Referral Court Under Section 11 Can't Decide The Arbitrability of Non-Notified Claim: Delhi High Court

Facts:

The appellant and respondent entered into a Contract Agreement dated 27/07/2017 for certain civil works at Haldia Refinery. Clause 9.0.0.0 and its sub-clauses of the contract dealt with resolving the dispute arising out of a notified claim by arbitration. On 19/10/2022, the petitioner submitted its final bill, and after the bill was not fully honoured, the dispute arose. By a notice under Section 21 of the A&C Act, the petitioner invoked arbitration and proposed the name of a retired High Court Judge to be the arbitrator. The respondent refuted the petitioner's claim in the reply to the notice.

It was contended in the reply that for the claims to be arbitrable, the notification of the said claims by the General Manager (GM) was a sine qua non as per clause 9.0.2.0. The claims raised by the petitioner in the Section 21 notice not being notified, the arbitrability of them was disputed. However, the respondent suggested the names of three retired judges, one from the Delhi High Court and two from the trial court, out of whom the petitioner was asked to choose anyone to arbitrate the dispute. The petitioner, not agreeing to the respondent's course of action, approached the Court seeking a reference to the dispute to arbitration.

Submissions by the Parties:

The respondent made the following submissions:

1. As no decision regarding the notification of claim has been made by the GM before the Section 21 notice, in light of Clause 9.0.2.0, the dispute was not arbitrable. There was no decision of the GM regarding the same, even on the date of filing of the Section 11 petition. Despite the Court permitting the petitioner to make representation to the GM, the said representation was decided against the petitioner.
2. The respondent relied on the judgment of the Supreme Court in IOCL v. NCC Ltd, which dealt with an identical clause 9.0.2.0., where the Court categorically held that the particular claim being non-notified cannot be referred to arbitration.

The appellant made the following submissions:

1. The decision of IOCL was rendered by a two-judge bench and was considered by a three-judge bench in SBI General Insurance Co Ltd. The Court in paragraph 93 of the IOCL judgment explicitly stated that the arbitral tribunal has the jurisdiction to adjudicate issues regarding non-arbitrability of the disputes, when the facts were evident in light of the specific clauses in the agreement binding the parties.
2. The Court in SBI General Insurance Co Ltd. after citing paragraphs 90 to 94 of the IOCL began its reasoning in paragraph 89 by noting its difficulty in agreeing with the dictum law laid down by IOCL. This disagreement would also apply to the ratio expressed in paragraph 93 of IOCL.

Analysis of the Court:

The Court observed that in SBI General Insurance Co Ltd, the Supreme Court considerably reduced the scope of examination of a referral court under Section 11 of the Act. Paragraph 114 of the judgment clearly states that in light of the observations made in In Re: Interplay, the scope of enquiry at the Section 11 stage is limited to scrutinizing the prima facie existence of an arbitration agreement and nothing else.

On earlier occasions, the Court had examined paras 110 to 134 of SBI General Insurance Co Ltd. The position of law now is that a referral court is only allowed to examine two aspects. Firstly, whether an arbitration agreement exists between the parties and secondly, whether the Section 11 (6) petition has been filed within three years of the issuance of Section 21 notice. Issues other than these are to be adjudicated by the arbitral tribunal. The Supreme Court has categorically held that earlier decisions on this point of law, including Vidya Drolia v. Durga Trading Corporation and NTPC v. SPML Infra, cannot continue to apply. The arbitrability of dispute regarding non-notified claim, after the judgment in SBI General Insurance Co Ltd, is to be decided by the Arbitral Tribunal.

Case Title: Simplex Infrastructure Limited v. Indian Oil Corporation Limited

Citation: 2024 LiveLaw (Del) 1003

Case Number: Arb. P. 851/2023

Counsel for the Appellant: Mr. Jayant Mehta, Sr. Advocate with Mr. Aayush Agarwala, Mr. Samrat Sengupta, and Mr. Parag Chaturvedi, Advocates.

Counsel for the Respondent: Mr V.N. Koura, Ms Paramjeet Benipal and Mr Sumit Benipal, Advocates.

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