CLINIC I- ADR

K.K. Modi vs K.N. Modi

 Family of Seth Gujjar Mal Modi owns or has a controlling interest in a number of public
limited companies. Differences and disputes arose between K.N. Modi, the younger
brother of late Gujjar Mal and his sons constituting Group A and the sons of late Gujjar
Mal Modi constituting Group B.
 To resolve these differences negotiations took place with the help of the financial
institutions which had lent money to these companies, representatives of several banks,
RBI etc. and ultimately a Memorandum of Understanding (MOU) was arrived at between
Group A and Group B.
 In the implementation of the MOU which was to be done in consultation with the
financial institutions, Clause 9 of the MOU stipulated that any disputes or clarifications
relating to implementation were to be referred to the Chairman, IFCI or his nominees
whose decision would be final and binding.
 The Chairman & M.D. of IFCI formed a Committee of Experts to assist him in deciding
the issues and ultimately gave his detailed decision/report. As per the decision, a specified
amount would be payable by Group B to Group A. This Report was not filed in court as
an award nor was any application filed by Group B to make the Report a rule or decree of
the Court.
 Subsequently, the present appellants (Group B) filed an arbitration petition under Section
33 of the Arbitration Act challenging the legality and validity of the said decision of the
Chairman and MD of IFCI on the basis that it was an award in arbitration proceedings
between Group A and Group B.
 On the same day Group B also filed a suit to challenge the same decision. The averments
and prayers in this suit were substantially the same as those in the arbitration petition. (the
suit was held not be abuse of process of the Court)
 Court dealt with the issue whether clause 9 of the Memorandum of Understanding dated
constituted an arbitration agreement; and whether the decision of the Chairman, IFCI
constituted an award?
 Court observed that among the attributes which must be present for an agreement to be
considered as an arbitration agreement are:
1. The arbitration agreement must contemplate that the decision of the tribunal will be
binding on the parties to the agreement,
2. That the jurisdiction of the tribunal to decide the rights of parties must derive either
from the consent of the parties or from an order of the court or from a statute, the
terms of which make it clear that the process is to be an arbitration,
3. The agreement must contemplate that substantive rights of parties will be determined
by the agreed tribunal,
4. That the tribunal will determine the rights of the parties in an impartial and judicial
manner with the tribunal owing an equal obligation of fairness towards both sides,
5. That the agreement of the parties to refer their disputes to the decision of the tribunal
must be intended to be enforceable in law and lastly,
6. The agreement must contemplate that the tribunal will make a decision upon a dispute
which is already formulated at the time when a reference is made to the tribunal.
Precedents deem the following necessary:
1. existence of disputes as against intention to avoid future disputes;
2. the tribunal or forum so chosen is intended to act judicially after taking into account
relevant evidence before it and the submissions made by the parties before it;
 3. conclusive. One must examine the true intent and purport of the agreement.
4. The statutory requirements of a written agreement, existing or future disputes and an
intention to refer them to arbitration. (Vide Section 2 Arbitration Act, 1940 and
Section 7 Arbitration and Conciliation Act, 1996.

 Court observed that Clause 9 is intended to clear any other difficulties which may arise in
the implementation of the agreement by leaving it to the decision of the Chairman, IFCI.
This clause does not contemplate any judicial determination/ recording of evidence by the
Chairman of the IFCI.
 Nor was the Chairman, IFCI required to base his decision only on the material placed
before him by the parties and their submissions. He was free to make his own inquiries.
He had to apply his own mind and use his own expertise for the purpose
 Court held that the IFCI Chairman was required to decide the question of valuation and
the division of assets as an expert and not as an arbitrator. It was meant to be an expert's
decision.
 The Chairman, IFCI has designated his decision as a decision. He did not file his decision
in court nor did any of the parties request him to do so. Hence this was not an agreement
to refer disputes to arbitration and looking at the nature of the functions expected to be
performed by the Chairman, IFCI, the decision is not an arbitration award.
 The entire Memorandum of Understanding including clause 9 has to be looked upon as a
family settlement between various members of the Modi family. Such settlements have to
be viewed a little differently from ordinary contracts and their internal mechanism for
working out the settlement should not be lightly disturbed.

Bihar State Mineral Dev. Corpn. & Anr vs Encon Builders (I) Pvt. Ltd

 Clause 60 of the contract read “In case of any dispute arising out of the agreement, the
matter shall be referred to the Managing Director, Bihar State Mineral Development
Corporation Limited, Ranchi,(Appl.2) whose decision shall be final and binding."
 Court observed that The essential elements of an arbitration agreement are as follows :
(1) There must be a present or a future difference in connection with some contemplated
affair.
(2) There must be the intention of the parties to settle such difference by a private tribunal.
(3) The parties must agree in writing to be bound by the decision of such tribunal.
(4) The parties must be ad idem.
 There is no dispute with regard to the proposition that for the purpose of construing an
arbitration agreement, the term 'arbitration' is not required to be specifically mentioned
therein
 There cannot be any doubt whatsoever that an arbitration agreement must contain the
broad consensus between the parties that the disputes and differences should be referred
to a domestic tribunal. The said domestic tribunal must be an impartial one. It is a well-
settled principle of law that a person cannot be a judge of his own cause
 Actual bias would lead to an automatic disqualification where the decision maker is
shown to have an interest in the outcome of the case. Actual bias denotes an arbitrator
who allows a decision to be influenced by partiality or prejudice
 In the instant case, the test of bias on the part of Appellant No.2 is fully satisfied, the
impugned order is unassailable. As bias on the part of the second Appellant goes to the
root of his jurisdiction to act as an arbitrator, the entire action is a nullity.
 The action of the second appellant itself was in question and, thus, indisputably he could
not have adjudicated thereupon in terms of the principle that nobody can be a judge of his
own cause and Clause 60 did not constitute an arbitration agreement.

Jagdish Chander V. Ramesh Chander 2007

 The appellant and first respondent entered into a Partnership as per deed to carry on the
business. Clause 16 of the said Deed relates to settlement of disputes which read “If
during the continuance of the partnership or at any time afterwards any dispute touching
the partnership arises between the partners, the same shall be mutually decided by the
partners or shall be referred for arbitration if the parties so determine."
 The first respondent filed the application for appointment of an Arbitrator to decide the
disputes in regard to dissolution of the said partnership firm and for rendition of accounts.
The appellant challenged the order appointing the Arbitrator.
 It was argued that the power under section 11 of the Act, to appoint an Arbitrator, can be
exercised only if there is a valid arbitration agreement between the parties, and that as
there is no arbitration agreement between the parties, hence the arbitrator could not have
been appointed.
 The only question that arises for consideration in this case is whether clause 16 of the
Deed of Partnership is an ‘arbitration agreement’ within the meaning of section 7 of the
Act. The following observations were made:
 The intention of the parties to enter into an arbitration agreement shall have to be
gathered from the terms of the agreement. If the terms of the agreement clearly indicate
an intention on the part of the parties to the agreement to refer their disputes to a private
tribunal for adjudication and an willingness to be bound by the decision of such tribunal
on such disputes, it is arbitration agreement.
 While there is no specific form of an arbitration agreement, the words used should
disclose a determination and obligation to go to arbitration and not merely contemplate
the possibility of going for arbitration.
 Where there is merely a possibility of the parties agreeing to arbitration in future, as
contrasted from an obligation to refer disputes to arbitration, there is no valid and binding
arbitration agreement.
 Even if the words ’arbitration’ and ’arbitral tribunal (or arbitrator)’ are not used with
reference to the process of settlement or with reference to the private tribunal which has
to adjudicate upon the disputes, in a clause relating to settlement of disputes, it does not
detract from the clause being an arbitration agreement if it has the attributes or elements
of an arbitration agreement which are
A. The agreement should be in writing.
B. The parties should have agreed to refer any disputes (present or future) between them to
the decision of a private tribunal.
C. The private tribunal should be empowered to adjudicate upon the disputes in an impartial
manner, giving due opportunity to the parties to put forth their case before it.
D. The parties should have agreed that the decision of the Private Tribunal in respect of the
disputes will be binding on them.

 Where there is a specific and direct expression of intent to have the disputes settled by
arbitration, it is not necessary to set out the attributes of an arbitration agreement to make
it an arbitration agreement.
 But where the clause relating to settlement of disputes, contains words which specifically
excludes any of the attributes of an arbitration agreement or contains anything that
detracts from an arbitration agreement, it will not be an arbitration agreement.
 Mere use of the word ’arbitration’ or ’arbitrator’ in a clause will not make it an arbitration
agreement, if it requires or contemplates a further or fresh consent of the parties for
reference to arbitration.
 For example, use of words such as "parties shall, if they so desire, refer their disputes to
arbitration" or "in the event of any dispute, the parties may also agree to refer the same to
arbitration" or "if any disputes arise between the parties, they should consider settlement
by arbitration" in a clause relating to settlement of disputes, indicate that the clause is not
intended to be an arbitration agreement.
 Such clauses require the parties to arrive at a further agreement to go to arbitration, as and
when the disputes arise. Any agreement or clause in an agreement requiring or
contemplating a further consent or consensus before a reference to arbitration, is not an
arbitration agreement, but an agreement to enter into an arbitration agreement in future.
 Therefore, when clause 16 uses the words "the dispute shall be referred for arbitration if
the parties so determine", it means that it is not an arbitration agreement but a provision
which enables arbitration only if the parties mutually decide after due consideration as to
whether the disputes should be referred to arbitration or not.
 Consensus ad idem to refer the disputes to arbitration is missing in clause 16 relating to
settlement of disputes. Therefore it is not an arbitration agreement, as defined under
section 7 of the Act
 In the absence of an arbitration agreement, the question of exercising power under section
11 of the Act to appoint an Arbitrator does not arise.
 Section 89 CPC has no application too as while it mandates courts to refer pending suits
to any of the several alternative dispute resolution processes mentioned therein, there
cannot be a reference to arbitration even under section 89 CPC, unless there is a mutual
consent of
all parties, for such reference.

Indowind (I) Energy Ltd vs Wescare (W) Ltd.& Anr (Overruled)

 An agreement of sale was entered into between W (Respondent 1) and (Respondent 2)

Subuthi (S) herein. The agreement described S and its nominee as “buyer” and as the
“promoters of I. According to W, certain disputes arose between W and S, in respect of
the said agreement.
 W therefore filed a petition under Section 11(6) of the Arbitration Act against S and for
appointment of a sole arbitrator to arbitrate upon the disputes between them in respect of
the agreement.
 S resisted the said petition alleging that as the agreement dated did not contemplate any
transactions between W and itself (S) hence there was no cause of action nor any
arbitrable dispute between them. I resisted the petition on the ground that it was not a
party to the agreement entered into between W and S; that it had not ratified the
agreement, that there was no arbitration agreement between Wand I.
 Before the Supreme Court, the following questions came up for consideration:
i. Whether an arbitration clause found in a document (agreement) between two parties,
could be considered as a binding arbitration agreement on a person who is not a
signatory to the agreement?
 ii. Whether a company could be said to be a party to a contract containing an arbitration
agreement, even though it did not sign the agreement containing an arbitration clause,
with reference to its subsequent conduct?

 It was argued that the agreement was entered into by S as the promoter of I and also
described I as its nominee and the agreement was signed on behalf of S by a person who
was also a Director of I.
 Court observed that in the absence of any document signed by the parties as contemplated
under Section 7(4) and in the absence of a contract which incorporates the arbitration
agreement by reference as contemplated under Section 7(5), the inescapable conclusion is
that I is not a party to the arbitration agreement.
 Court held that W puts forth the agreement dated as an agreement signed by the parties
containing an arbitration agreement but the said agreement is signed by W and S and not
by I. In the absence of an arbitration agreement between W and I, no claim—in
no dispute with /can be the subject-matter of reference to an arbitrator.
 Therefore the mere fact that S described I as its nominee or as a company promoted by it
or that the agreement was purportedly entered by S on behalf of I, will not make I a party
in the absence of a ratification, approval, adoption or confirmation of the agreement by I.
 A contract can be entered into even orally. A contract can be spelt out from
correspondence or conduct. But an arbitration agreement is different from a contract. An
arbitration agreement can come into existence only in the manner contemplated under
Section 7.
 If Section 7 says that an arbitration agreement should be in writing, it will not be
sufficient for the petitioner in an application under Section 11 to show that there existed
an oral contract between the parties, or that I had transacted with W, or W had performed
certain acts with reference to I as proof of arbitration agreement.
 In view of the above, we allow this appeal, set aside the order of the High Court
appointing an arbitrator in regard to the claims of Wescare against Indowind and dismiss
the application under Section 11(6) of the Act filed by Wescare insofar as Indowind is
concerned. The appointment of arbitrator insofar as Subuthi is concerned, is not disturbed

Benara Bearing & Pistons Ltd. v. Mahle Engine Components India Pvt. Ltd

 Appeal was filed under Section 37(2)(a) of the Arbitration and Conciliation Act, 1996
challenging the order passed by the Sole Arbitrator holding that there is no concluded
Arbitration Agreement between the parties.
 The lack of contractual consensus ad idem between the Parties, the unaccepted counter-
offer, lack of unconditional and absolute acceptance and lack of consideration for the
formation of an arbitration agreement separate from the contract implies that the parties
never entered into a contract, thus had no defined legal relationship. Therefore, it is clear
on basic contractual· principles there was prima facie and in effect no "arbitration
agreement"
 Essentially, there eventually being no business or commercial "agreement" between the
Parties, it can also be said that the whole "consideration" for the purported "arbitration
agreement" fell away, leaving no valid and concluded "arbitration agreement".
 Just because the Parties agreed on the wording of the arbitration clause in their
correspondence does not mean they intend to arbitrate in the absence of the contract, in a
vacuum, without any substantive contract being concluded between the Parties.
 Since no contract or "defined legal relationship" within the meaning of Section 7(1) of the
IACA came into existence during the process of and as a result of all the above mentioned
 correspondence between the Parties, there was eventually no subject matter of the
arbitration agreement, and hence no "arbitrable" matter between the Parties."
 Court held that In absence of any consensus ad idem on the material terms of the contract
to be entered into between the parties, no concluded contract can be said to have emerged
between the parties. Once the original contract itself was not a concluded contract, there
existed no Arbitration Agreement between the parties
 Once it is held that the Distribution Agreement itself did not come into existence on mere
signing of the same by the appellant due to the conditional nature of acceptance given by
it, clearly the Arbitration Agreement contained in such Distribution Agreement cannot be
said to have come into existence. There cannot be an Arbitration Agreement in the
vacuum.
 Though severable from the main agreement, it has to have a foundation in some defined
legal relationship between the parties. The defined legal relationship would require a
consensus on the terms thereof between the parties. In the absence of such consensus on
the legal relationship, no Arbitration Agreement can be said to have come into existence
between the parties

M/S Zhejiang Bonly Elevator Guide Rail vs M/S Jade Elevator Components 2018 (3
Judge Bench)

 Clause 15 of the agreement as read “15. Dispute handling: Common processing contract
disputes, the parties should be settled through consultation; consultation fails by treatment
of to the arbitration body for arbitration or the court.”
 Court observed that the intention of the parties, as it flows from the clause, is that efforts
have to be made to settle the disputes in an amicable manner and, therefore, two options
are available, either to go for arbitration or for litigation in a court of law.
 Court observed that emphasis has been laid on the intention of the parties to have their
disputes resolved by arbitration by precedents, hence while Clause 15 refers to arbitration
or court, there is an option and the petitioner has invoked the arbitration clause and,
therefore, an arbitrator must be appointed.

