While deciding an application seeking appointment of an arbitrator under Section 11(6A) of the Indian Arbitration and Conciliation Act, 1996 (‘Act’), the power of the court is confined only to the examination of the existence of an arbitration agreement, leaving it to the court to decide on the existence of a valid arbitration agreement, no more and no less.
In Vidya Drolia & Ors. v. Durga Trading Corporation dated 28 February 2019, Hon’ble Mr Justice R.F. Nariman, of the Supreme Court of India, referred this case to a larger Bench considering the importance of the moot question i.e. whether the word “existence” in Section 11(6A) of the Act would include weeding-out arbitration clauses in agreements which indicate that the subject-matter of the dispute is incapable of arbitration.
In this case, the arbitrability of landlord and tenant dispute arising under the Transfer of Property of Indiawas in question. The issue is not res integra in India as such disputes are held to be non-arbitrable by the Supreme Court of India in Himangni Enterprises v. Kamaljeet Singh Ahluwalia, (2017) 10 SCC 706 (‘Himangni’).
In this post, I have analysed the different views taken by various High Courts in India regarding arbitrability of landlord-tenant related disputes in light of Supreme Court verdict in Himangni. I have also dealt with the legislations of the Singapore and England & Wales which are equivalent to Section 11(6A) of the Act to highlight the differences and views taken by Singaporean and English courts in this regard.
The dispute culminated out of a tenancy agreement which contained an arbitration clause. The Landlord called upon the Tenant to deliver vacant and peaceful possession of tenanted property on the expiry of the term of tenancy agreement. As the Tenant did not vacate the premises, arbitration was invoked by the Landlord who filed an application under Section 11 of the Act before the Calcutta High Court for appointment of an arbitrator which was contested by the Tenant who argued that the subject matter of the dispute is non-arbitrable.
The High Court rejected Tenant’s contention and appointed an arbitrator. Meanwhile, however, the judgement of Himangni was passed by the Supreme Court of India in which it was held that where the Transfer of Property Act of India applied between landlord and tenant, disputes between the said parties would not be arbitrable. In view of this judgement, the Tenant filed a review petition before the High Court assailing its decision of appointment of an arbitrator earlier. This review was dismissed by the High Court aggrieved by which the Tenant knocked the doors of the Supreme Court in the present proceedings.
Clause 23 of the aforesaid tenancy agreement stated as follows:
“23. That in case of any disputes, differences and/or claims arising by and between the parties out of this agreement and/or in respect to the subject matter of this agreement, the same shall be referred to the Arbitral Tribunal consisting of three arbitrators, out of which one arbitrator shall be appointed by the party of the first part, one by the party of the other part collectively and the Presiding Arbitrator shall be appointed mutually by the two arbitrators so appointed by the parties. The decision of the Arbitral Tribunal shall be final and binding on the parties. The Arbitration proceedings shall be governed by the provisions of Arbitration & Conciliation Act, 1996 with all statutory modifications for the time being in force. The venue of arbitration shall always be within the Ordinary Original Civil Jurisdiction of the High Court at Kolkata.”
Applicable Legal Principles
Section 11(6A) under the Act
“11. Appointment of arbitrators.—
(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.”
Section 16(1) of the Act
“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.”
Section 111 of the Indian Transfer of Property Act, relating to determination of lease, reads as follows:
“111. Determination of lease.— A lease of immovable property, determines—
(a) by efflux of the time limited thereby;
(b) where such time is limited conditionally on the happening of some event—by the happening of such event;
(c) where the interest of the lessor in the property terminates on, or his power to dispose of the same extends only to, the happening of any event—by the happening of such event;
(d) in case the interests of the lessee and the lessor in the whole of the property become vested at the same time in one person in the same right;
(e) by express surrender; that is to say, in case the lessee yields up his interest under the lease to the lessor, by mutual agreement between them;
(f) by implied surrender;
(g) by forfeiture, that is to say, (1) in case the lessee breaks an express condition which provides that on breach thereof the lessor may re-enter; or (2) in case the lessee renounces his character as such by setting up a title in a third person or by claiming title in himself; or (3) the lessee is adjudicated an insolvent and the lease provides that the lessor may re-enter on the happening of such event; and in any of these cases the lessor or his transferee gives notice in writing to the lessee of his intention to determine the lease;
h) on the expiration of a notice to determine the lease, or to quit, or of intention to quit, the property leased, duly given by one party to the other.”
