There are multiple advantageous reasons behind parties preferring arbitration over litigation in India. With the passage of time, the arbitration law in India has been strengthened to promote such advantages of alternate dispute resolution mechanism. The benefits that has made arbitration one of the most popular and widely recognised mode of dispute resolution include less court intervention, greater flexibility of process and quick disposal of disputes.
The discussion in this article is limited to the scope of Section 11 of the Arbitration & Conciliation Act, 1995 and the effect of various amendments to Section 11. Section 11 of the Arbitration Act contains detailed provisions vis-à-vis appointment of arbitrator. This section has been one of the most debated subject-matters in Indian arbitration regime and has undergone certain amendments by both the 2015 and 2019 Amendment Acts.
Section 11 prior to the 2015 & 2019 Amendment:
Prior to the 2015 amendment, in the judgment titled National Insurance Co. Ltd. Vs. Boghara Polyfab[1], the Supreme Court categorised the issues into 3 categories which can or cannot be decided by the court concerned while appointing the arbitrator under Section 11, the categories were:
“22.1. The issues (first category) which 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 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:
(a) Whether a claim 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)?
(b) Merits of any claim involved in the arbitration.”
The aforesaid judgment had widened the scope of Section 11 and paved way for a greater judicial intervention and the same was not desirable as judicial intervention in arbitral matters would usurp the jurisdiction of the Arbitral tribunal and would eventually result in slower adjudication of disputes defeating the purpose and the object of the Arbitration Act.
Section 11 post 2015 Amendment:
On January 1, 2016 the Ministry of Law & Justice notified in the Gazette of India the Arbitration & Conciliation (Amendment) Act, 2015. This 2015 amendment to the Act brought significant changes to Section 11:
- The expression ‘Chief Justice of India’ and ‘Chief Justice of High Court’ used in earlier provision have been replaced with Supreme Court or as the case may be, High Court, respectively.
- A new sub-section 6A was introduced which states – “(6A) The Supreme Court or, as the case may be, the High Court, while considering any application under sub-section (4) or sub-section (5) or sub-section (6), shall, notwithstanding any judgment, decree or order of any Court, confine to the examination of the existence of an arbitration agreement.”
- A new sub-section 13 was introduced which states – “(13) An application made under this section for appointment of an arbitrator or arbitrators shall be disposed of by the Supreme Court or the High Court or the person or institution designated by such Court, as the case may be, as expeditiously as possible and an endeavour shall be made to dispose of the matter within a period of sixty days from the date of service of notice on the opposite party”
With the insertion of Section 11 (6A) by the 2015 amendment, the judicial intervention was significantly narrowed down to the examination of “existence of an arbitration agreement” only. However, Section 11 (6-A) was subsequently omitted by the Arbitration and Conciliation (Amendment) Act, 2019. This omission (yet to be notified) was introduced pursuant to the report of the High-Level Committee to review the institutionalization of arbitration mechanism in India dated July 30, 2017, which had recommended that, in order to ensure speedy appointment of arbitrators, Section 11 of the Act should be amended to provide that the appointment of arbitrators under the said provision should be done only by arbitral institutions designated by Courts without the intervention of Courts.
In Mayavati Trading Pvt. Ltd. vs. Pradyuat Deb Burman[2], while discussing the 2019 Amendment the Supreme Court observed that the 2019 Amendment has omitted Section 11(6A) 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, no longer required to determine whether an arbitration agreement exists. The Court held that the law prior to the 2015 Amendment as laid down by this Court has now been legislatively overruled and the courts have no longer to go into whether accord and satisfaction has taken place.
Interestingly, in September 2021, the Hon’ble Supreme Court delivered a judgment in the matter of DLF Home Developers Ltd. Vs. Rajapura Homes Pvt. Ltd. & Anr[3]whereinthe Hon’ble Court limited the scope of interpretation of Section 11 and held the following:
“244.5. The scope of the court to examine the prima facie validity of an arbitration agreement includes only:
244.5.1 Whether the arbitration agreement was in writing?
244.5.3 Whether the core contractual ingredients qua the arbitration agreement were fulfilled?
244.5.4 On rare occasions, whether the subject matter of dispute is arbitrable?”
By the passing of this judgment, the Supreme Court has reiterated that the courts acting under Section 11 of the Arbitration Act are not expected to act mechanically merely to deliver a dispute at the doors of an arbitrator. On the contrary, the courts are obliged to apply their mind to the core preliminary issues, albeit, within the framework of Section 11 of the Arbitration Act. Such a review, is not intended to usurp the jurisdiction of the arbitral tribunal, but is rather aimed at streamlining the process of arbitration. Resultantly, the Hon’ble Supreme Court held that even when an arbitration agreement exists, the courts can decline a prayer for reference under Section 11 if the dispute was not correlated to the arbitration agreement.
The judgment passed in DLF Home Developer Ltd. has also strengthened the law on the limited jurisdiction of the courts while referring matters to arbitration under Section 11 of the Arbitration Act. The courts can now only conduct a limited review of an application for reference to arbitration within the confines of Section 11 to streamline the arbitral process thereby upholding the very object behind enactment of the Arbitration Act.
[1] (2009) 1 SCC 267
[2] (2019) 8 SCC 714
[3] 2021 SCC OnLine SC 781