INDTEL Technical Services Private Limited vs. W.S. Atkins Rail Limited 2008

 The agreement clauses read as follows:

13.2. Subject to Clause 13.3 all disputes or differences arising out of, or in connection
with, this agreement which cannot be settled amicably by the parties shall be referred to
adjudication;
13.3If any dispute or difference under this agreement touches or concerns any dispute or
difference under either of the sub-contract agreements, then the parties agree that such
dispute or difference hereunder will be referred to the adjudicator or the courts as the
case may be appointed to decide the dispute or difference under the relevant sub-contract
agreement and the parties hereto agree to abide by such decision as if it were a decision
under this agreement.
 It was argued that unless it is the clear intention of the parties that arbitration is to be the
only forum for adjudication of disputes, the requirement of a valid arbitration clause is
not fulfilled and both clauses 13.2 and 13.3 are somewhat vague on the question of
reference and the finality of the decision in the adjudication proceedings.
 Counsel for the Appellant argued that the expression "adjudication" is defined as being
the legal process of resolving of a dispute or the process of judicially deciding a case, the
 expressions `adjudicate' and `adjudge' have also been defined to mean to rule upon and
award judicially, which is an essential characteristic of Arbitration.

 Interpreting the aforesaid clauses, the Judge held that- from the wording of Clause 13.2
and Clause 13.3, that the parties to the memorandum intended to have their disputes
resolved by arbitration and in the facts of this case the petition has to be allowed.
 (Parties consented to both options, consent and intention matters, not arbitration being
the only forum- If consent is not conditional, the consent holds despite several options)

M.R. Engineers & Contractors Pvt. Ltd vs Som Datt Builders Ltd

 The issue involved is whether an arbitration clause contained in a main contract, would
stand incorporated by reference, in a sub-contract, where the sub-contract provided that it
"shall be carried out on the terms and conditions as applicable to the main contract."
 The said contract between PW Department and the respondent contained a provision for
arbitration, as per clause 67.3 of the General Conditions of Contract which read that
 Any dispute in respect of which :
o the decision, if any, of the Engineer has not become final and binding pursuant to
Sub-Clause 67.1, and
o amicable settlement has not been reached within the period stated in Sub-Clause
67.2.
shall be referred to the adjudication of a Committee of three arbitrators. If either of the
parties abstain or fail to appoint his arbitrator, within sixty days after receipt of notice for
the appointment of such arbitrator, then the Director- General (Road Development),
Ministry of Surface Transport, Government of India, himself shall appoint such
arbitrator(s)
 The appellant is a sub-contractor of the respondent. Respondent entrusted a part of the
work entrusted to it by the PW Department and the terms read “This sub- contract shall be
carried out on the terms and conditions as applicable to main contract unless otherwise
mentioned in this order letter.”
 The respondent failed to comply in paying the required amount, hence the appellant filed
an application under section 11 of the Act. According to the appellant clause 67.3 of the
General Conditions of Contract forming part of the contract between the PW Department
and the respondent, providing for arbitration, was imported into the sub-contract between
respondent and appellants.
 Having regard to section 7(5) of the Arbitration & Conciliation Act, 1996, the arbitration
clause contained in the main contract between the PW Department and the respondent,
constituted an arbitration agreement between the respondent and appellant on account of
the incorporation thereof by reference in the contract between the appellant and
respondent

Court held the following regarding Sec 7(5) of the arbitration Act:

(i) An arbitration clause in another document, would get incorporated into a contract
by reference, if the following conditions are fulfilled : (i) The contract should
contain a clear reference to the documents containing arbitration clause, (ii) the
reference to the other document should clearly indicate an intention to incorporate
the arbitration clause into the contract, The arbitration clause should be
appropriate, that is capable of application in respect of disputes under the contract
and should not be repugnant to any term of the contract.
 (ii) When the parties enter into a contract, making a general reference to another
contract, such general reference would not have the effect of incorporating the
arbitration clause from the referred document into the contract between the
parties. The arbitration clause from another contract can be incorporated into the
contract (where such reference is made), only by a specific reference to arbitration
clause to show specific knowledge.
(iii) Where a contract between the parties provides that the execution or performance
of that contract shall be in terms of another contract (which contains the terms and
conditions relating to performance and a provision for settlement of disputes by
arbitration), then, the terms of the referred contract in regard to
execution/performance alone will apply, and not the arbitration agreement in the
referred contract, unless there is special reference to the arbitration clause also.
(iv) Where the contract provides that the standard form of terms and conditions of an
independent Trade or Professional Institution (as for example the Standard Terms
& Conditions of a Trade Association or Architects Association) will bind them or
apply to the contract, such standard form of terms and conditions including any
provision for arbitration in such standard terms and conditions, shall be deemed to
be incorporated by reference. Sometimes the contract may also say that the parties
are familiar with those terms and conditions or that the parties have read and
understood the said terms and conditions. (Standard Contracts are publicly
accessible).
(v) Where the contract between the parties stipulates that the Conditions of Contract
of one of the parties to the contract shall form a part of their contract (as for
example the General Conditions of Contract of the Government where
Government is a party), the arbitration clause forming part of such General
Conditions of contract will apply to the contract between the parties.

 Court held that even assuming that the arbitration clause from the main contract had been
incorporated into the sub-contract by reference the appellant could not have claimed the
benefit of the arbitration clause as the document to which a general reference is made,
contains an arbitration clause whose provisions are clearly inapt or inapplicable with
reference to the contract between the parties, it would be assumed or inferred that there
was no intention to incorporate the arbitration clause from the referred document.
 The arbitration clause in the main contract states that the disputes which are to be referred
to the committee of three arbitrators under clause 67(3) are disputes in regard to which
the decision of the Engineer (`Engineer' refers to person appointed by State of Kerala to
act as Engineer for the purpose of the contract between PW Department and the
respondent) has not become final and binding or disputes in regard to which amicable
settlement has not been reached between the State of Kerala.
 Obviously neither 67.1 nor 67.2 will apply as the question of `Engineer' issuing any
decision in a dispute between the contractor and sub-contractor, or any negotiations being
held with the Engineer in regard to the disputes between the contract and sub-contractor
does not arise
 The arbitration clause contemplates a committee of three arbitrators, one each to be
appointed by the State of Kerala and the respondent and the third (Chairman) to be
nominated by the Director General, Road Development Ministry of Surface, Transport,
Roads Wing, Govt. of India. There is no question of such nomination in the case of a
dispute between the contractor and sub-contractor.
 The arbitration clause contained in the main contract would not apply to the disputes
arising with reference to the sub-contract. Thus there is no arbitration agreement between
the parties.

Chatterjee Petrochem Co. & Anr vs Haldia Petrochemicals Ltd

 The appellant Chatterjee Petrochem (Mauritius) Company ( ‘CPMC’) filed a request for
arbitration in International Chamber of Commerce (ICC), Paris in relation to an
agreement of restructuring which was entered into between CPMC, Government of West
Bengal, West Bengal Industrial Development Corporation ( ‘WBIDC’) and Haldia
Petrochemical Limited
 Clause 15 of the Agreement provides for reference of all disputes, in any way relating to
the said Agreement or to the business of or affair of HPL to the Rules of the ICC, Paris.
 On a decision regarding the dispute, given by the Court, the appellant sought to invoke
the arbitration clause contained in the agreement and made a request for arbitration. The
respondent no.1 on the other hand, filed a suit before the High Court of judicature at
Calcutta praying that the arbitration clause in the agreement be declared as void.
 The case of the respondent HPL was that the arbitration agreement dated is rendered void
in respect of the claim for transfer of 155 million shares in favour of CPIL inasmuch as
the parties had contracted out of their earlier agreement and the legal liability in respect
thereof was redefined in the subsequent 8th March, 2002 Agreement which provided for
an exclusive jurisdiction to courts in Calcutta to decide dispute arising out of the said
agreement.
 Court rejected the argument that the transfer of shares to CPIL instead of CPMC
substantially changes the legal rights and responsibilities of the parties as per agreement
referred to supra thereby, resulting in novation of contract. It is nowhere mentioned in the
letter dated 8th March, 2002 that transfer of shares to CPIL instead of CPMC
extinguishes the old agreement dated 12th January, 2002 to nullity.
 Court held that on the basis of the clauses of the Principal Agreement dated 12th January
2002 and subsequent Agreements dated 8th March 2002 and 30th July, 2004, read with
section 5 of the A&C Act, the Arbitration clause in the Principal Agreement continued to
be valid in view of clause no. 6 of the Agreement dated 30th July, 2004 and also by virtue
of its mention in different parts of both the supplementary agreements.
 Therefore, the arbitration clause mentioned in Clause 15 of the Arbitration agreement
dated January 12, 2002 is valid and the appellant is entitled to invoke the arbitration
clause for settling their disputes and a civil suit is not maintainable.
 The fact that CPIL, which initially was a non-signatory to the Agreement does not
jeopardize the arbitration clause in any manner. Reference of even non- signatory parties
to arbitration agreement can be made. It may be the result of implied or specific consent
or judicial determination.
 When a third party, i.e. non- signatory party, is claiming or issued as being directly
affected through a party to the arbitration agreement and there are principal and
subsidiary agreements, and such third party is signatory to a subsidiary agreement and not
to the mother or principal agreement which contains the arbitration clause, then
depending upon the facts and circumstances of the given case, it may be possible to say
that even such third party can be referred to arbitration.
Emmsons International Ltd. vs Metal Distributors (Uk) And Anr. 2005

 The contract entered into between the parties is stated to be an international commercial
contract containing Clause 13 which reads as “Governing Law and Forum for Resolution
of Disputes- This contract shall be construed in accordance with and governed by English
Law. Sellers shall be entitled at their opinion, to refer any dispute arising under this
contract to arbitration in accordance with the rules and regulations of the London Metal
Exchange or to institute proceedings against buyers in any Courts of competent
jurisdiction”
 It is the case of defendant No. 1-applicant that the parties once having agreed that the
contract shall be governed by a particular law, only that law will govern the contract and
consequently only the Courts of that country which are competent to adjudicate and no
other court would have the jurisdiction to entertain any disputes arising out of the said
contract.
 It was argued that A reading of Clause 13 would clearly show that it is a unilateral cause
because it gives all the right to the sellers i.e. defendants to refer any dispute arising under
the Contract through the mechanism of Arbitration in accordance with the Rules and
Regulation by instituting the proceedings against the buyers and it does not give any
corresponding rights to the buyers i.e. plaintiff in the present case. Such a clause would be
hit by Section 28 of the Indian Contract Act, 1872
 Every citizen has the right to have his legal position determined by the ordinary tribunals,
except, subject to contract (a) when there is an arbitration clause which is valid and
binding under the law; and (b) when parties to a contract agree as to the jurisdiction to
which dispute in respect of the contract shall be discharged
 Clause 13 of the agreement between the parties in the case in hand imposes an absolute
bar on the buyer of the goods. the plaintiff from enforcing its rights under the contract
before ordinary tribunals or through the Alternate Dispute Resolution mechanism. In the
opinion of this Court, such type of absolute restriction is clearly hit by the provisions of
Section 28 of the Contract Act besides it being against the public policy.
 Clause 13 being in the nature of a unilateral covenant depriving the plaintiff to enforce its
right under the contract either through the ordinary tribunals set up by the State or
through alternate dispute resolution mechanism is void and cannot be enforced in India.

Castrol India Limited vs M/S.Apex Tooling Solutions 2015

 The validity of a dispute resolution clause arising from a distribution agreement giving
the option to one party alone to either institute civil proceedings or take recourse to
arbitration has given rise to the present appeal; the clause being silent qua the recourse
available to the other party.
 The aforesaid dispute led the appellants to issue a letter terminating the agreement and
soon thereafter, an application was filed under Section 8 of the Arbitration and
Conciliation Act, 1996 seeking revocation of leave granted to file the civil suit and stay of
proceedings in the suit.
 Clause 23 of the Dealership Agreement, which reads as under;
 In case any dispute or difference shall at any time arise between the Company and the
Distributor as to the construction, meaning or effect of this Agreement or any clause or
thing contained herein or the rights and liabilities of the parties hereto in relation to the
premises hereunder, the Company alone (sic) shall have the right to exercise any of the
following two options i.e. To approach the Court of competent jurisdiction only in the
city where this Agreement is entered into, to entertain and try such dispute or difference;
To refer such dispute or difference to the Arbitration of the Managing Director of the
Company. The Arbitration proceedings will be conducted in accordance with the
provisions of the Arbitration and Conciliation Act, 1996 and the venue of the Arbitration
will be Mumbai only.
 It was argued that unless the named arbitrator was the controlling or dealing authority in
regard to the subject contract or was a direct subordinate to the officer whose decision
was subject matter of the dispute, the mere fact that he was an employee of one of the
parties was not ipso facto a ground to raise a presumption of bias or lack of independence
or impartiality on his part.
 What applies to public sector enterprises cannot be ipso facto put forward to the private
companies. This is so as often as a matter of policy, the Government/statutory
authorities/public sector undertakings provide for arbitration by employees, though that
employee should not be connected with the matters in contract.
 The Managing Director of the company would be directly involved in the aspect of
disputes in the present case, he can hardly be capable of an independent adjudication as
an arbitrator. Further, consent being absent, there cannot be arbitration by a Judge.
 Counsel for the appellants was that the well-established practice of non-necessity of
mutuality in arbitration clause must be made applicable to the Indian Courts to bring them
in conformity with the international practices.
 If the initiation of litigation had been by the appellant-company, the option would have
been with them. However, in the present case, the initiation of litigation was by the first
respondent, which was preceded by a number of notices.
 If the appellant-company did not want the civil proceedings to be initiated by the first
respondent in the manner threatened by them, but to get the disputes adjudicated by
arbitration, then it should have stated so in response to the communications of the first
respondent, which it had failed to do. It is only when the suit was filed that the appellant-
company sought to stall the same by claiming recourse to arbitration
 The aforesaid two reasons are sufficient why the said proceedings ought to continue
despite the general international practice referred to by the learned counsel for the
appellant-company permitting the unilateral option.

