Section 11(6A) Arbitration Act Does Not Prevent Courts From Considering Issue Of Arbitrability : Supreme Court

The petitioner IOC challenged the order(s) of the High Court of Delhi in wherein the Court had allowed the application filed by the respondent under Section 11(6) of the A&C Act and referred the parties to arbitrator.

The petitioner contended that the High Court erred in not appreciating the fact that the matter was non-arbitrable as in terms of the agreement between the parties only notified claims could be referred to arbitration and the General Manager was the final authority to decide as to whether the claims were notified or not.

The petitioner further contended that once the general manager held the claims as non-notified the claims would fall in the 'excepted matters' that are out of the purview of the arbitration clause.

The petitioner contended that party autonomy is the brooding spirit of the A&C Act and if the contract provides for a mechanism that is to be mandatorily followed before invoking the arbitration and provides that certain specified disputes alone will be the subject of arbitration then the effect must be given to the intention of the parties.

The petitioner also contended that Section 11(6-A) cannot be a bar for the Court to examine whether the dispute raised is within the ambit of the arbitration agreement.

The respondent stated that admittedly there is an arbitration clause between the parties and in view of Section 11 (6-A) of the A&C Act, the Court is only to examine the existence of an arbitration agreement and it cannot look into whether a claim is an excepted matter or not.

The respondent argued that the question of whether a non-notified claim is an excepted matter is in the exclusive domain of the arbitrator.

The respondent further contended that the contractual clauses are to be construed in a manner that does not abridge statutory right and doctrine of mutuality, therefore, General Manger cannot have the unilateral power to determine the arbitrability of a dispute.

It further argued that the general manager had taken a decision on the issue of notified claim after a period of thirty days, therefore, the respondent filed the applications for the appointment of the arbitrator.

The Court held that on a plain reading of the relevant clauses between the parties it becomes apparent that the respondent was required to notify its claims with the Site Engineer and Engineer-in-Charge and thereafter those claims were to be included in the final bill. A failure of the respondent to notify its claims at the relevant stage would put them outside the purview of arbitration as the arbitration clause specifically mentions that only notified claims could be referred to arbitration.

The Court further held that the decision of the General Manager was final regarding the issue if the claims of the respondent are notified or not and if the General Manager declares the claims to be non-notified then they would be 'excepted matter', therefore, outside the purview of arbitration.

The Court further observed and held that the High Court erred in holding that after the insertion of Section 11(6-A), the scope of inquiry is limited to ascertaining as to whether a binding agreement exists between the parties.

The Court held that although the issues of non-arbitrability and jurisdiction of the tribunal are to be ordinarily decided by the arbitral tribunal, however, if the facts are very clear and glaring and in view of the specific clauses, those issues can also be decided by the Court at the stage of appointing an arbitrator.

Accordingly, it allowed the petitions.

Case details

Indian Oil Corporation Limited vs NCC Limited | 2022 LiveLaw (SC) 616 | CA 341 OF 2022 | 20 July 2022| Justices MR Shah and BV Nagarathna

Headnotes

Arbitration and Conciliation Act, 1996 ; Section 11, 11(6A) - 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. (Para 13)

Arbitration and Conciliation Act, 1996 ; Section 11 - Even if an aspect with regard to 'accord and satisfaction' of the claims may/can be considered by the Court at the stage of deciding Section 11 application, it is always advisable and appropriate that in cases of debatable and disputable facts, good reasonably arguable case, the same should be left to the Arbitral Tribunal - Referred to Vidya Drolia v. Durga Trading Corpn. (2021)2 SCC 1. (Para 13)

Arbitration and Conciliation Act, 1996 ; Section 7 - Parties to the contract are free to agree on applicability of (1) proper law of contract, (2) proper law of arbitration agreement and (3) proper law of the conduct of arbitration. Parties to the contract also may agree for matters excluded from the purview of arbitration - Unless the effect of agreement results in performance of an unlawful act, an agreement, which is otherwise legal, cannot be held to be void and is binding between the parties. (Para 13.3)

Click here to Read/Download Judgment