1. Introductory Remarks

The field of Arbitration has undergone significant judgments that have shaped and particularly influenced the practice of Arbitration, specifically on the Supreme Court’s jurisprudential interpretation of Section 11 of the Arbitration and Conciliation Act, 1996 (hereinafter “the Act”) concerning the appointment of arbitrators. This empowerment to the Supreme Court and the High Courts under the specified circumstances in sub-sections (4) to (12) of Section 11 of the Act is welcome, and it’s for multiple reasons. There cannot be any justification for entrusting statutory duties being performed by the high constitutional functionaries such as the Chief Justice of India and the Chief Justice of High Courts and challenging their judgments on the principle of administrative law. A judicial exercise of the power of the courts is undoubtedly better than the existing provisions.

Section 11(4), (5), (6) of the Act vests the power to appoint arbitrators in the Chief Justice or any other persons or institution designated by him. Considerable controversy has been raised about the nature of the function performed by the Chief Justice in appointing an arbitrator under Section 11 of the Act, establishing the various conditions before he sets, either through administrative or judicial functions. For instance, if the part is administrative, does the Chief Justice need to review the case’s merits? If it’s a judicial function, is it imposing a duty upon the Chief Justice to first determine questions about the existence or validity of the arbitration agreement before appointing an an arbitrator? Furthermore, if it’s judicial, how can it be reconciled with Section 16 of the Act, which vests the power to determine questions in the arbitral tribunal itself, i.e., the principle of kompetenz-kompetenz? These questions are significant as they deal with the fundamental issue of the relationship between judicial systems and the arbitral tribunal in India; further, their answer directly impacts the nature and manner in which international commercial Arbitration is and will be carried out in India. 

1. Interpretations

2.1. In the case National Highways Authority of India v. Sayedabad Tea Company Ltd. & Ors. (2020) 15 SCC 161, where an aggrieved by the compensation determined under sub-section 3-G of the NHAI Act, 1956 can move an application for appointment of an arbitrator to Central Government. In the present case, the Respondent has moved an application u/s 11(6) of the Act for the arbitrArbitrator’sntment. The Court Courtved that,

“19. It is a settled principle of law that when the special law sets out a self-contained code, applying general law would imply being excluded. In the instant case, the scheme of the 1956 Act being a special law enacted for the purpose and for appointment of an arbitrator by the Central Government under Section 3-G(5) of the 1956 Act and sub-section (6) of Section 3-G itself clarifies that subject to the provisions of the 1956 Act, the provisions of the 1996 Act shall apply to every Arbitration obviously to the extent where the 1956 Act is silent, the arbitrArbitratorake recourse in adjudicating the dispute invoking the provisions of the 1996 Act for the limited purpose. But so far as the appointment of an arbitrator is concerned, the power being exclusively vested with the Central Government as envisaged under sub-section (5) of Section 3-G of the 1956 Act, Section 11 of the 1996 Act has no application.”

2.2. In another case, Uttarakhand Purva Sainik Kalyan Nigam Ltd. v. Northern Coal Field Ltd. (2017) 8 SCC 377, the Supreme Court held that tan arbitrator would decide he issue of limitation wased on the doctrine established in Section 16 of the Act and the legislative intent to restrict judicial intervention at the pre-reference stage.

Additionally, it underlined that the Arbitration Act’s legislative objective is for parties to be autonomous and for court intrusion in the arbitration process to be kept to a minimum. It was noted that after an arbitrator has been chosen, all disputes and objections must be resolved by the arbitrArbitratorwing the Arbitration Act’s rules.

According to the Supreme Court, the question of limitation is a jurisdictional one that should be resolved by the arbitrArbitratorection 16 of the Arbitration Act, not the High Court at the pre-reference stage, as provided for in Section 11 of the Arbitration Act.

The Supreme Court pointed out that the arbitrArbitratord resolves all disputes, including those involving jurisdiction, once the arbitration agreement is not in question.

