Pravin Electricals Pvt. Ltd vs Galaxy Infra And Engineering Pvt. … on 8 March, 2021


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Supreme Court of India

Pravin Electricals Pvt. Ltd vs Galaxy Infra And Engineering Pvt. … on 8 March, 2021

Author: Rohinton Fali Nariman

Bench: Rohinton Fali Nariman, B.R. Gavai

                                                                             REPORTABLE

                                         IN THE SUPREME COURT OF INDIA

                                            CIVIL APPELLATE JURISDICTION

                                         CIVIL APPEAL NO. 825 OF 2021
                                   (@ Special Leave Petition (Civil) No.8718 of 2020)

                         PRAVIN ELECTRICALS PVT. LTD.                      … APPELLANT

                               VERSUS

                         GALAXY INFRA AND ENGINEERING
                         PVT. LTD.                                        … RESPONDENT

                                                    JUDGMENT

R.F. Nariman, J.

1. Leave granted.

2. This appeal arises out of a petition filed under Section 11(6) of

the Arbitration and Conciliation Act, 1996, for appointment of a

Sole Arbitrator for adjudication of disputes between the parties.

The Respondent, Galaxy Infra and Engineering Pvt. Ltd., is a

company incorporated under the provisions of the Companies

Act, 1956, having its registered office at Village Arra Gadh, Post
Signature Not Verified

Digitally signed by
Jayant Kumar Arora
Date: 2021.03.08
15:42:39 IST
Office Dharhara, Dist. Vaishali, P.S. Hajipur, Bihar and is in the
Reason:

business of providing consultancy services. The Appellant,

1
Pravin Electricals Pvt. Ltd., operates in key industrial and

commercial retail sectors and provides services for electrical

supplies etc.

3. On 26th May, 2014, an online tender was invited by Chief

Engineer, South Bihar Power Distribution Company Ltd.

(hereinafter referred to as “SBPDCL”) for appointment of

implementing agencies for execution of a Scheme, on turnkey

basis, for strengthening, improvement and augmentation of

distribution systems capacities of 20 towns in Bihar. The

Appellant submitted its technical and financial bid and was

declared the L1 bidder and was awarded the work on 22 nd

September, 2014. It is the case of the Respondent that it had

made substantial efforts under a Consultancy Agreement dated

7th July, 2014, to facilitate the Appellant in getting the aforesaid

contract for which it was entitled to commission. It is then

alleged that the Appellant sent an email dated 15 th July, 2014 to

the Respondent with a draft agreement attached for comments

and confirmation. On the same day, the Respondent sent its

reply stating that certain terms were not acceptable. In emails

that have surfaced for the first time in this Court dated 22 nd July,
2
2014 and 25th July, 2014, the Respondent argued that, in point of

fact, all differences between the parties were ironed out and a

Final Consultancy Agreement was agreed upon through

correspondence between the parties.

4. The Respondent alleged that it had raised an invoice on 27 th

September, 2014, for payment of Rs.28.09 lakhs as an advance

for consultancy charges including service tax. It is important to

note that the said invoice was addressed to one M/s Process

Construction and Technical Services Pvt. Ltd. (hereinafter

referred to as “Process”) and makes reference to an agreement

entered into between the Respondent and Process. Also, on

24th April, 2016, the Respondent alleged that it raised yet another

invoice on the Appellant. This invoice was also addressed to

Process and makes reference to an agreement between the

Respondent and Process. Ledger accounts that were produced

in the normal course of business by the Respondent reflects

transactions with Process and not the Appellant. Finally, vide an

email dated 30th June, 2017, the Respondent attached the final

invoice to the Appellant claiming an amount of Rs.5.54 crores

under the alleged Consultancy Agreement dated 7 th July, 2014.

3

This was followed up by a demand-cum-legal notice dated 9 th

March, 2018, seeking payment of Rs.5,54,14,318/- from the

Appellant as being due under the alleged Consultancy

Agreement dated 7th July, 2014. Vide its reply dated 22 nd March,

2018, the Appellant recorded its surprise on receiving such

demand notice and flatly denied that any agreement dated 7 th

July, 2014, was ever entered into between the parties. The

Appellant further requested the Respondent to provide a copy of

the alleged Agreement dated 7th July, 2014 and payment details

referred to in the legal notice.

5. On 26th April, 2018, the Respondent invoked Article 14 of the

alleged Consultancy Agreement dated 7 th July, 2014, in which

they nominated one Kameshwar Choudhary as Sole Arbitrator to

adjudicate differences between the parties. On 3 rd May, 2018,

the Appellant denied execution of the Agreement dated 7 th July,

2014 and, therefore, stated that the matter could not be referred

to arbitration. We are informed that on 14 th May, 2018, the

Respondent’s Advocates finally supplied a copy of the alleged

Agreement dated 7th July, 2014 to the Appellant.

4

6. On 7th September, 2018, the Respondent then filed a petition

under Section 11(6) of the 1996 Act for appointment of a Sole

Arbitrator on the basis of the alleged Agreement dated 7 th July,

2014. The Delhi High Court vide an order dated 28 th November,

2018, directed the Respondent to produce the original of the

Consultancy Agreement dated 7th July, 2014. The Appellant was

then directed to produce Mr. M.G. Stephen, Managing Director of

the Appellant, before the Registrar (Judicial) on 7 th December,

2018, so that he can carry with him documents which bear his

original signature at the contemporaneous time. The Registrar

(Judicial) was also directed to obtain specimen signatures of Mr.

M.G. Stephen. The original of the Agreement together with the

aforesaid signatures of Mr. M.G. Stephen was then to be sent to

the CFSL for obtaining a report. The report was then received

and by an order dated 20th September, 2019, the High Court

directed that copies of the report be given to the learned counsel

for the parties. Finally, on 30th September, 2019, the learned

counsel for the Appellant submitted that he had instructions to

contest the matter after which the impugned judgment dated 12 th

May, 2020 was passed.

5

7. Vide the impugned judgment, the learned Single Judge of the

Delhi High Court referred to the alleged Consultancy Agreement

dated 7th July, 2014 and the correspondence between the

parties, including the correspondence between SBPDCL and the

Respondent herein. After going through the aforesaid, the

learned Single Judge then held:

“39. Learned counsel for the petitioner has drawn the
attention of the Court to various emails which indicate
that a Consultancy Agreement was executed between
the parties on 07.07.2014. In the said agreement, the
parties agreed on the percentage of fee that the
petitioner would get in case the respondent succeeded
in getting the tender from SBPDCL. On 15.07.2014 the
respondent had sent an email with a soft copy of the
agreement suggesting a certain percentage of the
consultancy fee. Subsequent emails are also placed
on record which show that payment terms were being
discussed between the parties. Email dated
30.06.2017 is also on record by which a final invoice
was sent by the petitioner clearly making a reference
to the Agreement dated 07.07.2014. None of these
documents have been denied by the respondent.
Learned counsel for the petitioner has also pointed out
that the respondent even made payments in
accordance with the terms of the Agreement. As per
the payment terms, Rs.25 Lakhs was payable on
receipt of LOI by the respondent from SBPDCL.

Admittedly on 22.09.2014, LOI was awarded to the
respondent and on the petitioner raising an invoice for
Rs.25 Lakhs on 27.09.2014, respondent actually made
payment on 29.09.2014. Counsel for the petitioner has
also shown the email dated 27.09.2014 whereby the
respondent had asked the petitioner to raise the
6
invoice on its letterhead. These documents in my view
clearly indicate that the parties had entered into an
Agreement pursuant to which the parties had acted.
The petitioner had assisted the respondent in the
award of the LOI and the respondent had initially made
payments in terms of the said agreement dated
07.07.2014. Learned counsel for the Petitioner is also
right in submitting that on 15.07.2014, the respondent
had itself sent an email containing a Draft Consultancy
Agreement which contained Article 14, which was the
Arbitration Clause. The parties were thus ad idem
regarding submission of disputes to Arbitration.