Section 114 of the Indian Transfer of Property Act deals with relief against forfeiture for non-payment of rent, reads as follows:-
“114. Relief against forfeiture for non-payment of rent.— Where a lease of immovable property has been determined by forfeiture for non-payment of rent, and the lessor sues to eject the lessee, if, at the hearing of the suit, the lessee pays or tenders to the lessor the rent in arrear, together with interest thereon and his full costs of the suit, or gives such security as the Court thinks sufficient for making such payment within fifteen days, the Court may, in lieu of making a decree for ejectment, pass an order relieving the lessee against the forfeiture; and thereupon the lessee shall hold the property leased as if the forfeiture had not occurred.”
Section 114A of the Indian Transfer of Property Act deals with relief against forfeiture in certain other cases reads as follows:
“114A. Relief against forfeiture in certain other cases.—Where a lease of immovable property has been determined by forfeiture for a breach of an express condition which provides that on breach thereof the lessor may re-enter, no suit for ejectment shall lie unless and until the lessor has served on the lessee a notice in writing—
(a) specifying the particular breach complained of; and
(b) if the breach is capable of remedy, requiring the lessee to remedy the breach; and the lessee fails, within a reasonable time from the date of the service of the notice, to remedy the breach, if it is capable of remedy.
Nothing in this section shall apply to an express condition against assigning, under-letting, parting with the possession, or disposing, of the property leased, or to an express condition relating to forfeiture in case of non-payment of rent.”
Supreme Court verdict in Himangni 2017
In that case, a suit was filed to seek tenant’s eviction from a shop of the owner and for recovery of unpaid arrears of rent and grant of permanent injunction. The tenant, on being served with the notice of the civil suit, filed an application under Section 8 of the Act, 1996 urging the Court to refer the parties to arbitration. The Trial Court upheld the objections of the owner and dismisse tenant’s application. The aggrieved tenant filed an appeal before the High Court. The High Court dismissed the appeal and upheld the order of the Trial Court giving rise to filing of the special leave to appeal by the tenant before Supreme Court.
The Supreme Court dismissed the appeal of the tenant and held that the Delhi Rent Act, which deals with the cases relating to rent and eviction of the premises, is a special Act. Though it contains a provision by virtue of which the provisions of the Delhi Rent Act did not apply to certain premises but that did not mean that the Arbitration Act, ipso facto, would be applicable to such premises conferring jurisdiction on the arbitrator to decide the eviction/rent disputes.
In such a situation, the rights of the parties and the demised premises would be governed by the Transfer of Property Act of India and the civil suit would be triable by the Civil Court and not by the Arbitrator.
In other words, though by virtue of Section 3 of Delhi Rent Act, its provisions were not applicable to certain premises but no sooner the exemption was withdrawn or ceased to have its application to a particular premises, the Delhi Rent Act becomes applicable to such premises. In this view of the matter, it could not be contended that the provisions of the Arbitration Act would, therefore, apply to such premises.
While rejecting the appeal, the Supreme Court also placed reliance on Natraj Studios (P) Limited v Navrang Studios 1981(1) SCC 523 and Booz Allen & Hamilton Inc v SBI Home Finance Limited (2011) 5 SCC 532. In both the cases, the Supreme Court has held eviction and tenancy matters are 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.
Vide these cases, the Supreme court has held that the well-recognised examples of non-arbitrable disputes are:
- disputes relating to rights and liabilities which give rise to or arise out of criminal offenses;
- matrimonial disputes relating to divorce, judicial separation, restitution of conjugal rights, child custody;
- guardianship matters;
- insolvency and winding-up matters;
- testamentary matters (grant of probate, letters of administration and succession certificate); and
- 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.
