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TMI Blog2020 (12) TMI 1227X X X X Extracts X X X X X X X X Extracts X X X X ..... (ii) the conundrum - "who decides" - whether the court at the reference stage or the arbitral tribunal in the arbitration proceedings would decide the question of non-arbitrability. The second aspect also relates to the scope and ambit of jurisdiction of the court at the referral stage when an objection of non-arbitrability is raised to an application Under Section 8 or 11 of the Arbitration and Conciliation Act, 1996 (for short, the 'Arbitration Act'). 3. We are not reproducing and examining the factual matrix, as we are only answering the legal issues raised. However, we would refer, in brief, to the legal reasoning and the ratio in Himangni Enterprises and the counter view expressed in the order of reference in Vidya Drolia. 4. Himangni Enterprises upheld the decision of the High Court and the District Court rejecting the application filed by the Defendant-tenant Under Section 8 of the Arbitration Act in a civil suit seeking its eviction from a shop in a commercial complex in New Delhi. The suit was also for the recovery of arrears of rent and permanent injunction. The tenancy in question was not protected under the rent control legislation and the rights and obliga ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... h, J. in Duro Felguera, S.A. v. Gangavaram Port Limited (2017) 9 SCC 729, to the effect that the scope of Section 11(6-A) is limited, only to see whether an arbitration agreement exists-nothing more, nothing less. The legislative policy and purpose are to essentially minimize judicial intervention at the appointment stage. Referring to Sections 111, 114 and 114A of the Transfer of Property Act, it is observed that there is nothing in this Act and law to show that a dispute relating to the determination of lease, arrears of rent etc. cannot be decided by an arbitrator. The grounds predicated on public policy could be raised before the arbitrator as they could be raised before the court. The arbitrator could well abide by the provisions of Sections 114 and 114A, and apply the public policy considerations for the protection of tenants as a class. Referring to Booz Allen & Hamilton Inc., it was observed that the right in rem is a right exercisable against the world at large and is not amenable to arbitration, whereas in case of rights in personam an interest is protected against a specific individual, and is referable to arbitration. Further, subordinate rights in personam arising from ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g the course of our reasoning. However, we acknowledge that the oral submissions and compilations have been of immense help. Similarly, scholarly writings in books and articles expressing diverse views on non-arbitrability and Who Decides Non-arbitrability have facilitated us unclog the legal and jurisprudential nuances and contradictions to try and resolve the issues in the context of domestic law of arbitration in India. 7. At the outset we begin with the caveat that this judgment does not examine and interpret the transnational provisions of arbitration in Part II of the Arbitration Act. Non-Arbitrability 8. Non-arbitrability is basic for arbitration as it relates to the very jurisdiction of the arbitral tribunal. An arbitral tribunal may lack jurisdiction for several reasons. Non-arbitrability has multiple meanings. Booz Allen & Hamilton Inc. refers to three facets of non-arbitrability, namely: (i) Whether the disputes are capable of adjudication and settlement by arbitration? That is, whether the disputes, having regard to their nature, could be resolved by a private forum chosen by the parties (the Arbitral Tribunal) or whether they would exclusively fall within the doma ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... it on initiating arbitration); (7) the party seeking arbitration has waived its right to arbitrate or is estopped from claiming that right. (#Stage 1 is the referral stage.) 9. Validity of the legal ratio in Himangni Enterprises cannot be decided without examining when a subject matter or dispute is non-arbitrable. Understanding of the different facets of non-arbitrability is important as it would help us appreciate the consequences. This would assist in deciding whether the court or the arbitral tribunal has the jurisdiction to decide the particular facet of non-arbitrability. The jurisdiction could well depend on the nature and type of the non-arbitrability alleged. The order of reference in Vidya Drolia draws distinction for the purpose of exercise of jurisdiction between non-arbitrability on account of existence and non-arbitrability on account of the validity of an arbitration agreement. 10. Arbitration is a private dispute resolution mechanism whereby two or more parties agree to resolve their current or future disputes by an arbitral tribunal, as an alternative to adjudication by the courts or a public forum established by law. Parties by mutual agreement forgo their rig ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... se of contracting and define the expressions 'consent', 'free consent', 'coercion', 'undue influence', 'fraud' and 'misrepresentation'. Sections 19 to 23 relate to voidability of agreements, the power to set aside contracts induced by undue influence, when both the parties are under mistake as to a matter of fact, effect of a mistake as to the law, effect of a mistake by one party as to a matter of fact and what considerations and objects are lawful and unlawful. Sections 24 to 30 relate to void contracts and Sections 26 and 27 therein state that agreements in restraint of marriage and agreements in restraint of trade, respectively are void, albeit Explanation (1) to Section 27 saves agreements for not carrying out the business of which goodwill is sold. Section 28 of the Contract Act states that agreements in restraint of legal proceedings are void, but Explanation (1) specifically saves contracts by which two or more persons agree that any dispute, or one which may arise between them, in respect of any subject or class of subjects shall be referred to arbitration. Arbitration agreement must satisfy the objective mandates of the law ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... round that the claim is long barred and dead or there are no outstanding disputes as the parties have accepted part performance or have absolved the other side from performance, fully or partly, on account of frustration or otherwise. The contention is that once the original contract stands extinguished, abandoned, repudiated or substituted, the arbitration Clause in the underlying/original contract perishes with it. 15. Arbitration being a matter of contract, the parties are entitled to fix boundaries as to confer and limit the jurisdiction and legal authority of the arbitrator. An arbitration agreement can be comprehensive and broad to include any dispute or could be confined to specific disputes. The issue of scope of arbitrator's jurisdiction invariably arises when the disputes that are arbitrable are enumerated or the arbitration agreement provides for exclusions as in case of 'excepted matters'. The arbitration agreement may be valid, but the arbitral tribunal in view of the will of the parties expressed in the arbitration agreement, may not have jurisdiction to adjudicate the dispute. The will of the parties as to the scope of arbitration is a subjective act and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... re and scope of issues arising for consideration in an application Under Section 11 of the Act for appointment of arbitrators, are far narrower than those arising in an application Under Section 8 of the Act, seeking reference of the parties to a suit to arbitration. While considering an application Under Section 11 of the Act, the Chief Justice or his designate would not embark upon an examination of the issue of "arbitrability" or appropriateness of adjudication by a private forum, once he finds that there was an arbitration agreement between or among the parties, and would leave the issue of arbitrability for the decision of the Arbitral Tribunal. If the arbitrator wrongly holds that the dispute is arbitrable, the aggrieved party will have to challenge the award by filing an application Under Section 34 of the Act, relying upon Sub-section (2)(b)(i) of that section. However, in SBP & Co. v. Patel Engineering Ltd. and Anr. (2005) 8 SCC 618, the majority judgment of the Constitution Bench of seven Judges had noticed the complementary nature of Sections 8 and 11 of the Arbitration Act, and has observed: 16. We may at this stage notice the complementary nature of Sections 8 and 1 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ated and pending, specific details of the claims and disputes are normally pleaded and, therefore, the court or the judicial authority has the advantage of these details. There is a difference between a non-arbitrable claim and non-arbitrable subject matter. Former may arise on account of scope of the arbitration agreement and also when the claim is not capable of being resolved through arbitration. Generally non-arbitrability of the subject matter would relate to non-arbitrability in law. Further, the decision in Sukanya Holdings (P) Ltd. has to be read along with subsequent judgment of this Court in Chloro Controls India Private Limited v. Severn Trent Water Purification Inc. and Ors. (2013) 1 SCC 641. The effect of amendment by Act 3 of 2016 with retrospective effect from 20.10.2015 on Sections 8 and 11 of the Arbitration Act with the stipulation that the amendments apply notwithstanding any earlier judgment has been examined by us under the heading Who Decides Non-arbitrability. 18. Sub-section (3) to Section 2 of the Arbitration Act states: Section 2(3)-this Part shall not affect any other law for the time being in force by virtue of which certain disputes may not be submit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the parties themselves in the subject-matter of the case, whereas actions in rem refer to actions determining the title to property and the rights of the parties, not merely among themselves but also against all persons at any time claiming an interest in that property. Correspondingly, a judgment in personam refers to a judgment against a person as distinguished from a judgment against a thing, right or status and a judgment in rem refers to a judgment that determines the status or condition of property which operates directly on the property itself. (Vide Black's Law Dictionary.) 38. Generally and traditionally all disputes relating to rights in personam are considered to be amenable to arbitration; and all disputes relating to rights in rem are required to be adjudicated by courts and public tribunals, being unsuited for private arbitration. This is not however a rigid or inflexible rule. Disputes relating to subordinate rights in personam arising from rights in rem have always been considered to be arbitrable. Booz Allen & Hamilton Inc. states that civil or commercial dispute, whether contractual or non-contractual, which can be decided by a court, is in principle capabl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ers governed by special statutes where the tenant enjoys statutory protection against eviction and only the specified courts are conferred jurisdiction to grant eviction or decide the disputes. 22. Landlord-tenant disputes governed by rent control legislation are not actions in rem, yet they are non-arbitrable. In Booz Allen & Hamilton Inc. reference was made to Russell on Arbitration (22nd Edition) in Para 2.007 at Page 28 wherein the author has observed that certain matters in English Law are reserved for the court alone and if an arbitral tribunal purports to deal with them the resulting award would be unenforceable. These matters would include where the type of remedy required is not one which the arbitral tribunal is empowered to give. Reference was made to Law and Practice of Commercial Arbitration in England (2nd Ed. 1989) by Mustill and Boyd which states that certain types of remedies which the arbitrator can award are limited by consideration of public policy and as arbitrator is appointed by the parties and not by the State. Arbitrator cannot impose fine, give imprisonment, commit a person for contempt or issue a writ of subpoena nor can he make an award binding on third ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... with a right in personam which is an interest protected against specified individuals. All disputes relating to rights in personam are considered to be amenable to arbitration while rights in rem are required to be adjudicated by courts and public tribunals... xx xx xx 38. Hence, in addition to various classes of disputes which are generally considered by the courts as appropriate for decision by public fora, there are classes of disputes which fall within the exclusive domain of special fora under legislation which confers exclusive jurisdiction to the exclusion of an ordinarily civil court. That such disputes are not arbitrable dovetails with the general principle that a dispute which is capable of adjudication by an ordinary civil court is also capable of being resolved by arbitration. However, if the jurisdiction of an ordinary civil court is excluded by the conferment of exclusive jurisdiction on a specified court or tribunal as a matter of public policy such a dispute would not then be capable of resolution by arbitration. 