Holding

Landlord-tenant disputes under the Transfer of Property Act are arbitrable, and the court at the referral stage under Sections 8 and 11 of the Arbitration Act should only conduct a prima facie review of the existence of a valid arbitration agreement, leaving all other issues, including non-arbitrability, to the arbitral tribunal unless the matter is manifestly and ex facie certain.

Summary

The Supreme Court of India addressed two interconnected issues: whether landlord-tenant disputes governed by the Transfer of Property Act, 1882 are arbitrable, and the scope of judicial review under Sections 8 and 11 of the Arbitration and Conciliation Act, 1996. The case arose from a tenancy agreement containing an arbitration clause, with the landlord seeking eviction and the tenant opposing arbitration. The Court overruled its earlier decision in Himangni Enterprises v. Kamaljeet Singh Ahluwalia, holding that landlord-tenant disputes under the Transfer of Property Act are arbitrable as they involve rights in personam and do not affect third-party rights or sovereign functions. However, disputes covered by rent control legislation with exclusive jurisdiction are non-arbitrable. On the second issue, the Court held that the scope of judicial review at the referral stage under Sections 8 and 11 is identical and extremely limited, confined to a prima facie examination of the existence of a valid arbitration agreement. The court should not conduct a mini-trial or decide debatable questions of fact, and should refer the matter to arbitration unless it is manifestly certain that the arbitration agreement is non-existent, invalid, or the disputes are non-arbitrable. The appeals and special leave petitions were disposed of accordingly, with directions to the arbitral tribunals to decide the issues of arbitrability.

Issues considered

Whether landlord-tenant disputes governed by the Transfer of Property Act, 1882 are arbitrable?
What is the scope and ambit of judicial review under Sections 8 and 11 of the Arbitration and Conciliation Act, 1996?
Who decides the question of non-arbitrability – the court at the referral stage or the arbitral tribunal?
Whether the word 'existence' in Section 11 of the Arbitration Act includes the validity of the arbitration agreement?
What is the standard of prima facie review at the referral stage?
Whether disputes involving allegations of fraud are arbitrable?
Whether disputes under the Recovery of Debts Due to Banks and Financial Institutions Act, 1993 are arbitrable?

Legislation cited

Arbitration and Conciliation Act, 1996s. 11, s. 16, s. 2, s. 34, s. 37, s. 43, s. 45, s. 7, s. 8
Code of Civil Procedure, 1908s. 89
Consumer Protection Act, 1986
Indian Contract Act, 1872s. 10, s. 17, s. 2, s. 27, s. 28
Indian Evidence Act, 1872s. 41
Indian Trusts Act, 1882s. 34, s. 46, s. 49, s. 53, s. 74
Limitation Act, 1963
Recovery of Debts Due to Banks and Financial Institutions Act, 1993s. 19
Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002
Specific Relief Act, 1963s. 31
Transfer of Property Act, 1882s. 111, s. 114, s. 114A

Subjects

ArbitrationArbitrabilityLandlord-Tenant DisputesTransfer of Property ActSection 8Section 11Prima Facie ReviewCompetence-CompetenceSeparabilityNon-ArbitrabilityRights in RemRights in PersonamPublic PolicyExclusive JurisdictionRent Control LegislationFraudAccord and SatisfactionLimitationAppointment of Arbitrator

Judgment

[2020] 11 S.C.R. 1001 1001

VIDYA DROLIA AND OTHERS A
v.
DURGA TRADING CORPORATION
(Civil Appeal No. 2402 of 2019 etc.)
DECEMBER 14, 2020 B
[N.V. RAMANA, SANJIV KHANNA AND
KRISHNA MURARI, JJ.]
Arbitration and Conciliation Act, 1996:
ss. 8 and 11 – Jurisdiction under – Judicial review – Scope C
and ambit of – Held: Per Sanjiv Khanna, J. – Scope of judicial
review and jurisdiction of the Court u/s. 8 and 11 is identical, but
extremely limited and restricted – The court may interfere at the
stage of jurisdiction u/ss. 8 and 11, when it is manifestly and ex
facie certain that the arbitration agreement is non-existent, invalid
or the disputes are non-arbitrable – The court can not interfere D
and refer the matter for arbitration when contentions relating to
non-arbitrability are plainly arguable; when consideration in
summary proceedings would be insufficient and inconclusive; when
facts are contested; and when the party opposing arbitration adopts
delaying tactics or impairs conduct of arbitration proceedings – E
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 – At
this stage the court is required to affirm and uphold integrity and
efficacy of arbitration as an alternative dispute resolution mechanism
– Per Ramana, J. – Sections 8 and 11 have the same ambit i.e.
limited judicial interference at reference stage – Usually subject F
matter arbitrability cannot be decided at the stage of ss. 8 and 11,
unless it’s a clear case of deadwood – Unless a party has established
a prima facie case of non-existence of valid arbitration agreement,
the court has to refer the matter for arbitration or to appoint an
arbitrator as the case may be i.e. ‘when in doubt, do refer’ – The G
scope of the court to examine the prima facie validity of an arbitration
agreement includes only (i) whether arbitration agreement was in
writing; (ii) whether such agreement was contained in exchange of
letters, telecommunication etc. (iii) whether the core contractual

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A ingredients qua arbitration agreement were fulfilled; and (iv) on
rare occasions, whether the subject-matter of dispute is arbitrable.
Arbitration:
Landlord-tenant dispute – Governed by Transfer of Property
Act – Arbitrability of – Held: In order to determine whether the
B subject-matter of a dispute in an arbitration agreement is not
arbitrable, the four-fold test is when cause of action and subject
matter of dispute (i) relates to action in rem that do not pertain to
subordinate rights in personam that arise from rights in rem; (ii)
affects third party rights, have erga omnes effect, require centralized
C adjudication and mutual adjudication would not be appropriate
and enforceable; (iii) relates to inalienable sovereign and public
interest functions of the State and hence mutual adjudication would
be unenforceable;(iv) expressly or by necessary implication non-
arbitrable as per mandatory statutes – However, these tests are not
watertight compartments – Landlord-tenant disputes governed by
D Transfer of Property Act are arbitrable as per the tests
aforementioned – However, such disputes, if covered by rent control
legislation giving exclusive jurisdiction to specific court or forum,
would not arbitrable – Transfer of Property Act, 1882.
Deeds and Documents:
E
Arbitration agreement – Interpretation of – Held: The approach
as to interpretation of arbitration agreement would depend upon
various factors such as language, parties, nature of relationship,
factual background in which the agreement was entered, etc. – In
case of pure commercial disputes, more appropriate principle of
F interpretation would be the one of liberal construction as there is
presumption in favour of one-stop adjudication.
Doctrines/Principles:
Principle of ‘separation’ and ‘competence-competence’ –
Applicability of – Discussed.
G
Doctrine of ‘election’ – Applicability of.
‘Second look’ principle – Applicability of.

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Judgment: A
Judgment in rem and judgment in personam – Distinction
between – Discussed.
Words and Phrases:
‘Agreement’ – Meaning of. B
‘Arbitration agreement’ – Meaning of.
‘Legal relationship’ – Meaning of.
‘Arbitration agreement in writing’ – Meaning of.
‘Existence’ – Meaning of. C
‘Examination’ – Meaning of.
‘Existence of an arbitration agreement’ – Meaning of.
‘Arbitrability’ – Meaning of.
‘Prima facie’ – Meaning of. D
Answering the referred questions and disposing of the
appeal and the SLPs, the Court
HELD:
Per SANJIV KHANNA, J. (for himself and KRISHNA E
MURARI, J.):
1.1 Arbitration is a private dispute resolution mechanism
whereby two or more parties agree to resolve their current or
future disputes by an arbitral tribunal, as an alternative to
adjudication by the courts or a public forum established by law. F
Parties by mutual agreement forgo their right in law to have their
disputes adjudicated in the courts/public forum. Arbitration
agreement gives contractual authority to the arbitral tribunal to
adjudicate the disputes and bind the parties. [Para 10][1047-G-
H]
G
1.2 The expression ‘arbitration agreement’ has been
defined in clause (b) of sub-section (1) of s. 2 of Arbitration and
Conciliation Act, 1996 (Arbitration Act) to mean an agreement
as defined in Section 7 of the Arbitration Act. The term
‘agreement’ is not defined in the Arbitration Act, albeit it is defined
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A in Section 10 of the Contract Act, 1872 (‘Contract Act’), as
contracts made by free consent of parties competent to contract,
for a lawful consideration and with a lawful object, and are not
thereby expressly declared to be void. An arbitration agreement
should satisfy the mandate of Section 10 of the Contract Act, in
addition to satisfying other requirements stipulated in the Section
B
7 of the Arbitration Act. [Paras 10 and 11][1048-A-H; 1049-A-B]
1.3 Section 28 of the Contract Act states that agreements
in restraint of legal proceedings are void, but Explanation (1)
specifically saves contracts by which two or more persons agree
that any dispute, or one which may arise between them, in respect
C of any subject or class of subjects shall be referred to arbitration.
Arbitration agreement must satisfy the objective mandates of the
law of contract to qualify as an agreement. Clauses (g) and (h) of
Section 2 of the Contract Act state that an agreement not
enforceable in law is void and an agreement enforceable in law is
D a contract. As a sequitur, it follows that an arbitration agreement
that is not enforceable in law is void and not legally valid. [Para
11][1049-D-E]
1.4 Sub-section (1) to Section 7 of Arbitration Act ordains
that the arbitration agreement should be in respect of disputes
E arising from a defined legal relationship, whether contractual or
not. The expression ‘legal relationship’, again not defined in the
Arbitration Act, means a relationship which gives rise to legal
obligations and duties and, therefore, confers a right. These
rights may be contractual or even non-contractual. Non-contractual
disputes would require a separate or submission arbitration
F agreement based on the cause of action arising in tort, restitution,
breach of statutory duty or some other non-contractual cause of
action. [Para 12][1049-F-G; 1050-A]
Russell on Arbitration, 24th Edition # 2-004 – referred
to.
G
1.5 Sub-section (2) to Section 7 states that an arbitration
clause may be in the form of a separate agreement or form a part
of the underlying or another contract. Clause (3) of Section 7 of
the Arbitration Act states that the arbitration agreement shall be