MS Mitra Guha Builders V Oil and Natural Gas Corporation Limited

 Arbitrator had held that the levy of liquidated damages is an “excepted matter” under
Clause 2 read with Clause 25 of the contract and the same is not arbitrable. This was
challenged under Section 34 of the Arbitration and Conciliation Act, 1996
Clause 2 reads as follows:
 The time allowed for carrying out the work as entered in the tender shall be strictly
observed by the contractor and shall be deemed to be the essence of the contract. The
work shall throughout the stipulated period of the contract be proceeded with all due
diligence and the contractor shall pay compensation on amount equal to 1⁄2 % per week
as the Superintending Engineer (whose decision in writing shall be final) may decide on
 the amount of the contract, value of the whole work as shown in the agreement, for every
week that the work remains uncommenced, or unfinished, after the proper dates.
 The very Clause 2 itself would show that such a decision taken by the Superintending
Engineer shall be final. The finality clause in the contract in terms of Clause 2 makes the
intention of the parties very clear that there cannot be any further dispute on the said issue
between the parties; much less before the arbitrator.
 The intention of the parties to exclude some of the decisions of the Superintending
Engineer from the purview of arbitration is clearly seen from the abovesaid clause. Any
decision taken by the Superintending Engineer in levying compensation cannot be
referred to an arbitrator. The parties have consciously agreed to have finality to the
decision of the Superintending Engineer and the same cannot be frustrated by challenging
the same as illegal.
 The finality clause in the contract cannot therefore be frustrated by calling upon the
arbitrator to decide on the correctness of levy of compensation by the Superintending
Engineer. The parties themselves have decided to have the same adjudicated by a
particular officer in regard to these matters; what these exceptions are however are
questions of fact and usually mentioned in the contract documents and form part of the
agreement
 In BSNL’s case, Clause 16 provided for entitlement of the party to recover liquidated
damages. In Clause 16(2), the phrases used “value of delayed quantity” and “for each
week of delay” clearly show that it is necessary to find out whether there has been delay
on the part of the supplier in discharging his obligation. Thus, in BSNL’s case, in
determining whether there is delay or not, a process of arbitration is envisaged.
 In contrast in the present case The right to levy damages for delay is exclusively
conferred upon the Superintending Engineer and Clause 2 of the agreement is a complete
mechanism for determination of liability and when such compensation is levied by the
Superintending Engineer, the same is final and binding

P. Anand Gajapathi Raju And Others v. P.V.G Raju (Dead) And Others 2000

 During the pendency of this appeal all the parties have entered into an arbitration
agreement. The question that arises for consideration is whether this Court in appeal can
refer the parties to arbitration under the Arbitration Act
 Section 5 brings out clearly the object of the new Act, namely, that of encouraging
resolution of disputes expeditiously and less expensively and when there is an arbitration
agreement, the court's intervention should be minimal. Keeping the legislative intention in
mind, Section 8 of the new Act may be construed
 The conditions which are required to be satisfied under sub- sections (1) and (2) of
Section 8 before the court can exercise its powers are:
(1) there is an arbitration agreement;
(2) a party to the agreement brings an action in the court against the other party;
(3) subject-matter of the action is the same as the subject-matter of the arbitration
agreement;
(4) the other party moves the court for referring the parties to arbitration before it submits
his first statement on the substance of the dispute.

 If the party, who wants the matter to be referred to arbitration applies to the court after
submission of his statement and the party who has brought the action does not object, as
is the case before us, there is no bar on the court referring the parties to arbitration.
 The phrase “which is the subject of an arbitration agreement” does not, in the context,
necessarily require that the agreement must be already in existence before the action is
brought in the court. The phrase also connotes an arbitration agreement being brought
into existence while the action is pending
 It is, therefore, obligatory for the Court to refer the parties to arbitration in terms of their
arbitration agreement. There is no question of stay of the proceedings till the arbitration
proceedings conclude and the award becomes final in terms of the provisions of the
Arbitration Act. All the rights, obligations and remedies of the parties would now be
governed by the Act including the right to challenge the award.
 The court to which the party shall have recourse to challenge the award would be the
court as defined in clause (e) of Section 2 of the new Act and not the court to which an
application under Section 8 of the new Act is made.
 An application before a court under Section 8 merely brings to the court's notice that the
subject-matter of the action before it is the subject- matter of an arbitration agreement as
the court trying the action may or may not have had jurisdiction to try the suit to start with
or be the competent court within the meaning of Section 2(e) of the new Act.

Rashtriya Ispat Nigam Limited & Anr vs M/S Verma Transport Company

 The arbitration agreement is contained in clause 44(a) of the contract entered into by and
between the parties which reads as under :-
 "If at any time any question, dispute or difference whatsoever shall arise between the
company and the Consignment Agent upon or in relation to or in connection with the
contract, either party may forthwith give to the other notice in writing of the existence of
such question, dispute or difference and the same shall be referred to the adjudication of
an arbitrator to be nominated by the Chief Executive of the Company"
 In the instant case, the existence of a valid agreement stands admitted. There cannot also
be any dispute that the matter relating to termination of the contract would be a dispute
arising out of a contract and, thus, the arbitration agreement contained in clause 44 of the
contract would be squarely attracted.
 Once the conditions precedent contained in the said proceedings are satisfied, the judicial
authority is statutorily mandated to refer the matter to arbitration. What is necessary to be
looked into therefor, inter alia, would be as to whether the subject-matter of the dispute is
covered by the arbitration agreement or not.
 Whereas Section 34 of the 1940 Act contemplated stay of the suit; Section 8 of the 1996
Act mandates a reference. Exercise of discretion by the judicial authority, which was the
hallmark of Section 34 of the 1940 Act, has been taken away under the 1996 Act. The
direction to make reference is not only mandatory, but the arbitration proceedings to be
commenced or continued and conclusion thereof by an arbitral award remain unhampered
by such pendency.
 The first party which approaches the court and seeks an ex parte interim order has
obviously come to the court in breach of the arbitration agreement. By obtaining an ex
parte order if it forces the other party to the agreement to suffer the order, or by merely
contesting be imputed the intention of waiving the benefit of arbitration agreement, it
would enjoy an undeserved advantage.
 Appearing and contesting the interlocutory applications by seeking either vacation thereof
or modification thereof cannot be said to be displaying an unambiguous intention to
acquiesce in the suit and to waive the benefit of the arbitration agreement
 What is, therefore, is needed is a finding on the part of the judicial authority that the party
has waived his right to invoke the arbitration clause. If an application is filed before
 actually filing the first statement on the substance of the dispute, in our opinion, the party
cannot be said to have waived his right or acquiesced himself to the jurisdiction of the
court.
 Disclosure of a defence for the purpose of opposing a prayer for injunction would not
necessarily mean that substance of the dispute has already been disclosed in the main
proceeding.
 Supplemental and incidental proceeding are not part of the main proceeding. Seeking a
direction to the plaintiff to produce the original agreement does not amount to submit to
the jurisdiction of the court.
 In the instant case, the court had already passed an ad interim ex pare injunction. The
Appellants were bound to respond to the notice issued by the Court. While doing so, they
raised a specific plea of bar of the suit in view of the existence of an arbitration
agreement.
 Having regard to the provisions of the Act, they had, thus, shown their unequivocal
intention to question the maintainability of the suit on the aforementioned ground. Once it
is found that the dispute between the parties arose out of the contract, Section 8 of the
1996 Act would be attracted.

Booz Allen and Hamilton Inc. Vs .SBI Home Finance Ltd. & Ors. 2002

 The appellant contended that the parties to the suit were all parties to the deposit
agreement containing the arbitration agreement. The claim of the SBI was for
enforcement of the charge/mortgage over flat No.9A and realization of the sale proceeds
therefrom, which was specifically mentioned as a dispute which was arbitrable. Having
regard to the clear mandate under section 8 of the Act, the court ought to have referred the
parties to arbitration.
 Court observed that Where a suit is filed by one of the parties to an arbitration agreement
against the other parties to the arbitration agreement, and if the defendants file an
application under section 8 stating that the parties should be referred to arbitration, the
court (judicial authority) will have to decide
(i) whether there is an arbitration agreement among the parties;
(ii) whether all parties to the suit are parties to the arbitration agreement;
(iii) whether the disputes which are the subject matter of the suit fall within the scope
of arbitration agreement;
(iv) whether the defendant had applied under section 8 of the Act before submitting
his first statement on the substance of the dispute;
(v) whether the reliefs sought in the suit are those that can be adjudicated and granted
in an arbitration.
 Court observed that The enforcement of the charge/mortgage over the flat, realisation of
sale proceeds therefrom and the right of the appellant to stay in possession till the entire
deposit is repaid, are all matters which are specifically mentioned in clause 16 as matters
to be settled by arbitration. Therefore, the subject matter of the suit falls within the scope
of the arbitration agreement.
 On the date of filing of the application under section 8, the appellant had not filed the
written statement. Court observed that Not only filing of the written statement in a suit,
but filing of any statement, application, affidavit filed by a defendant prior to the filing of
the written statement will be construed as ‘submission of a statement on the substance of
the dispute’, if by filing such statement/application/affidavit, the defendant shows his
intention to submit himself to the jurisdiction of the court and waive his right to seek
reference to arbitration
 But filing of a reply by a defendant, to an application for temporary injunction/attachment
before judgment/appointment of Receiver, cannot be considered as submission of a
statement on the substance of the dispute, as that is done to avoid an interim order being
made against him.
 Though section 8 does not prescribe any time limit for filing an application under that
section, and only states that the application under section 8 of the Act should be filed
before submission of the first statement on the substance of the dispute, the scheme of the
Act and the provisions of the section clearly indicate that the application thereunder
should be made at the earliest.
 If supplemental proceedings like applications for temporary injunction on appointment of
Receiver, have been pending for a considerable time and a defendant has been contesting
such supplemental proceedings, it cannot be said that the defendant has lost the right to
seek reference to arbitration.
 Court held that where the issue of ‘arbitrability’ arises in the context of an application
under section 8 of the Act in a pending suit, all aspects of arbitrability have to be decided
by the court seized of the suit, and cannot be left to the decision of the Arbitrator.
 Adjudication of certain categories of proceedings are reserved by the Legislature
exclusively for public fora as a matter of public policy. Even if there is an arbitration
agreement between the parties, the court where the civil suit is pending, will refuse an
application under Section 8 of the Act, if the subject matter of the suit is capable of
adjudication only by a public forum or the relief claimed can only be granted by a special
court or Tribunal.

Deciding Arbitrability involves determining the following:

a) Whether the disputes, having regard to their nature, could be resolved by a private forum
chosen by the parties (the arbitral tribunal) or whether they would exclusively fall within
the domain of public fora (courts)
b) Whether the disputes are enumerated or described in the arbitration agreement as matters
to be decided by arbitration or whether the disputes fall under the ‘excepted matters’
excluded from the purview of the arbitration agreement
c) Whether the parties have referred the disputes to arbitration.

Where a right exists in rem the disputes are not arbitrable. The well recognized examples of
non-arbitrable disputes are :
(i) Disputes relating to rights and liabilities which give rise to or arise out of criminal
offences;
(ii) Matrimonial disputes relating to divorce, judicial separation, restitution of conjugal
rights, child custody;
(iii) Guardianship matters;
(iv) Insolvency and winding up matters;
(v) Testamentary matters (grant of probate, letters of administration and succession
certificate);
(vi) Eviction or tenancy matters governed by special statutes where the tenant enjoys
statutory protection against eviction
(vii) An agreement to sell or an agreement to mortgage does not involve any transfer of
right in rem but create only a personal obligation. Therefore if specific performance is
sought either in regard to an agreement to sell or an agreement to mortgage, the claim
for specific performance will be arbitrable. On the other hand, a mortgage is a transfer
of a right in rem. A mortgage suit for sale of the mortgaged property is an action in
rem, for enforcement of a right in rem
Mustill and Boyd in their Law and Practice of Commercial Arbitration in England :
As the types of remedies which the arbitrator can award are limited by considerations of
public policy and by the fact that he is appointed by the parties and not by the state. For
example, he cannot impose a fine or a term of imprisonment, commit a person for contempt
or issue a writ of subpoena; nor can he make an award which is binding on third parties or
affects the public at large

 Sections 34(2)(b) and 48(2) of the Act however make it clear that an arbitral award will
be set aside if the court finds that “the subject-matter of the dispute is not capable of
settlement by arbitration under the law for the time being in force.”
 Bifurcation of the subject matter of a suit is not contemplated by the legislature hence is
not allowed, thus even if an arbitral tribunal may be able to perform some functions of a
court in enforcing a mortgage, but it cannot perform all as it involves protecting the rights
of those who are not party to the arbitration agreement, hence it is not arbitrable.
 Court held that suit being one for enforcement of a mortgage by sale, it should be tried by
the court and not by an arbitral tribunal.

Shin-Etsu Chemical Co. Ltd vs M/S. Aksh Optifibre Ltd. & Anr 2005-

J Y.K Sabarwal- Dissenting

 Court dealt with the issue of the nature of adjudication contemplated by Section 45 when
the objection about the agreement being "null and void, inoperative or incapable of being
performed" is raised before a judicial authority i.e. whether the judicial authority while
exercising power should decide the objection on a prima facie view of the matter and
render a prima facie finding or a final finding on merits
 Unlike Section 45, the judicial authority under Section 8 has not been conferred the
power to refuse reference to arbitration on the ground of invalidity of the agreement. It is
evident that the object is to avoid delay and accelerate reference to arbitration leaving the
parties to raise objection
 Court observed that the words 'shall' and 'unless' appearing in Section 45 mandates that
before referring the parties to arbitration, the judicial authority should be satisfied that the
arbitration agreement is not null and void, inoperative or incapable of being performed.
 Court observed the decision in Renusagar Power Co. Ltd. v. General Electric Co. & Anr.
dealing with Sec 3 of the Foreign Awards (Recognition and Enforcement) Act where it
was held that before any stay is granted the Court should be satisfied that the arbitration
agreement is valid, operative and capable of being performed which requires the Court to
examine the entire material placed before it.
 Court observed that when words in an earlier statute have received an authoritative
exposition by superior Court (interpretation of Section 3 of Foreign Awards Act in
Renusagar's case), use of same words in a similar context in a later Act will give rise to a
strong presumption that the Parliament intends that the same interpretation should also be
followed for construction of these words in the later statute.
 If the legislature intended a minimalist role of the courts, it would have enacted Section
45 more in terms of Section 8 than its present form. Court held that there is nothing to
suggest either from the language of the section or otherwise that the finding to be
recorded is to be only ex facie or prima facie.
 Regarding Sec 8 and 45, Court observed that Both provisions are differently structured
albeit the purpose of both is to refer parties to arbitration but in one case domestic
arbitration and in other case international arbitration.
 When domestic arbitration is concerned, the legislature intended to achieve speedy
reference of disputes to arbitration tribunal and left most of the matters to be raised before
the arbitrators or post award. In case of foreign arbitration, however, the legislature left
the question relating to validity of arbitration agreement being examined by the court.
 One of the main reasons for the departure being the heavy expense involved in such
arbitrations which may be unnecessary if the arbitration agreement is to be invalidated in
the manner prescribed in Section 45.
 Adopting liberal approach and restricting the determination by judicial authority about
validity of agreement only from prima facie angle, would amount to adding words to
Section 45 without there being any ambiguity or vagueness therein.
 If the court is not asked to satisfy itself as to the validity of the agreement at a pre-award
stage (Section 45), then by virtue of Section 48, it is given another opportunity to do so.
Apart from this, under Section 48, the court may refuse to enforce the foreign award on
the ground other than the invalidity of the arbitration agreement.
 With regard to Sec 50, Court observed that it is well settled in law that an appeal is a
creature of statute and a right to appeal inheres in no one. The legislature under Section
50 has clearly allowed appeal only in case the judicial authority refuses to refer the parties
to arbitration or refuses to enforce the foreign award and not when it refers.
 The fact that a provision is not made for an appeal in case reference is made to arbitration
is not a ground to say that the court should prima facie decide the validity of the
agreement ignoring the express provisions of Section 45
 The judicial authority is required to decide the issue expeditiously within a fix timeframe
and not to treat such matters like regular civil suit. The object of arbitration including
international commercial arbitration is expedition.
 Court directed that any application that may be filed under Section 45 of the Act must be
decided within three months of its filing. In rare and exceptional cases, the judicial
authority may extend the time by another three months but by sending a report to the
superior/appellate authority setting out the reasons for such extension.

