2025 (5) TMI 1002 - SC - Indian Laws

Power of the Arbitration and Conciliation Act 1996 ( 1996 Act ) for appointment of an arbitrator - jurisdiction under Section 11 - HELD THAT - As the above decision has been rendered by a three-Judge bench of this Court after considering the seven-Judge bench decision of this Court in In Re Interplay 2023 (12) TMI 897 - SUPREME COURT (LB) we are of the view that the respondent cannot profit from certain observations made by a two-Judge bench of this Court in Emaar 2022 (10) TMI 89 - SUPREME COURT In our view therefore the High Court fell in error in bisecting the claim of the appellant into two parts one arbitrable and the other not arbitrable when it found arbitration agreement to be there for settlement of disputes between the parties. The correct course for the High Court was to leave it open to the party to raise the issue of non-arbitrability of certain claims before the arbitral tribunal which if raised could be considered and decided by it. The appeal is therefore allowed. The order of the High Court to the extent it excludes claims mentioned in para 48 (ii) (iii) and (iv) as referred to in paragraph 8 of the impugned order is set aside. The parties are however at liberty to take the plea of non-arbitrability of certain claims before the arbitral tribunal which shall decide the same without being prejudice by any observations made in the order of the High Court. There is no order as to costs.

Summary

1. ISSUES PRESENTED and CONSIDERED

The core legal questions considered by the Court are:

(a) Whether, while exercising power under Section 11 of the Arbitration and Conciliation Act, 1996 (the "1996 Act") for appointment of an arbitrator, the Court is confined solely to examining the existence of an arbitration agreement between the parties;

(b) Whether the Court, at the stage of appointing an arbitrators under Section 11, can determine the arbitrability of specific claims or exclude certain claims as non-arbitrable or excepted matters;

(c) The effect and scope of sub-section (6A) of Section 11 of the 1996 Act (inserted by Act 3 of 2016 but not yet repealed due to non-notification of the subsequent amendment Act 33 of 2019) on the jurisdiction and scope of judicial scrutiny under Section 11;

(d) The applicability and precedential value of recent Supreme Court decisions, including the seven-Judge bench ruling in In Re: Interplay Between Arbitration Agreements and the Indian Stamp Act, 1899, and the three-Judge bench decision in SBI General Insurance Co. Ltd. vs. Krish Spinning, in relation to the scope of judicial inquiry under Section 11;

(e) Whether the High Court was justified in excluding certain claims from arbitration on the ground of non-arbitrability while appointing the arbitral tribunal under Section 11.

2. ISSUE-WISE DETAILED ANALYSIS

Issue (a) and (b): Scope of judicial inquiry under Section 11 of the 1996 Act and arbitrability of claims at the appointment stage

Relevant legal framework and precedents: Section 11 of the 1996 Act governs the appointment of arbitrators. Sub-section (6A), inserted by the 2015 amendment (Act 3 of 2016), provides that the Supreme Court or High Court, while considering an application for appointment of arbitrators under sub-sections (4), (5), or (6), shall "confine to the examination of the existence of an arbitration agreement" notwithstanding any other judgment, decree, or order. The 2019 amendment (Act 33 of 2019) omitted sub-section (6A), but since it has not been notified, sub-section (6A) remains in force.

The statement of objects and reasons for the 2015 amendment clarified that the Court's role at the appointment stage is limited to examining a prima facie arbitration agreement and not other issues. This limitation was emphasized by a seven-Judge bench in the In Re: Interplay judgment, which held that the Court's scrutiny at the Section 11 stage is confined to the existence of a prima facie arbitration agreement and excludes other issues, including validity or arbitrability of claims.

Further, a three-Judge bench in SBI General Insurance Co. Ltd. vs. Krish Spinning, after considering the seven-Judge bench ruling, held that the scope of inquiry under Section 11 is limited to the prima facie existence of arbitration agreement and does not extend to deciding arbitrability or weeding out ex-facie non-arbitrable disputes at this stage. This decision expressly overruled earlier two-Judge bench observations in Vidya Drolia and NTPC, which had allowed the Court to exclude non-arbitrable or frivolous claims at the Section 11 stage.