40. The fact that there was an Agreement between the
parties is also fortified by the fact that the information
sent by the Department to the respondent regarding
award of the Contract to the respondent was also sent
to the petitioner vide email dated 22.09.2014. Draft
letter of acceptance sent by the Department to the
petitioner through email dated 25.09.2014 was sent by
the petitioner to the respondent on the same day, by
an email.

41. Learned counsel for the respondent in my view is
not correct in its contention that since a draft
agreement was emailed by the respondent, there was
no executed agreement dated 07.07.2014. From the
email dated 15.07.2014, it is apparent that the
respondent had executed an Agreement prior to
15.07.2014. Petitioner had categorically stated in the
email dated 15.07.2014 that the payment terms in the
draft agreement were different and there is no
document on record filed by the respondent evidencing
denial of the contents of this email.

42. In so far as the argument that the invoices were
raised on PCTSPL and not on the petitioner is
concerned, petitioner is correct in its submission that
PCTSPL was only a sub-contractor of the respondent.

7

Petitioner had not raised the invoice on its own will.
Counsel for the petitioner has pointed out the email
dated 24.09.2019 sent by PCTSPL to the respondent
i.e. Mr. Manoj Panikar to Mr. Stephen whereby
PCTSPL had emailed the draft invoice to the
respondent and sought confirmation whether it could
be sent to the petitioner and finally, the revised draft
invoice was sent to the petitioner on 27.09.2019 by
PCTSPL.

43. The contention of the respondent that it was
PCTSPL which had made payments to the petitioner
and this was on account of their own inter se business
relationships has no merit. The invoice placed on
record clearly shows that this was with respect to the
contract awarded to the respondent by the Department
with which admittedly PCTSPL had no direct
relationship. This itself is indicative of the fact that
dehors the addressee of the invoices, the same were
with respect to the contract given by the department to
the respondent and for which the petitioner was a
consultant.

44. In so far as the contention of the respondent that
the Consultancy Agreement dated 07.07.2014 did not
have the signatures of Mr. M.G. Stephen and
therefore, cannot be accepted as an agreement
between the parties, is without merit. As mentioned in
the earlier part of the judgment, it is not mandatory for
an Arbitration Agreement that it must be signed by the
parties. The Supreme Court in case of Caravel
Shipping Services Pvt. Ltd. vs. M/s. Premier Sea
Foods
(2019) 11 SCC 461, has clearly held as under:

“8. In addition, we may indicate that the law in
this behalf, in Jugal Kishore Rameshwardas v.

Goolbai Hormusji, AIR 1955 SC 812, is that an
arbitration agreement needs to be in writing
though it need not be signed. The fact that the

8
arbitration agreement shall be in writing is
continued in the 1996 Act in Section 7(3) thereof.
Section 7(4) only further adds that an arbitration
agreement would be found in the circumstances
mentioned in the three sub-clauses that make up
Section 7(4). This does not mean that in all
cases an arbitration agreement needs to be
signed. The only pre-requisite is that it be in
writing, as has been pointed out in Section 7(3).”

45. In my view, the documents placed on record by the
petitioner clearly evidence that there exists an
Arbitration Agreement between the parties as
contained in the draft agreement exchanged by email
dated 07.07.2014. The present case squarely falls
within the ambit of Section 7(4)(b) of the Act. The
inevitable result is that the parties must be referred to
Arbitration for adjudication of their disputes.”

Accordingly, Justice G.S. Sistani, a former Judge of the Delhi

High Court was appointed as the Sole Arbitrator to adjudicate the

dispute between the parties.

8. Shri Shyam Divan, learned Senior Advocate, appearing on

behalf of the Appellant, has argued that the alleged Consultancy

Agreement dated 7th July, 2014 is a concocted document. This is

clear from the CFSL report dated 29 th September, 2019, on

which he relied very heavily. This being the case, since the

alleged Consultancy Agreement itself had no existence, there

was no arbitration agreement between the parties, as a result of

9
which the High Court judgment fell to the ground. He also

argued that this is the only case of its kind in which a formal

signed agreement is alleged to have been entered into between

the parties, after which negotiations take place and a draft

agreement is referred to. The very fact that negotiations have

taken place after such alleged agreement shows that such

alleged agreement does not in fact exist. He also went on to

argue that the agreement is notarized at Faridabad, Haryana,

when the parties are from Mumbai and Bihar respectively. He

has also produced documents to show that the so-called

Notary’s license had expired way before notarization allegedly

took place on 7th July, 2014. He argued that once the case that

is pleaded between the parties is found to be incorrect, the

Respondent cannot now be allowed to rely upon documents

produced here for the first time to show that even apart from the

pleaded case namely, the Consultancy Agreement dated 7 th July,

2014, yet, an agreement is made out in correspondence

between the parties after the said date. He attacked the Delhi

High Court judgment arguing that the findings that were made

qua invoices being raised and payments being made are wholly

10
incorrect in that such invoices were raised and payments were

made only by Process under a separate agreement entered into

between the Respondent and Process. He also stated that if

the pleadings of this case are perused, Process has been

described by the Respondent as a Joint Venture partner with the

Appellant in one place, then described as a private company

who has common directors with the Appellant; and then finally

described as a Sub-Contractor only in the written submissions

filed before Delhi High Court, which last appellation has been

accepted by the High Court completely wrongly. Even in the

Counter Affidavit filed before this Court, yet another plea is taken

that Process is the lead partner of the Appellant. For all these

reasons, the learned Senior Advocate submits that the judgment

under appeal ought to be set aside.

9. Shri Dhruv Mehta, learned Senior Advocate appearing on behalf

of the Respondent, has taken us through all the correspondence

again in order to show that even if the Consultancy Agreement

dated 7th July, 2014 is not relied upon, yet, an arbitration clause

exists in that the draft agreement that was exchanged between

the parties culminated in a final agreement on 25 th July, 2014. In
11
any case, if the correspondence between SBPDCL and the

Respondent is to be seen with CCs being marked to the

Appellant, it is clear that the Respondent acted as a go-between

and successfully obtained the bid for the Appellant having

earned its commission thereon. He argued that the judgment

under appeal does not require interference in that the CFSL

report was also inconclusive and that the correspondence

referred to by the learned Single Judge of the High Court would

clearly show that the dramatis personae in this case interacted

with each other and that, but for the efforts of his client, Pravin

Electricals Pvt. Ltd. would never have got the bid. He relied

upon a number of judgments of this Court to buttress his

submissions.

10. Having heard learned counsel for both the parties, it is important

to first set out the relevant provisions of the Arbitration and

Conciliation Act, 1996:

8. Power to refer parties to arbitration where there
is an arbitration agreement. —

(1) A judicial authority, before which an action is brought in a
matter which is the subject of an arbitration agreement
shall, if a party to the arbitration agreement or any person

12
claiming through or under him, so applies not later than
the date of submitting his first statement on the substance
of the dispute, then, notwithstanding any judgment,
decree or order of the Supreme Court or any Court, refer
the parties to arbitration unless it finds that prima facie no
valid arbitration agreement exists.

11. Appointment of arbitrators. —

xxxx

(6) Where, under an appointment procedure agreed
upon by the parties, —

(a) a party fails to act as required under that
procedure; or

(b) the parties, or the two appointed
arbitrators, fail to reach an agreement
expected of them under that procedure; or

(c) a person, including an institution, fails to
perform any function entrusted to him or it
under that procedure,

a party may request the Supreme Court or, as the
case may be, the High Court or any person or
institution designated by such Court to take the
necessary measure, unless the agreement on the
appointment procedure provides other means for
securing the appointment.