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in writing, that is, the agreement should be evidenced in writing. A
By clause (4) the term ‘arbitration agreement in writing’ would
include any agreement by exchange of letters, telegrams,
electronic mails or communications which provide a record of
the agreement or exchange of statements of claim and defence
in which one party claims the existence of the agreement and the
B
other party does not deny it. Sub-section (5) to Section 7 states
that reference in a contract to a document containing an arbitration
clause would constitute a valid arbitration agreement if the
contract is in writing and reference is made to the arbitration
clause that forms a part of the contract. [Para 13][1050-B-D]
1.6 Questions as to the existence of an arbitration agreement C
also arise when a party opposing the reference raises plea of
novation of contract by entering into a new contract in substitution
of the original or ‘accord and satisfaction’ by acceptance of
modified obligations in discharge of the contract by performance
or simple termination by express or implied consent. Similar plea D
of discharge can be raised opposing an application for reference
on the ground that the claim is long barred and dead or there are
no outstanding disputes as the parties have accepted part
performance or have absolved the other side from performance,
fully or partly, on account of frustration or otherwise. The
contention being that once the original contract stands E
extinguished, abandoned, repudiated or substituted, the
arbitration clause in the underlying/original contract perishes with
it. [Para 14][1050-D-F]
1.7 Arbitration being a matter of contract, the parties are
entitled to fix boundaries as to confer and limit the jurisdiction F
and legal authority of the arbitrator. An arbitration agreement
can be comprehensive and broad to include any dispute or could
be confined to specific disputes. The issue of scope of arbitrator’s
jurisdiction invariably arises when the disputes that are arbitrable
are enumerated or the arbitration agreement provides for G
exclusions as in case of ‘excepted matters’. The arbitration
agreement may be valid, but the arbitral tribunal in view of the
will of the parties expressed in the arbitration agreement, may

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A not have jurisdiction to adjudicate the dispute. The will of the
parties as to the scope of arbitration is a subjective act and
personal to the parties. [Para 15][1050-G-H; 1051-A]
1.8 A judgment is a formal expression of conclusive
adjudication of the rights and liabilities of the parties. The
B judgment may operate in two ways, in rem or 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. Such a judgment “settles the destiny of the res
C itself” and binds all persons claiming an interest in the property
inconsistent with the judgment even though pronounced in their
absence. By contrast, a judgment in personam, “although it may
concern a res, merely determines the rights of the litigants inter
se to the res”. Distinction between judgments in rem and
D judgments in personam turns on their power as res judicata, i.e.
judgment in rem would operate as res judicata against the world,
and judgment in personam would operate as res judicata only
against the parties in dispute. Use of expressions “rights in rem”
and “rights in personam” may not be correct for determining non-
arbitrability because of the inter-play between rights in rem and
E rights in personam. Many a times, a right in rem results in an
enforceable right in personam. [Para 30][1061-D-E; 1062-B-E]
G.C.Cheshire and P.M North, Private International Law
by North and Fawcett (London:Butterworth’s) 1992
– referred to.
F
1.9 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
G jurisdiction by default and do not require mutual agreement for
conferring jurisdiction. The arbitral tribunals not being courts of
law or established under the auspices of the State cannot act
judicially so as to affect those who are not bound by the arbitration

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clause. Arbitration is unsuitable when it has erga omnes effect, A
that is, it affects the rights and liabilities of persons who are not
bound by the arbitration agreement. Equally arbitration as a
decentralized mode of dispute resolution is unsuitable when the
subject matter or a dispute in the factual background, requires
collective adjudication before one court or forum. Certain disputes
B
as a class, or sometimes the dispute in the given facts, can be
efficiently resolved only through collective litigation proceedings.
Contractual and consensual nature of arbitration underpins its
ambit and scope. Authority and power being derived from an
agreement cannot bind and is non-effective against non-
signatories. An arbitration agreement between two or more C
parties would be limpid and inexpedient in situations when the
subject matter or dispute affects the rights and interests of third
parties or without presence of others, an effective and enforceable
award is not possible. Prime objective of arbitration to secure
just, fair and effective resolution of disputes, without unnecessary
D
delay and with least expense, is crippled and mutilated when the
rights and liabilities of persons who have not consented to
arbitration are affected or the collective resolution of the disputes
by including non-parties is required. Arbitration agreement as
an alternative to public fora should not be enforced when it is
futile, ineffective, and would be a no result exercise. [Para E
31][1062-G; 1063-A-E]
Prof. Stavros Brekoulakis – ‘On Arbitrability: Persisting
Misconceptions and New Areas of Concern’ – referred
to.
1.10 Sovereign functions of the State being inalienable and F
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 G
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

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A 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
B
implication permits arbitration. In these matters the State enjoys
monopoly in dispute resolution. [Para 32][1063-F-G; 1064-A-B]
Common Cause v. Union of India, (1999) 6 SCC 667:
[1999] 3 SCR 1279 ; Agricultural Produce Market
Committee v. Ashok Harikuni & Another (2000) 8 SCC
C 61: [2000] 3 Suppl. SCR 379 – relied on.
Ajar Raib – Defining Contours of the Public Policy
Exception – A New Test for Arbitrability – referred
to.
D 1.11 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
E or tribunals so empowered and vested with exclusive jurisdiction.
Therefore, mere creation of a specific forum as a substitute for
civil court or specifying the civil court, may not be enough to
accept the inference of implicit non-arbitrability. Conferment of
jurisdiction on a specific court or creation of a public forum though
F eminently significant, may not be the decisive test to answer and
decide whether arbitrability is impliedly barred. 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
G seek his remedy before the forum stated in the statute and before
no other forum. [Paras 33 and 34][1065-C-F]
Dhulabhai Etc. v. State of Madhya Pradesh and Another
[1968] 3 SCR 662 – relied on.

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Wolverhampton New Waterworks Co. v. Hawkesford 9 A
[1859] 6 C.B. (NS) 336 – referred to.
1.12 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. There should not be any B
inconsistency or repugnancy between the provisions of the
mandatory law and arbitration as an alternative. Conversely and
in a given case when there is repugnancy and inconsistency, the
right of choice and election to arbitrate is denied. This requires
examining the “text of the statute, the legislative history, and
‘inherent conflict’ between arbitration and the statute’s underlying C
purpose” with reference to the nature and type of special rights
conferred and power and authority given to the courts or public
forum to effectuate and enforce these rights and the orders
passed. When arbitration cannot enforce and apply such rights
or the award cannot be implemented and enforced in the manner D
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. In essence, 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 E
whether the remedies beyond the ordinary domain of the civil
courts are prescribed. When the answer is affirmative, arbitration
in the absence of special reason is contraindicated. The dispute
is non-arbitrable. [Para 34][1066-E-H; 1067-A-B]
Transcore v. Union of India and Another (2008) 1 SCC F
125:[2006] 9 Suppl. SCR 785; M.D. Frozen Foods
Exports Private Limited and Others v. Hero Fincorp
Limited (2017) 16 SCC 741: [2017] 13 SCR 800;
Indiabulls Housing Finance Limited v. Deccan Chronicle
Holdings Limited and Others (2018) 14 SCC 783: [2018] G
1 SCR 1096 – relied on.
HDFC Bank Ltd. v. Satpal Singh Bakshi, 2013 (134)
DRJ 566 (FB) – overruled

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A Jennifer L. Peresie, Reducing the Presumption of
Arbitrability – referred to.
1.13 Section 34(2)(b) of the Arbitration Act consists of two
sub-clauses both accrediting the court with the power to set aside
an award. Under sub-clause (i) an award is liable to be set aside
B when the subject matter is not capable of settlement by arbitration
under law for the time being in force. Under sub-clause (ii) an
award can be set aside if it is in conflict with the public policy of
India. As per Explanation No. 1, an award is in conflict with the
public policy of India only if it was induced or affected by fraud,
corruption, etc. or it is in contravention with the fundamental
C policy of Indian law or is in conflict with the most basic notions of
morality or justice. Explanation 2 cautions the courts not to review
on the merits of the case while examining the question whether
an award is in contravention with the fundamental policy of law.
Therefore, conflict with the public policy of India and a subject
D matter of dispute not capable of settlement by arbitration, are
two separate and independent grounds on which the court can
set aside the award. [Para 39][1072-B-D]
1.14 Public policy in the context of non-arbitrability refers
to public policy as reflected in the enactment, that is, whether
E the enactment confers exclusive jurisdiction to the specified court
or the special forum and prohibits recourse to arbitration. Public
policy in the context of sub-clause(ii) to Section 34(2)(b) refers
to the public policy of the enactment, defining and fixing rights
and obligations, and application of those rights and obligations
by the arbitrator. Statutes unfailingly have a public purpose or
F policy which is the basis and purpose behind the legislation.
Application of mandatory law to the merits of the case do not
imply that the right to arbitrate is taken away. Mandatory law
may require a particular substantive rule to be applied, but this
would not preclude arbitration. Implied non-arbitrability requires
G prohibition against waiver of jurisdiction, which happens when a
statute gives special rights or obligations and creates or stipulates
an exclusive forum for adjudication and enforcement. An
arbitrator, like the court, is equally bound by the public policy
behind the statute while examining the claim on merits. The public

