Duty of the Courts to Examine the Arbitrability of Disputes at the Reference Stage
In a recent case of M/s. Emaar India Ltd. v. Tarun Aggarwal Projects LLP & Anr [CIVIL APPEAL NO. 6774 OF 2022], once again question that emerged for the consideration of Hon’ble Supreme Court was whether the High Court was justified in allowing the application under Section 11(5) & (6) of the Arbitration and Conciliation Act, 1996 for appointing the arbitrators without considering the aspect of arbitrability of dispute as per the relevant clauses under the Agreement. As per the Agreement executed between the parties, if any conflict or difference arose between the parties or in case either party refuses or neglects to perform its part of the obligations under Agreement, then such issues were not arbitrable but the other party had right to get the agreement specifically enforced through the appropriate court of law. Therefore, the question whether the dispute is arbitrable or not, was to be considered by the Court or by the arbitral tribunal in the light of the very terms of the said agreement.
The Court while analysing the issue went into underling the relevance of contract and observed that the reliefs to the parties shall not travel beyond the terms of the contract executed between the parties. It is because a contract is a transaction between two parties and has been entered into with open eyes and by understanding the nature of contract and that such contract has to be interpreted giving literal meanings unless there is some ambiguity therein. The Court further referred to the judgment in Harsha Construction Vs. Union of India and Ors. (2014) 9 SCC 246 and observed that a contract with regard to arbitration has to be an expressed one. It must be in writing as per the legislation. In Harsha Construction case it was clearly held that it was not open to the Arbitrator to arbitrate upon the disputes which had been expressly “excepted” and thus non-arbitrable. An award, therefore, so far as it related to disputes regarding non¬arbitrable disputes was bad in law and liable to be quashed.
The Court further referred to the judgment in Vidya Drolia and Ors. Vs. Durga Trading Corporation (2021) 2 SCC 1 to elaborate on the aspect of arbitrability and its determination at the stage of application under section 11(6) of the Arbitration and Conciliation Act, 1996. The Court observed that the issue of non-arbitrability of a dispute is basic for arbitration as it relates to the very jurisdiction of the Arbitral Tribunal. As per Vidya Drolia and a catena of judgments decided earlier, the question of arbitrability, specially relating to the inquiry whether the dispute was governed by the arbitration clause, can be examined by the Courts at the reference stage itself. Further, Court can examine the validity of an arbitration agreement, the authority which is covered by the expression, “existence of arbitration agreement” in Section 11 of the Arbitration Act. Court shall not refer the matter for arbitration and as a demurrer interfere under section 8 and 11 when it is manifestly and ex facie certain that the arbitration agreement is non-¬existent, invalid or the disputes are non-arbitrable and also when the matter is demonstrably “non-arbitrable and to cut off the deadwood.” The judicial scrutiny may however vary with the nature and facet of non-arbitrability. If, however, the contentions relating to non–arbitrability are plainly arguable, the court by default shall refer the matter for arbitration. Applying the law laid down by this Court in the aforesaid decisions, the Court in the present matter held that the dispute is not arbitrable since the claims have been excepted by the clear term in the Agreement.