the principle of separability rejects the argument that

formation of a contract is different from enforcement of the contract

as when the agreement is invalid there is no agreement to

anything. He observes:

“But how much of an improvement is it, really, to sweep away the conceptual distinction between “void and voidable” contracts—only to replace it with the equally abstract distinct between “invalidity” and “nonexistence”? These are all, as a colleague of mine likes to say, nothing but word balloons.

Ingenious riffs on this metaphysical distinction between contract “invalidity” and contract “nonexistence" have long been a staple of Continental legal learning. It has been well-established for over a century in learned treatises on the law of obligations. Its tendency to take metaphor for reality, its personification of legal concepts, its characterization of doctrine in terms of what is “unthinkable” or “impossible”...of all of this exemplifies the worst excesses of formalism....But like the “void/voidable” distinction that it closely resembles...to which indeed it 65 Alan Scott Rau in Separability in the United States Supreme Court

114 may even be identical50...this is not only slippery, but serves no instrumental function whatever. Happily, some modern scholarship seems now at last to appreciate that the whole notion of “nonexistence” is not only sterile and purely verbal...but what is worse, is completely unnecessary. And particularly when we come to the doctrine of “separability,” this is a distinction that leads precisely.

Foot note 50 reads as:

“See Christian Larroumet, 3 Droit Civil: Les Obligations, Le Contrat 539-540, 580-81 (5th ed. 2003) (French case law has often conflated the notions of a contract’s “nonexistence” and its “invalidity”; if an essential condition imposed by the law is missing then whether the agreement is termed void [null] or nonexistent “amounts to the same thing, for what is void is treated to all intents and purpose as if it had never existed”, nonexistence and “voidness” are “one and the same notion”).”

78. Prof. Stephen J. Ware in Arbitration Law’s Separability Doctrine

After Buckeye Check Cashing, Inc., with reference to the American

Law projects a different view:

“under the contractual approach to arbitration law, the right to litigate (like other rights) would be alienable through an enforceable contract but not a contract that is unenforceable due to misrepresentation, duress, illegality, or any other contract-law defense. By contrast, the separability doctrine holds that a party alienates its right to litigate when that party forms a contract containing an arbitration clause even if that contract is unenforceable...The only way to fix this problem is to repeal the separability doctrine and allow courts to hear defenses to the enforcement of the contract containing the arbitration clause. Courts should send cases to arbitration only after rejecting any such defenses.”

115

79. In order to appreciate the effect of the amendments made by Act 3

of 2016, it would be appropriate to refer to the Law Commission’s

246th Report which had given reasons for amendments to Sections

8 and 11 of the Arbitration Act, including insertion of sub-section (6-

A) to Section 11. The said reasons read as under:

“24. Two further sets of amendments have been proposed in this context. First, it is observed that a lot of time is spent for appointment of arbitrators at the very threshold of arbitration proceedings as applications under section 11 are kept pending for many years. In this context, the Commission has proposed a few amendments. The Commission has proposed changing the existing scheme of the power of appointment being vested in the “Chief Justice” to the “High Court” and the “Supreme Court” and has expressly clarified that delegation of the power of “appointment” (as opposed to a finding regarding the existence/nullity of the arbitration agreement) shall not be regarded as a judicial act. This would rationalise the law and provide greater incentive for the High Court and/or Supreme Court to delegate the power of appointment (being a non-judicial act) to specialised, external persons or institutions. The Commission has further recommended an amendment to section 11(7) so that decisions of the High Court (regarding existence/nullity of the arbitration agreement) are final where an arbitrator has been appointed, and as such are non-appealable. The Commission further proposes the addition of section 11(13) which requires the Court to make an endeavour to dispose of the matter within sixty days from the service of notice on the opposite party.

xx xx xx

31. The Commission is of the view that, in this context, the same test regarding scope and nature of judicial intervention, as applicable in the context of

116 section 11, should also apply to sections 8 and 45 of the Act – since the scope and nature of judicial intervention should not change upon whether a party (intending to defeat the arbitration agreement) refuses to appoint an arbitrator in terms of the arbitration agreement, or moves a proceeding before a judicial authority in the face of such an arbitration agreement.

32. In relation to the nature of intervention, the exposition of the law is to be found in the decision of the Supreme Court in Shin Etsu Chemicals Co. Ltd. v.

Aksh Optifibre, (2005) 7 SCC 234, (in the context of section 45 of the Act), where the Supreme Court has ruled in favour of looking at the issues/controversy only prima facie.

33. It is in this context, the Commission has recommended amendments to sections 8 and 11 of the Arbitration and Conciliation Act, 1996. The scope of judicial intervention is only restricted to situations where the Court/Judicial Authority finds that the arbitration agreemend does not exist or is null and void. In so far as the nature of intervention is concerned, it is recommended that in the event the Court/Judicial Authority is prima facie satisfied against the argument challenging the arbitration agreement, it shall appoint the arbitrator and/or refer the parties to arbitration, as the case may be. The amendment envisages that the judicial authority shall not refer the parties to arbitration only if it finds that there does not exist an arbitration agreement or that it is null and void. If the judicial authority is of the opinion that prima facie the arbitration agreement exists, then it shall refer the dispute to arbitration, and leave the existence of the arbitration agreement to be finally determined by the arbitral tribunal. However, if the judicial authority concludes that the agreement does not exist, then the conclusion will be final and not prima facie. The amendment also envisages that there shall be a conclusive determination as to whether the arbitration agreement is null and void. In the event that the judicial authority refers the dispute to arbitration and/or appoints an arbitrator, under sections 8 and 11 respectively, such a decision will be

117 final and non-appealable. An appeal can be maintained under section 37 only in the event of refusal to refer parties to arbitration, or refusal to appoint an arbitrator.”

The Law Commission’s Report specifically refers to the

decision of this Court in Shin-Etsu Chemical Co. Ltd., a decision

relating to transnational arbitration covered by the New York

Convention.

80. The Statement of Objects and Reasons of Act 3 of 2016 read as

under:

“Statement of Objects and Reasons ***

6. It is proposed to introduce the Arbitration and Conciliation (Amendment) Bill, 2015, to replace the Arbitration and Conciliation (Amendment) Ordinance, 2015, which inter alia, provides for the following, namely—

(i) to amend the definition of “Court” to provide that in the case of international commercial arbitrations, the Court should be the High Court;

(ii) to ensure that an Indian Court can exercise jurisdiction to grant interim measures, etc., even where the seat of the arbitration is outside India;

(iii) an application for appointment of an arbitrator shall be disposed of by the High Court or Supreme Court, as the case may be, as expeditiously as possible and an endeavour should be made to dispose of the matter within a period of sixty days;

(iv) to provide that while considering any application for appointment of arbitrator, the High Court or the

118 Supreme Court shall examine the existence of a prima facie arbitration agreement and not other issues;

(v) to provide that the Arbitral Tribunal shall make its award within a period of twelve months from the date it enters upon the reference and that the parties may, however, extend such period up to six months, beyond which period any extension can only be granted by the Court, on sufficient cause;

(vi) to provide that a model fee schedule on the basis of which High Courts may frame rules for the purpose of determination of fees of Arbitral Tribunal, where a High Court appoints arbitrator in terms of Section 11 of the Act;

(vii) to provide that the parties to dispute may at any stage agree in writing that their dispute be resolved through fast-track procedure and the award in such cases shall be made within a period of six months;

(viii) to provide for neutrality of arbitrators, when a person is approached in connection with possible appointment as an arbitrator;

(ix) to provide that application to challenge the award is to be disposed of by the Court within one year.

7. The amendments proposed in the Bill will ensure that arbitration process becomes more user-friendly, cost effective and leads to expeditious disposal of cases.”

81. We would now examine the principles of separability and

competence-competence. Clauses (a) and (b) to sub-section (1) to

Section 16 enact the principle of separation of the arbitration

agreement from the underlying or container contract. Clause (a),

119 by legal fiction, gives an independent status to an arbitration

clause as if it is a standalone agreement, even when it is only a

clause and an integral part of the underlying or container contract.

Clause (b) formulates a legal rule that a decision by the arbitral

tribunal holding that the main contract is null and void shall not

ipso jure entail invalidity of the arbitration clause. Successful

challenge to the existence or invalidity or rescission of the main

contract does not necessarily embrace an identical finding as to

the arbitration agreement, provided the court is satisfied that the

arbitration clause had been agreed upon. The arbitration

agreement can be avoided only on the ground which relates

directly to the arbitration agreement. Notwithstanding the challenge

to the underlying or container contract, the arbitration clause in the

underlying or container contract survives for determining the

disputes. The principle prevents boot-strapping as it is primarily for

the arbitral tribunal and not for the court to decide issues of

existence, validity and rescission of the underlying contract.

Principle of separation authorises an arbitral tribunal to rule and

decide on the existence, validity or rescission of the underlying

contract without an earlier adjudication of the questions by the

referral court.

120

82. An interesting and relevant exposition, when assertions claiming

repudiation, rescission or ‘accord and satisfaction’ are made by a

party opposing reference, is to found in Damodar Valley

Corporation v. K.K. Kar,66 which had referred to an earlier

judgment of this Court in Union of India v. Kishorilal Gupta &

Bros.,67 to observe:

“11. After a review of the relevant case law, Subba Rao, J., as he then was, speaking for the majority enunciated the following principles: “(1) An arbitration clause is a collateral term of a contract as distinguished from its substantive terms; but none the less it is an integral part of it; (2) however comprehensive the terms of an arbitration clause may be, the existence of the contract is a necessary condition for its operation; it perishes with the contract; (3) the contract may be non est in the sense that it never came legally into existence or it was void ab initio; (4) though the contract was validly executed, the parties may put an end to it as if it had never existed and substitute a new contract for it solely governing their rights and liabilities thereunder; (5) in the former case, if the original contract has no legal existence, the arbitration clause also cannot operate, for along with the original contract, it is also void; in the latter case, as the original contract is extinguished by the substituted one, the arbitration clause of the original contract perishes with it; and (6) between the two falls many categories “of disputes in connection with a contract, such as the question of repudiation, frustration, breach etc. In those cases it is the performance of the contract that has come to an end, but the contract is still in existence for certain purposes in respect of disputes arising under it or in connection with it. As the contract subsists for certain

66 (1974) 1 SCC 141 67 AIR 1959 SC 1362

121 purposes, the arbitration clause operates in respect of these purposes.” In those cases, as we have stated earlier, it is the performance of the contract that has come to an end but the contract is still in existence for certain purposes in respect of disputes arising under it or in connection with it. We think as the contract subsists for certain purposes, the arbitration clause operates in respect of these purposes.”

Reference was also made to the minority judgment of Sarkar,

J. in Kishorilal Gupta & Bros. to observe that he had only

disagreed with the majority on the effect of settlement on the

arbitration clause, as he had held that arbitration clause did survive

to settle the dispute as to whether there was or was not an ‘accord

and satisfaction’. It was further observed that this principle laid

down by Sarkar, J. that ‘accord and satisfaction’ does not put an

end to the arbitration clause, was not disagreed to by the majority.

On the other hand, proposition (6) seems to be laying the weight

on to the views of Sarkar, J. These decisions were under the

Arbitration Act,1940. The Arbitration Act specifically incorporates

principles of separation and competence-competence and

empowers the arbitral tribunal to rule on its own jurisdiction.

83. Principles of competence-competence have positive and negative

connotations. As a positive implication, the arbitral tribunals are

declared competent and authorised by law to rule as to their

122 jurisdiction and decide non-arbitrability questions. In case of

expressed negative effect, the statute would govern and should be

followed. Implied negative effect curtails and constrains

interference by the court at the referral stage by necessary

implication in order to allow the arbitral tribunal to rule as to their

jurisdiction and decide non-arbitrability questions. As per the

negative effect, courts at the referral stage are not to decide on

merits, except when permitted by the legislation either expressly or

by necessary implication, such questions of non-arbitrability. Such

prioritisation of arbitral tribunal over the courts can be partial and

limited when the legislation provides for some or restricted scrutiny

at the ‘first look’ referral stage. We would, therefore, examine the

principles of competence-competence with reference to the

legislation, that is, the Arbitration Act.

84. Section 16(1) of the Arbitration Act accepts and empowers the

arbitral tribunal to rule on its own jurisdiction including a ruling on

the objections, with respect to all aspects of non-arbitrability

including validity of the arbitration agreement. A party opposing

arbitration, as per sub-section (2), should raise the objection to

jurisdiction of the tribunal before the arbitral tribunal, not later than

123 the submission of statement of defence. However, participation in

the appointment procedure or appointing an arbitrator would not

preclude and prejudice any party from raising an objection to the

jurisdiction. Obviously, the intent is to curtail delay and expedite

appointment of the arbitral tribunal. The clause also indirectly

accepts that appointment of an arbitrator is different from the issue

and question of jurisdiction and non-arbitrability. As per sub-section

(3), any objection that the arbitral tribunal is exceeding the scope

of its authority should be raised as soon as the matter arises.

However, the arbitral tribunal, as per sub-section (4), is

empowered to admit a plea regarding lack of jurisdiction beyond

the periods specified in sub-section (2) and (3) if it considers that

the delay is justified. As per the mandate of sub-section (5) when

objections to the jurisdiction under sub-sections (2) and (3) are

rejected, the arbitral tribunal can continue with the proceedings

and pass the arbitration award. A party aggrieved is at liberty to file

an application for setting aside such arbitral award under Section

34 of the Arbitration Act. Sub-section (3) to Section 8 in specific

terms permits an arbitral tribunal to continue with the arbitration

proceeding and make an award, even when an application under

sub-section (1) to Section 8 is pending consideration of the

124 court/forum. Therefore, pendency of the judicial proceedings even

before the court is not by itself a bar for the arbitral tribunal to

proceed and make an award. Whether the court should stay

arbitral proceedings or appropriate deference by the arbitral

tribunal are distinctly different aspects and not for us to elaborate

in the present reference.

85. Section 34 of the Act is applicable at the third stage post the award

when an application is filed for setting aside the award. Under

Section 34, an award can be set aside – (i) if the arbitration

agreement is not valid as per law to which the party is subject; (ii) if

the award deals with the disputes not contemplated by or not

falling within the submission to arbitration, or contains a decision

on the matter beyond the scope of submission to arbitration; and

(iii) when the subject matter of the dispute is not capable of

settlement by arbitration under the law for the time being in force.

Thus, the competence - competence principle, in its negative

effect, leaves the door open for the parties to challenge the

findings of the arbitral tribunal on the three issues. The negative

effect does not provide absolute authority, but only a priority to the

arbitral tribunal to rule the jurisdiction on the three issues. The

125 courts have a ‘second look’ on the three aspects under Section 34

of the Arbitration Act.68

86. The courts at the referral stage do not perform ministerial

functions. They exercise and perform judicial functions when they

decide objections in terms of Sections 8 and 11 of the Arbitration

Act. Section 8 prescribes the courts to refer the parties to

arbitration, if the action brought is the subject of an arbitration

agreement, unless it finds that prima facie no valid arbitration

agreement exists. Examining the term ‘prima facie’, in Nirmala J.

Jhala v. State of Gujarat and Another,69 this Court had noted:

“48. A prima facie case does not mean a case proved to the hilt but a case which can be said to be established if the evidence which is led in support of the case were [to be] believed. While determining whether a prima facie case had been made out or not the relevant consideration is whether on the evidence led it was possible to arrive at the conclusion in question and not whether that was the only conclusion which could be arrived at on that evidence.”

Prima facie case in the context of Section 8 is not to be

confused with the merits of the case put up by the parties which

has to be established before the arbitral tribunal. It is restricted to

the subject matter of the suit being prima facie arbitrable under a 68 The nature and extent of power of judicial review under Section 34 has not been examined and answered in this reference.

69 (2013) 4 SCC 301

126 valid arbitration agreement. Prima facie case means that the

assertions on these aspects are bona fide. When read with the

principles of separation and competence-competence and Section

34 of the Arbitration Act, referral court without getting bogged-down

would compel the parties to abide unless there are good and

substantial reasons to the contrary.70

87. Prima facie examination is not full review but a primary first review

to weed out manifestly and ex facie non-existent and invalid

arbitration agreements and non-arbitrable disputes. The prima

facie review at the reference stage is to cut the deadwood and trim

off the side branches in straight forward cases where dismissal is

barefaced and pellucid and when on the facts and law the litigation

must stop at the first stage. Only when the court is certain that no

valid arbitration agreement exists or the disputes/subject matter

are not arbitrable, the application under Section 8 would be

rejected. At this stage, the court should not get lost in thickets and

decide debatable questions of facts. Referral proceedings are

70 The European Convention on International Commercial Arbitration appears to recognise the prima facie test in Article VI (3):

“Where either party to an arbitration agreement has initiated arbitration proceedings before any resort is had to a court, courts of Contracting States subsequently asked to deal with the same subject-matter between the same parties or with the question whether the arbitration agreement was non-existent or null and void or had lapsed, shall stay their ruling on the arbitrator’s jurisdiction until the arbitral award is made, unless they have good and substantial reasons to the contrary.”

