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Is Arbitrability of a Dispute a Pre Condition for an order under Section 11 of the Act?

Arbitration is a method of resolving disputes outside the traditional court system. It is a form of alternative dispute resolution in which a neutral third party (the arbitrator) is appointed to resolve a dispute between two or more parties. In India, the Arbitration and Conciliation Act, 1996 (hereinafter the act) governs the laws relating to arbitration.

The Act provides a framework for the resolution of disputes through arbitration and aims to encourage the use of arbitration as an alternative to litigation. The growth of the Indian economy, the increasing complexity of commercial disputes and the increasing number of cross-border disputes have all contributed to the increasing popularity of arbitration in India.

Under this act, arbitration is a voluntary process where parties to a dispute agree to resolve their differences through an arbitrator instead of going to court. The decision of the arbitrator is binding on both parties, and the award can be enforced through the court. Arbitration is considered a speedy and cost-effective method of dispute resolution and is widely used in India, especially in the fields of construction, infrastructure, and commercial contracts.

Arbitration in India can be either ad-hoc or institutional. Ad-hoc arbitration refers to arbitration where the parties agree on the appointment of the arbitrator, the procedure to be followed, and the place of arbitration. Institutional arbitration refers to arbitration where the parties agree to refer their dispute to an arbitral institution, such as the Indian Council of Arbitration or the International Chamber of Commerce.

The act provides for the appointment of a single arbitrator or a panel of arbitrators and also lays down the procedure for conducting arbitration proceedings. In situations when the parties are unable to agree on the appointment of an arbitrator, the Act provides for the court to appoint arbitrators.

Section 11 of the Act empowers the Chief Justice or his designate to appoint an arbitrator in case the parties are unable to agree on the appointment of an arbitrator. When discussing the appointment of an arbitrator, it is critical to understand the concept of arbitrability of a dispute, which is the determination of whether or not a dispute may be settled by arbitration.

The Arbitrability Of A Dispute

Arbitrability of a dispute refers to the ability of a dispute to be resolved through arbitration. In other words, it refers to the eligibility of a dispute to be arbitrated as opposed to being resolved through traditional litigation. The concept of arbitrability is of utmost importance in the field of arbitration, as it determines the jurisdiction of the arbitral tribunal to hear and decide a dispute.

In different contexts, the term "arbitrability" has distinct connotations.

The following are three aspects of arbitrability related to the arbitral tribunal's jurisdiction:

whether the disputes, given their nature, are capable of adjudication and settlement by arbitration;
whether the disputes are discussed by the arbitration agreement or fall under the 'excepted matters' eliminated from the scope of arbitration; and
if the parties voluntarily agreed to have their dispute arbitrated.

Non-arbitrable disputes include those arising from criminal offences, matrimonial disputes, testamentary matters, and tenancy matters governed by special laws where tenants have statutory protection. The above examples are of actions in rem. In general, all conflicts concerning rights in personam are arbitrable. On the contrary, any conflicts concerning rights in rem are resolved by public fora such as courts or tribunals.

Therefore, it can be claimed that a dispute must meet specified criteria in order to be declared arbitrable. For instance, there must be a business dispute between the parties, which means that there must be a commercial relationship or transaction involved, no unlawful activity or violation of public policy may be involved in the dispute, and the dispute cannot be one that can only be settled in court, such as in any criminal case, which is not subject to arbitration.

The Arbitrability Of Dispute Is A Pre-Condition For An Order Under Section 11 Of The Arbitration And Conciliation Act, 1996 Or Not.

The question of whether arbitrability is a pre-condition for an order under section 11 of the arbitration and conciliation act 1996 has been a matter of debate for a long time. Some scholars argue that arbitrability is not a pre-condition for an order under section 11 of the act.

While others believe that it is a pre-condition for such an order. According to those who contend that the arbitrability of the issue must be determined before it can be referred to arbitration in order for an order to be valid under Section 11, this step must be completed by the court at the initial stage itself. They contend that before the case is sent to arbitration, the issue of arbitrability must be resolved as a threshold matter.