J. B.N Srikrishna

 The observations in Renusagar are clearly distinguishable as they relate to the satisfaction
about the ‘existence and validity’ of the arbitration agreement, hence not applicable as
such question does not arise.
 Section 8(3) in Part I of the Act envisages that even in a situation where an application to
the court has been made under sub-section (1), the arbitration may commence, continue
and even an arbitral award be made.
 This was obviously meant to cut down delay in the conclusion of the arbitral proceedings.
There is conspicuous absence of a corresponding provision either in Section 45 or in the
rest of the provisions in Part II.
 This legitimately gives rise to an inference that once the arbitral agreement has been
subjected to scrutiny before the court under Section 45 of the Act, conceivably, the
arbitral proceedings could be stayed till the decision of the court on the nature of the
arbitral agreement.
 If it were to be held that the finding of the court under Section 45 should be a final,
determinative conclusion, then it is obvious that, until such a pronouncement is made, the
 arbitral proceedings would have to be in limbo. This evidently defeats the credo and ethos
of the Act.
 The two basic requirements, namely, expedition at the pre-reference stage, and a fair
opportunity to contest the award after full trial, would be fully satisfied by interpreting
Section 45 as enabling the court to act on a prima facie view.
 If the court takes the view that the arbitral agreement is not vitiated or that it is not
invalid, inoperative or unenforceable, based upon purely a prima facie view, nothing
prevents the arbitrator from trying the issue fully and rendering a final decision
thereupon.
 If the arbitrator finds the agreement valid, there is no problem as the arbitration will
proceed and the award will be made. However, if the arbitrator finds the agreement
invalid, inoperative or void, this means that the party who wanted to proceed for
arbitration was given an opportunity of proceeding to arbitration.
 The finding of the court that the arbitration agreement is valid, operative and enforceable,
if in favour of the party setting up the arbitration agreement, is not appealable under
Section 50 but Refusing to refer parties to arbitration under Section 45, is however, made
appealable under Section 50(1)(a) of the Act
 Even after the court takes a prima facie view that the arbitration agreement is not vitiated
on account of factors enumerated in Section 45, and the arbitrator upon a full trial holds
that there is no vitiating factor in the arbitration agreement and makes an award, such an
award can be challenged under section 48(1)(a).
 Giving a final finding only on basis of affidavits by excluding oral evidence altogether
would render injustice to the party because a final judgment would have been rendered on
insufficient material.
 If the Court gives final finding and not prima facie, the principle of res-judicata, the
principle of res-judicata would operate as such a party may not even be heard in a post-
award situation under section 48(1)(a) on the same issue as the finding given under
Section 45 would be treated as final and binding.
 Further, it would result in the court conclusively rules upon the validity of the arbitration
agreement at the pre-reference stage and despite the provision at the post-award stage,
where the finding has to be recorded on a full trial of the relevant issue under section
48(1) (a), thus making 48(1) redundant, which definitely was not the intention of the
parliament.
 Treating the finding under Section 45 as final results in a paradoxical situation. A final
decision rendered by the competent court on the nature of the arbitral agreement may
have to be ignored by the Arbitral Tribunal, which would be entitled to decide the issue
afresh on the material presented to it.
 However, if a prima facie view is taken, Neither the Arbitral Tribunal, nor the court
enforcing the arbitral award may consider itself bound by the prima facie view expressed
under Section 45 of the Act.
 Further since The parties here have subjected their agreement to the laws of Japan, when
a court has to make a final determinative ruling on the validity of the arbitration
agreement, it must do so under Japanese laws. It would not only be unfeasible to prove
foreign law exclusively through affidavits, but it would also entail enormous expenditure
of time and money.
 If courts at the preliminary stage were to admit oral evidence, simply because forgery or
the like is pleaded, then all international commercial arbitrations can be defeated by a
totally bogus defence that the agreement is forged or fabricated.
 If such a defence were to be allowed, it would necessarily require a full-fledged trial (with
oral evidence) at the pre-reference stage with all its consequential delay and expense. On
 the other hand, if only a prima facie view were to be taken, then the issue could still be
examined in-depth after a full trial either before the Arbitral Tribunal or at any rate under
section 48(1)(a) when the enforceability of the ensuing award is questioned.
 Therefore Section 45 requires only a prima facie view of the matter as to the absence of
the vitiating factors contemplated therein.

J.Dharmadhikari

Agreed with J.SriKrishna but on a different line of reasoning:

 On a prima facie view of the matter, which is required to be objectively taken on the basis
of material and evidence produced by the parties on the record of the case, the judicial
authority including a regular civil court, must afford full opportunities to the parties to
lead whatever documentary or oral evidence they want to lead and then decide the
question like trial of a preliminary issue on jurisdiction or limitation in a regular civil suit
 Where a judicial authority or the court refuses to make a reference on the grounds
available under Section 45 of the Act, it is necessary for the judicial authority or the court
which is seized of the matter to pass a reasoned order as the same is subject to appeal to
the appellate court under Section 50(1)(a) of the Act.

N. Radhakrishnan v. Maestro Engineers (Division Bench)(Fraud Arising from conduct of

parties)

 The Dispute had arisen between the appellant and the respondent, who were partners in a
firm known as Maestro Engineers. The appellant had retired from the firm. Subsequently,
the appellant alleged that he continued to be a partner.
 The respondent filed a Civil Suit seeking a declaration that the appellant is not a partner
of the firm. In this suit, the appellant filed an application under Section 8 (Judicial
Authority) of the Arbitration Act seeking reference of the dispute to the arbitration.
 Court held that since the case relates to allegations of fraud related to conduct of parties
and serious malpractices on the part of the respondents, such a situation can only be
settled in court through furtherance of detailed evidence by either parties and such a
situation cannot be properly gone into by the arbitrator.
 The facts of the present case does not warrant the matter to be tried and decided by the
Arbitrator, rather for the furtherance of justice, it should be tried in a court of law which
would be more competent and have the means to decide such a complicated matter
involving various questions and issues.
 Court held that a dispute would not be arbitrable if it involved “serious allegations of
fraud”. The Court neither explicitly defined the scope of ‘serious allegations of fraud’ nor
laid down a test to determine what makes an allegation a “serious” one.
 It held that since the appellant had alleged that the respondent had committed
malpractices in the account books and manipulated the finances of the partnership firm,
the dispute could not be referred to an arbitrator. Hence, the allegations of financial
impropriety were considered to be ‘serious.

Swiss Timing Ltd vs Organizing Committee Commonwealth 2014 (Single Judge Bench)
(Fraud arising from contract being void)

 The petitioner entered into an agreement with the respondent for providing timing, score
and result systems (“TSR systems/services”) as well as supporting services required to
 conduct the Commonwealth Games. According to the petitioner, the respondent defaulted
in making the payment without any justifiable reasons.
 The objection taken is to the manner in which the grant of the contract was manipulated
in favour of the petitioner. The second ground is that the rates charged by the petitioner
were exorbitant.
 Court held that These are allegations which will have to be established in a proper forum
on the basis of the oral and documentary evidence, produced by the parties, in support of
their respective claims.
 As a pure question of law, Court held that it cannot accept the very broad proposition that
whenever a contract is said to be void-ab-initio, the Courts exercising jurisdiction under
Section 8 and Section 11 of the Arbitration Act, 1996 are rendered powerless to refer the
disputes to arbitration.
 Ratio laid down in Radhakrishnan is not correct it had ignored precedent, ignored Sec 16,
does not address problem of void contract,
 Upholding the ratio in Hindustan Petroleum Corpn. Ltd, Court held that as long as parties
have agreed to refer their dispute to Arbitration, the courts ought to have referred the
dispute to arbitration
 Section 16 provides that the Arbitral Tribunal would be competent to rule on its own
jurisdiction including ruling on any objection with regard to existence or validity of the
arbitration agreement. This recognizes The concept of separability of the arbitration
clause/agreement from the underlying contract. (legal fiction deemed to prevent chiken-
egg problem)
 Section 5 of the Arbitration Act provides that the Court shall not intervene in the
arbitration process except in accordance with the provisions contained in Part I of the
Arbitration Act
 A conjoint reading of Section 5 and Section 16 would make it clear that all matters
including the issue as to whether the main contract was void/voidable can be referred to
arbitration. Otherwise, it would be a handy tool available to the unscrupulous parties to
avoid arbitration, by raising the bogey of the underlying contract being void.
 It would not be possible to shut out arbitration even in cases where the defence taken is
that the contract is voidable. These would be cases which are covered under the
circumstances narrated in Section 12 – unsoundness of mind; Section 14 – absence of free
consent, i.e. where the consent is said to be vitiated as it was obtained by Coercion
(Section 15), Undue Influence (Section 16), Fraud (Section 17) or Misrepresentation
(Section 18) as Such a contract will only become void when the party claiming lack of
free consent is able to prove the same and thus rendering contract void.
 The Court ought to decline reference to arbitration only where the Court can reach the
conclusion that the contract is void on a meaningful reading of the contract document
itself without the requirement of any further proof. Some examples of where a contract
may fall in this category would be :-
1. Where a contract is entered into by a person, who has not attained the age of
majority (Section 11);
2. Where both the parties are under a mistake as to a matter of fact essential to the
agreement (Section 19);
3. Where the consideration or object of the contract is forbidden by law or is of such
a nature that, if permitted, it would defeat the provisions of any law or where the
object of the contract is to indulge in any immoral activity or would be opposed to
public policy. Glaring examples of this would be where a contract is entered into
between the parties for running a prostitution racket, smuggling drugs, human
trafficking and any other activities falling in that category.
 4. Similarly, Section 30 renders wagering contracts as void. The only exception to
this is betting on horse racing.
In the circumstances noted above, it may not be necessary for the Court to take any
further evidence apart from reading the contract document itself. Therefore, whilst
exercising jurisdiction under Section 11(6) of the Arbitration Act, the Court could decline
to make a reference to arbitration as the contract would be patently void.
 The submission made by the learned counsel for the respondents that since a criminal
case has been registered against the Chairman of the Organising Committee and some
other officials of the petitioner, this Court would have no jurisdiction to make a reference
to arbitration was rejected.
 There is no inherent risk of prejudice to any of the parties in permitting arbitration to
proceed simultaneously to the criminal proceedings. In an eventuality where ultimately an
award is rendered by arbitral tribunal, and the criminal proceedings result in conviction
rendering the underlying contract void, necessary plea can be taken on the basis of the
conviction to resist the execution/enforcement of the award.
 Conversely, if the matter is not referred to arbitration and the criminal proceedings result
in an acquittal and thus leaving little or no ground for claiming that the underlying
contract is void or voidable, it would have the wholly undesirable result of delaying the
arbitration.
(Swiss Timing counts itself as a chief justice designate and assumes higher authority over
the division bench in Radhakrishnan and declares it per-in curium)

Ayyasamy v. Paramasivam 2016

 Insofar as the Arbitration and Conciliation Act, 1996 is concerned, it does not make any
specific provision excluding any category of disputes terming them to be non-arbitrable.
The inquiry of the Court, while dealing with an application under Section 8 of the Act,
should be on the aforesaid aspect viz. whether the nature of dispute is such that it cannot
be referred to arbitration, even if there is an arbitration agreement between the parties.
 If an allegation of fraud can be adjudicated upon in the course of a trial before an ordinary
civil court, there is no reason or justification to exclude such disputes from the ambit and
purview of a claim in arbitration.
 The parties in choosing arbitration place priority upon the speed, flexibility and expertise
inherent in arbitral adjudication. Once parties have agreed to refer disputes to arbitration,
the court must plainly discourage and discountenance litigative strategies designed to
avoid recourse to arbitration.
 Mere allegation of fraud simpliciter may not be a ground to nullify the effect of
arbitration agreement between the parties. It is only in those cases where the court, while
dealing with Section 8 of the Act, finds that there are very serious allegations of fraud
which make a virtual case of criminal offence or where allegations of fraud are so
complicated that it becomes absolutely essential that such complex issues can be decided
only by the civil court on the appreciation of the voluminous evidence that needs to be
produced, the court can side track the agreement by dismissing the application under
Section 8 and proceed with the suit on merits.
 It can be so done also in those cases where there are serious allegations of
forgery/fabrication of documents in support of the plea of fraud or where fraud is alleged
against the arbitration provision itself or is of such a nature that permeates the entire
contract, including the agreement to arbitrate, meaning thereby in those cases where fraud
goes to the validity of the contract itself of the entire contract which contains the
arbitration clause or the validity of the arbitration clause itself.
 Where there are simple allegations of fraud touching upon the internal affairs of the party
inter se and it has no implication in the public domain, the arbitration clause need not be
avoided and the parties can be relegated to arbitration.

Rashid Raza V Sadaf Akhtar

 The case arose out of a partnership dispute in which an FIR was lodged by one of the
partners and was under investigation, alleging siphoning of funds and various other
business improprieties that were committed. The FIR is at present under investigation.
 Court observed that the principles of law laid down in this appeal makes a distinction
between serious allegations of forgery/fabrication in support of the plea of fraud as
opposed to “simple allegations”.
 Two working tests laid down in Ayyaswamy case : (1) does this plea permeate the entire
contract and above all, the agreement of arbitration, rendering it void, or (2) whether the
allegations of fraud touch upon the internal affairs of the parties inter se having no
implication in the public domain.
 Judged by these two tests, it is clear that this is a case which falls on the side of “simple
allegations” as there is no allegation of fraud which would vitiate the partnership deed as
a whole or, in particular, the arbitration clause concerned in the said deed.
 Secondly, all the allegations made which have been relied upon by the learned counsel
appearing on behalf of the respondent, pertain to the affairs of the partnership and
siphoning of funds therefrom and not to any matter in the public domain.
 Court held that the disputes raised between the parties are arbitrable and, hence, a Section
11 application under the Arbitration Act would be maintainable.

Avitel Post Studioz Limited v. HSBC PI Holding

 Court held that it had to be determined whether the allegations of fraud permeated the
entire contract, and especially the arbitration agreement, thereby rendering it void. This is
satisfied only when it is clear that the party against whom the breach has been alleged,
could not have entered into the arbitration agreement in the first place, and thus, no
arbitration agreement or clause can be said to exist.
 It had to be determined whether the allegations pertained to the internal affairs of the
parties inter se or whether they had an implication on the public domain. This is satisfied
when allegations of “arbitrary, fraudulent, or malafide conduct” are made against either
the State or its instrumentalities and thus, require to be heard by a court exercising writ
jurisdiction, as the matters lie in the public domain.

