Scope of Referral Jurisdiction of Courts U/s. 11 of Arbitration Act

The scope of a High Court's jurisdiction in arbitration, particularly at the referral stage (under Section 11 of the Arbitration and Conciliation Act, 1996), is limited. It primarily focuses on determining the prima facie existence of a valid arbitration agreement, not on delving into the merits of the dispute. The court's role is to ensure the existence of an agreement to arbitrate and, in some cases, to examine if the claim is manifestly non-arbitrable or hopelessly time-barred.

The High Court's power under Section 11(6) of the Arbitration Act is restricted to examining whether an arbitration agreement exists between the parties. This does not involve a detailed examination of the merits of the dispute.

The Supreme Court has time and again affirmed that a court’s jurisdiction at a referral stage under Arbitration Petition is limited and is restricted by the doctrine of kompetenz–kompetenz, which allows the arbitral tribunal to rule on its jurisdiction.

The Supreme Court, in its recent judgment in SBI General Insurance Co. Ltd. Vs. Krish Spinning, has comprehensively explained the scope and standard of judicial scrutiny while adjudicating an application under section 11 of the Arbitration and Conciliation Act, 1996. The Court retraced the existing jurisprudence on the scope of interference under section 11 of the Act to further restrict the scope afforded to courts while referring disputes to arbitration. The Hon’ble Apex court held as:

133. Thus, we clarify that while determining the issue of limitation in exercise of the powers under Section 11(6) of the Act, 1996, the referral court should limit its enquiry to examining whether Section 11(6) application has been filed within the period of limitation of three years or not. The date of commencement of limitation period for this purpose shall have to be construed as per the decision in Arif Azim (supra). As a natural corollary, it is further clarified that the referral courts, at the stage of deciding an application for appointment of arbitrator, must not conduct an intricate evidentiary enquiry into the question whether the claims raised by the applicant are time barred and should leave that question for determination by the arbitrator. Such an approach gives true meaning to the legislative intention underlying Section 11(6-A) of the Act, and also to the view taken in In Re: Interplay Between Arbitration Agreements under the Arbitration and Conciliation Act 1966 and the Indian Stamp Act 1899 reported in 2023 INSC 1066.

To sum up, SBI General Insurance Co. Ltd. Vs. Krish Spinning, remoulds the existing jurisprudence on section 11 by limiting the scope of examination at the referral stage to only the prima facie existence of an arbitration agreement. This ruling is instrumental in reducing the burden on courts to keep section 11 applications pending for preliminary evidentiary inquiry. As a matter of practice, many litigants oppose the appointment of an arbitrator by taking defences such as disputes not being arbitrable or barred by limitation. In essence, the objections raised by such litigants are like examining the merits of the dispute.

The decision of the Supreme Court in the matter of SBI General Insurance Co. Ltd. Vs. Krish Spinning has not only clarified the position of law but has also paved the way for expeditious disposal of the applications filed under section 11 of the Act.

The decision of the Supreme Court in the matter of Magic Eye Developers Vs. Green Edge Infra Sructure Pvt. Ltd. & Ors, (2023)8 Supreme Court Cases 50 has also held that the dispute with respect to the existence and validity of an arbitration agreement is concerned and when the same is raised at pre-referral stage, the Referral Court has to decide the said issue conclusively and finally should not leave the said issue to be determined by the Arbitral Tribunal. The reason is that the issue with respect to the existence and validity of an arbitration agreement goes to the root of the matter.

The scope of referral under section 11 has undergone numerous and frequent changes over time through legislative amendments and judicial pronouncements. In an attempt to put a stop to the conflicting decisions ‘referral jurisprudence’, the Supreme Court affirmed that a court’s jurisdiction at a referral stage is limited and is restricted by the doctrine of kompetenz–kompetenz, which allows the arbitral tribunal to rule on its jurisdiction.

The Court referred to Konkan Railway Corporation Ltd. v. Rani Construction Pvt. Ltd , which held that the power under section 11 of the Act is merely an administrative one which restricts judicial interference at a pre-referral stage, and the decision of SBP & Co v. Patel Engineering Ltd. which overruled Konkan Railway Corporation, and expanded the scope of sections 8 and 11. SBP & Co. was relied on in Boghra Polyfab v. National insurance Company Ltd.. Both decisions rendered a conclusion that expanded the scope of judicial interference while referring to a matter for arbitration. The legislature observed that this expansive scope was causing delays in referring the matters to arbitration and, therefore, introduced section 11(6-A) to the Act, which limited the scope of judicial interference at a pre-referral stage only to examining the “existence” of an arbitration agreement.

After this amendment, the Supreme Court, in Vidya Drolia v. Durga Trading Corporation, limited the interference of the court under section 11 to cases where it was ex-facie certain that the arbitration agreement was non-existent or invalid. While holding this view, the Court also expanded the scope of judicial interference by ruling that the court could also examine the question of the arbitrability of disputes at this referral stage. However, it clarified that such interference at the referral stage should be used consciously and only in exceptional circumstances. The intent behind such reasoning, among other things, was “to cut off the deadwood” and “to prevent wastage of public and private resources” by dismissing an ex-facie non-arbitrable dispute at the referral stage.

The decision in Vidya Drolia differed, to some extent, from the view taken in the earlier decisions of the Supreme Court in Duro Felgura v. Gangavaram Port Ltd. and Mayavati Trading v. Pradyuat Deb Burman which held that a referral court could not venture into questions apart from determining the prima facie existence of an arbitration clause. Further, in NTPC v. SPML, the Supreme Court, in the context of “accord and satisfaction”, propounded the test of the “eye of the needle” to examine claims under section 11. It presented a two-pronged test at the stage of referral:

The first prong examines the “existence and validity” of an arbitration agreement. The second prong of the test requires the court to examine claims that are “ex-facie and manifestly” non-arbitrable and meritless. In effect, the decision in NTPC ended up doing what the Court in Duro Felgura and Mayawati sought to avoid, i.e., courts venturing, at the reference stage, superficially into the merits of the dispute between the parties.

The referral court should leave it for the Arbitral Tribunal to decide whether the non-signatory party is indeed a party to the arbitration agreement… This interpretation also gives true effect to the doctrine of competence-competence.

In essence, the High Court's role in arbitration, particularly at the referral stage, is limited to ensuring the existence of a valid arbitration agreement and, in some instances, identifying manifestly non-arbitrable or time-barred claims. The tribunal ultimately decides on the merits of the dispute.

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