127 preliminary and summary and not a mini trial. This necessarily

reflects on the nature of the jurisdiction exercised by the court and

in this context, the observations of B.N. Srikrishna, J. of ‘plainly

arguable’ case in Shin-Etsu Chemical Co. Ltd. are of importance

and relevance. Similar views are expressed by this Court in Vimal

Kishore Shah wherein the test applied at the pre-arbitration stage

was whether there is a “good arguable case” for the existence of

an arbitration agreement. The test of “good arguable case” has

been elaborated by the England and Wales High Court in Silver

Dry Bulk Company Limited v. Homer Hulbert Maritime

Company Limited,71 in the following words:

“Good arguable case” is an expression which has been hallowed by long usage, but it means different things in different contexts. For the purpose of an application under Section 18, I would hold that what must be shown is a case which is somewhat more than merely arguable, but need not be one which appears more likely than not to succeed. It shall use the term “good arguable case” in that sense. It represents a relatively low threshold which retains flexibility for the Court to do what is just, while excluding those cases where the jurisdictional merits were so low that reluctant respondents ought not to be put to the expense and trouble of having to decide how to deal with arbitral proceedings where it was very likely that the tribunal had no jurisdiction. In this connection it is important to remember that crossing the threshold of “good arguable case” means that the Court has power to make one of the orders listed in

71 (2017) EWHC 44 (Comm.)

128 Section 18(3). It remains for consideration whether it should do so as a matter of discretion.”

Appropriate at this stage would be a reference to the

judgment of the Delhi High Court in NCC Ltd. v. Indian Oil

Corporation Ltd.,72 wherein it has been held as under:

“59.1 In my view, the scope of examination as to whether or not the claims lodged are Notified Claims has narrowed down considerably in view of the language of Section 11(6A) of the 1996 Act. To my mind, once the Court is persuaded that it has jurisdiction to entertain a Section 11 petition all that is required to examine is as to whether or not an arbitration agreement exists between the parties which is relatable to the dispute at hand. The latter part of the exercise adverted to above, which involves correlating the dispute with the arbitration agreement obtaining between the parties, is an aspect which is implicitly embedded in sub-section (6A) of Section 11 of the 1996 Act, which, otherwise, requires the Court to confine its examination only to the existence of the arbitration agreement. Therefore, if on a bare perusal of the agreement it is found that a particular dispute is not relatable to the arbitration agreement, then, perhaps, the Court may decline the relief sought for by a party in a Section 11 petition. However, if there is a contestation with regard to the issue as to whether the dispute falls within the realm of the arbitration agreement, then, the best course would be to allow the arbitrator to form a view in the matter.

59.2 Thus, unless it is in a manner of speech, a chalk and cheese situation or a black and white situation without shades of grey, the concerned court hearing the Section 11 petition should follow the more conservative course of allowing parties to have their say before the arbitral tribunal.”

72 Arbitration Petition No. 115 of 2018, decided on 08.02.2019

129

88. The nature and facet of non-arbitrability could also determine the

level and nature of scrutiny by the court at the referral stage.

Stravos Brekoulakis has differentiated between contractual

aspects of arbitration agreement which the court can examine at

referral stage and jurisdictional aspects of arbitration agreement

which he feels should be left to the arbitral tribunal. John J.

Barcelo III, referring to some American decisions had divided the

issue of non-arbitrability into procedural and substantive

objections. The procedurals are ‘gateway questions’ which would

presumptively be for the arbitrator to decide at least at the first

stage. In the Indian context, we would respectfully adopt the three

categories in Boghara Polyfab Private Limited. The first category

of issues, namely, whether the party has approached the

appropriate High Court, whether there is an arbitration agreement

and whether the party who has applied for reference is party to

such agreement would be subject to more thorough examination in

comparison to the second and third categories/issues which are

presumptively, save in exceptional cases, for the arbitrator to

decide. In the first category, we would add and include the

question or issue relating to whether the cause of action relates to

action in personam or rem; whether the subject matter of the

130 dispute affects third party rights, have erga omnes effect, requires

centralized adjudication; whether the subject matter relates to

inalienable sovereign and public interest functions of the State; and

whether the subject matter of dispute is expressly or by necessary

implication non-arbitrable as per mandatory statue(s). Such

questions arise rarely and, when they arise, are on most occasions

questions of law. On the other hand, issues relating to contract

formation, existence, validity and non-arbitrability would be

connected and intertwined with the issues underlying the merits of

the respective disputes/claims. They would be factual and disputed

and for the arbitral tribunal to decide. We would not like be too

prescriptive, albeit observe that the court may for legitimate

reasons, to prevent wastage of public and private resources, 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. Undertaking a detailed full review or a long-drawn review

at the referral stage would obstruct and cause delay undermining

the integrity and efficacy of arbitration as a dispute resolution

mechanism. Conversely, if the court becomes too reluctant to

intervene, it may undermine effectiveness of both the arbitration

131 and the court. There are certain cases where the prima facie

examination may require a deeper consideration. The court’s

challenge is to find the right amount of and the context when it

would examine the prima facie case or exercise restraint. The

legal order needs a right balance between avoiding arbitration

obstructing tactics at referral stage and protecting parties from

being forced to arbitrate when the matter is clearly non-arbitrable. 73

89. Accordingly, when it appears that prima facie review would be

inconclusive, or on consideration inadequate as it requires detailed

examination, the matter should be left for final determination by the

arbitral tribunal selected by the parties by consent. The underlying

rationale being not to delay or defer and to discourage parties from

using referral proceeding as a rue to delay and obstruct. In such

cases a full review by the courts at this stage would encroach on

the jurisdiction of the arbitral tribunal and violate the legislative

scheme allocating jurisdiction between the courts and the arbitral

tribunal. Centralisation of litigation with the arbitral tribunal as the

primary and first adjudicator is beneficent as it helps in quicker and

efficient resolution of disputes.

73 Ozlem Susler – ‘The English Approach to Competence-Competence’

132

90. The Court would exercise discretion and refer the disputes to

arbitration when it is satisfied that the contest requires the arbitral

tribunal should first decide the disputes and rule on non-

arbitrability. Similarly, discretion should be exercised when the

party opposing arbitration is adopting delaying tactics and

impairing the referral proceedings. Appropriate in this regard, are

observations of the Supreme Court of Canada in Dell Computer

Corporation v. Union des consommateurs and Olivier

Dumoulin,74 which read:

“85. If the challenge requires the production and review of factual evidence, the court should normally refer the case to arbitration, as arbitrators have, for this purpose, the same resources and expertise as courts. Where questions of mixed law and fact are concerned, the court hearing the referral application must refer the case to arbitration unless the questions of fact require only superficial consideration of the documentary evidence in the record.

86. Before departing from the general rule of referral, the court must be satisfied that the challenge to the arbitrator’s jurisdiction is not a delaying tactic and that it will not unduly impair the conduct of the arbitration proceeding. This means that even when considering one of the exceptions, the court might decide that to allow the arbitrator to rule first on his or her competence would be best for the arbitration process.”

Judgment in Dell’s case has been elucidated and diluted by

the Supreme Court of Canada in TELUS Communications Inc. v.

74 [2007] 2 S.C.R. 801, 2007 SCC 34

133 Avraham Wellman, viz. interpretation of Section 7(5) of the

Arbitration Act, 1991, an aspect with which we are not concerned.

91. We would now examine Section 11 of the Arbitration Act. As

noticed above sub-section (6-A) was inserted by the Act 3 of 2016

with retrospective effect from 23rd October, 2015 and omitted by

Act 33 of 2019. Section 11 (6) requires the court to appoint an

arbitrator on an application made by a party. Section (6-A) to

Section 11 stipulates that the court shall, at the stage of

appointment under sub-section (4), (5) or (6), confine itself to the

examination of the existence of an arbitration agreement. Sub-

section (6-A) was omitted by Act 33 of 2019, but the omission is in

view of the introduction of a new regime of institutionalised

arbitration as per the report of the committee headed by Justice B.

N. Srikrishna, dated 30.07.2017 which records for the reason of

recommending the omission as:

“Thus, it can be seen that after the Amendment Act of 2019, Section 11 (6-A) has been omitted because appointment of arbitrators is to be done institutionally, in which case the Supreme Court or the High Court under the old statutory regime are no longer required to appoint arbitrators and consequently to determine whether an arbitration agreement exists.”

As observed earlier, Patel Engineering Ltd. explains and

holds that Sections 8 and 11 are complementary in nature as both 134 relate to reference to arbitration. Section 8 applies when judicial

proceeding is pending and an application is filed for stay of judicial

proceeding and for reference to arbitration. Amendments to

Section 8 vide Act 3 of 2016 have not been omitted. Section 11

covers the situation where the parties approach a court for

appointment of an arbitrator. Mayavati Trading Private Ltd., in

our humble opinion, rightly holds that Patel Engineering Ltd. has

been legislatively overruled and hence would not apply even post

omission of sub-section (6-A) to Section 11 of the Arbitration Act.

Mayavati Trading Private Ltd. has elaborated upon the object

and purposes and history of the amendment to Section 11, with

reference to sub-section (6-A) to elucidate that the Section, as

originally enacted, was facsimile with Article 11 of the UNCITRAL

Model of law of arbitration on which the Arbitration Act was drafted

and enacted. Referring to the legislative scheme of Section 11,

different interpretations, and the Law Commission’s Reports, it has

been held that the omitted sub-section (6-A) to Section 11 of the

Arbitration Act would continue to apply and guide the courts on its

scope of jurisdiction at stage one, that is the pre-arbitration stage.

Omission of sub-section (6-A) by Act 33 of 2019 was with the

specific object and purpose and is relatable to by substitution of

135 sub-sections (12), (13) and (14) to Section 11 of the Arbitration Act

by Act 33 of 2019, which, vide sub-section (3A) stipulates that the

High Court and this court shall have the power to designate the

arbitral institutions which have been so graded by the Council

under Section 43-I, provided where a graded arbitral institution is

not available, the concerned High Court shall maintain a panel of

arbitrators for discharging the function and thereupon the High

Court shall perform the duty of an arbitral institution for reference

to the arbitral tribunal. Therefore, it would be wrong to accept that

post omission of sub-section (6-A) to Section 11 the ratio in Patel

Engineering Ltd. would become applicable.

92. We now proceed to examine the question, whether the word

‘existence’ in Section 11 merely refers to contract formation

(whether there is an arbitration agreement) and excludes the

question of enforcement (validity) and therefore the latter falls

outside the jurisdiction of the court at the referral stage. On

jurisprudentially and textualism it is possible to differentiate

between existence of an arbitration agreement and validity of an

arbitration agreement. Such interpretation can draw support from

the plain meaning of the word “existence’. However, it is equally

136 possible, jurisprudentially and on contextualism, to hold that an

agreement has no existence if it is not enforceable and not

binding. Existence of an arbitration agreement presupposes a valid

agreement which would be enforced by the court by relegating the

parties to arbitration. Legalistic and plain meaning interpretation

would be contrary to the contextual background including the

definition clause and would result in unpalatable consequences. A

reasonable and just interpretation of ‘existence’ requires

understanding the context, the purpose and the relevant legal

norms applicable for a binding and enforceable arbitration

agreement. An agreement evidenced in writing has no meaning

unless the parties can be compelled to adhere and abide by the

terms. A party cannot sue and claim rights based on an

unenforceable document. Thus, there are good reasons to hold

that an arbitration agreement exists only when it is valid and legal.

A void and unenforceable understanding is no agreement to do

anything. Existence of an arbitration agreement means an

arbitration agreement that meets and satisfies the statutory

requirements of both the Arbitration Act and the Contract Act and

when it is enforceable in law. We would proceed to elaborate and

give further reasons:

137

(i) In Garware Wall Ropes Ltd., this Court had examined the

question of stamp duty in an underlying contract with an arbitration

clause and in the context had drawn a distinction between the first

and second part of Section 7(2) of the Arbitration Act, albeit the

observations made and quoted above with reference to ‘existence’

and ‘validity’ of the arbitration agreement being apposite and

extremely important, we would repeat the same by reproducing

paragraph 29 thereof:

“29. This judgment in Hyundai Engg. case is important in that what was specifically under consideration was an arbitration clause which would get activated only if an insurer admits or accepts liability. Since on facts it was found that the insurer repudiated the claim, though an arbitration clause did “exist”, so to speak, in the policy, it would not exist in law, as was held in that judgment, when one important fact is introduced, namely, that the insurer has not admitted or accepted liability. Likewise, in the facts of the present case, it is clear that the arbitration clause that is contained in the sub- contract would not “exist” as a matter of law until the sub-contract is duly stamped, as has been held by us above. The argument that Section 11(6-A) deals with “existence”, as opposed to Section 8, Section 16 and Section 45, which deal with “validity” of an arbitration agreement is answered by this Court's understanding of the expression “existence” in Hyundai Engg. case, as followed by us.”;

Existence and validity are intertwined, and arbitration

agreement does not exist if it is illegal or does not satisfy

mandatory legal requirements. Invalid agreement is no agreement. 138

(ii) The court at the reference stage exercises judicial

powers. ‘Examination’, as an ordinary expression in common

parlance, refers to an act of looking or considering something

carefully in order to discover something (as per Cambridge

Dictionary). It requires the person to inspect closely, to test

the condition of, or to inquire into carefully (as per Merriam-

Webster Dictionary). It would be rather odd for the court to

hold and say that the arbitration agreement exists, though ex

facie and manifestly the arbitration agreement is invalid in

law and the dispute in question is non-arbitrable. The court is

not powerless and would not act beyond jurisdiction, if it

rejects an application for reference, when the arbitration

clause is admittedly or without doubt is with a minor, lunatic

or the only claim seeks a probate of a Will.

(iii) Most scholars and jurists accept and agree that the

existence and validity of an arbitration agreement are the

same. Even Starvos Brekoulakis accepts that validity, in

terms of substantive and formal validity, are questions of

contract and hence for the court to examine.

139

(iv) Most jurisdictions accept and require prima facie

review by the court on non-arbitrability aspects at the referral

stage.

(v) Sections 8 and 11 of the Arbitration Act are

complementary provisions as was held in Patel Engineering

Ltd.. The object and purpose behind the two provisions is

identical to compel and force parties to abide by their

contractual understanding. This being so, the two provisions

should be read as laying down similar standard and not as

laying down different and separate parameters. Section 11

does not prescribe any standard of judicial review by the

court for determining whether an arbitration agreement is in

existence. Section 8 states that the judicial review at the

stage of reference is prima facie and not final. Prima facie

standard equally applies when the power of judicial review is

exercised by the court under Section 11 of the Arbitration

Act. Therefore, we can read the mandate of valid arbitration

agreement in Section 8 into mandate of Section 11, that is,

‘existence of an arbitration agreement’.

(vi) Exercise of power of prima facie judicial review of

existence as including validity is justified as a court is the first

140 forum that examines and decides the request for the referral.

Absolute “hands off” approach would be counterproductive

and harm arbitration, as an alternative dispute resolution

mechanism. Limited, yet effective intervention is acceptable

as it does not obstruct but effectuates arbitration.

(vii) Exercise of the limited prima facie review does not in

any way interfere with the principle of competence–

competence and separation as to obstruct arbitration

proceedings but ensures that vexatious and frivolous matters

get over at the initial stage.

(viii) Exercise of prima facie power of judicial review as to

the validity of the arbitration agreement would save costs

and check harassment of objecting parties when there is

clearly no justification and a good reason not to accept plea

of non-arbitrability. In Subrata Roy Sahara v. Union of

India,75 this Court has observed:

“191. The Indian judicial system is grossly afflicted with frivolous litigation. Ways and means need to be evolved to deter litigants from their compulsive obsession towards senseless and ill-considered claims. One needs to keep in mind that in the process of litigation, there is an innocent sufferer on the other side of every irresponsible and senseless claim. He suffers long-drawn anxious periods of nervousness and restlessness, whilst the litigation is pending 75 (2014) 8 SCC 470

141 without any fault on his part. He pays for the litigation from out of his savings (or out of his borrowings) worrying that the other side may trick him into defeat for no fault of his. He spends invaluable time briefing counsel and preparing them for his claim. Time which he should have spent at work, or with his family, is lost, for no fault of his. Should a litigant not be compensated for what he has lost for no fault? The suggestion to the legislature is that a litigant who has succeeded must be compensated by the one who has lost. The suggestion to the legislature is to formulate a mechanism that anyone who initiates and continues a litigation senselessly pays for the same.

It is suggested that the legislature should consider the introduction of a “Code of Compulsory Costs”.

(ix) Even in Duro Felguera, Kurian Joseph, J., in

paragraph 52, had referred to Section 7(5) and thereafter in

paragraph 53 referred to a judgment of this Court in M.R.

