IN RE: INTERPLAY BETWEEN ARBITRATION AGREEMENTS

The General Assembly of the United Nations recommended to all states to give due consideration to the Model Law in view of the desirability of achieving uniformity of the law of arbitral procedure and the specific needs of international commercial arbitration practice.55

63Copy pinpoint63. The Arbitration Act was enacted to “consolidate and amend the law relating to domestic arbitration, international commercial arbitration and enforcement of foreign arbitral awards as also to define the law relating to the conciliation and for matters connected therewith or incidental thereto.” In the process, the Arbitration Act repealed the 1940 Act, the Arbitration (Protocol and Convention) Act 1937, and the Foreign Awards (Recognition and Enforcement) Act 1961. It also brought domestic as well as international commercial arbitration in consonance with the Model Law, the New York Convention, and the Geneva Convention. The Arbitration Act is divided into four parts: (i) Part I deals with domestic and international arbitration that takes place in India; (ii) Part II deals with the enforcement of foreign arbitral awards under the New York Convention and the Geneva Convention; (iii) Part III deals with conciliation; and (iv) Part IV contains supplementary provisions. In the present reference, we are largely concerned with Part I of the Arbitration Act. The important principles which animate the law on arbitration as indeed the Arbitration Act are discussed in the following segment. These principles act as important aids to interpret the Arbitration Act. i. Arbitral autonomy

64Copy pinpoint64. In medieval England, recourse to arbitration was commonplace among merchants and traders. During the seventeenth and the eighteenth century, settlement of commercial disputes by arbitration was encouraged by both Chancery and the courts.56 In light of the widespread use of arbitration, coupled with a rapid decline in court litigation, the English courts began to actively discourage arbitration as a dispute resolution mechanism.57 Judicial

55 General Assembly of the United Nations, ‘Model Law on International Commercial Arbitration of the United Nations Commission on International Trade Law’ 40/72 112th Plenary Session, 11 December 1985. 56 Henry Horwitz and James Oldham, ‘John Locke, John Mansfield, and Arbitration during the Eighteenth Century’ (1993) 36(1) The Historical Journal 137, 139. 57 Earl Wolaver, ‘The Historical Background of Commercial Arbitration’ (1934) 83 University of Pennsylvania Law Review 132, 142.

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scepticism towards arbitration proceedings mainly stemmed from the attitude of judges that “every activity that occurred within a jurisdiction should be within the purview of state law and court.”58

65Copy pinpoint65. As cross-border commerce and transactions proliferated, companies and businesses sought different ways to resolve their commercial disputes. The formality, customs, and legal traditions of national courts were at variance with the intention of the parties to achieve a speedy and efficient resolution of their disputes. The internationalization of trade and commerce in the middle of the nineteenth century necessitated the regulation and institutionalization of arbitration. In the process, arbitration was also detached from the national legal systems, with the growth of arbitral institutions such as the London Chamber of Arbitration and International Chamber of Commerce. This new regime of arbitration law paved the way for greater recognition of the mutual intention of parties and the authority of arbitral tribunals to resolve disputes without being bogged down by the intricacies of national legal systems. This was commended and reflected in various international instruments such as the New York Convention and the UNCITRAL Model Law. Accordingly, national laws were changed to reflect the principle of judicial non-interference in arbitration proceedings. The demands of commerce and business efficiency meant that control by national courts became subordinate to the intention of the parties and the authority of the arbitral tribunal.59

66Copy pinpoint66. The principle of arbitral autonomy is an integral element of the ever-evolving domain of arbitration law. Arbitral autonomy means that the parties to an arbitration agreement can exercise their contractual freedom to bestow the arbitral tribunal with the authority to decide disputes that may arise between them. The basis of arbitral autonomy is to give effect to the true intention of parties to distance themselves from the “risk of domestic judicial parochialism.”60

58 Julian D M Lew, ‘Achieving the Dream: Autonomous Arbitration’ (2006) 22(2) Arbitration International 179, 183. 59 Ibid, at 185 60 Redfern and Hunter on International Arbitration (7th edn, Oxford University Press, 2023) 388

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67Copy pinpoint67. The principle of judicial non-interference reflects the autonomy of arbitral tribunals. Arbitral tribunals are autonomous in the sense that they are constituted to give effect to the mutual intention of the parties to settle their disputes through a neutral and expert authority of their choice. Moreover, the competence of an arbitral tribunal to rule on its own jurisdiction, including ruling on any objections with respect to the existence or validity of the arbitration agreement, also indicates that the arbitral tribunal enjoys sufficient autonomy from the national courts.

68Copy pinpoint68. Section 9 of the Code of Civil Procedure 1908 provides that the courts shall have jurisdiction to try all suits of a civil nature excepting suits of which cognizance is either expressly or impliedly barred. Section 28 of the Contract Act states that agreements that restrict a party to a contract absolutely from enforcing their rights under or in respect of any contract by way of usual legal proceedings are void. However, the provision expressly saves contracts by which two or more persons agree to refer to arbitration any dispute which may arise between them in respect of any subject or class of subjects. By choosing to settle their disputes through arbitration, parties surrender their right to litigate before the national courts in favour of the arbitral tribunal. By surrendering their right to litigate in national courts, parties also surrender their right to be bound by national procedural laws in favour of expedition, informality, and efficiency of the arbitral process. The arbitral tribunal is not subject to the procedural laws of a country. For instance, Section 19 of the Arbitration Act expressly provides that the arbitral tribunal shall not be bound by the Code of Civil Procedure 1908 or the Indian Evidence Act 1872. Moreover, it stipulates that an arbitral tribunal may conduct the proceedings in any manner it deems appropriate if the parties fail to agree on the procedure to be followed by the tribunal. Although arbitral tribunals have autonomy in the procedural and substantive sense, they are not completely independent of the law of the country in which the arbitral tribunal has its juridical seat, as discussed in the following segments. ii. Principle of minimum judicial interference

69Copy pinpoint69. The principle of judicial non-interference in arbitral proceedings is fundamental to both domestic as well as international commercial arbitration. The principle entails that the arbitral proceedings are carried out pursuant to the agreement of the parties or under the direction of the

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tribunal without unnecessary interference by the national courts. 61 This principle serves to proscribe judicial interference in arbitral proceedings, which would undermine the objective of the parties in agreeing to arbitrate their disputes, their desire for less formal and more flexible procedures, and their desire for neutral and expert arbitral procedures. 62 The principle of judicial non-interference in arbitral proceedings respects the autonomy of the parties to determine the arbitral procedures. This principle has also been incorporated in international instruments, including the New York Convention63 and the Model Law.

70Copy pinpoint70. Article 5 of the Model Law deals with the extent of court intervention. It states that “[i]n matters governed by this Law, no court shall intervene except where so provided in this Law.” The drafters of the Model Law deemed it important to incorporate this article to provide “certainty to the parties and the arbitrators about the instances in which court supervision or assistance was to be expected.”64 By including the introductory words “in matters governed by this law”, the scope of the provision was limited only to matters which were governed by or regulated in the Model Law. The purpose was to ensure that no judicial authority assigns to itself the power that has been expressly and exclusively bestowed upon the arbitral tribunal. For instance, Article 16 of the Model Law confers upon the arbitral tribunal an exclusive power to rule on its jurisdiction including dealing with objections pertaining to the existence and validity of an arbitration agreement.

71Copy pinpoint71. The Model Law does not regulate or govern all matters related to international commercial arbitration as well as the arbitral process.65 Similarly, Article 5 does not bar the national courts from intervening in

61 Gary Born, The Principle of Judicial Non-Interference in International Arbitration Proceedings’ (2009) 30 University of Pennsylvania Journal of International Law 999, 1002. 62 Gary Born, International Arbitration Law and Practice (3rd ed, 2021) 2361 63 Article II(3), New York Convention 64 Report of the Working Group on International Contract Practices on the work of its seventh session, A/CN.9/246 (New York, 23 January-3 February 1984) 45. 65 Manuel A Gomez, ‘Article 5: Extent of Court Intervention’ in Ilias Bantekas (eds) UNCITRAL Model Law on International Commercial Arbitration: A Commentary 89 (2020)

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matters not governed by the Model Law.66 The UNCITRAL Working Group itself identified certain situations not dealt with under the Model Law where the national courts could intervene: “Article 5 would, for example, not exclude court control or assistance in those matters which the Working Group had decided not to deal with in the law (e.g., capacity of parties to conclude arbitration agreement; impact of state immunity; competence of arbitral tribunal to adapt contracts; enforcement by courts of interim measures of protection ordered by arbitral tribunal; fixing of fees or request for deposit, including security for fees or costs; time-limit for enforcement of awards).”

72Copy pinpoint72. This indicates that Article 5 of the Model Law emphasizes on arbitral tribunal being the first instance to determine all issues relating to matters of law or construction as well as issues of jurisdiction and scope of authority.67 It exclusively determines the manner and form of judicial intervention in the arbitration process. National courts can intervene with respect to matters not expressly governed by the Model Law. 68

73Copy pinpoint73. Section 5 of the Arbitration Act is based on Article 5 of the Model Law. However, Section 5 also incorporates a non-obstante clause setting out the scope of judicial intervention. It reads as follows: “5. Extent of judicial intervention.- Notwithstanding anything contained in any other law for the time being in force, in matters governed by this Part, no judicial authority shall intervene except where so provided in this Part.” Two aspects become clear from a comparison of Section 5 of the Arbitration Act with Article 5 of the Model Law: first, Section 5 begins with a non-obstante clause unlike Article 5; and second, it limits the scope of judicial intervention to the extent “so provided” in Part I.

66 Digest of Case Law on the Model Law on International Commercial Arbitration (2012) 21 67 Rio Algam v. Sammi Steel Co., Ontario Court of Justice, Canada, 1 March 1991, [1991] O.J. No. 268 68 Richard Garnett, ‘Article 5 of the Model Law: Protector of the Arbitral Process?’ (2021) 38(2) Journal of International Arbitration 127-146.