(6A) The Supreme Court or, as the case may be, the
High Court, while considering any application
under sub-section (4) or sub-section (5) or sub-
section (6), shall, notwithstanding any judgment,
decree or order of any Court, confine to the
examination of the existence of an arbitration
agreement.

xxxx

13
(7) A decision on a matter entrusted by sub-section (4)
or sub-section (5) or sub-section (6) to 3 the
Supreme Court or, as the case may be, the High
Court or the person or institution designated by
such Court is final and no appeal including
Letters Patent Appeal shall lie against such
decision.

11. Sections 8 and 11 were amended pursuant to a detailed Law

Commission Report being the 246 th Law Commission Report on

Arbitration. The history of the law prior to 2015 is set out in the

aforesaid Report and the changes made therein are reflected by

this Court in its judgment in Mayavati Trading (P) Ltd. v.

Pradyuat Deb Burman, (2019) 8 SCC 714 as under:

“9. The 246th Law Commission Report dealt with
some of these judgments and felt that at the stage
of a Section 11(6) application, only “existence” of an
arbitration agreement ought to be looked at and not
other preliminary issues. In a recent judgment of
this Court, namely, Garware Wall Ropes Ltd. v.
Coastal Marine Constructions & Engg. Ltd
., (2019)
9 SCC 209, this Court adverted to the said Law
Commission Report and held:

“8. The case law under Section 11(6) of the
Arbitration Act, as it stood prior to the Amendment
Act
, 2015, has had a chequered history.

9. In Konkan Railway Corpn. Ltd. v. Mehul
Construction Co
., (2000) 7 SCC 201 (Konkan
Railway 1), it was held that the powers of the Chief
Justice under Section 11(6) of the 1996 Act are

14
administrative in nature, and that the Chief Justice
or his designate does not act as a judicial authority
while appointing an arbitrator. The same view was
reiterated in Konkan Railway Corpn. Ltd. v. Rani
Construction (P) Ltd
., (2002) 2 SCC 388 (Konkan
Railway 2).

10. However, in SBP & Co. v. Patel Engg. Ltd.,
(2005) 8 SCC 618, a seven-Judge Bench overruled
this view and held that the power to appoint an
arbitrator under Section 11 is judicial and not
administrative. The conclusions of the seven-Judge
Bench were summarised in para 47 of the aforesaid
judgment. We are concerned directly with sub-paras

(i), (iv) and (xii), which read as follows: (SCC pp.
663-64)
‘(i) The power exercised by the Chief Justice
of the High Court or the Chief Justice of India
under Section 11(6) of the Act is not an
administrative power. It is a judicial power.
***

(iv) The Chief Justice or the designated Judge
will have the right to decide the preliminary
aspects as indicated in the earlier part of this
judgment. These will be his own jurisdiction to
entertain the request, the existence of a valid
arbitration agreement, the existence or
otherwise of a live claim, the existence of the
condition for the exercise of his power and on
the qualifications of the arbitrator or
arbitrators. The Chief Justice or the
designated Judge would be entitled to seek
the opinion of an institution in the matter of
nominating an arbitrator qualified in terms of
Section 11(8) of the Act if the need arises but
the order appointing the arbitrator could only
be that of the Chief Justice or the designated
Judge.

15

***

(xii) The decision in Konkan Railway Corpn.
Ltd. v. Rani Construction (P) Ltd
., (2002) 2
SCC 388 is overruled.’

11. This position was further clarified in National
Insurance Co. Ltd. v. Boghara Polyfab (P) Ltd
.,
(2009) 1 SCC 267 as follows: (SCC p. 283, para 22)
‘22. Where the intervention of the court is
sought for appointment of an Arbitral Tribunal
under Section 11, the duty of the Chief Justice
or his designate is defined in SBP & Co.
(supra) This Court identified and segregated
the preliminary issues that may arise for
consideration in an application under Section
11
of the Act into three categories, that is, (i)
issues which the Chief Justice or his
designate is bound to decide; (ii) issues which
he can also decide, that is, issues which he
may choose to decide; and (iii) issues which
should be left to the Arbitral Tribunal to decide.
22.1. The issues (first category) which the
Chief Justice/his designate will have to decide
are:

           (a) Whether the party making            the
               application has approached          the
               appropriate High Court.
           (b) Whether there      is an arbitration
               agreement and     whether the party
               who has applied   under Section 11 of
               the Act, is a     party to such an
               agreement.

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

16

(a)Whether the claim is a dead (long-

barred) claim or a live claim.

(b)Whether the parties have concluded the
contract/transaction by recording
satisfaction of their mutual rights and
obligation or by receiving the final
payment without objection.

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

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

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

12. As a result of these judgments, the door
was wide open for the Chief Justice or his
designate to decide a large number of
preliminary aspects which could otherwise
have been left to be decided by the arbitrator
under Section 16 of the 1996 Act. As a result,
the Law Commission of India, by its Report
No. 246 submitted in August 2014, suggested
that various sweeping changes be made in
the 1996 Act. Insofar as SBP & Co. (supra)
and Boghara Polyfab (supra) are concerned,
the Law Commission examined the matter
and recommended the addition of a new sub-
section, namely, sub-section (6-A) in Section

11. In so doing, the Law Commission
recommendations which are relevant and
which led to the introduction of Section 11(6-
A) are as follows:

‘28. The Act recognises situations where
the intervention of the Court is envisaged
at the pre-arbitral stage i.e. prior to the
17
constitution of the Arbitral Tribunal, which
includes Sections 8, 9, 11 in the case of
Part I arbitrations and Section 45 in the
case of Part II arbitrations. Sections 8, 45
and also Section 11 relating to “reference
to arbitration” and “appointment of the
Tribunal”, directly affect the constitution of
the Tribunal and functioning of the arbitral
proceedings. Therefore, their operation has
a direct and significant impact on the
“conduct” of arbitrations. Section 9, being
solely for the purpose of securing interim
relief, although having the potential to
affect the rights of parties, does not affect
the “conduct” of the arbitration in the same
way as these other provisions. It is in this
context the Commission has examined and
deliberated the working of these provisions
and proposed certain amendments.

29. The Supreme Court has had occasion
to deliberate upon the scope and nature of
permissible pre-arbitral judicial
intervention, especially in the context of
Section 11 of the Act. Unfortunately,
however, the question before the Supreme
Court was framed in terms of whether such
a power is a “judicial” or an “administrative”
power — which obfuscates the real issue
underlying such nomenclature/description
as to

– the scope of such powers — i.e. the
scope of arguments which a court (Chief
Justice) will consider while deciding
whether to appoint an arbitrator or not —
i.e. whether the arbitration agreement
exists, whether it is null and void, whether
it is voidable, etc.; and which of these it

18
should leave for decision of the Arbitral
Tribunal.

– the nature of such intervention — i.e.
would the court (Chief Justice) consider
the issues upon a detailed trial and
whether the same would be decided finally
or be left for determination of the Arbitral
Tribunal.

30. After a series of cases culminating in
the decision in SBP & Co. v. Patel Engg.
Ltd
. (supra), the Supreme Court held that
the power to appoint an arbitrator under
Section 11 is a “judicial” power. The
underlying issues in this judgment, relating
to the scope of intervention, were
subsequently clarified by Raveendran, J. in
National Insurance Co. Ltd. v. Boghara
Polyfab (P) Ltd
. (supra), where the
Supreme Court laid down as follows: (SCC
p. 283, para 22)
‘22.1. The issues (first category)
which Chief Justice/his designate will
have to decide are:

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

(b) Whether there is an arbitration
agreement and whether the party
who has applied under Section 11
of the Act, is a party to such an
agreement?

22.2. The issues (second category)
which the Chief Justice/his designate
may choose to decide are:

19

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

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

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

(a) Whether a claim made falls within
the arbitration clause (as for
example, a matter which is
reserved for final decision of a
departmental authority and
excepted or excluded from
arbitration)?