Engineers and Contractors Private Limited v. Som Datt

Builders Limited76 to observe that the analysis in the said

case supports the final conclusion that the Memorandum of

Understanding in the said case did not incorporate an

arbitration clause. Thereafter, reference was specifically

made to Patel Engineering Ltd. and Boghara Polyfab

Private Limited to observe that the legislative policy is

essential to minimise court’s interference at the pre-arbitral

stage and this was the intention of sub-section (6) to Section

11 of the Arbitration Act. Paragraph 48 in Duro Felguera 76 (2009) 7 SCC 696

142 specifically states that the resolution has to exist in the

arbitration agreement, and it is for the court to see if the

agreement contains a clause which provides for arbitration of

disputes which have arisen between the parties. Paragraph

59 is more restrictive and requires the court to see whether

an arbitration agreement exists – nothing more, nothing less.

Read with the other findings, it would be appropriate to read

the two paragraphs as laying down the legal ratio that the

court is required to see if the underlying contract contains an

arbitration clause for arbitration of the disputes which have

arisen between the parties - nothing more, nothing less.

Reference to decisions in Patel Engineering Ltd. and

Boghara Polyfab Private Limited was to highlight that at

the reference stage, post the amendments vide Act 3 of

2016, the court would not go into and finally decide different

aspects that were highlighted in the two decisions.

(x) In addition to Garware Wall Ropes Limited case, this

Court in Narbheram Power and Steel Private Limited and

Hyundai Engg. & Construction Co. Ltd., both decisions of

three Judges, has rejected the application for reference in

the insurance contracts holding that the claim was beyond

143 and not covered by the arbitration agreement. The court felt

that the legal position was beyond doubt as the scope of the

arbitration clause was fully covered by the dictum in Vulcan

Insurance Co. Ltd. Similarly, in M/s. PSA Mumbai

Investments PTE. Limited, this Court at the referral stage

came to the conclusion that the arbitration clause would not

be applicable and govern the disputes. Accordingly, the

reference to the arbitral tribunal was set aside leaving the

respondent to pursue its claim before an appropriate forum.

(xi) The interpretation appropriately balances the allocation

of the decision-making authority between the court at the

referral stage and the arbitrators’ primary jurisdiction to

decide disputes on merits. The court as the judicial forum of

the first instance can exercise prima facie test jurisdiction to

screen and knockdown ex facie meritless, frivolous and

dishonest litigation. Limited jurisdiction of the courts ensures

expeditious, alacritous and efficient disposal when required

at the referral stage.

93. Section 43(1) of the Arbitration Act states that the

Limitation Act, 1963 shall apply to arbitrations as it applies to

144 court proceedings. Sub-section (2) states that for the purposes

of the Arbitration Act and Limitation Act, arbitration shall be

deemed to have commenced on the date referred to in Section

21. Limitation law is procedural and normally disputes, being

factual, would be for the arbitrator to decide guided by the facts

found and the law applicable. The court at the referral stage can

interfere only when it is manifest that the claims are ex facie

time barred and dead, or there is no subsisting dispute. All other

cases should be referred to the arbitral tribunal for decision on

merits. Similar would be the position in case of disputed ‘no

claim certificate’ or defence on the plea of novation and ‘accord

and satisfaction’. As observed in Premium Nafta Products

Ltd., it is not to be expected that commercial men while

entering transactions inter se would knowingly create a system

which would require that the court should first decide whether

the contract should be rectified or avoided or rescinded, as the

case may be, and then if the contract is held to be valid, it would

require the arbitrator to resolve the issues that have arisen.

94. We would also resolve the question of principles

applicable to interpretation of an arbitration clause. This is

145 important and directly relates to scope of the arbitration

agreement. In Premium Nafta Products Ltd., on the question

of interpretation and construction of an arbitration clause, it is

observed:

“In approaching the question of construction, it is therefore necessary to inquire into the purpose of the arbitration clause. As to this, I think there can be no doubt. The parties have entered into a relationship, an agreement or what is alleged to be an agreement or what appears on its face to be an agreement, which may give rise to disputes. They want those disputes decided by a tribunal which they have chosen, commonly on the grounds of such matters as its neutrality, expertise and privacy, the availability of legal services at the seat of the arbitration and the unobtrusive efficiency of its supervisory law. Particularly in the case of international contracts, they want a quick and efficient adjudication and do not want to take the risks of delay and, in too many cases, partiality, in proceedings before a national jurisdiction.”

In Narbheram Power and Steel Private Ltd., this Court

while dealing with the arbitration clause in the insurance

agreement, has held that the arbitration clause should be strictly

construed, relying on the principles of strict interpretation that

apply to insurance contracts. These observations have been

repeated in other cases.

What is true and applicable for men of commerce and

business may not be equally true and apply in case of laymen and

146 to those who are not fully aware of the effect of an arbitration

clause or had little option but to sign on the standard form contract.

Broad or narrow interpretations of an arbitration agreement can, to

a great extent, effect coverage of a retroactive arbitration

agreement. Pro-arbitration broad interpretation, normally applied to

international instruments, and commercial transactions is based

upon the approach that the arbitration clause should be considered

as per the true contractual language and what it says, but in case

of doubt as to whether related or close disputes in the course of

parties’ business relationship is covered by the clause, the

assumption is that such disputes are encompassed by the

agreement. The restrictive interpretation approach on the other

hand states that in case of doubt the disputes shall not be treated

as covered by the clause. Narrow approach is based on the

reason that the arbitration should be viewed as an exception to the

court or judicial system. The third approach is to avoid either broad

or restrictive interpretation and instead the intention of the parties

as to scope of the clause is understood by considering the strict

language and circumstance of the case in hand. Terms like ‘all’,

‘any’, ‘in respect of’, ‘arising out of’ etc. can expand the scope and

ambit of the arbitration clause. Connected and incidental matters,

147 unless the arbitration clause suggests to the contrary, would

normally be covered.

Which approach as to interpretation of an arbitration

agreement should be adopted in a particular case would depend

upon various factors including the language, the parties, nature of

relationship, the factual background in which the arbitration

agreement was entered, etc. In case of pure commercial disputes,

more appropriate principle of interpretation would be the one of

liberal construction as there is a presumption in favour of one-stop

adjudication.

95. Accordingly, we hold that the expression ‘existence of

an arbitration agreement’ in Section 11 of the Arbitration Act,

would include aspect of validity of an arbitration agreement,

albeit the court at the referral stage would apply the prima facie

test on the basis of principles set out in this judgment. In cases

of debatable and disputable facts, and good reasonable

arguable case, etc., the court would force the parties to abide

by the arbitration agreement as the arbitral tribunal has primary

jurisdiction and authority to decide the disputes including the

question of jurisdiction and non-arbitrability.

148

96. Discussion under the heading ‘Who decides

Arbitrability?’ can be crystallized as under:

(a) Ratio of the decision in Patel Engineering Ltd.

on the scope of judicial review by the court while

deciding an application under Sections 8 or 11 of the

Arbitration Act, post the amendments by Act 3 of 2016

(with retrospective effect from 23.10.2015) and even

post the amendments vide Act 33 of 2019 (with effect

from 09.08.2019), is no longer applicable.

(b) Scope of judicial review and jurisdiction of the

court under Section 8 and 11 of the Arbitration Act is

identical but extremely limited and restricted.

(c) The general rule and principle, in view of the

legislative mandate clear from Act 3 of 2016 and Act 33

of 2019, and the principle of severability and

competence-competence, is that the arbitral tribunal is

the preferred first authority to determine and decide all

questions of non-arbitrability. The court has been

conferred power of “second look” on aspects of non-

arbitrability post the award in terms of sub-clauses (i),

149

(ii) or (iv) of Section 34(2)(a) or sub-clause (i) of

Section 34(2)(b) of the Arbitration Act.

(d) Rarely as a demurrer the court may interfere at

the Section 8 or 11 stage when it is manifestly and ex

facie certain that the arbitration agreement is non-

existent, invalid or the disputes are non-arbitrable,

though the nature and facet of non-arbitrability would,

to some extent, determine the level and nature of

judicial scrutiny. The restricted and limited review is to

check and protect parties from being forced to arbitrate

when the matter is demonstrably ‘non-arbitrable’ and to

cut off the deadwood. The court by default would refer

the matter when contentions relating to non-arbitrability

are plainly arguable; when consideration in summary

proceedings would be insufficient and inconclusive;

when facts are contested; when the party opposing

arbitration adopts delaying tactics or impairs conduct of

arbitration proceedings. This is not the stage for the

court to enter into a mini trial or elaborate review so as

to usurp the jurisdiction of the arbitral tribunal but to

150 affirm and uphold integrity and efficacy of arbitration as

an alternative dispute resolution mechanism.

97. Reference is, accordingly, answered.

98. In view of the aforesaid findings and ratio, we dispose

of the Civil Appeal and the Special Leave Petitions in the

following manner:

Civil Appeal No. 2402 of 2019

In view of the fact that the Arbitral Tribunal is hearing the

matter, we leave the issue of arbitrability to the Tribunal to decide

and come to a conclusion on the same. Further, the parties are at

liberty to execute or challenge the award in accordance with law.

The direction that the award cannot be executed without applying

for permission of this Court is hereby vacated.

Special Leave Petition (Civil) Nos. 5605-5606 of 2019

In this case, arbitral award has been passed on 24 th August

2019. It is apprised before this Bench that the Arbitral Tribunal has

rejected the objection to the Tribunal’s jurisdiction. In this view, the

petitioner is at liberty to pursue the remedy available under Section

34 of the Arbitration Act.

Special Leave Petition (Civil) No. 11877 of 2020

151 In view of the fact that the Arbitral Tribunal is hearing the

matter, we leave the issue of arbitrability to the Tribunal to decide

and come to a conclusion on the same. Further, the parties are at

liberty to challenge the award if they are not satisfied with the

same in this regard.

......................................J. (N.V. RAMANA)

......................................J. (SANJIV KHANNA)

......................................J. (KRISHNA MURARI) NEW DELHI;

DECEMBER 14, 2020.

152 Reportable

IN THE SUPREME COURT OF INDIA CIVIL APPELLATE JURISDICTION

CIVIL APPEAL NO. 2402 OF 2019

VIDYA DROLIA & ORS. ...APPELLANTS

VERSUS

DURGA TRADING CORPORATION …RESPONDENT WITH SLP (C) 5605­5606 OF 2019

LINDSAY INTERNATIONAL PVT. LTD. ...PETITIONER

VERSUS

IFGL REFRACTORIES LIMITED …RESPONDENT

SLP (C) NO. 11877 OF 2020 (ARISING OUT OF DIARY NO. 40679 of 2019)

CREATIVE INFOCITY LTD. ...PETITIONER

153 VERSUS

GUJARAT INFORMATICS LTD. …RESPONDENT

JUDGMENT

N. V. RAMANA, J.

1. I have had the advantage of reading in advance the opinion

of my learned Brother Justice Sanjiv Khanna. The present

matters deal with a very important aspect in the arbitration

jurisprudence in this country, which necessitate a separate

opinion.

2. Recently, Mr. Fali S. Nariman, in one of his lectures had

alluded that the development of arbitration in India is not

attributable to the success in arbitration, rather to the

failures of the Court. This reflects an uncomfortable

relationship which arbitration has had with litigation all

these days. The judicial hesitancy of the courts to be more

accommodative towards the tribunal and the need for

154 respecting arbitral awards requires this Court to extensively

reflect and bring the Court’s jurisprudence in tune with the

liberal intention sought to be furthered post the 2015

amendment to the Arbitration and Conciliation Act, 1996

(hereinafter referred to as “the Act”).

3. Before we delve into the merits of the matters, we need to

have a brief reference to the facts which are necessary for

the disposal of these cases. As all the cases are similar, we

take facts from Civil Appeal No. 2402 of 2019, to indicate

the history of this litigation and the questions which arise

from the same. In the year 2006, appellants (tenants)

entered into a tenancy agreement with the predecessor title

holder with respect to certain buildings. Clause 23 of the

agreement contained a dispute resolution clause. In the

year 2012, the tenancy was attorned to the respondent,

after which the appellants started paying monthly rent to

the respondent (landlord). On 24.08.2015, the respondent

(landlord) wrote a letter seeking vacant possession of the

property as the period of lease was expiring on 01.02.2016.

Appellants (tenants) did not vacate. Aggrieved, the

155 respondent (landlord) invoked the arbitration under the

dispute resolution mechanism provided under the contract.

On 28.04.2016, the respondent filed the present Section 11

petition before the Calcutta High Court for appointment of

an arbitrator. On 07.09.2016, the High Court passed the

impugned order appointing an arbitrator, after rejecting the

appellants objections on the arbitrability of the dispute.

4. Aggrieved by the same, the appellants (tenants) have

approached this Court in the present proceedings, on the

reason that, after the judgment of the High Court was

rendered appointing the arbitrator, this Court in Himangni

Enterprises v. Kamaljeet Singh Ahluwalia, (2017) 10

SCC 706 [hereinafter referred as ‘Himangni Enterprises’]

held that where the Transfer of Property Act, 1882 applied

between the landlord and tenant disputes between the said

parties would not be arbitrable.

5. When Civil Appeal No. 2402 of 2019 was listed for hearing

on 28.02.2019, then the said matter was referred to a three­

Judge Bench, with following observations:

156

“7. It will be noticed that “validity” of an arbitration agreement is, therefore, apart from its “existence”. One moot question that therefore, arises, and which needs to be authoritatively decided by a Bench of three learned Judges, is whether the word “existence” would include weeding­out arbitration clauses in agreements which indicate that the subject­matter is incapable of arbitration… xxxxx xxxxx

30. In this view of the matter, this case is referred to a Bench of three Hon’ble Judges.

31. Given the facts of this case and the fact that 18 hearings have been held, the stay that has been granted to the arbitral proceedings by our order dated 13.08.2018 is lifted, and the proceedings may go on and culminate in an award. The award cannot be executed without applying to this Court. The appeal is disposed of accordingly.”

6. The reference order primarily indicates that there are two

substantive issues to be settled by this Court herein,

namely:

I. To what extent does the Court decide the question of

non­arbitrability under Section 11 of the Act?

157 II. Whether tenancy disputes are capable of being

resolved through arbitration?

7. Before we analyze the issue, we need to observe arguments

canvassed by the counsel appearing for the parties, who set

the tone for these cases.

8. Learned senior counsel, Mr. K. V. Vishwanathan, appearing

for the petitioners in SLP (C.) No. 5605­5606 of 2019,

submitted as under:

 That Section 11(6A) of the Act is a unique provision,

which is neither traceable to UNCITRAL Model Law nor

any other domestic legislation.

 In spite of the absence of legislative provision in other

countries, Courts have adjudicated on the existence of

the arbitration agreement at the stage of the

appointment of the arbitrator itself.  The standard of ‘good arguable case’ as expounded in

Noble Denton Middle East v. Noble Denton

International Ltd., [2010] EWHC 2574 (Comm.),

should be applied by the Courts to examine the

existence of a valid arbitration agreement.

158  Therefore, the scope of judicial enquiry at the stage of

reference/appointment is not limited to the mere

presence of the arbitration clause.

9. Learned Senior advocate, Mr. Nakul Dewan on behalf of the

Respondent in SLP (C.) No. 5605­5606 of 2019, argued that:

 Section 11(6A) was a conscious departure from the

earlier existing judicial interpretation, which had

widened the scope of judicial enquiry.  The 246th Law Commission Report stated that Section

11(6A) limits the scope of judicial enquiry to

determination of a prima facie existence.  Word ‘existence’ under Section 11(6A) means legally

enforceable existence and not mere presence in the

contract.

 While examining the issue of existence in an

application under Section 11, this Court is merely

functioning as an appointing authority.

10. Learned senior counsel, Mr. Manoj Swarup on behalf of the

Petitioner in SLP (C.) No. 11877 of 2020, has submitted

that:

159

 Lease hold rights under the Transfer of Property Act,

1882 [hereinafter referred to as “TP Act”]are rights in

rem.

 A contractual tenant upon determination of lease

becomes a statutory tenant and is entitled to the

statutory protection. Therefore, the arbitration in that

case would be ousted.

 Section 11 is not the stage for determination of the

issue of arbitrability in those cases where the test of

Section 89, CPC is to be applied.

11. Learned senior counsel, Mr. Gopal Shankarnarayan on

behalf of the Petitioners in SLP (C.) No. 5605­5606 of 2019,

submitted that:

 Section 11(6A) mandates an ‘examination of the

evidence of an arbitration agreement’.  The 2015 Amendment does not convert the judicial

power conferred in Section 11(6) into an administrative

power.

 The decision in Mayavati Trading Pvt. Ltd. v.

Pradyuat Deb Burman, (2019) 8 SCC 714 is

inapplicable.

160

12. Learned counsel, Mr. Sourav Agarwal on behalf of the

Respondent in Civil Appeal No. 2402 of 2019, contended

that:

 the Court under Section 8 and 11 of the Act, does not

act as a mere post­office.

 this is a case in which the appellants have participated

in the arbitral proceedings.

