2026 INSC 116 Page 1 of 37

REPORTABLE

IN THE SUPREME COURT OF INDIA

CIVIL APPELLATE JURISDICTION

CIVIL APPEAL NO. 753 OF 2026

(@ SLP (C) No.8299 OF 2021)

M/s Eminent Colonizers

Private Limited …Appellant

Versus

Rajasthan Housing Board and Ors. …Respondents

WITH

CIVIL APPEAL NO. 754 OF 2026

(@ SLP (C) No.8331 OF 2021)

J U D G M E N T

K.V. Viswanathan, J.

1. Leave granted.

2. The issues that arise in both the appeals are common

and they revolve around the interpretation of Clause 23 of

the Contract Agreement and, more particularly, the question

as to whether a dispute with regard to the existence and

validity of the said clause could have been raised before the

arbitrator?

Page 2 of 37

3. The Arbitration and Conciliation (Amendment) Act, 2015

did not apply to the arbitral proceedings concerned in these

matters. This aspect of the matter has been dealt with in

detail hereinbelow.

FACTS IN CIVIL APPEAL ARISING OUT OF SLP(C)

NO.8299 OF 2021: -

4. The present appeal calls in question the correctness of

the judgment and order dated 20.02.2020 of the High Court

of Judicature for Rajasthan, Bench at Jaipur in D.B. Civil

Miscellaneous Application No. 2435 of 2019.

5. On 08.07.2009, the appellant, a sole proprietorship

concern, engaged in the supply and construction business

was awarded the construction work for the structure of 40

HIG-1 houses (High-Income Group) and 10 HIG-2 Flats (Stilt

+ 10 Storey) at Sector-29, Pratap Nagar, Jaipur, Rajasthan by

the respondent. A contract agreement bearing No.11/2009-

10 for a total value of Rs. 5,27,00,070/- on a lump sum basis

was entered into and the work was to be completed in 12

Page 3 of 37

months’ time. It is the claim of the appellant that the work

was completed before the stipulated 12 months’ deadline for

a lower cost of Rs.4,67,72,922/-. The dispute pertained to

non-payment of Rs.18,95,123/- towards escalation cost under

Clause 45 of the agreement with regard to prices, of labour

and material.

6. According to the appellant, since the respondents failed

to pay the disputed amount or to alternatively constitute an

empowered Standing Committee to adjudicate the dispute in

accordance with Clause 23 of the agreement, despite the

appellant’s application and payment of fee, a Section 11

Application came to be filed in the High Court.

7. Clause 23 reads as under: -

“Clause-23. Standing Committee for settlement of

disputes: If any question, difference or objection,

whatsoever shall arise in any way, in connection with or

arising out of this instrument, or the meaning of operation

of any part thereof, or the right duties or liabilities of

either party then, save in so far as the decision of any such

matter, as herein before provided has been otherwise

provided for and whether it has been finally decided

accordingly, or whether the contract should be

terminated, or has been rightly terminated and as regards

the rights or obligations of the parties as the result of such

Page 4 of 37

termination, shall be referred for decision to the

empowered Standing Committee, which would consist of

the followings:

i) Administrative Secretary concerned

ii) Finance Secretary or his nominee, not below the rank

of Dy.Secretary and/or Chief Accounts Officer.

iii) Law Secretary or his nominee, not below the rank of

Joint Legal Remembrancer.

iv) Chief Engineer-cum-Additional Secretary of the

concerned department.

v) Chief Engineer concerned (Member Secretary)

The Engineer-in-Charge on receipt of application

alongwith non refundable prescribed fee, (the fee would

be two percent of the amount in dispute, not exceeding

Rs.One Lac) from the Contractor shall refer the disputes to

the Committee within a period of one month from the date

of receipt of application.

Procedure and Application for referring cases or

settlement by the Standing Committee shall be as given in

Form RPWA 90.”

8. A learned Single Judge allowed the Section 11

Application and appointed a retired High Court Judge,

Hon’ble Mr. Justice J.R. Goyal, as the sole arbitrator on the

following reasoning:-

“Counsel for applicant submits that although the non-

applicants have constituted the Standing Committee but

the same being not in terms of Cl.23 of the contract

agreement, the applicant raised objections regarding

constitution of the committee and that makes the applicant

entitled to get the matter referred to the independent

Arbitrator.

Page 5 of 37

Reply to the application has been filed and counsel for

non-applicants submits that for resolving the dispute

between the Contractor and Rajasthan Housing Board, a

committee of five officers of Rajasthan Housing Board has

been constituted in terms of Cl.23 of the contract

agreement and, therefore, the application is not

maintainable and deserves to be dismissed.

Indisputably, the Committee constituted by Rajasthan

Housing Boad, was not in terms of Cl.23 of the contract

agreement executed between the parties and it is also not

in dispute that this court has territorial jurisdiction to

entertain the present application and that certainly seizes

the power of the non-applicants and it is within the

jurisdiction of this court and the Chief Justice or the

Designated Judge to hold jurisdiction to consider the

application for appointment of Arbitrator u/S.11(6) of the

Act, 1996.

Consequently, the instant application succeeds & is

hereby allowed and this court considers it appropriate to

appoint Hon'ble Mr. Justice J.R. Goyal (Retd.), T-1-10,

Paliwal Park, New Sanghi Farm, Tonk Road, Jaipur as

sole Arbitrator to resolve the arbitral dispute. The cost of

arbitration & fee of Arbitrator shall be determined in

terms of the arbitration manual.”