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policy in case of non-arbitrability would relate to conferment of A
exclusive jurisdiction on the court or the special forum set up by
law for decision making. Non-arbitrability question cannot be
answered by examining whether the statute has a public policy
objective which invariably every statue would have. There is a
general presumption in favour of arbitrability, which is not
B
excluded simply because the dispute is permeated by applicability
of mandatory law. Violation of public policy by the arbitrator could
well result in setting aside the award on the ground of failure to
follow the fundamental policy of law in India, but not on the ground
that the subject matter of the dispute was non-arbitrable. [Para
39][1072-E-H; 1073-A-B] C
1.15 It would be grossly irrational and completely wrong to
mistrust and treat arbitration as flawed and inferior adjudication
procedure unfit to deal with the public policy aspects of a
legislation. Arbitrators, like the courts, are equally bound to
resolve and decide disputes in accordance with the public policy D
of the law. Possibility of failure to abide by public policy
consideration in a legislation, which otherwise does not expressly
or by necessary implication exclude arbitration, cannot form the
basis to overwrite and nullify the arbitration agreement. This
would be contrary to and defeat the legislative intent reflected in
the public policy objective behind the Arbitration Act. Arbitration E
has considerable advantages as it gives freedom to the parties to
choose an arbitrator of their choice, and it is informal, flexible
and quick. Simplicity, informality and expedition are hallmarks of
arbitration. Arbitrators are required to be impartial and
independent, adhere to natural justice, and follow a fair and just F
procedure. Arbitrators are normally experts in the subject and
perform their tasks by referring to facts, evidence, and relevant
case law. Complexity is not sufficient to ward off arbitration. In
terms of the mandate of Section 89 of the Civil Procedure Code
and the object and purpose behind the Arbitration Act and the
mandatory language of Sections 8 and 11, the mutually agreed G
arbitration clauses must be enforced. The language of Sections 8
and 11 of the Arbitration Act are peremptory in nature. Arbitration
Act has been enacted to promote arbitration as a transparent,

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A fair, and just alternative to court adjudication. Public policy is to
encourage and strengthen arbitration to resolve and settle
economic, commercial and civil disputes. Amendments from time
to time have addressed the issues and corrected the inadequacies
and flaws in the arbitration procedure. It is for the stakeholders,
including the arbitrators, to assure that the arbitration is as
B
impartial, just, and fair as court adjudication. It is also the duty of
the courts at the post-award stage to selectively yet effectively
exercise the limited jurisdiction, within the four corners of Section
34(2)(b)(ii) read with Explanation 1 and 2 and check any conflict
with the fundamental policy of the applicable law. [Para 41][1074-
C A-G]
1.16 A four-fold test for determining when the subject
matter of a dispute in an arbitration agreement is not arbitrable
is (1) when cause of action and subject matter of the dispute
relates to actions in rem, that do not pertain to subordinate rights
D in personam that arise from rights in rem. (2) 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. (3) When
cause of action and subject matter of the dispute relates to
inalienable sovereign and public interest functions of the State
E and hence mutual adjudication would be unenforceable; (4) When
the subject-matter of the dispute is expressly or by necessary
implication non-arbitrable as per mandatory statute(s). These tests
are not watertight compartments; they dovetail and overlap, albeit
when applied holistically and pragmatically will help and assist in
F determining and ascertaining with great degree of certainty when
as per law in India, a dispute or subject matter is non-arbitrable.
Only when the answer is affirmative that the subject matter of
the dispute would be non-arbitrable. However, the aforesaid
principles have to be applied with care and caution. [Para 45][1077-
A-E]
G
1.17 Applying the above principles to determine non-
arbitrability, it is apparent that insolvency or intra-company
disputes have to be addressed by a centralized forum, be the
court or a special forum, which would be more efficient and has
complete jurisdiction to efficaciously and fully dispose of the entire
H matter. They are also actions in rem. Similarly, grant and issue of
VIDYA DROLIA AND OTHERS v. 1013
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patents and registration of trademarks are exclusive matters A
falling within the sovereign or government functions and have
erga omnes effect. Such grants confer monopoly rights. They are
non-arbitrable. Criminal cases again are not arbitrable as they
relate to sovereign functions of the State. Further, violations of
criminal law are offenses against the State and not just against
B
the victim. Matrimonial disputes relating to the dissolution of
marriage, restitution of conjugal rights etc. are not arbitrable as
they fall within the ambit of sovereign functions and do not have
any commercial and economic value. The decisions have erga
omnes effect. Matters relating to probate, testamentary matter
etc. are actions in rem and are a declaration to the world at large C
and hence are non-arbitrable. [Para 46][1077-G-H; 1078-A-C]
1.18 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 D
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. Transfer E
of Property Act, like all other Acts, has a public purpose, that is,
to regulate landlord-tenant relationships and the arbitrator would
be bound by the provisions, including provisions which enure
and protect the tenants. Therefore landlord-tenant disputes are
arbitrable as the Transfer of Property Act does not forbid or F
foreclose arbitration. However, landlord-tenant disputes covered
and governed by rent control legislation would not be arbitrable
when specific court or forum has been given exclusive jurisdiction
to apply and decide special rights and obligations. Such rights
and obligations can only be adjudicated and enforced by the
specified court/forum, and not through arbitration. [Paras 48 and G
49][1078-E-H; 1079-A-B]
Chloro Controls India Private Ltd. v. Severn Trent Water
Purification Inc., (2013) 1 SCC 641: [2012] 13

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A SCR 402; Natraj Studios (P) Ltd. v. Navrang Studios
(1981) 1 SCC 523: [1981] 2 SCR 466; Booz Allen &
Hamilton Inc. v. SBI Home Finance Ltd. (2011) 5 SCC
532; Olympus Superstructures Pvt. Ltd. v. Meena Vijay
Khetan and Others (1999) 5 SCC 651: [1999] 3 SCR
490; Vimal Kishor Shah and Others v. Jayesh Dinesh
B
Shah and Other (2016) 8 SCC 788: [2016]
7 SCR 102 ; Emaar MGF Land Limited v. Aftab Singh
(2019) 12 SCC 751:[2018] 14 SCR 791; A. Avyasamy
v. A. Paramasivam and Others (2016) 10 SCC 386 :
[2016] 11 SCR 521; Premier Automobiles Ltd. v.
C Kamlekar Shantaram Wadke of Bombay and Others
(1976) 1 SCC 496 : [1976] 1 SCR 427; V.H. Patel &
Company and Others v. Hirubhai Himabhai Patel and
Others (2000) 4 SCC 368: [2000] 3 SCR 113; Abdul
Kadir Samshuddin Bubere v. Madhav Prabharkar Oak
and Another AIR 1962 SC 406: [1962] SCR 702 ; Avitel
D
Post Studioz Limited v. HSBC PI Holdings (Mauritius)
Limited 2021 (4) SCC 713; Rashid Raza v. Sadaf
Akhthar (2019) 8 SCC 710 – relied on.
Himangni Enterprises v. Kamaljeet Singh Ahluwalia
(2017) 10 SCC 706: [2017] 10 SCR 139; N.
E Radhakrishnan v. Maestro Engineers and Others, (2010)
1 SCC 72: [2009] 15 SCR 371 – overruled
Vidya Drolia and Others v. Durga Trading Corporation
2019 SCC OnLine SC 358; Sukanya Holdings (P) Ltd.
v. Jayesh H. Pandya and Another (2003) 5 SCC 531:
F [2003] 3 SCR 558; Deccan Paper Mills Co. Ltd. v.
Regency Mahavir 2021 (4 ) SCC 786 – referred to.
TELUS Communications Inc. v. Avraham Wellman (2019)
SCC 19 (CanLII) Mitsubishi Motors Corp v. Soler
Chrysler Plymouth Inc, 473 U.S. 614 S Ct 3346 (1985)
G (U.S. Supreme Court, 2 July 1985) – referred to
Vanderbilt Journal of Transnational Law, vol. 36, No.4,
October 2003, p. 1115-1136 ‘Who Decides the
Arbitrator’s Jurisdiction? Separability and Competence-

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Competence in Transnational Perspective’ by John J. A
Barcelo III; Law and Practice of Commercial
Arbitration in England (2nd Ed. 1989) by Mustill and
Boyd; Redfer Hunteron International Arbitration and
Gary B. Bornin International Commercial Arbitration;
A Second Look at Arbitrability: Approaches to
B
Arbitration in the United States, Switzerland and
Germany by Patrick M. Baron and Stefan Liniger;
Conflict of Laws 98, 7th ed. 1974 by R.H. Graveson –
referred to.
2.1 Issue of non-arbitrability can be raised at three stages.
First, before the court on an application for reference under C
Section 11 of the Arbitration Act or for stay of pending judicial
proceedings and reference under Section 8 of the Arbitration Act;
secondly, before the arbitral tribunal during the course of the
arbitration proceedings; or thirdly, before the court at the stage
of the challenge to the award or its enforcement. [Para 51][1079- D
D-F]
2.2 Who decides the question of non-arbitrability? - a
jurisdictional question is a technical legal issue, and requires
clarity when applied to facts to avoid bootstrapping and confusion.
The doubt as to who has the jurisdiction to decide could hinder, E
stray, and delay a many arbitration proceedings. To some extent,
the answer depends on how much jurisdiction the enactment gives
to the arbitrator to decide their own jurisdiction as well as the
court’s jurisdiction at the reference stage and in the post-award
proceedings. It also depends upon the jurisdiction bestowed by
the enactment, viz. the facet of non-arbitrability in question, the F
scope of the arbitration agreement and authority conferred on
the arbitrator. [Para 52][1079-F-H; 1080-A-B]
2.3 Under the Arbitration Act, 1940, the jurisdiction to settle
and decide non-arbitrability issues relating to existence, validity,
scope as well as whether the subject matter was capable of G
arbitration, with possible exception in case of termination,
novation, frustration and ‘accord and satisfaction’ when contested
on facts, was determined and decided at the first or at the
reference stage by the courts. The principle being that the court
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1016 SUPREME COURT REPORTS [2020] 11 S.C.R.