This is due to the fact that if the dispute cannot be resolved through arbitration, the arbitration agreement will be void and the award will ultimately be revoked by the court in accordance with Section 34(2)(b)(i) and Section 48(2) of the Act. As a result, it can turn out to be a waste of time and money.

On the other hand, those who contend that the arbitrability of a dispute is not a requirement for an order under Section 11 argue that the arbitral tribunal, rather than the court, should decide whether or not a dispute is arbitrable. They contend that the court should be more concerned with the arbitration agreement's legality and enforceability than with whether the dispute can actually be arbitrated.

The Supreme Court of India has also considered this question and has delivered several conflicting judgments on the issue. In some of the decisions, the SC has held that arbitrability is a pre-condition for an order under section 11, while others have held that it is not.

Arbitrability is a pre-condition for an order under section 11:
The argument in favor of arbitrability being a pre-condition for an order under Section 11 of the Arbitration and Conciliation Act, 1996 can be made on several grounds. The determination of arbitrability is a crucial step in ensuring the efficacy of the arbitration process. If a dispute is not arbitrable, the appointment of an arbitrator would be meaningless and the time, resources, and efforts invested in the arbitration process would be wasted. Therefore, the determination of arbitrability must be made before the appointment of an arbitrator to ensure the efficacy of the arbitration process.

The appointment of an arbitrator under Section 11 of the Act is a judicial act. The court must appoint an arbitrator, and that appointment must be made in conformity with the Act's provisions. If the dispute is not arbitrable, the appointment of an arbitrator would be in violation of the provisions of the Act, and the appointment would be void. The jurisdiction of the arbitrator is dependent on the arbitrability of the dispute.

If a dispute is not arbitrable, the arbitrator would not have the jurisdiction to resolve the dispute. To ensure the legitimacy and enforcement of the ruling, the arbitrator's jurisdiction must be specified and clearly defined. It is essential to ascertain whether the issue may be arbitrated in order to assure the efficiency, legitimacy, and fairness of the arbitration process as well as the arbitrator's impartiality. The appointment of an arbitrator and the determination of the arbitrator's jurisdiction are conditions precedent to the appointment of an arbitrator and the validity and enforceability of the arbitral ruling.

In the Vidya Drolia vs. Durga Trading Corporation 5 case, it was decided that in order to determine the extent of the Court's authority under Sections 8 and 11, it must first conduct a primary first review to filter out "manifestly ex facie non-existent and invalid arbitration agreements, or non-arbitrable issues."

The purpose of the prima facie review at the reference stage is to eliminate deadwood in cases where dismissal is blatantly obvious and when, according to the facts and the law, the litigation must end at the preliminary stage. Only where the Court is certain that there is no valid arbitration agreement in effect or that arbitration cannot settle the dispute may it refuse to refer the matter to arbitration.

The Supreme Court ruled in S. B.P. & Co. vs. Patel Engineering Ltd. that the court must decide whether the dispute can be arbitrated before sending it to arbitration. In order for the arbitration agreement to be enforceable and for the arbitral tribunal to have jurisdiction to hear and consider the dispute, the court held that the issue of arbitrability must be resolved as a threshold issue.

The Supreme Court again stated that arbitrability is a prerequisite for an order under section 11 of the Act in Booz Allen and Hamilton Inc. vs. SBI Home Finance Ltd. 7 another significant decision. The court ruled that before referring a case to arbitration, the court must assess whether it can be arbitrated. The arbitral tribunal will not have jurisdiction to hear the case and render a decision if the arbitration agreement is unenforceable, the court further held.

Arbitrability is not a pre-condition for an order under section 11:

The argument against arbitrability being a pre-condition for an order under section 11 of the act is based on the principle that the determination of arbitrability of a dispute is the function of the arbitral tribunal, not the court. It is argued that the Chief Justice or his designate should not make a determination on the arbitrability of a dispute because this would be beyond their jurisdiction.

