Arbitration | Courts At Referral Stage Must Not Enter Into Contested Questions Involving Complex Facts : Supreme Court

The Supreme Court on Monday (Sep.9) reiterated that once there exists a valid arbitration agreement, than it would not be justifiable for the referral courts at the referral stage to venture into contested questions involving complex facts.

Emphasizing upon the doctrine of competence-competence enshrined under Section 16 of the Arbitration & Conciliation Act, 1996 (Act), the Court said that the referral courts while deciding the petition for an appointment of an arbitrator under Section 11(6) of the Act shall restrict its inquiry on whether there exists a valid arbitration agreement or not, and it would be impermissible for the referral courts to led the detailed inquiry into contested questions involving complex facts.

It was a case where the dispute pertained to the impleadment/non-impleadment of the party in the arbitration proceedings, Respondent No. 2 was impleaded by the Petitioner along with Respondent No.1 in the capacity of being a parent company of the Respondent No.1. It was contended by the Respondents that since Respondent No.2 was non-signatory to the main agreement entered between the Petitioner and Respondent No.1, therefore, Respondent No.2 could not be made party to the proceedings.

Rejecting the said contention, the bench comprising CJI DY Chandrachud and Justices JB Pardiwala and Manoj Misra observed as follows:

“In view of the complexity involved in the determination of the question as to whether the respondent no. 2 is a party to the arbitration agreement or not, we are of the view that it would be appropriate for the arbitral tribunal to take a call on the question after taking into consideration the evidence adduced before it by the parties and the application of the legal doctrine as elaborated in the decision in Cox and Kings (supra).”

As per the Constitution Bench decision in Cox and Kings v. SAP India Pvt Ltd 2023 LiveLaw (SC) 1042, the court, at the referral stage, is not bound to go into the merits of the case to decide if the non-signatory is bound by the arbitration agreement. On the contrary, the referral court should leave it to the arbitral tribunal to decide such an issue.

Reference was made to the decisions in Lombardi Engineering Ltd v. State of Uttarakhand 2023 LiveLaw (SC) 958 and In Re Interplay Between Arbitration Agreements Under The Arbitration And Conciliation Act 1996 And The Indian Stamp Act 1899 2023 LiveLaw (SC) 1049 on the limited scope for judicial interference at the referral stage.

 In SBI General Insurance Co. Ltd. v. Krish Spinning 2024 LiveLaw (SC) 489, it was held that the arbitral tribunal is the preferred first authority to look into the questions of arbitrability and jurisdiction, and the courts at the referral stage should not venture into contested questions involving complex facts.

The Court noted that since there exists a valid arbitration agreement as also no objection was raised by the Respondents over the existence of the arbitration agreement, therefore the question over the impleadment of the party to a dispute i.e., whether respondent no. 2 is a party to the arbitration agreement or not is a complex question that need to be decided in the arbitration proceedings.

“As discussed above, the respondents have raised a number of objections against the present petition, however, none of the objections raised question or deny the existence of the arbitration agreement under which the arbitration has been invoked by the petitioner in the present case. Thus, the requirement of prima facie existence of an arbitration agreement, as stipulated under Section 11 of the Act, 1996, is satisfied.”, the judgment authored by Justice Pardiwala said.

“Once the arbitral tribunal is constituted, it shall be open for the respondents to raise all the available objections in law, and it is only after (and if) the preliminary objections are considered and rejected by the tribunal that it shall proceed to adjudicate the claims of the petitioner.”, the Court added.

Given the aforesaid, the Court allowed the petition and appointed Shri Justice Mohit S. Shah, former Chief Justice of the High Court of Judicature at Bombay to act as the sole arbitrator.

Appearance:

For Petitioner(s) Mr. Nagarkatti Kartik Uday, AOR Mr. Hiroo Advani, Adv. Mr. Divyakant Lahoti, AOR Ms. Vindhya Mehra, Adv. Ms. Madhur Jhavar, Adv. Ms. Praveena Bisht, Adv. Mr. Kartik Lahoti, Adv. Mr. Navdeep Dahiya, Adv. Mr. Kumar Vinayakam Gupta, Adv. Ms. Mallika Luthra, Adv. Mr. Saksham Barsaiyan, Adv. Mr. Karandeep Dahiya, Adv. Ms. Surbhi Saran, Adv. Ms. Ria Garg, Adv. Mr. Rahul Maheshwari, Adv.

For Respondent(s) Mr. Ritin Rai, Sr. Adv. Mr. Farhad Sorabjee, Adv. Mr. Dheeraj Nair, AOR Mr. Kumar Kislay, Adv. Mr. Pratik Pawar, Adv. Mr. Siddhesh Pradhan, Adv. Ms. Shanaya Cyrus Irani, Adv. Mr. Anirudh Krishnan, Adv. Mr. Shiva Krishnamurti, Adv. Mr. Balaji Srinivasan, AOR Mr. George Pothan Poothicote, Adv. Ms. Manisha Singh, Adv. Ms. Jyoti Singh, Adv. Mr. Ashu Pathak, Adv. Mr. Arunava Mukherjee, AOR Mr. Debesh Panda, AOR Mr. Pallav Mongia, AOR Mr. Ajay Bhargava, Adv. Mr. Aseem Chaturvedi, Adv. Mrs. Trishala Trivedi, Adv. M/S. Khaitan & Co., AOR Mr. Ujjwal A. Rana, Adv. Mr. Himanshu Mehta, Adv. M/S. Gagrat And Co, AOR

Case Title: COX & KINGS LTD. VERSUS SAP INDIA PVT. LTD. & ANR., ARBITRATION PETITION NO. 38 OF 2020

Citation : 2024 LiveLaw (SC) 676

Click here to read/download the judgment