25. In Vimal Kishor Shah disputes relating to private trusts, trustees, and beneficiaries of the trust and the Trusts Act were held to be non-arbitrab ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Bench referred to the object and the purpose behind the Consumer Protection Act, 1986 as a law that meets the long-felt necessity of protecting the common man as a consumer against wrongs and misdeeds for which the remedy under the ordinary law has become illusory as the enforcement machinery does not move, or moves ineffectively or inefficiently. Thus, to remove helplessness and empower consumers against powerful businesses and the might of the public bodies, the enactment has constituted consumer forums with extensive and wide powers to award, wherever appropriate, compensations to the consumers and to impose penalties for non-compliance with their orders. The Consumer Protection Act has specific provisions for execution and effective implementation of their orders which powers are far greater than the power of the ordinary civil court. After referring to the amendments made to Sections 8 and 11 of Arbitration Act by Act No. 3 of 2016, it was observed that the amendments cannot be given such expansive meaning so as to inundate entire regime of special legislation where such disputes are not arbitrable. This amendment was not intended to side-line or override the settled law on no ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... c performance of contracts concerning immovable property. 35. It is stated in Halsbury's Laws of England, 4th Edn., (Arbitration, Vol. 2, para 503) as follows: 503. Nature of the dispute or difference.--The dispute or difference which the parties to an arbitration agreement agree to refer must consist of a justiciable issue triable civilly. A fair test of this is whether the difference can be compromised lawfully by way of accord and satisfaction (Cf. Bac Abr Arbitrament and Award A). 28. In V.H. Patel & Co. and Ors. v. Hirubhai Himabhai Patel and Ors. (2000) 4 SCC 368 this Court has held that in deference to the arbitration Clause covering all matters there was no principle of law or provision that bars an arbitrator from deciding whether the dissolution of a partnership is just and equitable. 29. Having examined and analysed the judgments, we would coalesce and crystalize the legal principles for determining non-arbitrability. We begin by drawing principles that draw distinction between adjudication of actions in rem and adjudication of actions in personam. 30. A judgment is a formal expression of conclusive adjudication of the rights and liabilities of the parties. Th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dispute. Use of expressions "rights in rem" and "rights in personam" may not be correct for determining non-arbitrability because of the inter-play between rights in rem and rights in personam. Many a times, a right in rem results in an enforceable right in personam. Booz Allen & Hamilton Inc. refers to the statement by Mustill and Boyd that the subordinate rights in personam derived from rights in rem can be ruled upon by the arbitrators, which is apposite. Therefore, a claim for infringement of copyright against a particular person is arbitrable, though in some manner the arbitrator would examine the right to copyright, a right in rem. Arbitration by necessary implication excludes actions in rem. 31. Exclusion of actions in rem from arbitration, exposits the intrinsic limits of arbitration as a private dispute resolution mechanism, which is only binding on 'the parties' to the arbitration agreement. The courts established by law on the other hand enjoy jurisdiction by default and do not require mutual agreement for conferring jurisdiction. The arbitral tribunals not being courts of law or established under the auspices of the State cannot act judicially so as to affect t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... element like the legitimacy of marriage, citizenship, winding up of companies, grant of patents, etc. are non-arbitrable, unless the statute in relation to a regulatory or adjudicatory mechanism either expressly or by clear implication permits arbitration. In these matters the State enjoys monopoly in dispute resolution. 33. Fourth principle of non-arbitrability is alluded to in the Order of Reference, which makes specific reference to Vimal Kishor Shah, which decision quotes from Dhulabhai, a case which dealt with exclusion of jurisdiction of civil courts Under Section 9 of the Code of Civil Procedure. The second condition in Dhulabhai reads as under: 32. (2) Where there is an express bar of the jurisdiction of the court, an examination of the scheme of the particular Act to find the adequacy or the sufficiency of the remedies provided may be relevant but is not decisive to sustain the jurisdiction of the civil court. Where there is no express exclusion the examination of the remedies and the scheme of the particular Act to find out the intendment becomes necessary and the result of the inquiry may be decisive. In the latter case, it is necessary to see if the statute creates ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... be the decisive test to answer and decide whether arbitrability is impliedly barred. 34. Implicit non-arbitrability is established when by mandatory law the parties are quintessentially barred from contracting out and waiving the adjudication by the designated court or the specified public forum. There is no choice. The person who insists on the remedy must seek his remedy before the forum stated in the statute and before no other forum. In Transcore v. Union of India and Anr. (2008) 1 SCC 125, this Court had examined the doctrine of election in the context whether an order under proviso to Section 19(1) of the Recovery of Debts Due to Banks and Financial Institutions Act, 1993 (the 'DRT Act') is a condition precedent to taking recourse to the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (the 'NPA Act'). For analysing the scope and remedies under the two Acts, it was held that NPA Act is an additional remedy which is not inconsistent with the DRT Act, and reference was made to the doctrine of election in the following terms: 64. In the light of the above discussion, we now examine the doctrine of election. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... affirmative, arbitration in the absence of special reason is contraindicated. The dispute is non-arbitrable. 35. In M.D. Frozen Foods Exports Private Limited and Ors. v. Hero Fincorp Limited (2017) 16 SCC 741 and following this judgment in Indiabulls Housing Finance Limited v. Deccan Chronicle Holdings Limited and Ors. (2018) 14 SCC 783 it has been held that even prior arbitration proceedings are not a bar to proceedings under the NPA Act. The NPA Act sets out an expeditious, procedural methodology enabling the financial institutions to take possession and sell secured properties for non-payment of the dues. Such powers, it is obvious, cannot be exercised through the arbitral proceedings. 36. In Transcore, on the powers of the Debt Recovery Tribunal (DRT) under the DRT Act, it was observed: 18. On analysing the above provisions of the DRT Act, we find that the said Act is a complete code by itself as far as recovery of debt is concerned. It provides for various modes of recovery. It incorporates even the provisions of the Second and Third Schedules to the Income Tax Act, 1961. Therefore, the debt due under the recovery certificate can be recovered in various ways. The remedies ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ved that on broader consideration of public policy the disputes were non-arbitrable. In N. Radhakrishnan v. Maestro Engineers and Ors. (2010) 1 SCC 72 reliance was placed on the following observations in Abdul Kadir Samshuddin Bubere v. Madhav Prabharkar Oak and Anr. AIR 1962 SC 406: There is no doubt that when a serious allegation of fraud is laid against the party and the party who charged with the fraud desires that the matter should be tried in the open court it would be sufficient cause for the court for the court not to order an arbitration agreement to be filed and not to make the reference. N. Radhakrishnan upheld the order rejecting the application Under Section 8 of the Arbitration Act on the ground that it would be in furtherance of justice that the allegations as to fraud and manipulation of finances in the partnership firm are tried in the court of law which is more competent and has means to decide a complicated matter. However, in A. Ayyasamy, notwithstanding the allegations of fraud, the civil appeal was allowed, the civil suit was stayed and reference to arbitration Under Section 8 of the Arbitration Act was made. A.K. Sikri J. held that the Arbitration Act does ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... approach of the civil court should be not to see whether the court has jurisdiction. It should be to see whether its jurisdiction has been ousted. There is a lot of difference between the two approaches. Once it is brought to the notice of the court that its jurisdiction has been taken away in terms of the procedure prescribed under a special statute, the civil court should first see whether there is ouster of jurisdiction in terms or compliance with the procedure under the special statute. The general law should yield to the special law--generalia specialibus non derogant. In such a situation, the approach shall not be to see whether there is still jurisdiction in the civil court under the general law. Such approaches would only delay the resolution of disputes and complicate the redressal of grievance and of course unnecessarily increase the pendency in the court. xx xx xx 43. Hence, the allegations of criminal wrongdoing or of statutory violation would not detract from the jurisdiction of the Arbitral Tribunal to resolve a dispute arising out of a civil or contractual relationship on the basis of the jurisdiction conferred by the arbitration agreement. Elucidating and summa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g of the award was induced or affected by fraud or corruption or was in violation of Section 75 or Section 81; or (ii) it is in contravention with the fundamental policy of Indian law; or (iii) it is in conflict with the most basic notions of morality or justice. Explanation 2.--For the avoidance of doubt, the test as to whether there is a contravention with the fundamental policy of Indian law shall not entail a review on the merits of the dispute. Section 34(2)(b) consists of two sub-clauses both accrediting the court with the power to set aside an award. Under Sub-clause (i) an award is liable to be set aside when the subject matter is not capable of settlement by arbitration under law for the time being in force. Under Sub-clause (ii) an award can be set aside if it is in conflict with the public policy of India. As per Explanation No. 1, an award is in conflict with the public policy of India only if it was induced or affected by fraud, corruption, etc. or it is in contravention with the fundamental policy of Indian law or is in conflict with the most basic notions of morality or justice. Explanation 2 cautions the courts not to review on the merits of the case while ex ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... round that the subject matter of the dispute was non-arbitrable. 40. However, the above discussion would not be a complete answer to N. Radhakrishnan that if justice demands, then notwithstanding the arbitration clause, the dispute would be tried in the open court. To accept this reasoning one would have to agree that arbitration is a flawed and compromised dispute resolution mechanism that can be forgone when public interest or public policy demands the dispute should be tried and decided in the court of law. The public policy argument proceeds on the foundation and principle that arbitration is inferior to court adjudication as: (i) fact finding process in arbitration is not equivalent to judicial fact finding, which is far more comprehensive and in-depth; (ii) there is limited or lack of reasoning in awards; (iii) arbitrators enjoy and exercise extensive and unhindered powers and therefore are prone in making arbitrary and despotic decisions; (iv) there is no appeal process in arbitration which combined with the (iii) above and limited review of an arbitral award in post-award court proceedings, arbitration may have devastating consequences for the losing party and undermines j ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d strengthen arbitration to resolve and settle economic, commercial and civil disputes. Amendments from time to time have addressed the issues and corrected the inadequacies and flaws in the arbitration procedure. It is for the stakeholders, including the arbitrators, to assure that the arbitration is as impartial, just, and fair as court adjudication. It is also the duty of the courts at the post-award stage to selectively yet effectively exercise the limited jurisdiction, within the four corners of Section 34(2)(b)(ii) read with Explanation 1 and 2 and check any conflict with the fundamental policy of the applicable law. We would subsequently refer to the 'second look'17 principle which is applicable in three specific situations dealing with arbitrability as per the mandate of Section 34 of the Arbitration Act. 42. Recently, the Supreme Court of Canada in TELUS Communications Inc. v. Avraham Wellman (2019) SCC 19 (CanLII), while conceding that arbitration as a method of dispute resolution was met with "overt hostility" for a long time on public policy grounds as it ousts jurisdiction of courts, observed that the new legislation, the Arbitration Act of 1991, marks a depar ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nst whom breach is alleged cannot be said to have entered into the agreement relating to arbitration at all. The second test can be said to have been met in cases in which allegations are made against the State or its instrumentalities of arbitrary, fraudulent, or mala fide conduct, thus, necessitating the hearing of the case by a writ court in which questions are raised which are not predominantly questions arising from the contract itself or breach thereof but questions arising in the public law domain. The judgment in Avitel Post Studioz Limited interprets Section 17 of the Contract Act to hold that Section 17 would apply if the contract itself is obtained by fraud or cheating. Thereby, a distinction is made between a contract obtained by fraud, and post-contract fraud and cheating. The latter would fall outside Section 17 of the Contract Act and, therefore, the remedy for damages would be available and not the remedy for treating the contract itself as void. 44. In Deccan Paper Mills Co. Ltd. v. Regency Mahavir Properties19, legal proceedings for cancellation of documents Under Section 31 of the Specific Relief Act, 1963 were held to be actions in personam and not actions in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... te, because they can make a valid agreement between themselves on that matter (Soilleux v. Herbst, Wilson v. Wilson and Cahill v. Cahill). 