A 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. Despite best efforts to contain
obstructive tactics, adjudication and final decision of non-
B
arbitrability issues at the reference stage would invariably stop,
derail and thwart the proceedings in the courts for years. [Para
53][1080-A-D]
2.4 The Arbitration Act based upon the UNCITRAL Model
Law introduced an entirely new regimen with the objective to
C promote arbitration in commercial and economic matters as an
alternative dispute resolution mechanism that is fair, responsive
and efficient to contemporary requirements. One of the primary
objectives of the Arbitration Act is to reduce and minimize the
supervisory role of courts. Accordingly, the statutory powers of
D the arbitral tribunal to deal with and decide jurisdictional issues
of non-arbitrability were amplified and the principles of separation
and competence-competence were incorporated, while the courts
retained some power to have a ‘second look’ in the post-award
challenge proceeding. On the jurisdiction of the court at the
referral stage, views of this Court have differed and there have
E been statutory amendments to modify and obliterate the legal
effect of the court decisions. [Para 54][1080-D-F]
2.5 Clauses (a) and (b) to sub-section (1) to Section 16 of
the Arbitration Act, enact the principle of separation of the
arbitration agreement from the underlying or container contract.
F Clause (a), by legal fiction, gives an independent status to an
arbitration clause as if it is a standalone agreement, even when it
is only a clause and an integral part of the underlying or container
contract. Clause (b) formulates a legal rule that a decision by the
arbitral tribunal holding that the main contract is null and void
G shall not ipso jure entail invalidity of the arbitration clause.
Successful challenge to the existence or invalidity or rescission
of the main contract does not necessarily embrace an identical
finding as to the arbitration agreement, provided the court is
satisfied that the arbitration clause had been agreed upon. The

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arbitration agreement can be avoided only on the ground which A
relates directly to the arbitration agreement. Notwithstanding the
challenge to the underlying or container contract, the arbitration
clause in the underlying or container contract survives for
determining the disputes. The principle prevents boot-strapping
as it is primarily for the arbitral tribunal and not for the court to
B
decide issues of existence, validity and rescission of the
underlying contract. Principle of separation authorises an arbitral
tribunal to rule and decide on the existence, validity or rescission
of the underlying contract without an earlier adjudication of the
questions by the referral court. [Para 81][1116-A-E]
Damodar Valley Corporation v. K.K. Kar, (1974) 1 SCC C
141: [1974] 2 SCR 240 ; Union of India v. Kishorilal
Gupta & Bros., AIR 1959 SC 1362: [1960] SCR 49 –
referred to.
Fiona Trust and Holding Corpn. v. Privalov (2007) 1
All ER (Comm) 891:2007 Bus LR 686 (CA); Buckeye D
Check Cashing Inc. v. Cardegna 163 L Ed 2d 1038: 46
US 440 (2006) : 2006 SCC OnLine US SC 14; Prima
Pain Corpn. v. Flood & Conklin Mfg. Co. L Ed 2nd
1270; 388 US 395 (1967):1967 SCC OnLine US SC
160; Southland Corpn. v. Keating, 1984 SCC OnLine E
US SC 19 – referred to.
On Arbitrability: Persisting Misconceptions and New
Areas of Concern by Stavros Brekoulaki; Emmanuel
Gaillard and Yas Banifatemi in Negative Effect of
Competence-Competence: The Rule of Priority in F
Favour of the Arbitrators; John J. Barcelo III, ;Paper
titled ‘Who Decides the Arbitrator’s Jurisdiction?
Separability and Competence-Competence in
Transnational Perspective’, by Prof. Stephen J. Ware in
Arbitration Law’s Separability Doctrine After Buckeye
Check Cashing, Inc.- referred to. G
2.6 Principles of competence-competence have positive and
negative connotations. As a positive implication, the arbitral
tribunals are declared competent and authorised by law to rule

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A as to their jurisdiction and decide non-arbitrability questions. In
case of expressed negative effect, the statute would govern and
should be followed. Implied negative effect curtails and constrains
interference by the court at the referral stage by necessary
implication in order to allow the arbitral tribunal to rule as to
their jurisdiction and decide non-arbitrability questions. As per
B
the negative effect, courts at the referral stage are not to decide
on merits, except when permitted by the legislation either
expressly or by necessary implication, such questions of non-
arbitrability. Such prioritisation of arbitral tribunal over the courts
can be partial and limited when the legislation provides for some
C or restricted scrutiny at the ‘first look’ referral stage. [Para
83][1117-G-H; 1118-A-B]
2.7 Section 16(1) of the Arbitration Act accepts and
empowers the arbitral tribunal to rule on its own jurisdiction
including a ruling on the objections, with respect to all aspects of
D non-arbitrability including validity of the arbitration agreement.
A party opposing arbitration, as per sub-section (2), should raise
the objection to jurisdiction of the tribunal before the arbitral
tribunal, not later than the submission of statement of defence.
However, participation in the appointment procedure or
appointing an arbitrator would not preclude and prejudice any
E party from raising an objection to the jurisdiction. Obviously, the
intent is to curtail delay and expedite appointment of the arbitral
tribunal. The clause also indirectly accepts that appointment of
an arbitrator is different from the issue and question of jurisdiction
and non-arbitrability. As per sub-section (3), any objection that
F the arbitral tribunal is exceeding the scope of its authority should
be raised as soon as the matter arises. However, the arbitral
tribunal, as per sub-section (4), is empowered to admit a plea
regarding lack of jurisdiction beyond the periods specified in sub-
section (2) and (3) if it considers that the delay is justified. As per
the mandate of sub-section (5) when objections to the jurisdiction
G under sub-sections (2) and (3) are rejected, the arbitral tribunal
can continue with the proceedings and pass the arbitration
award. A party aggrieved is at liberty to file an application for
setting aside such arbitral award under Section 34 of the

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Arbitration Act. Sub-section (3) to Section 8 in specific terms A
permits an arbitral tribunal to continue with the arbitration
proceeding and make an award, even when an application under
sub-section (1) to Section 8 is pending consideration of the court/
forum. Therefore, pendency of the judicial proceedings even
before the court is not by itself a bar for the arbitral tribunal to
B
proceed and make an award. [Para 84][1118-C-H]
2.8 Section 34 of the Act is applicable at the third stage
post the award when an application is filed for setting aside the
award. Under Section 34, an award can be set aside – (i) if the
arbitration agreement is not valid as per law to which the party is
subject; (ii) if the award deals with the disputes not contemplated C
by or not falling within the submission to arbitration, or contains
a decision on the matter beyond the scope of submission to
arbitration; and (iii) when the subject matter of the dispute is not
capable of settlement by arbitration under the law for the time
being in force. Thus, the competence - competence principle, in D
its negative effect, leaves the door open for the parties to
challenge the findings of the arbitral tribunal on the three issues.
The negative effect does not provide absolute authority, but only
a priority to the arbitral tribunal to rule the jurisdiction on the
three issues. The courts have a ‘second look’ on the three aspects
under Section 34 of the Arbitration Act. [Para 85][1119-A-D] E

2.9 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 F
arbitration agreement, unless it finds that prima facie no valid
arbitration agreement exists. Prima facie case in the context of
Section 8 is not to be confused with the merits of the case put up
by the parties which has to be established before the arbitral
tribunal. It is restricted to the subject matter of the suit being G
prima facie arbitrable under a valid arbitration agreement. Prima
facie case means that the assertions on these aspects are bona
fide. When read with the principles of separation and competence-
competence and Section 34 of the Arbitration Act, referral court
without getting bogged-down would compel the parties to abide
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A unless there are good and substantial reasons to the contrary.
[Para 86][1119-D-G; 1120-A-B]
Nirmala J. Jhala v. State of Gujarat and Another (2013)
4 SCC 301: [2013] 5 SCR 2006 – relied on.
2.10 Prima facie examination is not full review but a primary
B first review to weed out manifestly and ex facie non-existent and
invalid arbitration agreements and non-arbitrable disputes. The
prima facie review at the reference stage is to cut the deadwood
and trim off the side branches in straight forward cases where
dismissal is barefaced and pellucid and when on the facts and law
C the litigation must stop at the first stage. Only when the court is
certain that no valid arbitration agreement exists or the disputes/
subject matter are not arbitrable, the application under Section 8
would be rejected. At this stage, the court should not get lost in
thickets and decide debatable questions of facts. Referral
proceedings are preliminary and summary and not a mini trial.
D This necessarily reflects on the nature of the jurisdiction
exercised by the court. [Para 87][1120-B-D]
NCC Ltd. v. Indian Oil Corporation Ltd., Arbitration
Petition No. 115 of 2018 decided on 08.02.2019; Silver
Dry Bulk Company Limited v. Homer Hulbert Maritime
E Company Limited, (2017) EWHC 44 (Comm.) –
referred to.
Silver Dry Bulk Company Limited v. Homer Hulbert
Maritime Company Limited (2017) EWHC 44 (Comm.)
– referred to
F
2.11 The nature and facet of non-arbitrability could also
determine the level and nature of scrutiny by the court at the
referral stage. The court can examine contractual aspects of
arbitration agreement, at referral stage and jurisdictional aspects
of arbitration agreement which he feels should be left to the
G arbitral tribunal. The issue of non-arbitrability can be divided into
procedural and substantive objections. The procedurals are
‘gateway questions’ which would presumptively be for the
arbitrator to decide at least at the first stage. In the Indian context,