2.3. In this case, Wellington Associated Ltd. v. Mr. Kirit Mehta (2​​000) 4 SCC 272, the question was whether using the word ‘may’ in an arbitration clause made recourse to Arbitration mandatory; the preliminary question raised was that the court Courtot competent to decide upon this issue, as the question directly relates to the existence of the arbitration agreement, this came under S. 16 of the Act as the matter was to be decided by the arbitral tribunal. It was argued that the function exercised by the Chief Justice was administrative. Adjudicating the meaning of the word ‘may’ and, therefore, upon the existence of the arbitration agreement itself would constitute a judicial function. Hence, (it was argued) the matter could not be determined by the Court.Courtte Court Court examined that,

“Section 33 of the Arbitration and Conciliation Act of 1940 gave the Court Courtower the power to rule on the existence and validity of arbitration agreements. It observed that several cases under the old Act had expressly held that these questions were for the Court Courtside and not for the arbitration tribunal unless expressly agreed by the parties.CourtCourt Courtted that this disability upon the powers of the arbitral tribunal had been removed by the insertion of Section 16 of the Act but also pointed out that Section 16 was an enabling provision.” 

The Court Courter observed that,

“Section 16, while conferring the power to decide questions of the existence of the arbitration agreement upon the arbitral tribunal, did not declare that no one else could determine such a question. Therefore,CourtCourt Courted that Section 16 did not remove the Chief Justice's jurisdiction on questions of existence or validity. The Court Courton makes repeated observations about how it would be “absurd” to allow the arbitral tribunal to decide questions relating to its jurisdiction (for such would be the direct effect of determining questions of existence or validity.”

2.4. Parsoli Motor Works v. BMW India Pvt. Ltd. 2018 SCC OnLine Del 6556

The power to grant injunctive relief under Section 9 of the Arbitration and Conciliation Act. Injunctions that cannot be granted under Section 41 of the Specific Relief Act, including those that would enforce a determinable contract or could adequately be compensated with monetary damages at the final stage of dispute resolution, cannot be granted under Section 9 of the 1996 Act either.

This ensures that injunctive relief in support of arbitration proceedings is granted judiciously and aligns with the efficient and expeditious nature of Arbitration as a dispute resolution mechanism.

2.5. Government of Maharashtra v. Borse Brothers Engineers & Contractors Pvt. Ltd. (2020) 4SCC 234, the Supreme Court’s ruling clarified the application of the Commercial Courts Act to appeals under Section 37 of the Arbitration Act based on the specified value. It also established the limitation periods under the Limitation Act for requests outside the Commercial Courts Act’s scope. The Court Courter emphasized that delays in filing appeals should only be excused in exceptional circumstances, requiring the party seeking an extension to demonstrate good faith and the potential loss of equity and justice. These clarifications guide parties involved in arbitration proceedings and promote the timely and efficient resolution of disputes. 

The Court ProvideCourtential clarification on the limitation time for submitting appeals under Section 37 of the Arbitration Act and condoned delays in filing such appeals, focusing on the underlying goal of quick dispute resolution.

The Court made comprehensive observations on the subject, considering the relevant legal rules and the importance of adhering to deadlines, particularly in business disputes.

Furthermore, in keeping with the principle of “equality before the law,” the Court Tried to treat all parties participating in commercial activity equally by adopting the same yardstick to postpone condonation in instances involving public-sector businesses. The Supreme Court has made another commendable and forward-thinking effort in arbitration and commercial disputes.

2.6. In Booz Allen & Hamilton Inc. v. SBI Home Finance Ltd. (2011), 5 SCC 532  has recognized some examples of disputes that are not arbitrable and held as under:

“36. The well-recognized examples of non-arbitrable disputes are (i) disputes relating to rights and liabilities which give rise to or arise out of criminal offenses; (ii) matrimonial disputes relating to divorce, judicial separation, restitution of conjugal rights, child custody; (iii) guardianship matters; (iv) insolvency and winding-up matters; (v) testamentary matters (grant of probate, letters of administration and succession certificate); and (vi) eviction or tenancy matters governed by special statutes where the tenant enjoys statutory protection against eviction and only the specified courts are conferred jurisdiction to grant eviction or decide the disputes.”

2.7. M/s NN Global Mercantile Pvt Ltd. v. M/s Indo Unique Flame Ltd. & Ors., MANU/SC/0014/2021, the main issue that arose before the Court Courthether a contract could proceed before complying with the mandatory provision of the Stamp Act. In pursuance of this, the court Courtverruled the judgment passed in the SMS TeaCourttes and Garware case and observed as follows:

“29. We hold that since the arbitration agreement is an independent agreement between the parties and is not chargeable to payment of stamp duty, the non-payment of stamp duty on the commercial contract would not invalidate the arbitration clause or render it unenforceable since it has an independent existence of its own. The view taken by the Court Courte the on the issue of separability of the arbitration clause on the registration of the substantive contract ought to have been followed, even concerning the Stamp Act. The non-payment of stamp duty on the substantive contract would not invalidate the main contract. It is a deficiency curable on paying the requisite stamp duty.”

