The Supreme Court of India (“Supreme Court”), in the case of Office for Alternative Architecture v. Ircon Infrastructure Services Limited, SLP (C) No. 28104/ 2023, has observed that claims cannot be bisected into arbitrable and non-arbitrable claims at the stage of appointment of an arbitrator under Section 11 of the Arbitration and Conciliation Act 1996 (“1996 Act”). 

The case of the Appellant inter alia is that while exercising power under Section 11 of the 1996 Act, the Court is mandated to only examine whether the arbitration agreement exists or not and if it exists, an arbitrator is to be appointed who, thereafter, would decide whether the claims fall within the excepted category or not. It was thus prayed before the Supreme Court that the impugned order of the Delhi High Court (“Delhi High Court”) dated September 6, 2023, (“Impugned Order”) to the extent it directed certain claims to be excluded on account of being non-arbitrable be set aside by leaving it open to the parties to raise all pleas before the Arbitral Tribunal.

To the contrary, it was the Respondent’s case that the High Court is empowered to exclude non-arbitrable claims in light of an earlier judgement of the Supreme Court in Emaar India Limited v. Tarun Aggarwal Projects LLP, Civil Appeal No. 6447 of 2022 (“Emaar India”).

Issue:

While exercising its powers under Section 11 of the 1996 Act, whether it is permissible in law for the Supreme Court and/ or the High Court to examine and exclude certain claims on account of being non-arbitrable after holding that an arbitration agreement is existing/ subsisting between the parties?

Findings of the Supreme Court:

Allowing the appeal, the Supreme Court inter alia went on to make the following observations:

1. As per Section 11 (6A) of the 1996 Act inserted by Act 3 of 2016 (“2015 Amendment”) with effect from October 23, 2015, while considering an application under Section 11(4) or Section 11 (5), the Supreme Court and/ or High Court shall, notwithstanding any judgement, decree or order of any Court, confine its examination to the existence of the arbitration agreement. 

2. The statement of objects and reasons of the 2015 amendment with reference to insertion of sub-section (6A) in Section 11 of the 1996 Act inter alia states:

“….(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…”

3. Relying on the observations of the Apex Court in Re : Interplay Between Arbitration Agreements under the Arbitration and Conciliation Act, 1996 and the Indian Stamp Act, 1899, Curative Petition No. 44 of 2023 in Review Petition No. 704 of 2021 in Civil Appeal No. 1599 of 2020 with Arbitration Petition No. 25 of 2023 (“Re: Interplay”), the Supreme Court went on to hold that these “other issues” not only pertain to the validity of the arbitration agreement but also include any other issues which are a consequence of unnecessary judicial interference in the arbitration proceedings.

4. Further relying on the ratio decidendi established in another judgement of the Supreme Court in “SBI General Insurance Company Limited v. Krish Spinning, Civil Appeal No. 7821 of 2024, the Supreme Court remarked that the scope of enquiry in an application for appointment of an arbitrator is limited to the scrutiny of prima facie existence of the arbitration agreement, and nothing else. Considering that the above judgement was rendered by a 3-judge bench of the Supreme Court after relying on the ratio decidendi in Re: Interplay rendered by a 7-judge bench of the Supreme Court, the Respondent cannot be permitted to rely on Emaar India rendered by a 2-judge bench of the Supreme Court.

5. Setting aside the Impugned Order, the Supreme Court opined that the Delhi High Court erred in bisecting the claims of the Appellant into two parts – arbitrable and non-arbitrable when it had observed the arbitration agreement to be existing/ subsisting between the parties. The Delhi High Court was empowered under Section 11 of the 1996 Act to examine only the existence of the arbitration agreement and nothing else.

6. The Supreme Court also observed that the correct course of action that ought to have been adopted by the Delhi High Court was to leave it open to the party to raise the issue of non-arbitrability of certain claims before the arbitral tribunal which could be considered and decided by it.

Please find attached a copy of the judgment.

This update has been contributed by Avina Karnad (Senior Associate) and reviewed by Ranjit Shetty (Senior Partner).

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