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it can be divided into three categories. The first category of A
issues, namely, whether the party has approached the appropriate
High Court, whether there is an arbitration agreement and
whether the party who has applied for reference is party to such
agreement would be subject to more thorough examination in
comparison to the second and third categories/issues which are
B
presumptively, save in exceptional cases, for the arbitrator to
decide. The first category, would include the questions or issues
relating to whether the cause of action relates to action in
personam or rem; whether the subject matter of the dispute affects
third party rights, have erga omnes effect, requires centralized
adjudication; whether the subject matter relates to inalienable C
sovereign and public interest functions of the State; and whether
the subject matter of dispute is expressly or by necessary
implication non-arbitrable as per mandatory statue(s). Such
questions arise rarely and, when they arise, are on most occasions
questions of law. On the other hand, issues relating to contract
D
formation, existence, validity and non-arbitrability would be
connected and intertwined with the issues underlying the merits
of the respective disputes/claims. They would be factual and
disputed and for the arbitral tribunal to decide. The court may for
legitimate reasons, to prevent wastage of public and private
resources, can exercise judicial discretion to conduct an intense E
yet summary prima facie review while remaining conscious that
it is to assist the arbitration procedure and not usurp jurisdiction
of the arbitral tribunal. Undertaking a detailed full review or a
long-drawn review at the referral stage would obstruct and cause
delay undermining the integrity and efficacy of arbitration as a
F
dispute resolution mechanism. Conversely, if the court becomes
too reluctant to intervene, it may undermine effectiveness of both
the arbitration and the court. There are certain cases where the
prima facie examination may require a deeper consideration. The
court’s challenge is to find the right amount of and the context
when it would examine the prima facie case or exercise restraint. G
The legal order needs a right balance between avoiding arbitration
obstructing tactics at referral stage and protecting parties from
being forced to arbitrate when the matter is clearly non-arbitrable.
[Para 88][1122-B-H; 1123-A-B]
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A National Insurance Company Limited v. Boghara
Polyfab Private Limited (2009) 1 SCC 267: [2008]
13 SCR 638 – relied on.
Ozlem Susler – ‘The English Approach to Competence-
Competence’ – referred to.
B 2.12 Accordingly, when it appears that prima facie review
would be inconclusive, or on consideration inadequate as it
requires detailed examination, the matter should be left for final
determination by the arbitral tribunal selected by the parties by
consent. The underlying rationale being not to delay or defer and
C to discourage parties from using referral proceeding as a rue to
delay and obstruct. In such cases a full review by the courts at
this stage would encroach on the jurisdiction of the arbitral tribunal
and violate the legislative scheme allocating jurisdiction between
the courts and the arbitral tribunal. Centralisation of litigation
with the arbitral tribunal as the primary and first adjudicator is
D beneficent as it helps in quicker and efficient resolution of
disputes. [Para 89][1123-C-E]
2.13 The Court would exercise discretion and refer the
disputes to arbitration when it is satisfied that the contest requires
the arbitral tribunal should first decide the disputes and rule on
E non-arbitrability. Similarly, discretion should be exercised when
the party opposing arbitration is adopting delaying tactics and
impairing the referral proceedings. [Para 90][1123-E-F]
Dell Computer Corporation v. Union des consommateurs
and Olivier Dumoulin [2007] 2 S.C.R. 801; TELUS
F Communications Inc. v. Avraham Wellman (2019) SCC
19 (CanLII) – referred to
2.14 Section 11(6) of Arbitration Act requires the court to
appoint an arbitrator on an application made by a party. Section
(6-A) to Section 11 stipulates that the court shall, at the stage of
G appointment under sub-section (4), (5) or (6), confine itself to
the examination of the existence of an arbitration agreement.
Sub-section (6-A) was omitted by Act 33 of 2019, but the omission
is in view of the introduction of a new regime of institutionalised

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arbitration as per the report of the committee headed by Justice A
B. N. Srikrishna, dated 30.07.2017. [Para 91][1124-D-E]
2.15 It would be wrong to accept that post omission of sub-
section (6-A) to Section 11 the ratio in *Patel Engineering Ltd.
would become applicable. *Patel Engineering Ltd. has been
legislatively overruled and hence would not apply even post B
omission of sub-section (6-A) to Section 11 of the Arbitration
Act. The omitted sub-section (6-A) to Section 11 of the Arbitration
Act would continue to apply and guide the courts on its scope of
jurisdiction at stage one, that is the pre-arbitration stage.
Omission of sub-section (6-A) by Act 33 of 2019 was with the
specific object and purpose and is relatable to by substitution of C
sub-sections (12), (13) and (14) to Section 11 of the Arbitration
Act by Act 33 of 2019, which, vide sub-section (3A) stipulates
that the High Court and this court shall have the power to designate
the arbitral institutions which have been so graded by the Council
under Section 43-I, provided where a graded arbitral institution D
is not available, the concerned High Court shall maintain a panel
of arbitrators for discharging the function and thereupon the High
Court shall perform the duty of an arbitral institution for reference
to the arbitral tribunal. [Para 91][1124-G-H; 1125-B-E]
Mayavati Trading Private Limited v. Pradyuat Deb E
Burman (2019) 8 SCC 714:[2019] 12 SCR 123 65 –
relied on.
2.16 On jurisprudentially and textualism it is possible to
differentiate between existence of an arbitration agreement and
validity of an arbitration agreement. Such interpretation can draw F
support from the plain meaning of the word “existence’ in s. 11
of the Arbitration Act. However, it is equally possible,
jurisprudentially and on contextualism, to hold that an agreement
has no existence if it is not enforceable and not binding. Existence
of an arbitration agreement presupposes a valid agreement which
would be enforced by the court by relegating the parties to G
arbitration. Legalistic and plain meaning interpretation would
be contrary to the contextual background including the
definition clause and would result in unpalatable consequences.

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A 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. An agreement evidenced in writing has no meaning
unless the parties can be compelled to adhere and abide by the
terms. A party cannot sue and claim rights based on an
B
unenforceable document. Thus, there are good reasons to hold
that an arbitration agreement exists only when it is valid and legal.
A void and unenforceable understanding is no agreement to do
anything. Existence of an arbitration agreement means an
arbitration agreement that meets and satisfies the statutory
C requirements of both the Arbitration Act and the Contract Act
and when it is enforceable in law. [Para 92][1125-F-H; 1126-A-C]
Garware Wall Ropes Limited v. Coastal Marine
Constructions and Engineering Limited (2019) 9 SCC
209: [2019] 5 SCR 579 – relied on.
D 2.17 The court at the reference stage exercises judicial
powers. ‘Examination’, as an ordinary expression in common
parlance, refers to an act of looking or considering something
carefully in order to discover something. It requires the person
to inspect closely, to test the condition of, or to inquire into
E carefully. It would be rather odd for the court to hold and say that
the arbitration agreement exists, though ex facie and manifestly
the arbitration agreement is invalid in law and the dispute in
question is non-arbitrable. The court is not powerless and would
not act beyond jurisdiction, if it rejects an application for
reference, when the arbitration clause is admittedly or without
F doubt is with a minor, lunatic or the only claim seeks a probate of
a Will. [Para 92 (ii)][1127-A-C]
2.18 Most scholars and jurists accept and agree that the
existence and validity of an arbitration agreement are the same.
Most jurisdictions accept and require prima facie review by the
G court on non-arbitrability aspects at the referral stage. [Para 92
(iii) and (iv)][1127-C-D]
2.19 Sections 8 and 11 of the Arbitration Act are
complementary provisions as was held in *Patel Engineering Ltd.

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The object and purpose behind the two provisions is identical to A
compel and force parties to abide by their contractual
understanding. This being so, the two provisions should be read
as laying down similar standard and not as laying down different
and separate parameters. Section 11 does not prescribe any
standard of judicial review by the court for determining whether
B
an arbitration agreement is in existence. 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, the mandate of valid arbitration
agreement in Section 8 can be read into mandate of Section 11, C
that is, ‘existence of an arbitration agreement’. [Para 92 (v)][1127-
E-G]
2.20 Exercise of power of prima facie judicial review of
existence as including validity is justified as a court is the first
forum that examines and decides the request for the referral. D
Absolute “hands off” approach would be counterproductive and
harm arbitration, as an alternative dispute resolution mechanism.
Limited, yet effective intervention is acceptable as it does not
obstruct but effectuates arbitration. Exercise of the limited prima
facie review does not in any way interfere with the principle of
competence–competence and separation as to obstruct arbitration E
proceedings but ensures that vexatious and frivolous matters
get over at the initial stage. [Para 92 (vi) and 92 (vii)][1127-G-H;
1128-A-B]
2.21 Exercise of prima facie power of judicial review as to
the validity of the arbitration agreement would save costs and F
check harassment of objecting parties when there is clearly no
justification and a good reason not to accept plea of non-
arbitrability. [Para 92 (viii)][1128-B-C]
Subrata Roy Sahara v. Union of India, (2014) 8 SCC
470: [2014] 12 SCR 573; Duro Felguera, S.A v. G
Gangavaram Port Limited (2017) 9 SCC 729: [2017]
10 SCR 285; M.R. Engineers and Contractors Private
Limited v. Som Datt Builders Limited (2009) 7 SCC
696:[2009] 10 SCR 373 – relied on.
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1026 SUPREME COURT REPORTS [2020] 11 S.C.R.

