Duro revalidated in Mayavati Trading
The Supreme Court in a three-Judge Bench decision of Mayavati Trading (P) Ltd. v. Pradyuat Deb Burman[i] (“Mayavati Trading”), considered the impending omission of Section 11(6A) of the Act vide the Amendment Act of 2019. It was conclusively stated that Section 11(6A) is confined to the examination of the existence of an arbitration agreement and is to be understood in the narrow sense as has been laid down in Duro. The Supreme Court also expressly overruled Antique Exports, recognising that its reasoning relied on the pre-amended position, i.e., before Amendment Act of 2015 introduced Section 11(6A).
Mayavati Trading makes a pertinent observation – it states that Section 11(6A) has been omitted vide Amendment Act of 2019 not with the intent to reintroduce judicial intervention at the stage of appointment of arbitrators but because appointment of arbitrators is to be done by arbitral institutions as per Section 11(3A) of the Act (which was also introduced vide Amendment Act of 2019 and remains to be notified). This observation is instrumental in understanding and legitimising the legislative intent underlying the introduction and omission of Section 11(6A).
Uttarakhand Purv invokes the Kompetenz-Kompetenz Doctrine
A two-Judge Bench of the Supreme Court in Uttarakhand Purv Sainik Kalyan Nigam Ltd. v. Northern Coal Field Ltd. [ii] (“Uttarakhand Purv”), placed reliance on Duro and acknowledged the legislative policy to restrict judicial intervention through Section 11(6A). The Supreme Court held that the doctrine of “kompetenz-kompetenz” is intended to minimise judicial intervention, so that the arbitral process is not thwarted at the threshold, when a preliminary objection is raised by one of the parties. This doctrine implies that the Arbitral Tribunal is empowered and has the competence to rule on its own jurisdiction, including determining all jurisdictional issues and the existence or validity of the arbitration agreement. The Supreme Court also notes exceptions to the doctrine of kompetenz-kompetenz in cases where an arbitration agreement is procured by fraud or deception, or where the parties in the process of negotiation, may have entered into a draft agreement prior to execution of the final contract.
Cutting the deadwood through Vidya Drolia
On a reference made to a three-Judge Bench, the Supreme Court in Vidya Drolia[iii] placed the academic expositions and the precedents under the microscope to conclusively address if a dispute is arbitrable. The conclusion was reasoned and conciliatory – an absolute hands-off approach by the Courts would be counterproductive to arbitration, whereas limited, yet effective judicial intervention would be acceptable and efficacious.
Duro was holistically read and expanded upon in Vidya Drolia, however, not distinguished or overruled. The Court stated that the restrictive observation in Duro, (i.e., the court has to see whether an arbitration agreement exists — nothing more, nothing less) had to be read with other observations in Duro that allow for examining the arbitrability of disputes between parties. The Court thus made the following pertinent observations and settled the issue:
- Duro analyses the contractual aspect of arbitration agreement as per Section 7 of the Act; this entails that the existence of arbitration agreement does not mean anything unless such agreement is contractually valid;
- Exercising limited prima facie review by Courts does not in any way interfere with the principle of competence-competence;
- The prima facie review by Courts is to “cut the deadwood” and trim off the side branches in straightforward cases where the litigation must stop at the first stage, without deciding debatable questions of facts.
The Court was categoric in cautioning that if the validity of the arbitration agreement cannot be determined on a prima facie basis, the courts must refer the matter to arbitration. The rule devised in Vidya Drolia was thus – ‘when in doubt, do refer’. Vidya Drolia also expressly clarifies that Mayavati Trading has held that the Section 11(6A) of the Act would continue to apply and guide the Courts on its scope of jurisdiction at the pre-arbitration stage.
Vidya Drolia appeared to have conclusively settled the long-standing debate surrounding both the existence and validity of an arbitration clause as well as the question of arbitrability of a dispute.
