REPORTABLE

IN THE SUPREME COURT OF INDIA

CIVIL APPELLATE JURISDICTION

CIVIL APPEAL NO. 825 OF 2021

(@ Special Leave Petition (Civil) No.8718 of 2020)

PRAVIN ELECTRICALS PVT. LTD. … APPELLANT

VERSUS

GALAXY INFRA AND ENGINEERING

PVT. LTD. … RESPONDENT

J U D G M E N T

R.F. Nariman, J.

1.Leave granted.

2.This appeal arises out of a petition filed under Section 11(6) of

the Arbitration and Conciliation Act, 1996, for appointment of a

Sole Arbitrator for adjudication of disputes between the parties.

The Respondent, Galaxy Infra and Engineering Pvt. Ltd., is a

company incorporated under the provisions of the Companies

Act, 1956, having its registered office at Village Arra Gadh, Post

Office Dharhara, Dist. Vaishali, P.S. Hajipur, Bihar and is in the

business of providing consultancy services. The Appellant,

1

Pravin Electricals Pvt. Ltd., operates in key industrial and

commercial retail sectors and provides services for electrical

supplies etc.

3.On 26

th

May, 2014, an online tender was invited by Chief

Engineer, South Bihar Power Distribution Company Ltd.

(hereinafter referred to as “SBPDCL”) for appointment of

implementing agencies for execution of a Scheme, on turnkey

basis, for strengthening, improvement and augmentation of

distribution systems capacities of 20 towns in Bihar. The

Appellant submitted its technical and financial bid and was

declared the L1 bidder and was awarded the work on 22

nd

September, 2014. It is the case of the Respondent that it had

made substantial efforts under a Consultancy Agreement dated

7

th

July, 2014, to facilitate the Appellant in getting the aforesaid

contract for which it was entitled to commission. It is then

alleged that the Appellant sent an email dated 15

th

July, 2014 to

the Respondent with a draft agreement attached for comments

and confirmation. On the same day, the Respondent sent its

reply stating that certain terms were not acceptable. In emails

that have surfaced for the first time in this Court dated 22

nd

July,

2

2014 and 25

th

July, 2014, the Respondent argued that, in point of

fact, all differences between the parties were ironed out and a

Final Consultancy Agreement was agreed upon through

correspondence between the parties.

4.The Respondent alleged that it had raised an invoice on 27

th

September, 2014, for payment of Rs.28.09 lakhs as an advance

for consultancy charges including service tax. It is important to

note that the said invoice was addressed to one M/s Process

Construction and Technical Services Pvt. Ltd. (hereinafter

referred to as “Process”) and makes reference to an agreement

entered into between the Respondent and Process. Also, on

24

th

April, 2016, the Respondent alleged that it raised yet another

invoice on the Appellant. This invoice was also addressed to

Process and makes reference to an agreement between the

Respondent and Process. Ledger accounts that were produced

in the normal course of business by the Respondent reflects

transactions with Process and not the Appellant. Finally, vide an

email dated 30

th

June, 2017, the Respondent attached the final

invoice to the Appellant claiming an amount of Rs.5.54 crores

under the alleged Consultancy Agreement dated 7

th

July, 2014.

3

This was followed up by a demand-cum-legal notice dated 9

th

March, 2018, seeking payment of Rs.5,54,14,318/- from the

Appellant as being due under the alleged Consultancy

Agreement dated 7

th

July, 2014. Vide its reply dated 22

nd

March,

2018, the Appellant recorded its surprise on receiving such

demand notice and flatly denied that any agreement dated 7

th

July, 2014, was ever entered into between the parties. The

Appellant further requested the Respondent to provide a copy of

the alleged Agreement dated 7

th

July, 2014 and payment details

referred to in the legal notice.

5.On 26

th

April, 2018, the Respondent invoked Article 14 of the

alleged Consultancy Agreement dated 7

th

July, 2014, in which

they nominated one Kameshwar Choudhary as Sole Arbitrator to

adjudicate differences between the parties. On 3

rd

May, 2018,

the Appellant denied execution of the Agreement dated 7

th

July,

2014 and, therefore, stated that the matter could not be referred

to arbitration. We are informed that on 14

th

May, 2018, the

Respondent’s Advocates finally supplied a copy of the alleged

Agreement dated 7

th

July, 2014 to the Appellant.

4

6.On 7

th

September, 2018, the Respondent then filed a petition

under Section 11(6) of the 1996 Act for appointment of a Sole

Arbitrator on the basis of the alleged Agreement dated 7

th

July,

2014. The Delhi High Court vide an order dated 28

th

November,

2018, directed the Respondent to produce the original of the

Consultancy Agreement dated 7

th

July, 2014. The Appellant was

then directed to produce Mr. M.G. Stephen, Managing Director of

the Appellant, before the Registrar (Judicial) on 7

th

December,

2018, so that he can carry with him documents which bear his

original signature at the contemporaneous time. The Registrar

(Judicial) was also directed to obtain specimen signatures of Mr.

M.G. Stephen. The original of the Agreement together with the

aforesaid signatures of Mr. M.G. Stephen was then to be sent to

the CFSL for obtaining a report. The report was then received

and by an order dated 20

th

September, 2019, the High Court

directed that copies of the report be given to the learned counsel

for the parties. Finally, on 30

th

September, 2019, the learned

counsel for the Appellant submitted that he had instructions to

contest the matter after which the impugned judgment dated 12

th

May, 2020 was passed.

5

7.Vide the impugned judgment, the learned Single Judge of the

Delhi High Court referred to the alleged Consultancy Agreement

dated 7

th

July, 2014 and the correspondence between the

parties, including the correspondence between SBPDCL and the

Respondent herein. After going through the aforesaid, the

learned Single Judge then held:

“39. Learned counsel for the petitioner has drawn the

attention of the Court to various emails which indicate

that a Consultancy Agreement was executed between

the parties on 07.07.2014. In the said agreement, the

parties agreed on the percentage of fee that the

petitioner would get in case the respondent succeeded

in getting the tender from SBPDCL. On 15.07.2014 the

respondent had sent an email with a soft copy of the

agreement suggesting a certain percentage of the

consultancy fee. Subsequent emails are also placed

on record which show that payment terms were being

discussed between the parties. Email dated

30.06.2017 is also on record by which a final invoice

was sent by the petitioner clearly making a reference

to the Agreement dated 07.07.2014. None of these

documents have been denied by the respondent.