Sukanya Holdings Pvt. Ltd. V Jayesh H Pandya

 For interpretation of Section 8, Section 5 would have no bearing because it only

contemplates that in the matters governed by Part-I of the Act, Judicial authority shall not
intervene except where so provided in the Act.
 Except Section 8, there is no other provision in the Act that in a pending suit, the dispute
is required to be referred to the arbitrator. Arbitration Act does not oust the jurisdiction of
the Civil Court to decide the dispute in a case where parties to the Arbitration Agreement
do not take appropriate steps as contemplated under sub-sections (1) & (2) of Section 8 of
the Act.
 The suit should be in respect of ’a matter’ which the parties have agreed to refer and
which comes within the ambit of arbitration agreement. Where, however, a suit is
 commenced - "as to a matter" which lies outside the arbitration agreement and is also
between some of the parties who are not parties to the arbitration agreement, there is no
question of application of Section 8. The words ’a matter’ indicates entire subject matter
of the suit should be subject to arbitration agreement.
 It would be difficult to give an interpretation to Section 8 under which bifurcation of the
cause of action that is to say the subject matter of the suit or in some cases bifurcation of
the suit between parties who are parties to the arbitration agreement and others is
possible.
 This would be laying down a totally new procedure not contemplated under the Act. Thus
the bifurcation of the subject matter of an action brought before a judicial authority is not
allowed.
 Such bifurcation of suit in two parts, one to be decided by the arbitral tribunal and other
to be decided by the civil court would inevitably delay the proceedings. It would also
increase the cost of litigation and harassment to the parties and on occasions there is
possibility of conflicting judgments and orders by two different forums.

Chloro Controls India (P) Ltd. v. Severn Trent Water Purification Inc., (2013) 1 SCC
641

Position prior to this Judgement:

Arbitration could be invoked at the instance of a signatory to the arbitration agreement only
in respect to disputes with another signatory party;
The court would adopt a strict interpretation of the provisions of the Arbitration Act,
particularly the unamended Section 8 which only allowed reference of “parties” to an
arbitration agreement;
There was an emphasis on formal consent of the parties, thereby excluding any scope for
implied consent of the non-signatories to be bound by an arbitration agreement.

Court dealt with 2 issues:

1. What is the ambit and scope of Section 45 of the Arbitration and Conciliation Act, 1996
(“the 1996 Act")?
2. Whether in a case where multiple agreements are signed between different parties and
where some agreements therefrom contain an arbitration clause and others do not; and
further the parties are not identically common in proceedings before the court (in a suit)
and the arbitration agreement, a reference of disputes as a whole or in part can be made to
the arbitral tribunal under Section 45 of the 1996 Act, more particularly, where the parties
to an action are claiming under or through a party to the arbitration agreement?

Legislative Intent

 Section 45 is enacted materially on the lines of Article Il of the New York Convention,
1958. For proper interpretation and application of Chapter I of Part Il of the 1996 Act, it
is necessary that those provisions are read in conjunction with Schedule I of the Act since
it is the very foundation of Section 45 of the 1996 Act.
 In significant contra-distinction, Section 45 uses the expression ‘one of the parties or any
person claiming through or under him’ and ‘refer the parties to arbitration’, whereas the
rest of the language of Section 45 is similar to that of Article II(3) of the New York
 Contention. The Court cannot ignore this aspect and has to give due weightage to the
legislative intent.
 Because of the legislative intent, the mandate and purpose of the provisions of Section 45
being in favour of arbitration, the relevant provisions would have to be construed liberally
to achieve that object.
 The language of Section 45 is at a substantial variance to the language of Section 8.
Section 8 of the 1996 Act uses the expression “parties” simpliciter without any extension.
In significant contradistinction, Section 45 uses the expression “one of the parties or any
person claiming through or under him" and “refer the parties to arbitration”.
 In Section 45, the expression “any person” clearly refers to the legislative intent of
enlarging the scope of the words beyond “the parties” who are signatory to the arbitration
agreement. Of course, such applicant should claim through or under the signatory party.
Once this link is established, then the court shall refer them to arbitration.
 The use of the word “shall” would have to be given its proper meaning and cannot be
equated with the word “may", The expression "shall" in the language of Section 45 is
intended to require the court to necessarily make a reference to arbitration if the
conditions specified in Sec 44 and 45, are satisfied.

Link Between persons and parties:

 Various legal basis may be applied to bind a non-signatory to an arbitration agreement.

The first theory is that of implied consent, third party beneficiaries, guarantors,
assignment and other transfer mechanisms of contractual rights. This theory relies on the
discernible intentions of the parties and, to a large extent, on good faith principle. They
apply to private as well as public legal entities.
 The second theory includes the legal doctrines of agent- principal relations, apparent
authority, piercing of veil (also called the “alter ego”), joint venture relations, succession
and estoppel. They do not rely on the parties’ intention but rather on the force of the
applicable law.

Applicability to non-signatories or Third Parties

 When Section 45 is read in light of Section 2(h), the interpretation given in Sumitomo
Corpn., that a party to an arbitration agreement has to be a party to the judicial
proceedings and then alone it will fall within the ambit of Section 2(h) of the 1996 Act,
does not stand the test of reasoning. Section 45 in explicit language permits the parties
who are claiming through or under a main party to the arbitration agreement to seek
reference to arbitration. This is so, by fiction of law.
 The language of Section 45 is incapable of being construed narrowly and must be given
expanded meaning to achieve the twin objects of arbitration i.e. firstly, the parties should
be held to their bargain of arbitration and secondly, the legislative intent behind
incorporating the New York Convention as part of Section 44 of the 1996 Act must be
protected.
 Arbitration, thus, can be possible between a signatory to an arbitration agreement and a
third party. Some illustrative situations where a party can be said to be claiming through
or under the signatory party are as follows:
1) The claimant was in reality always a party to the contract, although not named in it.
2) The claimant has succeeded by operation of law to the rights of the named party.
3) The claimant has become a party to the contract in substitution for the named party by
virtue of a statutory or consensual novation.
4) The original party has assigned to the claimant either the underlying contract, together
with the agreement to arbitrate which it incorporates, or the benefit of a claim which has
already come into existence.
 The New York Convention clearly postulates that there should be a defined legal
relationship between the parties, whether contractual or not, in relation to the differences
that may have arisen concerning the subject-matter capable of settlement of arbitration.
Articles [I(1) and (3) of the New York Convention have to be read in conjunction with
Section 45 of the Act. Both these expressions have to be read in harmony with each other.
 A person may not be signatory to an arbitration agreement, but his cause of action may be
directly relatable to that contract and thus, he may be claiming through or under one of
those parties: the issue has to be determined on the facts of each case.
 A heavy onus lies on the person seeking reference to arbitration of a signatory party and a
third party or persons legally related through or under multiple and multi-party
agreements between the parties to the arbitration agreement or persons claiming through
or under such parties to show that, in fact and in law, it is claiming “through” or “under”
the signatory party as contemplated under Section 45 of the 1996 Act.
 Under the “group of companies” doctrine, an arbitration agreement entered into by a
company within a group of companies can bind its non-signatory affiliates, if the
circumstances demonstrate that the mutual intention of the parties was to bind both the
signatory as well as the non-signatory parties.
 This theory has been applied in a number of arbitrations so as to justify a tribunal taking
jurisdiction over a party who Is not a signatory to the contract containing the arbitration
agreement. “intention of the parties” is a very significant feature which must be
established before the scope of arbitration can be said to include the signatory as well as
the non-signatory parties.
 A non-signatory or third party could be subjected to arbitration without his prior consent,
but this would only be in exceptional cases where there is direct relationship to the party
signatory to the arbitration agreement, direct commonality of the subject matter and the
agreement between the parties being a composite transaction
 If the transaction is of a composite nature where performance of the principal or mother
agreement may not be feasible without the aid, execution and performance of the
supplementary or ancillary agreements, for achieving the common object, and collectively
having bearing on the dispute, it is covered under the exception. Besides all this, the
Court would have to examine whether a composite reference of such parties would
serve the ends of justice.
 When a third party i.e. non-signatory party, is claiming or is sued as being directly
affected through a party to the arbitration agreement and there are principal and
subsidiary agreements, and such third party is signatory to a subsidiary agreement and not
to the mother or principal agreement which contains the arbitration clause, then
depending upon the facts and circumstances of the given case, it may be possible to say
that even such third party can be referred to arbitration.
 Besides designing the corporate management to successfully complete the joint ventures,
where the parties execute different agreements but all with one primary object in mind,
the court would normally hold the parties to the bargain of arbitration and not encourage
its avoidance.

In cases involving execution of such multiple agreements, three essential features exist:

1. All ancillary agreements are relatable to the mother agreement

 2. Performance of one is so intrinsically interlinked with the other agreements that they
are incapable of being beneficially performed without performance of the others or
severed from the rest.
3. The intention of the parties to refer all the disputes between al the parties to the
Arbitral Tribunal is one of the determinative factors.
 The court will have to examine such pleas like the non-signatory being an alter ego,
estoppel, agency and third-party beneficiaries with greater caution and by definite
reference to the language of the contracts and intention of the parties to find jurisdiction
over the non-signatories.

Composite Performance

 Where the agreements are consequential and in the nature of a follow-up to the principal
or mother agreement, the latter containing the arbitration agreement and such agreements
being so intrinsically intermingled or inter-dependent that it is their composite
performance which shall discharge the parties of their respective mutual obligations and
performances, this would be a sufficient indicator of the intent of the parties to refer
signatory as well as non-signatory par- ties to arbitration.
 The principle of “composite performance” would have to be gathered from the conjoint
reading of the principal and supplementary agreements on the one hand and the explicit
intention of the parties and the attendant circumstances on the other.
 When several parties are involved in a dispute, it is usually considered desirable that the
dispute should be dealt with in the same proceedings rather than in a series of separate
proceedings. In general terms, this saves time, money, multiplicity of litigation and more
importantly, avoids the possibility of conflicting decisions on the same issues of fact and
law since all issues are determined by the same Arbitral Tribunal at the same time.
 The requirement that an arbitration agreement be in writing is an expression incapable of
strict construction and is required to be construed liberally, as the words of this article
provide. Even in a given circumstance, it may be possible and permissible to construe the
arbitration agreement with the aid and principle of “incorporation by reference”.
 Third parties, who are not explicitly mentioned in an arbitration agreement made in
writing, may enter into its ratione personae scope. Furthermore, the New York
Convention does not prevent consent to arbitrate from being provided by a person on
behalf of another, a notion which is at the root of the theory of implied consent.

Finality

 Sections 8 and 45 of the 1996 Act are provisions independent of each other. But, for the
purposes of reference to arbitration, in both cases, the applicant has to pray for a reference
before the Chief Justice or his designate in terms of Section 11 of the 1996 Act.
 Thus, to an extent, the law laid down by the Supreme Court on Section 11 shall be
attracted to an international arbitration which takes place in India as well as domestic
arbitration. This, of course, would be applicable at pre-award stage.
 Section 16 contemplates that the arbitrator may determine its own jurisdiction. Absence
of such a provision in Part II Chapter I is suggestive of the requirement fort the court to
determine the ingredients of Section 45, at the thresh- old itself.
 Under the Indian law, unlike international practice where there is greater emphasis on the
Competence-Competence Principle, a greater obligation is cast upon the courts to
determine whether the agreement is valid, operative and capable of being performed at
the threshold itself: only then the dispute would be referred to arbitration.
 Such determination by the court in accordance with law would certainly attain finality
and would not be open to question by the Arbitral Tribunal, even as per the principle of
prudence. It will prevent multiplicity to litigation and reagitating of same issues over and
over again. The underlining principle of finality in Section 11(7) would be applicable
with equal force while dealing with the interpretation of Sections 8 and 45.
 The issue of jurisdiction normally is a mixed question of law and facts. Occasionally, it
may also be a question of law alone. It will be appropriate to decide such questions at the
beginning of the proceedings itself and they should have finality.

Bifurcation

 Unlike Section 24 of the 1940 Act, under the 1996, Act the Court has not been given the
power to refer to arbitration some of the parties from amongst the parties to the suit.
Absence of such provision in the 1996 Act clearly suggests that the Legislature intended
not to permit bifurcated or partial references of dispute or parties to arbitration.
 No reference to Sukanya Holdings should be done as it dealt with Sec 8

Conclusion

 In the present case, the corporate structure of the respondent companies as well as that of
the appellant companies clearly demonstrates a legal relationship which not only is an
inter-legal relationship but also an intra-legal relationship between the parties to the lis or
persons claiming under them.
 They have contractual relationship which arises out of the various contracts which they
were expected to perform for attaining the object of successful completion of the joint
venture agreement. This joint venture project was not dependent on any single agreement
but was capable of being achieved only upon fulfilment of all these agreements.
 If one manages the joint venture, one must know what goods the said company is to
produce and with what technical knowhow, how to create market, distribute and export
such goods. It is nothing but one single chain consisting of different components. The
parties may choose to sign different agreements to effectively implement various
aforementioned facets right from managing to making profits in a joint venture company.
 The joint venture entered between the parties had different facets. Its foundation was
provided under the principal agreement but al the agreed terms could only be fulfilled by
performance of the ancillary agreements.
 If one segregates the principal agreement from the rest, the subsequent agreements would
be rendered ineffective. Conversely, if the ancillary agreements were not performed in a
collective manner, the principal agreement would be of no consequence. It was a
composite transaction.
 It can safely be covered under the principle of “agreements within an agreement”. The
principal agreement referred either specifically or by necessary implication to al other
agreements. They were interdependent for their performance and one could not be read
and understood completely without the aid of the other.
 May be all the parties to the lis are not signatory to al the agreements in question, but stil
they would be covered under the expression “claiming through or under” the parties to the
agreement. The interests of these companies are not adverse to the interest of the principal
company and/or the joint venture company.
 Expression “connection” appearing in Clause 30 has to be given a meaningful
interpretation. It implies expansion in its operation and effect both. Connection can be
direct or remote but it should not be fanciful or marginal. In other words, there should be
 relevant connection between the dispute and the agreement by specific words or by
necessary implication like reference to all other agreements in one (principal) agreement.
 Another aspect of the case is that all these agreements were executed simultaneously on
the same day and for the same purpose which fact fully supports the view that the parties
intended to have all these agreements as a composite transaction. Conduct of the parties
show that they executed the composite transaction in the main agreement.
 None of these companies either stranger to the transaction or not an appropriate party.
The parties who have signed the agreements could alone give rights or benefits to the
joint venture company.
 In the present case some of the six agreements in question contain the arbitration clause,
while others do not. The shareholders' agreement (the principal or mother agreement),
financial and technical know-how licence agreement and export sales agreement contain
the arbitration clause, while the international distributor agreement, Managing Directors’
agreement and trade mark registered user agreement do not contain the arbitration clause.
 Some agreements referred to Arbitration according to ICC rules in London while 2 of
them provided that Courts in Pennsylvania would have jurisdiction. Court observed that
None of the parties have invoked the jurisdiction of the Court at Pennsylvania, USA.
Thus, it was an alternative remedy that too restricted to the disputes, if any arising from
that agreement.
 Where different agreements between the parties provide for alternative remedies, it does
not necessarily mean that the other remedy or jurisdiction stands ousted. Where the
parties to such composite transaction provide for different alternative forums, including
arbitration, it has to be taken that real intention of the parties was to give effect to the
purpose of agreement and refer the entire subject-matter to arbitration and not to frustrate
the remedy in law.
 It was for the parties to choose either to institute a suit qua the international distributor
agreement at Pennsylvania or to invoke the arbitration agreement in terms of Clause 30 of
the mother agreement. They have chosen the latter remedy.
 The provisions of Section 45 of the 1996 Act are to prevail over the provisions of CPC
and when the court is satisfied that an agreement is enforceable, operative and is not null
and void, it is obligatory upon the court to make a reference to arbitration and pass
appropriate orders in relation to the legal proceedings before the court, in exercise of its
inherent powers.
 The disputes referred to and arising from the multi-party agreements are capable of being
referred to the Arbitral Tribunal in accordance with the agreement between the parties.
Hence, it is directed that al the disputes arising in the suit and from the agreement
between the parties to be referred to the Arbitral Tribunal and be decided in accordance
with the Rules of ICC.