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

31. The Commission is of the view that, in
this context, the same test regarding scope
and nature of judicial intervention, as
applicable in the context of Section 11,
should also apply to Sections 8 and 45 of
the Act — since the scope and nature of
judicial intervention should not change
upon whether a party (intending to defeat
the arbitration agreement) refuses to
appoint an arbitrator in terms of the
arbitration agreement, or moves a
proceeding before a judicial authority in the
face of such an arbitration agreement.

32. In relation to the nature of intervention,
the exposition of the law is to be found in
the decision of the Supreme Court in Shin-

20

Etsu Chemical Co. Ltd. v. Aksh Optifibre
Ltd
., (2005) 7 SCC 234, (in the context of
Section 45 of the Act), where the Supreme
Court has ruled in favour of looking at the
issues/controversy only prima facie.

33. It is in this context, the Commission
has recommended amendments to
Sections 8 and 11 of the Arbitration and
Conciliation Act, 1996. The scope of the
judicial intervention is only restricted to
situations where the court/judicial authority
finds that the arbitration agreement does
not exist or is null and void. Insofar as the
nature of intervention is concerned, it is
recommended that in the event the
court/judicial authority is prima facie
satisfied against the argument challenging
the arbitration agreement, it shall appoint
the arbitrator and/or refer the parties to
arbitration, as the case may be. The
amendment envisages that the judicial
authority shall not refer the parties to
arbitration only if it finds that there does not
exist an arbitration agreement or that it is
null and void. If the judicial authority is of
the opinion that prima facie the arbitration
agreement exists, then it shall refer the
dispute to arbitration, and leave the
existence of the arbitration agreement to
be finally determined by the Arbitral
Tribunal. However, if the judicial authority
concludes that the agreement does not
exist, then the conclusion will be final and
not prima facie. The amendment also
envisages that there shall be a conclusive
determination as to whether the arbitration
agreement is null and void. In the event
that the judicial authority refers the dispute
to arbitration and/or appoints an arbitrator,
21
under Sections 8 and 11 respectively, such
a decision will be final and non-appealable.
An appeal can be maintained under
Section 37 only in the event of refusal to
refer parties to arbitration, or refusal to
appoint an arbitrator.’

13. Pursuant to the Law Commission
recommendations, Section 11(6-A) was
introduced first by Ordinance and then by the
Amendment Act, 2015. The Statement of
Objects and Reasons which were appended
to the Arbitration and Conciliation
(Amendment) Bill, 2015 which introduced the
Amendment Act, 2015 read as follows:

‘Statement of Objects and Reasons
***

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 the following,
namely—

(i) to amend the definition of “Court”
to provide that in the case of
international commercial
arbitrations, the Court should be
the High Court;

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

(iii) an application for appointment of
an arbitrator shall be disposed of

22
by the High Court or Supreme
Court, as the case may be, as
expeditiously as possible and an
endeavour should be made to
dispose of the matter within a
period of sixty days;

(iv) to provide that while considering
any application for appointment of
arbitrator, the High Court or the
Supreme Court shall examine the
existence of a prima facie
arbitration agreement and not
other issues;

(v) to provide that the Arbitral Tribunal
shall make its award within a
period of twelve months from the
date it enters upon the reference
and that the parties may, however,
extend such period up to six
months, beyond which period any
extension can only be granted by
the Court, on sufficient cause;

(vi) to provide that a model fee
schedule on the basis of which
High Courts may frame rules for
the purpose of determination of
fees of Arbitral Tribunal, where a
High Court appoints arbitrator in
terms of Section 11 of the Act;

(vii) to provide that the parties to
dispute may at any stage agree in
writing that their dispute be
resolved through fast-track
procedure and the award in such
cases shall be made within a
period of six months;

23

(viii) to provide for neutrality of
arbitrators, when a person is
approached in connection with
possible appointment as an
arbitrator;

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

7. The amendments proposed in the Bill
will ensure that arbitration process
becomes more user-friendly, cost
effective and leads to expeditious
disposal of cases.’

14. A reading of the Law Commission Report,
together with the Statement of Objects and
Reasons, shows that the Law Commission felt
that the judgments in Patel Engg. Ltd., (supra)
and Boghara Polyfab (supra) required a
relook, as a result of which, so far as Section
11
is concerned, the Supreme Court or, as the
case may be, the High Court, while
considering any application under Sections
11(4)
to 11(6) is to confine itself to the
examination of the existence of an arbitration
agreement and leave all other preliminary
issues to be decided by the arbitrator.”

12. The need for reference to any other case law is obviated by a

recent Three-Judge Bench judgment in Vidya Drolia v. Durga

Trading Corporation, (2021) 2 SCC 1. This Three-Judge Bench

judgment arose out of a reference made to 3 learned Judges in

24
Vidya Drolia v. Durga Trading Corporation, (2019) 20 SCC

406. Sanjiv Khanna, J. speaking for the Court set out the

question that arose before the Court as follows:

“1. This judgment decides the reference to three
Judges made vide order dated 28-2-2019 in Vidya
Drolia v. Durga Trading Corpn
., (2019) 20 SCC 406,
as it doubts the legal ratio expressed in Himangni
Enterprises v. Kamaljeet Singh Ahluwalia
, (2017) 10
SCC 706 that landlord-tenant disputes governed by
the provisions of the Transfer of Property Act, 1882,
are not arbitrable as this would be contrary to public
policy.

2. A deeper consideration of the order of reference
reveals that the issues required to be answered
relate to two aspects that are distinct and yet
interconnected, namely:

2.1. (i) Meaning of non-arbitrability and when the
subject-matter of the dispute is not capable of being
resolved through arbitration.

2.2. (ii) The conundrum — “who decides” —
whether the court at the reference stage or the
Arbitral Tribunal in the arbitration proceedings would
decide the question of non-arbitrability.

2.3. The second aspect also relates to the scope
and ambit of jurisdiction of the court at the referral
stage when an objection of non-arbitrability is raised
to an application under Section 8 or 11 of the
Arbitration and Conciliation Act, 1996 (for short “the
Arbitration Act”).

25

13. The Bench then went into the Law Commission’s 246 th Report as

follows:

124. In order to appreciate the effect of the
amendments made by Act 3 of 2016, it would be
appropriate to refer to the Law Commission’s 246th
Report which had given reasons for amendments to
Sections 8 and 11 of the Arbitration Act, including
insertion of sub-section (6-A) to Section 11. The
said reasons read as under:

“24. Two further sets of amendments have
been proposed in this context. First, it is
observed that a lot of time is spent for
appointment of arbitrators at the very
threshold of arbitration proceedings as
applications under Section 11 are kept
pending for many years. In this context, the
Commission has proposed a few
amendments. The Commission has proposed
changing the existing scheme of the power of
appointment being vested in the “Chief
Justice” to the “High Court” and the “Supreme
Court” and has expressly clarified that
delegation of the power of “appointment” (as
opposed to a finding regarding the
existence/nullity of the arbitration agreement)
shall not be regarded as a judicial act. This
would rationalise the law and provide greater
incentive for the High Court and/or Supreme
Court to delegate the power of appointment
(being a non-judicial act) to specialised,
external persons or institutions. The
Commission has further recommended an
amendment to Section 11(7) so that decisions
of the High Court (regarding existence/nullity
of the arbitration agreement) are final where
an arbitrator has been appointed, and as such
26
are non-appealable. The Commission further
proposes the addition of Section 11(13) which
requires the Court to make an endeavour to
dispose of the matter within sixty days from
the service of notice on the opposite party.

***
The Law Commission’s Report specifically refers to
the decision of this Court in Shin-Etsu Chemical Co.
Ltd. v. Aksh Optifibre Ltd
., (2005) 7 SCC 234, a
decision relating to transnational arbitration covered
by the New York Convention.