This order was accepted by the respondents and it attained

finality. It is crucial to note that the order of the learned

Single Judge was dated 23.05.2014 which is before the

introduction of Section 11(6A) in the Arbitration and

Conciliation Act, 1996.

Page 6 of 37

9. Section 11(6) which governed the appointment

procedure before the 23.10.2025 amendments and Section

11(6A) which was brought in by the 2015 amendment are

both extracted hereinbelow:-

“11 (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 party may request the Chief Justice or any person or

institution designated by him to take the necessary

measure, unless the agreement on the appointment

procedure provides other means for securing the

appointment.”

w.e.f. 23.10.2015

11(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.”

(Emphasis supplied)

AWARD: -

10. The learned Arbitrator entered upon the reference and,

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on 15.09.2015, allowed the claim of the appellant to the tune

of Rs. 17,10,624.70/- along with interest @ 9% per annum

from 13.09.2014 till the date of realization. Dealing with the

objection with regard to the validity of the arbitration clause,

the learned Arbitrator held that, since no appeal was filed

against the order appointing the arbitrator, the objection was

not sustainable. The Arbitrator relied upon the judgment of

this Court in SBP & Co. vs. Patel Engineering Limited &

Anr.

1.

ORDER OF THE SECTION 34 COURT : -

11. The respondents filed a Section 34-Application before

the Commercial Court No.3, Jaipur seeking to set aside the

award. The challenge was pivoted on the point of the non-

existence of an arbitration clause, the argument being that

Clause 23 of the Agreement did not have the character of an

arbitration clause. The Commercial Court accepted the

submission and on the finding that the order of the Section 11

Court does not have precedential value, held that the order

1

(2005) 8 SCC 618

Page 8 of 37

appointing arbitrator was not binding in nature. The Court

further held that the order appointing the arbitrator did not

pronounce any opinion on the availability or otherwise of the

arbitration agreement in Clause 23 and as such it proceeded

on the basis that the point had been kept open to be decided

by the Arbitrator. It faulted the Arbitrator for not deciding the

point of the existence of the arbitration agreement.

12. The Court relied on two judgments of the Rajasthan High

Court in Mohammed Arif Contractor Vs. State of Rajasthan

& Ors.

2 and M/s Marudhar Construction Vs. Rajasthan

Housing Board & Ors.

3 to hold that Clause 23 of the

agreement was not an arbitration clause. So holding, the

Commercial Court set aside the award.

APPEAL BEFORE THE HIGH COURT : -

13. The appellant carried the matter in appeal to the High

Court. The High Court, while upholding the order of the

Commercial Court, maintained that Clause 23 was not an

arbitration clause. Aggrieved, the appellant is before us.

2

S.B. Arbitration No.90/2012

3

S.B. Arbitration Application No.132/2014

Page 9 of 37

CONTENTIONS OF THE PARTIES : -

14. We have heard Mr. Akshat Gupta, learned Counsel for

the appellant and Mr. Kailash J. Kashyap, learned Counsel for

the respondents, who ably presented their respective points

of view. The learned counsel for the appellant contends that

the arbitrator was appointed during the SBP and Co. (supra)

regime and before the incorporation of the legislative

amendments which came into effect from 23.10.2015.

Learned counsel submitted that the execution of the contract

was on 08.07.2009 and the Section 11 order was dated

23.05.2014 and the arbitral award was passed on 15.09.2015.

Learned counsel, by relying on SBP and Co. (supra), submits

that under the said regime, the Section 11 court was obliged

to determine the “existence” as well as “validity” of an

arbitration agreement before passing an order appointing

the arbitrator. Learned counsel contrasted the situation with

the introduction of Section 11(6A) w.e.f. 23.10.2015 where

only the Section 11 court is obliged to determine the

existence of arbitration agreement [Section 11(6A) though

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deleted, the deletion has not yet been notified].

15. Learned counsel submitted that when the Section 11

court appointed the arbitrator, proceeding on the basis that

Clause 23 is an arbitration clause and when the said order

was accepted by the respondents, the respondents have

waived their right to object to the validity of the arbitration

clause. Reliance was placed on Section 4 of the A&C Act,

1996.

16. In response, the learned counsel for the respondents

contended by referring to the decision of the Commercial

Court that an order under Section 11 could not have

precedential value and in any event there is no decision on

the existence and validity of the arbitration agreement in the

order appointing the arbitrator and, hence, the said question

was available to be decided by the arbitral tribunal.

17. We have carefully considered the submissions of the

learned counsels for the parties and perused the written

submissions.

Page 11 of 37

QUESTION FOR CONSIDERATION :-

18. The question that arises for consideration is considering

that the appointment of the arbitrator in this case was in SBP

& Co. (supra) regime and before the legislative amendments

which came into effect from 23.10.2015, were the courts

below justified in setting aside the award by holding that the

Clause 23 of the contract was not an arbitration agreement?

ANALYSIS AND CONCLUSION :-

19. In view of the categoric holding by the Seven-Judge

Bench in SBP (supra), we have no hesitation in holding that

the Section 34 court erred in going into the existence and

validity of Clause 23. The appointment of the Arbitrator

happened prior to the amendments to the Arbitration Act

which came into effect from 23.10.2015. The introduction of

Section 11(6A) brought a paradigm shift in the scope of

jurisdiction of the Section 11 court. Post the amendment, the

only enquiry is about the existence of the arbitration clause.

That is very well settled.

Page 12 of 37

20. However, the present case arose during the SBP (supra)

regime. It will be useful to extract relevant passages from

SBP (supra) to understand the scope of the Section 11 court.

