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

Despite the insertion of Section 11(6A) in the Arbitration and Conciliation Act 1996, the Courts are not denuded of the power to examine the issue of non-arbitrability and jurisdiction at the stage of considering application of appointment of arbitrators under Section 11, held the Supreme Court recently.In this case Indian Oil Corporation Limited v. NCC Limited, the Supreme Court expressed disagreement with the view of the High Court that after the insertion of SubSection (6A) in Section 11 of the Arbitration Act, scope of inquiry by the Court in Section 11 petition is confined only to ascertain as to whether or not a binding arbitration agreement exists qua the parties before it.A bench comprising Justices MR Shah and BV Nagarathna was considering an appeal filed by the Indian Oil Corporation against an order of the Delhi High Court appointing arbitrator in a dispute. The IOC's main argument was that as per the contract between the parties, only claims notified by the General Manager of IOC can be referred to arbitration and the dispute at hand was not arbitrable since it was not notified.While allowing the appeal, the Court observed :"...we do not agree with the conclusion arrived at by the High Court that after the insertion of SubSection (6A) in Section 11 of the Arbitration Act, scope of inquiry by the Court in Section 11 petition is confined only to ascertain as to whether or not a binding arbitration agreement exists qua the parties before it, which is relatable to the disputes at hand. We are of the opinion that 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". The Court referred to the precedent Vidya Drolia vs Durga Trading Corporation. 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...

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

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