46. Applying the above principles to determine non-arbitrability, it is apparent that insolvency or intracompany disputes have to be addressed by a centralized forum, be the court or a special forum, which would be more efficient and has complete jurisdiction to efficaciously and fully dispose of the entire matter. They are also actions in rem. Similarly, grant and issue of patents and registration of trademarks are exclusive matters falling within the sovereign or government functions and have erga omnes effect. Such grants confer monopoly rights. They are non-arbitrable. Criminal cases again are not arbitrable as they relate to sovereign functions of the State. Further, violations of criminal law are offenses against the State and not just against the victim. Matrimonial disputes relating to the dissolution of marriage, restitution of conjugal rights etc. are not arbitrable as they fall within the ambit of sovereign functions and do not have any commercial and economic value. The decisions have erga omnes effect. Matters relating to probate, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ators are seized of the dispute, the baton is in the grasp of the court; for at that stage there is no other organisation which could take steps to prevent the arbitration agreement for being ineffectual. When the arbitrators take charge they take over the baton and retain it until they have made an award. At this point, having no longer a function to fill, the arbitrators hand back the baton so that the court can in case of need lend its coercive powers to the enforcement of the award. Thus, the legal problem of allocation of decision-making authority between courts and arbitral tribunals. 51. Issue of non-arbitrability can be raised at three stages. First, before the court on an application for reference Under Section 11 or for stay of pending judicial proceedings and reference Under Section 8 of the Arbitration Act; secondly, before the arbitral tribunal during the course of the arbitration proceedings; or thirdly, before the court at the stage of the challenge to the award or its enforcement. Therefore, the question-'Who decides non-arbitrability?' and, in particular, the jurisdiction of the court at the first look stage, that is, the referral stage. 52. Who decides ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... re amplified and the principles of separation and competence-competence were incorporated, while the courts retained some power to have a 'second look' in the post-award challenge proceeding. On the jurisdiction of the court at the referral stage, views of this Court have differed and there have been statutory amendments to modify and obliterate the legal effect of the court decisions. 55. The legal position as to who decides the question of non-arbitrability under the Arbitration Act can be divided into four phases. The first phase was from the enforcement of the Arbitration Act till the decision of the Constitution Bench of seven Judges in Patel Engineering Ltd. on 26th October 2005. For nearly ten years, the ratio expressed in Konkan Railway Corpn. Ltd. and Ors. v. Mehul Construction Co. (2000) 7 SCC 201, affirmed by the Constitution Bench of five Judges in Konkan Railway Construction Ltd. and Anr. v. Rani Construction Pvt. Ltd. (2002) 2 SCC 388, had prevailed. The second phase commenced with the decision in Patel Engineering Ltd. till the legislative amendments, which were made to substantially reduce court interference and overrule the legal effect of Patel Engineerin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s accompanied by the original arbitration agreement or a duly certified copy thereof. (2) The application referred to in Sub-section (1) shall not be entertained unless it is accompanied by the original arbitration agreement or a duly certified copy thereof. [Provided that where the original arbitration agreement or a certified copy thereof is not available with the party applying for reference to arbitration under Sub-section (1), and the said agreement or certified copy is retained by the other party to that agreement, then, the party so applying shall file such application along with a copy of the arbitration agreement and a petition praying the Court to call upon the other party to produce the original arbitration agreement or its duly certified copy before that Court.] (3) Notwithstanding that an application has been made under Sub-section (1) and that the issue is pending before the judicial authority, an arbitration may be commenced or continued and an arbitral award made. (3) Notwithstanding that an application has been made under Sub-section (1) and that the issue is pending before the judicial authority, an arbitration may be commenced or continued and an arbitral awar ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e rate as specified in the Fourth Schedule: Provided further that the Chief Justice of the concerned High Court may, from time to time, review the panel of arbitrators.] (4) If the appointment procedure in Sub-section (3) applies and-- (a) a party fails to appoint an arbitrator within thirty days from the receipt of a request to do so from the other party; or (b) the two appointed arbitrators fail to agree on the third arbitrator within thirty days from the date of their appointment, the appointment shall be made, upon request of a party, by the Chief Justice or any person or institution designated by him. (4) If the appointment procedure in Sub-section (3) applies and-- (a) a party fails to appoint an arbitrator within thirty days from the receipt of a request to do so from the other party; or (b) the two appointed arbitrators fail to agree on the third arbitrator within thirty days from the date of their appointment, the appointment shall be made, upon request of a party, by the Supreme Court or, as the case may be, the High Court or any person or institution designated by such Court. (4) If [the appointment shall be made, on an application of the party, by the arbitral i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... or any person or institution designated by such Court to take the necessary measure, unless the agreement on the appointment procedure provides other means for securing the appointment. (6) Where, under an appointment procedure agreed upon by the parties,-- (a) a party fails to act as required under that procedure; or (b) the parties, or the two appointed arbitrators, fail to reach an agreement expected of them under that procedure; or (c) a person, including an institution, fails to perform any function entrusted to him or it under that procedure, a [the appointment shall be made, on an application of the party, by the arbitral institution designated by the Supreme Court, in case of international commercial arbitration, or by the High Court, in case of arbitrations other than international commercial arbitration, as the case may be] to take the necessary measure, unless the agreement on the appointment procedure provides other means for securing the appointment. NA (6-A) 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 o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tor.] (9) In the case of appointment of sole or third arbitrator in an international commercial arbitration, the Chief Justice of India or the person or institution designated by him may appoint an arbitrator of a nationality other than the nationalities of the parties where the parties belong to different nationalities. (9) In the case of appointment of sole or third arbitrator in an international commercial arbitration, the Supreme Court or the person or institution designated by that Court may appoint an arbitrator of a nationality other than the nationalities of the parties where the parties belong to different nationalities. (9) In the case of appointment of sole or third arbitrator in an international commercial arbitration, [the arbitral institution designated by the Supreme Court] may appoint an arbitrator of a nationality other than the nationalities of the parties where the parties belong to different nationalities. (10) The Chief Justice may make such scheme as he may deem appropriate for dealing with matters entrusted by sun-section (4) or Sub-section (5) or Sub-section (6) to him. (10) The Supreme Court or, as the case may be, the High Court, may make such scheme ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... l limits the principal Civil Court referred to in Clause (e) of Sub-section (1) of Section 2 is situate, and where the High Court itself is the Court referred to in that clause, to that High Court. (12) Where the matter referred to in Sub-sections (4), (5), (6) and (8) arise in an international commercial arbitration or any other arbitration, the reference to the arbitral institution in those Sub-sections shall be construed as a reference to the arbitral institution designated under Sub-section (3-A). NA (13) An application made under this section for appointment of an arbitrator or arbitrators shall be disposed of by the Supreme Court or the High Court or the person or institution designated by such Court, as the case may be, as expeditiously as possible and an endeavour shall be made to dispose of the matter within a period of sixty days from the date of service of notice on the opposite party. (13) An application made under this section for appointment of an arbitrator or arbitrators shall be disposed of by the arbitral institution within a period of thirty days from the date of service of notice on the opposite party. NA (14) For the purpose of determination of the fees o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... -sections (1) and (2) of Section 34 of the Arbitration Act read as under: 34. Application for setting aside arbitral award.--(1) Recourse to a Court against an arbitral award may be made only by an application for setting aside such award in accordance with Sub-section (2) and Sub-section (3). (2) An arbitral award may be set aside by the Court only if-- (a) the party making the application establishes on the basis of the record of the arbitral tribunal that-- (i) a party was under some incapacity, or (ii) the arbitration agreement is not valid under the law to which the parties have subjected it or, failing any indication thereon, under the law for the time being in force; or (iii) the party making the application was not given proper notice of the appointment of an arbitrator or of the arbitral proceedings or was otherwise unable to present his case; or (iv) the arbitral award deals with a dispute not contemplated by or not falling within the terms of the submission to arbitration, or it contains decisions on matters beyond the scope of the submission to arbitration: Provided that, if the decisions on matters submitted to arbitration can be separated from those no ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on Act is an administrative order that did not mandate notice and hearing of the other party. Being an administrative order, the Chief Justice or his nominee do not decide any preliminary issue, or the issue of non-arbitrability, validity and existence of the arbitration agreement, which are to be decided by the arbitrator at the first instance. 58. However, a Constitution Bench of seven Judges vide majority judgment in Patel Engineering Ltd. overruled this ratio and held: 38... But the basic requirement for exercising his power Under Section 11(6), is the existence of an arbitration agreement in terms of Section 7 of the Act and the applicant before the Chief Justice being shown to be a party to such an agreement. It would also include the question of the existence of jurisdiction in him to entertain the request and an enquiry whether at least a part of the cause of action has arisen within the State concerned. Therefore, a decision on jurisdiction and on the existence of the arbitration agreement and of the person making the request being a party to that agreement and the subsistence of an arbitrable dispute require to be decided and the decision on these aspects is a prelude ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t when the court at the reference stage has decided the jurisdictional issues. Decision of the court at the referral stage would be final and binding on the arbitral tribunal. Majority judgment also clarified that when an arbitral tribunal has been constituted by the parties without having taken recourse to a court order, the arbitral tribunal will have jurisdiction to decide all matters contemplated by Section 16 of the Arbitration Act. 59. In National Insurance Company Limited v. Boghara Polyfab Private Limited (2009) 1 SCC 267, a two Judges' Bench of this Court, elucidating on Patel Engineering Ltd., had identified and segregated the issues that arise for consideration in an application Under Section 11 of the Arbitration Act into three categories, viz. (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 or leave it to the arbitral tribunal to decide; and (iii) issues which should be left to the arbitral tribunal to decide, and thereafter had enumerated them as under: 22.1 The issues (first category) which the Chief Justice/his designate will have to decide are: (a) W ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Under Section 11 of the Act or by the Arbitral Tribunal as directed by the order Under Section 11 of the Act. A claim for arbitration cannot be rejected merely or solely on the ground that a settlement agreement or discharge voucher had been executed by the claimant, if its validity is disputed by the claimant. 