“8. We will first consider the question, as we see it. On

a plain understanding of the relevant provisions of the

Act, it is seen that in a case where there is an

arbitration agreement, a dispute has arisen and one of

the parties had invoked the agreed procedure for

appointment of an arbitrator and the other party has

not cooperated, the party seeking an arbitration, could

approach the Chief Justice of the High Court if it is an

internal arbitration or of the Supreme Court if it is an

international arbitration to have an arbitrator or

Arbitral Tribunal appointed. The Chief Justice, when

so requested, could appoint an arbitrator or Arbitral

Tribunal depending on the nature of the agreement

between the parties and after satisfying himself that

the conditions for appointment of an arbitrator

under sub-section (6) of Section 11 do exist. The

Chief Justice could designate another person or

institution to take the necessary measures. The

Chief Justice has also to have the qualification of

the arbitrators in mind before choosing the

arbitrator. An Arbitral Tribunal so constituted, in

terms of Section 16 of the Act, has the right to

decide whether it has jurisdiction to proceed with

the arbitration, whether there was any agreement

between the parties and the other matters referred

to therein.

9. Normally, any tribunal or authority conferred with a

power to act under a statute, has the jurisdiction to

satisfy itself that the conditions for the exercise of that

power existed and that the case calls for the exercise of

Page 13 of 37

that power. Such an adjudication relating to its own

jurisdiction which could be called a decision on

jurisdictional facts, is not generally final, unless it is

made so by the Act constituting the tribunal. Here, sub-

section (7) of Section 11 has given a finality to the

decisions taken by the Chief Justice or any person or

institution designated by him in respect of matters

falling under sub-sections (4), (5) and (6) of Section 11.

Once a statute creates an authority, confers on it

power to adjudicate and makes its decision final on

matters to be decided by it, normally, that decision

cannot be said to be a purely administrative

decision. It is really a decision on its own

jurisdiction for the exercise of the power conferred

by the statute or to perform the duties imposed by

the statute. Unless the authority satisfies itself that

the conditions for exercise of its power exist, it

could not accede to a request made to it for the

exercise of the conferred power. While exercising

the power or performing the duty under Section 11(6)

of the Act, the Chief Justice has to consider whether the

conditions laid down by the section for the exercise of

that power or the performance of that duty exist.

Therefore, unaided by authorities and going by

general principles, it appears to us that while

functioning under Section 11(6) of the Act, a Chief

Justice or the person or institution designated by

him, is bound to decide whether he has jurisdiction,

whether there is an arbitration agreement, whether

the applicant before him is a party, whether the

conditions for exercise of the power have been

fulfilled, and if an arbitrator is to be appointed, who

is the fit person, in terms of the provision. Section

11(7) makes his decision on the matters entrusted to

him, final.

12. …… We are inclined to the view that the

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decision of the Chief Justice on the issue of

jurisdiction and the existence of a valid arbitration

agreement would be binding on the parties when

the matter goes to the Arbitral Tribunal and at

subsequent stages of the proceeding except in an

appeal in the Supreme Court in the case of the

decision being by the Chief Justice of the High

Court or by a Judge of the High Court designated by

him.

20. …… But where the jurisdictional issues are decided

under these sections, before a reference is made,

Section 16 cannot be held to empower the Arbitral

Tribunal to ignore the decision given by the judicial

authority or the Chief Justice before the reference to it

was made. The competence to decide does not enable

the Arbitral Tribunal to get over the finality conferred

on an order passed prior to its entering upon the

reference by the very statute that creates it. That is the

position arising out of Section 11(7) of the Act read with

Section 16 thereof. The finality given to the order of the

Chief Justice on the matters within his competence

under Section 11 of the Act are incapable of being

reopened before the Arbitral Tribunal. In Konkan Rly.

what is considered is only the fact that under Section

16, the Arbitral Tribunal has the right to rule on its own

jurisdiction and any objection, with respect to the

existence or validity of the arbitration agreement.

What is the impact of Section 11(7) of the Act on the

Arbitral Tribunal constituted by an order under

Section 11(6) of the Act, was not considered.

Obviously, this was because of the view taken in

that decision that the Chief Justice is not expected

to decide anything while entertaining a request

under Section 11(6) of the Act and is only

performing an administrative function in

appointing an Arbitral Tribunal. Once it is held that

Page 15 of 37

there is an adjudicatory function entrusted to the

Chief Justice by the Act, obviously, the right of the

Arbitral Tribunal to go behind the order passed by

the Chief Justice would take another hue and would

be controlled by Section 11(7) of the Act.

25. … … While constituting an Arbitral Tribunal, on

the scheme of the Act, the Chief Justice has to

consider whether he as the Chief Justice has

jurisdiction in relation to the contract, whether

there was an arbitration agreement in terms of

Section 7 of the Act and whether the person before

him with the request, is a party to the arbitration

agreement. On coming to a conclusion on these

aspects, he has to enquire whether the conditions

for exercise of his power under Section 11(6) of the

Act exist in the case and only on being satisfied in

that behalf, could he appoint an arbitrator or an

Arbitral Tribunal on the basis of the request. It is

difficult to say that when one of the parties raises an

objection that there is no arbitration agreement,

raises an objection that the person who has come

forward with a request is not a party to the

arbitration agreement, the Chief Justice can come

to a conclusion on those objections without

following an adjudicatory process. Can he

constitute an Arbitral Tribunal, without considering

these questions? If he can do so, why should such a

function be entrusted to a high judicial authority

like the Chief Justice. Similarly, when the party

raises an objection that the conditions for exercise

of the power under Section 11(6) of the Act are not

fulfilled and the Chief Justice comes to the

conclusion that they have been fulfilled, it is

difficult to say that he was not adjudicating on a

dispute between the parties and was merely

passing an administrative order. It is also not correct

Page 16 of 37

to say that by the mere constitution of an Arbitral

Tribunal the rights of the parties are not affected.

