The question of the Court’s intervention at the time of constitution of an arbitral tribunal underwent a seminal shift in India in 2016. This shift was brought about by the insertion of Section 11(6A)[i] in the Indian Arbitration and Conciliation Act, 1996 (“Act”) through the Arbitration and Conciliation (Amendment) Act, 2015, No. 3 of 2016 (“Amendment Act of 2015”). The introduction of Section 11(6A) limited the Court’s role at the juncture of appointment of arbitrators. The Courts sole task now was to determine whether an arbitration agreement ‘existed’ or not. Thus, inquiries related to ‘validity’ of an arbitration agreement were to be decided by an arbitral tribunal itself, which had the powers to rule on its own jurisdiction under Section 16 of the Act (a provision conforming to the UNCITRAL Model Law on International Commercial Arbitration, 1985).
. The complete overhaul of the arbitrator appointment process brought about by the Arbitration and Conciliation (Amendment) Act, 2019, No. 33 of 2019 (“Amendment Act of 2019”) led to the removal of Section 11(6A). Though the omission of Section 11(6A) is indeed significant, its implementation alongwith the implementation of the new appointment regime is yet to be notified.[ii] Section 11(6A) thus remains on the statute books, as of date, resulting a breeding ground of conflicting interpretations.
Prior to insertion of Section 11(6A) in the Act, the law laid down by a seven -Judge Bench of the Supreme Court of India (“Supreme Court”) in SBP & Co. v. Patel Engg. Ltd.,[iii] (“SBP”) gave judicial powers to the Courts as opposed to a mere administrative role and held that Courts could adjudicate preliminary aspects surrounding an arbitration agreement. However, Section 11(6A) diluted this position vide a clear legislative intent. What followed was a line of conflicting decisions by the Supreme Court which are discussed in this article, with the debate finally appearing to have settled by two conclusive judgments – A 2020 three-Judge Bench judgment of the Supreme Court in Vidya Drolia & Ors. v. Durga Trading Corporation[iv] (“Vidya Drolia”) and a 2023 Constitution Bench judgment of N.N. Global Mercantile Private Limited v. Indo Unique Flame Ltd. & Ors,[v] (“N.N. Global”).
The Duro Position
In 2017, in Duro Felguera, S.A. v. Gangavaram Port Limited[vi] (“Duro”), the Supreme Court conclusively held that in the wake of introduction of Section 11(6A) in the Act, the power of the court is confined only to examining the existence of an arbitration agreement. The judgment marked the commencement of varied interpretations by Courts. This has ultimately rendered Duro with selective applicability, having been distinguished, clarified, affirmed and expanded by the Courts.
The issue before the Supreme Court in Duro was whether there ought to be a composite reference/single arbitral tribunal or multiple arbitral tribunals for contracts between same or related parties. The Supreme Court concluded that there had to be separate arbitral tribunals for each contract, even though the disputes were interlinked. Considering the commonality of disputes, the Supreme Court appointed two separate Arbitral Tribunals for the ICAs with same members among them, and four separate Arbitral Tribunals for each domestic arbitration, with same members among them.
The Supreme Court undertook a detailed exercise of interpretation of erstwhile Section 11(6A) of the Act and observed that the power of the court is confined only to examining the existence of the arbitration agreement. The Supreme Court charted the shift in interpretation of this sub-section from Konkan Railway Corporation Limited and Others v. Mehul Construction Company[vii] to SBP.
However, Duro has been examined by several judgments thereafter, that took exception to the view adopted in Duro regarding Section 11(6A). The Courts were faced with a unique situation. At the stage of considering Section 11 petitions for appointment of an arbitrator, parties often raise questions of arbitrability of a dispute or validity of an arbitration agreement. To decide these questions, the Courts would naturally have to travel beyond the question of ‘existence of the arbitration clause’, to the very ‘nature of the dispute’ itself. Any inquiry by the Court into this territory would run afoul of Duro, but would it be correct to thrust parties into arbitration proceedings that could potentially be non-est in law?
Duro held to be non-binding in Hyundai Engg.
