Supreme Court clarifies the limited scope of Section 11(6A) of the Arbitration and Conciliation Act in appointment of arbitrators: M/S Mayavti Trading Pvt. Ltd. vs. Pradyuat Deb Burman (05 September 2019)

Date of the Judgment: 05 September 2019
Citation: M/S Mayavti Trading Pvt. Ltd. vs. Pradyuat Deb Burman, Civil Appeal No.7023 of 2019 (Arising out of SLP (Civil) No. 8519 of 2019)
Judges: Rohinton Fali Nariman, J., R. Subhash Reddy, J., Surya Kant, J.
Can a court, when appointing an arbitrator, delve into issues beyond the mere existence of an arbitration agreement? The Supreme Court of India, in this case, addresses the scope of the court’s power under Section 11(6A) of the Arbitration and Conciliation Act, 1996, specifically in the context of appointment of arbitrators. The court clarifies that the judicial intervention is limited to examining the existence of an arbitration agreement and not other preliminary issues such as accord and satisfaction. The judgment was delivered by a three-judge bench consisting of Justice Rohinton Fali Nariman, Justice R. Subhash Reddy, and Justice Surya Kant, with the opinion authored by Justice Rohinton Fali Nariman.

Case Background

The case revolves around a dispute between M/S Mayavti Trading Pvt. Ltd. (the appellant) and Pradyuat Deb Burman (the respondent). The appellant had approached the Supreme Court challenging a decision of the lower court. The specific details of the dispute are not mentioned in the judgment. However, during the hearing, the court’s attention was drawn to a recent judgment, United India Insurance Company Limited vs. Antique Art Exports Private Limited, (2019) 5 SCC 362, which had interpreted Section 11(6A) of the Arbitration and Conciliation Act, 1996. This led the court to examine the scope of its power while appointing an arbitrator.

Timeline

Legal Framework

The core of the judgment revolves around Section 11 of the Arbitration and Conciliation Act, 1996, specifically sub-section (6A), which was introduced by the 2015 Amendment Act. This sub-section states:

“11. (6A) The Supreme Court or, as the case may be, the High Court, while considering any application under sub-section (4) or sub-section (5) or sub-section (6), shall, notwithstanding any judgment, decree or order of any Court, confine to the examination of the existence of an arbitration agreement.”

This provision limits the court’s role when appointing an arbitrator to only examining whether an arbitration agreement exists. The 2019 amendment act omitted this sub-section, but it was not in force at the time of this judgment. The omission was based on a report by a High-Level Committee which recommended institutionalizing the appointment of arbitrators.

Arguments

Appellant’s Arguments:

• Mr. Mukul Rohatgi, learned Senior Advocate, appearing for the appellant, argued that the recent decision of the Supreme Court in United India Insurance Company Limited vs. Antique Art Exports Private Limited incorrectly interpreted the scope of Section 11(6A) of the Arbitration and Conciliation Act, 1996.
• He pointed out that Section 11(6A) was omitted by the amendment Act of 2019, which is not yet in force. The omission of sub-section (6A) is not so as to resuscitate the law that was prevailing prior to the amendment Act of 2015.

Respondent’s Arguments:

• Mr. Shyam Divan, learned Senior Advocate, appearing for the respondent, did not make any specific arguments regarding Section 11(6A) in the provided text. The arguments were focused on the facts of the case, which the court did not find necessary to interfere with.

Issues Framed by the Supreme Court

The Supreme Court did not explicitly frame specific issues in the judgment. However, the primary issue that the court addressed was:

1. What is the scope of the court’s power under Section 11(6A) of the Arbitration and Conciliation Act, 1996, when considering an application for the appointment of an arbitrator?

Treatment of the Issue by the Court

Authorities

The Supreme Court considered the following authorities:

Judgment

How each authority was viewed by the Court?

• The Supreme Court overruled the judgment in United India Insurance Company Limited vs. Antique Art Exports Private Limited, (2019) 5 SCC 362* stating that it did not lay down the correct law regarding the interpretation of Section 11(6A) of the Arbitration and Conciliation Act, 1996.
• The Court followed the interpretation of Section 11(6A) as laid down in Duro Felguera, S.A. vs. Gangavaram Port Limited, (2017) 9 SCC 729* which confined the court’s role to examining the existence of the arbitration agreement.
• The Court discussed the judgment in SBP & Co. vs. Patel Engineering Ltd. and Anr., (2005) 8 SCC 618* to highlight the shift in the court’s role from a broader examination of preliminary issues to a limited inquiry into the existence of an arbitration agreement.
• The Court discussed ONGC Mangalore Petrochemicals Limited vs. ANS Constructions Limited and another, (2018) 3 SCC 373* to show how, prior to the 2015 amendment, the court could dismiss a Section 11 petition based on accord and satisfaction.
• The Court discussed the judgment in Garware Wall Ropes Ltd. vs. Coastal Marine Constructions & Engineering Ltd., (2019 SCC OnLine SC 515)* to highlight the background and reasons for the introduction of Section 11(6A).
• The Court discussed Konkan Railway Corporation Ltd. v. Mehul Construction Co., (2000) 7 SCC 201* and Konkan Railway Corporation Ltd. v. Rani Construction (P) Ltd., (2002) 2 SCC 388* to show the evolution of the court’s interpretation of its powers under Section 11(6) of the Arbitration and Conciliation Act, 1996.
• The Court discussed National Insurance Co. Ltd. v. Boghara Polyfab Pvt. Ltd., (2009) 1 SCC 267* to show the categorization of issues under Section 11 of the Arbitration and Conciliation Act, 1996.
• The Court discussed Shin Etsu Chemicals Co. Ltd. v. Aksh Optifibre, (2005) 7 SCC 234* to highlight the principle of prima facie consideration of issues under Section 45 of the Arbitration and Conciliation Act, 1996.