Learned counsel for the petitioner has also pointed out

that the respondent even made payments in

accordance with the terms of the Agreement. As per

the payment terms, Rs.25 Lakhs was payable on

receipt of LOI by the respondent from SBPDCL.

Admittedly on 22.09.2014, LOI was awarded to the

respondent and on the petitioner raising an invoice for

Rs.25 Lakhs on 27.09.2014, respondent actually made

payment on 29.09.2014. Counsel for the petitioner has

also shown the email dated 27.09.2014 whereby the

respondent had asked the petitioner to raise the

6

invoice on its letterhead. These documents in my view

clearly indicate that the parties had entered into an

Agreement pursuant to which the parties had acted.

The petitioner had assisted the respondent in the

award of the LOI and the respondent had initially made

payments in terms of the said agreement dated

07.07.2014. Learned counsel for the Petitioner is also

right in submitting that on 15.07.2014, the respondent

had itself sent an email containing a Draft Consultancy

Agreement which contained Article 14, which was the

Arbitration Clause. The parties were thus ad idem

regarding submission of disputes to Arbitration.

40. The fact that there was an Agreement between the

parties is also fortified by the fact that the information

sent by the Department to the respondent regarding

award of the Contract to the respondent was also sent

to the petitioner vide email dated 22.09.2014. Draft

letter of acceptance sent by the Department to the

petitioner through email dated 25.09.2014 was sent by

the petitioner to the respondent on the same day, by

an email.

41. Learned counsel for the respondent in my view is

not correct in its contention that since a draft

agreement was emailed by the respondent, there was

no executed agreement dated 07.07.2014. From the

email dated 15.07.2014, it is apparent that the

respondent had executed an Agreement prior to

15.07.2014. Petitioner had categorically stated in the

email dated 15.07.2014 that the payment terms in the

draft agreement were different and there is no

document on record filed by the respondent evidencing

denial of the contents of this email.

42. In so far as the argument that the invoices were

raised on PCTSPL and not on the petitioner is

concerned, petitioner is correct in its submission that

PCTSPL was only a sub-contractor of the respondent.

7

Petitioner had not raised the invoice on its own will.

Counsel for the petitioner has pointed out the email

dated 24.09.2019 sent by PCTSPL to the respondent

i.e. Mr. Manoj Panikar to Mr. Stephen whereby

PCTSPL had emailed the draft invoice to the

respondent and sought confirmation whether it could

be sent to the petitioner and finally, the revised draft

invoice was sent to the petitioner on 27.09.2019 by

PCTSPL.

43. The contention of the respondent that it was

PCTSPL which had made payments to the petitioner

and this was on account of their own inter se business

relationships has no merit. The invoice placed on

record clearly shows that this was with respect to the

contract awarded to the respondent by the Department

with which admittedly PCTSPL had no direct

relationship. This itself is indicative of the fact that

dehors the addressee of the invoices, the same were

with respect to the contract given by the department to

the respondent and for which the petitioner was a

consultant.

44. In so far as the contention of the respondent that

the Consultancy Agreement dated 07.07.2014 did not

have the signatures of Mr. M.G. Stephen and

therefore, cannot be accepted as an agreement

between the parties, is without merit. As mentioned in

the earlier part of the judgment, it is not mandatory for

an Arbitration Agreement that it must be signed by the

parties. The Supreme Court in case of Caravel

Shipping Services Pvt. Ltd. vs. M/s. Premier Sea

Foods (2019) 11 SCC 461, has clearly held as under:

“8. In addition, we may indicate that the law in

this behalf, in Jugal Kishore Rameshwardas v.

Goolbai Hormusji, AIR 1955 SC 812, is that an

arbitration agreement needs to be in writing

though it need not be signed. The fact that the

8

arbitration agreement shall be in writing is

continued in the 1996 Act in Section 7(3) thereof.

Section 7(4) only further adds that an arbitration

agreement would be found in the circumstances

mentioned in the three sub-clauses that make up

Section 7(4). This does not mean that in all

cases an arbitration agreement needs to be

signed. The only pre-requisite is that it be in

writing, as has been pointed out in Section 7(3).”

45. In my view, the documents placed on record by the

petitioner clearly evidence that there exists an

Arbitration Agreement between the parties as

contained in the draft agreement exchanged by email

dated 07.07.2014. The present case squarely falls

within the ambit of Section 7(4)(b) of the Act. The

inevitable result is that the parties must be referred to

Arbitration for adjudication of their disputes.”

Accordingly, Justice G.S. Sistani, a former Judge of the Delhi

High Court was appointed as the Sole Arbitrator to adjudicate the

dispute between the parties.