Dragging a party to an arbitration when there existed

no arbitration agreement or when there existed no

arbitrable dispute, can certainly affect the right of that

party, and, even on monetary terms, impose on him a

serious liability for meeting the expenses of the

arbitration, even if it be the preliminary expenses and

his objection is upheld by the Arbitral Tribunal.

Therefore, it is not possible to accept the position

that no adjudication is involved in the constitution

of an Arbitral Tribunal.

30. … … We also feel that adequate attention was

not paid to the requirement of the Chief Justice

having to decide that there is an arbitration

agreement in terms of Section 7 of the Act before he

could exercise his power under Section 11(6) of the

Act and its implication. The aspect, whether there

was an arbitration agreement, was not merely a

jurisdictional fact for commencing the arbitration

itself, but it was also a jurisdictional fact for

appointing an arbitrator on a motion under Section

11(6) of the Act, was not kept in view. A Chief

Justice could appoint an arbitrator in exercise of his

power only if there existed an arbitration

agreement and without holding that there was an

agreement, it would not be open to him to appoint

an arbitrator saying that he was appointing an

arbitrator since he has been moved in that behalf

and the applicant before him asserts that there is an

arbitration agreement. Acceptance of such an

argument, with great respect, would reduce the

high judicial authority entrusted with the power to

appoint an arbitrator, an automaton and

subservient to the Arbitral Tribunal which he

himself brings into existence. ……

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39. It is necessary to define what exactly the Chief

Justice, approached with an application under

Section 11 of the Act, is to decide at that stage.

Obviously, he has to decide his own jurisdiction in

the sense whether the party making the motion has

approached the right High Court. He has to decide

whether there is an arbitration agreement, as

defined in the Act and whether the person who has

made the request before him, is a party to such an

agreement. It is necessary to indicate that he can

also decide the question whether the claim was a

dead one; or a long-barred claim that was sought to

be resurrected and whether the parties have

concluded the transaction by recording satisfaction

of their mutual rights and obligations or by

receiving the final payment without objection……

47 (i) The power exercised by the Chief Justice of the

High Court or the Chief Justice of India under Section

11(6) of the Act is not an administrative power. It is a

judicial power.

(iv) The Chief Justice or the designated Judge will have

the right to decide the preliminary aspects as indicated

in the earlier part of this judgment. These will be his

own jurisdiction to entertain the request, the existence

of a valid arbitration agreement, the existence or

otherwise of a live claim, the existence of the condition

for the exercise of his power and on the qualifications

of the arbitrator or arbitrators. The Chief Justice or the

designated Judge would be entitled to seek the opinion

of an institution in the matter of nominating an

arbitrator qualified in terms of Section 11(8) of the Act

if the need arises but the order appointing the

arbitrator could only be that of the Chief Justice or the

designated Judge.

Page 18 of 37

(vii) Since an order passed by the Chief Justice of the

High Court or by the designated Judge of that Court is

a judicial order, an appeal will lie against that order

only under Article 136 of the Constitution to the

Supreme Court.”

(Emphasis supplied)

21. This principle was reiterated in State of West Bengal

vs. Sarkar & Sarkar

4.

“8. It was the vehement contention of the learned counsel

for the appellant based on a series of judgments rendered

by this Court that Clause 12 (extracted above) was not an

arbitral clause and that the arbitrator as well as the High

Court had erred in determining the same.

9. The learned counsel for the respondent Sarkar & Sarkar

contested the claim of the appellant. It was submitted that

the appellant could not be permitted even to raise the

instant plea so as to assail the order passed either by the

arbitrator (on 15-1-2004) or by the High Court (on 16-5-

2006). The instant submission of the learned counsel for

the respondent was premised on the judgment rendered

by this Court in SBP & Co. v. Patel Engg. Ltd. Our pointed

attention was drawn to the conclusions drawn by the

Constitution Bench in the above judgment in para 20. Para

20 is reproduced below: (SCC pp. 649-50)

“20. Section 16 is said to be the recognition of the

principle of Kompetenz-Kompetenz. The fact that the

Arbitral Tribunal has the competence to rule on its own

jurisdiction and to define the contours of its jurisdiction,

only means that when such issues arise before it, the

Tribunal can, and possibly, ought to decide them. This

4

(2018) 12 SCC 736

Page 19 of 37

can happen when the parties have gone to the Arbitral

Tribunal without recourse to Section 8 or 11 of the Act.

But where the jurisdictional issues are decided under

these sections, before a reference is made, Section 16

cannot be held to empower the Arbitral Tribunal to

ignore the decision given by the judicial authority or the

Chief Justice before the reference to it was made. The

competence to decide does not enable the Arbitral

Tribunal to get over the finality conferred on an order

passed prior to its entering upon the reference by the

very statute that creates it. That is the position arising

out of Section 11(7) of the Act read with Section 16

thereof. The finality given to the order of the Chief

Justice on the matters within his competence under

Section 11 of the Act are incapable of being reopened

before the Arbitral Tribunal. In Konkan Railway what is

considered is only the fact that under Section 16, the

Arbitral Tribunal has the right to rule on its own

jurisdiction and any objection, with respect to the

existence or validity of the arbitration agreement.

