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A the Court (see paragraph 5 which records the contention) but was rejected for several reasons, including the reasoning given in Patel Engineering Ltd., to hold that it is difficult to accede to the argument that Section 16 of the Arbitration Act makes it clear that an arbitration agreement has an independent existence of its own. Secondly, on the connect between existence and validity of an arbitration agreement, it was observed: B “20. Looked at from a slightly different angle, an arbitration agreement which is contained in an agreement or conveyance is dealt with in Section 7(2) of the 1996 Act. We are concerned with the first part of Section 7(2) on the facts of the present case, and therefore, the arbitration clause that is contained in the sub-contract C in question is the subject-matter of the present appeal. It is significant that an arbitration agreement may be in the form of an arbitration clause “in a contract”.

21. Sections 2(a), 2(b), 2(g) and 2(h) of the Contract Act, 1872 (the Contract Act) read as under: D “2. Interpretation clause.—In this Act the following words and expressions are used in the following senses, unless a contrary intention appears from the context— (a) When one person signifies to another his willingness to do or to abstain from doing anything, with a view to obtaining the assent of that other to such act or abstinence, he is said to make a proposal; (b) When the person to whom the proposal is made signifies his assent thereto, the proposal is said to be accepted. A proposal, when accepted, becomes a promise; xx xx xx (g) An agreement not enforceable by law is said to be void; (h) An agreement enforceable by law is a contract;

G 22. When an arbitration clause is contained “in a contract”, it is significant that the agreement only becomes a contract if it is enforceable by law. We have seen how, under the Stamp Act, an agreement does not become a contract, namely, that it is not enforceable in law, unless it is duly stamped. Therefore, even a plain reading of Section 11(6-A), when read with Section 7(2) of the 1996 Act and Section 2(h) of the Contract Act, would make it

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clear that an arbitration clause in an agreement would not exist when it is not enforceable by law. This is also an indicator that SMS Tea Estates has, in no manner, been touched by the amendment of Section 11(6-A).” Thereafter, reference was made to paragraph 83 in Enercon (India) Ltd. v. Enercon GmbH55 wherein the concept of separability of arbitration clause or agreement from the underlying contract was dealt with, and it was observed that it is necessary to ensure that the intention of the parties does not evaporate into thin air when there is a challenge to the legality, validity, finality, or breach of the underlying contract. This is the mandate of Section 16 of the Arbitration Act which accepts the concept that the main contract and the arbitration agreement form two different contracts. It is true that support of the national courts would be required to ensure the success of arbitration but this would not detract from the legitimacy or independence of the collateral arbitration agreement even if it is contained in a contract, which is claimed to be void or voidable or un-concluded. However, this judgment was distinguished in Garware Wall Ropes Limited as a case relating to the controversy whether an arbitration clause was to apply even if there is no concluded contract, but the finding was to the contrary as the case was within the second part and not under the first part of Section 7(2) of the Arbitration Act. In Enercon (India) Ltd., on facts it was held that the arbitration clause was separate from the main contract as the disputes relating to the intellectual property right license agreement were arbitrable. Thereafter, reference was made to the decision in United India Insurance Co. Ltd. v. Hyundai Engg. & Construction Co. Ltd.56 and it was observed that the arbitration clause was identical as in Oriental Insurance Company Limited v. Narbheram Power and Steel Private F Limited57 with the conditional expression of intent only when the liability was unequivocally admitted by the insurer and the dispute was related to the quantum to be paid under the policy. On the question of ‘existence’ and ‘validity’, the Bench held: “29. This judgment in Hyundai Engg. case is important in that G what was specifically under consideration was an arbitration clause which would get activated only if an insurer admits or accepts liability. Since on facts it was found that the insurer repudiated the 55 (2014) 5 SCC 1 : (2014) 3 SCC (Civ) 59 56 (2018) 17 SCC 607 : (2019) 2 SCC (Civ) 530 57 (2018) 6 SCC 534 H

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A claim, though an arbitration clause did “exist”, so to speak, in the policy, it would not exist in law, as was held in that judgment, when one important fact is introduced, namely, that the insurer has not admitted or accepted liability. Likewise, in the facts of the present case, it is clear that the arbitration clause that is contained in the sub-contract would not “exist” as a matter of law until the B sub-contract is duly stamped, as has been held by us above. The argument that Section 11(6-A) deals with “existence”, as opposed to Section 8, Section 16 and Section 45, which deal with “validity” of an arbitration agreement is answered by this Court’s understanding of the expression “existence” in Hyundai Engg. C case, as followed by us.”

69Copy pinpoint69. In Narbheram Power and Steel Private Limited, a three Judges’ Bench of this Court had decided the Civil Appeal arising from an application under Section 11(6) of the Arbitration Act in an insurance contract. Primarily relying upon the decision of three Judges’ Bench in D Vulcan Insurance Co. Ltd. v. Maharaj Singh and Another,58 it was held that the disputes were not arbitrable as in terms of the arbitration clause as the insurer had disputed and not accepted the liability. The arbitration clause applies only if there is a dispute pertaining to the quantum. This decision, though dated 2nd May 2018, did not refer to Section 11(6-A) of the Arbitration Act and interpret the same. The Civil E Appeal had arisen from the correspondence exchanged between the insurance company and the insured in the years 2013 and 2014. However, reference was made to the concurring opinion of Dr. D.Y. Chandrachud, J. in A. Ayyasamy, and it was observed that the decision was not applicable to the case at hand. The decision in Chloro Controls India F Private Limited was held to be not remotely relevant for deciding the lis in the said case.

70Copy pinpoint70. This decision in Narbheram Power and Steel Private Limited was followed in Hyundai Engg. & Construction Co. Ltd., wherein a similar arbitration clause had come up for consideration. However, in this G case, reference was made to Section 11(6-A) of the Arbitration Act. It is, therefore, clear that on two occasions, in Narbheram Power and Steel Private Limited and Hyundai Engineering and Construction Company Limited, a three Judges’ Bench of this Court affirmatively and in clear terms held that the question of non-arbitrability relating to 58 H (1976) 1 SCC 943

VIDYA DROLIA AND OTHERS v. 1105 DURGA TRADING CORPORATION [SANJIV KHANNA, J.]

the enquiry whether the dispute was governed by the arbitration clause, A can be examined by the courts at the reference stage and may not be left unanswered to be examined and decided by the arbitral tribunal. These are decisions by a Bench of three Judges and, as noticed above, were quoted with affirmation in Garware Wall Ropes Limited by a Bench of two Judges. B

71Copy pinpoint71. In M/s. PSA Mumbai Investments PTE. Limited v. The Board of Trustees of the Jawaharlal Nehru Port Trust and Another,59 a division bench of this Court, after referring to in detail the global invitation of request for qualification and the request for proposal, came to the conclusion that the arbitration clause in the request for qualification documents would not be applicable and govern the disputes. Therefore, C the respondent was left to pursue its claim before an appropriate forum, in accordance with law. The decision was made at the first or the referral stage.

72Copy pinpoint72. At this stage we would like to refer to different views expressed by scholars on the subject, which also refer to the legal position in different countries. Stavros Brekoulakis in his paper titled On Arbitrability: Persisting Misconceptions and New Areas of Concern accepts that as per prevailing view in-arbitrability of the subject matter of the arbitration agreement renders the arbitration agreement invalid. However, he argues that in-arbitrability of the subject matter is an issue concerning jurisdiction of arbitral tribunal rather than the validity of the arbitration agreement. Referring to Article V(1)(a) and Article V(2)(a) of the New York Convention, he draws a distinction between in-arbitrability and invalidity. Arbitration agreements are sui generis contracts with both contractual and jurisdictional features. The latter is wider in scope. The courts at the referral stage may review only whatever is related to the formation of the arbitration agreement as a substantive contract, that is, contractual aspects of the arbitration agreement and jurisdictional aspects of the arbitration agreement should be left to the arbitral tribunal. In other words, at the stage of referral, the courts may review only whatever is related to the formation of the arbitration agreement (the contractual aspects of the arbitration agreement) and the issues relating to the jurisdictional aspects of the arbitration agreement, which as per the author includes the question relating to non-arbitrability of the claims, should be under the exclusive jurisdiction of the arbitral tribunals. Thus, distinction 59 Civil Appeal No. 9352 of 2018 decided on 11th September 2018. H

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A is drawn between validity in terms of substantive and formal validity of an arbitration agreement as contractual aspects; and whether a claim is non-arbitrable. The latter question would be arbitrable and not for the courts to decide at the referral stage. However, on referring to Articles II(1) and II(3) of the New York Convention the author did observe that it seems to include arbitrability of subject matter within the essential meaning of an arbitration agreement.

73Copy pinpoint73. Emmanuel Gaillard and Yas Banifatemi in Negative Effect of Competence-Competence: The Rule of Priority in Favour of the Arbitrators observe that it is the basic requirement that the parties to the arbitration agreement should honour their undertaking to submit to the arbitration any dispute covered by the agreement. This entails the consequence that the courts are prohibited from hearing such disputes. On the question of courts’ interference at the reference stage in terms of Article II(3) of the New York Convention, they are of the opinion that there is no indication provided as to the standard that should be applied for such determination, that is, whether the courts are required to conduct in-depth investigation into the merits of the existence and validity of the arbitration agreement and issue a final decision on the question, or the court should restrict itself to prima facie verification that the arbitration agreement exists and is valid, and reserve its full review until the time when there is an action to enforce or set aside the arbitral award. The E question, in effect, is one of timing and to the extent the courts are entitled to review the existence and validity of the arbitration agreement. The answer, they observe, is found in the notion of competence- competence, one of the founding principles of the international arbitration law that provides the arbitrators with power to rule on their own jurisdiction and embodies the mirroring effect that the court should refrain from engaging in examination of the arbitrator’s jurisdiction before the arbitrators themselves have an opportunity to do so. This, they state, by no means suggests that the domestic courts relinquish their power to review the existence and validity of an arbitration agreement which is first left to the arbitrators to rule. The courts enjoy the power of scrutiny after the award is rendered. They have referred to decisions of the higher courts of Switzerland,60 England, France, Canada and India (Shin- 60 Article 5 of the Concordat (domestic law) provides that any dispute concerning rights the parties may freely dispose of is capable of resolution by arbitration, unless the subject matter of the dispute falls within the exclusive jurisdiction of a state authority by virtue of mandatory law.