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74Copy pinpoint74. One of the main objectives of the Arbitration Act is to minimize the supervisory role of courts in the arbitral process. Party autonomy and settlement of disputes by an arbitral tribunal are the hallmarks of arbitration law. Section 5 gives effect to the true intention of the parties to have their disputes resolved through arbitration in a quick, efficient, and effective manner by minimizing judicial interference in the arbitral proceedings.69 Parliament enacted Section 5 to minimize the supervisory role of courts in the arbitral process to the bare minimum, and only to the extent “so provided” under the Part I of Arbitration Act. In doing so, the legislature did not altogether exclude the role of courts or judicial authorities in arbitral proceedings, but limited it to circumstances where the support of judicial authorities is required for the successful implementation and enforcement of the arbitral process.70 The Arbitration Act envisages the role of courts to “support arbitration process”71 by providing necessary aid and assistance when required by law in certain situations.

75Copy pinpoint75. Section 5 begins with the expression “notwithstanding anything contained in any other law for the time being in force.” The non-obstante clause is Parliament’s addition to the Article 5 of the Model Law. It is of a wide amplitude and sets forth the legislative intent of limiting judicial intervention during the arbitral process. In the context of Section 5, this means that the provisions contained in Part I of the Arbitration Act ought to be given full effect and operation irrespective of any other law for the time being in force. It is now an established proposition of law that the legislature uses non-obstante clauses to remove all obstructions which might arise out of the provisions of any other law, which stand in the way of the operation of the legislation which incorporates the non-obstante clause. 72

76Copy pinpoint76. A non-obstante clause is appended in a provision to give such provision overriding effect over other provisions of the law.73 In

69 Food Corporation of India v. Indian Council of Arbitration, (2003) 6 SCC 564 70 Union of India v. Popular Construction Co., (2001) 8 SCC 470; P Anand Gajapathi Raju v. P.V.G. Raju, (2000) 4 SCC 539 71 Swiss Timing Ltd. v. Commonwealth Games 2010 Organising Committee, (2014) 6 SCC 677 72 State of Bihar v. Bihar Rajya M.S.E.S.K.K. Mahasangh, (2005) 9 SCC 129 73 Owners and Parties Interested in the Vessel M.V. Polaris Galaxy v. Banque Cantonale De Geneva, 2022 SCC OnLine SC 1293

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Chandavarkar Sita Ratna Rao v. Ashalata S. Guram,74 Justice Sabyasachi Mukharji explained the purport of non-obstante clause in the following terms: “67. A clause beginning with the expression “notwithstanding anything contained in this Act or in some particular provision in the Act or in some particular Act or in any law for the time being in force, or in any contract” is more often than not appended to a section in the beginning with a view to give the enacting part of the section in case of conflict an overriding effect over the provision of the act or the contract mentioned in the non obstante clause. It is equivalent to saying that in spite of the provisions of the Act or any other Act mentioned in the non obstante clause or any contract or document mentioned the enactment following it will have its full operation or that the provisions embraced in the non obstante clause would not be an impediment for an operation of the enactment.”

77Copy pinpoint77. Although a non-obstante clause must be allowed to operate with full vigour, its effect is limited to the extent intended by the legislature. In ICICI Bank Ltd v. SIDCO Leathers Ltd,75 a two-Judge Bench of this Court held that a non-obstante clause must be interpreted by confining it to the legislative policy. Thus, even if a non-obstante clause has wide amplitude, the extent of its impact has to be measured in view of the legislative intention and legislative policy.76 In view of this settled legal position, the issue that arises for our consideration is the scope of the non-obstante clause contained in Section 5 of the Arbitration Act.

78Copy pinpoint78. In Morgan Securities & Credit (P) Ltd. v. Modi Rubber Ltd.,77 the issue before the two-Judge Bench was whether the provisions of the Arbitration Act would prevail over the provisions of the Sick Industrial Companies (Special Provisions) Act, 1985.78 While noting the non-obstante clause contained in Section 5 of the Arbitration Act, this Court held that the non-obstante clause has “limited application aiming at the extent of judicial

74 (1986) 4 SCC 447 75 (2006) 10 SCC 452 76 JIK Industries Ltd. v. Amarlal V. Jumani, (2012) 3 SCC 255 77 (2006) 12 SCC 642 78 “SICA”

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intervention.” It was held that the Arbitration Act would not prevail over SICA since the latter enactment seeks to “achieve a higher goal.” In other words, the scope of the non-obstante clause is limited to prohibiting the intervention of judicial authorities, unless it has been expressly provided for under Part I of the Arbitration Act.

79Copy pinpoint79. Similar to Article 5 of the Model Law, Section 5 uses the expression “in matters governed by this Part.” The use of this expression circumscribes the scope of judicial intervention to matters expressly governed by Part I of the Arbitration Act. The matters governed by Part I inter alia include (i) Section 8 which mandates judicial authorities to refer parties to arbitration when prima facie there is a valid arbitration agreement; (ii) Section 9 which allows courts to issue interim measures on an application made by a party to an arbitration agreement; (iii) Section 11 which empowers the Supreme Court or the High Courts to appoint arbitrators on an application made by parties to an arbitration agreement; (iv) Section 27 which allows the arbitral tribunal to request the court for assistance in taking evidence; and (v) Section 34 which empowers the court to set aside an arbitral award on the basis of the limited grounds mentioned therein.

80Copy pinpoint80. Section 5 has two facets – positive and negative. The positive facet vests judicial authorities with jurisdiction over arbitral proceedings in matters expressly allowed in or dealt with under Part I of the Arbitration Act. The flip side to this approach is that judicial authorities are prohibited from intervening in arbitral proceedings in situations where the arbitral tribunal has been bestowed with exclusive jurisdiction. This is the negative facet of Section 5. The non-obstante clause limits the extent of judicial intervention in respect of matters expressly provided under the Arbitration Act.79 In Bhaven Construction v. Sardar Sarovar Narmada Nigam Ltd,80 a Bench of three Judges of this Court observed that the “non- obstante clause is provided to uphold the intention of the legislature as provided in the Preamble to adopt UNCITRAL Model Law and Rules, to reduce excessive judicial interference which is not contemplated under the Arbitration Act.”

79 Secur Industries Ltd v. Godrej & Boyce Mfg. Co. Ltd, (2004) 3 SCC 447 80 (2022) 1 SCC 75

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81Copy pinpoint81. One of the main objectives behind the enactment of the Arbitration Act was to minimize the supervisory role of courts in the arbitral process by confining it only to the circumstances stipulated by the legislature. For instance, Section 16 of the Arbitration Act provides that the arbitral tribunal may rule on its own jurisdiction “including ruling on any objection with respect to the existence or validity of the arbitration agreement.” The effect of Section 16, bearing in view the principle of minimum judicial interference, is that judicial authorities cannot intervene in matters dealing with the jurisdiction of the arbitral tribunal. Although Sections 8 and 11 allow courts to refer parties to arbitration or appoint arbitrators, Section 5 limits the courts from dealing with substantive objections pertaining to the existence and validity of arbitration agreements at the referral or appointment stage. A referral court at Section 8 or Section 11 stage can only enter into a prima facie determination. The legislative mandate of prima facie determination ensures that the referral courts do not trammel the arbitral tribunal’s authority to rule on its own jurisdiction.

82Copy pinpoint82. Section 5 is of aid in interpreting the extent of judicial interference under Sections 8 and 11 of the Arbitration Act. Section 5 contains a general rule of judicial non-interference. Therefore, every provision of the Arbitration Act ought to be construed in view of Section 5 to give true effect to the legislative intention of minimal judicial intervention. iii. The Arbitration Act is a self-contained code

83Copy pinpoint83. In Girnar Traders v. State of Maharashtra,81 a Constitution Bench of this Court observed that a self-contained code is a complete legislation with regard to the purpose for which it is enacted. Such a self- contained code provides for a complete machinery to deal with the purpose sought to be achieved by that law and its dependence on other legislations is either absent or minimal.

84Copy pinpoint84. A two-Judge Bench of this Court, in Fuerst Day Lawson Ltd. v. Jindal Exports Ltd,82 explained the nature of the Arbitration Act in the following terms:

81 (2011) 3 SCC 1 82 (2011) 8 SCC 333

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“89. It is, thus, to be seen that Arbitration Act, 1940, from its inception and right through to 2004 (in P.S. Sathappan [(2004) 11 SCC 672]) was held to be a self-contained code. Now, if the Arbitration Act, 1940 was held to be a self-contained code, on matters pertaining to arbitration, the Arbitration and Conciliation Act, 1996, which consolidates, amends and designs the law relating to arbitration to bring it, as much as possible, in harmony with the Uncitral Model must be held only to be more so. Once it is held that the Arbitration Act is a self-contained code and exhaustive, then it must also be held, using the lucid expression of Tulzapurkar, J., that it carries with it “a negative import that only such acts as are mentioned in the Act are permissible to be done and acts or things not mentioned therein are not permissible to be done”. In other words, a letters patent appeal would be excluded by the application of one of the general principles that where the special Act sets out a self- contained code the applicability of the general law procedure would be impliedly excluded.”

85Copy pinpoint85. The Arbitration Act is a self-contained code inter alia with respect to matters dealing with appointment of arbitrators, commencement of arbitration, making of an award and challenges to the arbitral award, as well as execution of such awards.83 When a self-contained code sets out a procedure, the applicability of a general legal procedure would be impliedly excluded.84 Being a self-contained and exhaustive code on arbitration law, the Arbitration Act carries the imperative that what is permissible under the law ought to be performed only in the manner indicated, and not otherwise. Accordingly, matters governed by the Arbitration Act such as the arbitration agreement, appointment of arbitrators and competence of the arbitral tribunal to rule on its jurisdiction have to be assessed in the manner specified under the law. The corollary is that it is not permissible to do what is not mentioned under the Arbitration Act. Therefore, provisions of other statutes cannot interfere with the working of the Arbitration Act, unless specified otherwise.

