The ordeal of the judiciary while adjudicating proceedings under Section 11 of the Arbitration and Conciliation Act, 1996 (“the Act”) are conspicuous, courtesy of the perplexing disparity in the interpretations given by the courts over the past years. Judicial overreach while passing an Order under Section 11 of the Act has always been a matter of interminable scrutiny as it creates an impediment in the arbitration proceeding, marking a diversion from the pro-arbitration approach. Section 11 deals with the appointment of an arbitrator and Clause 2 of the same empowers the parties to agree upon a procedure for appointment of an arbitrator. In a scenario wherein the parties are unable to choose an arbitrator or any disagreement on such an aspect arises, either one of the parties may approach the appropriate Court for such an appointment. However, an interesting question that arises at this stage is whether the Court, while appointing the arbitrator, will delve into examining the validity of an arbitration agreement, or limit itself to the mere existence of an arbitration agreement. Herein, Section 11(6A) comes into play which envisages that the courts while appointing an arbitrator should confine their examination to the “existence of an arbitration agreement.”
Sub-section 6A was added to Section 11 through the Arbitration and Conciliation (Amendment) Act, 2015. Prior to the insertion of Section 11(6A), a far-reaching authority was exercised by the courts while appointing an arbitrator as preliminary aspects such as jurisdiction, maintainability, stale claims, etc. were adjudicated upon by the courts.
To constrict and define the court’s jurisdiction while appointing an arbitrator, the 246th Law Commission Report recommended the insertion of Section 11(6A). Now the issue at hand is whether the legislation has laid down a succinct phraseology for an examination under Section 11 (6A) or should the judicial examination encompass aspects beyond the mere existence of the arbitration agreement. This article analyses the trajectory of interpretations imparted to Section 11 by the courts to answer the above question. The article, while acknowledging the necessity of a preliminary examination which extends beyond the examination mere existence of an arbitration agreement, proposes an adequate balance between judicial inquiry and the doctrine of Kompetenz-Kompetenz to preserve the integrity of the process of arbitration and not stifle it at the very beginning.
2. Tracing the Varied Interpretations: The Judicial Dissection of Section 11
While interpreting Section 11(6A), one might construe that the provision envisages that the courts must examine the arbitration agreement solely with respect to the bare factum of its existence. The case of Duro Felguera, S.A. v. Gangavaram Port Ltd. validates such an understanding as in this case, the apex Court ruled that post the 2015 amendment, the courts only need to see “whether an arbitration agreement exists - nothing more, nothingless”. However, such an understanding is flawed which is why the Duro Felguera ratio was overruled in United India Insurance Co. Ltd. v. Hyundai Engineering, on the grounds that it was a “general observation about the effect of the amended provision and not specific to the issue”. Therefore, we observe that the mere factum of the existence of an arbitration clause, as construed from the bare reading of Section 11(6A), is not a sufficient condition for appointing an arbitrator. The same is done for the simple reason that for the appointment of an arbitrator, it is essential for the dispute to be ‘arbitrable’ i.e., to fall under the ambit of arbitrability. Before appointing an arbitrator under Section 11, it is crucial for the courts to determine if the parties have submitted their dispute to arbitration or if the arbitration clause in the contract in actuality covers the particular dispute which has arisen between the parties. Therefore, the determination of arbitrability would implicit an inquiry into the scope of the arbitration clause. Thus, examining the scope of the arbitration clause falls within the extent of examination as intended by the provision.
Now that it is undisputed that an inquiry under Section 11 extends beyond the mere fact of the existence of an arbitration agreement to the scope, we look into whether it encompasses a determination of enforceability too. The discourse on the enforceability of an arbitration agreement was sparked by the judgments of SMS Tea Estates Pvt. Ltd v. M/s Chandmari Tea Co Pvt. Ltd (“SMS”) and Garware Wall Ropes Ltd. v. Coastal Marine Constructions (“Garware”) wherein courts determined the fate of the arbitration clause in an unstamped contract. In SMS and Garware, the court held that since an unstamped and unregistered contract was inadmissible and unenforceable, “an arbitration clause in (such) an agreement is not enforceable by law”. These rulings were further strengthened by a three-judge bench in the landmark judgment of Vidya Drolia v. Durga Trading Corporation (“Drolia”) and the recent N.N. Global Mercantile judgment. The N.N. Global Mercantile judgement not only dealt with the issue of enforceability of an arbitration clause in an allegedly non-enforceable contract but also the conflict surrounding the extent of inquiry by the courts at a pre-arbitral stage. Our analysis does not deal with the former rather it focuses on whether the court under Section 11 should extend its examination to look into a claim of enforceability. In view of the extensive analysis of the enforceability of an arbitration agreement under Section 11 done by the apex court, we observe that the mere existence or scope of an arbitration agreement is not enough if it is found to be unenforceable at the outset. Therefore, it is crucial to determine the enforceability of the arbitration agreement and not leave such a determination to the arbitral tribunal.
3. Exploring the Extent of Court Inquiry under Section 11
Through the above precedents, we deduce that it is important for the courts to look into the existence, scope and enforceability of the arbitration agreement and the same would not be an encroachment into the jurisdictional territory of the arbitration tribunal or a violation of the doctrine of Kompetenz-Kompetenz. As analyzed through the above precedents an examination of the existence of an arbitration agreement under Section 11(6A) would encompass the following three limbs:
a. The bare factum of the existence of an arbitration agreement;
b. The scope of the arbitration agreement with respect to the dispute which has arisen between the parties and;
c. The validity or enforceability of the arbitration agreement.