14. Dealing with “prima facie” examination under Section 8, as

amended, the Court then held:

134. Prima facie examination is not full review but a
primary first review to weed out manifestly and ex
facie non-existent and invalid arbitration
agreements and non-arbitrable disputes. The prima
facie review at the reference stage is to cut the
deadwood and trim off the side branches in
straightforward cases where dismissal is barefaced
and pellucid and when on the facts and law the
litigation must stop at the first stage. Only when the
court is certain that no valid arbitration agreement
exists or the disputes/subject-matter are not
arbitrable, the application under Section 8 would be
rejected. At this stage, the court should not get lost
in thickets and decide debatable questions of facts.

Referral proceedings are preliminary and summary
and not a mini trial. This necessarily reflects on the
nature of the jurisdiction exercised by the court and
in this context, the observations of B.N. Srikrishna,
J. of “plainly arguable” case in Shin-Etsu Chemical
Co. Ltd. are of importance and relevance. Similar
views are expressed by this Court in Vimal Kishor
Shah v. Jayesh Dinesh Shah
, (2016) 8 SCC

27
wherein the test applied at the pre-arbitration stage
was whether there is a “good arguable case” for the
existence of an arbitration agreement.

15. The parameters of review under Sections 8 and 11 were then

laid down thus:

138. In the Indian context, we would respectfully
adopt the three categories in Boghara Polyfab (P)
Ltd. The first category of issues, namely, whether
the party has approached the appropriate High
Court, whether there is an arbitration agreement
and whether the party who has applied for reference
is party to such agreement would be subject to
more thorough examination in comparison to the
second and third categories/issues which are
presumptively, save in exceptional cases, for the
arbitrator to decide. In the first category, we would
add and include the question or issue relating to
whether the cause of action relates to action in
personam or rem; whether the subject-matter of the
dispute affects third-party rights, have erga omnes
effect, requires centralised adjudication; whether the
subject-matter relates to inalienable sovereign and
public interest functions of the State; and whether
the subject-matter of dispute is expressly or by
necessary implication non-arbitrable as per
mandatory statute(s). Such questions arise rarely
and, when they arise, are on most occasions
questions of law. On the other hand, issues relating
to contract formation, existence, validity and non-
arbitrability would be connected and intertwined with
the issues underlying the merits of the respective
disputes/claims. They would be factual and disputed
and for the Arbitral Tribunal to decide.

28

139. We would not like to be too prescriptive, albeit
observe that the court may for legitimate reasons, to
prevent wastage of public and private resources,
can exercise judicial discretion to conduct an
intense yet summary prima facie review while
remaining conscious that it is to assist the
arbitration procedure and not usurp jurisdiction of
the Arbitral Tribunal. Undertaking a detailed full
review or a long-drawn review at the referral stage
would obstruct and cause delay undermining the
integrity and efficacy of arbitration as a dispute
resolution mechanism. Conversely, if the court
becomes too reluctant to intervene, it may
undermine effectiveness of both the arbitration and
the court. There are certain cases where the prima
facie examination may require a deeper
consideration. The court’s challenge is to find the
right amount of and the context when it would
examine the prima facie case or exercise restraint.
The legal order needs a right balance between
avoiding arbitration obstructing tactics at referral
stage and protecting parties from being forced to
arbitrate when the matter is clearly non-arbitrable.
[ Ozlem Susler, “The English Approach to
Competence-Competence” Pepperdine Dispute
Resolution Law Journal, 2013, Vol. 13.]

140. Accordingly, when it appears that prima facie
review would be inconclusive, or on consideration
inadequate as it requires detailed examination, the
matter should be left for final determination by the
Arbitral Tribunal selected by the parties by consent.
The underlying rationale being not to delay or defer
and to discourage parties from using referral
proceeding as a ruse to delay and obstruct. In such
cases a full review by the courts at this stage would
encroach on the jurisdiction of the Arbitral Tribunal
and violate the legislative scheme allocating
jurisdiction between the courts and the Arbitral

29
Tribunal. Centralisation of litigation with the Arbitral
Tribunal as the primary and first adjudicator is
beneficent as it helps in quicker and efficient
resolution of disputes.

16. The Court then examined the meaning of the expression

“existence” which occurs in Section 11(6A) and summed up its

discussion as follows:

146. We now proceed to examine the question,
whether the word “existence” in Section 11 merely
refers to contract formation (whether there is an
arbitration agreement) and excludes the question of
enforcement (validity) and therefore the latter falls
outside the jurisdiction of the court at the referral
stage. On jurisprudentially and textualism it is
possible to differentiate between existence of an
arbitration agreement and validity of an arbitration
agreement. Such interpretation can draw support
from the plain meaning of the word “existence”.
However, it is equally possible, jurisprudentially and
on contextualism, to hold that an agreement has no
existence if it is not enforceable and not binding.
Existence of an arbitration agreement presupposes
a valid agreement which would be enforced by the
court by relegating the parties to arbitration.
Legalistic and plain meaning interpretation would be
contrary to the contextual background including the
definition clause and would result in unpalatable
consequences. A reasonable and just interpretation
of “existence” requires understanding the context,
the purpose and the relevant legal norms applicable
for a binding and enforceable arbitration agreement.

An agreement evidenced in writing has no meaning
unless the parties can be compelled to adhere and
abide by the terms. A party cannot sue and claim

30
rights based on an unenforceable document. Thus,
there are good reasons to hold that an arbitration
agreement exists only when it is valid and legal. A
void and unenforceable understanding is no
agreement to do anything. Existence of an
arbitration agreement means an arbitration
agreement that meets and satisfies the statutory
requirements of both the Arbitration Act and the
Contract Act and when it is enforceable in law.

147. We would proceed to elaborate and give
further reasons:

147.1. In Garware Wall Ropes Ltd. v. Coastal
Marine Constructions & Engg. Ltd
., (2019) 9 SCC
209, this Court had examined the question of stamp
duty in an underlying contract with an arbitration
clause and in the context had drawn a distinction
between the first and second part of Section 7(2) of
the Arbitration Act, albeit the observations made and
quoted above with reference to “existence” and
“validity” of the arbitration agreement being apposite
and extremely important, we would repeat the same
by reproducing para 29 thereof: (SCC p. 238)

“29. This judgment in United India Insurance
Co. Ltd. v. Hyundai Engg. & Construction Co.
Ltd
., (2018) 17 SCC 607 is important in that
what was specifically under consideration was
an arbitration clause which would get
activated only if an insurer admits or accepts
liability. Since on facts it was found that the
insurer repudiated the claim, though an
arbitration clause did “exist”, so to speak, in
the policy, it would not exist in law, as was
held in that judgment, when one important fact
is introduced, namely, that the insurer has not
admitted or accepted liability. Likewise, in the
facts of the present case, it is clear that the

31
arbitration clause that is contained in the sub-

contract would not “exist” as a matter of law
until the sub-contract is duly stamped, as has
been held by us above. The argument that
Section 11(6-A) deals with “existence”, as
opposed to Section 8, Section 16 and Section
45
, which deal with “validity” of an arbitration
agreement is answered by this Court’s
understanding of the expression “existence” in
Hyundai Engg. case, as followed by us.”

Existence and validity are intertwined, and
arbitration agreement does not exist if it is illegal or
does not satisfy mandatory legal requirements.

Invalid agreement is no agreement.

147.2. The court at the reference stage exercises
judicial powers. “Examination”, as an ordinary
expression in common parlance, refers to an act of
looking or considering something carefully in order
to discover something (as per Cambridge
Dictionary). It requires the person to inspect closely,
to test the condition of, or to inquire into carefully
(as per Merriam-Webster Dictionary). It would be
rather odd for the court to hold and say that the
arbitration agreement exists, though ex facie and
manifestly the arbitration agreement is invalid in law
and the dispute in question is non-arbitrable. The
court is not powerless and would not act beyond
jurisdiction, if it rejects an application for reference,
when the arbitration clause is admittedly or without
doubt is with a minor, lunatic or the only claim seeks
a probate of a will.