83 Pasl Wind Solutions (P) Ltd v. GE Power Conversion (India) (P) Ltd., (2021) 7 SCC 1; Kandla Export Corporation v. OCI Corporation, (2018) 14 SCC 715 84 Subal Paul v. Malina Paul, (2003) 10 SCC 361

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iv. Principles of modern arbitration

86Copy pinpoint86. The Stamp Act and the Indian Arbitration Act, 1899 came into force on the same day, that is, 1 July 1899. The Arbitration Act, 1899, which was enacted more than a century ago, did not have minimum judicial interference as its avowed object. However, the law on arbitration has undergone a sea change over the course of a century.

87Copy pinpoint87. The Arbitration Act represents the principles of modern arbitration, which seeks to give effect to the mutual intention of the parties to resolve their disputes by a neutral third-party arbitral tribunal, whose decision is final and binding on all the parties. Arbitration law allows the parties to design arbitral procedures, which ensures efficiency and expediency of the arbitration process. One of the reasons that business and commercial entities prefer arbitration is because it obviates cumbersome judicial processes, which can often prove expensive, complex, and interminable. Most legal jurisdictions have also recognized and adopted legal approaches that favor arbitration at both the domestic and international level. In the process, national courts have given effect to principles such as the separability presumption and jurisdictional competence of the arbitral tribunal. Modern arbitration law does not completely restrict the role of national courts in the arbitration process, but gives priority to the arbitral tribunal to decide on disputes and issues pertaining to arbitration agreements as well as the substantive rights of the parties. The Arbitration Act reflects these aspects of modern arbitration law. It is the duty of this Court to interpret the Arbitration Act in a manner which gives life to the principles of modern arbitration in India. F*. The law on the arbitration agreement

88Copy pinpoint88. An arbitration agreement is the foundation of arbitration as it records the consent of the parties to submit their disputes to arbitration. 85 In Bihar State Mineral Development Corporation v. Encon Builders,86 this Court enlisted the essential elements of an arbitration agreement as follows:

* Ed. Note: PART F 85 Redfern and Hunter on International Arbitration (7th edn, Oxford University Press, 2023) 49 86 (2003) 7 SCC 418

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a. There must be a present or future difference in connection with some contemplated affair; b. There must be the intention of the parties to settle such disputes by a private tribunal; c. The parties must agree in writing to be bound by the decision of such tribunal; and d. The parties must be ad idem.

89Copy pinpoint89. Section 2(b) of the Arbitration Act defines an “arbitration agreement” to mean an agreement referred to in Section 7. Section 7 defines an “arbitration agreement” to mean an agreement by 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. It provides that an arbitration agreement could be in the form of an arbitration clause in a contract or in the form of a separate agreement. Further, Section 7 mandates that an arbitration agreement shall be in writing. According to Section 7(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. Section 7(5) provides that a 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. i. Separability of the arbitration agreement

90Copy pinpoint90. The concept of separability or severability of an arbitration agreement from the underlying contract is a legal fiction which acknowledges the separate nature of an arbitration agreement. The separate nature of the arbitration agreement from the underlying contract is one of the cornerstones of arbitration law. As Redfern and Hunter explain, an arbitration agreement is juridically independent from the underlying contract in which it is contained.87

87 Redfern and Hunter on International Arbitration (7th edn, Oxford University Press, 2023) 81

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The concept of separability reflects the presumptive intention of the parties to distinguish the underlying contract, which captures the substantive rights and obligations of the parties, from an arbitration agreement which provides a procedural framework to resolve the disputes arising out of the underlying contract. This presumption has various consequences in theory and practice, the most important being that an arbitration agreement survives the invalidity or termination of the underlying contract.

91Copy pinpoint91. Schwebel, Sobota and Manton explain in a book on International Arbitration that the separability presumption88 is based on four factors: first, the intention of the parties to require arbitration of any dispute arising between them, including disputes over the validity of the contract; second, preventing an unwilling party from avoiding its earlier commitment by alleging the invalidity of the underlying contract; third, since the arbitration agreement and the underlying contract are considered as two separate agreements, the insufficiency in fulfilling formalities in the underlying contract would not result in the invalidity of the arbitration agreement; and fourth, if the separability presumption is discarded, courts will have to rule on the merits of the disputes instead of the arbitral tribunals.

92Copy pinpoint92. The rationale for the separability presumption lies in the contractual freedom of the parties to an arbitration agreement to settle their disputes by proceedings before an arbitral tribunal to the exclusion of courts. According to the common grain of business understanding and expectation, the parties intend all their disputes over substantive rights and obligations under the underlying contract to be resolved by the arbitral tribunal.89 Therefore, the separability presumption ensures that an arbitration agreement survives a termination, repudiation, or frustration of a contract to give effect to the true intention of the parties and ensure sanctity of the arbitral proceedings.

93Copy pinpoint93. Switzerland was one of the first jurisdictions to recognize the separability presumption. In a decision rendered by the Swiss Federal Tribunal in 1933, it was observed that “[e]ven where the arbitration clause is contained in the same document as the substantive contract to which it relates

88 Stephen Schwebel, Luke Sobota, and Ryan Manton, International Arbitration: Three Salient Problems (Cambridge University Press, 2nd edn, 2020) 4. 89 Mulheim Pipecoatings GmbH v. Welspun Fintrade Ltd., 2013 SCC OnLine Bom 1048

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and therefore from the outside appears as a part of the main agreement, it still does not constitute a single provision of the main agreement but an independent agreement of a special nature.”90 However, Gary Born points out that although an arbitration agreement could be separated from the underlying contract, it can never be independent or autonomous from such contract.91 This is largely due to the fact that in certain situations, the defects in the underlying contract could also invalidate the arbitration agreement.

94Copy pinpoint94. To properly understand the contours of the separability presumption, it is necessary to understand its origin and development in the international context. Such an analysis is important because any ruling by this Court on the separability presumption ought to be with the aid of international best practices. d. United Kingdom

95Copy pinpoint95. The separability presumption developed gradually in English law starting with the decision of the House of Lords in Heyman v. Darwins.92 The issue before the House of Lords was whether an arbitration agreement contained in an underlying contract could survive the termination of such contract for a repudiatory breach. It was held that an arbitration agreement is collateral to the substantive contract and could survive its termination. Lord Macmillan observed that an arbitration agreement is materially different from other ordinary contracts, the reason being that breach of obligations under ordinary contracts cannot (in general) be specifically enforced and breach of them results only in damages, but an arbitration agreement can be specifically enforced by the machinery of the arbitration Acts. Lord Macmillan concluded that repudiation or breach of a contract does not extinguish the arbitration agreement, because it survives for the purpose of resolving the outstanding claims arising out of the breach: “I am, accordingly, of the opinion that what is commonly called repudiation or total breach of a contract, whether acquiesced in by the other party or not, does not abrogate the contract, though it may

90 Judgment of 7 October 1933, Tobler v. Justizkommission des Kantons Schwyz, DFT 59 | 177 (1933) 91 Gary Born (n 62) 377 92 [1942] AC 356

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relieve the injured party of the duty of further fulfilling the obligations which he has by the contract undertaken to the repudiating party. The contract is not put out of existence, though all further performance of the obligations undertaken by each party in favour of the other may cease. It survives for the purpose of measuring the claims arising out of the breach, and the arbitration clause survives for determining the mode of their settlement. The purposes of the contract have failed, but the arbitration clause is not one of the purposes of the contract.”

96Copy pinpoint96. In subsequent decisions, the English courts reiterated the separability presumption. In Harbour Assurance Co. (U.K.) Ltd. v. Kansa General International Insurance Co. Ltd.93, the Court of Appeal held that an arbitration agreement is “a self-contained contract collateral to the containing contract.” The separability presumption is also enshrined in Section 7 of the UK Arbitration Act 199694 in the following terms: “Unless otherwise agreed by the parties, an arbitration agreement which forms or was intended to form part of another agreement (whether or not in writing) shall not be regarded as invalid, non-existent or ineffective because that other agreement is invalid, or did not come into existence or has become ineffective, and it shall for that purpose be treated as a distinct agreement.”

97Copy pinpoint97. Chitty on Contracts states that Section 7 of the UK Arbitration Act maintains the established common law principle which treats an arbitration agreement as distinct from the contract of which it forms part.95 According to Chitty, treating an arbitration agreement distinct and separate from the underlying contract has two consequences: first, an arbitration agreement can be void or voidable only on the grounds which directly relate to it; and second, if the arbitration agreement is valid and binding and is sufficiently wide in its terms, issues relating to the validity, existence, or effectiveness of the underlying contract are within the substantive jurisdiction of the arbitral tribunal.96

93 [1993] Q.B. 701 94 “UKG Arbitration Act” 95 Chitty on Contracts, Hugh Beale (ed), (32nd edn, Sweet and Maxwell, 2015) para 32- 028 96 ibid

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98Copy pinpoint98. In Premium Nafta Products Limited v. Fili Shipping Co. Ltd.,97 the House of Lords further explained the separability presumption in Section 7 of the UK Arbitration Act. In that case, the issue was whether a party was bound by an arbitration agreement contained in an underlying contract which was allegedly procured by fraud and bribery. Lord Hoffman, writing for the House of Lords, held that it could be enforced in view of the separability presumption. The Law Lord held that an arbitration agreement in terms of Section 7 of the UK Arbitration Act is a “distinct agreement” from the underlying contract and, therefore, can be void or voidable only on grounds which relate directly to the arbitration agreement. Lord Hoffman, built on his past decision in Harbour Assurance (supra), by holding that Section 7 protects an arbitration agreement from any indirect challenge. e. United States of America

99Copy pinpoint99. The US Federal Arbitration Act presupposes that an arbitration agreement can be separate and distinct from the underlying contract. 98 The separability presumption was subsequently reiterated by US courts with respect to both international and domestic arbitration. In Prima Paint Corporation v. Flood & Conklin Mfg. Co.,99 the Supreme Court of the United States affirmed the separability presumption by observing that “arbitration clauses as a matter of federal law are ‘separable’ from the contracts in which they are embedded.” In reaching this conclusion, the court emphasized upon the presumptive desire of the parties to insulate the arbitration agreement from challenges directed at the underlying contract. The position of law which was laid down in Prima Paint (supra) was reiterated by the Supreme Court of the United States in Buckeye Check Cashing Inc v. Cardegna100 and Rent-A-Center, West, Inc. v. Jackson.101 In Rent-A-Center (supra), it was held that application of the severability rule does not depend on the substance of the remainder of the contract.