To further substantiate the above delineation, the legislative intent can be looked into. The Law Commission Report which recommended the insertion of sub-section 6A stated that an appointment “shall not be made only if the High Court finds that the arbitration agreement does not exist or is null and void.” Even though the amended section does not contain “null and void”, the intent of the legislation is clear i.e., to empower the court to conduct a preliminary inquiry. This preliminary inquiry is inclusive of the above three ambits as analyzed through the above precedents. The courts cannot function mechanically and appoint an arbitrator on the mere factum of the existence of an arbitration agreement especially when the party refusing to appoint an arbitrator raises a concern regarding the non-arbitrability of a dispute. Hence, it becomes important for the court to deal with such an issue at the primary stage itself so that the procedure under Section 11 is in accordance with the principle of Audi Alteram Partem. Moreover, the appointment of an arbitrator in a case where the arbitration agreement is disputed on its validity would not be legally sound.
The courts ought to adhere to the fundamentals of the Law of Contracts i.e., Section 2(g) and 2(h) while passing an order under Section 11 of the Act. In a scenario wherein the arbitration agreement is found to be void, it would not be enforceable, and the appointment of an arbitrator would be unsound. Therefore, to avoid this the courts must conduct a prima facie examination which is not solely limited to the mere existence of an arbitration agreement. Additionally, the report envisioned the same standard for determining the extent and type of judicial intervention for Section 11 of the Act as applies in the context of Sections 8 and 45 of the Act. The scope and nature of judicial intervention should not change when a party approaches the court for the appointment of an arbitrator or moves a proceeding before a judicial authority in the face of such an arbitration agreement. Therefore, confining the inquiry of the court to mere existence would be inconsistent with Sections 8 and 45 of the Act which empowers the court to go beyond the existence of an arbitration agreement and find whether the arbitration agreement is valid or if it is ‘null and void, inoperative or incapable of being performed.’ Thus, pre-arbitrability of a dispute is a condition for passing an order under Section 11 and the existence inquiry under Section 11(6A) should not be limited to a blind confirmation of the factual existence of the agreement but also issues of enforceability i.e., validity, capacity, and the existence of any grounds for setting aside the agreement etc. While the amended section states that an examination of the ‘existence’ of an arbitration agreement is to be done, the courts nonetheless, have looked beyond the mere factum of existence to determine the arbitrability of disputes and the enforceability of arbitration clauses.
4. Building Boundaries: Preserving the Institution of Arbitration in India
Section 11(6A) is important as it serves as a gatekeeping mechanism to ensure that only disputes that are covered by a valid arbitration agreement are referred to arbitration. Although a prima facie examination of arbitrability is mandatory while appointing an arbitrator, it is also important to define and limit the boundaries of judicial intervention so that the courts do not intrude on the jurisdiction of arbitral tribunals and violate the doctrine of Kompetenz-Kompetenz. The legislature can analyze the precedents to delineate the aspects which the courts are required to examine before passing an Order under Section 11. Such formalization by defining the ambit of judicial intervention of courts will not only ensure that the courts do not exceed their jurisdiction but also empower the arbitral tribunal to adjudicate on the issues over which it has the rightful jurisdiction. The author proposes that these limitations must be encoded unambiguously in the provision itself so that there is little room for diverse, conflicting interpretations that the court peruses to stampede on the authority of the arbitral tribunals. For the purpose of the same, Section 11(6A) can be amended insofar as to add an explanation to the phrase “examination of the existence of an arbitration agreement”. This explanation should lay down the criteria which are covered within the purview of the existence of an arbitration agreement. This would promote the doctrine of Kometenz-Kompetenz which would lead to the ultimate preservation of the institute of arbitration. It is crucial to create such a balance so that the courts do not transcend back to the pre-2015 amendment era wherein the courts overstepped their judicial limits.
With that being said, the author disapproves the prospective revocation of Section 11(6A) by the 2019 Amendment Act and the changes brought about by it to Section 11(6). This introduces a completely different dimension to the already perplexing Section 11. The newly amended provision allows arbitrators to be appointed by an “arbitral institution designated by the Supreme Court...or by the High Court”. This is an extreme legislative step as it outrightly terminates the role of the judiciary thus, creating an imbalance of jurisdictional power. Judicial supervision is very crucial as it ensures that the arbitration process is conducted in accordance with the law. Additionally, the amended Act does not prescribe the scope of inquiry required to be done by arbitral tribunals while appointing an arbitrator. Even though the amendment has not yet been effectuated, concerns have been raised about the intricacies of such an appointment by the tribunals. This is because there are no comprehensive rules laid down in the newly amended act for the procedure of such an appointment. Therefore, there is a need to amend the current provision for more clarity and direction to the court rather than what is proposed by the 2019 Amendment Act.
The author proposes that instead of eliminating the role of the judiciary altogether, the boundaries of jurisdiction of the courts should be defined and a comprehensive layout must be given to the judiciary so that a consistent and uniform approach towards the interpretation of Section 11(6A) is formed. The same, as suggested above, can be done by adding an explanation to the provision for providing the requisite clarity to the courts. The same will resultantly make the Indian judiciary follow a consistent and pro-arbitration approach.
Further, in a scenario where the courts in a prima facie examination are unable to reach a conclusion, the final determination should be left to the arbitral tribunal. By allowing the final determination to be made by the arbitral tribunal in cases where the courts are unable to reach a conclusion, judicial oversight will be counter-balanced. The legislators ought to step in and resolve the interpretational conundrum and succinctly enlist the scope of judicial intervention in order to aid the courts and pave a pro-arbitration path.
 2nd Year, B.A. LL.B.(Hons.) Rajiv Gandhi National University of Law, Punjab.