147.3. Most scholars and jurists accept and agree
that the existence and validity of an arbitration
agreement are the same. Even Stavros Brekoulakis
accepts that validity, in terms of substantive and

32
formal validity, are questions of contract and hence
for the court to examine.

147.4. Most jurisdictions accept and require prima
facie review by the court on non-arbitrability aspects
at the referral stage.

147.5. Sections 8 and 11 of the Arbitration Act are
complementary provisions as was held in Patel
Engg. Ltd. The object and purpose behind the two
provisions is identical to compel and force parties to
abide by their contractual understanding. This being
so, the two provisions should be read as laying
down similar standard and not as laying down
different and separate parameters. Section 11 does
not prescribe any standard of judicial review by the
court for determining whether an arbitration
agreement is in existence. Section 8 states that the
judicial review at the stage of reference is prima
facie and not final. Prima facie standard equally
applies when the power of judicial review is
exercised by the court under Section 11 of the
Arbitration Act. Therefore, we can read the mandate
of valid arbitration agreement in Section 8 into
mandate of Section 11, that is, “existence of an
arbitration agreement”.

147.6. Exercise of power of prima facie judicial
review of existence as including validity is justified
as a court is the first forum that examines and
decides the request for the referral. Absolute “hands
off” approach would be counterproductive and harm
arbitration, as an alternative dispute resolution
mechanism. Limited, yet effective intervention is
acceptable as it does not obstruct but effectuates
arbitration.

147.7. Exercise of the limited prima facie review
does not in any way interfere with the principle of

33
competence-competence and separation as to
obstruct arbitration proceedings but ensures that
vexatious and frivolous matters get over at the initial
stage.

147.8. Exercise of prima facie power of judicial
review as to the validity of the arbitration agreement
would save costs and check harassment of
objecting parties when there is clearly no
justification and a good reason not to accept plea of
non-arbitrability. In Subrata Roy Sahara v. Union of
India
, (2014) 8 SCC 470, this Court has observed:
(SCC p. 642, para 191)

“191. The Indian judicial system is grossly
afflicted with frivolous litigation. Ways and
means need to be evolved to deter litigants
from their compulsive obsession towards
senseless and ill-considered claims. One
needs to keep in mind that in the process of
litigation, there is an innocent sufferer on the
other side of every irresponsible and
senseless claim. He suffers long-drawn
anxious periods of nervousness and
restlessness, whilst the litigation is pending
without any fault on his part. He pays for the
litigation from out of his savings (or out of his
borrowings) worrying that the other side may
trick him into defeat for no fault of his. He
spends invaluable time briefing counsel and
preparing them for his claim. Time which he
should have spent at work, or with his family,
is lost, for no fault of his. Should a litigant not
be compensated for what he has lost for no
fault? The suggestion to the legislature is that
a litigant who has succeeded must be
compensated by the one who has lost. The
suggestion to the legislature is to formulate a
mechanism that anyone who initiates and
34
continues a litigation senselessly pays for the
same. It is suggested that the legislature
should consider the introduction of a “Code of
Compulsory Costs”.”

147.9. Even in Duro Felguera, S.A. v. Gangavaram
Port Ltd
., (2017) 9 SCC 729, Kurian Joseph, J., in
para 52, had referred to Section 7(5) and thereafter
in para 53 referred to a judgment of this Court in
M.R. Engineers & Contractors (P) Ltd. v. Som Datt
Builders Ltd
., (2009) 7 SCC 696 to observe that the
analysis in the said case supports the final
conclusion that the memorandum of understanding
in the said case did not incorporate an arbitration
clause. Thereafter, reference was specifically made
to SBP & Co. v. Patel Engg. Ltd., (2005) 8 SCC 618
and National Insurance Co. Ltd. v. Boghara Polyfab
(P) Ltd
., (2009) 1 SCC 267 to observe that the
legislative policy is essential to minimise court’s
interference at the pre-arbitral stage and this was
the intention of sub-section (6) to Section 11 of the
Arbitration Act. Para 48 in Duro Felguera specifically
states that the resolution has to exist in the
arbitration agreement, and it is for the court to see if
the agreement contains a clause which provides for
arbitration of disputes which have arisen between
the parties. Para 59 is more restrictive and requires
the court to see whether an arbitration agreement
exists — nothing more, nothing less. Read with the
other findings, it would be appropriate to read the
two paragraphs as laying down the legal ratio that
the court is required to see if the underlying contract
contains an arbitration clause for arbitration of the
disputes which have arisen between the parties —
nothing more, nothing less. Reference to decisions
in Patel Engg. Ltd. and Boghara Polyfab (P) Ltd.
was to highlight that at the reference stage, post the
amendments vide Act 3 of 2016, the court would not

35
go into and finally decide different aspects that were
highlighted in the two decisions.

147.10. In addition to Garware Wall Ropes Ltd.
case, this Court in Narbheram Power & Steel (P)
Ltd. [Oriental Insurance Co. Ltd. v. Narbheram
Power & Steel (P) Ltd
., (2018) 6 SCC 534] and
Hyundai Engg. & Construction Co. Ltd. [United India
Insurance Co. Ltd. v. Hyundai Engg. & Construction
Co. Ltd
., (2018) 17 SCC 607] , both decisions of
three Judges, has rejected the application for
reference in the insurance contracts holding that the
claim was beyond and not covered by the arbitration
agreement. The Court felt that the legal position
was beyond doubt as the scope of the arbitration
clause was fully covered by the dictum in Vulcan
Insurance Co. Ltd. [Vulcan Insurance Co. Ltd. v.
Maharaj Singh
, (1976) 1 SCC 943] Similarly, in PSA
Mumbai Investments Pte. Ltd. [PSA Mumbai
Investments Pte. Ltd. v. Jawaharlal Nehru Port
Trust
, (2018) 10 SCC 525] , this Court at the referral
stage came to the conclusion that the arbitration
clause would not be applicable and govern the
disputes. Accordingly, the reference to the Arbitral
Tribunal was set aside leaving the respondent to
pursue its claim before an appropriate forum.

147.11. The interpretation appropriately balances
the allocation of the decision-making authority
between the court at the referral stage and the
arbitrators’ primary jurisdiction to decide disputes on
merits. The court as the judicial forum of the first
instance can exercise prima facie test jurisdiction to
screen and knock down ex facie meritless, frivolous
and dishonest litigation. Limited jurisdiction of the
courts ensures expeditious, alacritous and efficient
disposal when required at the referral stage.

17. The Bench finally concluded:

36

153. Accordingly, we hold that the expression
“existence of an arbitration agreement” in Section
11
of the Arbitration Act, would include aspect of
validity of an arbitration agreement, albeit the court
at the referral stage would apply the prima facie test
on the basis of principles set out in this judgment. In
cases of debatable and disputable facts, and good
reasonable arguable case, etc., the court would
force the parties to abide by the arbitration
agreement as the Arbitral Tribunal has primary
jurisdiction and authority to decide the disputes
including the question of jurisdiction and non-
arbitrability.

154. Discussion under the heading “Who Decides
Arbitrability?” can be crystallised as under:

154.1. Ratio of the decision in Patel Engg. Ltd. on
the scope of judicial review by the court while
deciding an application under Sections 8 or 11 of
the Arbitration Act, post the amendments by Act 3 of
2016 (with retrospective effect from 23-10-2015)
and even post the amendments vide Act 33 of 2019
(with effect from 9-8-2019), is no longer applicable.

154.2. Scope of judicial review and jurisdiction of
the court under Sections 8 and 11 of the Arbitration
Act is identical but extremely limited and restricted.

154.3. The general rule and principle, in view of the
legislative mandate clear from Act 3 of 2016 and Act
33 of 2019, and the principle of severability and
competence-competence, is that the Arbitral
Tribunal is the preferred first authority to determine
and decide all questions of non-arbitrability. The
court has been conferred power of “second look” on
aspects of non-arbitrability post the award in terms
of sub-clauses (i), (ii) or (iv) of Section 34(2)(a) or

37
sub-clause (i) of Section 34(2)(b) of the Arbitration
Act.