97 [2007] UKHL 40 98 Gary Born (n 62) 382 99 388 US 395 (1967) 100 546 U.S. 440, 440 (2006) 101 2 561 U.S. 63 (2010)

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f. Singapore

100Copy pinpoint100. The doctrine of separability has been statutorily recognized under the domestic arbitration regime in Singapore through Section 21 of the Singaporean Arbitration Act, 2001.102 The provision is that “an arbitration clause which forms part of a contract shall be treated as an agreement independent of the other terms of the contract.” The separability presumption has been further explained by the Singapore High Court in BNA v. BNB. The High Court observed that the “parties intend their arbitration agreement to remain effective if a provision of the substantive contract into which it is integrated could, in certain circumstances of fact or law, operate to render their arbitration agreement invalid.”103 Thus, the Singapore High Court held that the purpose of the separability presumption is to insulate an arbitration agreement from invalidity that may arise from a challenge to the substantive contract. g. International Conventions

101Copy pinpoint101. The New York Convention does not expressly provide for the separability presumption. Article II of the Convention defines an arbitration agreement as including “an arbitral clause in a contract or an arbitration agreement, signed by the parties or contained in an exchange of letters or telegrams.” Moreover, Article V(1)(a) provides that the recognition and enforcement of an arbitral award may be refused where the arbitration agreement “is not valid under the law to which the parties have subjected it or, failing any indication thereon, under the law of the country where the award was made.” The provision rests on the premise that international arbitration agreements could be subjected to different national laws and legal rules than the underlying contract, and, therefore, an arbitration agreement is presumptively separate from the underlying contract. According to Gary Born, Article II and Article V(1)(a) of the New York Convention indicate that the Convention treats an arbitration agreement as being different from the underlying contract.104

102 Arbitration Act 2001 (No. 37 of 2001) 103 [2019] SGHC 142 104 Gary Born (n 62) 378

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102Copy pinpoint102. Article 16 of the Model Law deals with the competence of an arbitral tribunal to rule on its own jurisdiction. Article 16(1) provides: “The arbitral tribunal may rule on its own jurisdiction, including any objections with respect to the existence or validity of the arbitration agreement. For that purpose, an arbitration clause which forms part of a contract shall be treated as an agreement independent of the other terms of the contract. A decision by the arbitral tribunal that the contract is null and void shall entail ipso jure the invalidity of the arbitration clause.” (emphasis supplied)

103Copy pinpoint103. Rule 23 of the UNCITRAL Arbitration Rules, 2021 also provides that “an arbitration clause that forms part of a contract shall be treated as an agreement independent of the other terms of the contract.” In contrast to the New York Convention, the Model Law expressly recognizes the separability presumption.

104Copy pinpoint104. According to the UNCITRAL Working Group, the separability presumption is incorporated under Article 16(1) to complement the principle of competence-competence. The separability presumption further ensures that the invalidity of the underlying contract does not affect the jurisdiction of the arbitral tribunal to decide on the nullity of the contract or any other issues submitted to its jurisdiction by the parties “unless it finds that the defect which causes the nullity of the contract affects also the arbitration clause itself.”105 The last sentence of Article 16(1) (extracted above) states the general principle of contractual validity of arbitration clauses.106 It connotes that the invalidity of the underlying contract will not necessarily entail the invalidity of an arbitration agreement contained in the contract. Accordingly, the arbitral tribunal’s jurisdiction will be affected only when the defect causing invalidity is directed at the arbitration agreement.107

105 Analytical Commentary on Draft Text of a Model Law on International Commercial Arbitration, A/CN.9/264 (25 March 1985) 38. 106 Gary Born (n 62) 403 107 Digest of Case Law on the Model Law on International Commercial Arbitration (2012) 76.

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h. India

105Copy pinpoint105. The Arbitration Act also incorporates the separability presumption in Section 16(1) along the lines of the Model Law. Section 16(1) reads as follows: “16. Competence of arbitral tribunal to rule on its jurisdiction – (1) The arbitral tribunal may rule on its own jurisdiction, including ruling on any objections with respect to the existence or validity of the arbitration agreement, and for that purpose, - (a) an arbitration agreement which forms part of a contract shall be treated as an agreement independent of the other terms of the contract; and (b) a decision by the arbitral tribunal that the contract is null and void shall not entail ipso jure the invalidity of the arbitration clause.”

106Copy pinpoint106. The separability presumption, as incorporated under Article 16(1) of the Model Law, as well as Section 16 of the Arbitration Act, is qualified by the expression “for that purpose.” A plain reading may suggest that Section 16 has incorporated the separability presumption only for the particular purpose of allocation of competence over jurisdictional disputes. However, the Digest of Case Laws on UNCITRAL Model Law states that “the language used in the second sentence does not prevent the application of the separability presumption when a jurisdictional question is raised before a court.”108 Gary Born suggests that the better view is that the separability presumption contained in Article 16(1) states a general rule of contractual validity “which is applicable for all purposes.”109 The judicial view that emerges from the Indian courts also seems to suggest that an arbitration agreement is treated as distinct and separate from the underlying contract as a general rule of substantive validity.

107Copy pinpoint107. The separability presumption has undergone a significant evolution in India. Initially, the Indian courts viewed an arbitration agreement as an integral part of the underlying contract without any existence beyond

108 Ibid. 109 Gary Born (n 62) 403

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such contract. For instance, in Union of India v. Kishorilal Gupta,110 the issue before this Court was whether an arbitration clause in the original contract survived after the enactment of a subsequent contract. Justice K Subba Rao (as the learned Chief Justice then was) considered Heyman (supra) but distinguished it on the ground that it only dealt with repudiation, where rights and obligations of parties survive the termination of contract. It was held that in situations where the original contract is superseded by a subsequent contract, the arbitration clause in the original contract will also cease to exist. Justice K Subba Rao, speaking for the majority, held that first, an arbitration clause is a collateral term of a contract as distinguished from its substantive terms, but nonetheless it is an integral part of it; second, the existence of the underlying contract is a necessary condition for the operation of an arbitration clause; third, if the underlying contract was non-est in the sense that it never came legally into existence or was void-ab-initio, the arbitration clause also cannot operate; fourth, if the parties put an end to a validly executed contract and substitute it with a new contract, the arbitration clause of the original contract also perishes with it; and fifth, in situations such as repudiation, frustration, or breach of contract, only the performance of the contract comes to an end, the arbitration clause persists because the contract continues to exist for the purposes of disputes arising under it.

108Copy pinpoint108. In Damodar Valley Corporation v. K K Kar,111 a two-Judge Bench of this Court held that the plea that a contract is void, illegal, or fraudulent affects the entire contract along with the arbitration clause. However, the enactment of the Arbitration Act in 1996 enabled the Indian courts to give effect to the separability presumption with greater impetus. Section 16(1)(b), which provides that a decision by the arbitral tribunal that the contract is null and void shall not entail ipso jure the invalidity of the arbitration clause, renders the decisions in Kishorilal Gupta (supra) and Damodar Valley Corporation (supra) redundant. Consequently, even if the underlying contract is declared null and void, it will not ipso jure result in the invalidity of the arbitration agreement.

110 1959 SCC OnLine SC 6 111 (1974) 1 SCC 141

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109Copy pinpoint109. In Firm Ashok Traders v. Gurumukh Das Saluja,112 the issue before this Court was whether an application under Section 9 of the Arbitration Act moved by a partner of a non-registered firm or by a person not shown as a partner in the Register of Firms was maintainable in view of Section 69(3) of the Indian Partnership Act, 1932. Section 69(3) creates a bar against the institution of a suit to enforce a right arising from a contract unless the firm is registered and the person suing is or has been shown in the Register of Firms as partner. This Court considered the overall scheme of the Arbitration Act to hold that an “arbitration clause is separable from the other clauses of the partnership deed” and “constitutes an agreement by itself.”

110Copy pinpoint110. In National Agricultural Coop. Marketing Federation India Ltd. v. Gains Trading Co.,113 the issue before this Court in an application under Section 11 was whether an arbitration clause comes to an end if the contract containing such clause is repudiated. While answering this in negative, this Court observed that even if the underlying contract comes to an end, the arbitration agreement contained in such contract survives for the purpose of the resolution of disputes between the parties. Similarly, in P Manohar Reddy & Bros. v. Maharashtra Krishna Valley Development Corp.,114 this Court referred to Buckeye Check Cashing Inc. (supra) to observe that an arbitration agreement contained in an underlying contract is a collateral term which may survive the termination of the contract.

111Copy pinpoint111. In Magma Leasing & Finance Ltd. v. Potluri Madhavilata,115 this Court cited Heyman (supra) with approval to hold that the termination of the underlying contract does not render an arbitration agreement inoperative. It was further observed that the arbitration agreement survives for the purpose of resolution of disputes arising “in respect of”, “with regard to”, or “under” the underlying contract. The emphasis on the expressions “in respect of”, “with regard to” or “under” in Magma Leasing & Finance Ltd. (supra) indicates that the purpose of an arbitration agreement is to embody the mutual intention of the parties to settle any disputes that may arise “in

112 (2004) 3 SCC 155 113 (2007) 5 SCC 692 114 (2009) 2 SCC 494 115 (2009) 10 SCC 103

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respect of” the substantive obligations under the underlying contract. It is, therefore, a logical conclusion that the parties mutually intend to make an arbitration agreement distinct and separate from the underlying contract, so that even if the underlying contract comes to an end, the arbitration agreement survives to resolve any outstanding disputes that may arise out the substantive obligations under the contract.