VIDYA DROLIA AND OTHERS v. 1107 DURGA TRADING CORPORATION [SANJIV KHANNA, J.]

Etsu Chemical Co. Ltd.) to observe that the court’s review at the first stage is limited to prima facie verification of existence and validity of the arbitration clause without the question being analysed in detail which the tribunal is empowered to decide when necessary. At the reference stage, the court shall decline jurisdiction if the summary examination of the arbitration agreement does not allow it to find that the agreement is null and void, inoperative and incapable of being performed. The Canadian courts, apply the general rule that in any case involving an arbitration clause, a challenge to arbitrator’s jurisdiction must be resolved first by the arbitrator and the court will depart from this rule of systematic referral of arbitration only if the challenge to arbitrator’s jurisdiction is solely based on a question of law. Exercise of court’s jurisdiction in the latter case would be justified as the court is the forum to which the parties first apply when requesting for referral and that the arbitrator’s jurisdiction regarding his or her jurisdiction can be reviewed by the court. Further, it allows the court to decide the legal argument for once and for all and avoids duplication of a strictly legal debate. Another condition is that the court must be satisfied that the challenge to the arbitrator’s jurisdiction is not a delaying tactic and that it will not unduly impair the conduct of arbitration proceedings. This means that the court, when considering one of the exceptions, may allow the arbitrator to rule on his or her competence as would be best for the arbitration process.

74Copy pinpoint74. Referring to the House of Lords decision in Premium Nafta E Products Ltd., the authors have observed that the decision reaffirms the principle of severability of an arbitration agreement and the proper approach is to stay the court proceedings in favour of arbitration. Lord Hoffmann speaking for the House of Lords in Premium Nafta Products Ltd. has observed: F “to determine on the evidence before the court that [an arbitration agreement] does exist in which case (if the disputes fall within the terms of that agreement) a stay must be granted, in the light of the mandatory ‘shall’ in section 9(4). It is this mandatory provision which is the statutory enactment of the relevant article G of the New York Convention, to which the United Kingdom is a party.” xx xx xx “the arbitrators are, ‘in general’, recognised the right ‘to be the first tribunal to consider whether they have jurisdiction to determine H

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A the dispute’ are limited by the requirement that a valid arbitration agreement exist, as well as the further requirements that the arbitration agreement be ‘wide enough to comprise the relevant dispute’ and that the arbitration agreement not be ‘directly impeached by whatever ground... to attack the invalidity of the contract in which the arbitration clause is contained’. In other B words, to the extent that the English courts retain a degree of scrutiny as regards the existence, validity and scope of the arbitration agreement, the question of the extent to which English courts will give effect to the negative effect of competence- competence remains uncertain.”

75Copy pinpoint75. John J. Barcelo III, in his paper titled ‘Who Decides the Arbitrator’s Jurisdiction? Separability and Competence-Competence in Transnational Perspective’, observes that the greater the number of issues required to be fully adjudicated at Stage I, the greater is the potential for disruption of the arbitration process by an obstructing party even in case of a genuine agreement to arbitration. An extremely pro- arbitration approach with no or minimal judicial scrutiny might send all the questions to the arbitrators. At the same time arbitration is no holy grail and not all parties resisting arbitration are obstructionists. A party must have its say in the court, unless he has agreed to arbitrate. A good legal order must decide what weight be given to these competing values and how to structure the process to maximize overall value by reducing opportunities for obstructionism while preserving legitimate claims for reasonably prompt judicial decision. Referring to the competence- competence and severability principles the author has observed: - “Competence-competence thus addresses the “who decides” F question on a broader scale and is more central to resolving the policy tension between protecting arbitration from obstruction, on one hand, and preserving legitimate disputes over arbitrator jurisdiction for a prompt court hearing, on the other... Whereas separability is universally accepted, competence-competence is controversial and has spawned a range of different national responses.” The French approach, as the paper notes, is that if an arbitral tribunal is already seized of the matter, the court will refuse jurisdiction and leave questions as to existence, validity and scope of the arbitration agreement to the arbitrators. However, if the arbitral tribunal is not yet

VIDYA DROLIA AND OTHERS v. 1109 DURGA TRADING CORPORATION [SANJIV KHANNA, J.]

seized of the matter, the court will undertake a limited scrutiny of the challenge and will retain jurisdiction only if the arbitration agreement is manifestly null. The German Law of Kompetenz-Kompetenz prior to the new 1998 German Arbitration Act was relatively unique, or arguably so, as some commentaries maintain that when express power to decide their jurisdiction is conferred on the arbitrator, then it would exclude judicial scrutiny at state 1 and stage 3. However, the 1998 German Arbitration Act based upon UNCITRAL Model Law, states that the court may only decide the arbitrator’s jurisdiction if requested to do so before the arbitral tribunal is constituted. The German Law expostulates preference for the arbitrator to decide the jurisdiction in an interim award. Referring to the UNCITRAL Model Law, reference is made to the competence-competence as spelled in Article 8(1) which directly deals with judicial review at Stage I, which is limited to the existence of a valid arbitration agreement. It postulates that the parties shall be referred to arbitration, unless the court finds that the agreement is null and void, inoperative or incapable of being performed. This, the author feels, could be read as authorizing full judicial determination and settlement of arbitration agreement’s existence and validity. Article 16 (1) embodies the positive competence-competence concept and Articles 16(3) and 8(2) enact a partial negative competence- competence principle. The latter allows arbitration proceedings to go forward despite the court consideration of the arbitrator’s jurisdiction. Article 16(3) encourages outcome by expressly empowering arbitrators to rule over their jurisdiction as a preliminary question. The British Arbitration Act of 1996 based on the Model Law requires the court to stay the legal proceedings, ‘unless satisfied’ that the arbitration agreement is null and void, inoperative or incapable of being performed. “Unless satisfied”, the author observes, is closer to “unless it is manifest”, rather than it is to the Model Law terminology “unless it finds”. The British Act allows the arbitrator to render his/her decision on jurisdiction either in the preliminary award or in the final award, but allows the parties to insist the arbitrators for preliminary and an early decision as a check against wasteful proceedings. The paper also deals with the American approach in domestic and international arbitration. In domestic law the issues of arbitrability have been divided into procedural and substantial objections. Procedural arbitrability issues include whether a time limit for bringing a claim has been observed or whether a party has waived its right to arbitrate and also issues like waiver or estoppel thereby denying a party from claiming H

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A the right or any pre-condition for invoking arbitration has not been made, etc. These issues are ‘gateway questions’61 that are presumptively for the arbitrator to decide and not for the courts to decide, at least at the first stage. The substantive aspects are those wherein the court at the first stage would go into prima facie examination. Substantive issues pertaining to the validity and existence of the arbitration agreement (Legal B position in domestic law post- Buckeye Check Cashing Inc. is explained below.) He observes that the United States Supreme Court has frequently been more receptive to international as opposed to domestic agreements. An important consideration being that international agreements are commercial and involve sophisticated, generally well-advised parties and there is a need for uniformity of interpretation under the New York Convention.

76Copy pinpoint76. The United States Supreme Court in Buckeye Check Cashing Inc., relying on earlier decisions in Prima Paint Corpn. v. Flood & Conklin Mfg. Co.62 and Southland Corpn. v. Keating,63 in respect of the domestic American law has clarified the legal position as establishing the following propositions: “First, as a matter of substantive federal arbitration law, an arbitration provision is severable from the remainder of the contract. Second, unless the challenge is to the arbitration clause itself, the issue of the contract’s validity is considered by the arbitrator in the first instance...Applying them to this case, we conclude that because respondents challenge the Agreement, but not specifically its arbitration provisions, those provisions are enforceable apart from the remainder of the contract. The challenge should therefore be considered by an arbitrator, not a court.” F However, these observations have to be read with caution as American law states that: “(a) party aggrieved by the alleged failure... of another to arbitrate... (the) court shall hear the parties, and upon being satisfied G that the making of the agreement for arbitration or the failure to comply therewith is not an issue, the court shall make an order directing the parties to arbitration....if the making of the arbitration 61 First Options of Chicago v. Kaplan, 514 U.S. 938 (1995) and Howsam v. Dean Witter Reynolds, Inc., 537 U.S. 79 (2002). 62 18 L Ed 2d 1270: 388 US 395 (1967): 1967 SCC OnLine US SC 160 H 63 79 L Ed. 2d 1: 465 US 1 (1984): 1984 SCC OnLine US SC 19

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agreement or the failure, neglect or refusal to perform the same A be in issue, the court shall proceed summarily to the trial thereof.” Therefore, in case of issue, if in the trial the court determines that arbitration agreement was not made it does not order the parties to arbitration. However, this principle does not apply when the arbitration clause is contained in a ‘container contract’ by the application of B ‘separability’ doctrine. In Buckeye Check Cashing Inc., the US Supreme Court held that separability doctrine applies to both voidable and void ‘container contract’ with an arbitration agreement. Distinction is drawn and different principles apply to ‘container contract’ with an arbitration clause, and stand-alone arbitration agreement.64 Buckeye Check Cashing Inc. ruled that courts must send to arbitrators any C “challenge to the validity of the contract as a whole,” (the container contract), while courts themselves must resolve any challenge directed “specifically to the arbitration clause”. When arbitrators hear any challenge to the container contract’s validity, Buckeye Check Cashing Inc. cautioned: D “The issue of the contract’s validity is different from the issue of whether any agreement between the alleged obligor and oblige was ever concluded.”