 Relying upon various judgments, including certain

High Court judgments that were passed after the

judgment in Himangni Enterprises (supra) to state

that, on facts, Himangni Enterprises (supra) was

wholly distinguishable as it did not apply to a situation

of a lease expiring by efflux of time.

 certain High Court judgments had, after the judgment

in Himangni Enterprises (supra), distinguished the

said judgment on this and other grounds. As an

alternative submission, he said that, in any case,

Himangni Enterprises (supra) would require

reconsideration as it did not state the law correctly.

13. We answer the two questions in seriatim.

161 14. Arbitration is a creature of consensus. It is completely

dependent on party autonomy and the intention expressed

in the agreement. A contract, having multiple clauses

including arbitration agreements, can be divided into two

parts. The clauses relating to the commercial relationship,

i.e., the obligations and duties of each party, can be referred

to as the ‘main contract’. The arbitration agreement so to

say is a separate contract in itself.

15. The separability of the arbitration agreement from the main

contract, historically existed in Roman law. Since early

times, arbitration was viewed with suspicion, which allowed

for the development of separability. Ironically, the ‘pro­

arbitration’ function of separability in the present day is a

late 19th and 20th century development, traceable to

Germanic and Swiss jurisprudence.

16. In India, arbitration was governed earlier by the Arbitration

Act of 1899, and later 1940. Presently, arbitration is

governed by the Act of 1996, with subsequent amendments.

A cursory reading of the legislative history points to the fact

162 that the intention of the legislature is to make the regime

‘pro­arbitration’. Whenever this Court has afforded a

contrary view, there has been a trend to undo the changes

to bring it in line with the international standards prevailing

in certain arbitration havens such as Singapore, London

and Hong Kong.

17. Before we move to the analysis of the case, we need to

briefly describe the structure of the Arbitration Act, 1996

with subsequent amendments. The set­up of both

international and domestic arbitration is contained under

PARTS I, IA and II of the Act. The preamble to the Act

provides that it was enacted with a view to have uniformity

of the law of arbitral procedures to establish a fair and

efficient mechanism to resolve disputes.

18. Section 2 provides for the definition of ‘arbitration

agreement’ which is to be interpreted in terms of Section 7

of the Act, which states as under:

7. Arbitration agreement. —

(1) In this Part, “arbitration agreement” means an agreement by the parties to submit to arbitration all or certain disputes which have arisen or which

163 may arise between them in respect of a defined legal relationship, whether contractual or not.

(2) An arbitration agreement may be in the form of an arbitration clause in a contract or in the form of a separate agreement.

(3) An arbitration agreement shall be in writing.

(4) An arbitration agreement is in writing if it is contained in—

(a) a document signed by the parties;

(b) an exchange of letters, telex, telegrams or other means of telecommunication including communication through electronic means which provide a record of the agreement; or

(c) an exchange of statements of claim and defence in which the existence of the agreement is alleged by one party and not denied by the other.

(5) The reference in a contract to a document containing an arbitration clause constitutes an arbitration agreement if the contract is in writing and the reference is such as to make that arbitration clause part of the contract.

19. Section 5 emphasizes a very important principle, that

judicial interference in arbitral proceedings should be

minimum and should be limited to instances where it is

specifically provided for under the Act. Although the

provision envisages a wide amplitude, various judgments of

164 this Court have restricted the utility of same. [ICICI Bank

Ltd. v. Sidco Leathers Ltd., (2006) 10 SCC 452]

20. Section 8 of the Act in its present and earlier form, are

extracted below:

Section 8 prior to Section 8 after Act Section 8 after Act Act 3 of 2016 3 of 2016 33 of 2019 Power to refer parties to Power to refer Power to refer arbitration where parties to parties to there is an arbitration where arbitration where arbitration there is an there is an agreement.­(1) A arbitration arbitration judicial authority agreement.—(1) A agreement.­(1) A before which an judicial authority, judicial authority, action is brought in before which an before which an a matter which is action is brought in action is brought in the subject of an a matter which is a matter which is arbitration the subject of an the subject of an agreement shall, if a arbitration arbitration party so applies not agreement shall, if a agreement shall, if a later than when party to the party to the submitting his first arbitration arbitration statement on the agreement or any agreement or any substance of the person claiming person claiming dispute, refer the through or under through or under parties to him, so applies not him, so applies not arbitration. later than the date of later than the date of submitting his first submitting his first (2) The application statement on the statement on the referred to in sub­ substance of the substance of the section (1) shall not dispute, then, dispute, then, be entertained notwithstanding any notwithstanding any unless it is judgment, decree or judgment, decree or accompanied by the 165 original arbitration agreement or a duly order of the Supreme order of the Supreme certified copy Court or any Court, Court or any Court, thereof. refer the parties to refer the parties to arbitration unless it arbitration unless it (3) Notwithstanding finds that prima finds that prima that an application facie no valid facie no valid has been made arbitration arbitration under sub­section agreement exists. agreement exists.

(1) and that the (2) The application issue is pending (2) The application referred to in sub­ before the judicial referred to in sub­ section (1) shall not authority, an section (1) shall not be entertained arbitration may be be entertained unless it is commenced or unless it is continued and an accompanied by the accompanied by the arbitral award original arbitration original arbitration made. agreement or a duly agreement or a duly certified copy certified copy thereof: thereof:

Provided that where Provided that where the original the original arbitration arbitration agreement or a agreement or a certified copy thereof certified copy thereof is not available with the party applying is not available with for reference to the party applying arbitration under for reference to sub­section (1), and arbitration under the said agreement sub­section (1), and or certified copy is the said agreement retained by the other or certified copy is party to that retained by the other agreement, then, the party to that party so applying agreement, then, the shall file such party so applying application along 166 shall file such with a copy of the application along arbitration with a copy of the agreement and a arbitration petition praying the agreement and a Court to call upon petition praying the the other party to produce the original Court to call upon arbitration the other party to agreement or its produce the original duly certified copy arbitration before that Court. agreement or its duly certified copy

(3) Notwithstanding before that Court.

that an application has been made (3) Notwithstanding under sub­section (1) that an application and that the issue is pending before the has been made judicial authority, an under sub­section (1) arbitration may be and that the issue is commenced or pending before the continued and an judicial authority, an arbitral award made arbitration may be commenced or continued and an arbitral award made.

Under the old Arbitration Act, 1940, the Court had the

discretion in referring the parties to arbitration, however

such discretion is done away with after the coming into

force of the 1996 Act. The Arbitration and Conciliation Act,

1996 does not, in specific terms, exclude any category of

167 disputes—civil or commercial—from arbitrability. Intrinsic

legislative material is in fact to the contrary. Section 8

contains a mandate that where an action is brought before a

judicial authority in a matter which is the subject of an

arbitration agreement, the parties shall be referred by it to

arbitration, if a party to or a person claiming through a

party to the arbitration agreement applies not later than the

date of submitting the first statement on the substance of

the dispute. The only exception is where the authority finds,

prima facie, that there is no valid arbitration agreement.

Section 8 contains a positive mandate and obligates the

judicial authority to refer parties to arbitration in terms of

the arbitration agreement. While dispensing with the

element of judicial discretion, the statute imposes an

affirmative obligation on every judicial authority to hold

down parties to the terms of the agreement entered into

between them to refer disputes to arbitration. Article 8 of

the UNCITRAL Model Law enabled a court to decline to refer

parties to arbitration if it is found that the arbitration

agreement is null and void, inoperative or incapable of being

168 performed. Section 8 of the Act has made a departure from

the UNCITRAL law which is indicative of the wide reach and

ambit of the statutory mandate. Section 8 uses the

expansive expression “judicial authority” rather than “court”

and the words “unless it finds that the agreement is null

and void, inoperative and incapable of being performed” do

not find place in Section 8.

21. On the 2015 amendment to Section 8, Justice Indu

Malhotra, comments as under:

Section 8 was amended by the 2015 Amendment to clarify the scope of enquiry by the judicial authority at the pre­reference stage. The court would be required to make a prima facie determination as to whether there is valid arbitration agreement.77

We must state that we are partly in agreement with the

aforesaid, wherein the judicial authorities have been given a

clear mandate for interference at the pre­reference stage,

however, the threshold standard is worded differently, as

pointed herein.

77Justice Indu Malhotra, Commentary on the Law of Arbitration, Vol. I, 4th Ed., p. 317.

169 22. Section 11 of the Act in its present and earlier forms, are

extracted below:

Section 11 prior to Section 11 after Act Act 3 of 2016 3 of 2016 Section 11 after Act 33 of 2019 Appointment of Appointment of arbitrators.­ (1) A arbitrators.—(1) A Appointment of person of any person of any arbitrators.­(1) A nationality may be an nationality may be an person of any arbitrator, unless arbitrator, unless nationality may be an arbitrator, unless otherwise agreed by otherwise agreed by the parties. otherwise agreed by the parties.

the parties.

(2) Subject to sub­ (2) Subject to sub­ (2) Subject to sub­ section (6), the parties section (6), the parties section (6), the parties are free to agree on a are free to agree on a are free to agree on a procedure for procedure for procedure for appointing the appointing the appointing the arbitrator or arbitrator or arbitrator or arbitrators. arbitrators.

arbitrators.

(3) Failing any (3) Failing any (3) Failing any agreement referred to agreement referred to agreement referred to in sub­section (2), in in sub­section (2), in in sub­section (2), in an arbitration with an arbitration with three arbitrators, each an arbitration with three arbitrators, each party shall appoint three arbitrators, each party shall appoint one arbitrator, and the party shall appoint one arbitrator, and two appointed one arbitrator, and the the two appointed arbitrators shall two appointed arbitrators shall appoint the third arbitrators shall appoint the third arbitrator who shall appoint the third arbitrator who shall act as the presiding arbitrator who shall act as the presiding arbitrator. act as the presiding arbitrator. arbitrator. (4) If the appointment 170 procedure in sub­ (4) If the appointment section (3) applies and (3A) The Supreme procedure in sub­ — Court and the High section (3) applies and Court shall have the – (a) a party fails to power to designate, (a) a party fails to appoint an arbitrator arbitral institutions, appoint an within thirty days from time to time, arbitrator within from the receipt of a which have been thirty days from request to do so from graded by the Council the receipt of a the other party; or under section 43­I, for request to do so

(b) the two appointed the purposes of this from the other arbitrators fail to Act:

party; or agree on the third

(b) the two appointed arbitrator within thirty Provided that in arbitrators fail to days from the date of respect of those High agree on the third their appointment, the Court jurisdictions, arbitrator within appointment shall be where no graded thirty days from made, upon request of arbitral institution are the date of their a party, by the available, then, the appointment, Supreme Court or, as the appointment Chief Justice of the the case may be, the shall be made, concerned High Court High Court or any upon request of a person or institution may maintain a panel party, by the Chief designated by such of arbitrators for Justice or any Court. discharging the person or functions and duties institution (5) Failing any of arbitral institution designated by him. agreement referred to and any reference to in sub­section (2), in the arbitrator shall be (5) Failing any an arbitration with a deemed to be an agreement referred to sole arbitrator, if the arbitral institution for in sub­section (2), in parties fail to agree on the purposes of this an arbitration with a the arbitrator within section and the sole arbitrator, if the thirty days from arbitrator appointed parties fail to agree on receipt of a request by by a party shall be the arbitrator within one party from the thirty days from other party to so agree entitled to such fee at

171 receipt of a request by the appointment shall the rate as specified in one party from the be made, upon request the Fourth Schedule:

other party to so agree of a party, by the the appointment shall Supreme Court or, as Provided further that be made, upon the case may be, the the Chief Justice of the request of a party, by High Court or any concerned High Court the Chief Justice or person or institution may, from time to any person or designated by such time, review the panel institution designated Court.

of arbitrators.

by him.

(6) Where, under an appointment (4) If the appointment (6) Where, under an procedure agreed procedure in sub­ appointment upon by the parties,— section (3) applies and procedure agreed (a) a party fails to act — upon by the parties, ­ as required under that (a) a party fails to (a) a party fails to act procedure; or appoint an arbitrator as required under within thirty days

that procedure; or (b) the parties, or the

(b) the parties, or the two from the receipt of a appointed request to do so from two appointed arbitrators, fail to arbitrators, fail to reach an agreement the other party; or reach an expected of them agreement under that procedure; (b) the two appointed expected of them or arbitrators fail to under that agree on the third procedure; or (c) a person, including arbitrator within thirty

(c) a person, including an institution, fails to days from the date of an institution, fails perform any function their appointment, to perform any entrusted to him or it function entrusted under that procedure, the appointment shall to him or it under a party may request be made, on an that procedure, the Supreme Court or, application of the a party may request as the case may be, party, by the arbitral the Chief Justice or the High Court or any institution designated any person or person or institution by the Supreme Court, institution designated designated by such in case of international by him to take the Court to take 172 necessary measure, the necessary commercial unless the agreement measure, unless the arbitration, or by the on the appointment agreement on the High Court, in case of procedure provides appointment arbitrations other than other means for procedure provides international securing the other means for commercial appointment. securing the arbitration, as the appointment.

case may be.

(7) A decision on a matter entrusted by (6A) The Supreme Court or, as the case (5) Failing any sub­section (4) or sub­ agreement referred to may be, the High section (5) or sub­ Court, in sub­section (2), in while section (6) to the Chief considering anyan arbitration with a Justice or the person

application under sub­ sole arbitrator, if the or institution section (4) or sub­ parties fail to agree on designated by him is section (5) or sub­ the arbitrator within final. section (6), shall, thirty days from notwithstanding any receipt of a request by (8) The Chief Justice judgment, decree or or the person or one party from the order of any Court, institution designated other party to so agree confine to the by him, in appointing the appointment shall examination of the an arbitrator, shall existence of be an made on an have due regard to – arbitration agreement. application of the

(a) any qualification party in accordance required of the (6B) The designation with the provisions arbitrator by the of any person or contained in sub­ agreement of the institution by the section (4).

parties; and Supreme Court or, as (b) other the case may be, the (6) Where, under an considerations as are High Court, for the appointment likely to secure the purposes of this procedure agreed appointment of an section shall not be upon by the parties,— independent and regarded as a impartial arbitrator. delegation of judicial (a) a party fails to act power by the Supreme

(9) In the case of Court or the High as required under that

173 appointment of sole or Court. procedure; or third arbitrator in an international (7) A decision on a (b) the parties, or the commercial matter entrusted by two appointed arbitration, the Chief sub­section (4) or sub­ arbitrators, fail to Justice of India or the section (5) or sub­ reach an agreement person or institution section (6) to the expected of them designated by him Supreme Court or, as under that procedure;

may appoint an the case may be, the High Court or the or arbitrator of a person or institution nationality other than (c) a person, including designated by such the nationalities of the Court is final and no an institution, fails to parties where the appeal including perform any function parties belong to Letters Patent Appeal entrusted to him or it different nationalities. shall lie against such under that procedure, decision (10) The Chief Justice the appointment shall may make such (8) The Supreme Court be made, on an scheme as he may or, as the case may deem appropriate for application of the be, the High Court or dealing with matters party, by the arbitral the person or entrusted by sub­ institution designated institution designated section (4) or sub­ by such Court, before by the Supreme Court, section (5) or sub­ appointing an in case of international section (6) to him. arbitrator, shall seek a commercial disclosure in writing arbitration, or by the (11) Where more than from the prospective High Court, in case of one request has been arbitrator in terms of arbitrations other than made under sub­ sub­section (1) of international section (4) or sub­ section 12, and have commercial section (5) or sub­ due regard to— arbitration, as the section(6) to the Chief (a) any qualifications case may be to take Justices of different required for the the necessary High Courts or their arbitrator by the measure, unless the agreement of the designates, the Chief agreement on the parties; and Justice or his appointment (b) the contents of the

174 designate to whom the disclosure and other procedure provides request has been first considerations as are other means for made under the likely to secure the securing the relevant sub­section appointment of an appointment. shall alone be independent and competent to decide impartial arbitrator. (6B) The designation on the request. of any person or (9) In the case of institution by the (12)(a) Where the appointment of sole or third arbitrator in an Supreme Court or, as matters referred to in the case may be, the international sub­sections (4), (5), High Court, for the commercial (6), (7), (8) and (10) arbitration, the purposes of this arise in an Supreme Court or the section shall not be international person or institution regarded as a commercial designated by that delegation of judicial arbitration, the Court may appoint an power by the Supreme reference to “Chief arbitrator of a Court or the High Justice” in those sub­ nationality other than Court. sections shall be the nationalities of the construed as a parties where the reference to the “Chief (8) The arbitral parties belong to Justice of India” institution referred to different nationalities. in sub­sections (4), (5) (b) Where the matters (10) The Supreme and (6), before referred to in sub­ Court or, as the case appointing an sections (4), (5), (6), may be, the High arbitrator, shall seek a (7), (8) and (10) arise Court, may make such disclosure in writing in any other scheme as the said from the prospective arbitration, the Court may deem arbitrator in terms of reference to “ Chief appropriate for dealing sub­section (1) of Justice” in those sub with matters entrusted section 12, and have ­sections shall be by sub­section (4) or due regard to— construed as a sub­section (5) or sub­ reference to the Chief section (6), to it. (a) any qualifications Justice of the High required for the (11) Where more than Court within whose one request has been arbitrator by the

