Court can decline prayer for reference to arbitration if dispute does not correlate to existing arbitration agreement: Supreme Court

  • Lawbeat News Network
  • 12:10 PM, 24 Sep 2021

The Supreme Court has held that prayer for reference to arbitration under Section 11 of the Arbitration and Conciliation Act can be declined if the dispute in question does not correlate to the existing arbitration agreement.

Relying on the decision of the Court in Vidya Drolia and Others v. Durga Trading Corporation, a Division bench of Chief Justice of India NV Ramana and Justice Surya Kant observed,

“To say it differently, this Court or a High Court, as the case may be, are not expected to act mechanically merely to deliver a purported dispute raised by an applicant at the doors of the chosen Arbitrator. On the contrary, the Court(s) are obliged to apply their mind to the core preliminary issues, albeit, within the framework of Section 11(6-A) of the Act. Such a review, as already clarified by this Court, is not intended to usurp the jurisdiction of the Arbitral Tribunal but is aimed at streamlining the process of arbitration. Therefore, even when an arbitration agreement exists, it would not prevent the Court to decline a prayer for reference if the dispute in question does not correlate to the said agreement.”

The court was hearing a plea moved by DLF Home Developers Limited under Section 11(6) read with Section 11(12) of the Arbitration and Conciliation Act, for appointment of sole arbitrator to adjudicate differences between itself and the respondents, Rajapura Homes Private Ltd.

In its judgement, the court also went through Section 11 (appointment of arbitrators) of the Arbitration and Conciliation Act, 1996 and said that the jurisdiction of this court under Section 11 is primarily to find out whether there exists a written agreement between the parties for resolution of disputes through arbitration and whether the aggrieved party has made out a prima facie arbitrable case.

However, it said that the limited jurisdiction does not denude the court of its judicial function to look beyond the bare existence of an arbitration clause to cut the deadwood.

The court then opined that the foremost question in the present matter would be whether the nature of dispute sought to be referred for arbitration in these petitions falls under the Arbitration Clause(s) of RCMA and SCMA, governed by the Act.

The court noted that the parties have neither denied that there is no 'arbitrable dispute' between them nor have they challenged the existence of the arbitration clause(s) in the Construction Management Service Agreements. The nature of disputes that have arisen between the parties can be adjudicated in the arbitral proceedings, the court said.

“At the cost of repetition, we may re-iterate that the Parties have neither denied that there is no ‘arbitrable dispute’ between them nor have they challenged the existence of the arbitration clause(s) in the Construction Management Service Agreements. Considering that the primary twin-test envisioned under Section 11(6) of the Act has been satisfied by the Petitioner-DHDL, we are of the view that the instant application(s) are maintainable. The nature of disputes that have arisen between the parties, thus, can be adjudicated in the arbitral proceedings under Clause 11 of the RCMA and SCMA.”

On the question whether the disputes should be referred to a consolidated and composite tribunal or there should be two different arbitral tribunals to resolve the same, the court said,

“…it would be necessary for the sake of avoiding wastage of time and resources, and to avoid any conflicting awards, that the disputes under Arbitration Petition No.17 and Arbitration Petition No.16 are referred to a sole Arbitrator. We leave it to the wisdom of the sole arbitrator to decide whether the disputes should be consolidated and adjudicated under one composite award or otherwise. The modalities and manner in which the two separate arbitral proceedings shall be conducted shall also be resolved by the sole arbitrator."

In conclusion, the court appointed Justice (Retd.) R.V. Raveendran, Former Judge, Supreme Court of India as the sole arbitrator to resolve all disputes/differences between the parties.

Case Name: DLF Home Developers Limited vs. Rajapura Homes Private Limited