REPORTABLE

IN THE SUPREME COURT OF INDIA

CIVIL APPELLATE JURISDICTION

CIVIL APPEAL NO.7023 OF 2019 (ARISING OUT OF SLP (CIVIL) NO. 8519 OF 2019)

M/S MAYAVTI TRADING PVT. LTD. APPELLANT(S)

VERSUS

PRADYUAT DEB BURMAN      RESPONDENT(S)

J U D G M E N T

R.F. Nariman, J.

1) Leave granted.

2) We  have  heard  Mr.  Mukul  Rohatgi,  learned  Senior

Advocate  appearing  for  the  appellant  and  Mr.  Shyam  Divan,

learned  Senior  Advocate  appearing  for  the  respondent  at

considerable length.  

3) On the facts of this case, we do not propose to interfere

with the impugned decision of 12.03.2019 and, therefore, do not

find it necessary to exercise our extraordinary jurisdiction under

Article 136 of the Constitution of India.

4) Having said this, however, during the course of argument,

a recent decision of this Court was pointed out, namely,  United

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India  Insurance  Company  Limited vs.  Antique  Art  Exports

Private Limited, (2019) 5 SCC 362.  In this judgment, purportedly

following  Duro Felguera,  S.A. vs.  Gangavaram Port  Limited,

(2017) 9 SCC 729, this Court held:

“20.  The  submission  of  the  learned  counsel  for  the respondent that after insertion of sub-section (6-A) to Section 11 of the Amendment Act, 2015 the jurisdiction of this Court is denuded and the limited mandate of the Court  is  to  examine  the  factum  of  existence  of  an arbitration  and  relied  on  the  judgment  in  Duro Felguera, S.A. v. Gangavaram Port Ltd. [(2017) 9 SCC 729 : (2017) 4 SCC (Civ) 764]  The exposition in this decision is a general observation about the effect of the amended provisions which came to be examined under  reference  to  six  arbitrable  agreements  (five agreements for  works and one corporate guarantee) and  each  agreement  contains  a  provision  for arbitration and there was serious dispute between the parties in reference to constitution of Arbitral Tribunal whether there has to be Arbitral Tribunal pertaining to each agreement. In the facts and circumstances, this Court took note of sub-section (6-A) introduced by the Amendment Act, 2015 to Section 11 of the Act and in that context observed that the preliminary disputes are to be examined by the arbitrator and are not for the Court  to  be  examined  within  the  limited  scope available for  appointment  of  arbitrator  under  Section 11(6) of the Act.  Suffice it to say that appointment of an  arbitrator  is  a  judicial  power  and  is  not  a  mere administrative function leaving some degree of judicial intervention; when it comes to the question to examine the existence of a prima facie arbitration agreement, it is  always  necessary  to  ensure  that  the  dispute resolution  process  does  not  become  unnecessarily protracted.

21.   In  the  instant  case,  prima  facie  no  dispute

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subsisted after the discharge voucher being signed by the respondent without any demur or protest and claim being finally settled with accord and satisfaction and after 11 weeks of the settlement of claim a letter was sent on 27-7-2016 for the first time raising a voice in the  form of  protest  that  the  discharge  voucher  was signed under  undue influence  and coercion  with  no supportive  prima  facie  evidence  being  placed  on record in absence thereof, it must follow that the claim had been settled with accord and satisfaction leaving no arbitral dispute subsisting under the agreement to be referred to the arbitrator for adjudication.”

5) Section 11 (6A) was added by the amendment Act of 2015

and states as follows:

“11. (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.”