8.Shri Shyam Divan, learned Senior Advocate, appearing on

behalf of the Appellant, has argued that the alleged Consultancy

Agreement dated 7

th

July, 2014 is a concocted document. This is

clear from the CFSL report dated 29

th

September, 2019, on

which he relied very heavily. This being the case, since the

alleged Consultancy Agreement itself had no existence, there

was no arbitration agreement between the parties, as a result of

9

which the High Court judgment fell to the ground. He also

argued that this is the only case of its kind in which a formal

signed agreement is alleged to have been entered into between

the parties, after which negotiations take place and a draft

agreement is referred to. The very fact that negotiations have

taken place after such alleged agreement shows that such

alleged agreement does not in fact exist. He also went on to

argue that the agreement is notarized at Faridabad, Haryana,

when the parties are from Mumbai and Bihar respectively. He

has also produced documents to show that the so-called

Notary’s license had expired way before notarization allegedly

took place on 7

th

July, 2014. He argued that once the case that

is pleaded between the parties is found to be incorrect, the

Respondent cannot now be allowed to rely upon documents

produced here for the first time to show that even apart from the

pleaded case namely, the Consultancy Agreement dated 7

th

July,

2014, yet, an agreement is made out in correspondence

between the parties after the said date. He attacked the Delhi

High Court judgment arguing that the findings that were made

qua invoices being raised and payments being made are wholly

10

incorrect in that such invoices were raised and payments were

made only by Process under a separate agreement entered into

between the Respondent and Process. He also stated that if

the pleadings of this case are perused, Process has been

described by the Respondent as a Joint Venture partner with the

Appellant in one place, then described as a private company

who has common directors with the Appellant; and then finally

described as a Sub-Contractor only in the written submissions

filed before Delhi High Court, which last appellation has been

accepted by the High Court completely wrongly. Even in the

Counter Affidavit filed before this Court, yet another plea is taken

that Process is the lead partner of the Appellant. For all these

reasons, the learned Senior Advocate submits that the judgment

under appeal ought to be set aside.

9.Shri Dhruv Mehta, learned Senior Advocate appearing on behalf

of the Respondent, has taken us through all the correspondence

again in order to show that even if the Consultancy Agreement

dated 7

th

July, 2014 is not relied upon, yet, an arbitration clause

exists in that the draft agreement that was exchanged between

the parties culminated in a final agreement on 25

th

July, 2014. In

11

any case, if the correspondence between SBPDCL and the

Respondent is to be seen with CCs being marked to the

Appellant, it is clear that the Respondent acted as a go-between

and successfully obtained the bid for the Appellant having

earned its commission thereon. He argued that the judgment

under appeal does not require interference in that the CFSL

report was also inconclusive and that the correspondence

referred to by the learned Single Judge of the High Court would

clearly show that the dramatis personae in this case interacted

with each other and that, but for the efforts of his client, Pravin

Electricals Pvt. Ltd. would never have got the bid. He relied

upon a number of judgments of this Court to buttress his

submissions.

10.Having heard learned counsel for both the parties, it is important

to first set out the relevant provisions of the Arbitration and

Conciliation Act, 1996:

8. 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

12

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 Court, refer

the parties to arbitration unless it finds that prima facie no

valid arbitration agreement exists.

11. Appointment of arbitrators. —

xxxx

(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 Supreme Court or, as the

case may be, the High Court 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.

(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.

xxxx

13

(7) A decision on a matter entrusted by sub-section (4)

or sub-section (5) or sub-section (6) to 3 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.

11.Sections 8 and 11 were amended pursuant to a detailed Law

Commission Report being the 246

th

Law Commission Report on

Arbitration. The history of the law prior to 2015 is set out in the

aforesaid Report and the changes made therein are reflected by

this Court in its judgment in Mayavati Trading (P) Ltd. v.

Pradyuat Deb Burman, (2019) 8 SCC 714 as under:

“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. v.

Coastal Marine Constructions & Engg. Ltd., (2019)

9 SCC 209, this Court adverted to the said Law

Commission Report and held:

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

Arbitration Act, as it stood prior to the Amendment

Act, 2015, has had a chequered history.

9. In Konkan Railway Corpn. Ltd. v. Mehul

Construction Co., (2000) 7 SCC 201 (Konkan

Railway 1), it was held that the powers of the Chief

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

14

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 Corpn. Ltd. v. Rani

Construction (P) Ltd., (2002) 2 SCC 388 (Konkan

Railway 2).

10. However, in SBP & Co. v. Patel Engg. Ltd.,

(2005) 8 SCC 618, a seven-Judge Bench overruled

this view and held that the power to appoint an

arbitrator under Section 11 is judicial and not

administrative. The conclusions of the seven-Judge

Bench were summarised in para 47 of the aforesaid

judgment. We are concerned directly with sub-paras

(i), (iv) and (xii), which read as follows: (SCC pp.

663-64)

‘(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.

15

***

(xii) The decision in Konkan Railway Corpn.

Ltd. v. Rani Construction (P) Ltd., (2002) 2

SCC 388 is overruled.’

11. This position was further clarified in National

Insurance Co. Ltd. v. Boghara Polyfab (P) Ltd.,

(2009) 1 SCC 267 as follows: (SCC p. 283, para 22)

‘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.

(supra) 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:

16

(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 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.’

12. 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 (6-A) in Section

11. In so doing, the Law Commission

recommendations which are relevant and

which led to the introduction of Section 11(6-

A) are as follows:

‘28. The Act recognises situations where

the intervention of the Court is envisaged

at the pre-arbitral stage i.e. prior to the

17

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 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

18

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 & Co. v. Patel Engg.

Ltd. (supra), 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 (P) Ltd. (supra), where the

Supreme Court laid down as follows: (SCC

p. 283, para 22)

‘22.1. 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?

(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 are:

19

(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 Justice/his designate

should leave exclusively to the

Arbitral Tribunal are:

(a) 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)?

(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-

20

Etsu Chemical Co. Ltd. v. Aksh Optifibre

Ltd., (2005) 7 SCC 234, (in the context of

Section 45 of the Act), where the Supreme

Court has 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 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. Insofar 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,

21

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.’

13. Pursuant to the Law Commission

recommendations, Section 11(6-A) 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

***

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

22

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 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;

23

(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.’

14. 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 Patel Engg. Ltd., (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 Sections

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.”

12.The need for reference to any other case law is obviated by a

recent Three-Judge Bench judgment in Vidya Drolia v. Durga

Trading Corporation, (2021) 2 SCC 1. This Three-Judge Bench

judgment arose out of a reference made to 3 learned Judges in

24

Vidya Drolia v. Durga Trading Corporation, (2019) 20 SCC

406. Sanjiv Khanna, J. speaking for the Court set out the

question that arose before the Court as follows:

“1. This judgment decides the reference to three

Judges made vide order dated 28-2-2019 in Vidya

Drolia v. Durga Trading Corpn., (2019) 20 SCC 406,

as it doubts the legal ratio expressed in Himangni

Enterprises v. Kamaljeet Singh Ahluwalia, (2017) 10

SCC 706 that landlord-tenant disputes governed by

the provisions of the Transfer of Property Act, 1882,

are not arbitrable as this would be contrary to public

policy.