Ameet Lalchand Shah v. Rishabh Enterprises.

Court held that the holding with respect to Sec 45 in Chloro Controls applies to Sec 8.

Cox and Kings ltd. V SAP India Pvt. Ltd, (Constitution Bench) 2022

 Court had to determine the validity of the ‘Group of Companies’ doctrine in the
jurisprudence of Indian arbitration. The doctrine provides that an arbitration agreement
which is entered into by a company within a group of companies may bind non-signatory
affiliates, if the circumstances are such as to demonstrate the mutual intention of the
parties to bind both signatories and non-signatories.
 This doctrine is called into question purportedly on the ground that it interferes with the
established legal principles such as party autonomy, privity of contract, and separate legal
personality.
 Court also dealt with whether the Arbitration Act allows joinder of a non-signatory as a
party to an arbitration agreement; and, (ii) whether Section 7 of the Arbitration Act allows
for determination of an intention to arbitrate on the basis of the conduct of the parties.
 Chloro Controls case laid down that a non-signatory person or entity could be made a
party to an arbitration agreement, as “claiming through or under” a signatory party, if the
circumstances demonstrate the mutual intention of the parties on the basis of the
composite nature of the transaction, direct commonality of subject-matter, and direct
relationship of the non-signatory to the signatory parties.
 International jurisdictions, in some form or the other, have moved beyond the formalistic
requirement of consent to bind a non-signatory to an arbitration agreement
 In jurisdictions such as France and Switzerland, there is a broad consensus that consent or
subjective intention of a non-signatory to arbitrate may be proved by conduct. Such
subjective intention could be derived from the objective evidence in the form of
participation of the non- signatory in the negotiation, performance, or termination of the
underlying contract containing the arbitration agreement.

Consent as basis for Arbitration

 Arbitration agreements arise out of a legal relationship between or among persons or

entities which may be contractual or otherwise; In situations where the legal relationship
is contractual in nature, the nature of relationship can be determined on the basis of
general contract law principles
 It is not necessary for the persons or entities to be signatories to the arbitration agreement
to be bound by it; and in case of non-signatory parties, the important determination for the
courts is whether the persons or entities intended or consented to be bound by the
arbitration agreement or the underlying contract containing the arbitration agreement
through their acts or conduct
 The requirement of a written arbitration agreement has to be adhered to strictly, but the
form in which such agreement is recorded is irrelevant and the requirement of a written
arbitration agreement does not exclude the possibility of binding non- signatory parties if
there is a defined legal relationship between the signatory and non-signatory parties. The
definition of “parties” under Section 2(1)(h) read with Section 7 of the Arbitration Act
includes both the signatory as well as non-signatory parties;
 Courts and tribunals across the world have been applying traditional contractual and
commercial doctrines to determine the consent of the non- signatory parties to be bound
by the arbitration agreement
 Consent based theories such as agency, novation, assignment, operation of law, merger
and succession, and third party beneficiaries have been applied in different jurisdictions.
In exceptional circumstances, non-consensual theories such as piercing the corporate veil
or alter ego and estoppel have also been applied to bind to bind a non-signatory party to
an arbitration agreement.
 The group of companies doctrine is one such consent-based doctrine which has been
applied, albeit controversially, for identifying the real intention of the parties to bind a
non-signatory to an arbitration agreement.
 The principle of alter ego or piercing the corporate veil cannot be the basis for the
application of the group of companies doctrine.
 Modern commercial reality suggests that there often arise situations where a company
which has signed the contract containing the arbitration clause is not always the one to
negotiate or perform the underlying contractual obligations.
 In such situations, emphasis on formal consent will lead to the exclusion of such non-
signatories from the ambit of the arbitration agreement, leading to multiplicity of
proceedings and fragmentation of disputes.

Separate legal personality

 Entities within a corporate group have separate legal personality, which cannot be ignored
save in exceptional circumstances such as fraud.
 The distinction between a parent company and its subsidiary is fundamental, and cannot
be easily abridged by taking recourse to economic convenience.Legally, the rights and
liabilities of a parent company cannot be transferred to the subsidiary company, and vice
versa, unless, there is a strong legal basis for doing so
 The underlying basis for the application of the group of companies doctrine rests on
maintaining the corporate separateness of the group companies while determining the
common intention of the parties to bind the non- signatory party to the arbitration
agreement
 An arbitration agreement encapsulates the commercial understanding of business entities
as regards to the mode and manner of settlement of disputes there may arise situations
where a person or entity may not sign an arbitration agreement, yet give the appearance of
being a veritable party to such arbitration agreement due to their legal relationship with
the signatory parties and involvement in the performance of the underlying contract.

Group of companies doctrine – a fact based doctrine

 Although the existence of a group of companies is a necessary condition, it is not the

sufficient condition to determine the intention of the parties. The mere membership of a
non-signatory in a group of companies is not enough to bind it to the arbitration
agreement.
 Rather, the courts need to determine: the existence of a group of companies; and the
conduct of the signatory and non-signatory parties which indicate their common intention
to make the non-signatory a party to the arbitration agreement
 On the one hand, Chloro Controls (supra) emphasizes on the “intention of the parties”,
while on the other hand it allows joinder of non-signatory parties to arbitration
proceedings “without their prior consent”.
 The phrase “without their prior consent” has to be construed as “without prior formal
consent to the arbitration agreement or the underlying contract containing the arbitration
agreement.
 The primary test to apply the group of companies doctrine is by determining the intention
of the parties on the basis of the underlying factual circumstances. Avoiding multiplicity
of proceedings and fragmentation of disputes is certainly in the interests of justice.
However, it can never be the sole consideration to invoke the group of companies
doctrine.
 Court observed the decision in Discovery Enterprises where it was held that in deciding
whether a company within a group of companies is bound by the arbitration agreement,
court must look at The mutual intent of the parties; The relationship of a non-signatory to
a party which is a signatory to the agreement; The commonality of the subject-matter;
The composite nature of the transactions; and The performance of the contract.
 The test is to determine whether the non-signatory has a positive, direct, and substantial
involvement in the negotiation, performance, or termination of the contract. Mere
incidental involvement in the negotiation or performance of the contract is not sufficient
to infer the consent of the non- signatory
 The group of companies doctrine has an independent existence as a principle of law
which stems from a harmonious reading of Section 2(1)(h) along with Section 7 of the
Arbitration Act;
 The burden is on the party seeking joinder of the non-signatory to the arbitration
agreement to prove a conscious and deliberate conduct of involvement of the non-
signatory based on objective evidence
 The involvement of a non-signatory in the negotiation, performance, or termination of the
underlying contract could be an important indicator of the fact that such non-signatory
accepted to be bound by the contract. However, transposition of such consent to an
arbitration agreement is a legal fiction to accommodate commercial reality.

The group of companies doctrine has independent existence

 Third parties typically cannot be compelled to arbitrate based on an agreement to which

they have not consented. A mere legal or commercial connection is not sufficient to allow
a non-signatory to claim through or under a party to the arbitration agreement.
 The group of companies doctrine is founded on the mutual intention of the parties to
determine if the non-signatory entity within a group could be made a party to the
arbitration agreement in its own right. Such non-signatory entity is not “claiming through
or under” a signatory party
 The phrase “claiming through or under” has not been used either in Section 2(1)(h) or
Section 7 of the Arbitration Act. This is because those provisions are based on the
concept of party autonomy and party independence, which requires the party to provide
consent to submit their disputes to arbitration.
 The group of companies doctrine has an independent existence as a principle of law
which stems from a harmonious reading of Section 2(1)(h) along with Section 7 of the
Arbitration Act
 The phrase “claiming through or under” is used in the context of successors in interest
that act in a derivative capacity and substitute the signatory party to the arbitration
agreement. But, The group of companies doctrine is used to bind the non-signatory to the
arbitration agreement so that it can agitate the benefits and be subject to the burdens that
it derived or is conferred in the course of the performance of the contract
 The group of companies doctrine can be used to bind a non-signatory party to the
arbitration agreement regardless of the phrase “claiming through or under” as appearing
in Sections 8 and 45 of the Arbitration Act.
 The approach of this Court in Chloro Controls (supra) to the extent that it traced the
group of companies doctrine to the phrase “claiming through or under” is erroneous and
against the well-established principles of contract law and corporate law.

Reference

 At the referral stage, the court only has to determine the prima facie existence of an
arbitration agreement. If the referral court cannot decide the issue, it should leave it to be
decided by the arbitration tribunal.
 In case of joinder of non-signatory parties to an arbitration agreement, the following two
scenarios will prominently emerge: first, where a signatory party to an arbitration
 agreement seeks joinder of a non-signatory party to the arbitration agreement; and
second, where a non-signatory party itself seeks invocation of an arbitration agreement.
 In both the scenarios, the referral court will be required to prima facie rule on the
existence of the arbitration agreement and whether the non-signatory is a veritable party
to the arbitration agreement.
 In view of the complexity of such a determination, the referral court should leave it for
the arbitral tribunal to decide whether the non- signatory party is indeed a party to the
arbitration agreement on the basis of the factual evidence and application of legal
doctrine.

APPOINTMENT OF ARBITRATOR

Narayan Prasad Lohia vs Nikunj Kumar Lohia

 The Appellant and the Respondents are family members who had disputes and differences
in respect of the family businesses and properties. They had decided to resolve their
disputes through two arbitrators.
 The Respondent filed suit for setting aside the Arbitral award on the ground that the
Arbitration was by two Arbitrators whereas under Sec 10(1) of the Arbitration and
Conciliation Act, there cannot be an even number of arbitrators under .
 Court dealt with the question whether Section 10 is a non-derogable provision (it must be
derogable for Sec 4 to apply) It observed that the answer to this question would depend
on question as to whether, under the said Act, a party has a right to object to the
composition of the arbitral tribunal, if such composition is not in accordance with the said
Act and if so at what stage.
 In the case of Konkan Railway Corporation Ltd. vs. Rani Construction Pvt. Ltd., it has
been held that Section 16 enables the arbitral tribunal to rule on its own jurisdiction and
the arbitral tribunal can rule on any objection with respect to existence or validity of the
arbitration agreement.
 Thus a party can challenge the composition of the Arbitral Tribunal before the Arbitral
Tribunal itself. Such a challenge must be taken, under Section 16(2), not later than the
submission of the statement of defence.
 A conjoint reading of Sections 10 and 16 shows that an objection to the composition of
the arbitral tribunal is a matter which is derogable. It is derogable because a party is free
not to object within the time prescribed in Section 16(2). If a party chooses not to so
object there will be a deemed waiver under Section 4.
 Section 11(2) permits parties to agree on a procedure for appointing the arbitrator or
arbitrators. It then provides how arbitrators are to be appointed if the parties do not agree
on a procedure or if there is failure of the agreed procedure. A reading of Section 11
would show that it only provides for appointments in cases where there is only one
arbitrator or three arbitrators.
 However this does not imply that if there are even number of arbitrators, the agreement
becomes invalid. There is no reason why the two arbitrators cannot appoint a third
arbitrator at a later stage i.e. if and when they differ. This would ensure that on a
difference of opinion the arbitration proceedings are not frustrated. But if the two
Arbitrators agree and give a common award there is no frustration of the proceedings.
 There would not be waste of time, money and expense if a party, with open eyes, agrees
to go to Arbitration of two persons and then participates in the proceedings. On the
contrary there would be waste of time, money and energy if such a party is allowed to
resile because the Award is not of his liking
 Under the said Act the grounds of challenge to an arbitral award are very limited. Now an
award can be set aside only on a ground of challenge under Sections 12, 13 and 16
provided such a challenge is first raised before the arbitral tribunal and has been rejected
by the arbitral tribunal. The only other provision is Section 34 of the said Act.
 Section 34(2)(a)(v) only applies if "the composition of the arbitral tribunal or the arbitral
procedure was not in accordance with the agreement of the parties". These opening words
make it very clear that if the composition of the arbitral tribunal or the arbitral procedure
is in accordance with the agreement of the parties, as in this case, then there can be no
challenge under this provision.
 So long as the composition of the arbitral tribunal or the arbitral procedure are in
accordance with the agreement of the parties, Section 34 does not permit challenge to an
award merely on the ground that the composition of the arbitral tribunal was in conflict
with the provisions of Part I of the said Act. This also indicates that Section 10 is a
derogable provision.
 Even if the composition of the arbitral tribunal or the arbitral procedure is not in
accordance with the agreement of the parties but if such composition or procedure is in
accordance with the provisions of the said Act, then the party cannot challenge the
award..
 Respondents 1 and 2 not having raised any objection to the composition of the arbitral
tribunal, as provided in Section 16, they must be deemed to have waived their right to
object

SECTION 11

S.B.P. & Co vs Patel Engineering Ltd. & Anr 2005 (7 Judge Bench)