77Copy pinpoint77. Prof. Alan Scott Rau65 questions the “abstract distinction between ‘invalidity and nonexistence” as “nothing”. The author while E supporting the principle of separability rejects the argument that formation of a contract is different from enforcement of the contract as when the agreement is invalid there is no agreement to anything. He observes: “But how much of an improvement is it, really, to sweep away the conceptual distinction between “void and voidable” contracts— F only to replace it with the equally abstract distinct between “invalidity” and “nonexistence”? These are all, as a colleague of mine likes to say, nothing but word balloons. Ingenious riffs on this metaphysical distinction between contract “invalidity” and contract “nonexistence” have long been a staple G of Continental legal learning. It has been well-established for over a century in learned treatises on the law of obligations. Its tendency 64 Prof. Stephen J. Ware in Arbitration Law’s Separability Doctrine After Buckeye Check Cashing, Inc. v. Cardegna 65 Alan Scott Rau in Separability in the United States Supreme Court H

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A to take metaphor for reality, its personification of legal concepts, its characterization of doctrine in terms of what is “unthinkable” or “impossible”...of all of this exemplifies the worst excesses of formalism....But like the “void/voidable” distinction that it closely resembles...to which indeed it may even be identical50...this is not only slippery, but serves no instrumental function whatever. Happily, B some modern scholarship seems now at last to appreciate that the whole notion of “nonexistence” is not only sterile and purely verbal...but what is worse, is completely unnecessary. And particularly when we come to the doctrine of “separability,” this is a distinction that leads precisely. C Foot note 50 reads as: “See Christian Larroumet, 3 Droit Civil: Les Obligations, Le Contrat 539-540, 580-81 (5th ed. 2003) (French case law has often conflated the notions of a contract’s “nonexistence” and its “invalidity”; if an essential condition imposed by the law is missing D then whether the agreement is termed void [null] or nonexistent “amounts to the same thing, for what is void is treated to all intents and purpose as if it had never existed”, nonexistence and “voidness” are “one and the same notion”).”

78Copy pinpoint78. Prof. Stephen J. Ware in Arbitration Law’s Separability E Doctrine After Buckeye Check Cashing, Inc., with reference to the American Law projects a different view: “under the contractual approach to arbitration law, the right to litigate (like other rights) would be alienable through an enforceable contract but not a contract that is unenforceable due to misrepresentation, duress, illegality, or any other contract-law defense. By contrast, the separability doctrine holds that a party alienates its right to litigate when that party forms a contract containing an arbitration clause even if that contract is unenforceable...The only way to fix this problem is to repeal the separability doctrine and allow courts to hear defenses to the enforcement of the contract containing the arbitration clause. Courts should send cases to arbitration only after rejecting any such defenses.”

79Copy pinpoint79. In order to appreciate the effect of the amendments made by Act 3 of 2016, it would be appropriate to refer to the Law Commission’s H

VIDYA DROLIA AND OTHERS v. 1113 DURGA TRADING CORPORATION [SANJIV KHANNA, J.]

246th Report which had given reasons for amendments to Sections 8 A and 11 of the Arbitration Act, including insertion of sub-section (6- A) to Section 11. The said reasons read as under: “24. Two further sets of amendments have been proposed in this context. First, it is observed that a lot of time is spent for appointment of arbitrators at the very threshold of arbitration B proceedings as applications under section 11 are kept pending for many years. In this context, the Commission has proposed a few amendments. The Commission has proposed changing the existing scheme of the power of appointment being vested in the “Chief Justice” to the “High Court” and the “Supreme Court” and has expressly clarified that delegation of the power of “appointment” C (as opposed to a finding regarding the existence/nullity of the arbitration agreement) shall not be regarded as a judicial act. This would rationalise the law and provide greater incentive for the High Court and/or Supreme Court to delegate the power of appointment (being a non-judicial act) to specialised, external persons or institutions. The Commission has further recommended an amendment to section 11(7) so that decisions of the High Court (regarding existence/nullity of the arbitration agreement) are final where an arbitrator has been appointed, and as such are non- appealable. The Commission further proposes the addition of section 11(13) which requires the Court to make an endeavour to dispose of the matter within sixty days from the service of notice on the opposite party. xx xx xx

31. The Commission is of the view that, in this context, the same test regarding scope and nature of judicial intervention, as applicable in the context of section 11, should also apply to sections 8 and 45 of the Act – since the scope and nature of judicial intervention should not change upon whether a party (intending to defeat the arbitration agreement) refuses to appoint an arbitrator in terms of the arbitration agreement, or moves a proceeding before G a judicial authority in the face of such an arbitration agreement.

32. In relation to the nature of intervention, the exposition of the law is to be found in the decision of the Supreme Court in Shin Etsu Chemicals Co. Ltd. v. Aksh Optifibre, (2005) 7 SCC 234, (in the context of section 45 of the Act), where the Supreme H

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A Court has ruled in favour of looking at the issues/controversy only prima facie.

33. It is in this context, the Commission has recommended amendments to sections 8 and 11 of the Arbitration and Conciliation Act, 1996. The scope of judicial intervention is only restricted to situations where the Court/Judicial Authority finds that the arbitration agreemend does not exist or is null and void. In so far as the nature of intervention is concerned, it is recommended that in the event the Court/Judicial Authority is prima facie satisfied against the argument challenging the arbitration agreement, it shall appoint the arbitrator and/or refer the parties to arbitration, as the case may be. The amendment envisages that the judicial authority shall not refer the parties to arbitration only if it finds that there does not exist an arbitration agreement or that it is null and void. If the judicial authority is of the opinion that prima facie the arbitration agreement exists, then it shall refer the dispute to arbitration, and leave the existence of the arbitration agreement to be finally determined by the arbitral tribunal. However, if the judicial authority concludes that the agreement does not exist, then the conclusion will be final and not prima facie. The amendment also envisages that there shall be a conclusive determination as to whether the arbitration agreement is null and void. In the event that the judicial authority refers the dispute to arbitration and/or appoints an arbitrator, under sections 8 and 11 respectively, such a decision will be final and non-appealable. An appeal can be maintained under section 37 only in the event of refusal to refer parties to arbitration, or refusal to appoint an arbitrator.” F The Law Commission’s Report specifically refers to the decision of this Court in Shin-Etsu Chemical Co. Ltd., a decision relating to transnational arbitration covered by the New York Convention.

80Copy pinpoint80. The Statement of Objects and Reasons of Act 3 of 2016 read as under: G “Statement of Objects and Reasons ***

6. It is proposed to introduce the Arbitration and Conciliation (Amendment) Bill, 2015, to replace the Arbitration and Conciliation H (Amendment) Ordinance, 2015, which inter alia, provides for the

VIDYA DROLIA AND OTHERS v. 1115 DURGA TRADING CORPORATION [SANJIV KHANNA, J.]

following, namely— A (i) to amend the definition of “Court” to provide that in the case of international commercial arbitrations, the Court should be the High Court; (ii) to ensure that an Indian Court can exercise jurisdiction to grant interim measures, etc., even where the seat of the arbitration is B outside India; (iii) an application for appointment of an arbitrator shall be disposed of by the High Court or Supreme Court, as the case may be, as expeditiously as possible and an endeavour should be made to dispose of the matter within a period of sixty days; C

(iv) to provide that while considering any application for appointment of arbitrator, the High Court or the Supreme Court shall examine the existence of a prima facie arbitration agreement and not other issues; D (v) to provide that the Arbitral Tribunal shall make its award within a period of twelve months from the date it enters upon the reference and that the parties may, however, extend such period up to six months, beyond which period any extension can only be granted by the Court, on sufficient cause; E (vi) to provide that a model fee schedule on the basis of which High Courts may frame rules for the purpose of determination of fees of Arbitral Tribunal, where a High Court appoints arbitrator in terms of Section 11 of the Act; (vii) to provide that the parties to dispute may at any stage agree F in writing that their dispute be resolved through fast-track procedure and the award in such cases shall be made within a period of six months; (viii) to provide for neutrality of arbitrators, when a person is approached in connection with possible appointment as an arbitrator; G (ix) to provide that application to challenge the award is to be disposed of by the Court within one year.

7. The amendments proposed in the Bill will ensure that arbitration process becomes more user-friendly, cost effective and leads to expeditious disposal of cases.” H

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81Copy pinpoint81. We would now examine the principles of separability and competence-competence. Clauses (a) and (b) to sub-section (1) to Section 16 enact the principle of separation of the arbitration agreement from the underlying or container contract. Clause (a), by legal fiction, gives an independent status to an arbitration clause as if it is a standalone agreement, even when it is only a clause and an integral part of the underlying or container contract. Clause (b) formulates a legal rule that a decision by the arbitral tribunal holding that the main contract is null and void shall not ipso jure entail invalidity of the arbitration clause. Successful challenge to the existence or invalidity or rescission of the main contract does not necessarily embrace an identical finding as to the arbitration agreement, provided the court is satisfied that the arbitration clause had been agreed upon. The arbitration agreement can be avoided only on the ground which relates directly to the arbitration agreement. Notwithstanding the challenge to the underlying or container contract, the arbitration clause in the underlying or container contract survives for determining the disputes. The principle prevents boot-strapping as it is primarily for the arbitral tribunal and not for the court to decide issues of existence, validity and rescission of the underlying contract. Principle of separation authorises an arbitral tribunal to rule and decide on the existence, validity or rescission of the underlying contract without an earlier adjudication of the questions by the referral court. E

