REPORTABLE

IN THE SUPREME COURT OF INDIA

CIVIL APPELLATE JURISDICTION

CIVIL APPEAL NO.7023 OF 2019

(ARISING OUT OF SLP (CIVIL) NO. 8519 OF 2019)

M/S MAYAVTI TRADING PVT. LTD. APPELLANT(S)

VERSUS

PRADYUAT DEB BURMAN RESPONDENT(S)

J U D G M E N T

R.F. Nariman, J.

1) Leave granted.

2) We have heard Mr. Mukul Rohatgi, learned Senior

Advocate appearing for the appellant and Mr. Shyam Divan,

learned Senior Advocate appearing for the respondent at

considerable length.

3) On the facts of this case, we do not propose to interfere

with the impugned decision of 12.03.2019 and, therefore, do not

find it necessary to exercise our extraordinary jurisdiction under

Article 136 of the Constitution of India.

4) Having said this, however, during the course of argument,

a recent decision of this Court was pointed out, namely, United

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India Insurance Company Limited vs. Antique Art Exports

Private Limited, (2019) 5 SCC 362. In this judgment, purportedly

following Duro Felguera, S.A. vs. Gangavaram Port Limited,

(2017) 9 SCC 729, this Court held:

“20. The submission of the learned counsel for the

respondent that after insertion of sub-section (6-A) to

Section 11 of the Amendment Act, 2015 the jurisdiction

of this Court is denuded and the limited mandate of the

Court is to examine the factum of existence of an

arbitration and relied on the judgment in Duro

Felguera, S.A. v. Gangavaram Port Ltd. [(2017) 9 SCC

729 : (2017) 4 SCC (Civ) 764] The exposition in this

decision is a general observation about the effect of

the amended provisions which came to be examined

under reference to six arbitrable agreements (five

agreements for works and one corporate guarantee)

and each agreement contains a provision for

arbitration and there was serious dispute between the

parties in reference to constitution of Arbitral Tribunal

whether there has to be Arbitral Tribunal pertaining to

each agreement. In the facts and circumstances, this

Court took note of sub-section (6-A) introduced by the

Amendment Act, 2015 to Section 11 of the Act and in

that context observed that the preliminary disputes are

to be examined by the arbitrator and are not for the

Court to be examined within the limited scope

available for appointment of arbitrator under Section

11(6) of the Act. Suffice it to say that appointment of

an arbitrator is a judicial power and is not a mere

administrative function leaving some degree of judicial

intervention; when it comes to the question to examine

the existence of a prima facie arbitration agreement, it

is always necessary to ensure that the dispute

resolution process does not become unnecessarily

protracted.

21. In the instant case, prima facie no dispute

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subsisted after the discharge voucher being signed by

the respondent without any demur or protest and claim

being finally settled with accord and satisfaction and

after 11 weeks of the settlement of claim a letter was

sent on 27-7-2016 for the first time raising a voice in

the form of protest that the discharge voucher was

signed under undue influence and coercion with no

supportive prima facie evidence being placed on

record in absence thereof, it must follow that the claim

had been settled with accord and satisfaction leaving

no arbitral dispute subsisting under the agreement to

be referred to the arbitrator for adjudication.”

5) Section 11 (6A) was added by the amendment Act of 2015

and states as follows:

“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.”

6) Mr. Mukul Rohatgi, learned Senior Advocate, has pointed

out that by an amendment Act of 2019, which has since been

passed, this sub-section has now been omitted. Section 3 of the

amendment Act of 2019 insofar as it pertains to this omission has

not yet been brought into force. The omission is pursuant to a

High Level Committee Review regarding institutionalization of

arbitration in India, headed by Justice B. N. Srikrishna. The Report

given by this Committee is dated 30

th

July, 2017. The omission of

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the sub-section is not so as to resuscitate the law that was

prevailing prior to the amendment Act of 2015. The reason for

omission of S. 11(6A) is given in the Report as follows:

“Thus, the 2015 amendments to section 11 are geared

towards facilitating speedy disposal of section 11

applications by: (a) enabling the designation of any

person or institution as an appointing authority for

arbitrators in addition to the High Court or Supreme

Court under section 11; (b) limiting challenges to the

decision made by the appointing authority; and (c)

requiring the expeditious disposal of section 11

applications, preferably within the prescribed 60-day

time period.