The Tenant contended as follows:-
- that the Indian Transfer of Property Act is an Act which created rights in rem insofar as the landlord and tenant are concerned;
- that the public policy contained in the statute in Sections 111(g), 114, and 114A of the Indian Transfer of Property Act, in particular, make it clear that by necessary implication the Arbitration & Conciliation Act, 1996 stands excluded. For this purpose, he also relied upon Section 2(3) of the Arbitration & Conciliation Act read with Section 5 thereof;
- that certain sub-clauses of Section 111 would be arbitrable, yet it being clear that so far as at least arrears of rent and forfeiture are concerned, such disputes being non-arbitrable, it would be difficult to bifurcate the aforesaid grounds as often, one petition for eviction may contain several grounds, some of which are relatable to arrears of rent and forfeiture and some of which may relate to other grounds. Therefore, the entirety of the subject-matter of landlord and tenant disputes arising under the Transfer of Property Act of India is excluded by necessary implication.
- that the judgment in Himangni would apply on all fours in the facts of his case and would therefore, govern this case, which would necessarily lead to an arbitrator in the present proceedings having no jurisdiction to decide disputes between landlord and tenant;
- that Section 11(6A) of the Act should be read in a purposive manner, and that “existence” of an arbitration agreement that is spoken of would also refer to disputes which are non-arbitrable as such.
The Landlord contended as under:
- that on facts, Himangni was wholly distinguishable as it did not apply to a situation of a lease expiring by efflux of time;
- that certain High Court judgments had, after Himangni, distinguished the said judgment on this and other grounds;
- that, in any case, Himangni would require reconsideration as it did not state the law correctly
Interpretation of Himangni by Various High Courts in India
In Efcalon Tie-Up Private Ltd. vs. Startrack Agency Pvt. Ltd. MANU/WB/0365/2019, the High Court of Calcutta distinguished the Supreme Court dictum of Himangni and held that it does not see Himangni as having declared eviction claims under the Transfer of Property Act of Indian which Act does not provide for specified Courts or forums to try such claims, as outside the scope of application of the Act. Similar view was taken by the same court in Pran Krishna Das vs. Kamala Rani Debnath MANU/WB/0271/2019.
In Renuka P. Gandhi vs. Oriental Gems Pvt. Ltd. MANU/WB/0060/2018 the Calcutta High Court interpreted Himangni and observed that as per the Himangni, if a dispute is in personam then the arbitrator has the jurisdiction to determine it because it only binds the parties, but if the award is likely to affect third parties or would be in nature of a judgment in rem as in matrimonial cases, insolvency matters, testamentary matters, tenancy governed by the Rent Act etc. then the award of the arbitrator would not be binding on the third parties. Therefore, the claimant has a remedy only before the Civil Court. But the High Court took the view that it does appear from this decision that whether the disputes are strictly in personam or not is a question of fact which has to be investigated by the learned Arbitrator before he assumes complete jurisdiction over the matter.
In Rani Suri vs. Swarantech Information Systems Pvt. Ltd. MANU/DE/3514/2018, the Delhi High Court interpreted and distinguished Himangni. The Delhi High Court while rejecting the contention that the disputes with respect to tenanted premises are not arbitrable in nature observed that in Himangni, the Supreme Court was dealing with the case where the lease deed containing the Arbitration Agreement executed between the parties had expired by the efflux of time and it was an admitted case of the parties that thereafter, no fresh Lease Deed was executed for extension of the time period. The tenant was therefore, occupying the property on a month to month basis without any written documents containing Arbitration Agreement. It was in those facts that the High Court had held that there was no Arbitration Agreement in existence between the parties therein and later the said finding was affirmed by the Supreme Court.