175 local limits the made under sub­ agreement of the principal Civil Court section (4) or sub­ parties; and referred to in clause section (5) or sub­

(e) of sub­section (1) of section (6) to different (b) the contents of the section 2 is situate High Courts or their disclosure and other and, where the High designates, the High considerations as are Court itself is the Court or its designate likely to secure the Court referred to in to whom the request appointment of an that clause, to the has been first made under the relevant independent and Chief Justice of that impartial arbitrator.

sub­section shall alone High Court.

be competent to decide on the request. (9) In the case of appointment of sole or (12)(a) Where the third arbitrator in an matters referred to in international sub­sections (4), (5), commercial (6), (7), (8) and sub­ arbitration, the arbitral

section (10) arise in an institution designated international by the Supreme commercial Courtmay appoint an arbitration, the arbitrator of a reference to the “Supreme Court or, as nationality other than the case may be, the the nationalities of the High Court” in those parties where the sub­sections shall be parties belong to construed as a different nationalities.

reference to the “Supreme Court”; and (11) Where more than one request has been

(b) Where the matters made under sub­ referred to in sub­ section (4) or sub­ sections (4), (5), (6), section (5) or sub­ (7), (8) and sub­section section (6) to different (10) arise in any other arbitral institutions, arbitration, the reference to “the the arbitral institution

176 Supreme Court or, as to which the request the case may be, the has been first made High Court” in those under the relevant sub­sections shall be sub­section shall be construed as a competent to appoint.

reference to the “High Court” within whose (12) Where the matter local limits the referred to in sub­ principal Civil Court

referred to in clause (e) sections (4), (5), (6) of sub­section (1) of and (8) arise in an section 2 is situate, international and where the High commercial arbitration Court itself is the or any other Court referred to in arbitration, the that clause, to that reference to the High Court. arbitral institution in those sub­sections (13) An application shall be construed as made under this a reference to the section for arbitral institution appointment of an designated under sub­ arbitrator or arbitrators shall be section (3­A).

disposed of by the Supreme Court or the (13) An application High Court or the made under this person or institution section for designated by such appointment of an Court, as the case arbitrator or maybe, as arbitrators shall be expeditiously as disposed of by the possible and an arbitral institution endeavour shall be within a period of made to dispose of the thirty days from the matter within a period date of service of of sixty days from the date of service of notice on the opposite

177 notice on the opposite party. party. (14) The arbitral (14) For the purpose of institution shall

determination of the determine the fees of fees of the arbitral the arbitral tribunal tribunal and the and the manner of its manner of its payment payment to the to the arbitral tribunal, the High Court may arbitral tribunal frame such rules as subject to the rates may be necessary, specified in the Fourth after taking into Schedule.

consideration the rates specified in the Fourth Explanation.— For the Schedule. removal of doubts, it is hereby clarified that Explanation.—For the this sub­section shall removal of doubts, it is not apply to hereby clarified that international this sub­section shall commercial arbitration not apply to and in arbitrations international commercial arbitration (other than and in arbitrations international (other than commercial international arbitration) where commercial parties have agreed arbitration) in case for determination of where parties have fees as per the rules of agreed for an arbitral institution.

determination of fees as per the rules of an arbitral institution.

178

23. Section 12 imposes, upon a person approached to be an

arbitrator, the obligation to disclose to the parties in writing

any circumstance that may give rise to justifiable doubts as

to his independence and impartiality. An arbitrator can be

challenged if there are circumstances that give rise to

justifiable doubts about his independence and impartiality

or if he does not possess the qualifications agreed to by the

parties, but such challenge can be made only for reasons

which the party challenging becomes aware of after the

appointment has been made. Section 13 speaks of the

challenge procedure. It states that the parties are free to

agree on such a procedure. Failing that, the party who

makes the challenge must within fifteen days after

becoming aware of the constitution of the Arbitral Tribunal

or of any of the circumstances mentioned in Section 12,

send a written statement of the reasons for the challenge to

the Arbitral Tribunal. Unless the challenged arbitrator

withdraws or the other party to the arbitration agrees to the

challenge, the Arbitral Tribunal shall decide upon the

challenge and if the challenge is not successful it shall

179 continue the arbitration proceedings and make an award.

That award can be sought to be set aside under Section 34.

24. Section 16 empowers the Arbitral Tribunal to rule on its

own jurisdiction. Sub­section (1) of Section 16 is relevant,

and reads thus:

“16. (1) The Arbitral Tribunal may rule on its own jurisdiction, including ruling on any objections with respect to the existence or validity of the arbitration agreement, and for that purpose,—

(a) an arbitration clause which forms part of a contract shall be treated as an agreement independent of the other terms of the contract; and

(b) a decision by the Arbitral Tribunal that the contract is null and void shall not entail ipso jure the invalidity of the arbitration clause.”

25. Section 34 of the Act is as under:

Section 34 prior Section 34 after Section 34 after to Act 3 of 2016 Act 3 of 2016 Act 33 of 2019 Application for Application for setting aside setting aside Application for setting aside arbitral award.­ arbitral award.

arbitral award.

(1) Recourse to a —(1) Recourse to a Court against an Court against an (1) Recourse to a arbitral award arbitral award Court against an

180 may be made only may be made only by an application by an application arbitral award for setting aside for setting aside may be made only such award in by an application such award in accordance with for setting aside accordance with sub­section (2) such award in sub­section (2) and accordance with and sub­section sub­section (3). sub­section (2) and (3). sub­section (3). (2) An arbitral (2) An arbitral (2) An arbitral award may be set award may be set award may be set aside by the Court only if— aside by the Court aside by the Court only if­­ only if – (a) the party (a) the party making the (a) the party making the application making the application furnishes proof application furnishes proof that— establishes on the that­ (i) a party was basis of the record (i) a party was under some under some of the arbitral incapacity, or incapacity, or tribunal that­­

(ii) the arbitration (ii) the arbitration (i) a party was agreement is not agreement is not under some valid under the valid under the incapacity, or law to which the law to which the parties have parties have (ii) the arbitration subjected it or, subjected it or, agreement is not failing any failing any valid under the indication indication thereon, law to which the thereon, under under the law for the time being in parties have the law for the subjected it or, force; or time being in failing any force; or (iii) the party indication thereon, making the under the law for

(iii) the party application was the time being in making the

181 application was force; or not given proper not given proper notice of the notice of the (iii) the party appointment of appointment of an making the an arbitrator or arbitrator or of the application was of the arbitral arbitral not given proper proceedings or proceedings or notice of the was otherwise was otherwise appointment of an unable to present unable to present arbitrator or of the his case; or his case; or arbitral

(iv) the arbitral proceedings or

(iv) the arbitral award deals with was otherwise award deals with a dispute not unable to present a dispute not contemplated by his case; or contemplated by or not falling or not falling within the terms of within the terms (iv) the arbitral the submission to of the arbitration, or it award deals with submission to contains decisions a dispute not arbitration, or it on matters beyond contemplated by contains the scope of the or not falling decisions on submission to within the terms of matters beyond arbitration: the submission to the scope of the arbitration, or it Provided that, if contains decisions submission to the decisions on arbitration: on matters beyond matters submitted Provided the scope of the to arbitration can that, if the submission to be separated from decisions on arbitration:

those not so matters submitted, only submitted to that part of the Provided that, if arbitration can arbitral award the decisions on be separated which contains matters submitted from those not decisions on to arbitration can submitted, only matters not be separated from that part of the submitted to those not so arbitration award arbitration may be 182 which contains submitted, only decisions on set aside; or that part of the matters not arbitral award (v) the composition submitted to which contains of the arbitral arbitration may decisions on tribunal or the be set aside; or matters not arbitral procedure was not in submitted to (v) the accordance with arbitration may be composition of the agreement of set aside; or the arbitral the parties, unless tribunal or the such agreement arbitral was in conflict (v) the composition procedure was with a provision of of the arbitral not in this Part from tribunal or the accordance with which the parties the agreement of arbitral procedure cannot derogate, the parties, was not in or, failing such unless such agreement, was accordance with agreement was in not in accordance the agreement of conflict with a with this Part; or the parties, unless provision of this such agreement Part from which (b) the Court finds was in conflict the parties that— with a provision of cannot derogate, this Part from (i) the subject­ or, failing such which the parties matter of the agreement, was dispute is not cannot derogate, not incapable of or, failing such accordance with settlement by agreement, was this Part; or arbitration under not in accordance the law for the with this Part; or (b) the Court finds time being in force, that­ or (b) the Court finds (i) the subject­ that­­ matter of the (ii) the arbitral dispute is not award is in (i) the subject­ capable of conflict with the matter of the settlement by public policy of

183 arbitration under dispute is not the law for the India. capable of time being in settlement by Explanation 1.— force, or arbitration under For the avoidance (ii) the arbitral the law for the of any doubt, it is award is in time being in force, clarified that an conflict with the or award is in public policy of conflict with the India. public policy of (ii) the arbitral India, only if,— award is in Explanation.­ conflict with the Without prejudice (i) the making of public policy of to the generality of the award was India. sub­clause (ii) it is induced or hereby declared, affected by fraud for the avoidance or corruption or Explanation 1: For of any doubt, that was in violation of the avoidance of an award is in section 75 or any doubt, it is conflict with the section 81; or clarified that an public policy of award is in (ii) it is in conflict with the India if the contravention with public policy of making of the the fundamental award was India, only if,­­ policy of Indian induced or law; or affected by fraud (i) the making of or corruption or (iii) it is in conflict the award was was in violation of with the most induced or section 75 or basic notions of affected by fraud

section 81. morality or justice. or corruption or was in violation of (3) An application Explanation 2.— section 75 or for setting aside For the avoidance section 81; or may not be made of doubt, the test as to whether after three months there is a (ii) it is in have elapsed from contravention with contravention with the date on which the fundamental the fundamental the party making 184 that application policy of Indian had received the policy of Indian law; or arbitral award or, law shall not if a request had entail a review on

(iii) it is in conflict been made under the merits of the with the most section 33, from dispute.

basic notions of the date on which (2A) An arbitral morality or justice.

that request had award arising out been disposed of of arbitrations Explanation 2: For by the arbitral other than the avoidance of tribunal: international doubt, the test as Provided that commercial to whether there is if the Court is arbitrations, may a contravention satisfied that the also be set aside with the applicant was by the Court, if the fundamental prevented by Court finds that policy of Indian sufficient cause the award is from making the vitiated by patent law shall not illegality entail a review on application within the said period of appearing on the the merits of the three months it face of the award: dispute. may entertain the Provided that an (2A) An arbitral application within award shall not be award arising out a further period of set aside merely of arbitrations thirty days, but on the ground of not thereafter. other than an erroneous international application of the (4) On receipt of law or by commercial an application reappreciation of arbitrations, may under sub­section evidence. also be set aside (1), the Court by the Court, if the may, where it is (3) An application Court finds that appropriate and it for setting aside the award is is so requested by may not be made vitiated by patent a party, adjourn after three months illegality the proceedings have elapsed from appearing on the the date on which

185 for a period of face of the award: time determined the party making by it in order to that application Provided that an give the arbitral had received the award shall not be tribunal an arbitral award or, set aside merely opportunity to if a request had on the ground of been made under resume the an erroneous section 33, from arbitral application of the the date on which proceedings or to law or by that request had take such other reappreciation of been disposed of action as in the by the arbitral evidence. opinion of arbitral tribunal: tribunal will (3) An application eliminate the Provided that if for setting aside grounds for the Court is may not be made setting aside the satisfied that the after three months arbitral award. applicant was prevented by have elapsed from sufficient cause the date on which from making the the party making application within that application the said period of had received the three months it arbitral award or, may entertain the if a request had application within been made under a further period of section 33, from thirty days, but the date on which not thereafter. that request had (4) On receipt of an been disposed of application under by the arbitral sub­section (1), the tribunal: Court may, where it is appropriate Provided that if and it is so the Court is requested by a satisfied that the party, adjourn the applicant was proceedings for a 186 prevented by period of time sufficient cause determined by it in from making the order to give the application within arbitral tribunal the said period of an opportunity to three months it resume the arbitral may entertain the proceedings or to application within take such other a further period of action as in the thirty days, but opinion of arbitral not thereafter. tribunal will eliminate the (4) On receipt of an grounds for setting application under aside the arbitral sub­section (1), the award. Court may, where (5) An application it is appropriate under this section and it is so shall be filed by a requested by a party only after party, adjourn the issuing a prior proceedings for a notice to the other period of time party and such determined by it in application shall order to give the be accompanied arbitral tribunal by an affidavit by an opportunity to the applicant resume the endorsing arbitral compliance with proceedings or to the said requirement. take such other action as in the (6) An application opinion of arbitral under this section tribunal will shall be disposed eliminate the of expeditiously, grounds for setting and in any event, 187 aside the arbitral within a period of award. one year from the date on which the (5) An application notice referred to under this section in sub­section (5) shall be filed by a is served upon the other party. party only after issuing a prior notice to the other party and such application shall be accompanied by an affidavit by the applicant endorsing compliance with the said requirement.

(6) An application under this section shall be disposed of expeditiously, and in any event, within a period of one year from the date on which the notice referred to in sub­section (5) is served upon the other party.

The intention of the legislators to provide for Section 34 in

its present form, is to have a limited review of the award

188 instead of a full­fledged appeal process. A party intending to

object to an award, is first required to file an application

under Section 34 (1) indicating the objections along with the

copy of an award and other necessary documents, which are

required as proof to satisfy grounds provided under Section

34(2)(a) and (b) of the Act. Such complete petition is

required to be filed within the time period prescribed under

Section 34 (3) of the Act, failing which the appeal is

rendered nugatory. The limitation prescribed under Section

34(3) is bound with the right to file objections itself. The

objections filed under Section 34 must be relatable to the

limited grounds provided under Section 34 (2) of the Act. It

is the legislative intention to provide for numerous

limitations under Section 34 of the Act, which are required

to be strictly adhered to so as to make Indian arbitration

time­bound and commercially prudent to opt for the same.

Section 37 of the Act, provides for limited appeal against the

Section 34 order, as well as against certain other specified

orders.

189

26. It is important to observe Section 45 of the Act, which

provides a judicial authority with the power to refer parties

to arbitration when Part II of the Act applies, in the following

manner:

Section 45 prior Section 45 after Section 45 after to Act 3 of 2016 Act 3 of 2016 Act 33 of 2019

Power of judicial Power of judicial Power of judicial authority to refer authority to refer authority to refer parties to parties to parties to arbitration. arbitration. arbitration.

Notwithstanding Notwithstanding Notwithstanding anything anything anything contained in Part I or in the Code of contained in Part I contained in Part I Civil Procedure, 1908 (5 of 1908), or in the Code of or in the Code of a judicial authority, when Civil Procedure, Civil Procedure, seized of an action in a matter in 1908 (5 of 1908), 1908 (5 of 1908), respect of which the parties have a judicial a judicial made an agreement authority, when authority, when referred to in section 44, shall, seized of an action seized of an action at the request of one of the parties in a matter in in a matter in or any person claiming through respect of which respect of which or under him,

refer the parties to the parties have the parties have

190 made an made an arbitration, unless it finds that the agreement agreement said agreement is null and void, referred to in referred to in inoperative or incapable of being section 44, shall, section 44, shall, performed.

at the request of at the request of

one of the parties one of the parties

or any person or any person

claiming through claiming through

or under him, or under him, refer

refer the parties to the parties to

arbitration, unless arbitration, unless

it finds that the it prima facie finds said agreement is that the said null and void, agreement is null inoperative or and void, incapable of being inoperative or performed.

incapable of being

performed.

191 27. The present structure of arbitration is such that Courts are

to assist and support arbitration and leave the substantive

part of adjudication to the arbitral tribunal. Some scholars

have suggested that the judicial mechanism that comports

with the rule of law may be fundamentally at odds with non­

judicial/arbitral mechanism which is therefore less formal.

But our understanding is that that the rule of law is less in

tension with arbitration than critics imagine, because they

both aim to serve the same goal­the pursuit of justice.

28. On a plain reading of the Act, whenever a dispute arises

between parties, they are free to approach an appropriate

judicial forum to get their dispute resolved. If the parties

have contemplated an arbitration agreement, then they can

approach a tribunal for getting the matter resolved. Once

they choose the non­judicial method, a party aggrieved by

the award, has a chance to approach judicial institutions

under Section 34 and 37 (appeal jurisdiction), if the award

is violative of the grounds provided thereunder.