60. The issues included in the first category were: whether the party making the application had approached the appropriate High Court, that is, the jurisdictional High Court; whether there is an arbitration agreement and whether the person who had applied Under Section 11 is a party to such agreement. This would include the question whether the Defendant or the opposite party is a party to the arbitration agreement or bound by the arbitration agreement in terms of Section 7 of the Arbitration Act. With respect to the second category, the Court observed that the Chief Justice or his designate may decide the issue, if necessary, by taking evidence or in the alternative may leave the issues open with the direction to the arbitral tribunal to decide the same. Where the Chief Justice or his designate examines the issue and decides it, the arbitral tribunal cannot re-examine th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . Lafarge India Private Limited (2013) 15 SCC 414, this Court had examined whether there is any conflict between Patel Engineering Ltd. and Boghara Polyfab Private Limited on the question of the scope of inquiry while deciding an application Under Section 11(6) of the Arbitration Act. The Division Bench in Arasmeta Captive Power Co. Pvt. Ltd. had referred to paragraph 39 and sub-para (iv) of paragraph 47 in Patel Engineering Ltd., to observe: 18. On a careful reading of para 39 and Conclusion (iv), as set out in para 47 of SBP case [SBP & Co. v. Patel Engg. Ltd., (2005) 8 SCC 618], it is limpid that for the purpose of setting into motion the arbitral procedure the Chief Justice or his designate is required to decide the issues, namely, (i) territorial jurisdiction, (ii) existence of an arbitration agreement between the parties, (iii) existence or otherwise of a live claim, and (iv) existence of the conditions for exercise of power and further satisfaction as regards the qualification of the arbitrator. That apart, under certain circumstances the Chief Justice or his designate is also required to see whether a long-barred claim is sought to be restricted and whether the parties ha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . Thus, the Bench while explaining the judgment of this Court in SBP [SBP & Co. v. Patel Engg. Ltd., (2005) 8 SCC 618] has stated that the Chief Justice may not decide certain issues finally and upon recording satisfaction that prima facie the issue has not become dead even leave it for the Arbitral Tribunal to decide. In Arasmeta Captive Power Co. (P) Ltd., elucidating on the question whether the dispute was arbitrable within the scope of the arbitration Clause should be decided by the Chief Justice/designate Judge or by the arbitrator, this Court has observed: ... The stress laid thereon may be innovative but when the learned Judges themselves have culled out the ratio decidendi in para 39, it is extremely difficult to state that the principle stated in SBP [SBP & Co. v. Patel Engg. Ltd., (2005) 8 SCC 618] requires the Chief Justice or his designate to decide the controversy when raised pertaining to arbitrability of the disputes. Or to express an opinion on excepted matters. Such an inference by syllogistic process is likely to usher in catastrophe in jurisprudence developed in this field. We are disposed to think so as it is not apposite to pick up a line from here and there ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tration agreement that is not null and void, inoperative or incapable of being performed. The key rationale for holding that the courts' review of the arbitration agreement should be limited to a prima facie standard is the principle of competence-competence. Further, were the courts are to be empowered to fully scrutinize the arbitration agreement an arbitral proceeding would have to be stayed until such time that the court seized of the matter renders a decision on the arbitration agreement. If the finding of the courts would be a final and determinative conclusion, then it is obvious that, until such a pronouncement is made, the arbitral proceedings would have to hang in abeyance. This evidently would defeat the credo and ethos of the Arbitration Act, which is to enable expeditious arbitration without avoidable intervention by the judicial authorities. As a result, the approach to be adopted at the reference stage is whether it is 'plainly arguable' that the arbitration agreement is in existence. The judgment laid emphasis on the fact that the Rule of priority in favour of the arbitrators is counter-balanced by the courts' power to review the existence and validi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and decided by the court. While Y.K. Sabharwal, J. (as His Lordship then was) dissented. 64. We would now refer to decisions of this Court post enforcement of Act 3 of 2016 with effect from 23rd October, 2015. Reference Order observes that "one moot question that therefore arises, and which needs to be authoritatively decided by a Bench of three learned Judges, is whether the word 'existence' would include weeding-out arbitration clauses in agreements which indicate that the subject matter is incapable of arbitration". Thereafter paragraph 59 from Duro Felguera S.A. as to the scope of Section 11(6-A) is quoted. 65. In Mayavati Trading Private Limited v. Pradyuat Deb Burman (2019) 8 SCC 714, a three Judge Bench has held that the legislature by inserting Sub-section (6-A) to Section 11 and making amendments to Section 8 by Act 3 of 2016 has legislatively introduced a new regime so as to dilute and legislatively overrule the effect and ratio of the judgment of this Court in Patel Engineering Ltd. Reliance was placed on paragraph 48 and 59 in Duro Felguera S.A. The concluding paragraph in Mayavati Trading Private Limited records: 10. This being the position, it is clear t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... itration clause. The arbitration agreement survives for determining whether the contract in which the arbitration Clause is embodied is null and void, which would include voidability. The severability doctrine in arbitration is of crucial significance. Reference was made to the judgment of the U.K. Court of Appeal in Fiona Trust and Holding Corpn. v. Privalov (2007) 1 All ER (Comm.) 891 : 2007 Bus LR 686 (CA), which judgment was affirmed by the House of Lords in Filli Shipping Co. Limited v. Premium Nafta Products Ltd. 2007 UKHL 40 : 2007 Bus LR 1719 (HL), to highlight that the arbitration Clause should be liberally construed in favour of one-stop arbitration. Mere allegation that the agent had no authority to enter into the main contract is not necessarily an attack on the arbitration agreement. The principle of severability treats arbitration agreement as a distinct agreement that can be void or voidable only on the ground that relates to the arbitration agreement. Reference was also made to the opinion of Scalia, J. of the Supreme Court of America in Buckeye Check Cashing Inc. v. Cardegna 163 L Ed 2d 1038 : 546 US 440 (2006) that arbitration agreement is severable from the remai ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dity of an arbitration agreement, it was observed: 20. Looked at from a slightly different angle, an arbitration agreement which is contained in an agreement or conveyance is dealt with in Section 7(2) of the 1996 Act. We are concerned with the first part of Section 7(2) on the facts of the present case, and therefore, the arbitration Clause that is contained in the sub-contract in question is the subject-matter of the present appeal. It is significant that an arbitration agreement may be in the form of an arbitration Clause "in a contract". 21. Sections 2(a), 2(b), 2(g) and 2(h) of the Contract Act, 1872 (the Contract Act) read as under: 2. Interpretation clause.--In this Act the following words and expressions are used in the following senses, unless a contrary intention appears from the context-- (a) When one person signifies to another his willingness to do or to abstain from doing anything, with a view to obtaining the assent of that other to such act or abstinence, he is said to make a proposal; (b) When the person to whom the proposal is made signifies his assent thereto, the proposal is said to be accepted. A proposal, when accepted, becomes a promise; xx xx xx ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ) 2 SCC (Civ) 530 and it was observed that the arbitration Clause was identical as in Oriental Insurance Company Limited v. Narbheram Power and Steel Private Limited (2018) 6 SCC 534 with the conditional expression of intent only when the liability was unequivocally admitted by the insurer and the dispute was related to the quantum to be paid under the policy. On the question of 'existence' and 'validity', the Bench held: 29. This judgment in Hyundai Engg. case is important in that what was specifically under consideration was an arbitration Clause which would get activated only if an insurer admits or accepts liability. Since on facts it was found that the insurer repudiated the claim, though an arbitration Clause did "exist", so to speak, in the policy, it would not exist in law, as was held in that judgment, when one important fact is introduced, namely, that the insurer has not admitted or accepted liability. Likewise, in the facts of the present case, it is clear that the arbitration Clause that is contained in the sub-contract would not "exist" as a matter of law until the sub-contract is duly stamped, as has been held by us above. The argument that Section ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he Jawaharlal Nehru Port Trust and Anr.,20 a division bench of this Court, after referring to in detail the global invitation of request for qualification and the request for proposal, came to the conclusion that the arbitration Clause in the request for qualification documents would not be applicable and govern the disputes. Therefore, the Respondent was left to pursue its claim before an appropriate forum, in accordance with law. The decision was made at the first or the referral stage. 72. At this stage we would like to refer to different views expressed by scholars on the subject, which also refer to the legal position in different countries. Stavros Brekoulakis in his paper titled On Arbitrability: Persisting Misconceptions and New Areas of Concern accepts that as per prevailing view in-arbitrability of the subject matter of the arbitration agreement renders the arbitration agreement invalid. However, he argues that in-arbitrability of the subject matter is an issue concerning jurisdiction of arbitral tribunal rather than the validity of the arbitration agreement. Referring to Article V(1)(a) and Article V(2)(a) of the New York Convention, he draws a distinction between in-ar ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... re is an action to enforce or set aside the arbitral award. The question, in effect, is one of timing and to the extent the courts are entitled to review the existence and validity of the arbitration agreement. The answer, they observe, is found in the notion of competence-competence, one of the founding principles of the international arbitration law that provides the arbitrators with power to Rule on their own jurisdiction and embodies the mirroring effect that the court should refrain from engaging in examination of the arbitrator's jurisdiction before the arbitrators themselves have an opportunity to do so. This, they state, by no means suggests that the domestic courts relinquish their power to review the existence and validity of an arbitration agreement which is first left to the arbitrators to rule. The courts enjoy the power of scrutiny after the award is rendered. They have referred to decisions of the higher courts of Switzerland,21 England, France, Canada and India (Shin-Etsu Chemical Co. Ltd.) to observe that the court's review at the first stage is limited to prima facie verification of existence and validity of the arbitration Clause without the question bein ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d by the requirement that a valid arbitration agreement exist, as well as the further requirements that the arbitration agreement be 'wide enough to comprise the relevant dispute' and that the arbitration agreement not be 'directly impeached by whatever ground... to attack the invalidity of the contract in which the arbitration Clause is contained'. In other words, to the extent that the English courts retain a degree of scrutiny as regards the existence, validity and scope of the arbitration agreement, the question of the extent to which English courts will give effect to the negative effect of competence-competence remains uncertain. 