6) Mr. Mukul Rohatgi, learned Senior Advocate, has pointed

out  that  by an amendment  Act  of  2019, which has since been

passed, this sub-section has now been omitted.  Section 3 of the

amendment Act of 2019 insofar as it pertains to this omission has

not yet been brought into force.  The omission is pursuant to a

High  Level  Committee  Review  regarding  institutionalization  of

arbitration in India, headed by Justice B. N. Srikrishna. The Report

given by this Committee is dated 30th July, 2017. The omission of

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the  sub-section  is  not  so  as  to  resuscitate  the  law  that  was

prevailing prior  to  the amendment  Act  of  2015.  The reason for

omission of                 S. 11(6A) is given in the Report as follows:

“Thus, the 2015 amendments to section 11 are geared towards  facilitating  speedy  disposal  of  section  11 applications  by:  (a)  enabling  the  designation  of  any person  or  institution  as  an  appointing  authority  for arbitrators in addition to the High Court  or  Supreme Court under section 11; (b) limiting challenges to the decision  made  by  the  appointing  authority;  and  (c) requiring  the  expeditious  disposal  of  section  11 applications,  preferably  within  the  prescribed  60-day time period.  

While  these  amendments  no  doubt  facilitate  the speedy disposal of section 11 applications to a large extent,  they  do  not  go  all  the  way  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 or institution designated by such court in  exercise  of  an  administrative  power  following section 11(6B).  In  either  case,  the amendments  still require the Supreme Court / the High Court to examine whether  an  arbitration  agreement  exists,  which  can lead  to  delays  in  the  arbitral  process  as  extensive evidence and arguments may be led on the same.  

The Committee notes that  the default  procedure for appointment of arbitrators in other jurisdictions do not require extensive court involvement as in India.  

For  instance,  in  Singapore,  the relevant  provision of the IAA provides that where the parties fail to agree on the appointment of the third arbitrator, within 30 days of  the  receipt  of  the  first  request  by  either  party  to appoint the arbitrator, the appointment shall be made by the appointing authority (the President of the SIAC) by the request of the parties. (See section 9A(2) read

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with sections 2(1) and 8(2), IAA)

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

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

The  Committee  recommends  the  adoption  of  the practice followed in Singapore and Hong Kong in the Indian scenario — apart from avoiding delays at court level,  it  may  also  give  impetus  to  institutional arbitration.

xxx xxx

Recommendations

1. In  order  to  ensure  speedy  appointment  of arbitrators,  section  11  may  be  amended  to provide  that  the  appointment  of  arbitrator(s) under the section shall only be done by arbitral institution(s) designated by the Supreme Court (in case of international  commercial  arbitrations) or the High Court (in case of all other arbitrations) for such purpose, without the Supreme Court or High  Courts  being  required  to  determine  the existence of an arbitration agreement.”

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    Thus, it can be seen that after the amendment Act of 2019,

Section  11(6A)  has  been  omitted  because  appointment  of

arbitrators is to be done institutionally, in which case the Supreme

Court or the High Court under the old statutory regime are no longer

required  to  appoint  arbitrators  and  consequently  to  determine

whether an arbitration agreement exists.  

7)    Prior  to  Section  11(6A),  this  Court  in  several  judgments

beginning with  SBP & Co. vs.  Patel Engineering Ltd. and Anr.

(2005) 8 SCC 618 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 existence of an arbitration agreement but

could  also  go  into  certain  preliminary  questions  such  as  stale

claims, accord and satisfaction having been reached etc.   

8) In  ONGC Mangalore Petrochemicals Limited vs. ANS

Constructions  Limited  and  another, (2018)  3  SCC 373,  this

Court in a case which arose before the insertion of Section 11(6A)

dismissed a Section 11 petition on the ground that accord and

satisfaction had taken place in the following terms: -

“31. Admittedly, no-dues certificate was submitted by the  contractee  company  on  21-9-2012  and  on  their request  completion  certificate  was  issued  by  the appellant  contractor.  The  contractee,  after  a  gap  of

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one month, that is, on 24-10-2012, withdrew the no- dues certificate on the grounds of coercion and duress and the claim for losses incurred during execution of the  contract  site  was  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 on 10-10-2012. When the contractee accepted the final payment in full and final satisfaction of all  its claims, there is no point in raising  the  claim  for  losses  incurred  during  the execution  of  the  contract  at  a  belated  stage  which creates an iota of doubt as to why such claim was not settled at the time of submitting final bills that too in the absence  of  exercising  duress  or  coercion  on  the contractee  by  the  appellant  contractor.  In  our considered  view,  the  plea  raised  by  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 was really accord and satisfaction and in our view no arbitrable dispute existed so as to exercise power under Section 11 of the Act. The High Court was not, therefore, justified in exercising power under Section 11 of the Act.”