What is the impact of Section 11(7) of the Act on the

Arbitral Tribunal constituted by an order under

Section 11(6) of the Act, was not considered.

Obviously, this was because of the view taken in that

decision that the Chief Justice is not expected to

decide anything while entertaining a request under

Section 11(6) of the Act and is only performing an

administrative function in appointing an Arbitral

Tribunal. Once it is held that there is an adjudicatory

function entrusted to the Chief Justice by the Act,

obviously, the right of the Arbitral Tribunal to go

behind the order passed by the Chief Justice would

take another hue and would be controlled by Section

11(7) of the Act.”

10. It was the submission of the learned counsel for the

respondent that proceedings could not have been

Page 20 of 37

entertained by the arbitrator under Section 16 of the

Arbitration Act in the present controversy because by

the orders of the High Court dated 24-5-2002 and 26-9-

2002 (extracted above), the appointment of the

arbitrator was made in exercise of the powers vested

in the High Court under Section 11 of the Arbitration

Act. The factual position depicted hereinabove as also

the orders referred to hereinabove, leave no room for

doubt that Justice (Retired) S.S. Ganguly was actually

appointed as an arbitrator by the High Court in

exercise of the powers vested in the High Court under

Section 11 of the Arbitration Act. That being the

position, the learned counsel for the respondent is

fully justified in her submission that the said order

could not be tested by the arbitrator while considering

the claim raised by the appellant State of West Bengal

under Section 16 of the Arbitration Act. Thus viewed,

irrespective of whether Clause 12 extracted

hereinabove postulated the adjudication of dispute

between the parties through an arbitrator, it is now

not open to the appellant before this Court to raise a

challenge to the order passed by the High Court

appointing an arbitrator.”

(emphasis supplied)

22. As held in SBP (supra), a Section 11 court was bound to

decide whether there was an arbitration agreement and

further that such a finding on the existence of a valid

arbitration agreement would be binding on the parties when

the matter goes to the Arbitral Tribunal and at subsequent

stages of the proceedings. The only exception being when

the order appointing the Arbitrator is challenged before this

Page 21 of 37

Court. The highlighted portion of SBP (supra), as extracted

above, puts this matter beyond any controversy. In the

present case, the order appointing the Arbitrator attained

finality with no challenge being thrown. The respondents

accepted the order and did not challenge the appointment in

this Court. We have extracted the findings of the order

appointing the Arbitrator. The parties proceeded on the

basis that Clause 23 was an arbitration clause and in this

scenario, the only conclusion possible is that though not very

categoric there is an implied holding in the order appointing

the Arbitrator about the existence and validity of the

arbitration agreement. For if it were not so, the appointment

could not have been and would not have been made. The

fact that the respondents accepted the order and did not

challenge it only puts the matter beyond any pale of

controversy. The further finding of the Commercial Court in

the Section 34 application that the order of the Section 11

court did not have any precedential value and hence the

Page 22 of 37

order will not be binding is in the teeth of the judgment in

SBP (supra).

LEGAL POSITION FROM 23 .10.2015: -

23. The scenario would have been totally different if the

2015 (Amendment) Act had applied to the arbitral

proceedings. The scope of the inquiry has been clarified in

In re Interplay Between Arbitration Agreements under

Arbitration and Conciliation Act, 1996 & Stamp Act, 1899

5,

in the following terms : -

“164. The 2015 Amendment Act has laid down

different parameters for judicial review under

Section 8 and Section 11. Where Section 8 requires

the Referral Court to look into the prima facie

existence of a valid arbitration agreement, Section

11 confines the Court's jurisdiction to the

examination of the existence of an arbitration

agreement. Although the object and purpose

behind both Sections 8 and 11 is to compel parties

to abide by their contractual understanding, the

scope of power of the Referral Courts under the

said provisions is intended to be different. The

same is also evident from the fact that Section 37

of the Arbitration Act allows an appeal from the

order of an Arbitral Tribunal refusing to refer the

parties to arbitration under Section 8, but not from

Section 11. Thus, the 2015 Amendment Act has

legislatively overruled the dictum of Patel Engg.

5

(2024) 6 SCC 1

Page 23 of 37

[SBP & Co. v. Patel Engg. Ltd., (2005) 8 SCC 618]

where it was held that Section 8 and Section 11 are

complementary in nature. Accordingly, the two

provisions cannot be read as laying down a

similar standard.

165. The legislature confined the scope of

reference under Section 11(6-A) to the examination

of the existence of an arbitration agreement. The

use of the term “examination” in itself connotes

that the scope of the power is limited to a prima

facie determination. Since the Arbitration Act is a

self-contained code, the requirement of

“existence” of an arbitration agreement draws

effect from Section 7 of the Arbitration Act. In

Duro Felguera [Duro Felguera, S.A. v.

Gangavaram Port Ltd., (2017) 9 SCC 729, this

Court held that the Referral Courts only need to

consider one aspect to determine the existence of

an arbitration agreement — whether the

underlying contract contains an arbitration

agreement which provides for arbitration

pertaining to the disputes which have arisen

between the parties to the agreement. Therefore,

the scope of examination under Section 11(6-A)

should be confined to the existence of an

arbitration agreement on the basis of Section 7.

