Referral Court U/S 11 Of Arbitration Act Cannot Enter Into Merits Of Subject Matter Of Disputes: Rajasthan High Court

The Rajasthan High Court bench of Justice Sudesh Bansal has held that the court under section 11 of the Arbitration Act cannot enter into merits of subject matter of the disputes. It has to see only the prima facie existence of an arbitration agreement. Brief Facts These two Arbitration Applications have been filed under section 11 of the Arbitration Act seeking the appointment of an Arbitrator. The applicant is a registered real estate firm which entered into agreements with the respondents in which it undertook to construct residential duplex villa on their respective plots. It is the case of the applicant that despite handing over the possession and investing substantial amounts in development agreements were unilaterally terminated by the respondents and a third party was engaged for the construction. Dispute having arisen between the parties, the applicant invoked the arbitration clause. It submitted that since the disputes/ differences have arisen between the parties, due to noncompliance of the collaboration agreement, which are arbitral in nature and an arbitration agreement incorporated in Clause 20 of the collaboration agreement, was also entered into between the parties to resolve/ settle such disputes through arbitration. It was further submitted that no Arbitrator with the mutual consent of both parties could be appointed, therefore, an independent, impartial and neutral Arbitrator be appointed to resolve/ settle such disputes between the parties. On the other hand, the respondents submitted that no dispute between the parties in respect of collaboration agreement survives, hence, the question to refer the disputes for arbitration, does not arise and the arbitration applications are liable to be dismissed. It was further argued that arbitration agreement as contained in Clause 20 of the collaboration agreements dated 10.08.2021, is confined to the disputes between the parties either during the course of construction or post construction on the plots in question. It also argued that since the applicant firm did not start any construction on the plots in question, the arbitration clause in-fact does not come in play and the dispute sought to be raised by the applicant firm in respect of non-compliance of the terms and conditions of the collaboration agreement, does not fall within the scope of Arbitration Agreement. Observations: The court at the outset observed that such disputes touch to the merits of subject matter of disputes and this Court being a referral Court,needs not to enter into such area of disputes. It is suffice to hold and observe that prima facie, disputes/ differences between the parties in respect of compliance/ non-compliance of the agreements of collaboration executed between the parties, have arisen and such disputes need to be resolved/ settled. The court after perusing the arbitration clause observed that “since the arbitration clause to settle the disputes/ differences between the parties through arbitration was also entered into as one of the terms and conditions of the agreements and words every kind of disputes/ differences is referred therein, same may not be allowed to be construed in such a narrow sense to construe the arbitration agreement, confines it to the dispute of construction work only.” The court noted that the respondents has made an attempt to confine this arbitration agreement only to that nature of disputes, which arise between the parties during the course of construction or post construction over the plots in question and no other disputes came within compass of this arbitration agreement It also added that If such a narrow sense is given to the arbitration agreement, same would also not be in consonance with the aim and object of the Arbitration Act. Further the intention of parties, prima facie reflects that the parties were agreeable to refer all kinds of disputes/ differences arisen out of the agreements of collaboration, to the Arbitrators to be appointed by mutual consent of both parties and the majority decision of the Arbitrators shall be biding on both parties It further observed that indeed there is no dispute between parties about existence and validity of the arbitration agreement, therefore, following the provision of Section 11(6A) of the A&C Act, 1996, the disputes and differences deserve to be referred to the arbitration and arbitration tribunal is required to be constituted and since as per Section 16 of the A&C Act, 1996, the Arbitral Tribunal is competent to rule on its own jurisdiction. In SBI General Insurance Co.Ltd. Vs.Krish Spinning (2024) the Supreme Court has held that “The scope of examination under Section 11(6- A) is confined to the existence of an arbitration agreement on the basis of Section 7. The examination of validity of the arbitration agreement is also limited to the requirement of formal validity such ...

Referral Court U/S 11 Of Arbitration Act Cannot Enter Into Merits Of Subject Matter Of Disputes: Rajasthan High Court

Mohd Malik Chauhan

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