By Nihit Nagpal and Muneeb Rashid Malik
Arbitration is becoming the order of the day, with the passage of time. The disputing parties find arbitration to be fast paced and cost-effective as compared to litigation, making arbitration to be a go-to mechanism for resolving disputes, especially commercial ones.
Sometimes, the disputing parties fail to appoint an arbitrator, who needs to be appointed as per the agreement of arbitration executed between the disputing parties, for settling their disputes through the medium of arbitration. In such a scenario, Section 11 of the Arbitration and Conciliation Act,[1](hereinafter, referred to as the A&C Act) comes into the picture to give direction to the intention of the disputing parties which is mutual, to settle their disputes through arbitration, where the parties are unable reach a consensus with regard to the appointment of an arbitral tribunal.
Section 11 of the A&C Act also helps in the faster disposal of the application for appointment of arbitrator. Once an application stands filed under Section 11 of the A&C Act, it becomes difficult for an arbitration process to start until the arbitral tribunal is constituted by the referral court. There is no provision for appeal against the order pronounced under Section 11 of the A&C Act, for either appointing or refusing to appoint an arbitrator. The referral courts, hence, can put the claimant in a spot of bother, wherein it does not have any forum to approach for the adjudication of its claims, if the Section 11 application is rejected.
Now, the question is what issues as well as documents should the referral court, at the time of the appointment of an arbitrator, look at? Does the referral court need to examine the question of arbitrability of the dispute or not?
In Vidya Drolia v. Durga Trading Corporation,[2] the Supreme Court held that “in exceptional cases, where it was manifest that the claims were, on the face, time barred and deadwood, the referral court, exercising powers under Section 11 of the Arbitration and Conciliation Act, could interfere and refuse reference to arbitration.” This view of the Supreme Court was also was adopted in NTPC Ltd. v. SPML Infra Ltd.,[3] wherein it was held that “the jurisdiction of the referral court extends to removing non-arbitrable and frivolous disputes between the parties.”
However, In Re: Interplay Between Arbitration Agreements under the Arbitration and Conciliation Act 1996 And the Indian Stamp Act 1899,[4] the Supreme Court held that “the referral court at the stage of the appointment of an arbitrator shall examine the existence of a prima facie arbitration agreement and no other issues. It was held that the other issues not only pertain to the validity of the arbitration agreement, but also include any other issues which are a consequence of unnecessary judicial interference in the arbitration proceedings. The other issues also include examination and impounding of an unstamped instrument by the referral court which do not align with the stated goal of the Arbitration and Conciliation Act to ensure expeditious and time-bound appointment of arbitrators.”
The Supreme Court, disagreeing with the observations made in Vidya Drolia (supra) and NTPC v. SPML (supra), in SBI General Insurance Co. Ltd. v. Krish Spinning,[5] held that “the scope of enquiry at the stage of appointment of arbitrator is limited to the scrutiny of prima facie existence of the arbitration agreement, and nothing else. The dispute pertaining to the accord and satisfaction of claims is not one which attacks or questions the existence of the arbitration agreement in any way. The arbitration agreement, being separate and independent from the underlying substantive contract in which it is contained, continues to remain in existence even after the original contract stands discharged by accord and satisfaction.”
It was also held in Krish Spinning (supra) that “the referral court must examine that the application under Section 11(6) of the Arbitration and Conciliation Act is not barred by period of limitation as prescribed under Article 137 of the Limitation Act, 1963, i.e., 3 years, from the date when the right to apply accrues in favour of the applicant. The limitation period for filing a petition under Section 11(6) of the Arbitration and Conciliation Act can only commence once a valid notice invoking arbitration has been sent by the applicant to the other party, and there has been a failure or refusal on part of that other party in complying with the requirements mentioned in such notice.”
Recently, in Raj Kumari Taneja Vs Rajinder Kumar & Anr.,[6] the High Court of Delhi held that “the court’s role under Section 11(5) and Section 11(6) of the Arbitration and Conciliation Act is confined to ensuring the existence of an arbitration agreement between the parties and confirming that the petition was filed within three years of the service of the Section 21 notice.”
Again, in Simplex Infrastructure Limited v. Indian Oil Corporation Limited,[7] the High Court of Delhi held that “a Section 11(6) court is entitled only to examine two aspects. The first is whether there exists arbitration agreement between the parties. The second is whether the Section 11(6) petition has been filed within three years of the issuance of notice under Section 21 of the Arbitration and Conciliation Act.”
Therefore, the upshot of the above discussion is that the appointment of an arbitral tribunal by the referral court upholds the aim of the contracting parties to solve their dispute through arbitration. As soon as the arbitral tribunal is constituted, the defendant can always raise the issue regarding arbitrability of a matter before it. The referral court must only examine two things, i.e., if there exists an arbitration agreement between the disputing parties and if the petition has been filed within 3 years of the issuance of notice following the command of Section 21 of the A&C Act. The judgment in Krish Spinning (supra) has disagreed with the observations made in Vidya Drolia (supra) and NTPC v. SPML (supra) by rightly holding that the extent of enquiry at the stage of appointing the tribunal is constricted to verify the existent arbitration agreement and that the application stands filed within the limitation period. It is also important that an application for the appointment of the tribunal must be decided, as soon as possible and the parties must avoid filing voluminous pleadings in such matters. In this way, the referral courts while exercising powers under Section 11 of the A&C Act will uphold the autonomy of arbitration and support as well as strengthen the intention of the legislature of minimum judicial interference in the arbitration landscape of the country.
[1] Act No. 26 of 1996.
[2] Vidya Drolia v. Durga Trading Corporation, (2021) 2 SCC 1.
[3] NTPC Ltd. v. SPML Infra Ltd., (2023) 9 SCC 385.
[4] In Re: Interplay Between Arbitration Agreements under the Arbitration and Conciliation Act 1996 and the Indian Stamp Act 1899, (2023) 15 S.C.R. 1081.
[5] SBI General Insurance Co. Ltd. v. Krish Spinning, (2024) 7 S.C.R. 840.
[6] Raj Kumari Taneja v. Rajinder Kumar & Anr., 2024 LiveLaw (Del) 929.
[7] Simplex Infrastructure Limited v. Indian Oil Corporation Limited, 2024 LiveLaw (Del) 1003.