82Copy pinpoint82. An interesting and relevant exposition, when assertions claiming repudiation, rescission or ‘accord and satisfaction’ are made by a party opposing reference, is to found in Damodar Valley Corporation v. K.K. Kar,66 which had referred to an earlier judgment of this Court in Union of India v. Kishorilal Gupta & Bros.,67 to observe: F “11. After a review of the relevant case law, Subba Rao, J., as he then was, speaking for the majority enunciated the following principles: “(1) An arbitration clause is a collateral term of a contract as distinguished from its substantive terms; but none the less it is an integral part of it; (2) however comprehensive the G terms of an arbitration clause may be, the existence of the contract is a necessary condition for its operation; it perishes with the contract; (3) the contract may be non est in the sense that it

66 (1974) 1 SCC 141 67 H AIR 1959 SC 1362

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never came legally into existence or it was void ab initio; (4) A though the contract was validly executed, the parties may put an end to it as if it had never existed and substitute a new contract for it solely governing their rights and liabilities thereunder; (5) in the former case, if the original contract has no legal existence, the arbitration clause also cannot operate, for along with the original contract, it is also void; in the latter case, as the original contract is extinguished by the substituted one, the arbitration clause of the original contract perishes with it; and (6) between the two falls many categories “of disputes in connection with a contract, such as the question of repudiation, frustration, breach etc. In those cases it is the performance of the contract that has come to an end, but the contract is still in existence for certain purposes in respect of disputes arising under it or in connection with it. As the contract subsists for certain purposes, the arbitration clause operates in respect of these purposes.” In those cases, as we have stated earlier, it is the performance of the contract that has come to an end but the contract is still in existence for certain purposes in respect of disputes arising under it or in connection with it. We think as the contract subsists for certain purposes, the arbitration clause operates in respect of these purposes.” Reference was also made to the minority judgment of Sarkar, J. in Kishorilal Gupta & Bros. to observe that he had only disagreed with the majority on the effect of settlement on the arbitration clause, as he had held that arbitration clause did survive to settle the dispute as to whether there was or was not an ‘accord and satisfaction’. It was further observed that this principle laid down by Sarkar, J. that ‘accord and satisfaction’ does not put an end to the arbitration clause, was not disagreed to by the majority. On the other hand, proposition (6) seems to be laying the weight on to the views of Sarkar, J. These decisions were under the Arbitration Act,1940. The Arbitration Act specifically incorporates principles of separation and competence-competence and empowers the arbitral tribunal to rule on its own jurisdiction. G

83Copy pinpoint83. Principles of competence-competence have positive and negative connotations. As a positive implication, the arbitral tribunals are declared competent and authorised by law to rule as to their jurisdiction and decide non-arbitrability questions. In case of expressed negative effect, the statute would govern and should be followed. Implied negative effect curtails and constrains interference by the court at the referral H

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A stage by necessary implication in order to allow the arbitral tribunal to rule as to their jurisdiction and decide non-arbitrability questions. As per the negative effect, courts at the referral stage are not to decide on merits, except when permitted by the legislation either expressly or by necessary implication, such questions of non-arbitrability. Such prioritisation of arbitral tribunal over the courts can be partial and limited when the legislation provides for some or restricted scrutiny at the ‘first look’ referral stage. We would, therefore, examine the principles of competence-competence with reference to the legislation, that is, the Arbitration Act.

84Copy pinpoint84. Section 16(1) of the Arbitration Act accepts and empowers the arbitral tribunal to rule on its own jurisdiction including a ruling on the objections, with respect to all aspects of non-arbitrability including validity of the arbitration agreement. A party opposing arbitration, as per sub- section (2), should raise the objection to jurisdiction of the tribunal before the arbitral tribunal, not later than the submission of statement of defence. D However, participation in the appointment procedure or appointing an arbitrator would not preclude and prejudice any party from raising an objection to the jurisdiction. Obviously, the intent is to curtail delay and expedite appointment of the arbitral tribunal. The clause also indirectly accepts that appointment of an arbitrator is different from the issue and question of jurisdiction and non-arbitrability. As per sub-section (3), any E objection that the arbitral tribunal is exceeding the scope of its authority should be raised as soon as the matter arises. However, the arbitral tribunal, as per sub-section (4), is empowered to admit a plea regarding lack of jurisdiction beyond the periods specified in sub-section (2) and (3) if it considers that the delay is justified. As per the mandate of sub- section (5) when objections to the jurisdiction under sub-sections (2) and F (3) are rejected, the arbitral tribunal can continue with the proceedings and pass the arbitration award. A party aggrieved is at liberty to file an application for setting aside such arbitral award under Section 34 of the Arbitration Act. Sub-section (3) to Section 8 in specific terms permits an arbitral tribunal to continue with the arbitration proceeding and make an award, even when an application under sub-section (1) to Section 8 is pending consideration of the court/forum. Therefore, pendency of the judicial proceedings even before the court is not by itself a bar for the arbitral tribunal to proceed and make an award. Whether the court should stay arbitral proceedings or appropriate deference by the arbitral tribunal are distinctly different aspects and not for us to elaborate in the present reference.

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85Copy pinpoint85. Section 34 of the Act is applicable at the third stage post the award when an application is filed for setting aside the award. Under Section 34, an award can be set aside – (i) if the arbitration agreement is not valid as per law to which the party is subject; (ii) if the award deals with the disputes not contemplated by or not falling within the submission to arbitration, or contains a decision on the matter beyond the scope of submission to arbitration; and (iii) when the subject matter of the dispute is not capable of settlement by arbitration under the law for the time being in force. Thus, the competence - competence principle, in its negative effect, leaves the door open for the parties to challenge the findings of the arbitral tribunal on the three issues. The negative effect does not provide absolute authority, but only a priority to the arbitral tribunal to rule the jurisdiction on the three issues. The courts have a ‘second look’ on the three aspects under Section 34 of the Arbitration Act. 68

86Copy pinpoint86. The courts at the referral stage do not perform ministerial functions. They exercise and perform judicial functions when they decide objections in terms of Sections 8 and 11 of the Arbitration Act. Section 8 prescribes the courts to refer the parties to arbitration, if the action brought is the subject of an arbitration agreement, unless it finds that prima facie no valid arbitration agreement exists. Examining the term ‘prima facie’, in Nirmala J. Jhala v. State of Gujarat and Another,69 this Court had noted: E

“48. A prima facie case does not mean a case proved to the hilt but a case which can be said to be established if the evidence which is led in support of the case were [to be] believed. While determining whether a prima facie case had been made out or not the relevant consideration is whether on the evidence led it was possible to arrive at the conclusion in question and not whether that was the only conclusion which could be arrived at on that evidence.” Prima facie case in the context of Section 8 is not to be confused with the merits of the case put up by the parties which has to be established before the arbitral tribunal. It is restricted to the subject matter of the suit being prima facie arbitrable under a valid arbitration 68 The nature and extent of power of judicial review under Section 34 has not been examined and answered in this reference. 69 (2013) 4 SCC 301 H

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A agreement. Prima facie case means that the assertions on these aspects are bona fide. When read with the principles of separation and competence-competence and Section 34 of the Arbitration Act, referral court without getting bogged-down would compel the parties to abide unless there are good and substantial reasons to the contrary.70

87Copy pinpoint87. Prima facie examination is not full review but a primary first review to weed out manifestly and ex facie non-existent and invalid arbitration agreements and non-arbitrable disputes. The prima facie review at the reference stage is to cut the deadwood and trim off the side branches in straight forward cases where dismissal is barefaced and pellucid and when on the facts and law the litigation must stop at the C first stage. Only when the court is certain that no valid arbitration agreement exists or the disputes/subject matter are not arbitrable, the application under Section 8 would be rejected. At this stage, the court should not get lost in thickets and decide debatable questions of facts. Referral proceedings are preliminary and summary and not a mini trial. D This necessarily reflects on the nature of the jurisdiction exercised by the court and in this context, the observations of B.N. Srikrishna, J. of ‘plainly arguable’ case in Shin-Etsu Chemical Co. Ltd. are of importance and relevance. Similar views are expressed by this Court in Vimal Kishore Shah wherein the test applied at the pre-arbitration stage was whether there is a “good arguable case” for the existence of an arbitration agreement. The test of “good arguable case” has been elaborated by the England and Wales High Court in Silver Dry Bulk Company Limited v. Homer Hulbert Maritime Company Limited,71 in the following words: “Good arguable case” is an expression which has been hallowed by long usage, but it means different things in different contexts. For the purpose of an application under Section 18, I would hold that what must be shown is a case which is somewhat more than

70 The European Convention on International Commercial Arbitration appears to recognise the prima facie test in Article VI (3): G “Where either party to an arbitration agreement has initiated arbitration proceedings before any resort is had to a court, courts of Contracting States subsequently asked to deal with the same subject-matter between the same parties or with the question whether the arbitration agreement was non-existent or null and void or had lapsed, shall stay their ruling on the arbitrator’s jurisdiction until the arbitral award is made, unless they have good and substantial reasons to the contrary.” 71 H (2017) EWHC 44 (Comm.)