What weighed in the mind of the Court?

The Supreme Court’s decision was primarily influenced by the legislative intent behind the 2015 amendment, which introduced Section 11(6A) of the Arbitration and Conciliation Act, 1996. The court emphasized that the amendment was aimed at limiting judicial intervention at the stage of appointing an arbitrator. This was done to expedite the arbitration process and reduce delays caused by courts delving into complex preliminary issues. The court was also influenced by the 246th Law Commission Report, which recommended the introduction of Section 11(6A) to streamline the process of appointing arbitrators.

Fact:Law Ratio

Logical Reasoning:

The court’s reasoning was based on the following points:

• The introduction of Section 11(6A) by the 2015 Amendment Act was a conscious effort to limit the scope of judicial intervention at the stage of appointment of arbitrators.
• The 246th Law Commission Report had recommended this amendment to ensure speedy disposal of Section 11 applications.
• The legislative intent was to ensure that the court’s role is restricted to examining the existence of an arbitration agreement.
• The court referred to the judgment in Duro Felguera, S.A. vs. Gangavaram Port Limited to support its interpretation of Section 11(6A).
• The court acknowledged that prior to the 2015 amendment, courts could go into preliminary issues like accord and satisfaction, but that the amendment had changed this position.

The court stated:

“…it is clear that the law prior to the 2015 Amendment that has been laid down by this Court, which would have included going into whether accord and satisfaction has taken place, has now been legislatively overruled.”

The court also stated:

“…Section 11(6A) is confined to the examination of the existence of an arbitration agreement and is to be understood in the narrow sense as has been laid down in the judgment Duro Felguera, S.A. (supra) – see paras 48 & 59.”

The court further stated:

“Thus, it can be seen that after the amendment Act of 2019, Section 11(6A) has been omitted because appointment of arbitrators is to be done institutionally, in which case the Supreme Court or the High Court under the old statutory regime are no longer required to appoint arbitrators and consequently to determine whether an arbitration agreement exists.”

There were no dissenting opinions in this judgment. The three-judge bench unanimously agreed on the interpretation of Section 11(6A) of the Arbitration and Conciliation Act, 1996.

Key Takeaways

• The Supreme Court has clarified that under Section 11(6A) of the Arbitration and Conciliation Act, 1996, the court’s role is limited to examining the existence of an arbitration agreement.
• Courts cannot delve into other preliminary issues like accord and satisfaction at the stage of appointing an arbitrator.
• The judgment in United India Insurance Company Limited vs. Antique Art Exports Private Limited has been overruled.
• The 2015 amendment was intended to expedite the arbitration process by limiting judicial intervention.
• The 2019 amendment, which omits Section 11(6A), is aimed at institutionalizing the appointment of arbitrators.

Directions

The Court granted an extension of the status quo order granted by the trial court for a period of one week from the date of the judgment, to allow the appellant to pursue other proceedings.

Development of Law

The ratio decidendi of this case is that the scope of judicial intervention under Section 11(6A) of the Arbitration and Conciliation Act, 1996, is limited to examining the existence of an arbitration agreement. This judgment clarifies the position of law after the 2015 amendment and overrules the judgment in United India Insurance Company Limited. The court emphasized that the law prior to the 2015 amendment, which allowed courts to examine preliminary issues like accord and satisfaction, has been legislatively overruled. The court also clarified that the omission of Section 11(6A) by the 2019 amendment is to facilitate institutional arbitration and not to revert to the pre-2015 position.

Conclusion

In summary, the Supreme Court in M/S Mayavti Trading Pvt. Ltd. vs. Pradyuat Deb Burman clarified the limited scope of judicial intervention under Section 11(6A) of the Arbitration and Conciliation Act, 1996, when appointing arbitrators. The court emphasized that the focus should be on the existence of the arbitration agreement, and not on other preliminary issues. This decision reinforces the legislative intent behind the 2015 amendment to expedite the arbitration process and reduce judicial delays. The court overruled the judgment in United India Insurance Company Limited, which had taken a broader view of the court’s powers under Section 11(6A).