112Copy pinpoint112. In view of the above discussion, we formulate our conclusions on this aspect. First, the separability presumption contained in Section 16 is applicable not only for the purpose of determining the jurisdiction of the arbitral tribunal. It encapsulates the general rule on the substantive independence of an arbitration agreement. Second, parties to an arbitration agreement mutually intend to confer jurisdiction on the arbitral tribunal to determine questions as to jurisdiction as well as substantive contractual disputes between them. The separability presumption gives effect to this by ensuring the validity of an arbitration agreement contained in an underlying contract, notwithstanding the invalidity, illegality, or termination of such contract. Third, when the parties append their signatures to a contract containing an arbitration agreement, they are regarded in effect as independently appending their signatures to the arbitration agreement. The reason is that the parties intend to treat an arbitration agreement contained in an underlying contract as distinct from the other terms of the contract; and Fourth, the validity of an arbitration agreement, in the face of the invalidity of the underlying contract, allows the arbitral tribunal to assume jurisdiction and decide on its own jurisdiction by determining the existence and validity of the arbitration agreement. In the process, the separability presumption gives effect to the doctrine of competence-competence.

113Copy pinpoint113. In view of the legal position, we now proceed to analyze the correctness of the decision in N N Global 2 (supra). The Constitution Bench acknowledged the separability presumption, but refused to apply it in the context of Sections 33 and 35 of the Stamp Act. The relevant observation of the Court is as follows: “157. […] The evolution of the principle that an arbitration is a separate and distinct agreement from the contract, would indicate that it would have no play in the context of the duty of a Court, within the meaning of Sections 33 and 35 of the Stamp Act, to act in consonance therewith.”

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114Copy pinpoint114. The above position of law is contrary to the separability presumption which treats an arbitration agreement as separate from the underlying contract. G*. The doctrine of competence-competence

115Copy pinpoint115. The doctrine of kompetenz-kompetenz (also known as competence-competence), as originally developed in Germany, was traditionally understood to imply that arbitrators are empowered to make a final ruling on their own jurisdiction, with no subsequent judicial review of the decision by any court.116 However, many jurisdictions allow an arbitral tribunal to render a decision on its jurisdiction, subject to substantive judicial review.117

116Copy pinpoint116. It is a well-recognized principle of public international law that a legal authority possessing adjudicatory powers has the right to decide its own jurisdiction.118 Similarly, it is a general rule of international arbitration law that an arbitral tribunal has the power to determine its own jurisdiction. The ability of an arbitral tribunal to determine its own jurisdiction is an important facet of arbitration jurisprudence because it gives effect to the separability presumption. The separability presumption insulates the arbitration agreement from the defects of the underlying contract, and thereby ensures the sustenance of the tribunal’s jurisdiction over the substantive rights and obligations of the parties under the underlying contract even after such a contract is put to an end. The doctrine of competence-competence allows the tribunal to decide on all substantive issues arising out of the underlying contract, including the existence and validity of the arbitration agreement. i. Comparative analysis

117Copy pinpoint117. The doctrine of competence-competence is now a part of all major jurisdictions. Section 30 of the UK Arbitration Act provides that the arbitral tribunal may rule on its own substantive jurisdiction with respect to: first, whether there is a valid arbitration agreement; second, whether the

* Ed. Note: PART G 116 Fouchard, Gaillard, Goldman on International Commercial Arbitration (edited by Emmanuel Gaillard and John Savage, 1999) 396 117 Gary Born (n 62) 1143 118 Interpretation of Greco-Turkish Agreement of December 1st, 1926, Advisory Opinion, Series B – No. 16 (August 28, 1928).

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tribunal is properly constituted; and third, what matters have been submitted to arbitration in accordance with the arbitration agreement. The basis for the jurisdictional competence of an arbitral tribunal can be evinced from the following observation of Lord Hoffman in Fili Shipping Company Limited (supra): “In my opinion the construction of an arbitration clause should start from the assumption that the parties, as rational businessmen, are likely to have intended any dispute rising out of the relationship into which they have entered or purported to enter to be decided by the same tribunal.” In Dallah Real Estate and Tourism Holding Company v. The Ministry of Religious Affairs, Government of Pakistan,119 the United Kingdom Supreme Court held that the tribunal’s own view of its jurisdiction has no legal or evidential value when the issue pertains to the exercise of legitimate authority by the tribunal. Thus, the UK position is that although the arbitral tribunal is empowered to consider whether it has jurisdiction, its determination is subject to the examination of the courts.

118Copy pinpoint118. The courts in the United States have considered the principle of competence-competence to be intertwined with the separability presumption. In Prima Paint (supra), the United States Supreme Court held that if a claim is made to the effect that the underlying contract was induced fraudulently, then the issue should be determined by the courts. The Supreme Court concluded that all the other issues should be left for the determination of the arbitral tribunal to “not only honor the plain meaning of the statute, but also the unmistakably clear congressional purpose that the arbitration procedure, when selected by the parties to a contract, be speedy, and not subject to delay and obstruction in the courts.” In Buckeye Check Cashing (supra), the United States Supreme Court reiterated Prima Paint (supra) by holding that the arbitral tribunal should consider the issue of the validity of underlying contract in the first instance. Thus, the position in the US is that the courts should only check if any invalidity is directed at the arbitration agreement, leaving all the other issues, including that of the validity of the underlying contract, to the arbitral tribunal.

119Copy pinpoint119. Under Singaporean law, Article 21(1) of the Arbitration Act, 2001 incorporates the doctrine of competence-competence in so far as domestic

119 [2010] UKSC 46

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arbitration is concerned. It provides that an arbitral tribunal may rule on its own jurisdiction, including a plea that it has no jurisdiction and any objections to the existence or validity of the arbitration agreement at any stage of the arbitral proceedings. The conduct of international commercial arbitrations in Singapore is governed by the International Arbitration Act, 1994.120 Section 3 of the IIA states that the Model Law has the force of law in Singapore. In Malini Ventura v. Knight Capital Pte Ltd,121 the issue before the Singapore High Court was whether the arbitral tribunal has primacy to determine the existence of an arbitration agreement in the context of international commercial arbitration. The Court analysed the scope and purpose of Article 16(1) of the Model Law to hold that an arbitral tribunal has first priority in determining whether an arbitration agreement exists and the court’s consideration must come after the tribunal’s own examination of the issue. It was further observed that “the tribunal’s powers in relation to the issue are wide because it can consider not only validity but also the very existence of the arbitration agreement.” Thus, the Singapore High Court has given full effect to the doctrine of competence-competence since the arbitral tribunal gets the first priority to determine issues even with respect to the very existence of the arbitration agreement, while the jurisdiction of the courts is limited to a prima facie determination. ii. India

120Copy pinpoint120. Under the previous arbitration regime in India, that is the 1940 Act, the issue of determining the existence or validity of arbitration agreement was exclusively within the domain of the courts. To that effect, Section 33 of the 1940 Act allowed any party to the arbitration agreement to file an application before the courts challenging the existence or validity of an arbitration agreement. In view of this, this Court consistently held that the question as to the existence or validity of an arbitration agreement was to be decided only by application to courts and not by the arbitral tribunal. 122 This position has now undergone a complete metamorphosis in the present

120 “IIA” 121 [2015] SGHC 225 122 Dhanrajamal Gobindram v. Shamji Kalidas & Co., 1961 SCC OnLine SC 28; Khardah Co. Ltd. v. Raymon & Co. (India) Private Ltd., 1962 SCC OnLine SC 28.

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legislation. Section 16 of the Arbitration Act, which is based on Article 16 of the Model Law, recognizes the doctrine of competence-competence in Indian arbitration law. Section 16 empowers the arbitral tribunal to rule on its own jurisdiction, including ruling on any objections with respect to the existence or validity of arbitration agreement. Importantly, the parties have a right under Section 16(2) and 16(3) to challenge the jurisdiction of the arbitral tribunal on grounds such as the non-existence or invalidity of the arbitration agreement. The arbitral tribunal is obligated to decide on the challenge to its jurisdiction, and where it rejects the challenge, it can proceed with the arbitral proceedings and make an arbitral award. It is the principle of procedural competence-competence which recognizes the power of an arbitral tribunal to hear and decide challenges to its jurisdiction. Once the arbitral tribunal makes an arbitral award, Section 16(6) allows the aggrieved party to make an application for setting aside the award under Section 34. Sections 16(5) and 16(6) further show that Parliament has completely ousted the jurisdiction of courts to interfere during the arbitral proceedings - courts can intervene only after the tribunal has made an award. Thus, Section 16 is intended to give full effect to the procedural and substantive aspects of the doctrine of competence-competence.

121Copy pinpoint121. Section 34 of the Arbitration Act deals with applications for setting aside arbitral awards. Section 34(2) provides that an arbitral award may be set aside by the Court only if the party making the application establishes, on the basis of the record of the arbitral tribunal, any of the following five grounds: (i) a party was under some incapacity; or (ii) the arbitration agreement is not valid under the law to which the parties have subjected it or, failing any indication thereon, under the law for the time being in force; or (iii) the party making an application was not given proper notice of the appointment of an arbitrator or of the arbitral proceedings or was otherwise unable to present his case; or (iv) the arbitral award deals with a dispute not contemplated by or not failing within the terms of the submission to arbitration, or it contains decisions on matters beyond the scope of the submission

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to arbitration, provided that if the decisions on matters submitted to arbitration can be separated from those not so submitted, only that part of the arbitral award which contains decisions on matters not submitted to arbitration may be set aside; or (v) the composition of the arbitral tribunal or the arbitral procedure was not in accordance with the agreement of the parties, unless such agreement was in conflict with a provision of Part I from which the parties cannot derogate, or, failing such agreement, was not in accordance with Part I. Moreover, the court can set aside an arbitral award if it finds that: (i) the subject-matter of the dispute is not capable of settlement by arbitration under the law for the time being in force; or (ii) the arbitral award is in conflict with the public policy of India.

