Scope of Judicial Inquiry under Section 11(6-A) of the Arbitration and Conciliation Act: Unequivocally Expanded
Recently, in the matter of Indian Oil Corporation Limited v. NCC Limited [CIVIL APPEAL NO. 341 OF 2022 decided on 20.07.2022] once again the Hon’ble Supreme Court confirmed that the judicial inquiry under Section 11(6A) of the Arbitration and Conciliation Act, 1996 is not confined only to ascertain as to whether or not a binding arbitration agreement exists and the Court cannot mechanically refer the dispute to arbitration. The Court needs to apply its mind and decide whether the arbitration agreement is valid and whether the dispute is covered by the arbitration clause.
As per the ratio in the case, “However, at the same time, we do not agree with the conclusion arrived at by the High Court that after the insertion of Sub-Section (6¬A) in Section 11 of the Arbitration Act, scope of inquiry by the Court in Section 11 petition is confined only to ascertain as to whether or not a binding arbitration agreement exists qua the parties before it, which is relatable to the disputes at hand. We are of the opinion that though the Arbitral Tribunal may have jurisdiction and authority to decide the disputes including the question of jurisdiction and non-arbitrability, the same can also be considered by the Court at the stage of deciding Section 11 application if the facts are very clear and glaring and in view of the specific clauses in the agreement binding between the parties, whether the dispute is non-arbitrable and/or it falls within the excepted clause. Even at the stage of deciding Section 11 application, the Court may prima facie consider even the aspect with regard to ‘accord and satisfaction’ of the claims.”
The Court has essentially maintained the position of law as laid down in DLF Home Developers Limited v. Rajapura Homes Private Limited & Anr and DLF Home Developers Limited v. Begur OMR Homes Private Limited & Anr [both decided on September 22, 2021] wherein it had held that the Courts are “not expected to act mechanically merely to deliver a purported dispute raised by an applicant at the doors of the chosen Arbitrator.” The Court had ruled that the Courts are “obliged to apply their mind to the core preliminary issues, albeit, within the framework of Section 11(6-A) of the Act.” The position of law is an extension of what fundamentally the Apex Court ruled in Vidya Drolia and Others v. Durga Trading Corporation (2021) 2 SCC 1 and if we go backwards, in Duro Felguera, S.A. v. Gangavaram Port Limited [(2017) 9 SCC 729]. The three judge bench in Vidya Drolia explained theconcept of limited prima facie review. The Court held that the scope of judicial review and jurisdiction under Sections 8 and 11 of the Act is extremely limited and is to be exercised in rare occasions only and went on to clarify that although a prima facie examination does not mean full review, the purpose of the scrutiny is to weed out manifestly invalid arbitration agreements and non-arbitrable disputes. Further, it may be that certain cases require a still deeper consideration during prima facie examination but this should be done with measured restraint. The Supreme Court, however, cautioned that the scrutiny made by the Courts should be done only to effectuate the arbitration process.