A *SBP & Co. v. Patel Engineering Ltd., (2005) 8 SCC
618:[2005] 4 Suppl. SCR 688; National Insurance
Company Limited v. Boghara Polyfab Private Limited
(2009) 1 SCC 267: [2008] 13 SCR 638; Oriental
Insurance Company Ltd. v. Narbheram Power and Steel
Private Limited (2018) 6 SCC 534: [2018] 4 SCR 826;
B
Vulcan Insurance v. Maharaj Singh (1976) 1 SCC 943:
[1976] 2 SCR 62; M/s. PSA Mumbai Investments PTE.
Limited v. The Board of Trustees of the Jawaharlal
Nehru Port Trust and Another 2018 (10) SCC 525 –
referred to.
C 2.22 The interpretation appropriately balances the allocation
of the decision-making authority between the court at the referral
stage and the arbitrators’ primary jurisdiction to decide disputes
on merits. The court as the judicial forum of the first instance can
exercise prima facie test jurisdiction to screen and knockdown
D ex facie meritless, frivolous and dishonest litigation. Limited
jurisdiction of the courts ensures expeditious, alacritous and
efficient disposal when required at the referral stage. [Para 92
(xi)][1129-G-H]
2.23 Section 43(1) of the Arbitration Act states that the
E Limitation Act, 1963 shall apply to arbitrations as it applies to
court proceedings. Sub-section (2) states that for the purposes
of the Arbitration Act and Limitation Act, arbitration shall be
deemed to have commenced on the date referred to in Section
21. Limitation law is procedural and normally disputes, being
factual, would be for the arbitrator to decide guided by the facts
F found and the law applicable. The court at the referral stage can
interfere only when it is manifest that the claims are ex facie time
barred and dead, or there is no subsisting dispute. All other cases
should be referred to the arbitral tribunal for decision on merits.
Similar would be the position in case of disputed ‘no claim
G certificate’ or defence on the plea of novation and ‘accord and
satisfaction’. It is not to be expected that commercial men while
entering transactions inter se would knowingly create a system
which would require that the court should first decide whether
the contract should be rectified or avoided or rescinded, as the

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case may be, and then if the contract is held to be valid, it would A
require the arbitrator to resolve the issues that have arisen. [Para
93][1130-A-D]
Filli Shipping Co. Limited v. Premium Nafta Products
Ltd. 2007 UKHL 40 : 2007 Bus LR 1719 (HL) –
referred to. B
2.24 What is true and applicable for men of commerce and
business may not be equally true and apply in case of laymen and
to those who are not fully aware of the effect of an arbitration
clause or had little option but to sign on the standard form
contract. Broad or narrow interpretations of an arbitration C
agreement can, to a great extent, effect coverage of a retroactive
arbitration agreement. Pro-arbitration broad interpretation,
normally applied to international instruments, and commercial
transactions is based upon the approach that the arbitration clause
should be considered as per the true contractual language and
what it says, but in case of doubt as to whether related or close D
disputes in the course of parties’ business relationship is covered
by the clause, the assumption is that such disputes are
encompassed by the agreement. The restrictive interpretation
approach on the other hand states that in case of doubt the disputes
shall not be treated as covered by the clause. Narrow approach E
is based on the reason that the arbitration should be viewed as
an exception to the court or judicial system. The third approach
is to avoid either broad or restrictive interpretation and instead
the intention of the parties as to scope of the clause is understood
by considering the strict language and circumstance of the case
in hand. Terms like ‘all’, ‘any’, ‘in respect of’, ‘arising out of’ F
etc. can expand the scope and ambit of the arbitration clause.
Connected and incidental matters, unless the arbitration clause
suggests to the contrary, would normally be covered. [Para
94][1131-B-E]
Oriental Insurance Company Ltd. v. Narbheram Power G
and Steel Private Limited (2018) 6 SCC 534: [2018]
4 SCR 826 – relied on.
2.25 Which approach as to interpretation of an arbitration
agreement should be adopted in a particular case would depend
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A upon various factors including the language, the parties, nature
of relationship, the factual background in which the arbitration
agreement was entered, etc. In case of pure commercial disputes,
more appropriate principle of interpretation would be the one of
liberal construction as there is a presumption in favour of one-
stop adjudication. [Para 94][1131-F-G]
B
2.26 Therefore, the expression ‘existence of an arbitration
agreement’ in Section 11 of the Arbitration Act, would include
aspect of validity of an arbitration agreement, albeit the court at
the referral stage would apply the prima facie test on the basis of
principles set out in this judgment. In cases of debatable and
C disputable facts, and good reasonable arguable case, etc., the
court would force the parties to abide by the arbitration agreement
as the arbitral tribunal has primary jurisdiction and authority to
decide the disputes including the question of jurisdiction and non-
arbitrability. [Para 95][1131-G-H; 1132-A-B]
D 2.27 Scope of judicial review and jurisdiction of the court
under Section 8 and 11 of the Arbitration Act is identical but
extremely limited and restricted. Ratio of the decision on the
scope of judicial review by the court while deciding an application
under Sections 8 or 11 of the Arbitration Act, post the
E amendments by Act 3 of 2016 (with retrospective effect from
23.10.2015) and even post the amendments vide Act 33 of 2019
(with effect from 09.08.2019), is no longer applicable. [Para 96
(a) and (b)][1132-B-D]
SBP & Co. v. Patel Engineering Ltd. (2005) 8 SCC 618:
F [2005] 4 Suppl. SCR 688– held inapplicable.
2.28 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
G decide all questions of non-arbitrability. The court has been
conferred power of “second look” on aspects of non-arbitrability
post the award in terms of sub-clauses (i), (ii) or (iv) of Section
34(2)(a) or sub-clause (i) of Section 34(2)(b) of the Arbitration
Act. Rarely as a demurrer the court may interfere at the Section

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8 or 11 stage when it is manifestly and ex facie certain that the A
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
B
demonstrably ‘non-arbitrable’ and to cut off the deadwood. The
court by default would refer the matter when contentions relating
to non-arbitrability are plainly arguable; when consideration in
summary proceedings would be insufficient and inconclusive;
when facts are contested; when the party opposing arbitration
adopts delaying tactics or impairs conduct of arbitration C
proceedings. This is not the stage for the court to enter into a
mini trial or elaborate review so as to usurp the jurisdiction of
the arbitral tribunal but to affirm and uphold integrity and efficacy
of arbitration as an alternative dispute resolution mechanism.
[Para 96 (c) and (d)][1132-D-H; 1133-A-B]
D
Arasmeta Captive Power Company Private Limited and
Another v. Lafarge India Private Limited, (2013) 15
SCC 414: [2013] 17 SCR 496; Shin-Etsu Chemical Co.
Ltd. v. Aksh Optifibre Ltd. and Another (2005) 7 SCC
234:[2005] 2 Suppl. SCR 699; United India Insurance
Company Limited v. Hyundai Engineering and E
Construction Company Limited & Ors. (2018) 17 SCC
607:[2018] 12 SCR 1085 – relied on.
A. Ayysamy v. A. Paramsivam, (2016) 10 SCC
386:[2016] 11 SCR 521; Konkan Railway Corpn. Ltd.
and Others v. Mehul Construction Co., (2000) 7 SCC F
201:[2000] 2 Suppl. SCR 563; Konkan Railway
Construction Ltd. and Another v. Rani Construction Pvt.
Ltd., (2002) 2 SCC 388: [2002] 1 SCR 728; Enercon
(India) Ltd. v. Enercon GmbH (2014) 5 SCC 1:[2014]
2 SCR 855 68; Shree Ram Mills Ltd. v. Utility Premises G
(P) Ltd., (2007) 4 SCC 599: [2007] 4 SCR 279; Chloro
Controls India Private Ltd. v. Severn Trent Water
Purification Inc., (2013) 1 SCC 641: [2012] 13
SCR 402 – referred to.

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1030 SUPREME COURT REPORTS [2020] 11 S.C.R.