As per High Court, the Supreme Court (in para 26) stated that only because the Delhi Rent Control Act is not applicable, it would not ipso facto mean that there is an Arbitration Agreement in existence or that the disputes have to be necessarily referred to arbitration. In the absence of an Arbitration Agreement, the parties cannot be referred to arbitration, this is all that the Supreme Court has held in the above judgment.
In Coaster Shoe Company Pvt. Ltd. vs. Harpreet Kaur, MANU/DE/4719/2018, the Delhi High Court distinguished Himangni Enterprises vs. Kamaljeet Singh Ahluwalia MANU/DE/3468/2016, (which was later affirmed in appeal by the Supreme Court in Himangni) and refuted to accept the contention that when the tenant is holding over after the expiry of the Lease Deed, disputes relating to such period cannot be referred to arbitration.
The Delhi High Court in Himangni Enterprises vs. Kamaljeet Singh Ahluwalia MANU/DE/3468/2016, dealt with the situation where the Arbitration Agreement sought to be relied upon by the parties was contained in a Lease Deed which had long back expired by efflux of time or determined by notice. The tenant was occupying the tenanted premises in capacity of the tenant holding that under Section 116 of the Transfer of Property Act or in terms of new oral lease. In that situation, the Court has held that the Arbitration Agreement which was contained in the original Lease Deed can be applied only for the disputes that are related to that Lease Deed and not for the disputes that arose in the new capacity of the tenant holding over the property or under oral lease.
In Sudha S. Raju vs. IFFCO Tokio General Insurance Company Limited MANU/KA/3583/2018, the Karnataka High Court considered and distinguished Himangni. While doing so, the Karnataka High Court observed that the legal position as set out by Himangni does not cover the ordinary civil dispute between the lessor and the lessee which relates with the refund of Security Deposit made under the Lease Agreement which has refused to be refunded by the lessor or the land lady for some reasons. The Court further observed that since that issue is not within the exclusive domain and jurisdiction of the Special Court or the Tribunal created under the provisions of the Karnataka Rent Act, 1999, therefore, the dictum of the Supreme Court in Himangni and other similar cases would not debar the reference to the Arbitrator under Section 8 of the Act of the dispute in that case which was held as arbitrable dispute.
In Swatantra Properties (P) Ltd. vs. Airplaza Retail Holdings Pvt. Ltd., MANU/UP/2155/2018, the Allahabad High Court observed that 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.
But the question that I ask myself is – why should the Court appoint an arbitrator in a non-arbitrable dispute when it is crystal clear that certain disputes are non-arbitrable from their very nature and are regarded as non-arbitrable worldwide? Will it not be against the ethos of the amended Arbitration Act of 2015 which enshrines the principles of speedy justice and minimum judicial intervention?
In this case, the Allahabad High Court also observed that from a reading of Section 11(6-A) of the Act, the intention of the legislature is crystal clear i.e. the court should and need only look into one aspect i.e. 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.
In Krishna Prasad A.R. vs. Shankari Rangarajan MANU/KA/3873/2018, the Karnataka High Court relied on Himangni to conclude that the eviction suit is not an arbitral dispute covered by the provisions of the Act.
Position in England and Wales
Under the English Arbitration Act, if there is a failure of the procedure to appoint an arbitrator then section 18(1) provides that “the parties are free to agree what is to happen in the event of a failure of the procedure for the appointment of the arbitral tribunal.” Section 18(2) then states that:
“If or to the extent that there is no such agreement any party to the arbitration agreement may (upon notice to the other parties) apply to the court to exercise its powers under this section.”
Those powers are set out in section 18(3) and include “to give directions as to the making of any necessary appointments” and “to make any necessary appointments itself.”