While these amendments no doubt facilitate the

speedy disposal of section 11 applications to a large

extent, they do not go all the way in limiting court

interference. Pursuant to the amendments, the

appointment of arbitrators under section 11 may be

done: (a) by the Supreme Court or the High Court; or

(b) by a person or institution designated by such court

in exercise of an administrative power following

section 11(6B). In either case, the amendments still

require the Supreme Court / the High Court to examine

whether an arbitration agreement exists, which can

lead to delays in the arbitral process as extensive

evidence and arguments may be led on the same.

The Committee notes that the default procedure for

appointment of arbitrators in other jurisdictions do not

require extensive court involvement as in India.

For instance, in Singapore, the relevant provision of

the IAA provides that where the parties fail to agree on

the appointment of the third arbitrator, within 30 days

of the receipt of the first request by either party to

appoint the arbitrator, the appointment shall be made

by the appointing authority (the President of the SIAC)

by the request of the parties. (See section 9A(2) read

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with sections 2(1) and 8(2), IAA)

The arbitration legislation of Hong Kong incorporates

Article 11 of the UNCITRAL Model Law relating to the

appointment of arbitrators. Like in the case of

Singapore where the SIAC is the appointing authority

for arbitrators, the default appointment of arbitrator(s)

is done by the HKIAC. (Section 13(2) read with section

24, AO)

In the United Kingdom, in the case of default of one

party to appoint an arbitrator, the other party may

appoint his arbitrator as the sole arbitrator after giving

notice of 7 clear days to the former of his intention to

do so. (Section 17, AA) The defaulting party may apply

to the court to set aside the appointment. (Section

17(3), AA) In case of a failure of the appointment

procedure, any party may apply to the court to make

the appointment or give directions regarding the

making of an appointment. (Section 18(2), AA)

The Committee recommends the adoption of the

practice followed in Singapore and Hong Kong in the

Indian scenario — apart from avoiding delays at court

level, it may also give impetus to institutional

arbitration.

xxx xxx

Recommendations

1.In order to ensure speedy appointment of

arbitrators, section 11 may be amended to

provide that the appointment of arbitrator(s)

under the section shall only be done by arbitral

institution(s) designated by the Supreme Court (in

case of international commercial arbitrations) or

the High Court (in case of all other arbitrations)

for such purpose, without the Supreme Court or

High Courts being required to determine the

existence of an arbitration agreement.”

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Thus, it can be seen that after the amendment Act of 2019,

Section 11(6A) 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.

7) Prior to Section 11(6A), this Court in several judgments

beginning with SBP & Co. vs. Patel Engineering Ltd. and Anr.

(2005) 8 SCC 618 has held that at the stage of a Section 11(6)

application being filed, the Court need not merely confine itself to

the examination of the existence of an arbitration agreement but

could also go into certain preliminary questions such as stale

claims, accord and satisfaction having been reached etc.

8) In ONGC Mangalore Petrochemicals Limited vs. ANS

Constructions Limited and another, (2018) 3 SCC 373, this

Court in a case which arose before the insertion of Section 11(6A)

dismissed a Section 11 petition on the ground that accord and

satisfaction had taken place in the following terms: -

“31. Admittedly, no-dues certificate was submitted by

the contractee company on 21-9-2012 and on their

request completion certificate was issued by the

appellant contractor. The contractee, after a gap of

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one month, that is, on 24-10-2012, withdrew the no-

dues certificate on the grounds of coercion and duress

and the claim for losses incurred during execution of

the contract site was made vide letter dated 12-1-

2013, i.e. after a gap of 3 ½ (three-and-a-half) months

whereas the final bill was settled on 10-10-2012. When

the contractee accepted the final payment in full and

final satisfaction of all its claims, there is no point in

raising the claim for losses incurred during the

execution of the contract at a belated stage which

creates an iota of doubt as to why such claim was not

settled at the time of submitting final bills that too in the

absence of exercising duress or coercion on the

contractee by the appellant contractor. In our

considered view, the plea raised by the contractee

company is bereft of any details and particulars, and

cannot be anything but a bald assertion. In the

circumstances, there was full and final settlement of

the claim and there was really accord and satisfaction

and in our view no arbitrable dispute existed so as to

exercise power under Section 11 of the Act. The High

Court was not, therefore, justified in exercising power

under Section 11 of the Act.”

9) The 246

th

Law Commission Report dealt with some of

these judgments and felt that at the stage of a Section 11(6)

application, only “existence” of an arbitration agreement ought to

be looked at and not other preliminary issues. In a recent

judgment of this Court, namely, Garware Wall Ropes Ltd. vs.