VIDYA DROLIA AND OTHERS v. 1121 DURGA TRADING CORPORATION [SANJIV KHANNA, J.]

merely arguable, but need not be one which appears more likely than not to succeed. It shall use the term “good arguable case” in that sense. It represents a relatively low threshold which retains flexibility for the Court to do what is just, while excluding those cases where the jurisdictional merits were so low that reluctant respondents ought not to be put to the expense and trouble of having to decide how to deal with arbitral proceedings where it was very likely that the tribunal had no jurisdiction. In this connection it is important to remember that crossing the threshold of “good arguable case” means that the Court has power to make one of the orders listed in Section 18(3). It remains for consideration whether it should do so as a matter of discretion.” C Appropriate at this stage would be a reference to the judgment of the Delhi High Court in NCC Ltd. v. Indian Oil Corporation Ltd.,72 wherein it has been held as under: “59.1 In my view, the scope of examination as to whether or not the claims lodged are Notified Claims has narrowed down D considerably in view of the language of Section 11(6A) of the 1996 Act. To my mind, once the Court is persuaded that it has jurisdiction to entertain a Section 11 petition all that is required to examine is as to whether or not an arbitration agreement exists between the parties which is relatable to the dispute at hand. The E latter part of the exercise adverted to above, which involves correlating the dispute with the arbitration agreement obtaining between the parties, is an aspect which is implicitly embedded in sub-section (6A) of Section 11 of the 1996 Act, which, otherwise, requires the Court to confine its examination only to the existence of the arbitration agreement. Therefore, if on a bare perusal of the agreement it is found that a particular dispute is not relatable to the arbitration agreement, then, perhaps, the Court may decline the relief sought for by a party in a Section 11 petition. However, if there is a contestation with regard to the issue as to whether the dispute falls within the realm of the arbitration agreement, then, the best course would be to allow the arbitrator to form a view in the matter. 59.2 Thus, unless it is in a manner of speech, a chalk and cheese

72 Arbitration Petition No. 115 of 2018, decided on 08.02.2019 H

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A situation or a black and white situation without shades of grey, the concerned court hearing the Section 11 petition should follow the more conservative course of allowing parties to have their say before the arbitral tribunal.”

88Copy pinpoint88. The nature and facet of non-arbitrability could also determine the level and nature of scrutiny by the court at the referral stage. Stravos Brekoulakis has differentiated between contractual aspects of arbitration agreement which the court can examine at referral stage and jurisdictional aspects of arbitration agreement which he feels should be left to the arbitral tribunal. John J. Barcelo III, referring to some American decisions had divided the issue of non-arbitrability into procedural and substantive objections. The procedurals are ‘gateway questions’ which would presumptively be for the arbitrator to decide at least at the first stage. In the Indian context, we would respectfully adopt the three categories in Boghara Polyfab Private Limited. The first category of issues, namely, whether the party has approached the appropriate High Court, whether there is an arbitration agreement and whether the party who has applied for reference is party to such agreement would be subject to more thorough examination in comparison to the second and third categories/issues which are presumptively, save in exceptional cases, for the arbitrator to decide. In the first category, we would add and include the question or issue relating to whether the cause of action relates to action in personam or rem; whether the subject matter of the dispute affects third party rights, have erga omnes effect, requires centralized adjudication; whether the subject matter relates to inalienable sovereign and public interest functions of the State; and whether the subject matter of dispute is expressly or by necessary implication non- arbitrable as per mandatory statue(s). Such questions arise rarely and, when they arise, are on most occasions questions of law. On the other hand, issues relating to contract formation, existence, validity and non- arbitrability would be connected and intertwined with the issues underlying the merits of the respective disputes/claims. They would be factual and disputed and for the arbitral tribunal to decide. We would not like be too prescriptive, albeit observe that the court may for legitimate reasons, to prevent wastage of public and private resources, can exercise judicial discretion to conduct an intense yet summary prima facie review while remaining conscious that it is to assist the arbitration procedure and not usurp jurisdiction of the arbitral tribunal. Undertaking a detailed full review or a long-drawn review at the referral stage would obstruct and cause delay undermining the integrity and efficacy of arbitration as a dispute

VIDYA DROLIA AND OTHERS v. 1123 DURGA TRADING CORPORATION [SANJIV KHANNA, J.]

resolution mechanism. Conversely, if the court becomes too reluctant to intervene, it may undermine effectiveness of both the arbitration and the court. There are certain cases where the prima facie examination may require a deeper consideration. The court’s challenge is to find the right amount of and the context when it would examine the prima facie case or exercise restraint. The 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.73

89Copy pinpoint89. 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. The underlying rationale being not to delay or defer and to discourage parties from using referral proceeding as a rue to delay and obstruct. In such cases a full review by the courts at this stage would encroach on the jurisdiction of the arbitral tribunal and violate the legislative scheme allocating jurisdiction between the courts and the arbitral tribunal. Centralisation of litigation with the arbitral tribunal as the primary and first adjudicator is beneficent as it helps in quicker and efficient resolution of disputes.

90Copy pinpoint90. The Court would exercise discretion and refer the disputes to arbitration when it is satisfied that the contest requires the arbitral tribunal should first decide the disputes and rule on non- arbitrability. Similarly, discretion should be exercised when the party opposing arbitration is adopting delaying tactics and impairing the referral proceedings. Appropriate in this regard, are observations of the Supreme Court of Canada in Dell Computer Corporation v. Union des consommateurs and Olivier Dumoulin,74 which read: F

“85. If the challenge requires the production and review of factual evidence, the court should normally refer the case to arbitration, as arbitrators have, for this purpose, the same resources and expertise as courts. Where questions of mixed law and fact are concerned, the court hearing the referral application must refer G the case to arbitration unless the questions of fact require only superficial consideration of the documentary evidence in the record.

73 Ozlem Susler – ‘The English Approach to Competence-Competence’ 74 [2007] 2 S.C.R. 801, 2007 SCC 34 H

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A 86. Before departing from the general rule of referral, the court must be satisfied that the challenge to the arbitrator’s jurisdiction is not a delaying tactic and that it will not unduly impair the conduct of the arbitration proceeding. This means that even when considering one of the exceptions, the court might decide that to allow the arbitrator to rule first on his or her competence would B be best for the arbitration process.” Judgment in Dell’s case has been elucidated and diluted by the Supreme Court of Canada in TELUS Communications Inc. v. Avraham Wellman, viz. interpretation of Section 7(5) of the Arbitration Act, 1991, an aspect with which we are not concerned. C

91Copy pinpoint91. We would now examine Section 11 of the Arbitration Act. As noticed above sub-section (6-A) was inserted by the Act 3 of 2016 with retrospective effect from 23rd October, 2015 and omitted by Act 33 of

2019. Section 11 (6) requires the court to appoint an arbitrator on an application made by a party. Section (6-A) to Section 11 stipulates that D the court shall, at the stage of appointment under sub-section (4), (5) or (6), confine itself to the examination of the existence of an arbitration agreement. Sub- section (6-A) was omitted by Act 33 of 2019, but the omission is in view of the introduction of a new regime of institutionalised arbitration as per the report of the committee headed by Justice B.N. E Srikrishna, dated 30.07.2017 which records for the reason of recommending the omission as: “Thus, it can be seen that after the Amendment Act of 2019, Section 11 (6-A) has been omitted because appointment of arbitrators is to be done institutionally, in which case the Supreme F Court or the High Court under the old statutory regime are no longer required to appoint arbitrators and consequently to determine whether an arbitration agreement exists.” As observed earlier, Patel Engineering Ltd. explains and holds that Sections 8 and 11 are complementary in nature as both relate to G reference to arbitration. Section 8 applies when judicial proceeding is pending and an application is filed for stay of judicial proceeding and for reference to arbitration. Amendments to Section 8 vide Act 3 of 2016 have not been omitted. Section 11 covers the situation where the parties approach a court for appointment of an arbitrator. Mayavati Trading Private Ltd., in our humble opinion, rightly holds that Patel Engineering H Ltd. has been legislatively overruled and hence would not apply even

VIDYA DROLIA AND OTHERS v. 1125 DURGA TRADING CORPORATION [SANJIV KHANNA, J.]

post omission of sub-section (6-A) to Section 11 of the Arbitration Act. A Mayavati Trading Private Ltd. has elaborated upon the object and purposes and history of the amendment to Section 11, with reference to sub-section (6-A) to elucidate that the Section, as originally enacted, was facsimile with Article 11 of the UNCITRAL Model of law of arbitration on which the Arbitration Act was drafted and enacted. B Referring to the legislative scheme of Section 11, different interpretations, and the Law Commission’s Reports, it has been held that the omitted sub-section (6-A) to Section 11 of the Arbitration Act would continue to apply and guide the courts on its scope of jurisdiction at stage one, that is the pre-arbitration stage. Omission of sub-section (6-A) by Act 33 of 2019 was with the specific object and purpose and is relatable to by substitution of sub-sections (12), (13) and (14) to Section 11 of the Arbitration Act by Act 33 of 2019, which, vide sub-section (3A) stipulates that the High Court and this court shall have the power to designate the arbitral institutions which have been so graded by the Council under Section 43-I, provided where a graded arbitral institution is not available, the concerned High Court shall maintain a panel of arbitrators for discharging the function and thereupon the High Court shall perform the duty of an arbitral institution for reference to the arbitral tribunal. Therefore, it would be wrong to accept that post omission of sub-section (6-A) to Section 11 the ratio in Patel Engineering Ltd. would become applicable. E

92Copy pinpoint92. We now proceed to examine the question, whether the word ‘existence’ in Section 11 merely refers to contract formation (whether there is an arbitration agreement) and excludes the question of enforcement (validity) and therefore the latter falls outside the jurisdiction of the court at the referral stage. On jurisprudentially and textualism it is possible to differentiate between existence of an arbitration agreement and validity of an arbitration agreement. Such interpretation can draw support from the plain meaning of the word “existence’. However, it is equally possible, jurisprudentially and on contextualism, to hold that an agreement has no existence if it is not enforceable and not binding. Existence of an arbitration agreement presupposes a valid agreement which would be enforced by the court by relegating the parties to arbitration. Legalistic and plain meaning interpretation would be contrary to the contextual background including the definition clause and would result in unpalatable consequences. A reasonable and just interpretation of ‘existence’ requires understanding the context, the purpose and the H