Relevant standard of proof
The approach of English courts on an application for appointment of an arbitrator was dealt with in particular by Burton J in the decision in Noble Denton Middle East v Noble Denton International Limited  1 Lloyd’s Rep 387. In that case the defendant claimed that the relevant contractual relations relating to work done in Dubai was based upon an agreement between different parties which they said were binding as to the relevant transactions. There was therefore an issue relating to the existence of the arbitration agreement. After referring to both Mustill and Boyd on Commercial Arbitration (2nd Edition), Merkin on Arbitration Law and the Departmental Advisory Committee on Arbitration Law Report, together with the decision of Thomas J (as he then was) in Vale Do Rio v Shanghai Bao Steel  2 Lloyd’s Rep 1 and the decision of Moore-Bick J (as he then was) in The Lapad  2 Lloyd’s Rep 109, Burton J came to this conclusion, at paragraph 10, that the test on an application under section 18 is only one of whether there is an arguable case that there is a valid arbitration agreement.
Recently, in Silver Dry Bulk Company Ltd v Homer Hulbert Maritime Company Ltd  EWHC 44 (Comm), this standard of proof is expanded to “good arguable case.” The Court described the test of a “good arguable case” as one that is “somewhat more than merely arguable but need not be one which appears more likely than not to succeed.”
Arbitrability of Landlord-Tenant Disputes in England and Wales
The Arbitration Act includes no express provisions on what disputes are incapable of being referred to arbitration. However, Section 81(1)(a) of the English Arbitration Act preserves the English common law position that a limited range of disputes are incapable of resolution by arbitration. Under common law there are certain disputes which cannot be arbitrated, including:
- disputes under illegal contracts;
- matters involving criminality; and
- claims under the Employment Rights Act 1996 (which renders void any agreement that would prevent an employee from having its case heard before an employment tribunal).
Further, in Second Edition of Mustill & Boyd on Commercial Arbitration the author deals with arbitrability of disputes under English Law as under:
“English law has never arrived at a general theory for distinguishing those disputes which may be settled by arbitration from those which may not. The general principle is, we submit, that any dispute or claim concerning legal rights which can be the subject of an enforceable award, is capable of being settled by arbitration. This principle must be understood, however, subject to certain reservations.
First, certain types of dispute are resolved by methods which are not properly called arbitration. These are discussed in Chapter 2, ante.
Second, the types of remedies which the arbitrator can award are limited by considerations of public policy and by the fact that he is appointed by the parties and not by the state. For example, he cannot impose a fine or a term of imprisonment, commit a person for contempt or issue a writ of subpoena; nor can he make an award which is binding on third parties or affects the public at large, such as a judgment in rem against a ship, an assessment of the rateable value of land, a divorce decree, a winding-up order or a decision that an agreement is exempt from the competition rules of the EEC under Article 85(3) of the Treaty of Rome. It would be wrong, however, to draw from this any general rule that criminal, admiralty, family or company matters cannot be referred to arbitration; indeed, examples of each of these types of dispute being referred to arbitration are to be found in the reported cases.”
A similar statement of principle can be found in Born on International Commercial Arbitration (2009) (at p. 768) where the author says that:
“Although the better view is that the Convention imposes limits on Contracting States’ applications of the non-arbitrability doctrine, the types of claims that are non-arbitrable differ from nation to nation. Among other things, classic examples of non-arbitrable subjects include certain disputes concerning consumer claims; criminal offenses; labor or employment grievances; intellectual property; and domestic relations.
The types of disputes which are non-arbitrable nonetheless almost always arise from a common set of considerations. The non-arbitrability doctrine rests on the notion that some matters so pervasively involve public rights, or interests of third parties, which are the subjects of uniquely governmental authority, that agreements to resolve such disputes by “private” arbitration should not be given effect”
Further, a bare reading of few English judgements on this issue suggests that the landlord tenant disputes are arbitrable in England and Wales. To buttress this view, I would cite the case of Pittalis v Sherefettin  QB 868. The case involved a rent-review clause within a lease that provided that the rent payable was to be a sum notified by the landlord, subject to the right of the tenant to have that sum reviewed and determined by arbitration before an independent surveyor.