29. With this understanding, we need to have regards to certain

precedents of this Court, in order to understand the

192 dispute. The case, which started the debate was the case of

Konkan Railway Corpn. Ltd. v. Mehul Construction Co.,

(2000) 7 SCC 201, wherein a Bench of three Judges of this

Court, emphasized the utility of ‘Chief Justice’ as occurring

under the earlier Section 11, to come to a conclusion that

the power of appointment of an arbitrator was an

administrative action. The proposition laid down in the

aforesaid case, was confirmed by a Constitution Bench of

this Court in Konkan Railway Corporation Ltd. v. Rani

Construction (P.) Ltd., (2002) 2 SCC 388. It may be

relevant to quote the following observation by this Court:

“21. It might also be that in a given case the Chief Justice or his designate may have nominated an arbitrator although the period of thirty days had not expired. If so, the Arbitral Tribunal would have been improperly constituted and be without jurisdiction. It would then be open to the aggrieved party to require the Arbitral Tribunal to rule on its jurisdiction. Section 16 provides for this. It states that the Arbitral Tribunal may rule on its own jurisdiction. That the Arbitral Tribunal may rule “on any objections with respect to the existence or validity of the arbitration

193 agreement” shows that the Arbitral Tribunal's authority under Section 16 is not confined to the width of its jurisdiction, as was submitted by learned counsel for the appellants, but goes to the very root of its jurisdiction. There would, therefore, be no impediment in contending before the Arbitral Tribunal that it had been wrongly constituted by reason of the fact that the Chief Justice or his designate had nominated an arbitrator although the period of thirty days had not expired and that, therefore, it had no jurisdiction.” (emphasis supplied)

30. Again, the aforesaid decision came to be referred to a seven­

Judge Bench in SBP & Co. v. Patel Engineering Ltd.,

(2005) 8 SCC 618, wherein majority was penned by Justice

P.K. Balasubramanyan and the minority dissent was by

Justice C. K. Thakker.

31. The majority opinion, concluded that the power of reference

under Section 11 is a judicial function for the following

reasons:

First, the sub­section (7) of Section 11 makes the

adjudication by the Chief Justice, final. Such final

194 determination in usual course would be a judicial

determination.

Second, the reason for delegating the power to the

highest judicial authority in the State or the Country,

is to provide credibility for the process. Third, the power of a persona designata cannot be

delegated, unless such power is judicial power. Fourth, Section 8 and 11 are complimentary and the

ambit of power is the same.

Fifth, the principle of Kompetenz­Kompetenz, as

enshrined under Section 16, will come to play only if

the parties approach the Arbitral Tribunal, without

taking recourse to Section 8 or 11.

Sixth, it is incongruous to permit the order of the Chief

Justice under Section 11(6) of the Act being subjected

to scrutiny under Article 226 of the Constitution. Seventh, the Court on earlier instances did not

concentrate on the threshold satisfaction of the Chief

Justice, before the same is referred to an arbitration. Eighth, it would be a wasteful exercise for parties to

arbitrate on the jurisdiction, only to find that tribunal

did not have sufficient jurisdiction to entertain the

arbitration.

195 32. The minority view posits that the function of the Chief

Justice was administrative rather than judicial, for the

following reasons:

First, merely because a decision adversely affects a

party, cannot be the sole reason to conclude that the

function is judicial.

Second, finality of decision taken by the Chief Justice

under Section 11(7) refers to only matters such as

qualification, independence and impartiality of the

arbitrator. The aforesaid does not necessarily make the

determination judicial or quasi­judicial. Third, Section 16 spells out a rule of chronological

priority.

Fourth, Section 16 has a negative effect, that is, it

allows the arbitrators to decide their jurisdiction prior

to the Courts stepping in post rendering of the award. Fifth, there is a duty cast upon the Chief Justice under

Section 11(6) ‘to act fairly’.

In our consideration, the aforesaid case was heavily caught

in the obfuscated concept of judicial or administrative duty,

and there is scarce observation on the appropriate

196 standards of judicial enquiry or what aspects does the Court

need to consider, while referring a matter to arbitration.

33. In Shin­Etsu Chemical Co. Ltd. v. Aksh Optifibre Ltd.,

(2005) 7 SCC 234, this Court decided the ambit of Section

45 of the Act, which relates to the provision for referring

parties to arbitration under the New York Convention. While

deciding the scope of Section 45 of the Act, Justice Y. K.

Sabharwal, as he then was, held in his opinion that a

judicial forum seized of the mater should fully rule on the

validity and existence of the agreement, before referring the

same to the arbitration. The prima facie standard, which the

Court found to be gaining popularity across the globe, could

not be applied as the statutory language of Section 45, as it

existed, did not support such a standard. It may be

necessary to observe certain passage from Justice

Sabharwal’s opinion:

“55. I may also deal with the contention urged on behalf of the appellant that only a prima facie finding is required to be given on a combined reading of Sections 45, 48 and 50 from which it can be culled out that a party who has suffered an award can always challenge the same under Section 48 on the

197 ground that the arbitration agreement is null and void. This read in conjunction with the right of appeal given under Section 50 and the power of the arbitrator to rule on his own jurisdiction clearly shows the intent of the legislature to avoid delay which would be inevitable if it has to be a final decision and it would defeat the object of soon placing all material before the Arbitral Tribunal. I am afraid that this cannot be accepted as the real purpose of Section 48 is to ensure that at some stage whether pre­award, post­award or both, a judicial authority must decide the validity, operation, capability of performance of the arbitration agreement. In various cases the parties may not resort to Section 45 in the first place, and to overcome such eventuality, the legislature has enacted Section 48(1)(a). In other words, if the court is not asked to satisfy itself as to the validity of the agreement at a pre­award stage (Section 45), then by virtue of Section 48, it is given another opportunity to do so. Apart from this, under Section 48, the court may refuse to enforce the foreign award on the ground other than the invalidity of the arbitration agreement. As far as the question of Section 50 is concerned, it is well settled in law that an appeal is a creature of statute (M. Ramnarain (P) Ltd. v. State Trading Corpn. of India Ltd. [(1983) 3 SCC 75] ) and a right to appeal inheres in no one. (Gujarat Agro Industries Co. Ltd. v. Municipal Corpn. of the City of Ahmedabad [(1999) 4 SCC 468]). The legislature under Section 50 has clearly allowed appeal only in case the judicial authority refuses to refer the parties to arbitration or refuses to enforce the foreign award. The fact that a provision is not made for an appeal in case reference is made to

198 arbitration is not a ground to say that the court should prima facie decide the validity of the agreement ignoring the express provisions of Section 45. The legislature has granted the right of appeal in the event of refusal to refer but not in the event of order being made for reference of the parties to arbitration. This provision for appeal is not determinative of the scope of Section 45 to mean that the determination thereunder has to be only prima facie.”

Justice B. N. Srikrishna, on the other hand, held that the

language of Section 8 and 45 are different, wherein the

judicial authority is empowered under Section 45 to refuse

reference to arbitration, if it finds that the agreement is ‘null

and void, inoperative or incapable of being performed’. He

further held that ex visceribus interpretation of the Section

45 clearly points to a prima facie view. Justice

Dharmadhikari, for different reasons, agreed with the

reasoning of Justice B. N. Srikrishna, in the following

manner:

“111. With utmost respect to both of them, I am inclined to agree with the view expressed by learned Brother Srikrishna, J. but only with a rider and a partly different reason which may I state below:

199 The main issue is regarding the scope of power of any judicial authority including a regular civil court under Section 45 of the Act in making or refusing a reference of dispute arising from an international arbitration agreement governed by the provisions contained in Part III Chapter I of the Act of 1996. I respectfully agree with learned Brother Srikrishna, J. only to the extent that if on a prima facie examination of the documents and material on record including the arbitration agreement on which request for reference is made by one of the parties, the judicial authority or the court decides to make a reference, it may merely mention the submissions and contentions of the parties and summarily decide the objection if any raised on the alleged nullity, voidness, inoperativeness or incapability of the arbitration agreement. In case, however, on a prima facie view of the matter, which is required to be objectively taken on the basis of material and evidence produced by the parties on the record of the case, the judicial authority including a regular civil court, is inclined to reject the request for reference on the ground that the agreement is “null and void” or “inoperative” or “incapable of being performed” within the meaning of Section 45 of the Act, the judicial authority or the court must afford full opportunities to the parties to lead whatever documentary or oral evidence they want to lead and then decide the question like trial of a preliminary issue on jurisdiction or limitation in a regular civil suit and pass an elaborate reasoned order. Where a judicial authority or the court refuses to make a reference on the grounds available under Section 45 of the Act, it is necessary for

200 the judicial authority or the court which is seized of the matter to pass a reasoned order as the same is subject to appeal to the appellate court under Section 50(1)(a) of the Act and further appeal to this Court under sub­section (2) of the said section.”

34. In Shree Ram Mills Ltd. v. Utility Premises (P) Ltd.,

(2007) 4 SCC 599, while observing the scope of the Court

under Section 11 (6), the Court held as under:

“27……..A glance on this para would suggest the scope of the order under Section 11 to be passed by the Chief Justice or his designate. Insofar as the issues regarding territorial jurisdiction and the existence of the arbitration agreement are concerned, the Chief Justice or his designate has to decide those issues because otherwise the arbitration can never proceed. Thus, the Chief Justice has to decide about the territorial jurisdiction and also whether there exists an arbitration agreement between the parties and whether such party has approached the court for appointment of the arbitrator. The Chief Justice has to examine as to whether the claim is a dead one or in the sense whether the parties have already concluded the transaction and have recorded satisfaction of their mutual rights and obligations or whether the parties concerned have recorded their satisfaction regarding the financial claims. In examining this if the parties have recorded their satisfaction regarding the financial claims, there will be no question of any issue remaining. It is in this sense that the Chief Justice has to examine as to whether there remains anything to be decided between the

201 parties in respect of the agreement and whether the parties are still at issue on any such matter. If the Chief Justice does not, in the strict sense, decide the issue, in that event it is for him to locate such issue and record his satisfaction that such issue exists between the parties. It is only in that sense that the finding on a live issue is given. Even at the cost of repetition we must state that it is only for the purpose of finding out whether the arbitral procedure has to be started that the Chief Justice has to record satisfaction that there remains a live issue in between the parties. The same thing is about the limitation which is always a mixed question of law and fact. The Chief Justice only has to record his satisfaction that prima facie the issue has not become dead by the lapse of time or that any party to the agreement has not slept over its rights beyond the time permitted by law to agitate those issues covered by the agreement. It is for this reason that it was pointed out in the above para that it would be appropriate sometimes to leave the question regarding the live claim to be decided by the Arbitral Tribunal. All that he has to do is to record his satisfaction that the parties have not closed their rights and the matter has not been barred by limitation. Thus, where the Chief Justice comes to a finding that there exists a live issue, then naturally this finding would include a finding that the respective claims of the parties have not become barred by limitation.”

35. The next jurisprudential jump was provided by National

Insurance Company Limited v. Boghara Polyfab Private

202 Limited, (2009) 1 SCC 267, wherein this Court observed as

under:

“19. In SBP & Co. v. Patel Engg. Ltd. [(2005) 8 SCC 618] , a seven­Judge Bench of this Court considered the scope of Section 11 of the Act and held that the scheme of Section 11 of the Act required the Chief Justice or his designate to decide whether there is an arbitration agreement in terms of Section 7 of the Act before exercising his power under Section 11(6) of the Act and its implications. … This Court held: (SCC pp. 660­61 & 663, paras 39 & 47)

“39.… He has to decide whether there is an arbitration agreement, as defined in the Act and whether the person who has made the request before him, is a party to such an agreement. It is necessary to indicate that he can also decide the question whether the claim was a dead one; or a long­barred claim that was sought to be resurrected and whether the parties have concluded the transaction by recording satisfaction of their mutual rights and obligations or by receiving the final payment without objection. … For the purpose of taking a decision on these aspects, the Chief Justice can either proceed on the basis of affidavits and the documents produced or take such evidence or get such evidence recorded, as may be necessary. …

(emphasis supplied)

203 …

22. Where the intervention of the court is sought for appointment of an Arbitral Tribunal under Section 11, the duty of the Chief Justice or his designate is defined in SBP & Co. [(2005) 8 SCC 618] This Court identified and segregated the preliminary issues that may arise for consideration in an application under Section 11 of the Act into three categories, that is, (i) issues which the Chief Justice or his designate is bound to decide; (ii) issues which he can also decide, that is, issues which he may choose to decide; and (iii) issues which should be left to the Arbitral Tribunal to decide.

22.1. The issues (first category) which the Chief Justice/his designate will have to decide are:

(a) Whether the party making the application has approached the appropriate High Court.

(b) Whether there is an arbitration agreement and whether the party who has applied under Section 11 of the Act, is a party to such an agreement.

22.2. The issues (second category) which the Chief Justice/his designate may choose to decide (or leave them to the decision of the Arbitral Tribunal) are:

204

(a) Whether the claim is a dead (long­barred) claim or a live claim.

(b) Whether the parties have concluded the contract/transaction by recording satisfaction of their mutual rights and obligation or by receiving the final payment without objection.

22.3. The issues (third category) which the Chief Justice/his designate should leave exclusively to the Arbitral Tribunal are:

(i) Whether a claim made falls within the arbitration clause (as for example, a matter which is reserved for final decision of a departmental authority and excepted or excluded from arbitration).

(ii) Merits or any claim involved in the arbitration.

23. It is clear from the scheme of the Act as explained by this Court in SBP & Co. [(2005) 8 SCC 618] , that in regard to issues falling under the second category, if raised in any application under Section 11 of the Act, the Chief Justice/his designate may decide them, if necessary, by taking evidence. Alternatively, he may leave those issues open with a direction to the Arbitral Tribunal to decide the same. If the Chief Justice or his designate chooses to examine the issue and decides it, the Arbitral Tribunal cannot re­examine the same issue. The Chief Justice/his designate will, in choosing whether he will

205 decide such issue or leave it to the Arbitral Tribunal, be guided by the object of the Act (that is expediting the arbitration process with minimum judicial intervention). Where allegations of forgery/fabrication are made in regard to the document recording discharge of contract by full and final settlement, it would be appropriate if the Chief Justice/his designate decides the issue.” (emphasis supplied)

36. In Chloro Controls India Private Ltd. v. Severn Trent

Water Purification Inc., (2013) 1 SCC 641, this Court had

to expound the scope of Section 45 in a multi­party

arbitration. The Court held as under:

“84. The issue of whether the courts are empowered to review the existence and validity of the arbitration agreement prior to reference is more controversial. A majority of the countries admit to the positive effect of kompetenzkompetenz principle, which requires that the Arbitral Tribunal must exercise jurisdiction over the dispute under the arbitration agreement. Thus, challenge to the existence or validity of the arbitration agreement will not prevent the Arbitral Tribunal from proceeding with hearing and ruling upon its jurisdiction. If it retains jurisdiction, making of an award on the substance of the dispute would be permissible without waiting for the outcome of any court action aimed at deciding the issue of the jurisdiction. The negative effect of the kompetenzkompetenz principle is that

206 arbitrators are entitled to be the first to determine their jurisdiction which is later reviewable by the court, when there is action to enforce or set aside the arbitral award. Where the dispute is not before an Arbitral Tribunal, the court must also decline jurisdiction unless the arbitration agreement is patently void, inoperative or incapable of being performed.” (emphasis supplied)

37. In Arasmeta Captive Power Company Private Limited v.

Lafarge India Pvt. Ltd., (2013) 15 SCC 414, this Court

had to answer the issue concerning the conflict between

Chloro Controls Case (supra) and SBP Case (supra), which

the Court formulated in the following manner:

“2. We have commenced our opinion with the aforesaid exposition of law as arguments have been canvassed by Mr Ranjit Kumar, learned Senior Counsel for the appellants, with innovative intellectual animation how a three­Judge Bench in Chloro Controls India (P) Ltd. v. Severn Trent Water Purification Inc., (2013) 1 SCC 641 has inappositely and incorrectly understood the principles stated in the major part of the decision rendered by a larger Bench in SBP & Co. v. Patel Engg.

Ltd., (2005) 8 SCC 618 and, in resistance, Mr Harish Salve and Dr A.M. Singhvi, learned Senior Counsel for the respondent, while defending the view expressed later by the three­Judge Bench, have laid immense emphasis on consistency and certainty of law that garner public confidence, especially

207 in the field of arbitration, regard being had to the globalisation of economy and stability of the jurisprudential concepts and pragmatic process of arbitration that sparkles the soul of commercial progress. We make it clear that we are not writing the grammar of arbitration but indubitably we intend, and we shall, in course of our delineation, endeavour to clear the maze, so that certainty remains “A Definite” and finality is “Final”.”