75. John J. Barcelo III, in his paper titled 'Who Decides the Arbitrator's Jurisdiction? Separability and Competence-Competence in Transnational Perspective', observes that the greater the number of issues required to be fully adjudicated at Stage I, the greater is the potential for disruption of the arbitration process by an obstructing party even in case of a genuine agreement to arbitration. An extremely pro-arbitration approach with no or minimal judicial scrutiny might send all the questions to the arbitrators. At th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... l and void, inoperative or incapable of being performed. This, the author feels, could be read as authorizing full judicial determination and settlement of arbitration agreement's existence and validity. Article 16 (1) embodies the positive competence-competence concept and Articles 16(3) and 8(2) enact a partial negative competence-competence principle. The latter allows arbitration proceedings to go forward despite the court consideration of the arbitrator's jurisdiction. Article 16(3) encourages outcome by expressly empowering arbitrators to Rule over their jurisdiction as a preliminary question. The British Arbitration Act of 1996 based on the Model Law requires the court to stay the legal proceedings, 'unless satisfied' that the arbitration agreement is null and void, inoperative or incapable of being performed. "Unless satisfied", the author observes, is closer to "unless it is manifest", rather than it is to the Model Law terminology "unless it finds". The British Act allows the arbitrator to render his/her decision on jurisdiction either in the preliminary award or in the final award, but allows the parties to insist the arbitrators for preliminary and an ea ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hat: (a) party aggrieved by the alleged failure... of another to arbitrate... (the) court shall hear the parties, and upon being satisfied that the making of the agreement for arbitration or the failure to comply therewith is not an issue, the court shall make an order directing the parties to arbitration....if the making of the arbitration agreement or the failure, neglect or refusal to perform the same be in issue, the court shall proceed summarily to the trial thereof. Therefore, in case of issue, if in the trial the court determines that arbitration agreement was not made it does not order the parties to arbitration. However, this principle does not apply when the arbitration Clause is contained in a 'container contract' by the application of 'separability' doctrine. In Buckeye Check Cashing Inc., the US Supreme Court held that separability doctrine applies to both voidable and void 'container contract' with an arbitration agreement. Distinction is drawn and different principles apply to 'container contract' with an arbitration clause, and stand-alone arbitration agreement.23 Buckeye Check Cashing Inc. ruled that courts must send to arbitrator ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... reement is termed void [null] or nonexistent "amounts to the same thing, for what is void is treated to all intents and purpose as if it had never existed", nonexistence and "voidness" are "one and the same notion"). 78. Prof. Stephen J. Ware in Arbitration Law's Separability Doctrine After Buckeye Check Cashing, Inc., with reference to the American Law projects a different view: under the contractual approach to arbitration law, the right to litigate (like other rights) would be alienable through an enforceable contract but not a contract that is unenforceable due to misrepresentation, duress, illegality, or any other contract-law defense. By contrast, the separability doctrine holds that a party alienates its right to litigate when that party forms a contract containing an arbitration Clause even if that contract is unenforceable...The only way to fix this problem is to repeal the separability doctrine and allow courts to hear defenses to the enforcement of the contract containing the arbitration clause. Courts should send cases to arbitration only after rejecting any such defenses. 79. In order to appreciate the effect of the amendments made by Act 3 of 2016, it would be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s ruled in favour 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 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 exi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... spute may at any 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 leads to expeditious disposal of cases. 81. We would now examine the principles of separability and competence-competence. Clauses (a) and (b) to Sub-section (1) to Section 16 enact the principle of separation of the arbitration agreement from the underlying or container contract. Clause (a), by legal fiction, gives an independent status to an arbitration Clause as if it is a standalone agreement, even when it is only a Clause and an integral part of the underlying or container contract. Clause (b) formulates a legal Rule that a decision by the arbitral tribunal holding that the main contract is null and void shall not ipso jure entail invalidity ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Clause of the original contract perishes with it; and (6) between the two falls many categories "of disputes in connection with a contract, such as the question of repudiation, frustration, breach etc. In those cases it is the performance of the contract that has come to an end, but the contract is still in existence for certain purposes in respect of disputes arising under it or in connection with it. As the contract subsists for certain purposes, the arbitration Clause operates in respect of these purposes." In those cases, as we have stated earlier, it is the performance of the contract that has come to an end but the contract is still in existence for certain purposes in respect of disputes arising under it or in connection with it. We think as the contract subsists for certain purposes, the arbitration Clause operates in respect of these purposes. Reference was also made to the minority judgment of Sarkar, J. in Kishorilal Gupta & Bros. to observe that he had only disagreed with the majority on the effect of settlement on the arbitration clause, as he had held that arbitration Clause did survive to settle the dispute as to whether there was or was not an 'accord and satis ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... itrator is different from the issue and question of jurisdiction and non-arbitrability. As per Sub-section (3), any objection that the arbitral tribunal is exceeding the scope of its authority should be raised as soon as the matter arises. However, the arbitral tribunal, as per Sub-section (4), is empowered to admit a plea regarding lack of jurisdiction beyond the periods specified in Sub-section (2) and (3) if it considers that the delay is justified. As per the mandate of Sub-section (5) when objections to the jurisdiction Under Sub-sections (2) and (3) are rejected, the arbitral tribunal can continue with the proceedings and pass the arbitration award. A party aggrieved is at liberty to file an application for setting aside such arbitral award Under Section 34 of the Arbitration Act. Sub-section (3) to Section 8 in specific terms permits an arbitral tribunal to continue with the arbitration proceeding and make an award, even when an application Under Sub-section (1) to Section 8 is pending consideration of the court/forum. Therefore, pendency of the judicial proceedings even before the court is not by itself a bar for the arbitral tribunal to proceed and make an award. Whether t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed to the subject matter of the suit being prima facie arbitrable under a valid arbitration agreement. Prima facie case means that the assertions on these aspects are bona fide. When read with the principles of separation and competence-competence and Section 34 of the Arbitration Act, referral court without getting bogged-down would compel the parties to abide unless there are good and substantial reasons to the contrary.26 87. Prima facie examination is not full review but a primary first review to weed out manifestly and ex facie non-existent and invalid arbitration agreements and non-arbitrable disputes. The prima facie review at the reference stage is to cut the deadwood and trim off the side branches in straight forward cases where dismissal is barefaced and pellucid and when on the facts and law the litigation must stop at the first stage. Only when the court is certain that no valid arbitration agreement exists or the disputes/subject matter are not arbitrable, the application Under Section 8 would be rejected. At this stage, the court should not get lost in thickets and decide debatable questions of facts. Referral proceedings are preliminary and summary and not a mini tr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ute with the arbitration agreement obtaining between the parties, is an aspect which is implicitly embedded in Sub-section (6A) of Section 11 of the 1996 Act, which, otherwise, requires the Court to confine its examination only to the existence of the arbitration agreement. Therefore, if on a bare perusal of the agreement it is found that a particular dispute is not relatable to the arbitration agreement, then, perhaps, the Court may decline the relief sought for by a party in a Section 11 petition. However, if there is a contestation with regard to the issue as to whether the dispute falls within the realm of the arbitration agreement, then, the best course would be to allow the arbitrator to form a view in the matter. 59.2 Thus, unless it is in a manner of speech, a chalk and cheese situation or a black and white situation without shades of grey, the concerned court hearing the Section 11 petition should follow the more conservative course of allowing parties to have their say before the arbitral tribunal." 88. The nature and facet of non-arbitrability could also determine the level and nature of scrutiny by the court at the referral stage. Stravos Brekoulakis has differentiat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... itration as a dispute resolution mechanism. Conversely, if the court becomes too reluctant to intervene, it may undermine effectiveness of both the arbitration and the court. There are certain cases where the prima facie examination may require a deeper consideration. The court's challenge is to find the right amount of and the context when it would examine the prima facie case or exercise restraint. The legal order needs a right balance between avoiding arbitration obstructing tactics at referral stage and protecting parties from being forced to arbitrate when the matter is clearly non-arbitrable.28 89. Accordingly, when it appears that prima facie review would be inconclusive, or on consideration inadequate as it requires detailed examination, the matter should be left for final determination by the arbitral tribunal selected by the parties by consent. The underlying rationale being not to delay or defer and to discourage parties from using referral proceeding as a rue to delay and obstruct. In such cases a full review by the courts at this stage would encroach on the jurisdiction of the arbitral tribunal and violate the legislative scheme allocating jurisdiction between the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... bitration agreement. Sub-section (6-A) was omitted by Act 33 of 2019, but the omission is in view of the introduction of a new regime of institutionalised arbitration as per the report of the committee headed by Justice B.N. Srikrishna, dated 30.07.2017 which records for the reason of recommending the omission as: Thus, it can be seen that after the Amendment Act of 2019, Section 11(6-A) 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. As observed earlier, Patel Engineering Ltd. explains and holds that Sections 8 and 11 are complementary in nature as both relate to reference to arbitration. Section 8 applies when judicial proceeding is pending and an application is filed for stay of judicial proceeding and for reference to arbitration. Amendments to Section 8 vide Act 3 of 2016 have not been omitted. Section 11 covers the situation where the parties approach a court for appointment of an arbitrator. Mayavati Trading Private Ltd., in our humble opinion ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... binding. Existence of an arbitration agreement presupposes a valid agreement which would be enforced by the court by relegating the parties to arbitration. Legalistic and plain meaning interpretation would be contrary to the contextual background including the definition Clause and would result in unpalatable consequences. A reasonable and just interpretation of 'existence' requires understanding the context, the purpose and the relevant legal norms applicable for a binding and enforceable arbitration agreement. An agreement evidenced in writing has no meaning unless the parties can be compelled to adhere and abide by the terms. A party cannot sue and claim rights based on an unenforceable document. Thus, there are good reasons to hold that an arbitration agreement exists only when it is valid and legal. A void and unenforceable understanding is no agreement to do anything. Existence of an arbitration agreement means an arbitration agreement that meets and satisfies the statutory requirements of both the Arbitration Act and the Contract Act and when it is enforceable in law. We would proceed to elaborate and give further reasons: (i) In Garware Wall Ropes Ltd., this Court ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... admittedly or without doubt is with a minor, lunatic or the only claim seeks a probate of a Will. (iii) Most scholars and jurists accept and agree that the existence and validity of an arbitration agreement are the same. Even Starvos Brekoulakis accepts that validity, in terms of substantive and formal validity, are questions of contract and hence for the court to examine. (iv) Most jurisdictions accept and require prima facie review by the court on non-arbitrability aspects at the referral stage. (v) Sections 8 and 11 of the Arbitration Act are complementary provisions as was held in Patel Engineering Ltd. The object and purpose behind the two provisions is identical to compel and force parties to abide by their contractual understanding. This being so, the two provisions should be read as laying down similar standard and not as laying down different and separate parameters. Section 11 does not prescribe any standard of judicial review by the court for determining whether an arbitration agreement is in existence. Section 8 states that the judicial review at the stage of reference is prima facie and not final. Prima facie standard equally applies when the power of judicial r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pays for the same. It is suggested that the legislature should consider the introduction of a "Code of Compulsory Costs". (ix) Even in Duro Felguera, Kurian Joseph, J., in paragraph 52, had referred to Section 7(5) and thereafter in paragraph 53 referred to a judgment of this Court in M.R. Engineers and Contractors Private Limited v. Som Datt Builders Limited (2009) 7 SCC 696 to observe that the analysis in the said case supports the final conclusion that the Memorandum of Understanding in the said case did not incorporate an arbitration clause. Thereafter, reference was specifically made to Patel Engineering Ltd. and Boghara Polyfab Private Limited to observe that the legislative policy is essential to minimise court's interference at the pre-arbitral stage and this was the intention of Sub-section (6) to Section 11 of the Arbitration Act. Paragraph 48 in Duro Felguera specifically states that the resolution has to exist in the arbitration agreement, and it is for the court to see if the agreement contains a Clause which provides for arbitration of disputes which have arisen between the parties. Paragraph 59 is more restrictive and requires the court to see whether an arbit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y the facts found and the law applicable. The court at the referral stage can interfere only when it is manifest that the claims are ex facie time barred and dead, or there is no subsisting dispute. All other cases should be referred to the arbitral tribunal for decision on merits. Similar would be the position in case of disputed 'no claim certificate' or defence on the plea of novation and 'accord and satisfaction'. As observed in Premium Nafta Products Ltd., it is not to be expected that commercial men while entering transactions inter se would knowingly create a system which would require that the court should first decide whether the contract should be rectified or avoided or rescinded, as the case may be, and then if the contract is held to be valid, it would require the arbitrator to resolve the issues that have arisen. 