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A relevant legal norms applicable for a binding and enforceable arbitration agreement. An agreement evidenced in writing has no meaning unless the parties can be compelled to adhere and abide by the terms. A party cannot sue and claim rights based on an unenforceable document. Thus, there are good reasons to hold that an arbitration agreement exists only when it is valid and legal. A void and unenforceable understanding is no B agreement to do anything. Existence of an arbitration agreement means an arbitration agreement that meets and satisfies the statutory requirements of both the Arbitration Act and the Contract Act and when it is enforceable in law. We would proceed to elaborate and give further reasons: C (i) In Garware Wall Ropes Ltd., this Court had examined the question of stamp duty in an underlying contract with an arbitration clause and in the context had drawn a distinction between the first and second part of Section 7(2) of the Arbitration Act, albeit the observations made and quoted above with reference to ‘existence’ and ‘validity’ of the arbitration agreement being apposite and extremely important, we would repeat the same by reproducing paragraph 29 thereof: “29. This judgment in Hyundai Engg. case is important in that what was specifically under consideration was an arbitration clause which would get activated only if an insurer admits or accepts liability. Since on facts it was found that the insurer repudiated the claim, though an arbitration clause did “exist”, so to speak, in the policy, it would not exist in law, as was held in that judgment, when one important fact is introduced, namely, that the insurer has not admitted or accepted liability. Likewise, in the facts of the present case, it is clear that the arbitration clause that is contained in the sub- contract would not “exist” as a matter of law until the sub-contract is duly stamped, as has been held by us above. The argument that Section 11(6-A) deals with “existence”, as opposed to Section 8, Section 16 and Section 45, which deal with “validity” of an arbitration agreement is answered by this Court’s G understanding of the expression “existence” in Hyundai Engg. case, as followed by us.”; Existence and validity are intertwined, and arbitration agreement does not exist if it is illegal or does not satisfy mandatory legal requirements. Invalid agreement is no agreement. H

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(ii) The court at the reference stage exercises judicial powers. A ‘Examination’, as an ordinary expression in common parlance, refers to an act of looking or considering something carefully in order to discover something (as per Cambridge Dictionary). It requires the person to inspect closely, to test the condition of, or to inquire into carefully (as per Merriam- Webster Dictionary). It would be rather odd for the court to hold and B say that the arbitration agreement exists, though ex facie and manifestly the arbitration agreement is invalid in law and the dispute in question is non-arbitrable. The court is not powerless and would not act beyond jurisdiction, if it rejects an application for reference, when the arbitration clause is admittedly or without doubt is with a minor, lunatic or the only claim seeks a probate of a Will. C (iii) Most scholars and jurists accept and agree that the existence and validity of an arbitration agreement are the same. Even Starvos Brekoulakis accepts that validity, in terms of substantive and formal validity, are questions of contract and hence for the court to examine. (iv) Most jurisdictions accept and require prima facie review by the court on non-arbitrability aspects at the referral stage. (v) Sections 8 and 11 of the Arbitration Act are complementary provisions as was held in Patel Engineering Ltd.. The object and purpose behind the two provisions is identical to compel and force parties to abide by their contractual understanding. This being so, the two provisions should be read as laying down similar standard and not as laying down different and separate parameters. Section 11 does not prescribe any standard of judicial review by the court for determining whether an arbitration agreement is in existence. Section 8 states that the judicial review at the stage of reference is prima facie and not final. F Prima facie standard equally applies when the power of judicial review is exercised by the court under Section 11 of the Arbitration Act. Therefore, we can read the mandate of valid arbitration agreement in Section 8 into mandate of Section 11, that is, ‘existence of an arbitration agreement’. G (vi) Exercise of power of prima facie judicial review of existence as including validity is justified as a court is the first forum that examines and decides the request for the referral. Absolute “hands off” approach would be counterproductive and harm arbitration, as an alternative dispute resolution mechanism. Limited, yet effective intervention is acceptable as it does not obstruct but effectuates arbitration. H

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A (vii) Exercise of the limited prima facie review does not in any way interfere with the principle of competence– competence and separation as to obstruct arbitration proceedings but ensures that vexatious and frivolous matters get over at the initial stage. (viii) Exercise of prima facie power of judicial review as to the validity of the arbitration agreement would save costs and check harassment of objecting parties when there is clearly no justification and a good reason not to accept plea of non-arbitrability. In Subrata Roy Sahara v. Union of India,75 this Court has observed: “191. The Indian judicial system is grossly afflicted with frivolous litigation. Ways and means need to be evolved to deter litigants from their compulsive obsession towards senseless and ill- considered claims. One needs to keep in mind that in the process of litigation, there is an innocent sufferer on the other side of every irresponsible and senseless claim. He suffers long-drawn anxious periods of nervousness and restlessness, whilst the litigation is pending without any fault on his part. He pays for the litigation from out of his savings (or out of his borrowings) worrying that the other side may trick him into defeat for no fault of his. He spends invaluable time briefing counsel and preparing them for his claim. Time which he should have spent at work, or with his family, is lost, for no fault of his. Should a litigant not be compensated for what he has lost for no fault? The suggestion to the legislature is that a litigant who has succeeded must be compensated by the one who has lost. The suggestion to the legislature is to formulate a mechanism that anyone who initiates and continues a litigation senselessly pays for the same. It is suggested that the legislature should consider the introduction of a “Code of Compulsory Costs”. (ix) Even in Duro Felguera, Kurian Joseph, J., in paragraph 52, had referred to Section 7(5) and thereafter in paragraph 53 referred to a judgment of this Court in M.R. Engineers and Contractors Private G Limited v. Som Datt Builders Limited76 to observe that the analysis in the said case supports the final conclusion that the Memorandum of Understanding in the said case did not incorporate an arbitration clause.

75 (2014) 8 SCC 470 76 H (2009) 7 SCC 696

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Thereafter, reference was specifically made to Patel Engineering Ltd. A and Boghara Polyfab Private Limited to observe that the legislative policy is essential to minimise court’s interference at the pre-arbitral stage and this was the intention of sub-section (6) to Section 11 of the Arbitration Act. Paragraph 48 in Duro Felguera specifically states that the resolution has to exist in the arbitration agreement, and it is for the court to see if the agreement contains a clause which provides for arbitration of disputes which have arisen between the parties. Paragraph 59 is more restrictive and requires the court to see whether an arbitration agreement exists – nothing more, nothing less. Read with the other findings, it would be appropriate to read the two paragraphs as laying down the legal ratio that the court is required to see if the underlying contract contains an arbitration clause for arbitration of the disputes which have arisen between the parties - nothing more, nothing less. Reference to decisions in Patel Engineering Ltd. and Boghara Polyfab Private Limited was to highlight that at the reference stage, post the amendments vide Act 3 of 2016, the court would not go into and finally decide different aspects that were highlighted in the two decisions. (x) In addition to Garware Wall Ropes Limited case, this Court in Narbheram Power and Steel Private Limited and Hyundai Engg. & Construction Co. Ltd., both decisions of three Judges, has rejected the application for reference in the insurance contracts holding that the claim was beyond and not covered by the arbitration agreement. The E court felt that the legal position was beyond doubt as the scope of the arbitration clause was fully covered by the dictum in Vulcan Insurance Co. Ltd. Similarly, in M/s. PSA Mumbai Investments PTE. Limited, this Court at the referral stage came to the conclusion that the arbitration clause would not be applicable and govern the disputes. Accordingly, the F reference to the arbitral tribunal was set aside leaving the respondent to pursue its claim before an appropriate forum. (xi) The interpretation appropriately balances the allocation of the decision-making authority between the court at the referral stage and the arbitrators’ primary jurisdiction to decide disputes on merits. The G court as the judicial forum of the first instance can exercise prima facie test jurisdiction to screen and knockdown ex facie meritless, frivolous and dishonest litigation. Limited jurisdiction of the courts ensures expeditious, alacritous and efficient disposal when required at the referral stage. H

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93Copy pinpoint93. Section 43(1) of the Arbitration Act states that the Limitation Act, 1963 shall apply to arbitrations as it applies to court proceedings. Sub-section (2) states that for the purposes of the Arbitration Act and Limitation Act, arbitration shall be deemed to have commenced on the date referred to in Section 21. Limitation law is procedural and normally disputes, being factual, would be for the arbitrator to decide guided by the facts found and the law applicable. The court at the referral stage can interfere only when it is manifest that the claims are ex facie time barred and dead, or there is no subsisting dispute. All other cases should be referred to the arbitral tribunal for decision on merits. Similar would be the position in case of disputed ‘no claim certificate’ or defence on the plea of novation and ‘accord and satisfaction’. As observed in Premium Nafta Products Ltd., it is not to be expected that commercial men while entering transactions inter se would knowingly create a system which would require that the court should first decide whether the contract should be rectified or avoided or rescinded, as the case may be, and then if the contract is held to be valid, it would require the arbitrator to resolve the issues that have arisen.

94Copy pinpoint94. We would also resolve the question of principles applicable to interpretation of an arbitration clause. This is important and directly relates to scope of the arbitration agreement. In Premium Nafta Products Ltd., on the question of interpretation and construction of an arbitration clause, it is observed: “In approaching the question of construction, it is therefore necessary to inquire into the purpose of the arbitration clause. As to this, I think there can be no doubt. The parties have entered into a relationship, an agreement or what is alleged to be an agreement or what appears on its face to be an agreement, which may give rise to disputes. They want those disputes decided by a tribunal which they have chosen, commonly on the grounds of such matters as its neutrality, expertise and privacy, the availability of legal services at the seat of the arbitration and the unobtrusive efficiency of its supervisory law. Particularly in the case of international contracts, they want a quick and efficient adjudication and do not want to take the risks of delay and, in too many cases, partiality, in proceedings before a national jurisdiction.” In Narbheram Power and Steel Private Ltd., this Court while dealing with the arbitration clause in the insurance agreement, has held

VIDYA DROLIA AND OTHERS v. 1131 DURGA TRADING CORPORATION [SANJIV KHANNA, J.]

that the arbitration clause should be strictly construed, relying on the principles of strict interpretation that apply to insurance contracts. These observations have been repeated in other cases. What is true and applicable for men of commerce and business may not be equally true and apply in case of laymen and to those who are not fully aware of the effect of an arbitration clause or had little option but to sign on the standard form contract. Broad or narrow interpretations of an arbitration agreement can, to a great extent, effect coverage of a retroactive arbitration agreement. Pro-arbitration broad interpretation, normally applied to international instruments, and commercial transactions is based upon the approach that the arbitration clause should be considered as per the true contractual language and what it says, but in case of doubt as to whether related or close disputes in the course of parties’ business relationship is covered by the clause, the assumption is that such disputes are encompassed by the agreement. The restrictive interpretation approach on the other hand states that in case of doubt the disputes shall not be treated as covered by the clause. D Narrow approach is based on the reason that the arbitration should be viewed as an exception to the court or judicial system. The third approach is to avoid either broad or restrictive interpretation and instead the intention of the parties as to scope of the clause is understood by considering the strict language and circumstance of the case in hand. Terms like ‘all’, ‘any’, ‘in respect of’, ‘arising out of’ etc. can expand the scope and ambit of the arbitration clause. Connected and incidental matters, unless the arbitration clause suggests to the contrary, would normally be covered. Which approach as to interpretation of an arbitration agreement should be adopted in a particular case would depend upon various factors including the language, the parties, nature of relationship, the factual background in which the arbitration agreement was entered, etc. In case of pure commercial disputes, more appropriate principle of interpretation would be the one of liberal construction as there is a presumption in favour of one-stop adjudication.