N.N. Global weighs Section 11(6A) with the mandates of other statutes
In April 2023, in N.N. Global[iv], the Supreme Court finally tackled the question that had been the subject of much debate and conflicting views. The issue under scrutiny was whether an unstamped/insufficiently stamped arbitration agreement could still be considered enforceable for appointing an Arbitrator under Section 11(6) of the Act. The Court’s verdict, delivered by a 3:2 majority, conclusively resolved this issue. The interpretation of Section 11(6A) was at the core and the Court was conscious of its limitation of confining its enquiry to only existence of an arbitration agreement. Thus, another question begged to be answered first – can an arbitration clause ‘exist’ as per law which is part of an unstamped/insufficiently stamped contract? The majority view was an emphatic nay and held that such an arbitration agreement is non-existent in law.
The Court also approved the findings of Garaware and Vidya Drolia. The majority also opined that Section 11(6A) could not prevent the Courts from following the mandate of Section 33 of the Indian Stamp Act, 1899 (“Stamp Act”), which imposes a duty on the Courts to impound such an instrument. The minority treated the stamping issue as a curable defect and held that the questions of stamping are capable of being dealt with by the Arbitrator and the Court ought to confine itself to determining only the ‘existence’ of an arbitration agreement.
The judgments referred to in this article add layers to the meaning of the expression – “existence of an arbitration agreement”, with the sole intent to define the parameters of court’s intervention at the pre-arbitral stage. The Supreme Court vide its judgment in Mayavati Trading gave an emphatic nod to the reasoning in Duro, and severely limited the scope of judicial interference when parties contend the validity of an arbitration agreement. The Supreme Court in Mayavati Trading was unarguably mindful of the impending omission of Section 11(6A), waiting to usher in a new era of arbitration. Justice B.N. Srikrishna Committee, which was set up in 2017 to review the institutionalisation of arbitration in India, recommended – “to ensure speedy appointment of arbitrators, Section 11 may be amended to provide that the appointment of arbitrator(s) under the section shall only be done by arbitral institution(s)…, without the [courts] being required to determine the existence of an arbitration agreement.” This seems to have been the underlying reason for the omission of Section 11(6A) from the Act which, in effect, eliminated even the limited judicial intervention in the matter of existence of an arbitration agreement. This, undoubtedly, left only Section 16 of the Act as an available recourse to the parties to challenge jurisdiction of an arbitral tribunal.
In N.N. Global, the majority view has adopted a technical and legal approach towards interpretation of the law as it presently stands on the statute books. Both Section 11(6A) and the Stamp Act provisions were analysed and weighed together. The minority view, however, did not miss citing the contemplated change to Section 11(6A) and the role arbitration institutions will eventually play in arbitrator appointment process in India. The minority view also emphasised that the principle of Kompetenz-Kompetenz is expressly recognised by reputed arbitral institutions worldwide and the role of Courts is limited to conducting a preliminary prima facie examination to determine the existence of the arbitration agreement.
A negative consequence of the all-encompassing power of the arbitral institutions is obvious – even the limited exceptions of fraud and coercion (as carved out by Uttarakhand Purv) that permit Courts to adjudicate beyond existence of an arbitration agreement may still encroach upon the domain of an arbitral tribunal. This effectively could thrust parties into the process of arbitration, even where a dispute may be non-arbitrable or lacks the full consent of parties. Vidya Drolia addressed this valid complication arising out of the legislative pro-arbitration approach, calling it deadwood. It, therefore, directed a minimally invasive approach towards the arbitration process by prima facie identifying such deadwood.
Undoubtedly, the omission of Section 11(6A) is a step towards a pro-arbitration approach, and only a natural consequence of the overhaul and amendment of Section 11[v], granting powers to arbitral institutions to appoint arbitrators vide the same Amendment Act of 2019. Therefore, the issues of stamping along with other issues of validity of an arbitration agreement and the underlying contracts would invariably and eventually be in the domain of the arbitrator. It is, therefore, still debatable if N.N. Global has adopted a forward-looking approach or it takes a position in law that will become meaningless given the new appointment regime.
[i] (2019) 8 SCC 714.
[ii] (2020) 2 SCC 455.
[iii] Supra Note at 4.
[iv] Supra Note at 5.
[v] Remains to be notified as to its date of coming into force, as per Section 1(2) of Amendment Act of 2019.