 Regarding the nature of the function of the Chief Justice or his designate under Section 11
of the Arbitration and Conciliation Act, 1996, The three-judge Bench decision in Konkan
Rly. Corpn. Ltd. v. Mehul Construction Co had taken the view that it is purely an
administrative function, that it is neither judicial nor quasi-judicial and the Chief Justice
or his nominee performing the function under Section 11(6) of the Act cannot decide any
contentious issue between the parties. The correctness of the said view was questioned.
 Overruling Konkan Railways, Court held that Section 11(7) has given a finality to the
decisions taken by the Chief Justice or any person or institution designated by him in
respect of matters falling under Sections 11(4), (5) and (6).
 Once a statute creates an authority, confers on it power to adjudicate and makes its
decision final on matters to be decided by it, normally that decision cannot be said to be a
purely administrative decision.
 While exercising the power or performing the duty under Section 11(6) of the Act, the
Chief Justice has to consider whether the conditions laid down by the section for the
exercise of that power or the performance of that duty, exist.
 Under Section 11(6) of the Act, a Chief Justice or the person or institution designated by
him, is bound to decide whether he has jurisdiction to entertain the request, in the sense,
whether the party making the motion has approached the right High Court, whether there
is a valid arbitration agreement in terms of Section 7 of the Act and whether the person
before him with the request is a party to the arbitration agreement or whether there was a
live and subsisting dispute which was capable of being arbitrated upon.
 For the purpose of taking a decision on these aspects, the Chief Justice can either proceed
on the basis of affidavits and the documents produced or take such evidence or get such
evidence recorded, as may be necessary.
 It may not be possible at that stage to decide whether a live claim made is one which
comes within the purview of the arbitration clause. It will be appropriate to leave that
question to be decided by the Arbitral Tribunal on taking evidence, along with the merits
of the claims involved in the arbitration.
 On coming to a conclusion on these aspects, the Chief Justice has to enquire whether the
conditions for exercise of his power under Section 11(6) of the Act have been fulfilled;
and if an arbitrator is to be appointed, who is the fit person, in terms of the provision.
 For the purpose of taking a decision on these aspects, the Chief Justice can either proceed
on the basis of affidavits and the documents produced or take such evidence or get such
evidence recorded, as may be necessary.
 An administrative order would be one which is directed to the regulation or supervision of
matters as distinguished from an order which decides the rights of parties or confers or
refuses to confer rights to property which are the subject of adjudication before the court.
 The power is conferred not on an administrative authority, but on a judicial authority, the
highest judicial authority in the State or in the country. No doubt, such authorities also
perform administrative functions, but when a statute confers a power or imposes a duty
on the highest judicial authority in the State or in the country, that authority, unless shown
otherwise, has to act judicially
 It would be incongruous to hold that the Chief Justice cannot decide the question of his
own jurisdiction to appoint an arbitrator when in a parallel situation, the judicial authority
under Section 8 can do so.
 Taking the view that the order under Section 11(6) is a judicial order will also avert the
situation where even the order of the Chief Justice of India could be challenged before an
Arbitral Tribunal, consisting not necessarily of legally trained persons and their coming to
a conclusion that their constitution by the Chief Justice was not warranted in the absence
of an arbitration agreement or in the absence of a dispute in terms of the agreement.
 It is fundamental to our procedural jurisprudence, that the right of no person shall be
affected without he being heard. This necessarily imposes an obligation on the Chief
Justice to issue notice to the opposite party when he is moved under Section 11 of the
Act.
 The Chief Justice can delegate this function to another Judge as no person other than a
Judge and no non-judicial body, authority or institution can be designated for entertaining
an application for appointing an arbitrator under Section 11(6) of the Act or for
appointing an arbitrator. (Reason- give highest credibility and keep it out of ordinary
Court system)
 One possible reason for specifying the authority as the Chief Justice, could be that if it
were merely the conferment of the power on the High Court, or the Supreme Court, the
matter would be governed by the normal procedure of that Court, including the right of
appeal and Parliament obviously wanted to avoid that situation, since one of the objects
was to restrict the interference by courts in the arbitral process
 Section 16 provides that the Arbitral Tribunal has the competence to rule on its own
jurisdiction and to define the contours of its jurisdiction, However, because of the finality
conferred by Section 11(7) of the Act to a decision of the Chief Justice under Sections
11(4), (5) and (6), the Arbitral Tribunal cannot go behind that decision and rule on its
own jurisdiction or on the existence of an arbitration clause.
 It would be incongruous that after the Chief Justice had appointed an Arbitral Tribunal,
the Arbitral Tribunal can turn round and say that the Chief Justice had no jurisdiction or
authority to appoint the tribunal, the very creature brought into existence by the exercise
of power by its creator, the Chief Justice. ‘
 It is also incongruous to permit the order of the Chief Justice under Section 11(6) of the
Act being subjected to scrutiny under Article 226 of the Constitution at the hands of
another Judge of the High Court. A certiorari cannot lie against the decision of the High
Court in the very same High Court.
 Since an order passed by the Chief Justice of the High Court or by the designated Judge
of that Court is a judicial order, an appeal will lie against that order only under Article
136 of the Constitution to the Supreme Court.
 There can be no appeal against an order of the Chief Justice of India or a Judge of the
Supreme Court designated by him while entertaining an application under Section 11(6)
of the Act.
 The complementary nature of Sections 8 and 11- Where there is an arbitration agreement
between the parties and one of the parties, ignoring it, files an action before a judicial
authority and the other party raises the objection that there is an arbitration clause, the
judicial authority has to consider that objection and if the objection is found sustainable to
refer the parties to arbitration.
 Section 16 has full play only when an Arbitral Tribunal is constituted without
intervention under Section 11(6) or Section 8 of the Act. The question whether the Chief
Justice could entertain the application under Section 11(6) of the Act cannot be left to the
decision of the Arbitral Tribunal constituted by him on entertaining such an application.

National Insurance Co. Ltd. V M/s. Boghara Polyfab Pvt. Ltd. (2008-Division Bench)

 Court identified and segregated the preliminary issues that may arise for consideration in
an application under section 11 of the Act into three categories, that is
(i) Issues which the Chief Justice or his Designate is bound to decide;
(ii) Issues which he can also decide, that is issues which he may choose to decide;
(iii) Issues which should be left to the Arbitral Tribunal to decide.

 The issues (first category) which Chief Justice/his designate will have to decide are:

1. Whether the party making the application has approached the appropriate High Court.
2. Whether there is an arbitration agreement and whether the party who has applied
under section 11 of the Act, is a party to such an agreement.
3. Where allegations of forgery/fabrication are made in regard to the document
recording discharge of contract by full and final settlement, it would be appropriate if
the Chief Justice/his designate decides the issue. ( A claim for arbitration cannot be
rejected merely or solely on the ground that a settlement agreement or discharge
voucher had been executed by the claimant, if its validity is disputed by the claimant.)

 If the Chief Justice of his Designate chooses to examine the issue and decides it, the
Arbitral Tribunal cannot re-examine the same issue.

 The issues (second category) which the Chief Justice/his designate may choose to decide
by taking evidence (or leave them to the decision of the arbitral tribunal) are:

1. Whether the claim is a dead (long barred) claim or a live claim.

2. Whether the parties have concluded the contract/ transaction by recording satisfaction
of their mutual rights and obligation or by receiving the final payment without
objection.
 The issues (third category) which the Chief Justice/his designate should leave exclusively
to the arbitral tribunal are :

1. 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) i.e. Arbitrability
2. Merits or any claim involved in the arbitration.

Duro Felguera, S A v. Gangavaram Port Ltd (2017)

 From a reading of Section 11(6A), the intention of the legislature is crystal clear i.e. the
Court should and need only look into one aspect- the existence of an arbitration
agreement.
 The factors for deciding as to whether there is an arbitration agreement is whether the
agreement contains a clause which provides for arbitration pertaining to the disputes
which have arisen between the parties to the agreement.
 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. (supra) and Boghara Polyfab (supra). 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 minimize the Court’s intervention at
the stage of appointing the arbitrator and this intention as incorporated in Section 11 (6A)
ought to be respected.

Mayavati Trading (P) Ltd. v. Pradyuat Deb Burman

 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.
 This being the position, it is difficult to agree with the reasoning contained in the SBP
case and Boghara Polyfab, judgment as 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).

Vidya Drolia V Durga Trading Corporation 2019

Court dealt with 2 issues:

1. Meaning of non-arbitrability and when the subject matter of the dispute is not capable
of being resolved through arbitration; and
2. The conundrum – “who decides” – whether the court at the reference stage or the
arbitral tribunal in the arbitration proceedings would decide the question of non-
arbitrability.

Court had to decide the scope and ambit of jurisdiction of the court at the referral stage
when an objection of non-arbitrability is raised to an application under Section 8 or 11 of
the Arbitration and Conciliation Act, 1996
 Exclusion or non- arbitrability of subjects or disputes from the purview of a private forum
like arbitration by necessary implication requires setting out the principles that should be
applied.

PRINCIPLES FOR DETERMINING NON-ARBITRABILITY:

1. Adjudication of actions in rem and adjudication of actions in personam.

 A judgment in rem determines the status of a person or thing as distinct from the
particular interest in it of a party to the litigation; and such a judgment is conclusive
evidence for and against all persons whether parties, privies or strangers of the matter
actually decided.
 A judgment in personam, “although it may concern a res, merely determines the rights of
the litigants inter se to the res. Arbitration by necessary implication excludes actions in
rem.
 Exclusion of actions in rem from arbitration, exposits the intrinsic limits of arbitration as
a private dispute resolution mechanism, which is only binding on ‘the parties’ to the
arbitration agreement. The courts established by law on the other hand enjoy jurisdiction
by default and do not require mutual agreement for conferring jurisdiction.
 when cause of action and subject matter of the dispute relates to actions in rem, that do
not pertain to subordinate rights in personam that arise from rights in rem and when cause
of action and subject matter of the dispute affects third party rights; have erga omnes
effect; require centralized adjudication, and mutual adjudication would not be appropriate
and enforceable; the dispute is non-arbitrable.

2. Sovereign Functions
 Sovereign functions of the State being inalienable and non- delegable are non-arbitrable
as the State alone has the exclusive right and duty to perform such functions. Correctness
and validity of the State or sovereign functions cannot be made a direct subject matter of
a private adjudicatory process.
 Sovereign functions for the purpose of Arbitration Act would extend to exercise of
executive power in different fields including commerce and economic, legislation in all
forms, taxation, eminent domain and police powers which includes maintenance of law
and order, internal security, grant of pardon etc., as distinguished from commercial
activities, economic adventures and welfare activities
 Similarly, decisions and adjudicatory functions of the State that have public interest
element like the legitimacy of marriage, citizenship, winding up of companies, grant of
patents, etc. are non-arbitrable, unless the statute in relation to a regulatory or
adjudicatory mechanism either expressly or by clear implication permits arbitration. In
these matters the State enjoys monopoly in dispute resolution.
 When cause of action and subject matter of the dispute relates to inalienable sovereign
and public interest functions of the State and hence mutual adjudication would be
unenforceable; and

3. Implied Legislative Intention

 Implied legislative intention to exclude arbitration can be seen if it appears that the statute
creates a special right or a liability and provides for determination of the right and
liability to be dealt with by the specified courts or the tribunals specially constituted in
that behalf and further lays down that all questions about the said right and liability shall
be determined by the court or tribunals so empowered and vested with exclusive
jurisdiction.
 Conferment of jurisdiction on a specific court alone or creation of a public forum though
eminently significant, may not be the decisive test to answer and decide whether
arbitrability is impliedly barred.

4. Mandatory Law
 Implicit non-arbitrability is established when by mandatory law the parties are
quintessentially barred from contracting out and waiving the adjudication by the
designated court or the specified public forum. There is no choice. The person who insists
on the remedy must seek his remedy before the forum stated in the statute and before no
other forum.
 Doctrine of election to select arbitration as a dispute resolution mechanism by mutual
agreement is available only if the law accepts existence of arbitration as an alternative
remedy and freedom to choose is available.
 When arbitration cannot enforce and apply such rights or the award cannot be
implemented and enforced in the manner as provided and mandated by law, the right of
election to choose arbitration in preference to the courts or public forum is either
completely denied or could be curtailed.
 It is necessary to examine if the statute creates a special right or liability and provides for
the determination of each right or liability by the specified court or the public forum so
constituted, and whether the remedies beyond the ordinary domain of the civil courts are
prescribed. When the answer is affirmative, the dispute is non- arbitrable.
 When the subject-matter of the dispute is expressly or by necessary implication non-
arbitrable as per mandatory statute(s), dispute is non-arbitrable. Ex- disputes which are to
be adjudicated by the DRT under the DRT Act are non-arbitrable.

Tenant-Landlord Dispute

 The case of Himangini Enterprises v. Kamaljeet Singh Ahluwalia evolved around the
tenant's eviction and the validity of the tenancy. It was held in Himangini Enterprise case
that only civil courts had jurisdiction over problems with the Transfer of Property Act or
conflicts between a landlord and a tenant.
 In Vidya Drolia Court held that the Landlord-tenant disputes governed by the Transfer of
Property Act are arbitrable as they are not actions in rem but pertain to subordinate rights
in personam that arise from rights in rem.
 Such actions normally would not affect third-party rights or have erga omnes affect or
require centralized adjudication. An award passed deciding landlord-tenant disputes can
be executed and enforced like a decree of the civil court.
 Landlord-tenant disputes do not relate to inalienable and sovereign functions of the State.
The provisions of the Transfer of Property Act do not expressly or by necessary
implication bar arbitration. Hence Himangini Enterprises overruled.

FRAUD

 A distinction is made between a contract obtained by fraud, and post- contract fraud and
cheating. The latter would fall outside Section 17 of the Contract Act and, therefore, the
remedy for damages would be available and not the remedy for treating the contract itself
as void.
 Thus by distinguishing between contracts obtained by fraud and fraud committed after the
execution of a contract, Court held that If the alleged fraud does not trigger section 17 of
 the Indian Contract Act, 1872, an arbitrator is competent to adjudicate on frauds
committed in connection with civil disputes.
 Thus, Vidya Drolia overruled the legal position on arbitrability of fraud laid down in N.
Radhakrishnan v. Maestro Engineers and Others

WHO DECIDES NON-ARBITRABILITY

Issue of non-arbitrability can be raised at three stages:

1. Before the court on an application for reference under Section 11 or for stay of pending
judicial proceedings and reference under Section 8 of the Arbitration Act. (Referral
Stage)
2. Before the arbitral tribunal during the course of the arbitration proceeding
3. Before the court at the stage of the challenge to the award or its enforcement.

Under the Arbitration Act, 1940 the court should be satisfied about the existence of a valid
arbitration agreement and that the disputes have arisen with regard to the subject matter of the
arbitration agreement. At this stage, the court would be, however, not concerned with the
merits or sustainability of the disputes

The Arbitration Act based upon the UNCITRAL Model Law can be understood in 3 phases

1. The first phase was from the enforcement of the Arbitration Act till the decision of the
Constitution Bench of seven Judges in Patel Engineering Ltd where decision in Konkan
Railway Construction Ltd. and Another v. Rani Construction Pvt. Ltd had prevailed.
 It was held that an arbitrator under Section 11 of the Arbitration Act is an administrative
order that did not mandate notice and hearing of the other party. Being an administrative
order, the Chief Justice or his nominee do not decide any preliminary issue, or the issue of
non-arbitrability, validity and existence of the arbitration agreement, which are to be
decided by the arbitrator at the first instance.

2. The second phase commenced with the decision in Patel Engineering Ltd. till the
legislative amendments, which were made to substantially reduce court interference and
overrule the legal effect of Patel Engineering Ltd in 2015.
 The Court held that under Sec 16 the arbitral tribunal has jurisdiction to rule on its own
jurisdiction, including ruling on objections to existence or validity of the arbitration
agreement, but this provision would apply when the parties have gone to the arbitral
tribunal without recourse to Sections 8 or 11 of the Arbitration Act and not when the
court at the reference stage has decided the jurisdictional issues.
 Decision of the court at the referral stage would be final and binding on the arbitral
tribunal in case of reference under Sec 8 or 11 and should the question of arbitrability be
decided in favour of the claimant by the Arbitrator, the defence may appeal under section
34 and challenge arbitrability.
(Overruled by Vidya Drolia)

3. The third phase from 2015 to the Enactment of Act 33 of 2019 from where commenced
the fourth phase, with a clear intent to promote institutionalized arbitration rather than ad
hoc arbitration. Court dealt with the 3rd phase. (Significantly influenced by the 246th Law
Commission Report.)
 With the amendment of the Act in 2016, the scope of courts under section 11(6) was
curtailed with the introduction of section 11(6A) which required that a court must confine
its findings only to the extent of existence of an arbitration agreement. Section 11(6A)
later came to be omitted by way an amendment in August 2019.