94. We would also resolve the question of principles applicable to interpretation of an arbitration clause. This is important and directly relates to scope of the arbitration agreement. In Premium Nafta Products Ltd., on the question of interpretation and construction of an arbitration clause, it is observed: In approaching the question of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Clause is understood by considering the strict language and circumstance of the case in hand. Terms like 'all', 'any', 'in respect of', 'arising out of' etc. can expand the scope and ambit of the arbitration clause. Connected and incidental matters, unless the arbitration Clause suggests to the contrary, would normally be covered. Which approach as to interpretation of an arbitration agreement should be adopted in a particular case would depend upon various factors including the language, the parties, nature of relationship, the factual background in which the arbitration agreement was entered, etc. In case of pure commercial disputes, more appropriate principle of interpretation would be the one of liberal construction as there is a presumption in favour of one-stop adjudication. 95. Accordingly, we hold that the expression 'existence of an arbitration agreement' in Section 11 of the Arbitration Act, would include aspect of validity of an arbitration agreement, albeit the court at the referral stage would apply the prima facie test on the basis of principles set out in this judgment. In cases of debatable and disputable facts, and good re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and uphold integrity and efficacy of arbitration as an alternative dispute resolution mechanism. 97. Reference is, accordingly, answered. 98. In view of the aforesaid findings and ratio, we dispose of the Civil Appeal and the Special Leave Petitions in the following manner: Civil Appeal No. 2402 of 2019 In view of the fact that the Arbitral Tribunal is hearing the matter, we leave the issue of arbitrability to the Tribunal to decide and come to a conclusion on the same. Further, the parties are at liberty to execute or challenge the award in accordance with law. The direction that the award cannot be executed without applying for permission of this Court is hereby vacated. Special Leave Petition (Civil) Nos. 5605-5606 of 2019 In this case, arbitral award has been passed on 24th August 2019. It is apprised before this Bench that the Arbitral Tribunal has rejected the objection to the Tribunal's jurisdiction. In this view, the Petitioner is at liberty to pursue the remedy available Under Section 34 of the Arbitration Act. Special Leave Petition (Civil) No. 11877 of 2020 In view of the fact that the Arbitral Tribunal is hearing the matter, we leave the issue of arbitrabil ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lity of the dispute. 102. Aggrieved by the same, the Appellants (tenants) have approached this Court in the present proceedings, on the reason that, after the judgment of the High Court was rendered appointing the arbitrator, this Court in Himangni Enterprises v. Kamaljeet Singh Ahluwalia, (2017) 10 SCC 706 [hereinafter referred as 'Himangni Enterprises'] held that where the Transfer of Property Act, 1882 applied between the landlord and tenant disputes between the said parties would not be arbitrable. 103. When Civil Appeal No. 2402 of 2019 was listed for hearing on 28.02.2019, then the said matter was referred to a three-Judge Bench, with following observations: 7. It will be noticed that "validity" of an arbitration agreement is, therefore, apart from its "existence". One moot question that therefore, arises, and which needs to be authoritatively decided by a Bench of three learned Judges, is whether the word "existence" would include weeding-out arbitration clauses in agreements which indicate that the subject-matter is incapable of arbitration... x x x x x x x x x x 30. In this view of the matter, this case is referred to a Bench of three Hon'ble Judges. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n behalf of the Petitioner in SLP (C.) No. 11877 of 2020, has submitted that: * Lease hold rights under the Transfer of Property Act, 1882 [hereinafter referred to as "TP Act"]are rights in rem. * A contractual tenant upon determination of lease becomes a statutory tenant and is entitled to the statutory protection. Therefore, the arbitration in that case would be ousted. * Section 11 is not the stage for determination of the issue of arbitrability in those cases where the test of Section 89, Code of Civil Procedure is to be applied. 109. Learned Senior Counsel, Mr. Gopal Shankarnarayan on behalf of the Petitioners in SLP (C.) No. 5605-5606 of 2019, submitted that: * Section 11(6A) mandates an 'examination of the evidence of an arbitration agreement'. * The 2015 Amendment does not convert the judicial power conferred in Section 11(6) into an administrative power. * The decision in Mayavati Trading Pvt. Ltd. v. Pradyuat Deb Burman, (2019) 8 SCC 714 is inapplicable. 110. Learned Counsel, Mr. Sourav Agarwal on behalf of the Respondent in Civil Appeal No. 2402 of 2019, contended that: * the Court Under Section 8 and 11 of the Act, does not act as a mere post-off ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd II of the Act. The preamble to the Act provides that it was enacted with a view to have uniformity of the law of arbitral procedures to establish a fair and efficient mechanism to resolve disputes. 116. Section 2 provides for the definition of 'arbitration agreement' which is to be interpreted in terms of Section 7 of the Act, which states as under: 7. Arbitration agreement. -- (1) In this Part, "arbitration agreement" means an agreement by the parties to submit to arbitration all or certain disputes which have arisen or which may arise between them in respect of a defined legal relationship, whether contractual or not. (2) An arbitration agreement may be in the form of an arbitration Clause in a contract or in the form of a separate agreement. (3) An arbitration agreement shall be in writing. (4) An arbitration agreement is in writing if it is contained in-- (a) a document signed by the parties; (b) an exchange of letters, telex, telegrams or other means of telecommunication including communication through electronic means which provide a record of the agreement; or (c) an exchange of statements of claim and defence in which the existence of the agreeme ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e original arbitration agreement or a certified copy thereof is not available with the party applying for reference to arbitration under Sub-section (1), and the said agreement or certified copy is retained by the other party to that agreement, then, the party so applying shall file such application along decree or with a copy of the arbitration agreement and a petition praying the Court to call upon the other party to produce the original arbitration agreement or its duly certified copy before that Court. (3) Notwithstanding that an application has been made under Sub-section (1) and that the issue is pending before the judicial authority, an arbitration may be commenced or continued and an arbitral award made Power to refer parties to arbitration where there is an arbitration agreement.-(1) A judicial authority, before which an action is brought in a matter which is the subject of an arbitration agreement shall, if a party to the arbitration agreement or any person claiming through or under him, so applies not later than the date of submitting his first statement on the substance of the dispute, then, notwithstanding any judgment, decree or order of the Supreme Court or any Cou ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that the arbitration agreement is null and void, inoperative or incapable of being performed. Section 8 of the Act has made a departure from the UNCITRAL law which is indicative of the wide reach and ambit of the statutory mandate. Section 8 uses the expansive expression "judicial authority" rather than "court" and the words "unless it finds that the agreement is null and void, inoperative and incapable of being performed" do not find place in Section 8. 119. On the 2015 amendment to Section 8, Justice Indu Malhotra, comments as under: Section 8 was amended by the 2015 Amendment to clarify the scope of enquiry by the judicial authority at the pre-reference stage. The court would be required to make a prima facie determination as to whether there is valid arbitration agreement.29 We must state that we are partly in agreement with the aforesaid, wherein the judicial authorities have been given a clear mandate for interference at the pre-reference stage, however, the threshold standard is worded differently, as pointed herein. 120. Section 11 of the Act in its present and earlier forms, are extracted below: Section 11 prior to Act 3 of 2016 Section 11 after Act 3 of 2016 Secti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and impartial arbitrator. (9) In the case of appointment of sole or third arbitrator in an international commercial arbitration, the Chief Justice of India or the person or institution designated by him may appoint an arbitrator of a nationality other than the nationalities of the parties where the parties belong to different nationalities. (10) The Chief Justice may make such scheme as he may deem appropriate for dealing with matters entrusted by Sub-section (4) or Sub-section (5) or Sub-section (6) to him. (11) Where more than one request has been made under Sub-section (4) or Sub-section (5) or Sub-section(6) to the Chief Justices of different High Courts or their designates, the Chief Justice or his designate to whom the request has been first made under the relevant Sub-section shall alone be competent to decide on the request. (12)(a) Where the matters referred to in Sub-sections (4), (5), (6), (7), (8) and (10) arise in an international commercial arbitration, the reference to "Chief Justice" in those Sub-sections shall be construed as a reference to the "Chief Justice of India" (b) Where the matters referred to in Sub-sections (4), (5), (6), (7), (8) and (10) arise in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the appointment. (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. (6B) The designation of any person or institution by the Supreme Court or, as the case may be, the High Court, for the purposes of this section shall not be regarded as a delegation of judicial power by the Supreme Court or the High Court. (7) A decision on a matter entrusted by Sub-section (4) or Sub-section (5) or Sub-section (6) to the Supreme Court or, as the case may be, the High Court or the person or institution designated by such Court is final and no appeal including Letters Patent Appeal shall lie against such decision (8) The Supreme Court or, as the case may be, the High Court or the person or institution designated by such Court, before appointing an arbitrator, shall seek a disclosure in writing from the prospective arbitrator in terms of Sub-section (1) of Section 12, and have due regard to-- (a) any qualifications required for the arbitrator by the ag ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s may be necessary, after taking into consideration the rates specified in the Fourth Schedule. Explanation.--For the removal of doubts, it is hereby clarified that this Sub-section shall not apply to international commercial arbitration and in arbitrations (other than international commercial arbitration) in case where parties have agreed for determination of fees as per the rules of an arbitral institution. Appointment of arbitrators. -(1) A person of any nationality may be an arbitrator, unless otherwise agreed by the parties. (2) Subject to Sub-section (6), the parties are free to agree on a procedure for appointing the arbitrator or arbitrators. (3) Failing any agreement referred to in Sub-section (2), in an arbitration with three arbitrators, each party shall appoint one arbitrator, and the two appointed arbitrators shall appoint the third arbitrator who shall act as the presiding arbitrator.