However, the 5-judge bench in NN Global Mercantile Pvt. Ltd. v. Indo Unique Flame Ltd. & Ors. (2023) 7 SCC held that the 3-Judge Bench was wrongly decided when it had to the contrary and overruled SMS Tea Estate and Garware case judgment and further held as under:

“166. An arbitration agreement, within the meaning of Section 7 of the Act, which attracts stamp duty and which is not stamped or insufficiently stamped, cannot be acted upon, in view of Section 35 of the Stamp Act, unless following impounding and payment of the requisite duty, necessary certificate is provided under Section 42 of the Stamp Act.

“167. We further hold that the provisions of Section 33 and the bar under Section 35 of the Stamp Act, applicable to instruments chargeable to stamp duty under Section 3 read with the Schedule to the Stamp Act, would render the arbitration agreement contained in such instrument as being non-existent in law unless the instrument is validated under the Stamp Act.”

1. Developments

On 26 September 2023, the Supreme Court of India, led by a five-judge bench headed by Chief Justice DY Chandrachud, referred the crucial issue of whether unstamped or insufficiently stamped arbitration agreements are enforceable to a seven-judge bench. This decision came during the consideration of a curative petition challenging its 2020 decision in M/s Dharmaratnakara Rai Bahadur Arcot Narainswamy Mudaliar Chattram & Other Charities v. M/s Bhaskar Raju & Brothers 2020 SCC OnLine SC 183, had rendered arbitration clauses in insufficiently stamped agreements unenforceable. The Supreme Court recognized the substantial significance of this issue, which had created uncertainty in arbitration law and led to the reopening of older agreements. Significantly, the Supreme Court renamed the curative petition case as “In Re Interplay between Arbitration Agreements under the Arbitration and Conciliation Act 1996 and the Indian Stamp Act 1899,” indicating that the Supreme Court is cognizant of the need for a more comprehensive examination of the implications of N N Global on India’s position as an arbitration hub. The hearing of the curative petition has been concluded, and the Supreme Court has reserved judgment.

The case of S.B.P. & Co. v. Patel Engineering and Anr. AIR 2006 SC 450 came up before a seven-judge bench of the Supreme Court through a series of civil appeals questioning the judgments in Mehul Constructions and Rani Constructions. 

The court ruled that Section 11(7) of the ChieCourttice’s final statute created an authority vested in the power to adjudicate upon the matter and make its decision final; the decision cannot said to be purely administrative. 

The Court reasoned that “unless the authority satCourts itself that the conditions for the exercise of its power exist, it cannot accede to a request made to it for the exercise of the conferred power.” (emphasis supplied).

Addressing the obvious question about the impact on the principle of kompetenz-kompetenz, the Court that it would be ‘difficult’ and ‘incongruous’ to say that despite the decision of the Chief Justice being ‘final,’ the arbitral tribunal could still go ahead and rule on its jurisdiction, or that once the had appointed an arbitral tribunal, the tribunal could hold that the did not have the authority to appoint it. The Court Courtted the reconciliation that Section 16 wouldCourt effect only when Section 1 is resorted.

1. Arbitration in fraudulent matters

Arbitration is considered one of India's most successful dispute-resolution methods. However, concerning the fraud u/s 17 of ICA, 1872, can parties approach the Arbitration tribunal to resolve fraudulent cases? As already mentioned in the Booze Allen case, it was observed that this method of dispute resolution suffers from various limitations. The Supreme Court, while propounding the three-prolonged test of determining arbitrability, bifurcated the disputes into dealing with rights in rem and right in personam and held that the latter were arbitrable. In contrast, the former was not arbitrable as they have the potential to affect society at large.

In the case Abdul Kadir Shamsuddin Bubrere v. Madhav Prabhakar Oak, (1962) 3 SCR 702, where the court Court that,

“13. There is no doubt that where serious allegations of fraud are made against a party and the party who is charged with fraud desires that the matter should be tried in open court, Court would be a sufficient cause for the court Courto Court  Courtbitration agreement to be filed and nCourt make the reference. But it is not every allegation imputing some dishonesty, particularly in matters of accounts, which would be enough to dispose a court to take the matter out of the forum that the parties themselves have chosen. This is clear even from the decision in Russel case [1880 14 Ch D 471].” 