After the landlord notified the tenant of the intended rent, the tenant failed to give notice within time, as required under the rent-review clause, to challenge the rent and have it determined by arbitration. The landlord sued for possession. The tenant then applied for an extension of time to refer the matter to arbitration. A preliminary objection was raised as to whether the rent-review clause was an arbitration clause at all, given that the clause contemplated that only one but not both parties could refer the matter to arbitration. In that context, Fox LJ held (at p 875E–G):
“… I can see no reason why, if an agreement between two persons confers on one of them alone the right to refer the matter to arbitration, the reference should not constitute an arbitration. There is a fully bilateral agreement which constitutes a contract to refer. The fact that the option is exerciseable by one of the parties only seems to me to be irrelevant. The arrangement suits both parties. The reason why that is so in cases such as the present and in the Tote Bookmakers case  Ch. 261 is because the landlord is protected, if there is no arbitration, by his own assessment of the rent as stated in his notice; and the tenant is protected, if he is dissatisfied with the landlord’s assessment of the rent, by his right to refer the matter to arbitration. Both sides, therefore, have accepted the arrangement and there is no question of any lack of mutuality. [emphasis added]”
Position in Singapore
Although the Model Law has been reproduced as a schedule in the International Arbitration Act (‘IAA’), modifications have nevertheless been made in the procedure to appoint the arbitrators enshrined in the Model Law. The modifications in this regard are encapsulated below:-
|Model Law||Amendments made in the IAA|
|Article 11 . Appointment of arbitrators
(3) Failing such agreement,
(a) in an arbitration with three arbitrators, each party shall appoint one arbitrator, and the two arbitrators thus appointed shall appoint the third arbitrator; if a party fails to appoint the arbitrator within thirty days of receipt of a request to do so from the other party, or if the two arbitrators fail to agree on the third arbitrator within thirty days of their appointment, the appointment shall be made, upon request of a party, by the court or other authority specified in Article 6; …
|Section 9A. (1) Notwithstanding Article 11(3) of the Model Law, in an arbitration with 3 arbitrators, each party shall appoint one arbitrator, and the parties shall by agreement appoint the third arbitrator.
(2) Where the parties fail to agree on the appointment of the third arbitrator within 30 days of the receipt of the first request by either party to do so, the appointment shall be made, upon the request of a party, by the appointing authority.
Further, as per Section 8(2) of IAA, the Chairman of the Singapore International Arbitration Centre (SIAC) has been declared to be the designated authority competent to perform the functions under in respect of Article 11(3) and (4) of the Model Law. Therefore, there is no intervention of courts in the appointment of arbitrator procedure if the procedure agreed by the parties does not materialise. On the contrary in such cases the appointment of arbitrator is left in the domain of SIAC.
Arbitrability of Landlord-Tenant Disputes in Singapore
It appears that Landlord Tenant Disputes are arbitrable in Singapore as well. I would like to cite the Court of Appeal dictum of Batshita International (Pte) Ltd v Lim Eng Hock Peter  3 SLR(R) 563 to substantiate my view.
In this case, the tenant applied to the High Court of Singapore to stay a Subordinate Court action begun by the landlord for arrears of rent and stamp duties payable by the tenant, and to refer the dispute to arbitration pursuant to the arbitration clause contained in the tenancy agreement. The tenant alleged that the landlord had orally promised to rectify certain defects in the flat as a precondition to the tenancy agreement. The landlord had failed to perform that precondition and when it showed no signs of sending workmen to do the work, the tenant stopped paying the rent.
The landlord argued that there was no dispute between the parties in connection with the tenancy agreement. It submitted that the covenants in a tenancy agreement were independent of each other and even if there had been a breach of one of the landlord’s covenants (which there was not) it would not prevent it from claiming for the arrears of rent which were payable clear of all deductions. The landlord also contended that evidence of any oral agreement was inadmissible under Section 94 of the Evidence Act (Cap 97, 1990 Rev Ed) of Singapore.
The judicial commissioner allowed the tenant’s application. He held that there was an implied obligation in the tenancy agreement on the landlord to repair for reasons of “business efficacy” and thus there was a dispute or difference that existed between the parties. The landlord appealed.