2. A deeper consideration of the order of reference

reveals that the issues required to be answered

relate to two aspects that are distinct and yet

interconnected, namely:

2.1. (i) Meaning of non-arbitrability and when the

subject-matter of the dispute is not capable of being

resolved through arbitration.

2.2. (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.

2.3. 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”).

25

13.The Bench then went into the Law Commission’s 246

th

Report as

follows:

124. In order to appreciate the effect of the

amendments made by Act 3 of 2016, it would be

appropriate to refer to the Law Commission's 246th

Report which had given reasons for amendments to

Sections 8 and 11 of the Arbitration Act, including

insertion of sub-section (6-A) to Section 11. The

said reasons read as under:

“24. Two further sets of amendments have

been proposed in this context. First, it is

observed that a lot of time is spent for

appointment of arbitrators at the very

threshold of arbitration proceedings as

applications under Section 11 are kept

pending for many years. In this context, the

Commission has proposed a few

amendments. The Commission has proposed

changing the existing scheme of the power of

appointment being vested in the “Chief

Justice” to the “High Court” and the “Supreme

Court” and has expressly clarified that

delegation of the power of “appointment” (as

opposed to a finding regarding the

existence/nullity of the arbitration agreement)

shall not be regarded as a judicial act. This

would rationalise the law and provide greater

incentive for the High Court and/or Supreme

Court to delegate the power of appointment

(being a non-judicial act) to specialised,

external persons or institutions. The

Commission has further recommended an

amendment to Section 11(7) so that decisions

of the High Court (regarding existence/nullity

of the arbitration agreement) are final where

an arbitrator has been appointed, and as such

26

are non-appealable. The Commission further

proposes the addition of Section 11(13) which

requires the Court to make an endeavour to

dispose of the matter within sixty days from

the service of notice on the opposite party.

***

The Law Commission's Report specifically refers to

the decision of this Court in Shin-Etsu Chemical Co.

Ltd. v. Aksh Optifibre Ltd., (2005) 7 SCC 234, a

decision relating to transnational arbitration covered

by the New York Convention.

14.Dealing with “prima facie” examination under Section 8, as

amended, the Court then held:

134. 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

straightforward 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 trial. This necessarily reflects on the

nature of the jurisdiction exercised by the court and

in this context, the observations of B.N. Srikrishna,

J. of “plainly arguable” case in Shin-Etsu Chemical

Co. Ltd. are of importance and relevance. Similar

views are expressed by this Court in Vimal Kishor

Shah v. Jayesh Dinesh Shah, (2016) 8 SCC

27

wherein the test applied at the pre-arbitration stage

was whether there is a “good arguable case” for the

existence of an arbitration agreement.

15.The parameters of review under Sections 8 and 11 were then

laid down thus:

138. In the Indian context, we would respectfully

adopt the three categories in Boghara Polyfab (P)

Ltd. The first category of issues, namely, whether

the party has approached the appropriate High

Court, whether there is an arbitration agreement

and whether the party who has applied for reference

is party to such agreement would be subject to

more thorough examination in comparison to the

second and third categories/issues which are

presumptively, save in exceptional cases, for the

arbitrator to decide. In the first category, we would

add and include the question or issue relating to

whether the cause of action relates to action in

personam or rem; whether the subject-matter of the

dispute affects third-party rights, have erga omnes

effect, requires centralised adjudication; whether the

subject-matter relates to inalienable sovereign and

public interest functions of the State; and whether

the subject-matter of dispute is expressly or by

necessary implication non-arbitrable as per

mandatory statute(s). Such questions arise rarely

and, when they arise, are on most occasions

questions of law. On the other hand, issues relating

to contract formation, existence, validity and non-

arbitrability would be connected and intertwined with

the issues underlying the merits of the respective

disputes/claims. They would be factual and disputed

and for the Arbitral Tribunal to decide.

28

139. We would not like to be too prescriptive, albeit

observe that the court may for legitimate reasons, to

prevent wastage of public and private resources,

can exercise judicial discretion to conduct an

intense yet summary prima facie review while

remaining conscious that it is to assist the

arbitration procedure and not usurp jurisdiction of

the Arbitral Tribunal. Undertaking a detailed full

review or a long-drawn review at the referral stage

would obstruct and cause delay undermining the

integrity and efficacy of arbitration 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.

[ Ozlem Susler, “The English Approach to

Competence-Competence” Pepperdine Dispute

Resolution Law Journal, 2013, Vol. 13.]

140. 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 ruse 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 courts and the Arbitral

29

Tribunal. Centralisation of litigation with the Arbitral

Tribunal as the primary and first adjudicator is

beneficent as it helps in quicker and efficient

resolution of disputes.

16.The Court then examined the meaning of the expression

“existence” which occurs in Section 11(6A) and summed up its

discussion as follows:

146. We now proceed to examine the question,

whether the word “existence” in Section 11 merely

refers to contract formation (whether there is an

arbitration agreement) and excludes the question of

enforcement (validity) and therefore the latter falls

outside the jurisdiction of the court at the referral

stage. On jurisprudentially and textualism it is

possible to differentiate between existence of an

arbitration agreement and validity of an arbitration

agreement. Such interpretation can draw support

from the plain meaning of the word “existence”.

However, it is equally possible, jurisprudentially and

on contextualism, to hold that an agreement has no

existence if it is not enforceable and not 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

30

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.