Similarly, the validity of an arbitration

agreement, in view of Section 7, should be

restricted to the requirement of formal validity

such as the requirement that the agreement be in

writing. This interpretation also gives true effect

to the doctrine of competence-competence by

leaving the issue of substantive existence and

validity of an arbitration agreement to be decided

by Arbitral Tribunal under Section 16. We

accordingly clarify the position of law laid down

Page 24 of 37

in Vidya Drolia [Vidya Drolia v. Durga Trading

Corpn., (2021) 2 SCC 1 in the context of Section 8

and Section 11 of the Arbitration Act.

167. Section 11(6-A) uses the expression

“examination of the existence of an arbitration

agreement”. The purport of using the word

“examination” connotes that the legislature

intends that the Referral Court has to inspect or

scrutinise the dealings between the parties for the

existence of an arbitration agreement. Moreover,

the expression “examination” does not connote or

imply a laborious or contested inquiry. [ P.

Ramanatha Aiyar, The Law Lexicon (2nd Edn.,

1997) 666.] On the other hand, Section 16 provides

that the Arbitral Tribunal can “rule” on its

jurisdiction, including the existence and validity

of an arbitration agreement. A “ruling” connotes

adjudication of disputes after admitting evidence

from the parties. Therefore, it is evident that the

Referral Court is only required to examine the

existence of arbitration agreements, whereas the

Arbitral Tribunal ought to rule on its jurisdiction,

including the issues pertaining to the existence

and validity of an arbitration agreement. A similar

view was adopted by this Court in Shin -Etsu

Chemical Co. Ltd. v. Aksh Optifibre Ltd., (2005) 7

SCC 234].

169. When the Referral Court renders a prima facie

opinion, neither the Arbitral Tribunal, nor the Court

enforcing the arbitral award will be bound by such a

prima facie view. If a prima facie view as to the

existence of an arbitration agreement is taken by the

Referral Court, it still allows the Arbitral Tribunal to

examine the issue in depth. Such a legal approach

will help the Referral Court in weeding out prima

facie non-existent arbitration agreements. It will also

Page 25 of 37

protect the jurisdictional competence of the Arbitral

Tribunals to decide on issues pertaining to the

existence and validity of an arbitration agreement.”

[Emphasis supplied]

The above is set out only to bring out the contrast.

Section 26 of the 2015 Amendment Act also made this very

explicit.

“26. Act not to apply to pending arbitral proceedings.–

Nothing contained in this Act shall apply to the arbitral

proceedings commenced, in accordance with the

provisions of Section 21 of the principal Act, before the

commencement of this Act unless the parties otherwise

agree but this Act shall apply in relation to arbitral

proceedings commenced on or after the date of

commencement of this Act”

PRECEDENT AND RES JUDICATA – DISTINCTION: -

24. There is a clear conceptual distinction between

precedent and res judicata. Salmond on Jurisprudence P.J.

Fitzgerald (12

th

Edition) page 141 states “a judicial precedent

speaks in England with authority; it is not merely evidence of

the law but a source of it, and the courts are bound to follow

the law that is so established”. A decision between two

parties which sets out a principle of law will operate as a

precedent for disputes between two other parties too. A

Page 26 of 37

precedent operates in rem. In contrast, a res judicata

operates in personam between the same parties either in the

later stage of the same litigation between them or in a

different litigation between them. That is the essential

distinction between the two.

25. This Court in State of Rajasthan vs. Nemi Chand

Mahela and Others

6, held as under:-

“11. The learned counsel for the petitioners had drawn

our attention to para 22 of the decision in Manmohan

Sharma case [Manmohan Sharma v. State of Rajasthan,

(2014) 5 SCC 782 which refers to the case of one Danveer

Singh whose writ petition had been allowed [Danveer

Singh v. Rural Development & Panchyati Raj Deptt., WP (C)

No. 2200 of 2000 sub nom Jayanti Sharma v. Rural

Development & Panchyati Raj Deptt., WP (C) No. 1646 of

2000, order dated 26-2-2001 (Raj)] and the order had

attained finality as it was not challenged before the

Division Bench or before the Supreme Court. Termination

of services in the case of Danveer Singh, it was

accordingly held, was not justified and in accordance with

law. The reasoning given in paras 22 and 23 in Manmohan

Sharma case [Manmohan Sharma v. State of Rajasthan,

(2014) 5 SCC 782 relating to the case of Danveer Singh

would reflect the difference between the doctrine of res

judicata and law of precedent. Res judicata operates in

personam i.e. the matter in issue between the same

parties in the former litigation, while law of precedent

operates in rem i.e. the law once settled is binding on all

6

(2019) 14 SCC 179

Page 27 of 37

under the jurisdiction of the High Court and the Supreme

Court. Res judicata binds the parties to the proceedings

for the reason that there should be an end to the litigation

and therefore, subsequent proceeding inter se parties to

the litigation is barred. Therefore, law of res judicata

concerns the same matter, while law of precedent

concerns application of law in a similar issue. In res

judicata, the correctness of the decision is normally

immaterial and it does not matter whether the previous

decision was right or wrong, unless the erroneous

determination relates to the jurisdictional matter of that

body. [See Makhija Construction & Engg. (P) Ltd. v. Indore

Development Authority, (2005) 6 SCC 304] ]”

26. The Commercial Court to hold against the appellant

relied on two judgments of the Rajasthan High Court, namely,

Mohammed Arif Contractor (supra) and M/s Marudhar

Construction (supra). The finding of the Commercial Court

was that in Mohammed Arif (supra) (judgment dated

08.04.2015) a learned single judge, while adjudicating a

Section 11 Application, held an identical Clause 23 to be not

an arbitration clause. M/s Marudhar Construction (supra)

was a short order dated 06.05.2016 in a Section 11

Application which followed Mohammed Arif (supra).

