M/S MAYAVTI TRADING PVT. LTD. versus PRADYUAT DEB BURMAN on 5 September 2019

1. Leave granted.E

2. We have heard Mr. Mukul Rohatgi, learned Senior Advocateappearing for the appellant and Mr. Shyam Divan, learned SeniorAdvocate appearing for the respondent at considerable length.

3. On the facts of this case, we do not propose to interfere withthe impugned decision of 12.03.2019 and, therefore, do not find itFnecessary to exercise our extraordinary jurisdiction under Article 136 ofthe Constitution of India.

4. Having said this, however, during the course of argument, arecent decision of this Court was pointed out, namely, United IndiaInsurance Company Limited vs. Antique Art Exports PrivateGLimited, (2019) 5 SCC 362. In this judgment, purportedly followingDuro Felguera, S.A. vs. Gangavaram Port Limited, (2017) 9 SCC729, this Court held:

“20. The submission of the learned counsel for the respondentthat after insertion of sub-section (6-A) to Section 11 of the H

Amendment Act, 2015 the jurisdiction of this Court is denudedand the limited mandate of the Court is to examine the factumof existence of an arbitration and relied on the judgment inDuro Felguera, S.A. v. Gangavaram Port Ltd. [(2017) 9SCC 729 : (2017) 4 SCC (Civ) 764] The exposition in thisdecision is a general observation about the effect of the amendedprovisions which came to be examined under reference to sixarbitrable agreements (five agreements for works and onecorporate guarantee) and each agreement contains a provisionfor arbitration and there was serious dispute between the partiesin reference to constitution of Arbitral Tribunal whether therehas to be Arbitral Tribunal pertaining to each agreement. Inthe facts and circumstances, this Court took note of sub-section(6-A) introduced by the Amendment Act, 2015 to Section 11of the Act and in that context observed that the preliminarydisputes are to be examined by the arbitrator and are not forthe Court to be examined within the limited scope available forappointment of arbitrator under Section 11(6) of the Act.Suffice it to say that appointment of an arbitrator is a judicialpower and is not a mere administrative function leaving somedegree of judicial intervention; when it comes to the questionto examine the existence of a prima facie arbitration agreement,it is always necessary to ensure that the dispute resolutionprocess does not become unnecessarily protracted.

21. In the instant case, prima facie no dispute subsisted afterthe discharge voucher being signed by the respondent withoutany demur or protest and claim being finally settled with accordand satisfaction and after 11 weeks of the settlement of claima letter was sent on 27-7-2016 for the first time raising a voicein the form of protest that the discharge voucher was signedunder undue influence and coercion with no supportive primafacie evidence being placed on record in absence thereof, itmust follow that the claim had been settled with accord andsatisfaction leaving no arbitral dispute subsisting under theagreement to be referred to the arbitrator for adjudication.”

5. Section 11 (6A) was added by the amendment Act of 2015 andstates as follows:

“11. (6A) The Supreme Court or, as the case may be, the HighCourt, while considering any application under sub-section (4) or ABCDE

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Asub-section (5) or sub-section (6), shall, notwithstanding anyjudgment, decree or order of any Court, confine to the examinationof the existence of an arbitration agreement.”

6. Mr. Mukul Rohatgi, learned Senior Advocate, has pointed outthat by an amendment Act of 2019, which has since been passed, thisBsub-section has now been omitted. Section 3 of the amendment Act of2019 insofar as it pertains to this omission has not yet been brought intoforce. The omission is pursuant to a High Level Committee Reviewregarding institutionalization of arbitration in India, headed by Justice B.N. Srikrishna. The Report given by this Committee is dated 30[th] July,2017. The omission of the sub-section is not so as to resuscitate the lawCthat was prevailing prior to the amendment Act of 2015. The reason foromission of S. 11(6A) is given in the Report as follows:

“Thus, the 2015 amendments to section 11 are geared towardsfacilitating speedy disposal of section 11 applications by: (a)enabling the designation of any person or institution as an appointingDauthority for arbitrators in addition to the High Court or SupremeCourt under section 11; (b) limiting challenges to the decision madeby the appointing authority; and (c) requiring the expeditiousdisposal of section 11 applications, preferably within the prescribed60-day time period.