Court's interpretation and reasoning: The Court held that the scope of judicial inquiry under Section 11 is strictly limited to the existence of an arbitration agreement. It is not the stage to determine arbitrability of individual claims or to exclude any claims from arbitration. The Court reasoned that permitting the Court to bifurcate claims into arbitrable and non-arbitrable at the appointment stage would amount to unnecessary judicial interference, contrary to the legislative intent and the object of expeditious arbitration proceedings.

Key evidence and findings: The Court examined the text of Section 11, the legislative history, and the statement of objects and reasons of the 2015 amendment. It also relied on the authoritative pronouncements of the seven-Judge bench in In Re: Interplay and the three-Judge bench in SBI General Insurance.

Application of law to facts: The High Court had excluded certain claims as non-arbitrable based on clause 50 and 50.2 of the arbitration agreement. The Court found this approach erroneous as the High Court exceeded its jurisdiction under Section 11 by delving into the arbitrability of claims rather than confining itself to the existence of the arbitration agreement. The correct approach was to appoint the arbitral tribunal and leave the question of arbitrability to be decided by the tribunal itself.

Treatment of competing arguments: The respondent relied on the High Court's power to exclude non-arbitrable claims as recognized in Emaar India Limited vs. Tarun Aggarwal Projects LLP (a two-Judge bench decision). The Court distinguished this decision in light of the subsequent authoritative rulings by larger benches (In Re: Interplay and SBI General Insurance) which clarified and limited the scope of judicial inquiry under Section 11. The Court rejected the respondent's reliance on Emaar as inconsistent with the binding precedents.

Conclusions: The Court concluded that the High Court erred in excluding certain claims as non-arbitrable at the Section 11 stage. The Court held that the High Court should have confined itself to examining the existence of the arbitration agreement and appointed the arbitral tribunal accordingly, leaving all disputes, including arbitrability, to be decided by the tribunal.

Issue (c): Effect of sub-section (6A) of Section 11 and the non-notification of its omission by the 2019 amendment

Relevant legal framework: Sub-section (6A) was inserted by the 2015 amendment to restrict the Court's inquiry at the appointment stage to the existence of the arbitration agreement. The 2019 amendment omitted this sub-section, but since the amendment has not been notified, sub-section (6A) continues to be in force.

Court's interpretation and reasoning: The Court noted that since the omission has not been notified, the provision limiting judicial inquiry remains applicable. Hence, the Court's jurisdiction under Section 11 continues to be confined to examining the existence of the arbitration agreement.

Conclusions: The Court affirmed that sub-section (6A) remains operative and restricts the Court's inquiry at the Section 11 stage.

3. SIGNIFICANT HOLDINGS

The Court held:

"Sub-section (6A) of Section 11 of the 1996 Act makes it clear that while considering an application under sub-section (4) or sub-section (5) or sub-section (6), the Supreme Court or the High Court, as the case may be, shall, notwithstanding any judgment, decree or order of any Court, confine to the examination of the existence of an arbitration agreement."

"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 High Court fell in error in bisecting the claim of the appellant into two parts, one arbitrable and the other not arbitrable, when it found arbitration agreement to be there for settlement of disputes between the parties. The correct course for the High Court was to leave it open to the party to raise the issue of non-arbitrability of certain claims before the arbitral tribunal, which, if raised, could be considered and decided by it."

"The order of the High Court to the extent it excludes claims mentioned in para 48 (ii), (iii) and (iv) is set aside. The parties are, however, at liberty to take the plea of non-arbitrability of certain claims before the arbitral tribunal, which shall decide the same without being prejudiced by any observations made in the order of the High Court."

The Court established the core principle that judicial scrutiny under Section 11 for appointment of arbitrators is confined strictly to the existence of an arbitration agreement and does not extend to deciding arbitrability or excluding claims at that stage. This approach promotes minimal judicial interference and respects the autonomy of the arbitral process.