Party Who Accepted S.11 Order For Arbitrator Appointment Can't Later Question Validity Of Arbitration Clause Under Pre-2015 Regime: Supreme Court

The Supreme Court on Wednesday (February 4) reiterated that under the pre-2015 amendment regime, once a party consents to a court order appointing an arbitrator, they cannot subsequently challenge the existence or validity of the arbitration clause before the arbitral tribunal or in proceedings under Section 34. A bench comprising Justices J.B. Pardiwala and K.V. Viswanathan heard an appeal arising from an arbitration dispute under the pre-2015 amendment regime. Under the Pre-2015 Amendment regime, the Chief Justice or designated judge under Section 11 performed a judicial function and was obliged to decide on jurisdictional issues, including the existence and validity of the arbitration agreement. This decision was final and binding on the parties under Section 11(7). It was impermissible to challenge the existence and validity of the arbitration clause before the arbitral tribunal or a court under Section 34, after having accepted a Section 11 order appointing an arbitrator, as held in SBP & Co. vs. Patel Engineering Limited & Anr., (2005) 8 SCC 618.The 2015 Arbitration Amendment has introduced Section 11(6A), specifying the limits of the referral courts to only see the prima facie existence of the arbitration agreement while deciding the application seeking an appointment of an arbitrator, as affirmed in In Re Interplay (2024).The dispute arose from construction contracts where the appellant-contractor claimed unpaid escalation costs. The contract's Clause 23 provided for dispute resolution by an "empowered Standing Committee" of government officials. When the Rajasthan Housing Board failed to constitute this committee as required, the contractor approached the High Court under Section 11 of the Act. In 2014, a learned Single Judge of the Rajasthan High Court appointed a sole arbitrator (a retired judge), noting that the committee constituted by the Board was not in terms of Clause 23. Crucially, the Housing Board accepted this order and did not appeal it. The arbitrator subsequently awarded amounts to the contractor. However, the Housing Board successfully challenged the award under Section 34 before the Commercial Court, arguing that Clause 23 was not an arbitration agreement at all. The High Court upheld this view, leading to the appeal before the Supreme Court. The question before the Court was whether, in arbitration proceedings initiated before the 2015 Amendments to the Arbitration and Conciliation Act, 1996, a party could later challenge the existence and validity of the arbitration clause before the arbitral tribunal or a court under Section 34, after having accepted a Section 11 order appointing an arbitrator. Applying the law laid down in SBP & Co., the judgment authored by Justice Viswanathan set aside the impugned order, noting that “Commercial Court and the High Court clearly erred in going into the existence and validity of Clause 23 and pronouncing that the said clause was not an arbitration clause.” “In the present case, the order appointing the Arbitrator attained finality with no challenge being thrown. The respondents accepted the order and did not challenge the appointment in this Court…The fact that the respondents accepted the order and did not challenge it only puts the matter beyond any pale of controversy. The further finding of the Commercial Court in the Section 34 application that the order of the Section 11 court did not have any precedential value and hence the order will not be binding is in the teeth of the judgment in SBP (supra).”, the court observed. “SBP (supra) also puts the matter beyond any controversy by holding that not only will the parties be bound before the Arbitrator with regard to the finding on existence and validity of the arbitration agreement they will also be bound during the subsequent stages of the proceedings which will include the Section 34 application stage, the Section 37 appeal stage and before this Court.”, the court added. Accordingly, the appeal was allowed.HeadnoteArbitration and Conciliation Act, 1996 — Section 11, Section 16, and Section 34 — Pre-2015 Amendment Regime — Binding Nature of Section 11 Order — Res Judicata — Held that in cases governed by the SBP & Co. v. Patel Engineering Ltd. regime (prior to the 23.10.2015 amendments), the Section 11 Court exercised judicial power to determine the existence and validity of an arbitration agreement - Such a determination, even if implied, is binding on the parties at all subsequent stages, including before the Arbitral Tribunal and the Section 34 Court – Noted that the respondents, having failed to challenge the appointment order in the Supreme Court, cannot subsequently argue that the clause (Clause 23) was not an arbitration agreement.Distinction Between Precedent and Res Judicata — Section 11(7) — Held that while a "precedent" operates in rem and serves as a source of law for other parties, "res judicata" operates in personam between the same parties to ensure finality in...

Party Who Accepted S.11 Order For Arbitrator Appointment Can't Later Question Validity Of Arbitration Clause Under Pre-2015 Regime: Supreme Court

Yash Mittal

This is a premium content
Available exclusively to
Our subscribers

INR 1099+GST

Tags

Yash Mittal

Party Who Accepted S.11 Order For Arbitrator Appointment Can't Later Question Validity Of Arbitration Clause Under Pre-2015 Regime: Supreme Court

Yash Mittal

This is a premium content Available exclusively to Our subscribers

INR 1099+GST

Tags

Yash Mittal

This is a premium content
Available exclusively to
Our subscribers