Existence V Validity

 A reasonable and just interpretation of ‘existence’ requires understanding the context, the
purpose and the relevant legal norms applicable for a binding and enforceable arbitration
agreement
 Existence of an arbitration agreement presupposes a valid agreement which would be
enforced by the court by relegating the parties to arbitration. an arbitration agreement
exists only when it is valid and legal.
 A void and unenforceable understanding is no agreement to do anything. Existence of an
arbitration agreement means an arbitration agreement that meets and satisfies the
statutory requirements of both the Arbitration Act and the Contract Act and when it is
enforceable in law.
 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 contained in Section
8 into the mandate of Section 11, that is, “existence of an arbitration agreement

Sec 8 and 11

 Court held that held that the courts at the referral stage do not perform ministerial
functions. The courts at the referral stage do not perform ministerial functions. They
exercise and perform judicial functions when they decide objections in terms of Sections
8 and 11 of the Arbitration Act. Section 8 prescribes the courts to refer the parties to
arbitration, if the action brought is the subject of an arbitration agreement, unless it finds
that prima facie no valid arbitration agreement exists
 Section 16 gives the arbitration clause a life of its own. Therefore, for the purposes of
both sections 8 and 11, 'the courts at the referral stage are not to decide on merits. Only
when the court is certain that no valid arbitration agreement exists or the disputes/subject
matter are not arbitrable, the application under section 8 would be rejected. Referral
proceedings are preliminary and summary and not a mini trial.
 With respect to Sec 11, it was held that that the mandate for a court is to satisfy itself as to
the existence of an arbitration agreement on a prima facie standard. While entertaining
applications under sections 8 and 11, courts must restrict their examination to the
existence of an arbitration agreement and not embark on determining arbitrability of the
dispute
 There are certain cases where the prima facie examination may require a deeper
consideration that “for legitimate reasons” and “to prevent wastage of public and private
resources”. The court’s challenge is to find the right amount of and the context when it
would examine the prima facie case or exercise restraint. (No standard laid down for
this.)
 Court held that Sec 8 and 11 should be read as laying down similar standard and not as
laying down different and separate parameters. Sections 8 and 11 of the Arbitration Act
are complementary provisions as was held in Patel Engineering Ltd.. The object and
 purpose behind the two provisions is identical to compel and force parties to abide by
their contractual understanding.
 Section 11 does not prescribe any standard of judicial review by the court for determining
whether an arbitration agreement is in existence while Section 8 states that the judicial
review at the stage of reference is prima facie and not final.
 Prima facie standard equally applies when the power of judicial review is exercised by
the court under Section 11 of the Arbitration Act. Therefore, we can read the mandate of
valid arbitration agreement in Section 8 into mandate of Section 11, that is, ‘existence of
an arbitration agreement’.

Arbitrability
 The general rule and principle, in view of the legislative mandate clear from Act 3 of
2016 and Act 33 of 2019, and the principle of severability and competence-competence,
is that the arbitral tribunal is the preferred first authority to determine and decide all
questions of non-arbitrability.
 The court has been conferred power of “second look” on aspects of non- arbitrability post
the award in terms of sub-clauses or (iv) of Section 34(2)(a) or sub-clause (i) of Section
34(2)(b) of the Arbitration Act.
 The court may interfere at the Section 8 or 11 stage when it is manifestly and ex facie
certain that the arbitration agreement is non- existent, invalid or the disputes are non-
arbitrable, though the nature and facet of non-arbitrability would, to some extent,
determine the level and nature of judicial scrutiny.
 The restricted and limited review is to check and protect parties from being forced to
arbitrate when the matter is demonstrably ‘non-arbitrable’. The Court will refer the matter
to arbitration if the consideration in summary proceedings would be insufficient and
inconclusive; when facts are contested; when the party opposing arbitration adopts
delaying tactics.
 This is not the stage for the court to enter into a mini trial or elaborate review so as to
usurp the jurisdiction of the arbitral tribunal but to affirm and uphold integrity and
efficacy of arbitration as an alternative dispute resolution mechanism.

STAMPING OUT UNCERTAINTY: RESOLVING THE CONUNDRUM OF

UNSTAMPED ARBITRATION AGREEMENTS

 The Stamp Act imposes duty on “instruments”. An instrument which is unstamped or

insufficiently stamped is inadmissible in evidence and cannot be acted upon in terms of
its provisions. Arbitration agreements are often embedded in underlying instruments or
substantive contracts.
 When an application is made for the appointment of an arbitrator, an objection is raised
on the ground that the arbitration agreement is inadmissible because it is in an instrument
which is unstamped or inadequately stamped. The primary issue that arises is whether
such arbitration agreements would be non-existent, unenforceable, or invalid if the
underlying contract is not stamped
 A seven-judge bench of the Supreme Court in In Re: The Interplay between arbitration
agreements under the Arbitration and Conciliation Act, 1996, and the Indian Stamp Act,
1899 (“In Re: The Interplay”) unambiguously ruled that arbitration clauses in agreements
lacking proper stamping are enforceable, but inadmissible in evidence.

Legal Evolution: From Past Precedents to Present Perspectives

 In SMS Tea Estates v. Chandmari Tea Co. P. Ltd. (2011), a division bench of the
Supreme Court held that an arbitration clause embedded in an unstamped or insufficiently
stamped document could not be enforced as per section 35 of the Indian Stamp Act, 1899.
In response, in 2015, the Parliament introduced an amendment to the Arbitration and
Conciliation Act, 1996, which inserted section 11(6A), which limited judicial intervention
to simply determining the existence of an arbitration agreement rather than adjudicating
on its validity.
 However, in 2019, the Supreme Court in Garware Wall Ropes Ltd. v. Coastal Marine
Constructions & Engineering Ltd. clarified that the ruling in SMS Tea Estates remained
unaffected by the amendment. It emphasised that an agreement only becomes a contract
when it is legally enforceable; because unstamped agreements are not enforceable,
arbitration arrangements included within them are likewise not enforceable.
 This view was reiterated by a three-judge bench of the Court in Vidya Drolia v. Durga
Trading Corporation (2020), asserting that the existence and validity of an arbitration
agreement are intertwined, and that an arbitration agreement would not exist if it fails to
meet mandatory legal requirements, including the payment of stamp duty.
 Subsequently, in January 2021, in deciding NN Global Mercantile Pvt. Ltd. v. Indo
Unique Flame Ltd. (“NN Global 1) a three-judge bench of the Supreme Court held that an
arbitration agreement independent of the underlying agreement should not be invalidated
solely due to an insufficiently stamped main contract. It differentiated the arbitration
agreement from the underlying contract, deeming the insufficient stamping of these
agreements a curable defect.
 The issue was then referred to a larger bench and the Court in a 3:2 majority on April 25,
2023 ruled in N.N. Global Mercantile Pvt. Ltd. v. Indo Unique Flame Ltd. (“NN Global
2”) that an unstamped arbitration agreement is void and unenforceable.
 The Court in NN Global 2 premised its decision on three key grounds.
 it emphasised that only agreements enforceable by law qualify as contracts under the
Indian Contract Act, 1872. The majority judgment clarified that section 5 of the
Arbitration Act, emphasising minimal judicial intervention, does not negate sections
33 and 35 of the Stamp Act. Unstamped or insufficiently stamped documents are
inadmissible and did not provide any exemptions.
 The Court held that agreements are typically enforced through civil courts. However, the
Stamp Act’s scheme prevents authorities from recognising unstamped agreements,
making them unenforceable until validated under the Stamp Act. This aligns with
sections and 2(g) of the Contract Act and effectively renders unenforceable contracts
void.
 Rregarding section 11(6A) of the Arbitration Act, the Court clarified that it requires an
enforceable contract, not just an arbitration agreement, for the restriction to operate.

A Closer Look at Legal Stances in the UK and the US

 In both the United Kingdom (“UK”) and the United States (“US”), a shared legal
perspective emerges concerning the status of an arbitration agreement embedded within
an invalid or ineffective contract.
 The principle asserts that the arbitration agreement can be distinctively severed and
remains valid irrespective of the overall contract’s validity. In Harbour Assurance Co.
Ltd. v. Kansa General International Insurance Co. Ltd., the UK Court of Appeal
 determined that the agreement to arbitrate retains its validity even if the encompassing
contract is invalid.
 This perspective is further underscored by section 7 of the UK Arbitration Act, 1996,
which explicitly declares that an arbitration agreement intended as part of another
agreement shall not be considered invalid or ineffective due to the overarching contract’s
invalidity, non-existence, or ineffectiveness.
 Similarly, in Buckeye Check Cashing, Inc. v. Cardegna, the United States Supreme Court
emphasised the separability of an arbitration clause from the rest of the contract.

In Re: Interplay between Arbitration Agreements under the Arbitration and

Conciliation Act 1996 and the Indian Stamp Act 1899 (2023)

 In overturning the NN Global-2,, this judgement reinstates the position established in NN

Global 1 and aligns with the dissenting opinions of Justice Hrishikesh Roy and Justice
Rastogi in NN Global 2.
 Justice Hrishikesh Roy articulated a two-pronged perspective in his dissent within the NN
Global 2 judgment. First, he asserted that failing to stamp an arbitration agreement
constitutes a curable defect. Second, he underscored that the foundation of the Arbitration
Act itself aligns with the principle of minimising judicial interference in the arbitral
process. Additionally, Justice Rastogi’s dissent in NN Global 2 advocated for the
tribunal’s independent consideration of all issues, excluding the existence of the
arbitration agreement. These dissenting viewpoints collectively form the crux of In Re:
The Interplay.
 Chief Justice Chandrachud, representing the majority in In Re: The Interplay, establishes
the initial finding that “improper stamping of an agreement renders it inadmissible in
evidence and not void,” relying on the language of section 35 of the Stamp Act.
 He discerns a subtle distinction between an instrument being inadmissible and being
unenforceable. Unlike an unenforceable agreement, which parallels a void agreement, an
inadmissible agreement is a victim of a curable defect, similar to unstamped arbitration
agreements.
 Concurring with Justice Rastogi’s dissent, Justice Chandrachud asserts that, under the
Arbitration Act (section 11(6A)), a court’s competence is limited to examining the
existence of an arbitration agreement, with its authority restricted to the stage of the
arbitrator’s appointment.
 Justice Roy’s prior dissent resurfaces as the majority in In Re: The Interplay and
underscores the fundamental principle of judicial non-interference in arbitral proceedings,
aligned with the UNCITRAL Model Law and inherent in the Arbitration Act.
 It establishes an authoritative ruling on the separability of an arbitration agreement from
the underlying contract. Unlike other contract clauses, the arbitration agreement involves
the separate consent of parties to resolve disputes through arbitration. This distinct
contractual freedom, exercised independently of the parent contract, enables the
arbitration agreement to endure events like termination or breach of the underlying
contract.
 Court gave a liberal interpretation of sections 33 and 35 of the Stamp Act, recognising
that the arbitral tribunal, as an authority that derives its jurisdiction from the “consent of
parties”, is competent to address and resolve disputes arising from such agreements.
Existence V Validity

 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 in its 246 th report, it 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”.
 The coming into force of the 2015 Amendment Act, the nature of preliminary
examination at the referral stage under Section 11 (6A), was confined to the existence of
an arbitration agreement.
 The 2015 Amendment Act has laid down different parameters for judicial review under
Section 8 (valid) and Section 11(existence), 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.
 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. 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.
 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

Competence-Competence Principle

 Where commercial entities and persons of business enter into such dealings, they do so
with a knowledge of the efficacy of the arbitral process. The commercial understanding is
reflected in the terms of the agreement between the parties. The duty of the court is to
impart to that commercial understanding a sense of business efficacy. There must be
minimum intervention by Courts.
 The doctrine of competence-competence gives the arbitral tribunal the power to
determine its own jurisdiction and allows the tribunal to decide on all substantive issues
 arising out of the underlying contract, including the existence and validity of the
arbitration agreement.
 The effect of the principle of competence-competence is that the arbitral tribunal is vested
with the power and authority to determine its enforceability. The appointment of an
arbitral tribunal does not necessarily mean that the agreement in which the arbitration
clause is contained as well as the arbitration agreement itself are enforceable.
 It is the arbitral tribunal and not the court which may test whether the requirements of a
valid contract and a valid arbitration agreement are met. After parties have been referred
to arbitration under Section 8 of the Arbitration Act or after the appointment of arbitrators
under Section 11 of the Arbitration Act the arbitral tribunal will have jurisdiction to
determine all questions and issues in dispute between the parties.
 The corollary of the doctrine of competence-competence is that courts may only examine
whether an arbitration agreement exists on the basis of the prima facie standard of review.
The nature of objections to the jurisdiction of an arbitral tribunal on the basis that stamp-
duty has not been paid or is inadequate is such as cannot be decided on a prima facie
basis
 Objections of this kind will require a detailed consideration of evidence and submissions
and a finding as to the law as well as the facts. Obligating the court to decide issues of
stamping at the Section 8 or Section 11 stage will defeat the legislative intent underlying
the Arbitration Act.
 Issues which concern the payment of stamp-duty fall within the remit of the arbitral
tribunal. Once the arbitral tribunal has been appointed, it will act in accordance with law
and proceed to impound the agreement under Section 33 of the Stamp Act if it sees fit to
do so. The procedure under Section 35 may be followed thereafter.
 The interpretation of the law in this judgment ensures that the provisions of the
Arbitration Act are given effect to while not detracting from the purpose of the Stamp
Act. The interests of revenue are not jeopardised in any manner because the duty
chargeable must be paid before the agreement in question is rendered admissible and the
lis between the parties adjudicated.
 The question is at which stage the agreement would be impounded and not whether it
would be impounded at all. The courts are not abdicating their duty but are instead giving
effect to:
a. The principle of minimal judicial intervention in Section 5 of the Arbitration Act;
b. The prima facie standard applicable to Sections 8 and 11 of the Arbitration Act; and
c. The purpose of the Stamp Act which is to protect the interests of revenue and not arm
litigants with a weapon of technicality by which they delay the adjudication of the lis.
d. The interpretation of the law must give effect to the purpose of the Arbitration Act in
addition to the Stamp Act
 Sections 33 and 35 of the Stamp Act use the word “shall.” While this ordinarily indicates
that the provision is mandatory, it may be read as directory. This Court must therefore
interpret Sections 33 and 35 to assess whether they are mandatory in relation to a court
presiding over proceedings under Section 8 or Section.
 The impounding of an agreement which contains an arbitration clause at the stage of the
appointment of an arbitrator under Section 11 (or Section 8 as the case may be) of the
Arbitration Act will delay the commencement of arbitration. This move aligns with
legislative intent, reduces judicial intervention and fosters expeditious adjudication and
initiation of proceedings.
 This alignment with the legal frameworks of the UK and the US reflects a convergence in
interpretation. Potential issues include the slowdown of arbitral proceedings due to
tribunals having to address stamp duty-related disputes. The improper stamping of
arbitration agreements may also become a strategic delay tactic for parties with malicious
intent. A viable solution lies in promoting a disciplined and widely accepted practice of
separately paying stamp duty before commencing arbitrations.