122Copy pinpoint122. Under Section 34, the grounds for setting aside an arbitral award are specific. The provision requires a party challenging an award to plead and prove the existence of one or more such grounds.123 The scheme of the Arbitration Act shows that although an arbitral tribunal is given priority to determine all issues pertaining to its jurisdiction based on the principle of competence-competence, the tribunal’s decision is subject to judicial review at the stage when an award is challenged. Moreover, one of the grounds on which an arbitral award can be set aside is that the arbitration agreement is not valid under law. This indicates that the Arbitration Act does not contemplate the court determining the validity of an arbitration agreement at a pre-arbitral stage.

123Copy pinpoint123. In Indian Farmers Fertilizer Cooperative Limited v. Bhadra Products,124 one of the issues before this Court was whether a decision on the issue of limitation would go to the root of the jurisdiction of the arbitral tribunal, and therefore be covered by Section 16 of the Arbitration Act. This Court referred to Section 16(1) to observe that “the Arbitral Tribunal may rule on its own jurisdiction, which makes it clear that it refers to whether the Arbitral Tribunal may embark upon an inquiry into the issues raised by

123 Fiza Developers and Inter-Trade (P) Ltd. v. Amci (I) (P) Ltd., (2009) 17 SCC 796 124 (2018) 2 SCC 534

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the parties to the dispute.” In Bhadra Products (supra), it was held that the issue of limitation concerns the jurisdiction of the tribunal which tries the proceedings.

124Copy pinpoint124. In Uttarakhand Purv Sainik Kalyan Nigam Ltd v. Northern Coal Field,125 the issue before this Court was whether a referral court at the stage of appointment of arbitrators would be required to decide the issue of limitation or leave it to the arbitral tribunal. A Bench of two Judges of this Court held that the doctrine of competence-competence is “intended to minimize judicial intervention, so that the arbitral process is not thwarted at the threshold, when a preliminary objection is raised by one of the parties.” Moreover, this Court held that Section 16 is an inclusive provision of very wide ambit: “7.13. In view of the provisions of Section 16, and the legislative policy to restrict judicial intervention at the pre-reference stage, the issue of limitation would require to be decided by the arbitrator. Sub-section (1) of Section 16 provides that the Arbitral Tribunal may rule on its own jurisdiction, “including any objections” with respect to the existence or validity of the arbitration agreement. Section 16 is an inclusive provision, which would comprehend all preliminary issues touching upon the jurisdiction of the Arbitral Tribunal. The issue of limitation is a jurisdictional issue, which would be required to be decided by the arbitrator under Section 16, and not the High Court at the pre-reference stage under Section 11 of the Act. Once the existence of the arbitration agreement is not disputed, all issues, including jurisdictional objections are to be decided by the arbitrator.” (emphasis supplied)

125Copy pinpoint125. In view of the above discussion, the issue that comes up for our consideration is whether an issue of stamping is a jurisdictional issue. Jurisdiction is generally defined as the power of a court or tribunal to hear and determine a cause, and to adjudicate or exercise any judicial power in relation to such cause.126 Jurisdiction refers to the authority of a court or

125 (2020) 2 SCC 455 126 Sukh Lal Sheikh v. Tara Chand Ta, 1905 SCC OnLine Cal 164

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tribunal to decide matters that are litigated before it or to take cognizance of matters presented before it in a formal way for its decision. In Official Trustee, West Bengal v. Sachindra Nath Chatterjee,127 this Court held that for a court to have jurisdiction to decide a particular matter, it must not only have jurisdiction to try the suit brought but must also have the authority to pass the orders sought. In NTPC v. Siemens Atkeingesllchaft,128 this Court observed that any refusal to go into the merits of a claim may be in the realm of jurisdiction. Accordingly, it was observed that the issue of limitation goes to jurisdiction because if a claim is barred by limitation, a tribunal can refuse to exercise its jurisdiction.

126Copy pinpoint126. Section 35 of the Stamp Act mandates that an unstamped instrument cannot be acted upon unless it is duly stamped. The question is whether a tribunal can effectively exercise its jurisdiction to settle the claims between the parties until stamp duty is paid on the underlying instrument. In view of the decision of this Court in Uttarakhand Purv Sainik Kalyan Nigam Ltd (supra), the scope of an arbitral tribunal’s authority is wide enough as to comprehend all preliminary issues affecting its jurisdiction, including the issue of sufficiency of stamping.

127Copy pinpoint127. In case the issue of stamping is raised before an arbitral tribunal, Sections 33 and 35 of the Stamp Act make it evident that a person having authority by “consent of parties” to receive evidence is empowered to impound and examine an instrument. A person having authority “by consent of parties” to receive evidence includes an arbitral tribunal which is constituted by consent of parties. iii. Negative competence-competence

128Copy pinpoint128. The international arbitration law as well as domestic law prioritize the arbitral tribunal by permitting them to initially decide challenges to their authority instead of the courts. The policy consideration behind this approach is two-fold: first, to recognize the mutual intention of the parties of choosing the arbitrator to resolve all their disputes about the substantive rights and obligations arising out of contract; and second, to prevent parties from

p. 127

128 (2007) 4 SCC 451

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initiating parallel proceedings before courts and delaying the arbitral process. This is the positive aspect of the doctrine of competence-competence.

129Copy pinpoint129. The negative aspect, in contrast, speaks to the national courts. It instructs the courts to limit their interference at the referral stage by deferring to the jurisdiction of the arbitral tribunal in issues pertaining to the existence and validity of an arbitration agreement. Thus, the negative aspect of the doctrine of competence-competence suggests that the courts should refrain from entertaining challenge to the jurisdiction of the arbitral tribunal before the arbitrators themselves have had an opportunity to do so.129 Allowing arbitral tribunals to first rule on their own jurisdiction and later allowing the courts to determine if the tribunal exercised its powers properly safeguards both the power and authority of the arbitral tribunal as well as the courts. The negative aspect of the doctrine has been expressly recognized by Indian courts. Considering both the positive and negative facets, the principle can be defined as a rule whereby arbitrators must have the first opportunity to hear challenges relating to their jurisdiction, which is subject to subsequent review by courts.130

130Copy pinpoint130. In Chloro Controls India (P) Ltd. v. Severn Trent Water Purification Inc.,131 one of the issues before this Court was whether the court at the referral stage under Section 45 is required to determine the validity of an arbitration agreement. This Court recognized that the doctrine of competence-competence has both the positive and the negative aspects. It was observed that while the positive aspect enables the arbitrator to rule on its own jurisdiction, the negative aspect deprives the courts of their jurisdiction. However, this Court noted the absence of a provision similar to Section 16 in Part II to conclude that the referral court is required to test for the ingredients of Section 45 at the threshold stage itself.

131Copy pinpoint131. Thereafter, this Court in Vidya Drolia (supra) held that the doctrine of competence-competence has both negative and positive connotations. The relevant extract from the decision is set out below:

129 George A Bermann, ‘The “Gateway” Problem in International Commercial Arbitration’ (2012) 37 Yale Journal of International Law 1, 16. 130 Fouchard (n 116) 401 131 (2013) 1 SCC 641

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“129. 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 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 the 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.”

132Copy pinpoint132. In Arcelormittal Nippon Steel (India) Ltd. v. Essar Bulk Terminal Ltd.,132 this Court held that negative competence-competence prohibits courts from hearing disputes which the parties have mutually intended to submit to the jurisdiction of arbitral tribunal. As held in the preceding sections, the issue of stamping is a jurisdictional issue. The principle of negative competence-competence requires the courts to leave the issue of stamping to be decided by the arbitral tribunal in the first instance. H*. Judicial interference under the Arbitration Act

133Copy pinpoint133. When parties enter into an arbitration agreement, it is their mutual and unequivocal intention to submit their disputes to an arbitral tribunal. The arbitration law recognizes this aspect by granting autonomy to the parties to adopt a procedural mechanism for the appointment of arbitrators. Party autonomy has also been expressly recognized by international arbitration covenants as well as national arbitration legislations. For instance, Article 11(2) of the Model Law states that parties to an arbitration agreement are free to agree on a procedure for appointing the arbitrator or arbitrators. In a situation where the agreed procedure of the parties fails, the Model Law

* Ed. Note: PART H 132 (2022) 1 SCC 712

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permits the national courts to appoint arbitrators on a request of a party. The recourse to judicial appointment of arbitrators is often invoked as a last resort by the parties when their agreed procedure becomes unworkable. The power of appointment of arbitrators is vested with national courts to resolve the deadlock in appointment of an arbitrator.133

134Copy pinpoint134. As discussed in the preceding segments of this judgment, Section 5 of the Arbitration Act disallows a judicial authority from intervening unless expressly provided under Part I. In the present proceedings, the exercise of the powers by the courts or judicial authorities as provided under Section 8 and 11 becomes particularly relevant for our consideration.

135Copy pinpoint135. According to Fouchard, an arbitration agreement has both a positive and negative effect. The positive effect is that the parties ought to honor their undertaking to submit to arbitration any disputes covered by their arbitration. On the flip side, the negative effect of the arbitration agreement is that courts are prohibited from hearing such disputes.134 Most international covenants have recognised the principle that courts lack jurisdiction to hear disputes covered by an arbitration agreement. For instance, Article II(3) of the New York Convention states that “[t]he court of a Contracting State, when seized of an action in a matter in respect of which the parties have made an agreement within the meaning of this article, shall, at request of one of the parties, refer the parties to arbitration, unless it finds that the said agreement is null and void, inoperative or incapable of being performed.”