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. vs.

Coastal Marine Constructions & Engineering Ltd., (2019 SCC

OnLine SC 515), this Court adverted to the said Law Commission

Report and held: -

“14. The case law under Section 11(6) of the Arbitration

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Act, as it stood prior to the Amendment Act, 2015, has had a chequered history. In Konkan Railway Corporation Ltd.  v.  Mehul  Construction  Co.,  (2000)  7  SCC  201 [“Konkan Railway I”], it was held that the powers of the Chief  Justice under  Section 11(6) of  the 1996 Act  are 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 Corporation Ltd.  v.  Rani  Construction (P) Ltd., (2002) 2 SCC 388 [“Konkan Railway II”].  

15.  However,  in  SBP  &  Co. (supra),  a  seven-Judge Bench overruled this  view and held  that  the power  to appoint  an  arbitrator  under  Section  is  judicial  and  not administrative.  The  conclusions  of  the  seven-Judge Bench  were  summarised  in  paragraph  47  of  the 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 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.  

xxx xxx xxx  

(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.  

xxx xxx xxx  

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(xii) The decision in  Konkan Rly. Corpn. Ltd. v. Rani Construction (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 appointment of an Arbitral Tribunal under Section 11, the duty of the Chief Justice or his designate is defined in SBP & Co. [(2005) 8 SCC 618]. 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:  

(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

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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.”  

17. 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 (6A) in  Section  11.  In  so  doing,  the  Law  Commission recommendations which are relevant and which led to the introduction of Section 11(6A) are as follows:  

“28.  The  Act  recognizes  situations  where  the intervention of the Court is envisaged at the pre-arbitral stage, i.e. prior to the 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

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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  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 v.  Patel  Engineering,  (2005)  8  SCC  618,  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 Pvt. Ltd., (2009) 1 SCC 267, where the Supreme Court laid down as follows –  

“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?  

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(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?  

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

(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?  

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

(a) Whether a claim 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 Etsu Chemicals Co. Ltd. v. Aksh Optifibre, (2005) 7 SCC 234, (in the context of section 45 of the Act), where the Supreme Court has ruled in favour

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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. In so far 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, 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.”  

18. Pursuant to the Law Commission recommendations, Section 11(6A)  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

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xxx xxx xxx  

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 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

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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;  

(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 lead to expeditious disposal of cases.  

xxx xxx xxx”  

19. 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  SBP & Co. (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 Section  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.”

10) This being the position, it is clear that the law prior to the

2015 Amendment that has been laid down by this Court, which

would have included going into whether accord and satisfaction

has taken place, has now been legislatively overruled.  This being

the position, it is difficult to agree with the reasoning contained in

the  aforesaid  judgment  as  Section  11(6A)  is  confined  to  the

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examination of the existence of an arbitration agreement and is to

be understood in the narrow sense as has been laid down in the

judgment Duro Felguera, S.A. (supra) – see paras 48 & 59.

11) We,  therefore,  overrule  the  judgment  in  United  India

Insurance Company Limited  (supra) as not having laid down the

correct law but dismiss this appeal for the reason given in para 3

above.

12) Mr. Rohatgi now requests us for an extension of the status

quo order granted by the trial court for a period of one week from

today so that he may adopt other proceedings.  This request is

granted.

   ………………........................... J.     (ROHINTON FALI NARIMAN)

   ………………........................... J.     (R. SUBHASH REDDY)

   ………………........................... J.              (SURYA KANT)

New Delhi; September 05, 2019.

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