The Court answering the question, answered thus:

“40. From the aforesaid authorities it is luculent that the larger Bench in SBP [SBP & Co. v. Patel Engg. Ltd., (2005) 8 SCC 618] , after deliberating at length with regard to the role of the Chief Justice or his designate, while dealing with an application under Section 11(6) of the Act, has thought it appropriate to define what it precisely meant in para 39 of the judgment. The majority, if we allow ourselves to say so, was absolutely conscious that it required to be so stated and hence, it did so. The deliberation was required to be made as the decision in Konkan Railway Corpn.

Ltd. v. Rani Construction (P) Ltd. [(2002) 2 SCC 388] where the Constitution Bench had held that an order passed by the Chief Justice under Section 11(6) is an administrative order and not a judicial one and, in that context, the Bench in many a paragraph proceeded to state about the role of the Chief Justice or his designate. The phrases which have been emphasised by Mr Ranjit Kumar, it can be irrefragably stated, they cannot be brought to the eminence of ratio decidendi of the judgment. The stress

208 laid thereon may be innovative but when the learned Judges themselves have culled out the ratio decidendi in para 39, it is extremely difficult to state that the principle stated in SBP [SBP & Co. v. Patel Engg. Ltd., (2005) 8 SCC 618] requires the Chief Justice or his designate to decide the controversy when raised pertaining to arbitrability of the disputes. Or to express an opinion on excepted matters. Such an inference by syllogistic process is likely to usher in catastrophe in jurisprudence developed in this field. We are disposed to think so as it is not apposite to pick up a line from here and there from the judgment or to choose one observation from here or there for raising it to the status of “the ratio decidendi”. That is most likely to pave one on the path of danger and it is to be scrupulously avoided. The propositions set out in SBP [SBP & Co. v. Patel Engg. Ltd., (2005) 8 SCC 618] , in our opinion, have been correctly understood by the two­Judge Bench in Boghara Polyfab (P) Ltd. [National Insurance Co. Ltd. v. Boghara Polyfab (P) Ltd., (2009) 1 SCC 267] and the same have been appositely approved by the three­ Judge Bench in Chloro Controls India (P) Ltd. [Chloro Controls India (P) Ltd. v. Severn Trent Water Purification Inc., (2013) 1 SCC 641] and we respectfully concur with the same. We find no substance in the submission that the said decisions require reconsideration, for certain observations made in SBP [SBP & Co. v. Patel Engg. Ltd., (2005) 8 SCC 618], were not noticed. We may hasten to add that the three­Judge Bench has been satisfied that the ratio decidendi of the judgment in SBP [SBP &

209 Co. v. Patel Engg. Ltd., (2005) 8 SCC 618] is really inhered in para 39 of the judgment.”

38. This Court in Duro Felguera, S.A. v. Gangavaram Port,

(2017) 9 SCC 729, held as under:

(Justice Banumathi) “20…Since the dispute between the parties arose in 2016, the amended provision of sub­section (6­A) of Section 11 shall govern the issue, as per which the power of the Court is confined only to examine the existence of the arbitration agreement.”

(Justice Kurian Joseph) “59. The scope of the power under Section 11(6) of the 1996 Act was considerably wide in view of the decisions in SBP and Co. [SBP and Co. v. Patel Engg. Ltd., (2005) 8 SCC 618] and Boghara Polyfab [National Insurance Co. Ltd. v. Boghara Polyfab (P) Ltd., (2009) 1 SCC 267]. This position continued till the amendment brought about in 2015. After the amendment, all that the courts need to see is whether an arbitration agreement exists—nothing more, nothing less. The legislative policy and purpose is essentially to minimize the Court's intervention at the stage of appointing the arbitrator and this intention as incorporated in Section 11(6­ A) ought to be respected.” (emphasis supplied)

210

39. However, in Oriental Insurance Company Ltd. v.

Narbheram Power and Steel Private Limited, (“Oriental

Insurance”) (2018) 6 SCC 534, a three­Judge Bench of this

Court, following the decision in Vulcan Insurance v.

Maharaj Singh, (1976) 1 SCC 943, dismissed an

application under Section 11 of the Act after examining the

arbitrability of the dispute. It may be noted that the Court

did not answer the question as to the power of the Court

under Section 11 of the Act in this case.

40. Similarly, in United India Insurance Company Limited v.

Hyundai Engineering and Construction Company

Limited, (“Hyundai Engineering”) (2018) 17 SCC 607, the

Court examined the arbitrability of the dispute as well as

whether the dispute fell within the ambit of an excepted

matter by placing heavy reliance on the decision

in Oriental Insurance (supra). These two cases are, by

necessary, implication to be restricted to the facts and

circumstances of the case.

211

41. Further, in United India Insurance Company Limited v.

Antique Art Exports Private Limited (“Antique Arts”),

(2019) 5 SCC 362, this Court, in a proceeding under Section

11 of the Act, distinguished the holding in Duro

Felguera (supra) on the grounds that the same was a mere

general observation about the effect of the amended

provisions and that the said decision was distinguishable on

the facts of the case. The Court held that the power under

Section 11 with the Chief Justice/ his designates is a

judicial power and not an administrative function, therefore

leaving some degree of judicial intervention. The Court went

on to hold that when it comes to examining the prima facie

existence of an arbitration agreement, it is always necessary

to ensure that the dispute resolution process does not

become unnecessarily protracted. On this basis, the Court,

in a proceeding under Section 11 of the Act, analyzed the

effect of the execution of a discharge voucher and the

settlement of the claim by accord and satisfaction. On

finding the claim to have been settled by accord and

satisfaction, the Court held that there was no dispute under 212 the agreement to be referred to an arbitrator for

adjudication.

42. In Mayavati Trading Pvt. Ltd. v. Pradyuat Deb Burman,

(2019) 8 SCC 714, a Bench of three Judges, while overruling

the Antique Arts Case (supra), held as under:

“10. This being the position, it is clear that the law prior to the 2015 Amendment that has been laid down by this Court, which would have included going into whether accord and satisfaction has taken place, has now been legislatively overruled. This being the position, it is difficult to agree with the reasoning contained in the aforesaid judgment [United India Insurance Co. Ltd. v. Antique Art Exports (P) Ltd., (2019) 5 SCC 362] , as Section 11(6­A) is confined to the examination of the existence of an arbitration agreement and is to be understood in the narrow sense as has been laid down in the judgment in Duro Felguera, SA [Duro Felguera, SA v. Gangavaram Port Ltd., (2017) 9 SCC 729] — see paras 48 & 59 [Ed.: The said paras 48 & 59 of Duro Felguera, SA v. Gangavaram Port Ltd., (2017) 9 SCC 729, for ready reference, read as follows:“48. Section 11(6­A) added by the 2015 Amendment, reads as follows:“11. (6­ A) The Supreme Court or, as the case may be, the High Court, while considering any application under sub­section (4) or sub­ section (5) or sub­section (6), 213 shall, notwithstanding any judgment, decree or order of any court, confine to the examination of the existence of an arbitration agreement.”(emphasis supplied)From a reading of Section 11(6­A), the intention of the legislature is crystal clear i.e. the court should and need only look into one aspect— the existence of an arbitration agreement.

What are the factors for deciding as to whether there is an arbitration agreement is the next question. The resolution to that is simple—it needs to be seen if the agreement contains a clause which provides for arbitration pertaining to the disputes which have arisen between the parties to the agreement.***59. The scope of the power under Section 11(6) of the 1996 Act was considerably wide in view of the decisions in SBP & Co. v. Patel Engg. Ltd., (2005) 8 SCC 618 and National Insurance Co.

Ltd. v. Boghara Polyfab (P) Ltd., (2009) 1 SCC

267. This position continued till the amendment brought about in 2015. After the amendment, all that the courts need to see is whether an arbitration agreement exists— nothing more, nothing less. The legislative policy and purpose is essentially to minimise the Court's intervention at the stage of appointing the arbitrator and this intention as incorporated in Section 11(6­A) ought to be respected.”].

11. We, therefore, overrule the judgment in Antique Art Exports (P) Ltd. [United India Insurance Co. Ltd. v. Antique Art Exports (P) Ltd., (2019) 5 SCC 362] as not having laid

214 down the correct law but dismiss this appeal for the reason given in para 3 above.”

43. From the study of the precedents, the following

propositions, concerning Section 11 of the Act, are clear and

binding:

1. Reference power under Section 11 of the Act is

judicial and not administrative.

2. There was a wide discretion for judicial interference

at the stage of reference under Section 11 of the Act,

prior to the Arbitration Amendment Act of 2015.

3. Amendment in 2015 was brought into force to limit

the power of judicial interference under Section 11 of

the Act.

44. Having observed the precedents holding the field in respect

of Section 11, we now come to an analysis of Section 8.

Section 8 of the Act applies, when a matter is brought by

one of the parties before the Court, and the other party

brings to the notice of the Court of existence of such

arbitration agreement. Under these circumstances, the

Court is obligated to refer a matter to arbitration, on

satisfaction that a valid arbitration agreement exists

215 between the parties. The 2015 amendment clarified that the

test to be utilized by the Court is on a prima facie basis.

45. The primary reason for the same, is the negative effect of

Kompetenz Kompetenz under Section 16, which mandates

that the arbitral tribunal is required to first look into any

objections as to the jurisdiction of the tribunal itself. It is

due to the fact that parties may abuse and protract the

proceedings if there is no gatekeeping mechanism, that the

legislature has found a balance, wherein the Court is

required to examine the validity of an arbitration agreement

on a prima facie basis.

46. In this context, we need to examine the meaning of ‘validity

of arbitration agreement’ as occurring under Section 8 of the

Act. There is no doubt that ‘validity’ to be examined under

Section 8(2) of the Act, could be interpreted to mean formal

validity as expressed under Section 7 of the Act. Such an

interpretation would operate as a full application of the

negative facet of Section 16, as the jurisdiction of the Court

to step­in at the ­reference stage would be limited. However,

216 the burden of the precedents stops us from accepting such

a narrow interpretation.

47. This brings us to the issue whether the issue of

‘arbitrability’ can be analyzed by the Courts under Section 8

or 11 of the Act?

48. There is no doubt that ‘arbitrability’ has acquired various

meaning around the world. In this context, this Court is

required to first identify the various meaning for the

aforesaid term, in order to recognize its meaning in the

Indian context. Outside the United States of America, the

term “arbitrability” has a reasonably precise and limited

meaning, relating to whether specific classes of disputes are

barred from arbitration because of national legislation or

judicial authority. In the United States of America,

arbitrability also refers to the complicated balance between

courts and arbitrators regarding who should be the initial

decision­maker on issues such as the validity of the

arbitration agreement. Out of the two meanings, we

subscribe to the international flavor, which is one of the

cherished legislative intentions, i.e., to bring the arbitration

217 act in tune with the global march. Having ascertained the

meaning of arbitrability, we need to analyze whether

arbitrability could be determined by the Court at the

reference stage.

49. No doubt, arbitrability finds a close nexus with the validity

of the arbitration agreement, yet we need to observe the

unique nature of the arbitration agreement, which is a

bundle of contractual and jurisdictional elements. Even if a

Tribunal comes to an understanding that there exists a

valid arbitration agreement, still it does not mean that

certain subject matters are arbitrable per se. This

distinction is required to be kept in mind.

50. Section 34 (2)(b) provides the statutory basis for objecting

that an award which may not be capable of being settled by

arbitration, or is against the public policy of India. The

legislative intention of not arbitrating issues of public policy

are intertwined with the fact that monopolies of the State

activities should not be subject matter of a private tribunal,

as the concerns of the State cannot not be dealt effectively.

Further, an award, which has an erga omnes effect on third

218 parties, would not be in tune with the contractual nature of

arbitration, which is binding on the consenting parties

alone. However, this feature alone, does not explicitly

mandate that the tribunal cannot first adjudicate a claim

based on the public policy argument.

51. It is to be noted that whether a subject matter can or cannot

be arbitrated should necessarily be dealt on a case to case

basis, rather than a having a bold exposition that certain

subject matters are incapable of arbitration. This case is one

such example of over­broad ratio, expounded by this Court

by laying that certain subject areas cannot be arbitrated per

se. At this juncture, we may observe the case of The

London Steamship Owners’ Mutual Insurance

Association Ltd v The Kingdom of Spain and The

French State, [2015] EWCA Civ 333. The case relates to an

oil spill off the coast of Spain and France from a vessel

named ‘The Prestige’, which resulted in the Government of

Spain and France taking action against the Captain of the

ship and other officers under the Spanish Criminal Code, as

219 well as instituting a case against the Owner to pay punitive

damages under the Spanish Penal Code. It may be noted

that the claim was also brought against the insurer of the

ship for indemnity. Those claims were based both on the

insurer's obligation to indemnify the owners against their

obligations under the International Convention on Civil

Liability for Oil Pollution Damage and on its obligation to

indemnify them against their independent liability for the

tortious acts of the master, chief officer and chief engineer.

The insurers took pre­emptive action by commencing

arbitral proceedings for declaratory relief: a declaration that

France and Spain were bound by the arbitration clause

provided in the insurers’ rules and that the insurers were

not liable under the underlying contract. The relief sought

was granted in favour of the insurers in the form of arbitral

awards. The insurers attempted to enforce the arbitral

awards in England before the judgment was rendered in the

Spanish legal proceedings. France and Spain opposed this

enforcement of the arbitral awards on various grounds. One

such reason, which was raised on behalf of Spain, was that

220 the matter was incapable of being resolved by arbitration.

The Court while dismissing the aforesaid objection, held

that:

In my view this passage amounts to a finding that a conviction is not an integral element of the cause of action. The distinction is important, because even if a conviction were a pre­condition to the right to recover against the insurer, there would be no reason why an arbitrator should not determine a claim of this kind, taking into account whether the condition has or has not been satisfied. He cannot, on the other hand, formally convict any person of a criminal offence.

This Court does recognize the jurisdictional differences and

uniqueness between England and India, while placing

reliance on the same. However, the important aspect is that

the plea of public policy is required to be specifically

identified, pleaded and shown with respect to how the

award is contrary to the public policy. It may be possible

that there may be certain claims abutting a restricted

sphere, which may not be specifically hit by public policy or

have erga omnes effect. If that be so, it would be too early at

the stage of reference to determine the same as it would

221 require complete examination of the issue at hand, which is

more suited to be first dealt by the Tribunal and thereafter

be looked into at the stage of enforcement.

52. To this extent, even this Court in Avitel Post Studioz

Limited v. HSBC PI Holdings (Mauritius) Limited, Civil

Appeal No. 5145 of 2016 has held as under:

“16. In the light of the aforesaid judgments, paragraph 27(vi) of Afcons [Afcons Infrastructure Ltd. v. Cherian Varkey Construction Co. (P) Ltd., (2010) 8 SCC 24] and paragraph 36(i) of Booz Allen [Booz Allen & Hamilton Inc. v. SBI Home Finance Ltd., (2011)5 SCC 532, must now be read subject to the rider that the same set of facts may lead to civil andcriminal proceedings and if it is clear that a civil dispute involvesquestions of fraud, misrepresentation, etc. which can be the subject matter of such proceeding under section 17 of the Contract Act, and/orthe tort of deceit, the mere fact that criminal proceedings can or have been instituted in respect of the same subject matter would not lead to the conclusion that a dispute which is otherwise arbitrable, ceases to be so.”

53. It is important to note that various countries have already

allowed inter­partes arbitration with respect to in rem rights

concerning intellectual property etc., through a statutory

222 framework. It is worthwhile to study the feasibility of the

same, if we want to provide impetus to arbitration.

54. On a different note, we need to keep in mind that an

arbitration agreement would, as a necessary implication,

carry with it a presumption of a one­stop mechanism. When

parties decide to enter into an arbitration agreement, they

agree to take all their disputes before arbitration. This

presumption, is a rebuttable presumption. Therefore,

Section 8 and 11 has to be interpreted with sufficient

strictness, wherein the jurisdiction of the Court to decide

issues should be limited to those expressly provided by the

law.

55. This Court has dealt with various judgments on the issue of

arbitrability, which are required to be discussed at this

point. The first case is of Booz Allen and Hamilton Inc. v.

SBI Home Finance Ltd., (2011) 5 SCC 532, wherein a

Division Bench dealt with the ambit of Section 8 and 11

(prior to amendment), qua subject matter arbitrability. This

Court observed as under:

223

“32. The nature and scope of issues arising for consideration in an application under Section 11 of the Act for appointment of arbitrators, are far narrower than those arising in an application under Section 8 of the Act, seeking reference of the parties to a suit to arbitration. While considering an application under Section 11 of the Act, the Chief Justice or his designate would not embark upon an examination of the issue of “arbitrability” or appropriateness of adjudication by a private forum, once he finds that there was an arbitration agreement between or among the parties, and would leave the issue of arbitrability for the decision of the Arbitral Tribunal. If the arbitrator wrongly holds that the dispute is arbitrable, the aggrieved party will have to challenge the award by filing an application under Section 34 of the Act, relying upon sub­section (2)(b)(i) of that section.”