154.4. Rarely as a demurrer the court may interfere
at Section 8 or 11 stage when it is manifestly and ex
facie certain that the arbitration agreement is non-
existent, invalid or the disputes are non-arbitrable,
though the nature and facet of non-arbitrability
would, to some extent, determine the level and
nature of judicial scrutiny. The restricted and limited
review is to check and protect parties from being
forced to arbitrate when the matter is demonstrably
“non-arbitrable” and to cut off the deadwood. The
court by default would refer the matter when
contentions relating to non-arbitrability are plainly
arguable; when consideration in summary
proceedings would be insufficient and inconclusive;
when facts are contested; when the party opposing
arbitration adopts delaying tactics or impairs
conduct of arbitration proceedings. This is not the
stage for the court to enter into a mini trial or
elaborate review so as to usurp the jurisdiction of
the Arbitral Tribunal but to affirm and uphold
integrity and efficacy of arbitration as an alternative
dispute resolution mechanism.

155. Reference is, accordingly, answered.

18. Ramana, J. in a separate concurring opinion, after referring to

the case law, summed up his conclusions as follows:

244. Before we part, the conclusions reached, with
respect to Question 1, are:

244.1. Sections 8 and 11 of the Act have the same
ambit with respect to judicial interference.

38

244.2. Usually, subject-matter arbitrability cannot be
decided at the stage of Section 8 or 11 of the Act,
unless it is a clear case of deadwood.

244.3. The court, under Sections 8 and 11, has to
refer a matter to arbitration or to appoint an
arbitrator, as the case may be, unless a party has
established a prima facie (summary findings) case
of non-existence of valid arbitration agreement, by
summarily portraying a strong case that he is
entitled to such a finding.

244.4. The court should refer a matter if the validity
of the arbitration agreement cannot be determined
on a prima facie basis, as laid down above i.e.
“when in doubt, do refer”.

244.5. The scope of the court to examine the prima
facie validity of an arbitration agreement includes
only:

244.5.1. Whether the arbitration agreement was in
writing? or

244.5.2. Whether the arbitration agreement was
contained in exchange of letters,
telecommunication, etc.?

244.5.3. Whether the core contractual ingredients
qua the arbitration agreement were fulfilled?

244.5.4. On rare occasions, whether the subject-
matter of dispute is arbitrable?

19. The 246th Law Commission Report not only discussed the

changes that are to be made bearing in mind the difficulties that

39
arose earlier, but also provided for amendments that were to be

made to Sections 8 and 11. This was provided as follows:

“Amendment of Section 8

5. In section 8 of the Act,

(i) In sub-section (1), after the words “substance of the
dispute, refer” add “to arbitration, such of” and after the
words “the parties to” add “the action who are parties
to the” and after the word “arbitration” add the word
“agreement”.

(ii) after sub-section (1), add “Provided that no such
reference shall be made only in cases where –

(i) the parties to the action who are not parties to the
arbitration agreement, are necessary parties to the
action;

(ii) the judicial authority finds that the arbitration
agreement does not exist or is null and void.

Explanation 1: If the judicial authority is prima facie
satisfied about the existence of an arbitration
agreement, it shall refer the parties to arbitration and
leave the final determination of the existence of the
arbitration agreement to the arbitral tribunal in
accordance with section 16, which shall decide the
same as a preliminary issue;

Explanation 2: Any pleading filed in relation to any
interim application which has been filed before the
judicial authority shall not be treated to be a statement
on the substance of the dispute for the purpose of this
section.”

[NOTE: The words “such of the parties… to the
arbitration agreement” and proviso (i) of the
amendment have been proposed in the context of the

40
decision of the Supreme Court in Sukanya Holdings
Pvt. Ltd. v. Jayesh H. Pandya and Anr
., (2003) 5 SCC
531, – in cases where all the parties to the dispute are
not parties to the arbitration agreement, the reference
is to be rejected only where such parties are necessary
parties to the action – and not if they are only proper
parties, or are otherwise legal strangers to the action
and have been added only to circumvent the arbitration
agreement. Proviso (ii) of the amendment
contemplates a two-step process to be adopted by a
judicial authority when considering an application
seeking the reference of a pending action to
arbitration. The amendment envisages that the judicial
authority shall not refer the parties to arbitration only if
it finds that there does not exist an arbitration
agreement or that it is null and void. If the judicial
authority is of the opinion that prima facie the
arbitration agreement exists, then it shall refer the
dispute to arbitration, and leave the existence of the
arbitration agreement to be finally determined by the
arbitral tribunal. However, if the judicial authority
concludes that the agreement does not exist, then the
conclusion will be 44 final and not prima facie. The
amendment also envisages that there shall be a
conclusive determination as to whether the arbitration
agreement is null and void.]”

(iii) In sub-section (2), after the words “duly certified
copy thereof” add “or a copy accompanied by an
affidavit calling upon the other party to produce the
original arbitration agreement or duly certified copy
thereof in a circumstance where the original arbitration
agreement or duly certified copy is retained only by the
other party.”
xxx

Amendment of Section 11

7. In section 11,

41

(i) In sub-section (4), sub-clause (b), after the words
“by the” delete “Chief Justice” and add words “High
Court” and after the words “designated by” delete the
word “him” and add the word “it”.

(ii) In sub-section (5), after the words “by the” delete
“Chief Justice” and add words “High Court” and after
the words “designated by” delete the word “him” and
add the word “it”.

(iii) In sub-section (6), sub-clause (c), after the words
“may request the” delete “Chief Justice” and add words
“High Court” and after the words “designated by”
delete the word “him” and add the word “it”.

(iv) after sub-section (6), insert sub-section “(6A) An
appointment by the High Court or the person or
institution designated by it under sub-section (4) or
sub-section (5) or sub-section (6) shall not be made
only if the High Court finds that the arbitration
agreement does not exist or is null and void,

Explanation 1: If the High Court is prima facie satisfied
regarding the existence of an arbitration agreement, it
shall refer the parties to arbitration and leave the final
determination of the existence of the arbitration
agreement to the arbitral tribunal in accordance with
section 16, which shall decide the same as a
preliminary issue.

Explanation 2: For the removal of any doubt, it is
clarified that reference by the High Court to any person
or institution designated by it shall not be regarded as
a delegation of judicial power.

Explanation 3: The High Court may take steps to
encourage the parties to refer the disputes to
institutionalised arbitration by a professional Indian or
International Arbitral Institute.

42

[NOTE: The proposed section 11 (6A) envisages the
same process of determination as is reflected in the
proposed amendment to section 8. Explanation 2
envisages that reference by the High Court to any
person or institution designated by it shall not be
regarded as a delegation of judicial power. Explanation
3 has been inserted with the hope and expectation that
High Courts would encourage the parties to refer the
disputes to institutionalize arbitration by a professional
Indian or international arbitral institute.]

(v) In sub-section (7), after the words “or sub-section
(6)” add the words “or subsection (6A)” and after the
words “to the” delete the words “Chief Justice or the”
and add the words “High Court is final where an
arbitral tribunal has been appointed or a” and after the
words “person or institution” add the words “has been”
and after the words “designated by” delete the words
“him is final” and insert the words “the High Court, and
no appeal, including letters patent appeal, shall lie
against such order.”

[NOTE: This amendment ensures that

a) an affirmative judicial finding regarding the existence
of the arbitration agreement; and (b) the administrative
act of appointing the arbitrator are final and non-
appealabe.]

Section 37, which is the appeal provision, was also sought to be

amended as follows:

Amendment of Section 37

20. In section 37,

43

(i) In sub-section (1), renumber sub-clause “(a)” as
sub-clause “(b)” and insert sub-clause “(a)refusing to
refer the parties to arbitration under section 8;”

(ii) In sub-section (1), renumber sub-clause “(b)” as
sub-clause “(d)” and insert sub-clause “(c) refusing to
appoint an arbitrator or refusing to refer such
appointment to a person or institution designated by it
under section 11, in the case of an arbitration other
than an international commercial arbitration”.