95Copy pinpoint95. Accordingly, we hold that the expression ‘existence of an arbitration agreement’ in Section 11 of the Arbitration Act, would include aspect of validity of an arbitration agreement, albeit the court at the referral stage would apply the prima facie test on the basis of principles set out in this judgment. In cases of debatable and disputable facts, and good reasonable arguable case, etc., the court would force the parties to H

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A abide by the arbitration agreement as the arbitral tribunal has primary jurisdiction and authority to decide the disputes including the question of jurisdiction and non-arbitrability.

96Copy pinpoint96. Discussion under the heading ‘Who decides Arbitrability?’ can be crystallized as under: B (a) Ratio of the decision in Patel Engineering Ltd. on the scope of judicial review by the court while deciding an application under Sections 8 or 11 of the Arbitration Act, post the amendments by Act 3 of 2016 (with retrospective effect from 23.10.2015) and even post the amendments vide Act 33 of 2019 (with effect from C 09.08.2019), is no longer applicable. (b) Scope of judicial review and jurisdiction of the court under Section 8 and 11 of the Arbitration Act is identical but extremely limited and restricted. (c) The general rule and principle, in view of the legislative mandate clear from Act 3 of 2016 and Act 33 of 2019, and the principle of severability and competence-competence, is that the arbitral tribunal is the preferred first authority to determine and decide all questions of non-arbitrability. The court has been conferred power of “second look” on aspects of non- arbitrability post the award in terms of sub-clauses (i), (ii) or (iv) of Section 34(2)(a) or sub- clause (i) of Section 34(2)(b) of the Arbitration Act. (d) Rarely as a demurrer the court may interfere at the Section 8 or 11 stage when it is manifestly and ex facie certain that the arbitration agreement is non- existent, invalid or the disputes are non-arbitrable, though the nature and facet of non-arbitrability would, to some extent, determine the level and nature of judicial scrutiny. The restricted and limited review is to check and protect parties from being forced to arbitrate when the matter is demonstrably ‘non-arbitrable’ and to cut off the deadwood. The court by default would refer the matter when contentions relating to non-arbitrability are plainly arguable; when consideration in summary proceedings would be insufficient and inconclusive; when facts are contested; when the party opposing arbitration adopts delaying tactics or impairs conduct of arbitration proceedings. This is not the stage for the court to enter into a mini trial or elaborate review so as to usurp the jurisdiction of the arbitral tribunal but to H

VIDYA DROLIA AND OTHERS v. 1133 DURGA TRADING CORPORATION [SANJIV KHANNA, J.]

affirm and uphold integrity and efficacy of arbitration as an A alternative dispute resolution mechanism.

97Copy pinpoint97. Reference is, accordingly, answered.

98Copy pinpoint98. In view of the aforesaid findings and ratio, we dispose of the Civil Appeal and the Special Leave Petitions in the following manner: B Civil Appeal No. 2402 of 2019 In view of the fact that the Arbitral Tribunal is hearing the matter, we leave the issue of arbitrability to the Tribunal to decide and come to a conclusion on the same. Further, the parties are at liberty to execute or challenge the award in accordance with law. The direction that the award cannot be executed without applying for permission of this Court is hereby vacated. Special Leave Petition (Civil) Nos. 5605-5606 of 2019 In this case, arbitral award has been passed on 24th August 2019. It is apprised before this Bench that the Arbitral Tribunal has rejected the objection to the Tribunal’s jurisdiction. In this view, the petitioner is at liberty to pursue the remedy available under Section 34 of the Arbitration Act. Special Leave Petition (Civil) No. 11877 of 2020 In view of the fact that the Arbitral Tribunal is hearing the matter, we leave the issue of arbitrability to the Tribunal to decide and come to a conclusion on the same. Further, the parties are at liberty to challenge the award if they are not satisfied with the same in this regard. N. V. RAMANA, J. F

1. I have had the advantage of reading in advance the opinion of my learned Brother Justice Sanjiv Khanna. The present matters deal with a very important aspect in the arbitration jurisprudence in this country, which necessitate a separate opinion.

2. Recently, Mr. Fali S. Nariman, in one of his lectures had alluded G that the development of arbitration in India is not attributable to the success in arbitration, rather to the failures of the Court. This reflects an uncomfortable relationship which arbitration has had with litigation all these days. The judicial hesitancy of the courts to be more accommodative towards the tribunal and the need for respecting arbitral awards H

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A requires this Court to extensively reflect and bring the Court’s jurisprudence in tune with the liberal intention sought to be furthered post the 2015 amendment to the Arbitration and Conciliation Act, 1996 (hereinafter referred to as “the Act”).

3. Before we delve into the merits of the matters, we need to B have a brief reference to the facts which are necessary for the disposal of these cases. As all the cases are similar, we take facts from Civil Appeal No. 2402 of 2019, to indicate the history of this litigation and the questions which arise from the same. In the year 2006, appellants (tenants) entered into a tenancy agreement with the predecessor title holder with respect to certain buildings. Clause 23 of the agreement contained a C dispute resolution clause. In the year 2012, the tenancy was attorned to the respondent, after which the appellants started paying monthly rent to the respondent (landlord). On 24.08.2015, the respondent (landlord) wrote a letter seeking vacant possession of the property as the period of lease was expiring on 01.02.2016. Appellants (tenants) did not vacate. D Aggrieved, the respondent (landlord) invoked the arbitration under the dispute resolution mechanism provided under the contract. On 28.04.2016, the respondent filed the present Section 11 petition before the Calcutta High Court for appointment of an arbitrator. On 07.09.2016, the High Court passed the impugned order appointing an arbitrator, after rejecting the appellants objections on the arbitrability of the dispute. E

4. Aggrieved by the same, the appellants (tenants) have approached this Court in the present proceedings, on the reason that, after the judgment of the High Court was rendered appointing the arbitrator, this Court in Himangni Enterprises v. Kamaljeet Singh Ahluwalia, (2017) 10 SCC 706 [hereinafter referred as ‘Himangni F Enterprises’] held that where the Transfer of Property Act, 1882 applied between the landlord and tenant disputes between the said parties would not be arbitrable.

5. When Civil Appeal No. 2402 of 2019 was listed for hearing on 28.02.2019, then the said matter was referred to a three- Judge Bench, G with following observations: “7. It will be noticed that “validity” of an arbitration agreement is, therefore, apart from its “existence”. One moot question that therefore, arises, and which needs to be authoritatively decided by a Bench of three learned Judges, is whether the word H “existence” would include weeding-out arbitration clauses in

VIDYA DROLIA AND OTHERS v. 1135 DURGA TRADING CORPORATION [N. V. RAMANA, J.]

agreements which indicate that the subject-matter is incapable of A arbitration… xxxxxxxxxx

30. In this view of the matter, this case is referred to a Bench of three Hon’ble Judges. B

31. Given the facts of this case and the fact that 18 hearings have been held, the stay that has been granted to the arbitral proceedings by our order dated 13.08.2018 is lifted, and the proceedings may go on and culminate in an award. The award cannot be executed without applying to this Court. The appeal is disposed of accordingly.” C

6. The reference order primarily indicates that there are two substantive issues to be settled by this Court herein, namely: I. To what extent does the Court decide the question of non-arbitrability under Section 11 of the Act? D II. Whether tenancy disputes are capable of being resolved through arbitration?

7. Before we analyze the issue, we need to observe arguments canvassed by the counsel appearing for the parties, who set the tone for these cases. E

8. Learned senior counsel, Mr. K. V. Vishwanathan, appearing for the petitioners in SLP (C.) No. 5605-5606 of 2019, submitted as under: • That Section 11(6A) of the Act is a unique provision, which is neither traceable to UNCITRAL Model Law nor any other F domestic legislation. • In spite of the absence of legislative provision in other countries, Courts have adjudicated on the existence of the arbitration agreement at the stage of the appointment of the arbitrator itself. G • The standard of ‘good arguable case’ as expounded in Noble Denton Middle East v. Noble Denton International Ltd., [2010] EWHC 2574 (Comm.), should be applied by the Courts to examine the existence of a valid arbitration agreement. H

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A • Therefore, the scope of judicial enquiry at the stage of reference/appointment is not limited to the mere presence of the arbitration clause.

9. Learned Senior advocate, Mr. Nakul Dewan on behalf of the Respondent in SLP (C.) No. 5605-5606 of 2019, argued that: B • Section 11(6A) was a conscious departure from the earlier existing judicial interpretation, which had widened the scope of judicial enquiry. • The 246th Law Commission Report stated that Section 11(6A) limits the scope of judicial enquiry to determination of a C prima facie existence. • Word ‘existence’ under Section 11(6A) means legally enforceable existence and not mere presence in the contract. • While examining the issue of existence in an application under D Section 11, this Court is merely functioning as an appointing authority.

