Supreme Court of India: Judicial Intervention While Deciding an Application for Appointment of Arbitrator(s) under Section 11(6A)

Supreme-Court-of-India-1_85138_730x419

In the case of Mayavti Trading Pvt. Ltd. v Pradyuat Deb Burman 2019 SCC OnLine SC 1164, the Supreme Court addressed the issue of whether the Court, while deciding an application for the appointment of arbitrator(s) under Section 11(6A) of the Arbitration & Conciliation Act, 1996(‘1996 Act’) need to confine itself to the examination of the existence of an arbitration agreement only or while doing so, the Court can also go into certain preliminary questions such as stale claims, accord and satisfaction having been reached. The Court inter alia held that while deciding an application under Section 11(6A) as inserted in 1996 Act by the Arbitration and Conciliation (Amendment) Act, 2015, all that the courts need to see is whether an arbitration agreement exists—nothing more, nothing less. Detailed case analysis given below:-

Factual Matrix

In this case, the Appellant invoked the special power of the Supreme Court under Article 136 of the Constitution of India. A Three-Judge Bench of the Supreme Court was deciding the question of law which was earlier decided by the Two-judge Bench in United India Insurance Company Limited v. Antique Art Exports Private Limited (2019) 5 SCC 362. In that case, the Two-Judge Bench of the Supreme Court inter alia held that a mere plea of fraud, coercion or undue influence in itself is not enough, and the party who alleges these circumstances is under obligation to prima facie establish the same by placing satisfactory material on record before the Chief Justice or his Designate to exercise power under Section 11(6) of the Act. In the instant case, the Three-Judge Bench of the Supreme Court was deciding the correctness of United India Insurance (Supra).

Position under the 1996 Act

In the earlier time, the Courts were of the view that while deciding an application for appointment of arbitrator(s) under Section 11(6) of the 1996 Act, the powers of the Court are administrative in nature and not judicial. [Konkan Railway Corporation Ltd. v. Mehul Construction (2000) 7 SCC 201, Konkan Railway Corporation Ltd. v. Rani Construction (P) Ltd. (2002) 2 SCC 388]

This view was later overruled by the Seven-Judge Bench of the Supreme Court in SBP & Co. v Patel Engineering Ltd. (2005) 8 SCC 618, wherein the Court inter alia held that while deciding the application for the appointment of arbitrator(s) under Section 11(6) was not required to merely confine itself to the examination of the existence of an arbitration agreement but the Court could also go into certain preliminary questions such as stale claims, accord and satisfaction having been reached etc.

The position was further clarified in National Insurance Co. Ltd. v. Boghara Polyfab Pvt. Ltd. (2009) 1 SCC 267, where the Supreme Court formulated following three categories of adjudication while deciding an application under Section 11(6) of the 1996 Act:

The issues (first category) which the Court will have to decide are:

  • Whether the party making the application has approached the appropriate Court.
  • Whether there is an arbitration agreement and whether the party who has applied under Section 11 of the 1996 Act, is a party to such an agreement.

The issues (second category) which the Court may choose to decide (or leave them to the decision of the arbitral tribunal) are:

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

The issues (third category) which the Court should leave exclusively to the arbitral tribunal are:

  • 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).
  • Merits or any claim involved in the arbitration.

246th Law Commission Report, 2014

In respect of Section 11(6) of the 1996 Act, this report inter alia stated that at the stage of a Section 11(6) application, only ‘existence’ of an arbitration agreement ought to be looked at and not other preliminary issues.

Arbitration and Conciliation (Amendment) Act, 2015

Pursuant to the Law Commission recommendations, Section 11(6A) was introduced by the Arbitration and Conciliation (Amendment) Act, 2015 which reads as under:-

“11. (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.”

Duro Felguera, S.A. Vs. Gangavaram Port Limited (2017) 9 SCC 729

The scope and extent of the power of the Court under Section 11(6) and 11(6A) has been discussed in this case upon taking into consideration the Statement of Objects and Reasons of the Amendment Bill of 2015 which inter alia stated – “Now as far as sub-section (6-A) of section 11, the power of the court has now been restricted only to see whether there exists an arbitration agreement.

Justice B.N.Srikrishna Committee Report, 2017

Nonetheless, Section 11(6A) has now been omitted by the Arbitration and Conciliation (Amendment) Act, 2019 pursuant to a report of Justice B.N.Srikrishna Committee which inter alia suggested that Section 11 as amended by Arbitration and Conciliation (Amendment) Act, 2015 requires further amendment and to ensure speedy appointment of arbitrators, Section 11 may be amended to provide that the appointment of arbitrator(s) under Section 11 shall only be done by arbitrator institutions designated by the Supreme Court (in case of international commercial arbitrations) of the High Court ( in case of all other arbitrations) for such purpose, without the Court being required to determine the existence of an arbitration agreement.

In the report, it was also opined that the examination of existence of arbitration agreement leads to delays in arbitral process as extensive arguments may be led on the same. It is pertinent to mention that albeit most of the provisions under the Arbitration and Conciliation (Amendment) Act, 2019 has been brought into force with effect from 30 August 2019, Section 3 of the said Act, which omits Section 11(6A) has not been brought into effect at the time of writing of this blog entry.

Judgement

In this case, the Three-Judge Bench considered the above-mentioned dictums & reports and overruled its earlier decision in United India Insurance (supra). Taking note of the fact that Section 11(6A) of the Act has now been omitted by the Arbitration and Conciliation (Amendment) Act, 2019, which has not yet been brought into force in respect of omission of Section 11(6A). The Court further held that the law prior to the Arbitration and Conciliation (Amendment) Act, 2015 as laid down by the Court in SBP & Co. (Supra) and Boghara Polyfab (Supra) which would have included going into whether accord and satisfaction has taken place, has now been legislatively overruled by the Arbitration and Conciliation (Amendment) Act, 2015.

Thus, the Court reagitated the law laid down in Duro Felguera (Supra) i.e. while deciding an application under Section 11(6A) the Court should and need only look into one aspect – the existence of an arbitration agreement. The scope of the power under Section 11(6) of the 1996 Act was considerably wide in view of the decisions in SBP & Co. (Supra) and Boghara Polyfab (Supra). 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 Court also observed that 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(6A) ought to be respected.

Disclaimer: The views expressed on this post are mine and do not reflect the views of the organisation(s) I am engaged with

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