136Copy pinpoint136. In the Indian context, Section 8 provides that when an action is brought before a judicial authority in a matter which is the subject of an arbitration agreement, such judicial authority shall refer the parties to arbitration on an application made by a party to the arbitration agreement or any person claiming through or under him not later than the date of submitting their first statement on the substance of the dispute. Section 8 mandates the judicial authority to refer the parties to arbitration “unless it finds that prima facie no valid arbitration agreement exists.” Section 8 is based on Article 8 of the Model Law which provides that a “court” before

133 Digest of Case Law on the Model Law on International Commercial Arbitration (2012) 60 134 Fouchard (n 116) 402

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which an action is brought in a matter which is the subject of an arbitration agreement shall refer the parties to arbitration “unless it finds that the agreement is null and void, inoperative or incapable of being performed.” It is evident that Section 8 has made a departure from Article 8 by using the expansive term “judicial authority” rather than “court.” The intention of the legislature to provide an expansive application can also be gauged from the fact that the expression “unless it finds that the agreement is null and void, inoperative or incapable of being performed” does not find place in Section 8.135

137Copy pinpoint137. According to the UNCITRAL Working Group Commentary on the Model Law, Article 8 of the Model Law enshrines the “negative effect” of an arbitration agreement.136 Moreover, Article 8 gives effect to the intention of the parties to submit their disputes to arbitration to the exclusion of courts, irrespective of whether such exclusion is expressed in the agreement. Similar legislation has also been incorporated under the English137 and French138 national laws. It is worth noting that most of the national legislations entitle the courts at the referral stage to review the existence and validity of arbitration agreements. For example, Section 9(4) of the English Arbitration Act, 1996 provides that a court can stay the legal proceedings unless satisfied that the arbitration agreement “is null and void, inoperative, or incapable of being performed.” Similarly, Article 1458 of

135 A Ayyasamy v. A Paramsivam, (2016) 10 SCC 386 136 Analytical Commentary on Draft Text of a Model Law on International Commercial Arbitration, A/CN.9/264 (25 March 1985) 38. 137 Article 9(1) of UK Arbitration Act: It reads: “(1)A party to an arbitration agreement against whom legal proceedings are brought (whether by way of claim or counterclaim) in respect of a matter which under the agreement is to be referred to arbitration may (upon notice to the other parties to the proceedings) apply to the court in which the proceedings have been brought to stay the proceedings so far as they concern that matter. […] (4) On an application under this section the court shall grant a stay unless satisfied that the arbitration agreement is null and void, inoperative, or incapable of being performed.” 138 Article 1458 of French Code of Civil Procedure, 1981. It reads: “If a dispute pending before an arbitral tribunal on the basis of an arbitration agreement is brought before a State court, it shall declare itself incompetent. If the dispute is not yet before an arbitral tribunal, the State court shall also declare itself incompetent, unless the arbitration agreement is manifestly null and void.”

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the French Civil Code provides that a state court is incompetent to decide on issues pertaining to an arbitration agreement, unless the arbitration agreement is “manifestly null and void.” Thus, the standard of review that the court should adopt at the pre-arbitral stage differs considerably across jurisdictions.

138Copy pinpoint138. One of the major bottlenecks in the smooth functioning of arbitral proceedings is the inability of the parties to ensure the constitution of the arbitral tribunal once the dispute has arisen. To ensure that such disagreement between the parties does not derail the arbitral proceedings, international covenants as well as national laws allow judicial authorities to assist the parties in appointing arbitrators. For instance, Article 1444 of the French Civil Code in the context of domestic arbitration provides that “[i]f a dispute has arisen and problems occur with regard to the constitution of the arbitral tribunal due to the behavior of a party or to the implementation of the appointment method, the arbitrator or arbitrators shall be appointed by the President of the Tribunal de Grande Instance.”139 The said provision further provides that the President shall declare that there is no basis for appointment if the “arbitration clause is manifestly null and void or insufficient to constitute an arbitral tribunal.” The basis for providing judicial intervention to the extent of determining the validity of arbitration agreement is to ensure that the courts do not mechanically appoint arbitrators in situations where the arbitration does not have any contractual basis.140

139Copy pinpoint139. Section 11 of the Arbitration Act deals with the appointment of arbitrators. It recognizes the autonomy of the parties to agree upon a procedure for appointment of an arbitrator or arbitrators. Section 11 requires the intervention of the court only when there is a deadlock or failure of the parties to follow the appointment procedure. In the process, Section 11 is meant to give effect to the mutual intention of the parties to settle their disputes by arbitration in situations where the parties fail to appoint an arbitrator or arbitrators. In an arbitration with three arbitrators, each party is required to appoint one arbitrator each, and subsequently the two arbitrators will appoint the third arbitrator. Section 11(6) confers

139 Article 1444, French Code of Civil Procedure. 140 Fouchard (n 116) 495

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powers on the Supreme Court and the High Court, as the case may be, on the failure of the parties to comply with the agreed arbitration procedure. Section 11(6) enlists three possible defects in the appointment procedure, namely: first, a party fails to act as required by the agreed procedure; second, the parties or the two appointed arbitrators fail to reach an agreement expected of them under that procedure; or third, a person, including an institution, fails to perform any function entrusted to them or under the agreed procedure.

140Copy pinpoint140. Section 11(6) has had a long and chequered history before this Court, particularly in respect of the nature of function of the Chief Justice or his designate in the appointment of an arbitrator. In SPB & Co. v. Patel Engineering Ltd.,141 a seven-Judge Bench of this Court held that the power exercised by the Chief Justice of India or a Chief Justice of the High Court under Section 11(6) is a judicial power. In the process, this Court analysed the scope of the powers and authority of the referral court under Section 11(6). Moreover, this Court noted that Sections 8 and 11 are complementary in nature. Consequently, if the judicial authority acting under Section 8 has to mandatorily decide the issue of jurisdiction before referring the parties to arbitration, the same standard of scrutiny was also held to be applicable to the reference under Section 11. In conclusion, it was held that the Chief Justice or their designate at the referral stage under Section 11(6) had the right to determine all preliminary issues: “47 (iv) The Chief Justice or the designated Judge will have the right to decide the preliminary aspects as indicated in the earlier part of this judgment. These will be his own jurisdiction to entertain the request, the existence of a valid arbitration agreement, the existence or otherwise of a live claim, the existence of the condition for the exercise of his power and on the qualifications of the arbitrator or arbitrators. The Chief Justice or the designated Judge would be entitled to seek the opinion of an institution in the matter of nominating an arbitrator qualified in terms of Section 11(8) of the Act if the need arises but the order appointing the arbitrator could only be that of the Chief Justice or the designated Judge.”

141 (2005) 8 SCC 618

IN RE: INTERPLAY BETWEEN ARBITRATION AGREEMENTS UNDER 1161 THE ARBITRATION AND CONCILIATION ACT 1996 AND THE INDIAN STAMP ACT 1899 [DR. DHANANJAYA Y CHANDRACHUD, CJI ]

141Copy pinpoint141. The extent of judicial interference at the referral stage was scrutinised by a Bench of two Judges of this Court in National Insurance Co. Ltd. v. Boghara Polyfab Pvt. Ltd.142 This Court held that when the intervention of the court is sought under Section 11 of the Arbitration Act, the following categories of issues will arise before the referral court: (i) The issues which the Chief Justice or his designate is bound to decide. These issues were: first, whether the party making the application has approached the appropriate High Court; and second, whether there is a valid arbitration agreement and whether the party who has applied under Section 11 of the Act, is a party to such an agreement; (ii) The issues which the Chief Justice or his designate may choose to decide or leave them to the decision of the arbitral tribunal. These issues were: first, whether the claim is a dead (long-barred) claim or a live claim; and second, whether the parties have concluded the contract/ transaction by recording the satisfaction of their mutual rights and obligations or by receiving the final payment without objection; and (iii) The issues which the Chief Justice or their designate should leave exclusively to the arbitral tribunal. These issues were: first, whether a claim made falls within the arbitration clause (as for example, a matter which is reserved for final decision of a departmental authority and excepted or excluded from arbitration); and second, merits or any claim involved in the arbitration.

142Copy pinpoint142. The decisions of this Court in Patel Engineering (supra) and Boghara Polyfab (supra) allowed for greater judicial interference at the pre-arbitral stage. In effect, the referral courts were encouraged to conduct mini-trials instead of summarily dealing with the preliminary issues. This was also noted by the Law Commission of India, which observed that judicial intervention in the arbitral proceedings is a pervasive problem in

142 (2009) 1 SCC 267

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India leading to significant delays in the arbitration process.143 The Law Commission recognized that one of the problems plaguing implementation of the Arbitration Act was that Section 11 applications were kept pending for years by the courts. To remedy the situation, the Law Commission proposed changing the then existing scheme of the power of appointment being vested in the “Chief Justice” to the “High Court” and the “Supreme Court”. It also clarified that the power of appointment of arbitrators ought not to be regarded as a judicial act.

143Copy pinpoint143. Significantly, the Law Commission observed that there was a need to reduce judicial intervention at the pre-arbitral stage, that is, prior to the constitution of the arbitral tribunal. Accordingly, it proposed limiting the scope of the judicial intervention at the referral stage under Sections 8 and 11 of the Arbitration Act “to situations where the Court/ Judicial Authority finds that the arbitration agreement does not exist or is null and void.” The Law Commission suggested insertion of sub-section 6A under Section 11 which would read: “Any appointment by the High Court or the person or institution designated by it under sub-section (4) or sub-section (5) or sub- section (6) shall not be made only if the High Court finds that the arbitration does not exist or is null and void.” In light of the recommendations of the Law Commission, Parliament passed the Arbitration and Conciliation (Amendment) Act 2015144 to incorporate Section 11(6-A).