EWhile these amendments no doubt facilitate the speedy disposalof section 11 applications to a large extent, they do not go all theway in limiting court interference. Pursuant to the amendments,the appointment of arbitrators under section 11 may be done: (a)by the Supreme Court or the High Court; or (b) by a person orinstitution designated by such court in exercise of an administrativeFpower following section 11(6B). In either case, the amendmentsstill require the Supreme Court / the High Court to examine whetheran arbitration agreement exists, which can lead to delays in thearbitral process as extensive evidence and arguments may be ledon the same.

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The Committee notes that the default procedure for appointmentof arbitrators in other jurisdictions do not require extensive courtinvolvement as in India.

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For instance, in Singapore, the relevant provision of the IAAprovides that where the parties fail to agree on the appointmentof the third arbitrator, within 30 days of the receipt of the first H

request by either party to appoint the arbitrator, the appointmentshall be made by the appointing authority (the President of theSIAC) by the request of the parties. (See section 9A(2) read withsections 2(1) and 8(2), IAA)

The arbitration legislation of Hong Kong incorporates Article 11of the UNCITRAL Model Law relating to the appointment ofarbitrators. Like in the case of Singapore where the SIAC is theappointing authority for arbitrators, the default appointment ofarbitrator(s) is done by the HKIAC. (Section 13(2) read withsection 24, AO)

In the United Kingdom, in the case of default of one party toappoint an arbitrator, the other party may appoint his arbitrator asthe sole arbitrator after giving notice of 7 clear days to the formerof his intention to do so. (Section 17, AA) The defaulting partymay apply to the court to set aside the appointment. (Section 17(3),AA) In case of a failure of the appointment procedure, any partymay apply to the court to make the appointment or give directionsregarding the making of an appointment. (Section 18(2), AA)

The Committee recommends the adoption of the practice followedin Singapore and Hong Kong in the Indian scenario — apart fromavoiding delays at court level, it may also give impetus to institutionalarbitration.

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Recommendations

1. In order to ensure speedy appointment of arbitrators, section11 may be amended to provide that the appointment ofarbitrator(s) under the section shall only be done by arbitralinstitution(s) designated by the Supreme Court (in case ofinternational commercial arbitrations) or the High Court (incase of all other arbitrations) for such purpose, without theSupreme Court or High Courts being required to determinethe existence of an arbitration agreement.”

Thus, it can be seen that after the amendment Act of 2019, Section11(6A) has been omitted because appointment of arbitrators is to bedone institutionally, in which case the Supreme Court or the High Courtunder the old statutory regime are no longer required to appoint arbitratorsand consequently to determine whether an arbitration agreement exists.

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A7. Prior to Section 11(6A), this Court in several judgments beginningwith SBP & Co.vs. Patel Engineering Ltd. and Anr.(2005) 8 SCC618 has held that at the stage of a Section 11(6) application being filed,the Court need not merely confine itself to the examination of the existenceof an arbitration agreement but could also go into certain preliminaryquestions such as stale claims, accord and satisfaction having beenBreached etc.

8. In ONGC Mangalore Petrochemicals Limitedvs.ANSConstructions Limited and another,(2018) 3 SCC 373, this Court in acase which arose before the insertion of Section 11(6A) dismissed aSection 11 petition on the ground that accord and satisfaction had takenCplace in the following terms: - “31. Admittedly, no-dues certificate was submitted by thecontractee company on 21-9-2012 and on their request completioncertificate was issued by the appellant contractor. The contractee,after a gap of one month, that is, on 24-10-2012, withdrew the no-Ddues certificate on the grounds of coercion and duress and theclaim for losses incurred during execution of the contract sitewas made vide letter dated 12-1-2013, i.e. after a gap of 3 ½(three-and-a-half) months whereas the final bill was settled on10-10-2012. When the contractee accepted the final payment inEfull and final satisfaction of all its claims, there is no point in raisingthe claim for losses incurred during the execution of the contractat a belated stage which creates an iota of doubt as to why suchclaim was not settled at the time of submitting final bills that too inthe absence of exercising duress or coercion on the contracteeby the appellant contractor. In our considered view, the plea raisedFby the contractee company is bereft of any details and particulars,and cannot be anything but a bald assertion. In the circumstances,there was full and final settlement of the claim and there wasreally accord and satisfaction and in our view no arbitrable disputeexisted so as to exercise power under Section 11 of the Act. TheGHigh Court was not, therefore, justified in exercising power underSection 11 of the Act.”