A Per N. V. RAMANA, J. (Concurring):
1. Arbitration is a creature of consensus. It is completely
dependent on party autonomy and the intention expressed in the
agreement. A contract, having multiple clauses including
arbitration agreements, can be divided into two parts. The clauses
B relating to the commercial relationship, i.e., the obligations and
duties of each party, can be referred to as the ‘main contract’.
The arbitration agreement so to say is a separate contract in itself.
[Para 14][1137-E-F]
2. The separability of the arbitration agreement from the
C main contract, historically existed in Roman law. Since early times,
arbitration was viewed with suspicion, which allowed for the
development of separability. Ironically, the ‘pro-arbitration’
function of separability in the present day is a late 19th and 20th
century development, traceable to Germanic and Swiss
jurisprudence. [Para 15][1137-F-G]
D
3. In India, arbitration was governed earlier by the
Arbitration Act of 1899, and later 1940. Presently, arbitration is
governed by the Act of 1996, with subsequent amendments. The
intention of the legislature is to make the regime ‘pro-arbitration’.
Whenever this Court has afforded a contrary view, there has been
E a trend to undo the changes to bring it in line with the
international standards. [Para 16][1137-G-H; 1138-A-B]
4. Under the old Arbitration Act, 1940, the Court had the
discretion in referring the parties to arbitration, however such
discretion is done away with after the coming into force of the
F 1996 Act. The Arbitration and Conciliation Act, 1996 does not, in
specific terms, exclude any category of disputes—civil or
commercial—from arbitrability. Intrinsic legislative material is
in fact to the contrary. Section 8 contains a mandate that where
an action is brought before a judicial authority in a matter which
G is the subject of an arbitration agreement, the parties shall be
referred by it to arbitration, if a party to or a person claiming
through a party to the arbitration agreement applies not later
than the date of submitting the first statement on the substance
of the dispute. The only exception is where the authority finds,

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prima facie, that there is no valid arbitration agreement. Section A
8 contains a positive mandate and obligates the judicial authority
to refer parties to arbitration in terms of the arbitration agreement.
While dispensing with the element of judicial discretion, the
statute imposes an affirmative obligation on every judicial
authority to hold down parties to the terms of the agreement
B
entered into between them to refer disputes to arbitration. Article
8 of the UNCITRAL Model Law enabled a court to decline to
refer parties to arbitration if it is found that the arbitration
agreement is null and void, inoperative or incapable of being
performed. Section 8 of the Act has made a departure from the
UNCITRAL law which is indicative of the wide reach and ambit C
of the statutory mandate. Section 8 uses the expansive expression
“judicial authority” rather than “court” and the words “unless it
finds that the agreement is null and void, inoperative and
incapable of being performed” do not find place in Section 8. [Para
20][1140-A-F]
D
5. The intention of the legislators to provide for Section 34
in its present form, is to have a limited review of the award instead
of a full-fledged appeal process. A party intending to object to an
award, is first required to file an application under Section 34 (1)
indicating the objections along with the copy of an award and other
necessary documents, which are required as proof to satisfy E
grounds provided under Section 34(2)(a) and (b) of the Act. Such
complete petition is required to be filed within the time period
prescribed under Section 34 (3) of the Act, failing which the appeal
is rendered nugatory. The limitation prescribed under Section
34(3) is bound with the right to file objections itself. The objections F
filed under Section 34 must be relatable to the limited grounds
provided under Section 34 (2) of the Act. It is the legislative
intention to provide for numerous limitations under Section 34
of the Act, which are required to be strictly adhered to so as to
make Indian arbitration time-bound and commercially prudent
to opt for the same. Section 37 of the Act, provides for limited G
appeal against the Section 34 order, as well as against certain
other specified orders. [Para 25][1151-G-H; 1152-A-C]

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1032 SUPREME COURT REPORTS [2020] 11 S.C.R.

A 6. The present structure of arbitration is such that Courts
are to assist and support arbitration and leave the substantive
part of adjudication to the arbitral tribunal. On a plain reading of
the Act, whenever a dispute arises between parties, they are free
to approach an appropriate judicial forum to get their dispute
resolved. If the parties have contemplated an arbitration
B
agreement, then they can approach a tribunal for getting the matter
resolved. Once they choose the non-judicial method, a party
aggrieved by the award, has a chance to approach judicial
institutions under Section 34 and 37 (appeal jurisdiction), if the
award is violative of the grounds provided thereunder. [Paras 27
C and 28][1153-A-D]
7. The propositions, concerning Section 11 of the Act, are
: First - Reference power under Section 11 of the Act is judicial
and not administrative. Second - There was a wide discretion for
judicial interference at the stage of reference under Section 11 of
D the Act, prior to the Arbitration Amendment Act of 2015. Third -
Amendment in 2015 was brought into force to limit the power of
judicial interference under Section 11 of the Act. These
propositions are clear and binding. [Para 43][1166-D-F]
8. Section 8 of the Act applies, when a matter is brought by
E one of the parties before the Court, and the other party brings to
the notice of the Court of existence of such arbitration agreement.
Under these circumstances, the Court is obligated to refer a
matter to arbitration, on satisfaction that a valid arbitration
agreement exists between the parties. The 2015 amendment
clarified that the test to be utilized by the Court is on a prima
F facie basis. The primary reason for the same, is the negative effect
of Kompetenz Kompetenz under Section 16, which mandates that
the arbitral tribunal is required to first look into any objections
as to the jurisdiction of the tribunal itself. It is due to the fact that
parties may abuse and protract the proceedings if there is no
G gatekeeping mechanism, that the legislature has found a balance,
wherein the Court is required to examine the validity of an
arbitration agreement on a prima facie basis. [Paras 44 and
45][1166-F-G]

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9. The ‘validity’ to be examined under Section 8(2) of the A
Act, could be interpreted to mean formal validity as expressed
under Section 7 of the Act. Such an interpretation would operate
as a full application of the negative facet of Section 16, as the
jurisdiction of the Court to step-in at the -reference stage would
be limited. [Para 46][1167-B-C]
B
10. Outside the United States of America, the term
“arbitrability” has a reasonably precise and limited meaning,
relating to whether specific classes of disputes are barred from
arbitration because of national legislation or judicial authority. In
the United States of America, arbitrability also refers to the
complicated balance between courts and arbitrators regarding C
who should be the initial decision-maker on issues such as the
validity of the arbitration agreement. Out of the two meanings,
this Court subscribes to the international flavor, which is one of
the cherished legislative intentions, i.e., to bring the arbitration
act in tune with the global march. [Para 48][1167-E-F] D
11. Even if a Tribunal comes to an understanding that there
exists a valid arbitration agreement, still it does not mean that
certain subject matters are arbitrable per se. This distinction is
required to be kept in mind. [Para 49][1167-G-H]
12. Section 34(2)(b) provides the statutory basis for objecting E
that an award which may not be capable of being settled by
arbitration, or is against the public policy of India. The legislative
intention of not arbitrating issues of public policy are intertwined
with the fact that monopolies of the State activities should not be
subject matter of a private tribunal, as the concerns of the State F
cannot not be dealt effectively. Further, an award, which has an
erga omnes effect on third parties, would not be in tune with the
contractual nature of arbitration, which is binding on the consenting
parties alone. However, this feature alone, does not explicitly
mandate that the tribunal cannot first adjudicate a claim based on
the public policy argument. Whether a subject matter can or G
cannot be arbitrated should necessarily be dealt on a case to case
basis, rather than a having a bold exposition that certain subject
matters are incapable of arbitration. [Paras 50 and 51][1168-A-
D]
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A 13. However, the plea of public policy is required to be
specifically identified, pleaded and shown with respect to how
the award is contrary to the public policy. It may be possible that
there may be certain claims abutting a restricted sphere, which
may not be specifically hit by public policy or have erga omnes
effect. If that be so, it would be too early at the stage of reference
B
to determine the same as it would require complete examination
of the issue at hand, which is more suited to be first dealt by the
Tribunal and thereafter be looked into at the stage of enforcement.
[Paras 51][1169-C-E]
14. An arbitration agreement would, as a necessary
C implication, carry with it a presumption of a one-stop mechanism.
When parties decide to enter into an arbitration agreement, they
agree to take all their disputes before arbitration. This
presumption, is a rebuttable presumption. Therefore, Section 8
and 11 has to be interpreted with sufficient strictness, wherein
D the jurisdiction of the Court to decide issues should be limited to
those expressly provided by the law. [Para 54][1170-B-C]
15. The Act itself does not exclude any category of disputes
as being non-arbitrable. However, the Courts have used the
‘public policy’ reason to restrict arbitration with respect to certain
E subject matters. However, post the 2015 amendment, the
structure of the Act was changed to bring it in tune with the pro-
arbitration approach. Under the amended provision, the Court
can only give prima facie opinion on the existence of a valid
arbitration agreement. In line with the amended language and
the statutory scheme, the examination of the subject matter
F arbitrability may not be appropriate at the stage of reference under
Section 8 of the Arbitration Act. It is more appropriate to be taken
up by the Court at the stage of enforcement under Section 34 of
the Act. In clear cases where the subject matter arbitrability is
clearly barred, the Court can cut the deadwood to preserve the
G efficacy of the arbitral process. [Paras 59 and 60][1172-G-H; 1173-
A-B]
16. Arbitrators have been given jurisdiction to decide on
the subject matter arbitrability. They are required to identify
specific public policy in order to determine the subject matter
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arbitrability. Merely because a matter verges on a prohibited A
territory, should not by itself stop the arbitrator from deciding
the matter. He/she should be careful in considering the question
of non-arbitrability. [Para 61][1173-B-C]
17. The meaning and scope of ‘prima facie’, as is required
to determine the non-existence of a valid arbitration agreement B
under Section 8 of the Act has greatly varied in common law as
well as the civil law systems. At least two meanings can be
attributed to this term. First, it means a party is said to have
established a prima facie case when he has satisfied his burden
of producing evidence. The second meaning postulates that a
party has established a prima facie case only when he has made C
such a strong showing that he is entitled to a presumption in his
favor. Prima facie case is relatable to establishment of initial
presumption, rather than an evidentiary standard. [Paras 62 and
63][1173-C-G]
18. The difference of statutory language provided under D
the amended Section 8, which states ‘refer the parties to arbitration
unless it finds that prima facie no valid arbitration agreement exists’
in comparison with the amended Section 11(6A), creates
disparities which need to be ironed out. While the Court in the
*Shin-Etsu case and the **Duro Felguera case recommended E
for finding a valid arbitration agreement on a prima facie basis
qua Section 11, however, the negative language used under the
amended Section 8 mandates for referring a matter to arbitration
unless the Court prima facie finds that no valid arbitration exists.
A finding of non-existence of arbitration agreement is final subject
to the appeal process only, without further scope for arbitration F
tribunal to decide anything as there can be no further reference.
If that be the case, then the usage of phrase ‘prima facie’ stands
at odds with the established precedents on prima facie standards.
In this context, the Court can only stress on the requirement of
quality legislative drafting protocols to eliminate such G
complications. [Para 65][1176-B-E]
19. Thus, the respondent/defendant has to establish a prima
facie case of non-existence of valid arbitration agreement, wherein

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1036 SUPREME COURT REPORTS [2020] 11 S.C.R.