27. The said judgments will not enure to the support of the

respondents. In the present case, while adjudicating a

Page 28 of 37

Section 11 Application a learned single judge, who had

jurisdiction, interpreted the contractual document and

appointed an arbitrator. We have already held hereinabove

that in the said order though the finding is not categoric,

there is an implied holding about the existence and validity

of the arbitration agreement. As held in Nemi Chand (supra)

the correctness of the decision is immaterial and it did not

matter whether the previous decision was right or wrong

unless their erroneous determination relates to the

jurisdiction of the body.

28. In an erudite judgment, speaking for this Court Rohinton

Fali Nariman, J. in Canara Bank vs. N.G. Subbaraya Setty

and Another

7, summarised the principles thus:-

“34. Given the conspectus of authorities that have been

referred to by us hereinabove, the law on the subject may

be stated as follows:

34.1. The general rule is that all issues that arise directly

and substantially in a former suit or proceeding between

the same parties are res judicata in a subsequent suit or

7

(2018) 16 SCC 228

Page 29 of 37

proceeding between the same parties. These would

include issues of fact, mixed questions of fact and law, and

issues of law.

34.2. To this general proposition of law, there are certain

exceptions when it comes to issues of law:

34.2.1. Where an issue of law decided between the same

parties in a former suit or proceeding relates to the

jurisdiction of the court, an erroneous decision in the

former suit or proceeding is not res judicata in a

subsequent suit or proceeding between the same parties,

even where the issue raised in the second suit or

proceeding is directly and substantially the same as that

raised in the former suit or proceeding. This follows from

a reading of Section 11 of the Code of Civil Procedure

itself, for the Court which decides the suit has to be a

court competent to try such suit. When read with

Explanation I to Section 11, it is obvious that both the

former as well as the subsequent suit need to be decided

in courts competent to try such suits, for the “former suit”

can be a suit instituted after the first suit, but which has

been decided prior to the suit which was instituted

earlier. An erroneous decision as to the jurisdiction of a

court cannot clothe that court with jurisdiction where it has

none. Obviously, a civil court cannot send a person to jail

for an offence committed under the Penal Code. If it does

so, such a judgment would not bind a Magistrate and/or

Sessions Court in a subsequent proceeding between the

same parties, where the Magistrate sentences the same

person for the same offence under the Penal Code.

Equally, a civil court cannot decide a suit between a

landlord and a tenant arising out of the rights claimed

under a Rent Act, where the Rent Act clothes a special

court with jurisdiction to decide such suits. As an

example, under Section 28 of the Bombay Rent Act, 1947,

the Small Cause Court has exclusive jurisdiction to hear

Page 30 of 37

and decide proceedings between a landlord and a tenant

in respect of rights which arise out of the Bombay Rent

Act, and no other court has jurisdiction to embark upon

the same. In this case, even though the civil court, in the

absence of the statutory bar created by the Rent Act,

would have jurisdiction to decide such suits, it is the

statutory bar created by the Rent Act that must be given

effect to as a matter of public policy. [See, Natraj Studios

(P) Ltd. v. Navrang Studios at SCR p. 482]. An erroneous

decision clothing the civil court with jurisdiction to

embark upon a suit filed by a landlord against a tenant, in

respect of rights claimed under the Bombay Rent Act,

would, therefore, not operate as res judicata in a

subsequent suit filed before the Small Cause Court

between the same parties in respect of the same matter

directly and substantially in issue in the former suit.

34.2.2. An issue of law which arises between the same

parties in a subsequent suit or proceeding is not res

judicata if, by an erroneous decision given on a statutory

prohibition in the former suit or proceeding, the statutory

prohibition is not given effect to. This is despite the fact

that the matter in issue between the parties may be the

same as that directly and substantially in issue in the

previous suit or proceeding. This is for the reason that in

such cases, the rights of the parties are not the only matter

for consideration (as is the case of an erroneous

interpretation of a statute inter partes), as the public

policy contained in the statutory prohibition cannot be set

at naught. This is for the same reason as that contained in

matters which pertain to issues of law that raise

jurisdictional questions. We have seen how, in Natraj

Studios, it is the public policy of the statutory prohibition

contained in Section 28 of the Bombay Rent Act that has to

be given effect to. Likewise, the public policy contained in

other statutory prohibitions, which need not necessarily

go to jurisdiction of a court, must equally be given effect

Page 31 of 37

to, as otherwise special principles of law are fastened

upon parties when special considerations relating to

public policy mandate that this cannot be done.

34.3. Another exception to this general rule follows from

the matter in issue being an issue of law different from that

in the previous suit or proceeding. This can happen when

the issue of law in the second suit or proceeding is based

on different facts from the matter directly and

substantially in issue in the first suit or proceeding.

Equally, where the law is altered by a competent authority

since the earlier decision, the matter in issue in the

subsequent suit or proceeding is not the same as in the

previous suit or proceeding, because the law to be

interpreted is different.”

29. The learned single judge, in the present case, when he

entertained a Section 11 Application and interpreted a

contractual document had jurisdiction to do so under

Section 11. Right or wrong, that decision should bind. The

respondents did not carry the order appointing an arbitrator

in appeal. In view of the same, the holding in SBP (supra),

squarely applies and on the present facts the respondents

could not have challenged the existence and validity of the

arbitration clause before the arbitrator. For the very same

reason, the judgments in Mohammed Arif Contractor

Page 32 of 37

(supra) and M/s Marudhar Construction (supra) can have

no application to the present facts.