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9. The 246[th] Law Commission Report dealt with some of thesejudgments and felt that at the stage of a Section 11(6) application, only“existence” of an arbitration agreement ought to be looked at and notHother preliminary issues. In a recent judgment of this Court, namely, Garware Wall Ropes Ltd.vs.Coastal Marine Constructions &Engineering Ltd., (2019 SCC OnLine SC 515), this Court adverted tothe said Law Commission Report and held: - “14. The case law under Section 11(6) of the Arbitration Act, as itstood prior to the Amendment Act, 2015, has had a chequeredhistory. In Konkan Railway Corporation Ltd. v. MehulConstruction Co., (2000) 7 SCC 201 [“Konkan Railway I”], itwas held that the powers of the Chief Justice under Section 11(6)of the 1996 Act are administrative in nature, and that the ChiefJustice or his designate does not act as a judicial authority whileappointing an arbitrator. The same view was reiterated in KonkanRailway Corporation Ltd. v. Rani Construction (P) Ltd., (2002)2 SCC 388 [“Konkan Railway II”].

15. However, in SBP & Co. (supra), a seven-Judge Benchoverruled this view and held that the power to appoint an arbitratorunder Section is judicial and not administrative. The conclusionsof the seven-Judge Bench were summarised in paragraph 47 ofthe aforesaid judgment. We are concerned directly with sub-paragraphs (i), (iv), and (xii), which read as follows:

“(i) The power exercised by the Chief Justice of the HighCourt or the Chief Justice of India under Section 11(6) of theAct is not an administrative power. It is a judicial power.

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(iv) The Chief Justice or the designated Judge will have theright to decide the preliminary aspects as indicated in the earlierpart of this judgment. These will be his own jurisdiction toentertain the request, the existence of a valid arbitrationagreement, the existence or otherwise of a live claim, theexistence of the condition for the exercise of his power and onthe qualifications of the arbitrator or arbitrators. The ChiefJustice or the designated Judge would be entitled to seek theopinion of an institution in the matter of nominating an arbitratorqualified in terms of Section 11(8) of the Act if the need arisesbut the order appointing the arbitrator could only be that of theChief Justice or the designated Judge.

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(xii) The decision in Konkan Rly. Corpn. Ltd. v. RaniConstruction (P) Ltd. [(2002) 2 SCC 388] is overruled.”

16. This position was further clarified in Boghara Polyfab (supra)as follows:

“22. Where the intervention of the court is sought for appointmentof an Arbitral Tribunal under Section 11, the duty of the ChiefJustice or his designate is defined in SBP & Co. [(2005) 8 SCC618]. This Court identified and segregated the preliminary issuesthat may arise for consideration in an application under Section 11of the Act into three categories, that is, (i) issues which the ChiefJustice or his designate is bound to decide; (ii) issues which hecan also decide, that is, issues which he may choose to decide;and (iii) issues which should be left to the Arbitral Tribunal todecide.

22.1. The issues (first category) which the Chief Justice/hisdesignate will have to decide are:

(a) Whether the party making the application has approachedthe appropriate High Court.

(b) Whether there is an arbitration agreement and whetherthe party who has applied under Section 11 of the Act, is aparty to such an agreement.

22.2. The issues (second category) which the Chief Justice/his designate may choose to decide (or leave them to thedecision of the Arbitral Tribunal) are:

(a) Whether the claim is a dead (long-barred) claim or alive claim.

(b) Whether the parties have concluded the contract/transaction by recording satisfaction of their mutual rightsand obligation or by receiving the final payment withoutobjection.

22.3. The issues (third category) which the Chief Justice/hisdesignate should leave exclusively to the Arbitral Tribunal are:

(i) Whether a claim made falls within the arbitration clause (asfor example, a matter which is reserved for final decision of a departmental authority and excepted or excluded fromarbitration).

(ii) Merits or any claim involved in the arbitration.”