(3A) The Supreme Court and the High Court shall have the power to designate, arbitral institutions, from time to time, which have been graded by the Council Under Section 43-I, for the purposes of this Act: Provided that in respect of those High Court jurisdictions, where no graded a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... se may be, the High Court, for the purposes of this section shall not be regarded as a delegation of judicial power by the Supreme Court or the High Court. (8) The arbitral institution referred to in Sub-sections (4), (5) and (6), before appointing an arbitrator, shall seek a disclosure in writing from the prospective arbitrator in terms of Sub-section (1) of Section 12, and have due regard to-- (a) any qualifications required for the arbitrator by the agreement of the parties; and (b) the contents of the disclosure and other considerations as are likely to secure the appointment of an independent and impartial arbitrator. (9) In the case of appointment of sole or third arbitrator in an international commercial arbitration, the arbitral institution designated by the Supreme Court may appoint an arbitrator of a nationality other than the nationalities of the parties where the parties belong to different nationalities. (11) Where more than one request has been made under Sub-section (4) or Sub-section (5) or Sub-section (6) to different arbitral institutions, the arbitral institution to which the request has been first made under the relevant Sub-section shall be competent to ap ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tion. Sub-section (1) of Section 16 is relevant, and reads thus: 16. (1) The Arbitral Tribunal may Rule on its own jurisdiction, including ruling on any objections with respect to the existence or validity of the arbitration agreement, and for that purpose,-- (a) an arbitration Clause which forms part of a contract shall be treated as an agreement independent of the other terms of the contract; and (b) a decision by the Arbitral Tribunal that the contract is null and void shall not entail ipso jure the invalidity of the arbitration clause. 123. Section 34 of the Act is as under: Section 34 prior to Act 3 of 2016 Section 34 after Act 3 of 2016 Section 34 after Act 33 of 2019 Application for setting aside arbitral award.-(1) Recourse to a Court against an arbitral award may be made only by an application for setting aside such award in accordance with Sub-section (2) and Sub-section (3). (2) An arbitral award may be set aside by the Court only if - (a) the party making the application furnishes proof that-(i) a party was under some incapacity, or (ii) the arbitration agreement is not valid under the law to which the parties have subjected it or, failing any indication t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... her action as in the opinion of arbitral tribunal will eliminate the grounds for setting aside the arbitral award. Application for setting aside arbitral award. --(1) Recourse to a Court against an arbitral award may be made only by an application for setting aside such award in accordance with Sub-section (2) and Sub-section (3). (2) An arbitral award may be set aside by the Court only if-- (a) the party making the application furnishes proof that-- (i) a party was under some incapacity, or (ii) the arbitration agreement is not valid under the law to which the parties have subjected it or, failing any indication thereon, under the law for the time being in force; or (iii) the party making the application not given proper notice of the appointment of an arbitrator or of the arbitral proceedings or was otherwise unable to present his case; or (iv) the arbitral award deals with a dispute not contemplated by or not falling within the terms of the submission to arbitration, or it contains decisions on matters beyond the scope of the submission to arbitration: Provided that, if the decisions on matters submitted to arbitration can be separated from those not so submitted ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ined by it in order to give the arbitral tribunal an opportunity to resume the arbitral proceedings or to take such other action as in the opinion of arbitral tribunal will eliminate the grounds for setting aside the arbitral award. (5) An application under this section shall be filed by a party only after issuing a prior notice to the other party and such application shall be accompanied by an affidavit by the applicant endorsing compliance with the said requirement. (6) An application under this section shall be disposed of expeditiously, and in any event, within a period of one year from the date on which the notice referred to in Sub-section (5) is served upon the other party. Application for setting aside arbitral award. (1) Recourse to a Court against an arbitral award may be made only by an application for setting aside such award in accordance with Sub-section (2) and Sub-section (3). (2) An arbitral award may be set aside by the Court only if-- (a) the party making the application establishes on the basis of the record of the arbitral tribunal that-- (i) a party was under some incapacity, or (ii) the arbitration agreement is not valid under the law to which the par ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... application had received the arbitral award or, if a request had been made Under Section 33, from the date on which that request had been disposed of by the arbitral tribunal: Provided that if the Court is satisfied that the applicant was prevented by sufficient cause from making the application within the said period of three months it may entertain the application within a further period of thirty days, but not thereafter. (4) On receipt of an application under Sub-section (1), the Court may, where it is appropriate and it is so requested by a party, adjourn the proceedings for a period of time determined by it in order to give the arbitral tribunal an opportunity to resume the arbitral proceedings or to take such other action as in the opinion of arbitral tribunal will eliminate the grounds for setting aside the arbitral award. (5) An application under this section shall be filed by a party only after issuing a prior notice to the other party and such application shall be accompanied by an affidavit by the applicant endorsing compliance with the said requirement. (6) An application under this section shall be disposed of expeditiously, and in any event, within a period of o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... matter in respect of which the parties have made an agreement referred to in Section 44, shall, at the request of one of the parties or any person claiming through or under him, refer the parties to arbitration, unless it finds that the said agreement is null and void, inoperative or incapable of being performed. Notwithstanding anything contained in Part I or in the Code of Civil Procedure, 1908 (5 of 1908), a judicial authority, when seized of an action in a matter in respect of which the parties have made an agreement referred to in Section 44, shall, at the request of one of the parties or any person claiming through or under him, refer the parties to arbitration, unless it prima facie finds that the said agreement is null and void, inoperative or incapable of being performed. 125. The present structure of arbitration is such that Courts are to assist and support arbitration and leave the substantive part of adjudication to the arbitral tribunal. Some scholars have suggested that the judicial mechanism that comports with the Rule of law may be fundamentally at odds with non-judicial/arbitral mechanism which is therefore less formal. But our understanding is that that the Rule ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... te had nominated an arbitrator although the period of thirty days had not expired and that, therefore, it had no jurisdiction. (emphasis supplied) 128. Again, the aforesaid decision came to be referred to a seven-Judge Bench in SBP & Co. v. Patel Engineering Ltd., (2005) 8 SCC 618, wherein majority was penned by Justice P.K. Balasubramanyan and the minority dissent was by Justice C.K. Thakker. 129. The majority opinion, concluded that the power of reference Under Section 11 is a judicial function for the following reasons: First, the Sub-section (7) of Section 11 makes the adjudication by the Chief Justice, final. Such final determination in usual course would be a judicial determination. Second, the reason for delegating the power to the highest judicial authority in the State or the Country, is to provide credibility for the process. Third, the power of a persona designata cannot be delegated, unless such power is judicial power. Fourth, Section 8 and 11 are complimentary and the ambit of power is the same. Fifth, the principle of Kompetenz-Kompetenz, as enshrined Under Section 16, will come to play only if the parties approach the Arbitral Tribunal, without taking ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e necessary to observe certain passage from Justice Sabharwal's opinion: 55. I may also deal with the contention urged on behalf of the Appellant that only a prima facie finding is required to be given on a combined reading of Sections 45, 48 and 50 from which it can be culled out that a party who has suffered an award can always challenge the same Under Section 48 on the ground that the arbitration agreement is null and void. This read in conjunction with the right of appeal given Under Section 50 and the power of the arbitrator to Rule on his own jurisdiction clearly shows the intent of the legislature to avoid delay which would be inevitable if it has to be a final decision and it would defeat the object of soon placing all material before the Arbitral Tribunal. I am afraid that this cannot be accepted as the real purpose of Section 48 is to ensure that at some stage whether pre-award, post-award or both, a judicial authority must decide the validity, operation, capability of performance of the arbitration agreement. In various cases the parties may not resort to Section 45 in the first place, and to overcome such eventuality, the legislature has enacted Section 48(1)(a). ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d by the provisions contained in Part III Chapter I of the Act of 1996. I respectfully agree with learned Brother Srikrishna, J. only to the extent that if on a prima facie examination of the documents and material on record including the arbitration agreement on which request for reference is made by one of the parties, the judicial authority or the court decides to make a reference, it may merely mention the submissions and contentions of the parties and summarily decide the objection if any raised on the alleged nullity, voidness, inoperativeness or incapability of the arbitration agreement. In case, however, on a prima facie view of the matter, which is required to be objectively taken on the basis of material and evidence produced by the parties on the record of the case, the judicial authority including a regular civil court, is inclined to reject the request for reference on the ground that the agreement is "null and void" or "inoperative" or "incapable of being performed" within the meaning of Section 45 of the Act, the judicial authority or the court must afford full opportunities to the parties to lead whatever documentary or oral evidence they want to lead and then decid ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Chief Justice has to record satisfaction that there remains a live issue in between the parties. The same thing is about the limitation which is always a mixed question of law and fact. The Chief Justice only has to record his satisfaction that prima facie the issue has not become dead by the lapse of time or that any party to the agreement has not slept over its rights beyond the time permitted by law to agitate those issues covered by the agreement. It is for this reason that it was pointed out in the above para that it would be appropriate sometimes to leave the question regarding the live claim to be decided by the Arbitral Tribunal. All that he has to do is to record his satisfaction that the parties have not closed their rights and the matter has not been barred by limitation. Thus, where the Chief Justice comes to a finding that there exists a live issue, then naturally this finding would include a finding that the respective claims of the parties have not become barred by limitation. 133. The next jurisprudential jump was provided by National Insurance Company Limited v. Boghara Polyfab Private Limited, (2009) 1 SCC 267, wherein this Court observed as under: 19. In SBP & ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 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. 23. It is clear from the scheme of the Act as explained by this Court in SBP & Co. [ (2005) 8 SCC 618], that in regard to issues falling under the second category, if raised in any application Under Section 11 of the Act, the Chief Justice/his designate may decide them, if necessary, by taking evidence. Alternatively, he may leave those issues open with a direction to the Arbitral Tribunal to decide the same. If the Chief Justice or his designate chooses to examine the issue and decides it, the Arbitral Tribunal cannot re-examine the same issue. The Chief Justice/his designate will, in choosing whether he will decide such issue or leave it t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ely and incorrectly understood the principles stated in the major part of the decision rendered by a larger Bench in SBP & Co. v. Patel Engg. Ltd., (2005) 8 SCC 618 and, in resistance, Mr. Harish Salve and Dr A.M. Singhvi, learned Senior Counsel for the Respondent, while defending the view expressed later by the three-Judge Bench, have laid immense emphasis on consistency and certainty of law that garner public confidence, especially in the field of arbitration, regard being had to the globalisation of economy and stability of the jurisprudential concepts and pragmatic process of arbitration that sparkles the soul of commercial progress. We make it clear that we are not writing the grammar of arbitration but indubitably we intend, and we shall, in course of our delineation, endeavour to clear the maze, so that certainty remains "A Definite" and finality is "Final". The Court answering the question, answered thus: 40. From the aforesaid authorities it is luculent that the larger Bench in SBP [SBP & Co. v. Patel Engg. Ltd., (2005) 8 SCC 618], after deliberating at length with regard to the role of the Chief Justice or his designate, while dealing with an application Under Section ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d that the ratio decidendi of the judgment in SBP [SBP & Co. v. Patel Engg. Ltd., (2005) 8 SCC 618] is really inhered in para 39 of the judgment. 