Can courts examine the arbitrability of a dispute or restrict themselves to determining the availability of an arbitration agreement? The Supreme Court has decided in favour of the former.

Since courts had excessive powers in deciding on the arbitrability of a dispute, cases piled up. The 246th law commission report called for ways to end the excessive delays that were defeating the purpose of alternative dispute resolution. This brought about the 2015 amendments to the Arbitration and Conciliation Act, adding sub-section (6A) to Section 11 of the act.

The sub-section restricted the court’s power of inquiry under Section 11 to merely determining the existence of an arbitration agreement.

Several ensuing case laws upheld the restriction of the court’s powers until the Supreme Court was faced with this question again in the case of Indian Oil Corporation Limited vs NCC Limited on July 20, 2022.

In this case, there was an agreement that “notified claims” would be referred to arbitration and any other dispute arising from the contract would be resolved through court proceedings. The apex court held that the Delhi High Court had misinterpreted the arbitration clause of the agreement and erred in ruling that the claims would be covered by the arbitration agreement even though they were specifically excluded under the category of “excepted matters”.

The Supreme Court, in Duro Felguera and Gangavaram Port Limited, clarified that the court’s jurisdiction is limited in such proceedings. In Vidya Drolia vs Durga Trading Corporation, the court reaffirmed that the arbitral tribunal is the preferred first authority to decide on non-arbitrability. The court’s role is to uphold the integrity and effectiveness of arbitration, and it should avoid mini-trials or complex reviews that usurp the tribunal’s competence.

In the DLF Home Developers vs Rajapura Homes case, it was held that the court’s primary duty is to identify the existence of an arbitration agreement and determine if the issue in dispute is arbitrable. However, if circumstances indicate that the matter is non-arbitrable, courts may intervene and prevent further arbitration, as seen in the IOCL case.

In the IOCL vs NCCL case, there has been some amount of perspicuity in the present conundrum. The Supreme Court has interpreted the amendment in such a way that, even though the court is only meant to have a “second look” at the arbitral award, when there is, prima facie, a non-arbitrable issue (or it has been excluded as an arbitrable issue in the contract), it is the right of the court to dissolve the arbitration proceedings at that very stage and not proceed with the appointment of an arbitrator.

There is a thin line of demarcation between the court performing its duty and overstepping the role of an arbitrator. The subject of the dispute must be “demonstrably non-arbitrable” to invoke judicial intervention.

If an arbitration agreement is the only deciding factor to refer a dispute to arbitration, then hundreds of cases will end up in alternative dispute resolution, which in turn will defeat its purpose.

(The writer is a law student)

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