147. We would proceed to elaborate and give

further reasons:

147.1. In Garware Wall Ropes Ltd. v. Coastal

Marine Constructions & Engg. Ltd., (2019) 9 SCC

209, this Court had examined the question of stamp

duty in an underlying contract with an arbitration

clause and in the context had drawn a distinction

between the first and second part of Section 7(2) of

the Arbitration Act, albeit the observations made and

quoted above with reference to “existence” and

“validity” of the arbitration agreement being apposite

and extremely important, we would repeat the same

by reproducing para 29 thereof: (SCC p. 238)

“29. This judgment in United India Insurance

Co. Ltd. v. Hyundai Engg. & Construction Co.

Ltd., (2018) 17 SCC 607 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

31

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 11(6-A) deals with “existence”, as

opposed to Section 8, Section 16 and Section

45, which deal with “validity” of an arbitration

agreement is answered by this Court's

understanding of the expression “existence” in

Hyundai Engg. case, as followed by us.”

Existence and validity are intertwined, and

arbitration agreement does not exist if it is illegal or

does not satisfy mandatory legal requirements.

Invalid agreement is no agreement.

147.2. The court at the reference stage exercises

judicial powers. “Examination”, as an ordinary

expression in common parlance, refers to an act of

looking or considering something carefully in order

to discover something (as per Cambridge

Dictionary). It requires the person to inspect closely,

to test the condition of, or to inquire into carefully

(as per Merriam-Webster Dictionary). It would be

rather odd for the court to hold and say that the

arbitration agreement exists, though ex facie and

manifestly the arbitration agreement is invalid in law

and the dispute in question is non-arbitrable. The

court is not powerless and would not act beyond

jurisdiction, if it rejects an application for reference,

when the arbitration clause is admittedly or without

doubt is with a minor, lunatic or the only claim seeks

a probate of a will.

147.3. Most scholars and jurists accept and agree

that the existence and validity of an arbitration

agreement are the same. Even Stavros Brekoulakis

accepts that validity, in terms of substantive and

32

formal validity, are questions of contract and hence

for the court to examine.

147.4. Most jurisdictions accept and require prima

facie review by the court on non-arbitrability aspects

at the referral stage.

147.5. Sections 8 and 11 of the Arbitration Act are

complementary provisions as was held in Patel

Engg. 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 review is

exercised by the court under Section 11 of the

Arbitration Act. Therefore, we can read the mandate

of valid arbitration agreement in Section 8 into

mandate of Section 11, that is, “existence of an

arbitration agreement”.

147.6. Exercise of power of prima facie judicial

review of existence as including validity is justified

as a court is the first forum that examines and

decides the request for the referral. Absolute “hands

off” approach would be counterproductive and harm

arbitration, as an alternative dispute resolution

mechanism. Limited, yet effective intervention is

acceptable as it does not obstruct but effectuates

arbitration.

147.7. Exercise of the limited prima facie review

does not in any way interfere with the principle of

33

competence-competence and separation as to

obstruct arbitration proceedings but ensures that

vexatious and frivolous matters get over at the initial

stage.

147.8. Exercise of prima facie power of judicial

review as to the validity of the arbitration agreement

would save costs and check harassment of

objecting parties when there is clearly no

justification and a good reason not to accept plea of

non-arbitrability. In Subrata Roy Sahara v. Union of

India, (2014) 8 SCC 470, this Court has observed:

(SCC p. 642, para 191)

“191. The Indian judicial system is grossly

afflicted with frivolous litigation. Ways and

means need to be evolved to deter litigants

from their compulsive obsession towards

senseless and ill-considered claims. One

needs to keep in mind that in the process of

litigation, there is an innocent sufferer on the

other side of every irresponsible and

senseless claim. He suffers long-drawn

anxious periods of nervousness and

restlessness, whilst the litigation is pending

without any fault on his part. He pays for the

litigation from out of his savings (or out of his

borrowings) worrying that the other side may

trick him into defeat for no fault of his. He

spends invaluable time briefing counsel and

preparing them for his claim. Time which he

should have spent at work, or with his family,

is lost, for no fault of his. Should a litigant not

be compensated for what he has lost for no

fault? The suggestion to the legislature is that

a litigant who has succeeded must be

compensated by the one who has lost. The

suggestion to the legislature is to formulate a

mechanism that anyone who initiates and

34

continues a litigation senselessly pays for the

same. It is suggested that the legislature

should consider the introduction of a “Code of

Compulsory Costs”.”

147.9. Even in Duro Felguera, S.A. v. Gangavaram

Port Ltd., (2017) 9 SCC 729, Kurian Joseph, J., in

para 52, had referred to Section 7(5) and thereafter

in para 53 referred to a judgment of this Court in

M.R. Engineers & Contractors (P) Ltd. v. Som Datt

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

and National Insurance Co. Ltd. v. Boghara Polyfab

(P) Ltd., (2009) 1 SCC 267 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. Para 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. Para 59 is more restrictive and requires

the court to see whether an arbitration agreement

exists — nothing more, nothing less. Read with the

other findings, it would be appropriate to read the

two paragraphs as laying down the legal ratio that

the court is required to see if the underlying contract

contains an arbitration clause for arbitration of the

disputes which have arisen between the parties —

nothing more, nothing less. Reference to decisions

in Patel Engg. Ltd. and Boghara Polyfab (P) Ltd.

was to highlight that at the reference stage, post the

amendments vide Act 3 of 2016, the court would not

35

go into and finally decide different aspects that were

highlighted in the two decisions.

147.10. In addition to Garware Wall Ropes Ltd.

case, this Court in Narbheram Power & Steel (P)

Ltd. [Oriental Insurance Co. Ltd. v. Narbheram

Power & Steel (P) Ltd., (2018) 6 SCC 534] and

Hyundai Engg. & Construction Co. Ltd. [United India

Insurance Co. Ltd. v. Hyundai Engg. & Construction

Co. Ltd., (2018) 17 SCC 607] , both decisions of

three Judges, has rejected the application for

reference in the insurance contracts holding that the

claim was beyond and not covered by the arbitration

agreement. The Court felt that the legal position

was beyond doubt as the scope of the arbitration

clause was fully covered by the dictum in Vulcan

Insurance Co. Ltd. [Vulcan Insurance Co. Ltd. v.

