Creation Of Specific Forum As Substitute For Civil Court May Not Be Enough To Accept Inference Of Implicit Non-Arbitrability: Supreme Court

The Supreme Court reiterated that creation of a specific forum as a substitute for Civil Court or specifying the Civil Court may not be enough to accept the inference of implicit non-arbitrability. 

The Court was hearing a Civil Appeal preferred against the Order of the Bombay High Court, by which the Single Judge allowed the Section 11 Application under the Arbitration and Conciliation Act, 1996 (A&C Act) and appointed an Arbitrator to adjudicate the dispute between the parties.

The two-Judge Bench of Justice J.B. Pardiwala and Justice K.V. Viswanathan observed, "What is crucial to notice is that this Court clearly emphasized that creation of a specific forum as a substitute for Civil Court or specifying the Civil Court may not be enough to accept the inference of implicit non-arbitrability. Conferment of jurisdiction on a specific court or creation of a public forum though eminently significant, may not be the decisive test to answer and decide whether arbitrability is impliedly barred."

The Bench said that its jurisdiction is only to inspect or scrutinize the dealings between the parties for determination about the existence of an Arbitration Agreement and it is not to launch a laborious or a contested inquiry.

Advocate Chirag M. Shah appeared for the Appellant, while Advocate Rishabh Shah appeared for the Respondents.

Factual Background

With regard to the premises situated at Mumbai, the Appellant company entered into a Leave and License Agreement with the Respondent. The period of the agreement was 60 months and though the Appellant terminated the same, after exchange of correspondence between the parties, the said termination was reversed and an Addendum was entered into extending the Leave and License period from 60 months to 96 months with a lock-in period of 72 months. According to the Appellant company, due to COVID-19 pandemic, they were unable to continue the arrangement and citing the force majeure clause in the agreement, they handed over the keys and vacant peaceful possession of the premises to the Respondent in 2020.

They intimated about the same to the Respondent by writing an email and also sought refund of the security deposit. In 2023, the Respondent called upon the Appellant to pay a sum of Rs. 94,40,152/- along with interest @ 24% towards the alleged arrears of license fees for the balance lock-in period and the Appellant wrote back by denying any liability and seeking refund of security deposit. Thereafter, the Appellant received a notice issued by the Respondent invoking arbitration. This was followed by an application seeking appointment of a Sole Arbitrator. The Appellant objected to the same but the High Court allowed the application and appointed the Arbitrator. This was under challenge before the Apex Court.

Reasoning

The Supreme Court in the above context of the case, noted, “There is no dispute that the Leave and License agreement of 06.10.2017, in Clause 33, contained an Arbitration clause. In a proceeding under Section 11 of the A&C Act, the Court is to confine the examination to the existence of an Arbitration Agreement. Section 11 (6-A) which was brought into force with effect from 23.10.2015, though omitted by Act 33 of 2019, the omission has not yet been notified.”

The Court added that considerable arguments were advanced both in the oral submissions and in the written note about whether the nature of the claim is in the form of debt or whether it pertains to a matter covered by the ambit of Section 41(1).

The Court said that the Arbitration clauses have their roots in Section 28 of the Contract Act, 1872 and Section 28 which speaks of agreements in restraint of legal proceeding being void, has two important exceptions. It observed that when two or more persons agree to refer a matter to arbitration, Section 28 will not render that agreement invalid.

“We have been constrained to deal with the judgement in Central Warehousing (supra) only to decipher whether on account of the said judgement, Clause 33 of the Leave and License Agreement dated 06.10.2017, in the present case, containing the arbitration clause is non-existent. We hold that it is not and that an examination under Section 11(6-A) indicates that there exists an arbitration agreement between the parties. We are conscious that an appeal is pending in this Court against the judgement in Central Warehousing (supra). That appeal may be decided on its own merits and we are not to be taken to have pronounced on the correctness of Central Warehousing (supra) one way or the other”, it remarked.

Accordingly, the Apex Court dismissed the Appeal and directed the Arbitrator to proceed with the adjudication of the disputes and conclude the proceedings within 6 months.

Cause Title- Motilal Oswal Financial Services Limited v. Santosh Cordeiro and Another (Neutral Citation: 2026 INSC 5)

Appearance:

Appellant: AOR Sanjana Saddy and Advocate Chirag M. Shah.

Respondents: Advocates Rishabh Shah, Shivani Bansal, Dhaval Mehrotra, and Aditi Desai.

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