136. This Court in Duro Felguera, S.A. v. Gangavaram Port, (2017) 9 SCC 729, held as under: (Justice Banumathi) "20. ...Since the dispute between the parties arose in 2016, the amended provision of Sub-section (6-A) of Section 11 shall govern the issue, as per which the power of the Court is confined only to examine the existence of the arbitration agreement. (Justice Kurian Joseph) "59. The scope of the power Under Section 11(6) of the 1996 Act was considerably wide in view of the decisions in SBP and Co. [SBP and Co. v. Patel Engg. Ltd., (2005) 8 SCC 618] and Boghara Polyfab [National Insurance Co. Ltd. v. Boghara Polyfab (P) Ltd., (2009) 1 SCC 267]. This position continued till the amendment brought about in 2015. After the amendment, all that the courts need to see is whether an arbitration agreement exists--nothing more, nothing less. The legislative policy and purpose is essentially to minimize the Court's intervention at the stage of appointing the arbitrator and this intention as incorporated in Section 11(6-A) ought ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s 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 [United India Insurance Co. Ltd. v. Antique Art Exports (P) Ltd., (2019) 5 SCC 362], as Section 11(6-A) is confined to the 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 in Duro Felguera, SA [Duro Felguera, SA v. Gangavaram Port Ltd., (2017) 9 SCC 729] -- see paras 48 & 59 [Ed.: The said paras 48 & 59 of Duro Felguera, SA v. Gangavaram Port Ltd., (2017) 9 SCC 729, for ready reference, read as follows: 48. Section 11(6-A) added by the 2015 Amendment, reads as follows: 11. (6-A) 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. (emphasis su ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... amendment clarified that the test to be utilized by the Court is on a prima facie basis. 143. The primary reason for the same, is the negative effect of Kompetenz Kompetenz Under Section 16, which mandates that the arbitral tribunal is required to first look into any objections as to the jurisdiction of the tribunal itself. It is due to the fact that parties may abuse and protract the proceedings if there is no gatekeeping mechanism, that the legislature has found a balance, wherein the Court is required to examine the validity of an arbitration agreement on a prima facie basis. 144. In this context, we need to examine the meaning of 'validity of arbitration agreement' as occurring Under Section 8 of the Act. There is no doubt that 'validity' to be examined Under Section 8(2) of the Act, could be interpreted to mean formal validity as expressed Under Section 7 of the Act. Such an interpretation would operate as a full application of the negative facet of Section 16, as the jurisdiction of the Court to step-in at the-reference stage would be limited. However, the burden of the precedents stops us from accepting such a narrow interpretation. 145. This brings us to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is to be noted that whether a subject matter can or cannot be arbitrated should necessarily be dealt on a case to case basis, rather than a having a bold exposition that certain subject matters are incapable of arbitration. This case is one such example of over-broad ratio, expounded by this Court by laying that certain subject areas cannot be arbitrated per se. At this juncture, we may observe the case of The London Steamship Owners' Mutual Insurance Association Ltd. v. The Kingdom of Spain and The French State, [2015] EWCA Civ 333. The case relates to an oil spill off the coast of Spain and France from a vessel named 'The Prestige', which resulted in the Government of Spain and France taking action against the Captain of the ship and other officers under the Spanish Code of Criminal Procedure, as well as instituting a case against the Owner to pay punitive damages under the Spanish Penal Code. It may be noted that the claim was also brought against the insurer of the ship for indemnity. Those claims were based both on the insurer's obligation to indemnify the owners against their obligations under the International Convention on Civil Liability for Oil Pollution ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Ltd. v. Cherian Varkey Construction Co. (P) Ltd., (2010) 8 SCC 24] and paragraph 36(i) of Booz Allen [Booz Allen & Hamilton Inc. v. SBI Home Finance Ltd., (2011) 5 SCC 532, must now be read subject to the rider that the same set of facts may lead to civil and criminal proceedings and if it is clear that a civil dispute involves questions of fraud, misrepresentation, etc. which can be the subject matter of such proceeding Under Section 17 of the Contract Act, and/or the tort of deceit, the mere fact that criminal proceedings can or have been instituted in respect of the same subject matter would not lead to the conclusion that a dispute which is otherwise arbitrable, ceases to be so. 151. It is important to note that various countries have already allowed inter-partes arbitration with respect to in rem rights concerning intellectual property etc., through a statutory framework. It is worthwhile to study the feasibility of the same, if we want to provide impetus to arbitration. 152. On a different note, we need to keep in mind that an arbitration agreement would, as a necessary implication, carry with it a presumption of a one-stop mechanism. When parties decide to enter into an a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... arbitration, if the subject-matter of the suit is capable of adjudication only by a public forum or the relief claimed can only be granted by a special court or Tribunal. X X X X X X 36. The well-recognised examples of non-arbitrable disputes are: (i) disputes relating to rights and liabilities which give rise to or arise out of criminal offences; (ii) matrimonial disputes relating to divorce, judicial separation, restitution of conjugal rights, child custody; (iii) guardianship matters; (iv) insolvency and winding-up matters; (v) testamentary matters (grant of probate, letters of administration and succession certificate); and (vi) eviction or tenancy matters governed by special statutes where the tenant enjoys statutory protection against eviction and only the specified courts are conferred jurisdiction to grant eviction or decide the disputes. The Court came to the aforesaid conclusion, of ascertaining certain subject matters as non-arbitrable, on two main reasons, (1.) that certain matters are excluded for examination by a private forum; (2) that in rem rights cannot be arbitrated. 154. In A. Ayysamy v. A. Paramsivam, (2016) 10 SCC 386, this Court had to deal with an iss ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . 158. However, post the 2015 amendment, the structure of the Act was changed to bring it in tune with the pro-arbitration approach. Under the amended provision, the Court can only give prima facie opinion on the existence of a valid arbitration agreement. In line with the amended language and the statutory scheme, the examination of the subject matter arbitrability may not be appropriate at the stage of reference Under Section 8 of the Arbitration Act. It is more appropriate to be taken up by the Court at the stage of enforcement Under Section 34 of the Act. Having said so, in clear cases where the subject matter arbitrability is clearly barred, the Court can cut the deadwood to preserve the efficacy of the arbitral process. 159. At this stage a word of caution needs to be said for arbitrators. They have been given jurisdiction to decide on the subject matter arbitrability. They are required to identify specific public policy in order to determine the subject matter arbitrability. Merely because a matter verges on a prohibited territory, should not by in itself stop the arbitrator from deciding the matter. He/she should be careful in considering the question of non-arbitrability ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e way as these other provisions. It is in this context the Commission has examined and deliberated the working of these 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 decis ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d) 163. The difference of statutory language provided under the amended Section 8, which states 'refer the parties to arbitration unless it finds that prima facie no valid arbitration agreement exists' in comparison with the amended Section 11(6A), creates disparities which need to be ironed out. While the Court in the Shin-Etsu case (supra) and the Duro Felguera case (supra) recommended for finding a valid arbitration agreement on a prima facie basis qua Section 11, however, the negative language used under the amended Section 8 mandates for referring a matter to arbitration unless the Court prima facie finds that no valid arbitration exists. It is to be noted that a finding of non-existence of arbitration agreement is final subject to the appeal process only, without further scope for arbitration tribunal to decide anything as there can be no further reference. If that be the case, then the usage of phrase 'prima facie' stands at odds with the established precedents on prima facie standards. In this context, we can only stress on the requirement of quality legislative drafting protocols to eliminate such complications. 164. From the aforesaid discussion, we can ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ds to be seen if the agreement contains a Clause which provides for arbitration pertaining to the disputes which have arisen between the parties to the agreement." At first blush, the Court seems to have read the existence of the arbitration agreement by limiting the examination to an examination of its factual existence. However, that is not so, as the existence of arbitration agreement does not mean anything unless such agreement is contractually valid. This view is confirmed by the Duro Felguera case (supra), wherein the reference to the contractual aspect of arbitration agreement is ingrained under the Section 7 analysis. A mere agreement is not legally binding, unless it satisfies the core contractual requirements, concerning consent, consideration, legal relationship, etc. In Mayavati Trading Case (supra) and Garware Wall Ropes Ltd. v. Coastal Marine Construction and Engineering Ltd., [2019] 9 SCC 209, the aforesaid stand has been confirmed. Therefore, the scope of the Court to examine the prima facie validity of an arbitration agreement includes only the determination of the following: 92. Whether the arbitration agreement was in writing? or 93. Whether the arbitration ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... gnizant of the fact that the statutory language of Section 8 and 11 are different, however materially they do not vary and both Sections provide for limited judicial interference at reference stage, as enunciated above. 172. In line with our holding on question No. 1, generally it would not have been appropriate for us to delve into the second question. However, considering that a question of law has been referred to us, we agree with the conclusions reached by our learned brother. 173. Before we part, the conclusions reached, with respect to question No. 1, are: a. Sections 8 and 11 of the Act have the same ambit with respect to judicial interference. b. Usually, subject matter arbitrability cannot be decided at the stage of Sections 8 or 11 of the Act, unless it's a clear case of deadwood. c. The Court, Under Sections 8 and 11, has to refer a matter to arbitration or to appoint an arbitrator, as the case may be, unless a party has established a prima facie (summary findings) case of non-existence of valid arbitration agreement, by summarily portraying a strong case that he is entitled to such a finding. d. The Court should refer a matter if the validity of the arbit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... L. Peresie, Reducing the Presumption of Arbitrability. 13A Second Look at Arbitrability: Approaches to Arbitration in the United States, Switzerland and Germany by Patrick M. Baron and Stefan Liniger 14(i) to (vi) from Prof. Stavros Brekoulakis-On Arbitrability: Persisting Misconceptions and New Area of Concern. 15(vii) from the preamble of the text of the bill of 2007 Arbitration Fairness Act as was written by the sponsor and submitted to the House for consideration 16Union of India v. Singh Builders Syndicate, (2009) 4 SCC 523. 17Mitsubishi Motors Corporation v. Soler Chrysler Plymouth Inc, 473 U.S. 614 S Ct 3346 (1985) (U.S. Supreme Court, 2 July 1985) 18Civil Appeal No. 5145 of 2016 and connected matters, decided on 19.08.2020 19Civil Appeal No. 5147 of 2016, decided on 19.08.2020 20Civil Appeal No. 9352 of 2018 decided on 11th September 2018. 21Article 5 of the Concordat (domestic law) provides that any dispute concerning rights the parties may freely dispose of is capable of resolution by arbitration, unless the subject matter of the dispute falls within the exclusive jurisdiction of a state authority by virtue of mandatory law. 22First Options of Chicago v. Kaplan ..... X X X X Extracts X X X X X X X X Extracts X X X X
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