The  Supreme Court, again in N. Radhakrishnan v. Maestro Engineers 2009 (13) SCALE 403, held that an issue of fraud is not arbitrable as the case involved serious allegations of fraud, and such disputes were to be settled by the courts through detailed evidence led by both parties. In addition to this, the Court Court emphasized that the dispute would be non-arbitrable on public policy cCourteration if it were related to severe allegations of fraud and further observed that:

“Concerning the fraud made in the contract by either of the parties, can way of Arbitration adjudicate such a matter? The Court Courto determine whether such a case falls within the jurisdiction of the ArbitrArbitratorif it does, whether the procedural requirements under Sec 8(2) of the Act have been complied with. In this case, the Court dismissed the appeal due to non-compliance with Sec 8(2) of the Act.”

In Courtyasamy v. A. Paramasivam (2016) 10 SCC 386, while dealing with the issue of a mere allegation of fraud in the pleadings by one party against the other, cannot be a ground to hold that the matter is incapable of settlement by Arbitration and should be decided by the civil court. The Court Supreme Court has held that mere allegations of fraud simpliciter maCourt be grounds to nullify the effect of Arbitration between the parties. It is only in those cases where the court, Courte dealing with S. 8 of the Act, finds that there are grave allegatiCourtf fraud that make a virtual case of criminal offense or where allegations of fraud are so complicated that it becomes essential that such complex issues can be decided only by the civil court Courte appreciation of the voluminous evidence. 

Further, in Rashid RazCourtSadaf Akhtar (2019) 8 SCC 710, two tests were laid down by the Supreme Court about what constitutes complex fraud. The two tests are a) Does this plea permeate the entire contract and, above all, the agreement of Arbitration, rendering it void, or b) whether the allegations of fraud touch upon the internal affairs of the parties and se not imply the public domain. 

The Supreme Court in Avitel Post Studioz Ltd. & Ors. v. HSBC PI Holdings (Mauritius) Ltd. (2021) 4 SCC 713 observed that “serious allegations of fraud” arise only if either of the two tests laid down are satisfied and not otherwise. The first test is satisfied only when it can be said that the arbitration clause or agreement itself cannot be said to exist in a clear case in which the court Court that the party against whom the breach is alleged cannot be said to have entered into the agreement relating to Arbitration at all. The second test can be said to have been met in cases in which allegations are made against the State or its instrumentalities of arbitrary, fraudulent, or mala fide conduct, thus necessitating the hearing of the case by a writ court in which questions are raised which are not predominantly questions arising from the contract itself or breach thereof, but questions arising in the public law domain.

Recently, the  Supreme Court in Vidya Drolia v. Durga Trading Corpn. (2019) 20 SCC 406 held that allegations of fraud are arbitrable when they relate to a civil dispute and exclude only those claims which vitiate and render the arbitration clause invalid. The Court Courtzed that Arbitration is a private dispute resolution mechanism that aCourto secure just, fair, and effective resolution of disputes in a reasonable manner. The Court Ruled on the distinction between matters that deal with right in rem and rCourtin personam. 

1. Limitations under the Arbitration and Conciliation Act 2019

In case B & T AG v. Ministry of Defence 2023 SCC OnLine SC 657,  the Court, Courte dealing with the issue of limitation and what constitutes a cause of action, the court Court as under:

“72. Whether any particular facts constitute, a cause of action has to be determined with reference to the facts of each case and with reference to, the substance, rather than the form of the action. If an infringement of a right happens at a particular time, the whole cause of action will be said to have arisen then and there. In such a case, it is not open to a party to sit tight and not file an application for settlement of dispute of his right, which had been infringed, within the time provided by the Limitation Act, and allow his right to be extinguished by lapse of time, and thereafter, to wait for another cause of action and then file an application under Section 11 of the Act 1996 for establishment of his right which was not then alive, and, which had been long extinguished because, in such a case, such an application would mean an application for revival of a right, which had long been extinguished under the Act 1963 and is, therefore, dead for all purposes. Such proceedings would not be maintainable and would obviously be met by the plea of limitation under Article 137 of the Act 1963.