Questions Of Jurisdiction And Non-Arbitrability Can Be Considered By Court At Stage Of Section 11 A&C Act Application: SC
A two-judge Bench of the Supreme Court comprising of Justice M.R. Shah and Justice B.V. Nagarathna held that "though the Arbitral Tribunal may have jurisdiction and authority to decide the disputes including the question of jurisdiction and nonarbitrability, the same can also be considered by the Court at the stage of deciding Section 11 application if the facts are very clear and glaring and in view of the specific clauses in the agreement binding between the parties, whether the dispute is nonarbitrable and/or it falls within the excepted clause. Even at the stage of deciding Section 11 application, the Court may prima facie consider even the aspect with regard to 'accord and satisfaction' of the claims."
The Supreme Court was dealing with a bunch of Civil Appeals that were disposed of via a common judgement as common questions of law and facts arose in the group of appeals between the same parties.
Mr. KK Venugopal, Attorney General appeared for appellant IOCL while Mr. Ranjith Kumar, Senior Counsel appeared on behalf of respondent NCCL.
Impugned before the Supreme Court were the judgement and orders passed by the High Court of Delhi concerning Arbitration Petitions filed under Section 11(6) of the Arbitration and Conciliation Act, 1996 ["1996 Act"]. The High Court allowed the petitions and appointed an arbitrator referring the parties to the Tribunal.
The Court noted that both parties were governed by the GCC and that the parties agreed that certain specified disputes alone would be the subject matter of the arbitration.
On the issue concerning non-arbitrability of the dispute, after a detailed analysis of the authorities on the matter, especially, Vidya Drolia Case, the Court made following crucial observations:
"the question of nonarbitrability relating to the inquiry, whether the dispute was governed by the arbitration clause, can be examined by the Courts at the reference stage itself and may not be left unanswered, to be examined and decided by the Arbitral Tribunal. Thereafter, in para 153, it is observed and held that the expression, "existence of arbitration agreement" in Section 11 of the Arbitration Act, would include aspect of validity of an arbitration agreement, albeit the Court at the reference stage would apply the prima facie test. It is further observed that in cases of debatable and disputable facts and, good reasonably arguable case etc., the Court would force the parties to abide by the arbitration Agreement as the Arbitral Tribunal has the primary jurisdiction and authority to decide the disputes including the question of jurisdiction and nonarbitrability."
Then Court noted subsequent judgement in DLF Home Developers v Rajapura Homes, 2021 SCC Online SC 781 which held that to prevent wastage of public and private resources, the Court may conduct prima facie review at the stage of reference to weed out any frivolous and vexatious claims.
The Court then considered specific clauses of the GCC and noted as follows:
"Thus, on a fair reading of clause 184.108.40.206, only the dispute arising out of a NOTIFIED CLAIM of the contractor included in the FINAL BILL in accordance with the provisions of Clause 220.127.116.11 shall be referred to arbitration, that too, subject to Clause 18.104.22.168 and any dispute/ matter falling within Clause 22.214.171.124 shall have to be first decided by the General Manager, including, whether or not a Claim sought to be referred to arbitration by the contractor is a Notified Claim. Therefore, if the claim is not a Notified Claim, as per Clause 126.96.36.199 and the same is not included in the Final Bill, such a claim is outside the purview of the arbitration agreement. Whether or not a claim sought for arbitration by the contractor is a Notified Claim or any such matter / dispute is specifically excluded from the scope, purview and ambit of arbitration agreement, such matter / dispute shall have to be first decided by the General Manager prior to the arbitral proceeding with or proceeding further with the reference. Thus, unless there is a decision by the General Manager on whether or not a claim sought to be referred to arbitration by the contractor is a Notified Claim or not, the Arbitrator or Arbitral Tribunal shall have no jurisdiction to entertain such a dispute."
The Court did not agree with the conclusion of the High Court that Section 11(6-A) enquiry is confined only to ascertain whether or not a binding arbitration agreement exists between the parties.
Accordingly, the Court held that at the stage of Section 11 application, it can prima facie consider even the aspect with regard to accord and satisfaction of the claims.