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Udbhav Nanda

Citation: 2019 (8) SCC 714


Ratio: The omission S. 11 (6A) of the Arbitration and Conciliation Act, 1996 (hereinafter as ‘A&C Act’) vide A&C (Amendment) Act of 2019 does not resuscitate the legal position prevailing before the introduction of S. 11 (6A) vide A&C (Amendment) Act of 2015, which stated that the Court in addition to examining the ‘existence of an arbitration agreement’ could also go into other preliminary questions such as stale claims or whether accord and satisfaction had been reached between the parties. Therefore, the judgments rendered in SBP & Co. v. Patel Engineering Ltd. and NIC Ltd. v. Boghara Polyfab (P) Ltd. stand legislatively over-ruled by the A&C (Amendment) Act, 2015 as has been held in Garware Wall Ropes Ltd. v. Coastal Marine Constructions & Engg. Ltd. Resultantly, examination of the ‘existence of an arbitration agreement’ in view of S. 11 (6A) must be interpreted in the narrow sense as has been laid down in Duro Felguera, SA v. Gangavaram Port Ltd. vide paragraphs 48 & 59 of the said judgment.

Relevant Facts:

a) An Arbitration Petition was filed by Mayavati Trading Pvt. Ltd. before the Calcutta High Court under Section 11(6) and 11(6A) of the A&C Act, 1996. The High Court held that the arbitration agreement did not survive after the declared performance of the said agreement containing the arbitration clause. Therefore, the Arbitration Petition was dismissed vide order dated 12 March 2019.

b) The High Court order was challenged before the Supreme Court. Although the 3-judge bench of the Supreme Court did not exercise its extraordinary jurisdiction to interfere with the impugned decision, it overruled the decision rendered in United India Insurance Co. Ltd. v. Antique Art Exports Pvt. Ltd[1] which was cited during the arguments.

c) In United India Insurance Co. Ltd. v. Antique Art Exports Pvt. Ltd, an application under S. 11(6) of the A&C Act, 1996 was filed before the Delhi High Court as a result of which, an arbitrator was appointed. However, the Supreme Court in appeal delved into preliminary issues such as accord and satisfaction of the agreement containing the arbitration clause, as per the law prevailing before the A&C (Amendment) Act 2015. Thereafter, the Court held that the claim was settled with due accord and satisfaction and therefore left no arbitral dispute to be examined by the Court under S. 11 of the A&C Act, 1996. Accordingly, the appeal was allowed.

Issue: In view of S. 11 (6-A) introduced vide A&C (Amendment) Act, 2015, should the Court decide on preliminary issues such as accord, satisfaction and staleness of claims as laid down in SBP & Co. v. Patel Engineering Ltd. and NIC Ltd. v. Boghara Polyfab (P) Ltd. before the said amendment or confine itself strictly to the examination of existence of an arbitration agreement? Consequently, whether the decision rendered in United India Insurance Co. Ltd. v. Antique Art Exports Pvt. Ltd. (2019) 5 SCC 362, is correct in law?

Statutory Provisions: Sections 11(4), 11(5), 11(6), 11(6-A) of the A&C Act, 1996.

Cases Relied on: Garware Wall Ropes Limited v. Coastal Marine Constructions and Engineering Ltd. (2019) 9 SCC 2019 & Duro Felguera, S.A. v. Gangavaram Port Ltd. (2017) 9 SCC 729.

Analysis: A reading of the 246th Law Commission Report, together with the Statement of Objects and Reasons appended to the Arbitration and Conciliation (Amendment) Bill, 2015, showed that the Law Commission felt that the judgments rendered in SBP v. Patel Engineering, and National Insurance Co. Ltd. v. Boghara Polyfab Pvt. Ltd., required a revisit. As a result, insofar as Section 11 is concerned, the Court, while considering any application under Section 11(4) to 11(6) must confine itself to the examination of the existence of an arbitration agreement and leave all other preliminary issues to be decided by the arbitrator. Further, the Court also clarified that the law prior to the 2015 Amendment laid down by the Court, which included, going into whether accord and satisfaction had taken place between the parties, was now legislatively overruled partially.

Interestingly, Section 11(6-A) has thenceforth been omitted by A&C (Amendment) Act, 2019, although it had not been given effect to on the date of the judgment. The omission followed the recommendation of a High-Level Committee Review regarding the institutionalization of arbitration in India. Importantly, the Court held that the omission is not so as to resuscitate the law that was prevailing prior to the amendment Act of 2015, i.e. the law laid down by SBP & Co. and Boghara Polyfab cases.

Conclusion: The Court overruled the judgment in United India Insurance Company Limited (supra) as not having laid down the correct law but dismissed the concerned appeal for lack of grounds to interfere under Article 136 of the Constitution.

Remarks: The arbitration community widely welcomes the judgment in terms of provision of a new impetus to institutionalized arbitration. Understandably, the existing practice of judicial intervention in arbitration matters should be minimized to the full extent. In view of this, the power to appoint arbitrators is now transferred to arbitral institutions pursuant to the recommendations of the High-Level Committee Review regarding institutionalization of arbitrations in India, headed by Justice B. N. Srikrishna. The Committee drew inspiration from parallel legislations in Singapore, Hong Kong and the UK in order to determine the appointment procedure. It is noteworthy that the procedure for appointment of arbitrators in other jurisdictions does not require extensive court interference like in India. It was concurred that following the appointment procedure as adopted by Singapore and Hong Kong would help avoid delays at court level and incentivize institutional arbitration. Apart from this, the Court also determined the meaning of ‘existence of arbitration agreement’ by placing reliance on the Duro Felguera case. It further clarified that the effect of omission of S. 11 (6-A) is not to resuscitate the law prevailing before the A&C (Amendment) Act, 2015 which has been partially legislatively over-ruled by this decision. In fact, the scheme of A&C (Amendment), 2019 fortifies the position that the Courts should solely delve into the existence of an arbitration agreement and all other preliminary issues must be left with the Arbitrator. However, the judgment does not give any clarity as to the extent to which the judgment overrules SPB & Co. and Boghara Polyfab cases. Therefore, an essential question remains to be answered; who will decide on the objections to the existence of arbitration agreements? Will it be the arbitral institutions? Will it be the Courts?

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