A three-Judge Bench of the Supreme Court in United India Insurance Co. Ltd. v. Hyundai Engg. & Construction Co. Ltd.[viii](“Hyundai Engg.”),held that a dispute between the parties pursuant to an insurance contract was non-arbitrable, as the insurance policy was hedged with a precondition that no dispute shall be referred to arbitration if the insurer did not accept its liability under the policy. The Supreme Court observed that in such a case, the only remedy of the insured was to file a suit. The elaborate reasoning of Section 11(6A) of the Act as expounded in Duro appeared to have been cast aside summarily by placing reliance on Oriental Insurance Co. Ltd. v. Narbheram Power and Steel (P) Ltd.[ix] and Vulcan Insurance Co. Ltd. v. Maharaj Singh[x]: The significance of Duro was downscaled by pointing out that it was decided by a two-Judge Bench and that the exposition provide in Duro was a general observation about consequences of the amended provision, rather than addressing the specific issue under consideration.
It would be interesting to note that the scope of Hyundai Engg. (as succinctly stated by the Supreme Court in its opening paragraph) is not very different from the Duro conclusion. Hyundai Engg. States:
“the limited mandate of the Court is to examine the factum of existence of an arbitration agreement. No more and no less.”
It is important to mention that the Supreme Court in Hyundai Engg. does not expressly overrule Duro, but paves way for interpretation of Section 11(6A) of the Act in what was otherwise a watertight conclusion drawn out by the Supreme Court in the Duro.
The Garware Reconciliation
Interestingly, a two-Judge Bench of the Supreme Court in Garware Wall Ropes Ltd. v. Coastal Marine Constructions & Engg. Ltd.[xi] (“Garware”), attempted to reconcile the apparent contradiction in Duro and Hyundai Engg., by confining Hyundai Engg. to the unique situation it was examining. In Garware, the Supreme Court clearly expressed that Hyundai Engg. was examining an arbitration clause that would come into effect only if an insurer admits or accepts liability. Since on facts it was found that the insurer repudiated the claim, even though an arbitration clause ‘existed’ in the policy, it was deemed non-existent in law. Garware thus attempted to settle the issue by limiting Hyndai Engg.to its factual situation. As for the merits of Garware, the judgment held that non-payment of stamp duty on the commercial contract would invalidate even the arbitration agreement, and render it non- existent in law and unenforceable – a finding that would later become the question of a separate debate before a Constitutional Benche of the Supreme Court in N.N. Global, discussed later in the article.
Duro interpreted as a general observation in Antique Exports
In United India Insurance Co. Ltd. v. Antique Art Exports (P) Ltd. [xii] (“Antique Exports”) (incidentally pronounced only a few days before Garware) a two-Judge Bench of the Supreme Court, was called upon to examine a challenge to the High Court’s decision of appointing an arbitrator under Section 11(6) of the Act. The Supreme Court ventured into the question of whether any arbitral dispute existed and ultimately concluded that the claim already stood settled between the parties, leaving no arbitral dispute to be examined by an arbitrator. Even though there was no dispute between the parties as to the existence of a valid arbitration agreement, the Supreme Court saw it fit to travel beyond the issue of existence of an arbitration agreement into the merits of the dispute. The Court built upon the reasoning of Hyundai Engg. (though not expressly citing the judgment), holding that the exposition in Duro was a general observation on Section 11(6A), which came to be examined under reference to six arbitrable agreements. Antique Exports cemented that appointment of an arbitrator is a judicial power and is not a mere administrative function leaving some degree of judicial intervention, to ensure that the dispute resolution process does not become unnecessarily protracted. Thus, Antique Exports traversed significantly beyond the reasoning of Hyundai Engg. to hold that observations in Duro on Section 11(6A) of the Act were borne out of its unique facts alone.
[To be continued in Part II]
[i] Section 11(6A) of the Act – 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.
[ii] As per Section 1(2) of the Amendment Act of 2019, different provisions of the Amendment Act of 2019 shall be notified separately as to the date when they shall come into force. No such date has yet been notified regarding Section 11 of the Act.
[iii] (2005) 8 SCC 618.
[iv] (2021) 2 SCC 1.
[v] 2023 SCC OnLine SC 495.
[vi] Duro Felguera, S.A. v. Gangavaram Port Limited (“Duro”), (2017) 9 SCC 729.
[vii] (2000) 7 SCC 201.
[viii] (2018) 17 SCC 607.
[ix] (2018) 6 SCC 534.
[x] (1976) 1 SCC 943.
[xi] (2019) 9 SCC 209.
[xii] (2019) 5 SCC 362.