S. 11(6) A&C Act | Referral Courts Should Limit Its Enquiry To Prima Facie Existence Of Arbitration Agreement : Supreme Court

In a recent decision, the Supreme Court reiterated that the referral courts under Section 11(6) of the Arbitration & Conciliation Act, 1996 (“Act”) should refrain from conducting an in-depth factual analysis of the dispute. Instead, their role is confined to assessing the prima facie existence of an arbitration agreement.

“The scope of inquiry under Section 11 of the Act, 1996 is limited to ascertaining the prima facie existence of an arbitration agreement. In the present case, the High Court exceeded this limited scope by undertaking a detailed examination of the factual matrix. The High Court erroneously proceeded to assess the auditor's report in detail and dismissed the arbitration application. In our view, such an approach does not give effect to the legislative intent behind the 2015 amendment to the Act, 1996 which limited the judicial scrutiny at the stage of Section 11 solely to the prima facie determination of the existence of an arbitration agreement.”, the bench comprising Chief Justice DY Chandrachud and Justices JB Pardiwala and Manoj Misra said.

The court said that the arbitral tribunal may impose costs on parties found guilty of initiating baseless proceedings to discourage misuse of arbitration.

“Before we conclude, we must clarify that the limited jurisdiction of the referral Courts under Section 11 must not be misused by parties in order to force other parties to the arbitration agreement to participate in a time-consuming and costly arbitration process. This is possible in instances, including but not limited to, where the claimant canvasses the adjudication of non-existent and mala fide claims through arbitration. With a view to balance the limited scope of judicial interference of the referral Courts 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. Having said that, it is clarified that the aforesaid is not to be construed as a determination of the merits of the matter before us, which the Arbitral Tribunal will rightfully be equipped to determine.”, the Court observed.

The appellant, a technology-based wellness venture invoked an arbitration clause against the respondent over the dispute that arose from a Master Services Agreement (MSA) executed between the parties. The appellant invoked arbitration under Clause 18.12 of the MSA however, the Bombay High Court dismissed the Section 11(6) application on grounds of lack of merit and a frivolous claim.

Setting aside the High Court's decision, the judgment authored by Justice Pardiwala observed that the High Court committed an error in assessing the auditor's report in detail. The Court said that instead of doing the in-depth assessment of the report/dispute it would have restricted its judicial scrutiny to the prima facie determination of the existence of an arbitration agreement.

Also, the Court rejected the contention that the frivolity of a dispute can be decided at the referral stage. According to the Court, the frivolity of a dispute should not be decided at the referral stage as the arbitral tribunal constituted would be equally capable of adjudicating it.

Since there existed a prima facie agreement that the respondent did not dispute, the court allowed the appeal. Mr. S.J. Vazifdar, former Chief Justice of the Punjab & Haryana High Court, was appointed as the sole arbitrator.

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

Arbitration | Referral Courts Must Not Conduct Intricate Enquiry On Whether Claims Are Time-Barred : Supreme Court Clarifies 'Arif Azim' Judgment

Appearance:

For Petitioner(s) Mr. H. D. Thanvi, Adv. Mr. Nikhil Kumar Singh, Adv. Mr. Achal Singh Bule, Adv. Mr. Rishi Matoliya, AOR

For Respondent(s) Ms. Shweta Bharti, Adv. Mr. Jyoti Kumar Chaudhary, Adv. Mr. Nicholas Choudhury, Adv. Mr. Jatin Chaddha, Adv. Mr. Vineet Dwivedi, AOR

Case Title: GOQII TECHNOLOGIES PRIVATE LIMITED VERSUS SOKRATI TECHNOLOGIES PRIVATE LIMITED, 

Citation : 2024 LiveLaw (SC) 891

Click here to read/download the judgment