17. As a result of these judgments, the door was wide open forthe Chief Justice or his designate to decide a large number ofpreliminary aspects which could otherwise have been left to bedecided by the arbitrator under Section 16 of the 1996 Act. As aresult, the Law Commission of India, by its Report No. 246submitted in August 2014, suggested that various sweepingchanges be made in the 1996 Act. Insofar as SBP & Co. (supra)and Boghara Polyfab (supra) are concerned, the LawCommission examined the matter and recommended the additionof a new sub-section, namely, sub-section (6A) in Section 11. Inso doing, the Law Commission recommendations which arerelevant and which led to the introduction of Section 11(6A) areas follows:

“28. The Act recognizes situations where the intervention ofthe Court is envisaged at the pre-arbitral stage, i.e. prior to theconstitution of the arbitral tribunal, which includes sections 8,9, 11 in the case of Part I arbitrations and section 45 in thecase of Part II arbitrations. Sections 8, 45 and also section 11relating to “reference to arbitration” and “appointment of thetribunal”, directly affect the constitution of the tribunal andfunctioning of the arbitral proceedings. Therefore, theiroperation has a direct and significant impact on the “conduct”of arbitrations. Section 9, being solely for the purpose of securinginterim relief, although having the potential to affect the rightsof parties, does not affect the “conduct” of the arbitration inthe same way as these other provisions. It is in this context theCommission has examined and deliberated the working of theseprovisions and proposed certain amendments.

29. The Supreme Court has had occasion to deliberate uponthe scope and nature of permissible pre-arbitral judicialintervention, especially in the context of section 11 of the Act.Unfortunately, however, the question before the Supreme Courtwas framed in terms of whether such a power is a “judicial”or an “administrative” power – which obfuscates the real issueunderlying such nomenclature/description as to –

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-the scope of such powers – i.e. the scope of argumentswhich a Court (Chief Justice) will consider while decidingwhether to appoint an arbitrator or not – i.e. whether thearbitration agreement exists, whether it is null and void,whether it is voidable etc.; and which of these it shouldleave for decision of the arbitral tribunal.

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-the nature of such intervention – i.e. would the Court(Chief Justice) consider the issues upon a detailed trial andwhether the same would be decided finally or be left fordetermination of the arbitral tribunal.

30. After a series of cases culminating in the decision in SBP v.Patel Engineering, (2005) 8 SCC 618, the Supreme Court heldthat the power to appoint an arbitrator under section 11 is a “judicial”power. The underlying issues in this judgment, relating to the scopeof intervention, were subsequently clarified by RAVEENDRANJ in National Insurance Co. Ltd. v. Boghara Polyfab Pvt. Ltd.,(2009) 1 SCC 267, where the Supreme Court laid down as follows C

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“1. The issues (first category) which Chief Justice/his designatewill have to decide are:

(a) Whether the party making the application has approachedthe appropriate High Court?

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(b) Whether there is an arbitration agreement and whether theparty who has applied under section 11 of the Act, is a party tosuch an agreement?

2. The issues (second category) which the Chief Justice/hisdesignate may choose to decide are:

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(a) Whether the claim is a dead (long barred) claim or a liveclaim?

(b) Whether the parties have concluded the contract/transactionby recording satisfaction of their mutual rights and obligationor by receiving the final payment without objection?

G3. The issues (third category) which the Chief Justice/his designateshould leave exclusively to the arbitral tribunal are:

(a) Whether a claim falls within the arbitration clause (as forexample, a matter which is reserved for final decision of adepartmental authority and excepted or excluded fromarbitration)?

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(b) Merits of any claim involved in the arbitration.”

31. The Commission is of the view that, in this context, the sametest regarding scope and nature of judicial intervention, asapplicable in the context of section 11, should also apply to sections8 and 45 of the Act – since the scope and nature of judicialintervention should not change upon whether a party (intending todefeat the arbitration agreement) refuses to appoint an arbitratorin terms of the arbitration agreement, or moves a proceeding beforea judicial authority in the face of such an arbitration agreement.

32. In relation to the nature of intervention, the exposition of thelaw is to be found in the decision of the Supreme Court in ShinEtsu Chemicals Co. Ltd. v. Aksh Optifibre, (2005) 7 SCC 234,(in the context of section 45 of the Act), where the SupremeCourt has ruled in favour of looking at the issues/controversy onlyprima facie.