Maharaj Singh, (1976) 1 SCC 943] Similarly, in PSA

Mumbai Investments Pte. Ltd. [PSA Mumbai

Investments Pte. Ltd. v. Jawaharlal Nehru Port

Trust, (2018) 10 SCC 525] , this Court at the referral

stage came to the conclusion that the arbitration

clause would not be applicable and govern the

disputes. Accordingly, the reference to the Arbitral

Tribunal was set aside leaving the respondent to

pursue its claim before an appropriate forum.

147.11. The interpretation appropriately balances

the allocation of the decision-making authority

between the court at the referral stage and the

arbitrators' primary jurisdiction to decide disputes on

merits. The court as the judicial forum of the first

instance can exercise prima facie test jurisdiction to

screen and knock down ex facie meritless, frivolous

and dishonest litigation. Limited jurisdiction of the

courts ensures expeditious, alacritous and efficient

disposal when required at the referral stage.

17.The Bench finally concluded:

36

153. 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

reasonable arguable case, etc., the court would

force the parties to abide by the arbitration

agreement as the Arbitral Tribunal has primary

jurisdiction and authority to decide the disputes

including the question of jurisdiction and non-

arbitrability.

154. Discussion under the heading “Who Decides

Arbitrability?” can be crystallised as under:

154.1. Ratio of the decision in Patel Engg. Ltd. on

the scope of judicial review by the court while

deciding an application under Sections 8 or 11 of

the Arbitration Act, post the amendments by Act 3 of

2016 (with retrospective effect from 23-10-2015)

and even post the amendments vide Act 33 of 2019

(with effect from 9-8-2019), is no longer applicable.

154.2. Scope of judicial review and jurisdiction of

the court under Sections 8 and 11 of the Arbitration

Act is identical but extremely limited and restricted.

154.3. The general rule and principle, in view of the

legislative mandate clear from Act 3 of 2016 and Act

33 of 2019, and the principle of severability and

competence-competence, is that the Arbitral

Tribunal is the preferred first authority to determine

and decide all questions of non-arbitrability. The

court has been conferred power of “second look” on

aspects of non-arbitrability post the award in terms

of sub-clauses (i), (ii) or (iv) of Section 34(2)(a) or

37

sub-clause (i) of Section 34(2)(b) of the Arbitration

Act.

154.4. Rarely as a demurrer the court may interfere

at Section 8 or 11 stage when it is manifestly and ex

facie certain that the arbitration agreement is non-

existent, invalid or the disputes are non-arbitrable,

though the nature and facet of non-arbitrability

would, to some extent, determine the level and

nature of judicial scrutiny. The restricted and limited

review is to check and protect parties from being

forced to arbitrate when the matter is demonstrably

“non-arbitrable” and to cut off the deadwood. The

court by default would refer the matter when

contentions relating to non-arbitrability are plainly

arguable; when consideration in summary

proceedings would be insufficient and inconclusive;

when facts are contested; when the party opposing

arbitration adopts delaying tactics or impairs

conduct of arbitration proceedings. This is not the

stage for the court to enter into a mini trial or

elaborate review so as to usurp the jurisdiction of

the Arbitral Tribunal but to affirm and uphold

integrity and efficacy of arbitration as an alternative

dispute resolution mechanism.

155. Reference is, accordingly, answered.

18.Ramana, J. in a separate concurring opinion, after referring to

the case law, summed up his conclusions as follows:

244. Before we part, the conclusions reached, with

respect to Question 1, are:

244.1. Sections 8 and 11 of the Act have the same

ambit with respect to judicial interference.

38

244.2. Usually, subject-matter arbitrability cannot be

decided at the stage of Section 8 or 11 of the Act,

unless it is a clear case of deadwood.

244.3. 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.

244.4. The court should refer a matter if the validity

of the arbitration agreement cannot be determined

on a prima facie basis, as laid down above i.e.

“when in doubt, do refer”.

244.5. The scope of the court to examine the prima

facie validity of an arbitration agreement includes

only:

244.5.1. Whether the arbitration agreement was in

writing? or

244.5.2. Whether the arbitration agreement was

contained in exchange of letters,

telecommunication, etc.?

244.5.3. Whether the core contractual ingredients

qua the arbitration agreement were fulfilled?

244.5.4. On rare occasions, whether the subject-

matter of dispute is arbitrable?

19.The 246

th

Law Commission Report not only discussed the

changes that are to be made bearing in mind the difficulties that

39

arose earlier, but also provided for amendments that were to be

made to Sections 8 and 11. This was provided as follows:

“Amendment of Section 8

5. In section 8 of the Act,

(i) In sub-section (1), after the words “substance of the

dispute, refer” add “to arbitration, such of” and after the

words “the parties to” add “the action who are parties

to the” and after the word “arbitration” add the word

“agreement”.

(ii) after sub-section (1), add “Provided that no such

reference shall be made only in cases where –

(i) the parties to the action who are not parties to the

arbitration agreement, are necessary parties to the

action;

(ii) the judicial authority finds that the arbitration

agreement does not exist or is null and void.

Explanation 1: If the judicial authority is prima facie

satisfied about the existence of an arbitration

agreement, it shall refer the parties to arbitration and

leave the final determination of the existence of the

arbitration agreement to the arbitral tribunal in

accordance with section 16, which shall decide the

same as a preliminary issue;

Explanation 2: Any pleading filed in relation to any

interim application which has been filed before the

judicial authority shall not be treated to be a statement

on the substance of the dispute for the purpose of this

section.”

[NOTE: The words “such of the parties… to the

arbitration agreement” and proviso (i) of the

amendment have been proposed in the context of the

40

decision of the Supreme Court in Sukanya Holdings

Pvt. Ltd. v. Jayesh H. Pandya and Anr., (2003) 5 SCC

531, – in cases where all the parties to the dispute are

not parties to the arbitration agreement, the reference

is to be rejected only where such parties are necessary

parties to the action – and not if they are only proper

parties, or are otherwise legal strangers to the action

and have been added only to circumvent the arbitration

agreement. Proviso (ii) of the amendment

contemplates a two-step process to be adopted by a

judicial authority when considering an application

seeking the reference of a pending action to

arbitration. 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 44 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.]”