144Copy pinpoint144. The Statement of Objects and Reasons of the 2015 Amendment Act states that sub-section (6A) is inserted in Section 11 to provide that the Supreme Court or the High Court while considering application under sub-section (4) to (6) “shall confine to the examination of an arbitration agreement.” With the coming into force of the 2015 Amendment Act, the nature of preliminary examination at the referral stage under Section 11 was confined to the existence of an arbitration agreement. It also incorporates a non-obstante clause which covers “any judgment, decree or order of any Court.” By virtue of the non-obstante clause, Section 11(6A) has set out a new position of law, which takes away the basis of the position laid down by the previous decisions of this Court in Patel Engineering (supra) and

143 Law Commission of India, 246th Report (2014) 144 “2015 Amendment Act”

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Boghara Polyfab (supra). It is also important to note that Parliament did not incorporate the expression “or is null and void” as was suggested by the Law Commission. This indicates that Parliament intended to confine the jurisdiction of the courts at the pre-arbitral stage to as minimum a level as possible.

145Copy pinpoint145. The effect and impact of the 2015 Amendment Act was subsequently clarified by this Court. In Duro Felguera, S A v. Gangavaram Port Ltd.,145 Justice Kurien Joseph noted that the intention of the legislature in incorporating Section 11(6A) was to limit the scope of the referral court’s jurisdiction to only one aspect – the existence of an arbitration agreement. To determine the existence of an arbitration agreement, the court only needs to examine whether the underlying contract contains a clause which provides for arbitration pertaining to the disputes which have arisen between the parties to the agreement. This Court further held that Section 11(6A) incorporates the principle of minimal judicial intervention: “59. The scope of the power under Section 11(6) of the 1996 Act was considerably wide in view of the decisions in SBP and Co. and Boghara Polyfab. This position continued till the amendment brought about in 2015. After the amendment, all that the courts need to see is whether an arbitration agreement exists—nothing more, nothing less. The legislative policy and purpose is essentially to minimise the Court’s intervention at the stage of appointing the arbitrator and this intention as incorporated in Section 11(6-A) ought to be respected.”

146Copy pinpoint146. In 2017, the High-Level Committee to Review the Institutionalization of Arbitration Mechanism in India submitted a report noting that while the 2015 amendment facilitated the speedy disposal of Section 11 applications, they failed to limit judicial interference in arbitral proceedings. Accordingly, the High-Level Committee recommended the amendment of Section 11 to provide for appointment of arbitrators solely by arbitral institutions designated by the Supreme Court in case of international commercial arbitrations or the High Court in case of all other arbitrations. In view of the report of the High-Level committee, Parliament enacted the

145 (2017) 9 SCC 729

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Arbitration and Conciliation (Amendment) Act 2019146 omitting Section 11(6A) so as to leave the appointment of arbitrators to arbitral institutions. Section 1(2) of the 2019 Amendment Act provides that amended provisions shall come into force on such date as notified by the Central Government in the official gazette However, Section 3 of the 2019 Amendment Act which amended Section 11 by omitting Section 11(6A) is yet to be notified. Till such time, Section 11(6A) will continue to operate.

147Copy pinpoint147. In Mayavati Trading (P) Ltd. v. Pradyuat Deb Burman,147 a three-Judge Bench of this Court affirmed the reasoning in Duro Felguera (supra) by observing that the examination under Section 11(6A) is “confined to the examination of the existence of an arbitration agreement and is to be understood in the narrow sense.” Moreover, it held that the position of law prior to the 2015 Amendment Act, as set forth by the decisions of this Court in Patel Engineering (supra) and Boghara Polyfab (supra), has been legislatively overruled. Thus, this Court gave effect to the intention of the legislature in minimizing the role of the courts at the pre-arbitral stage to the bare minimum.

148Copy pinpoint148. Thereafter, in Vidya Drolia (supra), another three-Judge Bench of this Court, affirmed the ruling in Mayavati Trading (supra) that Patel Engineering (supra) has been legislatively overruled. In Vidya Drolia (supra), one of the issues before this Court was whether the court at the reference stage or the arbitral tribunal in the arbitration proceedings would decide the question of non-arbitrability. This Court began its analysis by holding that an arbitration agreement has to satisfy the mandate of the Contract Act, in addition to satisfying the requirements stipulated under Section 7 of the Arbitration Act to qualify as an agreement.

149Copy pinpoint149. In the course of the decision, one of the questions before this Court in Vidya Drolia (supra) was the interpretation of the word “existence” as appearing in Section 11. It was held that existence and validity are intertwined. Further, it was observed that an arbitration agreement does not exist if it is illegal or does not satisfy mandatory legal requirements. Therefore, this Court read the mandate of valid arbitration agreement

146 “2019 Amendment Act” 147 (2019) 8 SCC 714

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contained in Section 8 into the mandate of Section 11, that is, “existence of an arbitration agreement.”

150Copy pinpoint150. At the outset, Vidya Drolia (supra) noted that “Section 11 has undergone another amendment vide Act 33 of 2019 with effect from 9-8- 2019.” The purport of the omission of the said clause was further explained in the following terms: “145. 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) of Section 11 of the Arbitration Act by Act 33 of 2019, which, vide sub-section (3-A) 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 High Court concerned 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) of Section 11 the ratio in Patel Engg. Ltd. [SBP & Co. v. Patel Engg. Ltd., (2005) 8 SCC 618] would become applicable.”

151Copy pinpoint151. Vidya Drolia (supra) proceeds on the presumption that Section 11(6A) was effectively omitted from the statute books by the 2019 Amendment Act. This is also reflected in the conclusion arrived at by the Court, as is evident from the following extract: “154.1. Ratio of the decision in Patel Engg. Ltd. [SBP & Co. v. Patel Engg. Ltd., (2005) 8 SCC 618] 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 9-8-2019), is no longer applicable.” (emphasis supplied)

152Copy pinpoint152. We are of the opinion that the above premise of the Court in Vidya Drolia (supra) is erroneous because the omission of Section 11(6A) has not been notified and, therefore, the said provision continues to remain

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in full force. Since Section 11(6A) continues to remain in force, pending the notification of the Central Government, it is incumbent upon this Court to give true effect to the legislative intent.

153Copy pinpoint153. The 2015 Amendment Act has laid down different parameters for judicial review under Section 8 and Section 11. Where Section 8 requires the referral court to look into the prima facie existence of a valid arbitration agreement, Section 11 confines the court’s jurisdiction to the examination of the existence of an arbitration agreement. Although the object and purpose behind both Sections 8 and 11 is to compel parties to abide by their contractual understanding, the scope of power of the referral courts under the said provisions is intended to be different. The same is also evident from the fact that Section 37 of the Arbitration Act allows an appeal from the order of an arbitral tribunal refusing to refer the parties to arbitration under Section 8, but not from Section 11. Thus, the 2015 Amendment Act has legislatively overruled the dictum of Patel Engineering (supra) where it was held that Section 8 and Section 11 are complementary in nature. Accordingly, the two provisions cannot be read as laying down a similar standard.

154Copy pinpoint154. The legislature confined the scope of reference under Section 11(6A) to the examination of the existence of an arbitration agreement. The use of the term “examination” in itself connotes that the scope of the power is limited to a prima facie determination. Since the Arbitration Act is a self- contained code, the requirement of “existence” of an arbitration agreement draws effect from Section 7 of the Arbitration Act. In Duro Felguera (supra), this Court held that the referral courts only need to consider one aspect to determine the existence of an arbitration agreement – whether the underlying contract contains an arbitration agreement which provides for arbitration pertaining to the disputes which have arisen between the parties to the agreement. Therefore, the scope of examination under Section 11(6A) should be confined to the existence of an arbitration agreement on the basis of Section 7. Similarly, the validity of an arbitration agreement, in view of Section 7, should be restricted to the requirement of formal validity such as the requirement that the agreement be in writing. This interpretation also gives true effect to the doctrine of competence-competence by leaving the issue of substantive existence and validity of an arbitration agreement to be decided by arbitral tribunal under Section 16. We accordingly clarify the

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position of law laid down in Vidya Drolia (supra) in the context of Section 8 and Section 11 of the Arbitration Act.

155Copy pinpoint155. The burden of proving the existence of arbitration agreement generally lies on the party seeking to rely on such agreement. In jurisdictions such as India, which accept the doctrine of competence-competence, only prima facie proof of the existence of an arbitration agreement must be adduced before the referral court. The referral court is not the appropriate forum to conduct a mini-trial by allowing the parties to adduce the evidence in regard to the existence or validity of an arbitration agreement. The determination of the existence and validity of an arbitration agreement on the basis of evidence ought to be left to the arbitral tribunal. This position of law can also be gauged from the plain language of the statute.

156Copy pinpoint156. Section 11(6A) uses the expression “examination of the existence of an arbitration agreement.” The purport of using the word “examination” connotes that the legislature intends that the referral court has to inspect or scrutinize the dealings between the parties for the existence of an arbitration agreement. Moreover, the expression “examination” does not connote or imply a laborious or contested inquiry.148 On the other hand, Section 16 provides that the arbitral tribunal can “rule” on its jurisdiction, including the existence and validity of an arbitration agreement. A “ruling” connotes adjudication of disputes after admitting evidence from the parties. Therefore, it is evident that the referral court is only required to examine the existence of arbitration agreements, whereas the arbitral tribunal ought to rule on its jurisdiction, including the issues pertaining to the existence and validity of an arbitration agreement. A similar view was adopted by this Court in Shin-Etsu Chemical Co. Ltd. v. Aksh Optifibre Ltd.149

157Copy pinpoint157. In Shin-Etsu (supra), this Court was called upon to determine the nature of adjudication contemplated by unamended Section 45 of the Arbitration Act when the objection with regards to the arbitration agreement being “null and void, inoperative or incapable of being performed” is raised before a judicial authority. Writing for the majority, Justice B N Srikrishna

148 P Ramanatha Aiyar, The Law Lexicon (Second edition, 1997) 666 149 (2005) 7 SCC 234