33. It is in this context, the Commission has recommendedamendments to sections 8 and 11 of the Arbitration and ConciliationAct, 1996. The scope of the judicial intervention is only restrictedto situations where the Court/Judicial Authority finds that thearbitration agreement does not exist or is null and void. In so faras the nature of intervention is concerned, it is recommended thatin the event the Court/Judicial Authority is prima facie satisfiedagainst the argument challenging the arbitration agreement, it shallappoint the arbitrator and/or refer the parties to arbitration, as thecase may be. The amendment envisages that the judicial authorityshall not refer the parties to arbitration only if it finds that theredoes not exist an arbitration agreement or that it is null and void.If the judicial authority is of the opinion that prima facie thearbitration agreement exists, then it shall refer the dispute toarbitration, and leave the existence of the arbitration agreementto be finally determined by the arbitral tribunal. However, if thejudicial authority concludes that the agreement does not exist, thenthe conclusion will be final and not prima facie. The amendmentalso envisages that there shall be a conclusive determination as towhether the arbitration agreement is null and void. In the eventthat the judicial authority refers the dispute to arbitration and/orappoints an arbitrator, under sections 8 and 11 respectively, sucha decision will be final and non-appealable. An appeal can be A

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maintained under section 37 only in the event of refusal to referparties to arbitration, or refusal to appoint an arbitrator.”

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18. Pursuant to the Law Commission recommendations, Section11(6A) was introduced first by Ordinance and then by theAmendment Act, 2015. The Statement of Objects and ReasonsBwhich were appended to the Arbitration and Conciliation(Amendment) Bill, 2015 which introduced the Amendment Act,2015 read as follows:

“STATEMENT OF OBJECTS AND REASONS

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6. It is proposed to introduce the Arbitration and Conciliation(Amendment) Bill, 2015, to replace the Arbitration and Conciliation(Amendment) Ordinance, 2015, which inter alia, provides for thefollowing, namely:-

(i) to amend the definition of “Court” to provide that in thecase of international commercial arbitrations, the Court shouldbe the High Court; D

(ii) to ensure that an Indian Court can exercise jurisdiction togrant interim measures, etc., even where the seat of thearbitration is outside India; E

(iii) an application for appointment of an arbitrator shall bedisposed of by the High Court or Supreme Court, as the casemay be, as expeditiously as possible and an endeavour shouldbe made to dispose of the matter within a period of sixty days;

(iv) to provide that while considering any application forappointment of arbitrator, the High Court or the Supreme Courtshall examine the existence of a prima facie arbitrationagreement and not other issues; F

(v) to provide that the arbitral tribunal shall make its awardwithin a period of twelve months from the date it enters uponthe reference and that the parties may, however, extend suchperiod up to six months, beyond which period any extensioncan only be granted by the Court, on sufficient cause; G

(vi) to provide that a model fee Schedule on the basis of whichHigh Courts may frame rules for the purpose of determination H

of fees of arbitral tribunal, where a High Court appointsarbitrator in terms of section 11 of the Act;

(vii) to provide that the parties to dispute may at any stageagree in writing that their dispute be resolved through fast trackprocedure and the award in such cases shall be made within aperiod of six months;

(viii) to provide for neutrality of arbitrators, when a person isapproached in connection with possible appointment as anarbitrator;

(ix) to provide that application to challenge the award is to bedisposed of by the Court within one year.

7. The amendments proposed in the Bill will ensure that arbitrationprocess becomes more user-friendly, cost effective and lead toexpeditious disposal of cases.

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19. A reading of the Law Commission Report, together with theStatement of Objects and Reasons, shows that the LawCommission felt that the judgments in SBP & Co. (supra) andBoghara Polyfab (supra) required a relook, as a result of which,so far as Section 11 is concerned, the Supreme Court or, as thecase may be, the High Court, while considering any applicationunder Section 11(4) to 11(6) is to confine itself to the examinationof the existence of an arbitration agreement and leave all otherpreliminary issues to be decided by the arbitrator.”

10. This being the position, it is clear that the law prior to the 2015Amendment that has been laid down by this Court, which would haveincluded going into whether accord and satisfaction has taken place, hasnow been legislatively overruled. This being the position, it is difficult toagree with the reasoning contained in the aforesaid judgment as Section11(6A) is confined to the examination of the existence of an arbitrationagreement and is to be understood in the narrow sense as has been laiddown in the judgment Duro Felguera, S.A. (supra) – see paras 48 &59.

11. We, therefore, overrule the judgment in United IndiaInsurance Company Limited (supra) as not having laid down the correctlaw but dismiss this appeal for the reason given in para 3 above.

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A12. Mr. Rohatgi now requests us for an extension of the statusquo order granted by the trial court for a period of one week from todayso that he may adopt other proceedings. This request is granted.

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Ankit Gyan

Appeal dismissed.