Arbitral Tribunal May Impose Costs On Party Abusing Referral Court's Limited Jurisdiction To Compel Another's Participation In Arbitration : Supreme Court

The Supreme Court held that in the interest of justice, the Arbitral Tribunal may impose costs on the Party who abused the process of law constraining another party to participate in the Arbitral Proceedings by taking advantage of minimal judicial interference at the referral stage.

“In order to balance such a limited scope of judicial interference with the interests of the parties who might be constrained to participate in the arbitration proceedings, the arbitral tribunal may direct that the costs of the arbitration shall be borne by the party which the Tribunal ultimately finds to have abused the process of law and caused unnecessary harassment to the other party to the arbitration.”, the court said.

The bench led by CJI DY Chandrachud and comprising Justices JB Pardiwala and Manoj Misra recognized the concerns of the party who is constrained to participate in the arbitration proceedings due to the court's limited jurisdiction under Section 11(6-A) of the Arbitration & Conciliation Act, 1996 (“Arbitration Act”). According to the Court, “some parties might take undue advantage of such a limited scope of judicial interference of the referral courts and force other parties to the agreement into participating in a time-consuming and costly arbitration process.”

The Court stated that while courts are required to refer issues such as claims being time-barred or the inclusion of non-signatories to arbitration, the Arbitral Tribunal has the authority to impose the costs of the entire arbitration on the party who forced another party to participate by exploiting the court's limited jurisdiction to decide on such matters.

Reiterating the view taken in the cases of In Re: Interplay and SBI General Insurance v Krish Spinning, the Court said that at the referral stage, the courts should limit its inquiry on the question of whether there existed a valid arbitration agreement between the parties and whether the application for appointment of an arbitrator was filed with three years limitation period.

“Therefore, while determining the issue of limitation in the exercise of powers under Section 11(6) of the Act, 1996, the referral court must only conduct a limited enquiry for the purpose of examining whether the Section 11(6) application has been filed within the limitation period of three years or not. At this stage, it would not be proper for the referral court to indulge in an intricate evidentiary enquiry into the question of whether the claims raised by the petitioner are time barred. Such a determination must be left to the decision of the arbitrator. After all, in a scenario where the referral court is able to discern the frivolity in the litigation on the basis of bare minimum pleadings, it would be incorrect to assume or doubt that the arbitral tribunal would not be able to arrive at the same inference, especially when they are equipped with the power to undertake an extensive examination of the pleadings and evidence adduced before them.”, the judgment authored by Justice Pardiwala said.

Appearance:

For Petitioner: Mr. Kunal Cheema Adv.

For Respondent: Ms. Jasmine Damkewala Adv.

Case Title: ASLAM ISMAIL KHAN DESHMUKH VERSUS ASAP FLUIDS PVT. LTD. & ANR., ARBITRATION PETITION NO. 20 OF 2019

Citation :2024 LiveLaw (SC) 868

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