{"id":290615,"date":"2023-04-26T15:00:37","date_gmt":"2023-04-26T09:30:37","guid":{"rendered":"https:\/\/www.scconline.com\/blog\/?p=290615"},"modified":"2023-04-26T17:23:31","modified_gmt":"2023-04-26T11:53:31","slug":"supreme-court-explains-pre-referral-jurisdiction-of-high-court-under-s-11-of-arbitration-and-conciliation-act-legal-research-legal-news-updates","status":"publish","type":"post","link":"https:\/\/www.scconline.com\/blog\/post\/2023\/04\/26\/supreme-court-explains-pre-referral-jurisdiction-of-high-court-under-s-11-of-arbitration-and-conciliation-act-legal-research-legal-news-updates\/","title":{"rendered":"Explained| Supreme Court verdict on scope of Pre-referral jurisdiction of High Court under S. 11 of Arbitration and Conciliation Act"},"content":{"rendered":"
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Supreme Court:<\/b> In an appeal against the decision of Delhi High Court, wherein the Court allowed the respondent’s application under Section 11(6)<\/a> of the Arbitration and Conciliation Act, 1996<\/a> for the constitution of an Arbitral Tribunal, the Division Bench of Dr. DY Chandrachud, C.J. and P.S. Narasimha<\/b>*, J. held that the High Court has committed an error in allowing the application under Section 11(6) of the Act. It ought to have examined the issue of the final settlement of disputes in the context of the principles laid down in Vidya Drolia<\/i> v. Durga Trading Corpn.<\/i>, (2019) 20 SCC 406<\/a><\/p>\n

It is the case of the appellant\/ National Thermal Power Corporation Ltd. (\u2018NTPC\u2019) that there were no subsisting disputes between the parties in view of the settlement agreement and that the application for arbitration is an afterthought and abuse of the process.<\/p>\n

In the case at hand, NTPC and respondent entered a contract for \u201cInstallation Services for Station Piping Package for Simhadri Super Thermal Power Project\u201d. The whole dispute revolves around the solitary act of the NTPC, in not returning the Bank Guarantees despite the successful completion of work.<\/p>\n

In the present case, the Court was concerned with the pre-referral jurisdiction of the High Court under Section 11 of the Act and examined the limited scope within which an application under Section 11(6)12 of the Act has to be considered.<\/p>\n

The Court said that the position of law with respect to the pre-referral jurisdiction, as it existed before the advent of Section 11(6A) in the Act, was based on a well-articulated principle formulated in National Insurance Co. Ltd.<\/i> v. Boghara Polyfab (P) Ltd.<\/i>, (2009) 1 SCC 267<\/a>, wherein it was held that the issue of non-arbitrability of a dispute will have to be examined by the court in cases where accord and discharge of the contract is alleged.<\/p>\n

The Court further said that in a legislative response to these precedents, through the Arbitration and Conciliation (Amendment) Act 2015<\/a>, sub-section (6A) was added to Section 11 of the Act.<\/p>\n

The Court took note of Duro Felguera, S.A.<\/i> v. Gangavaram Port Ltd.<\/i>, (2017) 9 SCC 729<\/a>, wherein it was held that post the 2015 Amendments, the jurisdiction of the court under Section 11(6) of the Act is limited to examining whether an arbitration agreement exists between the parties – \u201cnothing more, nothing less\u201d. However, in United India Insurance Co. Ltd.<\/i> v. Antique Art Exports (P) Ltd.<\/i>, (2019) 5 SCC 362<\/a>, this Court had nevertheless accepted an objection of \u2018accord and satisfaction\u2019 in opposition to an application for reference to arbitration. But this position of law was overruled in Mayavati Trading (P) Ltd.<\/i> v. Pradyuat Deb Burman<\/i>, (2019) 8 SCC 714<\/a>.<\/p>\n

Placing reliance on Vidya Drolia<\/i> (supra), wherein it was held that \u201cthe arbitral tribunal is the preferred first authority to determine and decide all questions of non-arbitrability. As an exception to the rule, and rarely as a demurrer, the referral court may reject claims which are manifestly and ex-facie non-arbitrable.\u201d<\/i> The Court said that the limited scope of judicial scrutiny at the pre-referral stage is navigated through the test of a \u2018prima facie review\u2019, which means that \u201cthe 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. 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\u201d1<\/sup><\/a>.<\/p>\n

Further, the Court said that, the arbitral tribunal is the preferred first authority to determine and decide all questions of non-arbitrability.<\/p>\n

The Court said that the above-referred precedents crystallise the position of law that the pre-referral jurisdiction of the courts under Section 11(6) of the Act is very narrow and inheres two inquiries:<\/p>\n