[NOTE: Sub-sections (a) and (c) have been added to
provide for appeal in cases of orders refusing to refer
parties to arbitration under section 8 (mirroring the
existing provision in section 50) and to provide an
appeal where the High Court refuses to appoint an
arbitrator respectively.]

(iii) In sub-section (3), after the words “No second
appeal” add the words “, including letters patent
appeal,”

[NOTE: This amendment is clarificatory and reduces
the scope of the party to file an LPA.]

20. It will be seen that when Parliament enacted the 2015

amendment pursuant to the Law Commission Report, it followed

the Scheme of the Law Commission’s Report qua Section 8 and

Section 37 by enacting the words “….. unless it finds that prima

facie no valid arbitration agreement exists……” in Section 8(1)

and the insertion of sub-clause (a) in Section 37(1) providing an

appeal in an order made under Section 8, which refuses to refer

44
parties to arbitration. However, so far as Section 11(6) and

Section 11(6A) are concerned, what was recommended by the

Law Commission was not incorporated. Section 11(6A) merely

confines examination of the Court to the existence of an

arbitration agreement. Section 11(7) was retained, by which no

appeal could be filed under an order made under Section 11(6)

read with Section 11(6A), whether the Court’s determination led

to a finding that the arbitration agreement existed or did not exist

on the facts of a given case. Concomitantly, no amendment was

made to Section 37(1), as recommended by the Law

Commission.

21. However, 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/w

11(6A) on par. Considering that Section 11(7) and Section 37

have 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
45
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.

22. We now come to the facts of the present case. It is first

important to set out the CFSL report dated 29 th September, 2019,

in which the CFSL found:

“Result of Examination:

It has not been possible to express any opinion
regarding the authorship of questioned signatures
marked A-1 to A-6 in comparison with the standard
signatures marked A-1 to A-11 and S-1 to S-16
attributed to M.G. Stephen, due to the reason that
the model of both the sets of signatures are
different, hence, technically not comparable.”

23. Since, the CFSL did not express an opinion either way, it

became incumbent upon the learned Single Judge to determine

as to whether the Agreement dated 7th July, 2014 could have

been entered into given the surrounding circumstances of the

case. As Shri Divan rightly points out, there are no negotiations

which lead upto the 7th July, 2014 Agreement that are on record.

Secondly, negotiations that take place take place only after 7 th

46
July, 2014 in which a draft agreement is deliberated upon

between the same parties. It would stretch incredulity to state

that on the same subject matter negotiations and a draft

agreement would be spoken about after a final signed

agreement has been agreed upon between the parties.

Secondly, he rightly points out that the Agreement is notarized in

Faridabad, Haryana, with no explanation worth the name when a

contract is to be executed in Bihar by one of the parties whose

registered office is in Bihar and the other party whose registered

office is in Mumbai. Thirdly, the Notary who is said to have

notarized the Agreement was not licensed to do so the same, his

license having expired earlier, a fact that is accepted even by the

Respondents.

24. Even otherwise, some of the learned Single Judge’s conclusions

are plainly incorrect and against the record. The learned Single

Judge holds:

“39. ….. Admittedly on 22.09.2014, LOI was
awarded to the respondent and on the petitioner
raising an invoice for Rs.25 Lakhs on 27.09.2014,
respondent actually made payment on 29.09.2014.

Counsel for the petitioner has also shown the email
dated 27.09.2014 whereby the respondent had

47
asked the petitioner to raise the invoice on its letter
head…..”

25. This is plainly incorrect in view of the correspondence and

pleadings between the parties, as an invoice was raised on

Process, Process making payment on 29th September, 2014 and

not the Appellant. Equally, the finding that a draft Consultancy

Agreement was sent on 15th July, 2014 containing an arbitration

clause, parties being ad idem regarding submission of the

disputes to arbitration is also plainly incorrect in view of the fact

that on the same day, an email was sent back in which various

terms were disputed, there being no concluded contract between

the parties. Also, the finding that Process was a sub-contractor

of the Respondent, is contrary to the pleadings between the

parties which, as we have seen, had ranged from Process being

a joint venture partner of the Appellant to Process having

common Directors with the Appellant, and to Process thereafter

being described as the lead partner. Sub-contractor-ship is not

pleaded at all by the Respondent, the aforesaid arising only from

written submissions made before the learned Single Judge.

48

26. The allegation that the Consultancy Agreement of 7 th July, 2014

had a signature that may not be that of Mr. M.G. Stephen was

brushed aside stating that an arbitration agreement need not be

signed by the parties. That is entirely besides the point. Mr. M.G.

Stephen has sworn to an affidavit filed before the High Court that

the signatures appearing on the 7 th July, 2014 agreement are not

his signatures, as a result of which the Appellant cannot be said

to have entered into an agreement at all on 7th July, 2014.

Again, in paragraph 45, the learned Single Judge’s finding that

there exists an arbitration agreement between the parties as

contained in the “draft agreement” exchanged by email dated 7 th

July, 2014, is incorrect for two reasons. The draft agreement

sent by email was exchanged on 15th July, 2014 and not on 7th

July, 2014. Secondly, the email in reply to the email of 15 th July,

2014 shows that there was no concluded contract between the

parties. Also, the pleading with which the parties went to Court

was that there was a concluded contract between the parties on

7th July, 2014. There was no pleading worthy of the name that

on 15th July, 2014, a draft agreement was exchanged between

49
the parties, as a result of which a concluded contract emanated

therefrom.

27. The facts of this case remind one of Alice in Wonderland. In

Chapter II of Lewis Caroll’s classic, after little Alice had gone

down the Rabbit hole, she exclaims “Curiouser and curiouser!”

and Lewis Caroll states “(she was so much surprised, that for the

moment she quite forgot how to speak good English)”. This is a

case which eminently cries for the truth to out between the

parties through documentary evidence and cross-examination.

Large pieces of the jigsaw puzzle that forms the documentary

evidence between the parties in this case remained unfilled. The

emails dated 22nd July, 2014 and 25th July, 2014 produced here

for the first time as well as certain correspondence between

SBPDCL and the Respondent do show that there is some

dealing between the Appellant and the Respondent qua a tender

floated by SBPDCL, but that is not sufficient to conclude that

there is a concluded contract between the parties, which

contains an arbitration clause. Given the inconclusive nature of

the finding by CFSL together with the signing of the agreement in

50
Haryana by parties whose registered offices are at Bombay and

Bihar qua works to be executed in Bihar; given the fact that the

Notary who signed the agreement was not authorised to do so

and various other conundrums that arise on the facts of this

case, it is unsafe to conclude, one way or the other, that an

arbitration agreement exists between the parties. The prima

facie review spoken of in Vidya Dhrolia (supra) can lead to only

one conclusion on the facts of this case – that a deeper

consideration of whether an arbitration agreement exists

between the parties must be left to an Arbitrator who is to

examine the documentary evidence produced before him in

detail after witnesses are cross-examined on the same. For all

these reasons, 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. However, we uphold

the ultimate order appointing Justice G.S. Sistani, a retired Delhi

High Court Judge as a Sole Arbitrator. The learned Judge will

first determine as a preliminary issue as to whether an Arbitration

Agreement exists between the parties, and go on to decide the

merits of the case only if it is first found that such an agreement

51
exists. It is clarified that all issues will be decided without being

influenced by the observations made by this court which are only

prima facie in nature. The appeal is allowed in the aforesaid

terms.

……………………… J.

(R.F. Nariman)

……………………… J.

(B.R. Gavai)

……………………… J.

(Hrishikesh Roy)
New Delhi.

March 08, 2021.

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