Arbitration : Supreme Court Suggests Amendments To Sections 11(7), 37 To Bring Section 8 & 11 At Par On Appealability

The Supreme Court has observed that the amendments to Section 11(7) and 37 of the Arbitration and Conciliation Act, 1996 might be necessary so that the orders passed under Section 8 and 11 are brought on par as far as appealability is concerned.

Section 8, which deals with the power of a court to refer parties to arbitration, was amended in 2015 to state that such reference should not be made unless the court finds that prima facie a valid arbitration agreement exists.

Also, Section 37 was amended in 2015 to allow for appeals against an order refusing to refer parties to arbitration under Section 8.

These amendments were done on the basis of recommendations of the Law Commission of India.

However, no amendment was made to Section 37 to allow appeal against an order refusing to appoint an arbitrator under Section 11 of the Act, despite the fact that such a recommendation was also made by the Law Commission.,

As per the judgment of the Supreme Court in Vidya Drolia v Durga Trading Corporation, the Courts have to enter a prima facie satisfaction under both Section 8 and 11 regarding the existence of a valid arbitration agreement. While a finding against the existence of arbitration agreement under Section 8 is appealable, such a finding under Section 11 is not appealable.

This was described as an "anomaly" by a division bench comprising Justices RF Nariman, BR Gavai and Hrishikesh Roy in the case Pravin Electricals Pvt Ltd v Galaxy Infra and Engineering Pvt Ltd.

The judgment authored by Justice Nariman observed :

"By a process of judicial interpretation, Vidya Drolia(supra) has now read the "prima facie test" into Section 11(6A)so as to bring the provisions of Sections 8(1) and 11(6) r/w11(6A) on par. Considering that Section 11(7) and Section 37have not been amended, an anomaly thus arises. Whereas in cases decided under Section 8, a refusal to refer parties to arbitration is appealable under Section 37(1)(a), a similar refusal to refer parties to arbitration under Section 11(6) read with Sections 6(A) and 7 is not appealable. In the light of what has been decided in Vidya Drolia (supra), Parliament may need to have a re-look at Section 11(7) and Section 37 so that orders made under Sections 8 and 11 are brought on par qua appealability as well".

The Court made these observation while considering a special leave petition filed against an order of a single bench of the Delhi High Court which appointed arbitrator under Section 11(6) of the Act.

On facts, the Court found that the conclusive finding of the single judge regarding the existence of arbitration agreement was incorrect.

Considering the complexity of facts, the top court observed that the question of validity of arbitration agreement has to be left to the arbitrator.

"...we set aside the impugned judgment of the Delhi High Court in so far as it conclusively finds that there is an Arbitration Agreement between the parties", the bench observed.

Case Details

Citation : Pravin Electricals Pvt Ltd v Galaxy Infra and Engineering Pvt Ltd.

Bench : Justice RF Nariman, BR Gavai and Hrishikesh Roy

Appearances : Senior Advocate Shyam Divan for appellant;  Senior Advocate Dhruv Mehta for respondent

Citation : LL 2021 SC 147

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