30. In the present case, the order appointing the Arbitrator

read with the law laid down in SBP (supra), clearly operates

as a res judicata, insofar as the existence of and validity of

the arbitration agreement between the parties is concerned.

In the SBP (supra) regime, this was the legal position.

31. SBP (supra) also puts the matter beyond any

controversy by holding that not only will the parties be

bound before the Arbitrator with regard to the finding on

existence and validity of the arbitration agreement they will

also be bound during the subsequent stages of the

proceedings which will include the Section 34 application

stage, the Section 37 appeal stage and before this Court. The

Commercial Court had missed the conceptual distinction

between “Precedent” and “Res judicata” and consequently

fell into an error.

CONCLUSION AND DIRECTIONS : -

32. In view of what we have held hereinabove, the

Page 33 of 37

Commercial Court and the High Court clearly erred in going

into the existence and validity of Clause 23 and pronouncing

that the said clause was not an arbitration clause. We,

accordingly, set aside the judgment of the High Court dated

20.02.2020 in D.B. Civil Miscellaneous Appeal No. 2435 of

2019. The appeal stands allowed. The result will be that the

proceedings before the Commercial Court in Arbitration

Case No. 221 of 2018 will stand set aside and the matter is

remitted to the Commercial Court, Judge No.3, Jaipur for

hearing Arbitration Case No. 221 of 2018 on grounds other

than what has been concluded hereinabove. We say so for

the reason that while allowing the Section 34 application on

the ground that Section 23 was not an arbitration clause, the

Commercial Court recorded that the other objections were

not considered. It is only fair that the matter should be

remitted for consideration of the other objections.

Considering the fact that the Award is of the year 2015, we

direct the Commercial Court No. 3 to dispose of Arbitration

Case No. 221 of 2018 within a period of three months from the

Page 34 of 37

date of receipt of this judgment. Parties to bear their own

costs.

FACTS IN CIVIL APPEAL ARISING OUT OF SPECIAL

LEAVE PETITION (CIVIL) NO. 8331 of 2021:-

33. Leave granted.

34. On 11.10.2007, the appellant was awarded work by the

respondents for construction of the structure of 180 LIG

skeleton flats (stilt + 10 storey) at Sector 29, Pratap Nagar,

Sanganer, Jaipur, Rajasthan and entered into a contract

agreement bearing No. 207/2007-08. The contract was for a

lump sum value of Rs.4,58,05,217.45. The date of

commencement was agreed to be 20.10.2007 and completion

was 19.07.2008. Additional work to the tune of Rs.

64,01,689/- was awarded. The appellant raised an Escalation

Bill amounting to Rs.55,77,080/- under Clause 45 of the

Agreement in order to recover the prices of labour and

material which had arisen during the period of completion of

the construction work. Since the Escalation Bill was not paid

and also penalty levied of Rs.2.5 lakhs was not refunded and

Page 35 of 37

claiming that the respondents failed to constitute an

empowered Standing Committee under Clause 23 of the

Agreement, a Section 11 application came to be filed. By an

order of 23.05.2014, a learned Single Judge held that since

indisputably the Committee constituted was not in terms of

Clause 23, appointed Mr. Justice Anoop Chand Goyal (Retd.)

as the sole Arbitrator. The sole Arbitrator entered upon the

reference and passed an Award on 25.02.2016 directing

refund of Rs. 2.50 lakhs as penalty and awarding escalation

charge to the tune of Rs.5,09,468/-. Further interest @ 10%

from 13.08.2010 was awarded. Even though the Award was

passed on 25.02.2016, the arbitral proceedings commenced

before the commencement of the Amendment Act of 2015.

Before the Arbitrator, the respondents contended that Clause

23 of the Agreement was not an arbitration clause. The

arbitrator held that since the Section 11 application stood

allowed, the Arbitral Tribunal cannot sit over the order of the

High Court.

Page 36 of 37

35. The respondents filed a Section 34 application

challenging the award. The Commercial Court, by relying

on the judgments of the Rajasthan High Court in Mohd. Arif

Contractor (Supra) and Marudhar Construction (Supra) held

that Clause 23 was not an arbitration clause. In appeal

before the High Court, the findings of the Commercial Court

were confirmed.

36. Our reasoning and conclusion in Civil Appeal arising

out of Special Leave Petition (C) No. 8299 of 2021 fully

applies to the present set of facts. Appling the same

reasoning, the appeal would stand allowed. The order of the

High Court dated 20.02.2020 in D.B. Civil Miscellaneous

Appeal No. 796 of 2019 stands set aside. The consequence

will be that the matter will stand remitted to the Commercial

Court, Judge No.3, Jaipur in hearing Arbitration Case No. 114

of 2018 on grounds other than what has been concluded

hereinabove. We say so for the reason that while allowing

the Section 34 application on the ground that Section 23 was

not an arbitration clause, the Commercial Court recorded

Page 37 of 37

that the other objections are not considered. In view of our

holding hereinabove, it is only fair that the matter should be

remitted for consideration of other objections. Considering

the fact that the Award is of the year 2016, we direct the

Commercial Court No.3 to dispose of Arbitration Case No.

114 of 2018 within a period of three months from the date of

receipt of this judgment. Parties to bear their own costs.

37. Both the appeals are disposed of in the above terms.

……….........................J.

[J.B. PARDIWALA]

……….........................J.

[K. V. VISWANATHAN]

New Delhi;

4

th

February, 2026