Coastal Marine Constructions & Engineering Ltd., (2019 SCC

OnLine SC 515), this Court adverted to the said Law Commission

Report and held: -

“14. The case law under Section 11(6) of the Arbitration

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Act, as it stood prior to the Amendment Act, 2015, has

had a chequered history. In Konkan Railway Corporation

Ltd. v. Mehul Construction Co., (2000) 7 SCC 201

[“Konkan Railway I”], it was held that the powers of the

Chief Justice under Section 11(6) of the 1996 Act are

administrative in nature, and that the Chief Justice or his

designate does not act as a judicial authority while

appointing an arbitrator. The same view was reiterated in

Konkan Railway Corporation Ltd. v. Rani Construction

(P) Ltd., (2002) 2 SCC 388 [“Konkan Railway II”].

15. However, in SBP & Co. (supra), a seven-Judge

Bench overruled this view and held that the power to

appoint an arbitrator under Section is judicial and not

administrative. The conclusions of the seven-Judge

Bench were summarised in paragraph 47 of the

aforesaid judgment. We are concerned directly with sub-

paragraphs (i), (iv), and (xii), which read as follows:

“(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.

xxx xxx xxx

(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.

xxx xxx xxx

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(xii) The decision in Konkan Rly. Corpn. Ltd. v. Rani

Construction (P) Ltd. [(2002) 2 SCC 388] is overruled.”

16. This position was further clarified in Boghara Polyfab

(supra) as follows:

“22. Where the intervention of the court is sought for

appointment of an Arbitral Tribunal under Section 11, the

duty of the Chief Justice or his designate is defined in

SBP & Co. [(2005) 8 SCC 618]. This Court identified and

segregated the preliminary issues that may arise for

consideration in an application under Section 11 of the

Act into three categories, that is, (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; and (iii) issues which should be

left to the Arbitral Tribunal to decide.

22.1. The issues (first category) which the Chief

Justice/his designate will have to decide are:

(a) Whether the party making the application has

approached the appropriate High Court.

(b) Whether there is an arbitration agreement and

whether the party who has applied under Section 11 of

the Act, is a party to such an agreement.

22.2. The issues (second category) which the Chief

Justice/his designate may choose to decide (or leave

them to the decision of the Arbitral Tribunal) are:

(a) Whether the claim is a dead (long-barred) claim or

a live claim.

(b) Whether the 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

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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.”

17. As a result of these judgments, the door was wide

open for the Chief Justice or his designate to decide a

large number of preliminary aspects which could

otherwise have been left to be decided by the arbitrator

under Section 16 of the 1996 Act. As a result, the Law

Commission of India, by its Report No. 246 submitted in

August 2014, suggested that various sweeping changes

be made in the 1996 Act. Insofar as SBP & Co. (supra)

and Boghara Polyfab (supra) are concerned, the Law

Commission examined the matter and recommended the

addition of a new sub-section, namely, sub-section (6A)

in Section 11. In so doing, the Law Commission

recommendations which are relevant and which led to

the introduction of Section 11(6A) are as follows:

“28. The Act recognizes situations where the

intervention of the Court is envisaged at the pre-arbitral

stage, i.e. prior to the constitution of the arbitral tribunal,

which includes sections 8, 9, 11 in the case of Part I

arbitrations and section 45 in the case of Part II

arbitrations. Sections 8, 45 and also section 11 relating

to “reference to arbitration” and “appointment of the

tribunal”, directly affect the constitution of the tribunal

and functioning of the arbitral proceedings. Therefore,

their operation has a direct and significant impact on the

“conduct” of arbitrations. Section 9, being solely for the

purpose of securing interim relief, although having the

potential to affect the rights of parties, does not affect the

“conduct” of the arbitration in the same way as these

other provisions. It is in this context the Commission has

examined and deliberated the working of these

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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 decision

in SBP v. Patel Engineering, (2005) 8 SCC 618, the

Supreme Court held that the power to appoint an

arbitrator under section 11 is a “judicial” power. The

underlying issues in this judgment, relating to the scope

of intervention, were subsequently clarified by

RAVEENDRAN J in National Insurance Co. Ltd. v.

Boghara Polyfab Pvt. Ltd., (2009) 1 SCC 267, where the

Supreme Court laid down as follows –

“1. The issues (first category) which Chief Justice/his

designate will have to decide are:

(a) Whether the party making the application has

approached the appropriate High Court?

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(b) Whether there is an arbitration agreement and

whether the party who has applied under section 11 of

the Act, is a party to such an agreement?

2. The issues (second category) which the Chief

Justice/his designate may choose to decide are:

(a) Whether the claim is a dead (long barred) claim or

a live claim?