The Court was cognizant of the fact that prior to the 2015

amendment, Section 11 posits a limited jurisdiction for the

Courts to deal with, in comparison to Section 8, which occurs at

a different stage. In this context, it is relevant to quote

paragraphs 33 and 36, which reads as under:

33. But where the issue of “arbitrability” arises in the context of an application

224 under Section 8 of the Act in a pending suit, all aspects of arbitrability will have to be decided by the court seized of the suit, and cannot be left to the decision of the arbitrator. Even if there is an arbitration agreement between the parties, and even if the dispute is covered by the arbitration agreement, the court where the civil suit is pending, will refuse an application under Section 8 of the Act, to refer the parties to arbitration, if the subject­matter of the suit is capable of adjudication only by a public forum or the relief claimed can only be granted by a special court or Tribunal.

XXXXXX

36. The well­recognised examples of non­ arbitrable disputes are: (i) disputes relating to rights and liabilities which give rise to or arise out of criminal offences;

(ii) matrimonial disputes relating to divorce, judicial separation, restitution of conjugal rights, child custody; (iii) guardianship matters; (iv) insolvency and winding­up matters; (v) testamentary matters (grant of probate, letters of administration and succession certificate); and (vi) eviction or tenancy matters governed by special statutes

225 where the tenant enjoys statutory protection against eviction and only the specified courts are conferred jurisdiction to grant eviction or decide the disputes.

The Court came to the aforesaid conclusion, of ascertaining

certain subject matters as non­arbitrable, on two main

reasons, (1.) that certain matters are excluded for

examination by a private forum; (2) that in rem rights

cannot be arbitrated.

56. In A. Ayysamy v. A. Paramsivam, (2016) 10 SCC 386, this

Court had to deal with an issue concerning the arbitrability

of fraud under the Act, prior to the 2015 amendment. The

Court by two separate opinions delivered by Justice A. K.

Sikri and Dr. D. Y. Chandrachud, has recognized that the

Court at the reference stage, could classify a matter and

accordingly refer a matter to arbitration which does not

have serious allegations of fraud.

57. In Emaar MGF Land Limited v. Aftab Singh, (2019) 12

SCC 751, this Court held that Consumer Protection Act

cases are not arbitrable. On a perusal of the judgment, no

doubt reliance was placed on the Booz Allen Case (supra)

226 and there is some discussion on the scope of Section 8 of

the Arbitration Act. However, the thrust of the reasoning is

not on the question of arbitrability, rather it was on the fact

that the Consumer Protection Act, had an implied bar for

referring a matter to arbitration, being a special legislation.

The difference is subtle, yet it is required to be recognized

that the Consumer Protection Act, impliedly barred the

application of the Arbitration Act.

58. From a study of the above precedents, the following

conclusion, with respect to adjudication of subject­matter

arbitrability under Section 8 or 11 of the Act, are pertinent:

a) In line with the categories laid down by the earlier

judgment of Boghara Polyfab (supra), the Courts

were examining ‘subject­matter arbitrability’ at

the pre­arbitral stage, prior to the 2015

amendment.

b) Post the 2015 amendment, judicial interference

at the reference stage has been substantially

curtailed.

c) Although subject matter arbitrability and public

policy objections are provided separately under

227 Section 34 of the Act, the Courts herein have

understood the same to be interchangeable under

the Act. Further, subject matter arbitrability is

inter­linked with in­rem rights.

d) There are special classes of rights and privileges,

which enure to the benefit of a citizen, by virtue

of constitutional or legislative instrument, which

may affect the arbitrability of a subject matter.

59. It may be noted that the Act itself does not exclude any

category of disputes as being non­arbitrable. However, the

Courts have used the ‘public policy’ reason to restrict

arbitration with respect to certain subject matters. In line

with the aforesaid proposition, the Courts have interfered

with the subject matter arbitrability at the pre­reference

stage.

60. However, post the 2015 amendment, the structure of the

Act was changed to bring it in tune with the pro­arbitration

approach. Under the amended provision, the Court can only

give prima facie opinion on the existence of a valid

arbitration agreement. In line with the amended language

228 and the statutory scheme, the examination of the subject

matter arbitrability may not be appropriate at the stage of

reference under Section 8 of the Arbitration Act. It is more

appropriate to be taken up by the Court at the stage of

enforcement under Section 34 of the Act. Having said so, in

clear cases where the subject matter arbitrability is clearly

barred, the Court can cut the deadwood to preserve the

efficacy of the arbitral process.

61. At this stage a word of caution needs to be said for

arbitrators. They have been given jurisdiction to decide on

the subject matter arbitrability. They are required to identify

specific public policy in order to determine the subject

matter arbitrability. Merely because a matter verges on a

prohibited territory, should not by in itself stop the

arbitrator from deciding the matter. He/she should be

careful in considering the question of non­arbitrability.

62. This brings us to the question of what prima facie case

means, as is required to determine the non­existence of a

valid arbitration agreement under Section 8 of the Act. The

229 meaning and scope of ‘prima facie’ has greatly varied in

common law as well as the civil law systems. Immediately,

at least two meanings can be attributed to this term. First,

it means a party is said to have established a prima facie

case when he has satisfied his burden of producing

evidence. The second meaning postulates that a party has

established a prima facie case only when he has made such

a strong showing that he is entitled to a presumption in his

favor. Shin­Etsu Case (supra), categorically laid that prima

facie test is to be adopted under Section 45 of the Act (prior

to the 2015 amendment). The Court was of the opinion that

prima facie determination was seen as the view of Court,

which can again be gone into by the Tribunal.

63. In Antique Arts (supra) (subsequently over­ruled on a

different point), this Court while following New India

Assurance Co. Ltd. v. Genus Power Infrastructure Ltd.,

(2015) 2 SCC 424 held that that a bald plea of fraud,

coercion, duress or undue influence is not enough and the

230 party who sets up a plea, must establish the same on a

prima facie basis by placing material before the Chief

Justice/his designate. This categorically establishes that

prima facie case is relatable to establishment of initial

presumption, rather than an evidentiary standard.

64. The 246th Law Commission Report, in respect of scope and

nature of pre­arbitral judicial intervention, states as under:

“28. The Act recognizes situations where the intervention of the Court is envisaged at the pre­arbitral stage i.e. prior to the constitution of the Arbitral Tribunal, which includes Sections 8, 9, 11 in the case of Part I arbitrations and Section 45 in the case of Part II arbitrations.

Sections 8, 45 and also Section 11 relating to “reference to arbitration” and “appointment of the Tribunal”, directly affect the constitution of the Tribunal and functioning of the arbitral proceedings. Therefore, their operation has a direct and significant impact on the “conduct” of arbitrations. Section 9, being solely for the purpose of securing interim relief, although having the potential to affect the rights of parties, does not affect the “conduct” of the arbitration in the same way as these other provisions. It is in this context the Commission has examined and deliberated the working of these provisions and proposed certain amendments.

231 29. The Supreme Court has had occasion to deliberate upon the scope and nature of permissible pre­ arbitral judicial intervention, especially in the context of Section 11 of the Act.

Unfortunately, however, the question before the Supreme Court was framed in terms of whether such a power is a “judicial” or an “administrative” power — which obfuscates the real issue underlying such nomenclature/description as to— — the scope of such powers — i.e. the scope of arguments which a court (Chief Justice) will consider while deciding whether to appoint an arbitrator or not — i.e. whether the arbitration agreement exists, whether it is null and void, whether it is voidable, etc.; and which of these it should leave for decision of the Arbitral Tribunal.

— the nature of such intervention — i.e. would the court (Chief Justice) consider the issues upon a detailed trial and whether the same would be decided finally or be left for determination of the Arbitral Tribunal.

30. After a series of cases culminating in the decision in SBP & Co. v. Patel Engg.

Ltd., (2005) 8 SCC 618 , the Supreme Court held that the power to appoint an arbitrator under Section 11 is a “judicial” power. The underlying issues in this judgment, relating to the scope of intervention, were subsequently clarified by Raveendran, J. in National Insurance

232 Co. Ltd. V. Boghara Polyfab (P) Ltd., (2009) 1 SCC 267, …..

…..

32. In relation to the nature of intervention, the exposition of the law is to be found in the decision of the Supreme Court in Shin­Etsu Chemical Co.

Ltd. V. Aksh Optifibre Ltd., (2005) 7 SCC 234] , (in the context of Section 45 of the Act), where the Supreme Court has ruled in favour of looking at the issues/controversy only prima facie.

33. It is in this context, the Commission has recommended amendments to Sections 8 and 11 of the Arbitration and Conciliation Act, 1996. The scope of the judicial intervention is only restricted to situations where the court/judicial authority finds that the arbitration agreement does not exist or is null and void. Insofar as the nature of intervention is concerned, it is recommended that in the event the court/judicial authority is prima facie satisfied against the argument challenging the arbitration agreement, it shall appoint the arbitrator and/or refer the parties to arbitration, as the case may be. The amendment envisages that the judicial authority shall not refer the parties to arbitration only if it finds that there does not exist an arbitration agreement or that it is null and void. If 233 the judicial authority is of the opinion that prima facie the arbitration agreement exists, then it shall refer the dispute to arbitration, and leave the existence of the arbitration agreement to be finally determined by the Arbitral Tribunal. However, if the judicial authority concludes that the agreement does not exist, then the conclusion will be final and not prima facie. The amendment also envisages that there shall be a conclusive determination as to whether the arbitration agreement is null and void.

In the event that the judicial authority refers the dispute to arbitration and/or appoints an arbitrator, under Sections 8 and 11 respectively, such a decision will be final and non­appealable. An appeal can be maintained under Section 37 only in the event of refusal to refer parties to arbitration, or refusal to appoint an arbitrator.” (emphasis supplied)

65. The difference of statutory language provided under the

amended Section 8, which states ‘refer the parties to

arbitration unless it finds that prima facie no valid arbitration

agreement exists’ in comparison with the amended Section

11(6A), creates disparities which need to be ironed out.

While the Court in the Shin­Etsu case (supra) and the

234 Duro Felguera case (supra) recommended for finding a

valid arbitration agreement on a prima facie basis qua

Section 11, however, the negative language used under the

amended Section 8 mandates for referring a matter to

arbitration unless the Court prima facie finds that no valid

arbitration exists. It is to be noted that a finding of non­

existence of arbitration agreement is final subject to the

appeal process only, without further scope for arbitration

tribunal to decide anything as there can be no further

reference. If that be the case, then the usage of phrase

‘prima facie’ stands at odds with the established precedents

on prima facie standards. In this context, we can only stress

on the requirement of quality legislative drafting protocols to

eliminate such complications.

66. From the aforesaid discussion, we can conclude that the

respondent/defendant has to establish a prima facie case of

non­existence of valid arbitration agreement, wherein it is to

be summarily portrayed that a party is entitled to such a

finding. If a party cannot satisfy the Court of the same on

the basis of documents produced, and rather requires

235 extensive examination of oral and documentary production,

then the matter has to be necessarily referred to the

Tribunal for full trial. Such limited jurisdiction vested with

the Court, is necessary at the pre­reference stage to

appropriately balance the power of the Tribunal with

judicial interference.

67. The amendment to the aforesaid provision was meant to cut

the dead wood in extremely limited circumstances, wherein

the respondent is able to ex­facie portray non­existence of

valid arbitration agreement, on the documents and the

pleadings produced by the parties. The prima facie view,

which started its existence under Section 45 through Shin­

Etsu Case (supra), has been explicitly accommodated even

under domestic arbitration by the 2015 amendment with

appropriate modifications.

68. Before we part with this aspect, it was extensively argued

before us that the test for the Court is to see whether a

party is able to establish a ‘good arguable case’ for

establishing the existence of the arbitration agreement.

However, the statutory language under Sections 8 and 11 236 emphasizes on the threshold requirement for a party for

establishing the opposite. No doubt, the aforesaid approach

may have merits. However, if the ‘good arguable case

standard’ is integrated for a party requiring to show non­

existence, then the same would amount to judicial activism.

Such attempts to integrate alien formulations into the Act,

which has already suffered sufficient judicial subjectivism,

needs to be dissuaded.

69. Having established the threshold standard for the Court to

examine the extent of validity of the arbitration agreement,

as a starting point, it is necessary to go back to Duro

Felguera (supra), which laid down:

“48…..From a reading of Section 11(6­A), the intention of the legislature is crystal clear i.e. the court should and need only look into one aspect—the existence of an arbitration agreement. What are the factors for deciding as to whether there is an arbitration agreement is the next question. The resolution to that is simple —it needs to be seen if the agreement contains a clause which provides for arbitration pertaining to the disputes which have arisen between the parties to the agreement.”

237 At first blush, the Court seems to have read the existence of

the arbitration agreement by limiting the examination to an

examination of its factual existence. However, that is not so,

as the existence of arbitration agreement does not mean

anything unless such agreement is contractually valid. This

view is confirmed by the Duro Felguera case (supra),

wherein the reference to the contractual aspect of

arbitration agreement is ingrained under the Section 7

analysis. A mere agreement is not legally binding, unless it

satisfies the core contractual requirements, concerning

consent, consideration, legal relationship, etc. In Mayavati

Trading Case (supra) and Garware Wall Ropes Ltd. v.

Coastal Marine Construction and Engineering Ltd.,

[2019] 9 SCC 209, the aforesaid stand has been confirmed.

Therefore, the scope of the Court to examine the prima facie

validity of an arbitration agreement includes only the

determination of the following:

92. Whether the arbitration agreement was in writing? or

93. Whether the arbitration agreement was contained in exchange of letters, telecommunication, etc?

238 94. Whether the core contractual ingredients qua the arbitration agreement were fulfilled?

95. On rare occasions, whether the subject­matter of dispute is arbitrable?

At the cost of repetition, we note that Section 8 of the Act

mandates that a matter should not be referred to an

arbitration by a court of law unless it finds that prima facie

there is no valid arbitration agreement. The negative

language used in the Section is required to be taken into

consideration, while analyzing the Section. The Court

should refer a matter if the validity of the arbitration

agreement cannot be determined on a prima facie basis, as

laid down above. Therefore, the rule for the Court is ‘when

in doubt, do refer’.

70. Moreover, the amendment to Section 8 now rectifies the

short­comings pointed out in the Chloro Control Case

(supra) with respect to domestic arbitration. Jurisdictional

issues concerning whether certain parties are bound by a

particular arbitration, under group­company doctrine or

good faith, etc., in a multi­party arbitration raises

complicated factual questions, which are best left for the

239 tribunal to handle. The amendment to Section 8 on this

front also indicates the legislative intention to further

reduce the judicial interference at the stage of reference.

71. Courts, while analyzing a case under Section 8, may choose

to identify the issues which require adjudication pertaining

to the validity of the arbitration agreement. If the Court

cannot rule on the invalidity of the arbitration agreement on

a prima facie basis, then the Court should stop any further

analysis and simply refer all the issues to arbitration to be

settled.

72. Coming to the scope of judicial interference under Section

11, the 246th Law Commission Report noted that:

“31. The Commission is of the view that, in this context, the same test regarding scope and nature of judicial intervention, as applicable in the context of Section 11, should also apply to Sections 8 and 45 of the Act — since the scope and nature of judicial intervention should not change upon whether a party (intending to defeat the arbitration agreement) refuses to appoint an arbitrator in terms of the arbitration agreement, or moves a proceeding before a judicial authority in the face of such an arbitration agreement.”

240

73. We are cognizant of the fact that the statutory language of

Section 8 and 11 are different, however materially they do

not vary and both Sections provide for limited judicial

interference at reference stage, as enunciated above.

74. In line with our holding on question no. 1, generally it would

not have been appropriate for us to delve into the second

question. However, considering that a question of law has

been referred to us, we agree with the conclusions reached

by our learned brother.

75. Before we part, the conclusions reached, with respect to

question no. 1, are:

a. Sections 8 and 11 of the Act have the same ambit with

respect to judicial interference.

b. Usually, subject matter arbitrability cannot be decided at

the stage of Sections 8 or 11 of the Act, unless it’s a clear

case of deadwood.

c. The Court, under Sections 8 and 11, has to refer a matter

to arbitration or to appoint an arbitrator, as the case may

be, unless a party has established a prima facie

(summary findings) case of non­existence of valid

241 arbitration agreement, by summarily portraying a strong

case that he is entitled to such a finding.

d. The Court should refer a matter if the validity of the

arbitration agreement cannot be determined on a prima

facie basis, as laid down above, i.e., ‘when in doubt, do

refer’.

e. The scope of the Court to examine the prima facie validity

of an arbitration agreement includes only:

a. Whether the arbitration agreement was in writing? or b. Whether the arbitration agreement was contained in exchange of letters, telecommunication etc? c. Whether the core contractual ingredients qua the arbitration agreement were fulfilled? d. On rare occasions, whether the subject­matter of dispute is arbitrable?

..............................................J. (N.V. RAMANA)

NEW DELHI;

DECEMBER 14, 2020.

242 243