In appeal, the Singapore Court of Appeal inter alia held that there was a dispute as to whether there was such a separate oral agreement and such dispute was connected with the tenancy agreement within the terms of the arbitration clause in the tenancy agreement and accordingly was referrable to arbitration.
The filter of standard of proof to substantiate the application for appointment of an arbitrator as adopted by the English Courts is absent under Indian Arbitration regime. Therefore, the mechanical approach of just looking into the existence of an arbitration agreement while considering an application for appointment of an arbitrator by Court needs a further addition of a standard of proof, like ‘good arguable case’, to make sure that the parties are not driven in to prolong arbitration proceedings and end up wasting time on a non-arbitrable disputes.
In this regard, the Report of the High Level Committee to Review the Institutionalisation of Arbitration Mechanism in India published in 2017 has recommended the adoption of the practice followed in Singapore and Hong Kong in the Indian scenario — apart from avoiding delays at court level, it may also give impetus to institutional arbitration. However, devoid of any corresponding legal arrangements to cater such mechanism, it would be best to adopt the English approach to deal with this issue.
Further, in my view, the question of arbitrability in respect of Section 8 of the Act (which is also pre-conditioned upon checking the “existence” of a valid arbitration agreement to refer the parties for arbitration by Court) was very aptly answered by the High Court in U.P. Industrial Co-operative Association Ltd. vs. Rajendra Kumar Dhingra, MANU/UP/0564/2019. In that case, the Allahabad High Court relied on Himangni and rejected the contention of the Revisionist in that case who urged that the issue relating to arbitrability of the dispute should have been referred for decision by the Arbitrator under Section 16 of the Act.
The Court inter alia held that though under Section 8, the Court is only expected to check the existence of an arbitration agreement to refer the parties to arbitration, this cannot mean that the Court will mechanically refer even the non-arbitrable matters for arbitration just because there exists an arbitration agreement. Since the Court will not refer a non-arbitrable dispute to arbitration, therefore as a natural corollary, it will not be required by the Arbitral Tribunal to decide the arbitrability of the dispute even though it is empowered to do so under Section 16 of the Act. The observations of the Court are reproduced below:-
“Section 16 of the Act confers power to the arbitral tribunal to rule on its own jurisdiction. Undoubtedly, in exercise of the said power, it can also decide the issue of arbitrability of the dispute. Now, under Section 8, a dispute could be referred to arbitrator only if the action brought before the court is subject to an arbitration agreement. It shall refuse to refer the dispute to arbitration if it finds that prima facie no valid arbitration agreement exists. Thus, the court, under Section 8, before referring the dispute is enjoined with the duty to find out if there exists a valid arbitration agreement in respect of the dispute which is subject matter of the suit. It cannot mechanically refer the dispute to the arbitral tribunal merely because the arbitration agreement provides for the dispute being referred to the arbitral tribunal even if the provision therefor is not valid as the dispute itself is such that it is not arbitrable. Thus, the other limb of the argument of learned counsel for the revisionists has also no force and is accordingly rejected.”
In my view, a similar explanation would be applicable for Section 11 of the Act as well, where although the Court is obliged to take a prima facie view regarding the existence of an arbitration agreement, yet it is implicit that such view should be taken while taking into account the arbitrability of a dispute. For appointing an arbitrator for a non-arbitrable dispute would be a toothless task. The above view is further fortified by the 246 Indian Law Commission Report which led to the enactment of Section 11(6A), and states as under:-
“Section 11(6A) of the amendment contemplates a two-step process to be adopted by a judicial authority when considering an application seeking the reference of a pending action to arbitration. 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.”
Although the above Report recommended both conditions (i.e. existence of arbitration agreement and same should not be null and void), the expression “null and void” was absent in the enacted version of Section 11(6A) of the Act (as also noted by Hon’ble Mr Justice Nariman in the present case) which would have otherwise choked the non-arbitrable disputes from being proceeded with being null and void.