(b) Whether the parties have concluded the

contract/transaction by recording satisfaction of their

mutual rights and obligation or by receiving the final

payment without objection?

3. The issues (third category) which the Chief Justice/his

designate should leave exclusively to the arbitral tribunal

are:

(a) Whether a claim 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)?

(b) Merits of any claim involved in the arbitration.”

31. The Commission is of the view that, in this context,

the same test regarding scope and nature of judicial

intervention, as applicable in the context of section 11,

should also apply to sections 8 and 45 of the Act – since

the scope and nature of judicial intervention should not

change upon whether a party (intending to defeat the

arbitration agreement) refuses to appoint an arbitrator in

terms of the arbitration agreement, or moves a

proceeding before a judicial authority in the face of such

an arbitration agreement.

32. In relation to the nature of intervention, the

exposition of the law is to be found in the decision of the

Supreme Court in Shin Etsu Chemicals Co. Ltd. v. Aksh

Optifibre, (2005) 7 SCC 234, (in the context of section 45

of the Act), where the Supreme Court has ruled in favour

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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 the

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

exist, then the conclusion will be final and not prima

facie. The amendment also envisages that there shall be

a conclusive determination as to whether the arbitration

agreement is null and void. In the event that the judicial

authority refers the dispute to arbitration and/or appoints

an arbitrator, under sections 8 and 11 respectively, such

a decision will be final and non-appealable. An appeal

can be maintained under section 37 only in the event of

refusal to refer parties to arbitration, or refusal to appoint

an arbitrator.”

18. Pursuant to the Law Commission recommendations,

Section 11(6A) was introduced first by Ordinance and

then by the Amendment Act, 2015. The Statement of

Objects and Reasons which were appended to the

Arbitration and Conciliation (Amendment) Bill, 2015

which introduced the Amendment Act, 2015 read as

follows:

“STATEMENT OF OBJECTS AND REASONS

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xxx xxx xxx

6. It is proposed to introduce the Arbitration and

Conciliation (Amendment) Bill, 2015, to replace the

Arbitration and Conciliation (Amendment) Ordinance,

2015, which inter alia, provides for the following,

namely:-

(i) to amend the definition of “Court” to provide that in

the case of international commercial arbitrations, the

Court should be the High Court;

(ii) to ensure that an Indian Court can exercise

jurisdiction to grant interim measures, etc., even where

the seat of the arbitration is outside India;

(iii) an application for appointment of an arbitrator shall

be disposed of by the High Court or Supreme Court,

as the case may be, as expeditiously as possible and

an endeavour should be made to dispose of the matter

within a period of sixty days;

(iv) to provide that while considering any application

for appointment of arbitrator, the High Court or the

Supreme Court shall examine the existence of a prima

facie arbitration agreement and not other issues;

(v) to provide that the arbitral tribunal shall make its

award within a period of twelve months from the date it

enters upon the reference and that the parties may,

however, extend such period up to six months, beyond

which period any extension can only be granted by the

Court, on sufficient cause;

(vi) to provide that a model fee Schedule on the basis

of which High Courts may frame rules for the purpose

of determination of fees of arbitral tribunal, where a

High Court appoints arbitrator in terms of section 11 of

the Act;

(vii) to provide that the parties to dispute may at any

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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 lead to expeditious disposal of cases.

xxx xxx xxx”

19. A reading of the Law Commission Report, together

with the Statement of Objects and Reasons, shows that

the Law Commission felt that the judgments in SBP &

Co. (supra) and Boghara Polyfab (supra) required a

relook, as a result of which, so far as Section 11 is

concerned, the Supreme Court or, as the case may be,

the High Court, while considering any application under

Section 11(4) to 11(6) is to confine itself to the

examination of the existence of an arbitration agreement

and leave all other preliminary issues to be decided by

the arbitrator.”

10)This being the position, it is 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 as Section 11(6A) is confined to the

15

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 Duro Felguera, S.A. (supra) – see paras 48 & 59.

11)We, therefore, overrule the judgment in United India

Insurance Company Limited (supra) as not having laid down the

correct law but dismiss this appeal for the reason given in para 3

above.

12)Mr. Rohatgi now requests us for an extension of the status

quo order granted by the trial court for a period of one week from

today so that he may adopt other proceedings. This request is

granted.

………………........................... J.

(ROHINTON FALI NARIMAN)

………………........................... J.

(R. SUBHASH REDDY)

………………........................... J.

(SURYA KANT)

New Delhi;

September 05, 2019.

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