Arbitrability is not a pre-condition for an order under Section 11 of the Act is that the provision is intended to be a facilitative one. The purpose of Section 11 is to ensure that the appointment of an arbitrator is not delayed in case the parties are unable to agree on the appointment.

If arbitrability was a pre-condition for an order under Section 11, it would defeat the purpose of the provision, which is to provide a quick and efficient method of resolving disputes. The provision does not explicitly mention that the dispute must be arbitrable before the Chief Justice or his designate can make the appointment of an arbitrator.

However, the provision gives the Chief Justice or his designate the discretion to decide the arbitrability of the dispute before making the appointment. It is evident from the language of the provision that the Chief Justice or his designate has the power to appoint an arbitrator even if the dispute is not capable of being resolved through arbitration. This means that the Chief Justice or his designate can appoint an arbitrator even if the dispute is not arbitrable.

The provision gives the court the discretion to decide the arbitrability of the dispute before making the appointment of an arbitrator, and this discretion should not be restricted.

The Supreme Court stated in Duro Felguera, S.A. vs. Gangavaram Port Limited 8 that:
It is clearly obvious from a cursory reading of Section 11(6A) of the Act that the Courts "should and need only examine one factor - the presence of an arbitration agreement." In addition, the Supreme Court stated that in order to make the aforementioned conclusion, "it needs to be examined if the agreement contains a Clause which provides for arbitration relevant to the disputes which have arisen between the parties to the agreement."

In the case of Vidya Drolia, which is post-insertion of Section 11(6A) of the Arbitration Act, it was noted and held that the question of a dispute's non-arbitrability is fundamental for arbitration because it relates to the very jurisdiction of Arbitral Tribunal. In a recent case of Indian Oil Corporation Limited vs. NCC Limited the SC relied upon the decision in the Vidya Drolia case and ruled that even when it is observed that an issue with regard to 'accord and satisfaction' of claims may be considered by a court at the stage of deciding a Section 11 application, it is always advisable and appropriate that in cases of debatable and disputable facts or a reasonably good and arguable case, the same should be left to the arbitral tribunal.

The SC further stated Limited that it is incorrect to imply that since the addition of sub-section (6A) to Section 11 of the Arbitration Act (which was later deleted via the 2019 Amendment Act), the courts' scope of inquiry in Section 11 application has been limited to determining whether or not a binding arbitration agreement exists qua the parties before it that is relevant to the dispute at hand.

Even though the arbitral tribunal may have the jurisdiction and authority to decide the disputes including the question of jurisdiction and non-arbitrability, the same can also be considered by the courts at the stage of deciding a Section 11 application if the facts are clear and glaring and in view of the specific clauses in the contract binding between the parties, whether the dispute is non-arbitrable and/or falls within the excepted clause. The court may also prima facie consider the aspect of 'accord and satisfaction' of claims at the stage of a Section 11 application.

Conclusion
The concept of arbitrability is a crucial aspect of arbitration law in India and has been the subject of much debate and judicial consideration. Given the Supreme Court's consistent stance, it is evident that in the majority of situations when it is ex-facie obvious whether the dispute is arbitrable or not, arbitrability is a prerequisite for an order under section 11 of the Act.

This pre-condition ensures that disputes are referred to arbitration only if they are capable of being resolved through this alternative dispute resolution mechanism. Without a determination on arbitrability, the parties may submit their dispute to arbitration only to learn later that it is not amenable to arbitration and that the judgment delivered is unenforceable. This may result in unnecessary delay, additional expenses, and less effective dispute resolution.

On the other hand, by leaving the decision of arbitrability to the arbitral tribunal, the parties can settle their dispute more conveniently and expeditiously without the needless delays caused by the Court's decision regarding arbitrability. This enhances the effectiveness and efficiency of the arbitration process in India and reinforces the importance of party autonomy in the resolution of disputes.

According to various precedents, it is beneficial if the arbitrability of the dispute is taken into account as a precondition for an order under section 11 since it preserves the interests of the parties and ensures that the dispute is settled in a fair and impartial way. But unless the amendment to the provision is passed, it will continue to be a topic of debate.

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