(iii) In sub-section (2), after the words “duly certified

copy thereof” add “or a copy accompanied by an

affidavit calling upon the other party to produce the

original arbitration agreement or duly certified copy

thereof in a circumstance where the original arbitration

agreement or duly certified copy is retained only by the

other party.”

xxx

Amendment of Section 11

7. In section 11,

41

(i) In sub-section (4), sub-clause (b), after the words

“by the” delete “Chief Justice” and add words “High

Court” and after the words “designated by” delete the

word “him” and add the word “it”.

(ii) In sub-section (5), after the words “by the” delete

“Chief Justice” and add words “High Court” and after

the words “designated by” delete the word “him” and

add the word “it”.

(iii) In sub-section (6), sub-clause (c), after the words

“may request the” delete “Chief Justice” and add words

“High Court” and after the words “designated by”

delete the word “him” and add the word “it”.

(iv) after sub-section (6), insert sub-section “(6A) An

appointment by the High Court or the person or

institution designated by it under sub-section (4) or

sub-section (5) or sub-section (6) shall not be made

only if the High Court finds that the arbitration

agreement does not exist or is null and void,

Explanation 1: If the High Court is prima facie satisfied

regarding the existence of an arbitration agreement, it

shall refer the parties to arbitration and leave the final

determination of the existence of the arbitration

agreement to the arbitral tribunal in accordance with

section 16, which shall decide the same as a

preliminary issue.

Explanation 2: For the removal of any doubt, it is

clarified that reference by the High Court to any person

or institution designated by it shall not be regarded as

a delegation of judicial power.

Explanation 3: The High Court may take steps to

encourage the parties to refer the disputes to

institutionalised arbitration by a professional Indian or

International Arbitral Institute.

42

[NOTE: The proposed section 11 (6A) envisages the

same process of determination as is reflected in the

proposed amendment to section 8. Explanation 2

envisages that reference by the High Court to any

person or institution designated by it shall not be

regarded as a delegation of judicial power. Explanation

3 has been inserted with the hope and expectation that

High Courts would encourage the parties to refer the

disputes to institutionalize arbitration by a professional

Indian or international arbitral institute.]

(v) In sub-section (7), after the words “or sub-section

(6)” add the words “or subsection (6A)” and after the

words “to the” delete the words “Chief Justice or the”

and add the words “High Court is final where an

arbitral tribunal has been appointed or a” and after the

words “person or institution” add the words “has been”

and after the words “designated by” delete the words

“him is final” and insert the words “the High Court, and

no appeal, including letters patent appeal, shall lie

against such order.”

[NOTE: This amendment ensures that

a) an affirmative judicial finding regarding the existence

of the arbitration agreement; and (b) the administrative

act of appointing the arbitrator are final and non-

appealabe.]

Section 37,which is the appeal provision, was also sought to be

amended as follows:

Amendment of Section 37

20. In section 37,

43

(i) In sub-section (1), renumber sub-clause “(a)” as

sub-clause “(b)” and insert sub-clause “(a)refusing to

refer the parties to arbitration under section 8;”

(ii) In sub-section (1), renumber sub-clause “(b)” as

sub-clause “(d)” and insert sub-clause “(c) refusing to

appoint an arbitrator or refusing to refer such

appointment to a person or institution designated by it

under section 11, in the case of an arbitration other

than an international commercial arbitration”.

[NOTE: Sub-sections (a) and (c) have been added to

provide for appeal in cases of orders refusing to refer

parties to arbitration under section 8 (mirroring the

existing provision in section 50) and to provide an

appeal where the High Court refuses to appoint an

arbitrator respectively.]

(iii) In sub-section (3), after the words “No second

appeal” add the words “, including letters patent

appeal,”

[NOTE: This amendment is clarificatory and reduces

the scope of the party to file an LPA.]

20.It will be seen that when Parliament enacted the 2015

amendment pursuant to the Law Commission Report, it followed

the Scheme of the Law Commission’s Report qua Section 8 and

Section 37 by enacting the words “….. unless it finds that prima

facie no valid arbitration agreement exists……” in Section 8(1)

and the insertion of sub-clause (a) in Section 37(1) providing an

appeal in an order made under Section 8, which refuses to refer

44

parties to arbitration. However, so far as Section 11(6) and

Section 11(6A) are concerned, what was recommended by the

Law Commission was not incorporated. Section 11(6A) merely

confines examination of the Court to the existence of an

arbitration agreement. Section 11(7) was retained, by which no

appeal could be filed under an order made under Section 11(6)

read with Section 11(6A), whether the Court’s determination led

to a finding that the arbitration agreement existed or did not exist

on the facts of a given case. Concomitantly, no amendment was

made to Section 37(1), as recommended by the Law

Commission.

21.However, by a process of judicial interpretation, Vidya Drolia

(supra) has now read the “prima facie test” into Section 11(6A)

so as to bring the provisions of Sections 8(1) and 11(6) r/w

11(6A) on par. Considering that Section 11(7) and Section 37

have not been amended, an anomaly thus arises. Whereas in

cases decided under Section 8, a refusal to refer parties to

arbitration is appealable under Section 37(1)(a), a similar refusal

to refer parties to arbitration under Section 11(6) read with

Sections 6(A) and 7 is not appealable. In the light of what has

45

been decided in Vidya Drolia (supra), Parliament may need to

have a re-look at Section 11(7) and Section 37 so that orders

made under Sections 8 and 11 are brought on par qua

appealability as well.

22.We now come to the facts of the present case. It is first

important to set out the CFSL report dated 29

th

September, 2019,

in which the CFSL found:

“Result of Examination:

It has not been possible to express any opinion

regarding the authorship of questioned signatures

marked A-1 to A-6 in comparison with the standard

signatures marked A-1 to A-11 and S-1 to S-16

attributed to M.G. Stephen, due to the reason that

the model of both the sets of signatures are

different, hence, technically not comparable.”