10. Learned senior counsel, Mr. Manoj Swarup on behalf of the Petitioner in SLP (C.) No. 11877 of 2020, has submitted that: • Lease hold rights under the Transfer of Property Act, 1882 E [hereinafter referred to as “TP Act”]are rights in rem. • A contractual tenant upon determination of lease becomes a statutory tenant and is entitled to the statutory protection.. Therefore, the arbitration in that case would be ousted. • Section 11 is not the stage for determination of the issue of F arbitrability in those cases where the test of Section 89, CPC is to be applied.

11. Learned senior counsel, Mr. Gopal Shankarnarayan on behalf of the Petitioners in SLP (C.) No. 5605-5606 of 2019, submitted that:

G • Section 11(6A) mandates an ‘examination of the evidence of an arbitration agreement’. • The 2015 Amendment does not convert the judicial power conferred in Section 11(6) into an administrative power. • The decision in Mayavati Trading Pvt. Ltd. v. Pradyuat H Deb Burman, (2019) 8 SCC 714 is inapplicable.

VIDYA DROLIA AND OTHERS v. 1137 DURGA TRADING CORPORATION [N. V. RAMANA, J.]

12. Learned counsel, Mr. Sourav Agarwal on behalf of the A Respondent in Civil Appeal No. 2402 of 2019, contended that: • the Court under Section 8 and 11 of the Act, does not act as a mere post-office. • this is a case in which the appellants have participated in the arbitral proceedings. B

• Relying upon various judgments, including certain High Court judgments that were passed after the judgment in Himangni Enterprises (supra) to state that, on facts, Himangni Enterprises (supra) was wholly distinguishable as it did not apply to a situation of a lease expiring by efflux of time. C • certain High Court judgments had, after the judgment in Himangni Enterprises (supra), distinguished the said judgment on this and other grounds. As an alternative submission, he said that, in any case, Himangni Enterprises (supra) would require reconsideration as it did not state the law correctly.

13. We answer the two questions in seriatim.

14. Arbitration is a creature of consensus. It is completely dependent on party autonomy and the intention expressed in the agreement. A contract, having multiple clauses including arbitration agreements, can be divided into two parts. The clauses relating to the commercial relationship, i.e., the obligations and duties of each party, can be referred to as the ‘main contract’. The arbitration agreement so to say is a separate contract in itself.

15. The separability of the arbitration agreement from the main contract, historically existed in Roman law. Since early times, arbitration was viewed with suspicion, which allowed for the development of separability. Ironically, the ‘pro- arbitration’ function of separability in the present day is a late 19th and 20th century development, traceable to Germanic and Swiss jurisprudence. G

16. In India, arbitration was governed earlier by the Arbitration Act of 1899, and later 1940. Presently, arbitration is governed by the Act of 1996, with subsequent amendments. A cursory reading of the legislative history points to the fact that the intention of the legislature is to make the regime ‘pro-arbitration’. Whenever this Court has afforded H

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A a contrary view, there has been a trend to undo the changes to bring it in line with the international standards prevailing in certain arbitration havens such as Singapore, London and Hong Kong.

17. Before we move to the analysis of the case, we need to briefly describe the structure of the Arbitration Act, 1996 with subsequent B amendments. The set-up of both international and domestic arbitration is contained under PARTS I, IA and II of the Act. The preamble to the Act provides that it was enacted with a view to have uniformity of the law of arbitral procedures to establish a fair and efficient mechanism to resolve disputes.

C 18. Section 2 provides for the definition of ‘arbitration agreement’ which is to be interpreted in terms of Section 7 of the Act, which states as under:

7. Arbitration agreement. - (1) In this Part, “arbitration agreement” means an agreement by D the parties to submit to arbitration all or certain disputes which have arisen or which may arise between them in respect of a defined legal relationship, whether contractual or not. (2) An arbitration agreement may be in the form of an arbitration clause in a contract or in the form of a separate agreement. E (3) An arbitration agreement shall be in writing. (4) An arbitration agreement is in writing if it is contained in— (a) a document signed by the parties; (b) an exchange of letters, telex, telegrams or other means of telecommunication including communication through electronic means which provide a record of the agreement; or (c) an exchange of statements of claim and defence in which the existence of the agreement is alleged by one party and not denied by the other. (5) The reference in a contract to a document containing an arbitration clause constitutes an arbitration agreement if the contract is in writing and the reference is such as to make that arbitration clause part of the contract. H

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19. Section 5 emphasizes a very important principle, that judicial A interference in arbitral proceedings should be minimum and should be limited to instances where it is specifically provided for under the Act. Although the provision envisages a wide amplitude, various judgments of this Court have restricted the utility of same. [ICICI Bank Ltd. v. Sidco Leathers Ltd., (2006) 10 SCC 452] B

20. Section 8 of the Act in its present and earlier form, are extracted below:

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A Under the old Arbitration Act, 1940, the Court had the discretion in referring the parties to arbitration, however such discretion is done away with after the coming into force of the 1996 Act. The Arbitration and Conciliation Act, 1996 does not, in specific terms, exclude any category of disputes—civil or commercial—from arbitrability. Intrinsic legislative material is in fact to the contrary. Section 8 contains a mandate that where an action is brought before a judicial authority in a matter which is the subject of an arbitration agreement, the parties shall be referred by it to arbitration, if a party to or a person claiming through a party to the arbitration agreement applies not later than the date of submitting the first statement on the substance of the dispute. The only exception is where the authority finds, prima facie, that there is no valid arbitration agreement. Section 8 contains a positive mandate and obligates the judicial authority to refer parties to arbitration in terms of the arbitration agreement. While dispensing with the element of judicial discretion, the statute imposes an affirmative obligation on every judicial authority to hold down parties to the terms of the agreement entered into between them to refer disputes to arbitration. Article 8 of the UNCITRAL Model Law enabled a court to decline to refer parties to arbitration if it is found that the arbitration agreement is null and void, inoperative or incapable of being performed. Section 8 of the Act has made a departure from the UNCITRAL law which is indicative of the wide reach and ambit of the statutory mandate. Section 8 uses the expansive expression “judicial authority” rather than “court” and the words “unless it finds that the agreement is null and void, inoperative and incapable of being performed” do not find place in Section 8.

21. On the 2015 amendment to Section 8, Justice Indu F Malhotra, comments as under: Section 8 was amended by the 2015 Amendment to clarify the scope of enquiry by the judicial authority at the pre-reference stage. The court would be required to make a prima facie determination as to whether there is valid arbitration agreement.77 G We must state that we are partly in agreement with the aforesaid, wherein the judicial authorities have been given a clear mandate for interference at the pre-reference stage, however, the threshold standard is worded differently, as pointed herein. 77 Justice Indu Malhotra, Commentary on the Law of Arbitration, Vol. I, 4th Ed., p. H 317.

VIDYA DROLIA AND OTHERS v. 1141 DURGA TRADING CORPORATION [N. V. RAMANA, J.]

22. Section 11 of the Act in its present and earlier forms, are A extracted below: Section 11 prior to Act 11 Section 11 after Act 3 of 2016 Section 11 after Act 33 of of 2016 2016

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VIDYA DROLIA AND OTHERS v. 1143 DURGA TRADING CORPORATION [N. V. RAMANA, J.]

(8) The Chief Justice or sub-section(4) or days from receipt of a A the person or institution sub-section(5) or request by one party designated by him, in sub-section(6), shall, from the other party to appointing an arbitrator, notwithstanding any so agree the appointment shall have due regard to judgment, decree or order shall be made on an – of any Court, confine to application of the party (a) any qualification the examination of the in accordance with the required of the arbitrator existence of an arbitration provisions contained in by the agreement of the agreement. sub- section(4). parties; and (6B) The designation of (6) Where, under an (b) other considerations any person or institution appointment procedure as are likely to secure the by the Supreme Court or, agreed upon by the appointment of an as the case may be, the parties, - independent and High Court, for the (a) a party fails to act as impartial arbitrator. purposes of this section required under that shall not be regarded as a procedure; or (9) In the case of delegation of judicial appointment of sole or power by the Supreme (b) the parties, or the two third arbitrator in an Court or the High Court. appointed arbitrators, international commercial fail to reach an arbitration, the Chief (7) A decision on a matter agreement expected of Justice of India or the entrusted by them under that person or institution sub-section(4) or procedure; or designated by him may sub-section(5) or appoint an arbitrator of a sub-section(6) to the (c) a person, including nationality other than the Supreme Court or, as the an institution, fails to nationalities of the case may be, the High perform any function parties where the parties Court or the person or entrusted to him or it belong to different institution designated by under that procedure, the nationalities. such Court is final and no appointment shall be appeal including Letters made, on an application (10) The Chief Justice Patent Appeal shall lie of the party, by the may make such scheme against such decision arbitral institution as he may deem designated by the appropriate for dealing (8) The Supreme Court Supreme Court, in case with matters entrusted by or, as the case may be, the of international sub- section(4) or sub- High Court or the person commercial arbitration, section(5) or sub- or institution designated or by the High Court, in section(6) to him. by such Court, before case of arbitrations other appointing an arbitrator, than international (11) Where more than shall seek a disclosure in commercial arbitration, one request has been writing from the as the case may be to made under sub- prospective arbitrator in take the necessary section(4) or sub- terms of sub-section(1) of measure, unless the section(5) or section 12, and have due agreement on the sub-section(6) to the regard to— appointment procedure Chief Justices of (a) any qualifications provides other means for different High Courts or required for the arbitrator securing the their designates, the by the agreement of the appointment. Chief Justice or his parties; and designate to whom the H

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