23.Since, the CFSL did not express an opinion either way, it

became incumbent upon the learned Single Judge to determine

as to whether the Agreement dated 7

th

July, 2014 could have

been entered into given the surrounding circumstances of the

case. As Shri Divan rightly points out, there are no negotiations

which lead upto the 7

th

July, 2014 Agreement that are on record.

Secondly, negotiations that take place take place only after 7

th

46

July, 2014 in which a draft agreement is deliberated upon

between the same parties. It would stretch incredulity to state

that on the same subject matter negotiations and a draft

agreement would be spoken about after a final signed

agreement has been agreed upon between the parties.

Secondly, he rightly points out that the Agreement is notarized in

Faridabad, Haryana, with no explanation worth the name when a

contract is to be executed in Bihar by one of the parties whose

registered office is in Bihar and the other party whose registered

office is in Mumbai. Thirdly, the Notary who is said to have

notarized the Agreement was not licensed to do so the same, his

license having expired earlier, a fact that is accepted even by the

Respondents.

24.Even otherwise, some of the learned Single Judge’s conclusions

are plainly incorrect and against the record. The learned Single

Judge holds:

“39. ….. Admittedly on 22.09.2014, LOI was

awarded to the respondent and on the petitioner

raising an invoice for Rs.25 Lakhs on 27.09.2014,

respondent actually made payment on 29.09.2014.

Counsel for the petitioner has also shown the email

dated 27.09.2014 whereby the respondent had

47

asked the petitioner to raise the invoice on its letter

head…..”

25.This is plainly incorrect in view of the correspondence and

pleadings between the parties, as an invoice was raised on

Process, Process making payment on 29

th

September, 2014 and

not the Appellant. Equally, the finding that a draft Consultancy

Agreement was sent on 15

th

July, 2014 containing an arbitration

clause, parties being ad idem regarding submission of the

disputes to arbitration is also plainly incorrect in view of the fact

that on the same day, an email was sent back in which various

terms were disputed, there being no concluded contract between

the parties. Also, the finding that Process was a sub-contractor

of the Respondent, is contrary to the pleadings between the

parties which, as we have seen, had ranged from Process being

a joint venture partner of the Appellant to Process having

common Directors with the Appellant, and to Process thereafter

being described as the lead partner. Sub-contractor-ship is not

pleaded at all by the Respondent, the aforesaid arising only from

written submissions made before the learned Single Judge.

48

26.The allegation that the Consultancy Agreement of 7

th

July, 2014

had a signature that may not be that of Mr. M.G. Stephen was

brushed aside stating that an arbitration agreement need not be

signed by the parties. That is entirely besides the point. Mr. M.G.

Stephen has sworn to an affidavit filed before the High Court that

the signatures appearing on the 7

th

July, 2014 agreement are not

his signatures, as a result of which the Appellant cannot be said

to have entered into an agreement at all on 7

th

July, 2014.

Again, in paragraph 45, the learned Single Judge’s finding that

there exists an arbitration agreement between the parties as

contained in the “draft agreement” exchanged by email dated 7

th

July, 2014, is incorrect for two reasons. The draft agreement

sent by email was exchanged on 15

th

July, 2014 and not on 7

th

July, 2014. Secondly, the email in reply to the email of 15

th

July,

2014 shows that there was no concluded contract between the

parties. Also, the pleading with which the parties went to Court

was that there was a concluded contract between the parties on

7

th

July, 2014. There was no pleading worthy of the name that

on 15

th

July, 2014, a draft agreement was exchanged between

49

the parties, as a result of which a concluded contract emanated

therefrom.

27.The facts of this case remind one of Alice in Wonderland. In

Chapter II of Lewis Caroll’s classic, after little Alice had gone

down the Rabbit hole, she exclaims “Curiouser and curiouser!”

and Lewis Caroll states “(she was so much surprised, that for the

moment she quite forgot how to speak good English)”. This is a

case which eminently cries for the truth to out between the

parties through documentary evidence and cross-examination.

Large pieces of the jigsaw puzzle that forms the documentary

evidence between the parties in this case remained unfilled. The

emails dated 22

nd

July, 2014 and 25

th

July, 2014 produced here

for the first time as well as certain correspondence between

SBPDCL and the Respondent do show that there is some

dealing between the Appellant and the Respondent qua a tender

floated by SBPDCL, but that is not sufficient to conclude that

there is a concluded contract between the parties, which

contains an arbitration clause. Given the inconclusive nature of

the finding by CFSL together with the signing of the agreement in

50

Haryana by parties whose registered offices are at Bombay and

Bihar qua works to be executed in Bihar; given the fact that the

Notary who signed the agreement was not authorised to do so

and various other conundrums that arise on the facts of this

case, it is unsafe to conclude, one way or the other, that an

arbitration agreement exists between the parties. The prima

facie review spoken of in Vidya Dhrolia (supra) can lead to only

one conclusion on the facts of this case - that a deeper

consideration of whether an arbitration agreement exists

between the parties must be left to an Arbitrator who is to

examine the documentary evidence produced before him in

detail after witnesses are cross-examined on the same. For all

these reasons, we set aside the impugned judgment of the Delhi

High Court in so far as it conclusively finds that there is an

Arbitration Agreement between the parties. However, we uphold

the ultimate order appointing Justice G.S. Sistani, a retired Delhi

High Court Judge as a Sole Arbitrator. The learned Judge will

first determine as a preliminary issue as to whether an Arbitration

Agreement exists between the parties, and go on to decide the

merits of the case only if it is first found that such an agreement

51

exists. It is clarified that all issues will be decided without being

influenced by the observations made by this court which are only

prima facie in nature. The appeal is allowed in the aforesaid

terms.

……………………… J.

(R.F. Nariman)

……………………… J.

(B.R. Gavai)

……………………… J.

(Hrishikesh Roy)

New Delhi.

March 08, 2021.

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