A it is to be summarily portrayed that a party is entitled to such a
finding. If a party cannot satisfy the Court of the same on the
basis of documents produced, and rather requires extensive
examination of oral and documentary production, then the matter
has to be necessarily referred to the Tribunal for full trial. Such
limited jurisdiction vested with the Court, is necessary at the
B
pre-reference stage to appropriately balance the power of the
Tribunal with judicial interference. [Para 66][1176-E-G]
20. The amendment to the aforesaid provision was meant
to cut the dead wood in extremely limited circumstances, wherein
the respondent is able to ex-facie portray non-existence of valid
C arbitration agreement, on the documents and the pleadings
produced by the parties. The prima facie view, which started its
existence under Section 45 through *Shin-Etsu Case has been
explicitly accommodated even under domestic arbitration by the
2015 amendment with appropriate modifications. [Para 67][1176-
D G-H; 1177-A]
21. If the ‘good arguable case standard’ is integrated for a
party requiring to show non-existence, then the same would
amount to judicial activism. Such attempts to integrate alien
formulations into the Act, which has already suffered sufficient
E judicial subjectivism, needs to be dissuaded. [Para 68][1177-B-
C]
Duro Felguera, S.A. v. Gangavaram Port, (2017) 9 SCC
729:[2017] 10 SCR 285 – relied on
22. The existence of arbitration agreement does not mean
F anything unless such agreement is contractually valid. A mere
agreement is not legally binding, unless it satisfies the core
contractual requirements, concerning consent, consideration,
legal relationship, etc. Therefore, the scope of the Court to
examine the prima facie validity of an arbitration agreement
G includes only the determination of the following: Whether the
arbitration agreement was in writing? Or Whether the arbitration
agreement was contained in exchange of letters,
telecommunication, etc? Whether the core contractual ingredients
qua the arbitration agreement were fulfilled? On rare occasions,
whether the subject-matter of dispute is arbitrable? [Para
H 69][1178-A-B]
VIDYA DROLIA AND OTHERS v. 1037
DURGA TRADING CORPORATION

Mayavati Trading Pvt. Ltd. v. Pradyuat Deb Burman, A
(2019) 8 SCC 714 : [2019] 12 SCR 123; Garware Wall
Ropes Ltd. v. Coastal Marine Construction and
Engineering Ltd., [2019] 9 SCC 209: [2019]
5 SCR 579 – relied on.
23. The negative language used in the Section 8 is required B
to be taken into consideration, while analyzing the Section. The
Court should refer a matter if the validity of the arbitration
agreement cannot be determined on a prima facie basis.
Therefore, the rule for the Court is ‘when in doubt, do refer’.
[Para 69][1178-C-D]
C
24. Moreover, the amendment to Section 8 now rectifies
the short-comings pointed out in the ***Chloro Control Case with
respect to domestic arbitration. Jurisdictional issues concerning
whether certain parties are bound by a particular arbitration, under
group-company doctrine or good faith, etc., in a multi-party
arbitration raises complicated factual questions, which are best D
left for the tribunal to handle. The amendment to Section 8 on
this front also indicates the legislative intention to further reduce
the judicial interference at the stage of reference. [Para 70][1178-
D-F]
25. Courts, while analyzing a case under Section 8, may E
choose to identify the issues which require adjudication pertaining
to the validity of the arbitration agreement. If the Court cannot
rule on the invalidity of the arbitration agreement on a prima
facie basis, then the Court should stop any further analysis and
simply refer all the issues to arbitration to be settled. [Para F
71][1178-F-G]
26. The statutory language of Section 8 and 11 are different,
however materially they do not vary and both Sections provide
for limited judicial interference at reference stage. They have
the same ambit with respect to judicial interference. Usually, G
subject matter arbitrability cannot be decided at the stage of
Sections 8 or 11 of the Act, unless it’s a clear case of deadwood.
The Court, under Sections 8 and 11, has to refer a matter to
arbitration or to appoint an arbitrator, as the case may be, unless
a party has established a prima facie (summary findings) case of
non-existence of valid arbitration agreement, by summarily H
1038 SUPREME COURT REPORTS [2020] 11 S.C.R.

A portraying a strong case that he is entitled to such a finding. [Paras
73 and 75][1179-B-H]
***Chloro Controls India Private Ltd. v. Severn Trent
Water Purification Inc., (2013) 1 SCC 641: [2012] 13
SCR 402; **Duro Felguera, S.A. v. Gangavaram Port
B (2017) 9 SCC 729: [2017] 10 SCR 285; Mayavati
Trading Pvt. Ltd. v. Pradyuat Deb Burman (2019) 8 SCC
714: [2019] 12 SCR 123; Avitel Post Studioz Limited v.
HSBC PI Holdings (Mauritius) Limited 2021 (4)
SCC 713; Booz Allen and Hamilton Inc. v. SBI Home
Finance Ltd. (2011) 5 SCC 532; A. Ayysamy v. A.
C Paramsivam, (2016) 10 SCC 386:[2016] 11 SCR 521;
Emaar MGF Land Limited v. Aftab Singh (2019) 12 SCC
751 : [2018] 14 SCR 791; Garware Wall Ropes Ltd. v.
Coastal Marine Construction and Engineering Ltd.,
[2019] 9 SCC 209: [2019] 5 SCR 579 – relied on.
D Himangni Enterprises v. Kamaljeet Singh Ahluwalia,
(2017) 10 SCC 706[2017] 10 SCR 139; ICICI Bank
Ltd. v. Sidco Leathers Ltd. (2006) 10 SCC 452:[2006]
1 Suppl. SCR 528; Konkan Railway Corpn. Ltd. v.
Mehul Construction Co. : [2002] 1 SCR 728; Konkan
E Railway Corporation Ltd. v. Rani Construction (P.) Ltd.,
(2002) 2 SCC 388:[2000] 2 Suppl. SCR 563; SBP &
Co. v. Patel Engineering Ltd., (2005) 8 SCC 618 : [2005]
4 Suppl. SCR 688; *Shin-Etsu Chemical Co. Ltd. v.
Aksh Optifibre Ltd.(2005) 7 SCC 234 : [2005] 2 Suppl.
SCR 699 ; Shree Ram Mills Ltd. v. Utility Premises (P)
F Ltd., (2007) 4 SCC 599 : [2007] 4 SCR 279; National
Insurance Company Limited v. Boghara Polyfab Private
Limited (2009) 1 SCC 267: [2008] 13 SCR 638;
Arasmeta Captive Power Company Private Limited v.
Lafarge India Pvt. Ltd., (2013) 15 SCC 414: [2013]
G 17 SCR 496; Oriental Insurance Company Ltd. v.
Narbheram Power and Steel Private Limited (2018) 6
SCC 534: [2018] 4 SCR 826; Vulcan Insurance v.
Maharaj Singh (1976) 1 SCC 943: [1976] 2 SCR 62;
United India Insurance Company Limited v. Hyundai

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Engineering and Construction Company Limited & Ors. A
(2018) 17 SCC 607 : [2018] 12 SCR 1085; United
India Insurance Company Limited v. Antique Art Exports
Private Limited (2019) 5 SCC 362:[2019] 5 SCR 521;
New India Assurance Co. Ltd. v. Genus Power
Infrastructure Ltd., (2015) 2 SCC 424: [2014]
B
12 SCR 360 – referred to.
The London Steamship Owners’ Mutual Insurance
Association Ltd v The Kingdom of Spain and The French
State [2015] EWCA Civ 333; Noble Denton Middle
East v. Noble Denton International Ltd., [2010] EWHC
2574 (Comm.) – referred to. C

Commentary on the Law of Arbitration, Vol. I, 4th Ed.,
p. 317. by Justice Indu Malhotra; 246th Law
Commission Report – referred to
Case Law Reference D
In the judgment of Sanjiv Khanna, J.:
[2017] 10 SCR 139 overruled Para 1
[1981] 2 SCR 466 relied on Para 4
(2011) 5 SCC 532 relied on Para 4 E
[2017] 10 SCR 285 relied on Para 5
[1999] 3 SCR 490 relied on Para 5
[2016] 7 SCR 102 relied on Para 5
[1968] 3 SCR 662 relied on Para 5 F
[2018] 14 SCR 791 relied on Para 5
[2003] 3 SCR 558 referred to. Para 16
[2005] 4 Suppl. SCR 688 referred to. Para 17
held inapplicable Para 96 G

[2012] 13 SCR 402 relied on. Para 17
[2016] 11 SCR 521 relied on. Para 24
[1976] 1 SCR 427 relied on. Para 26
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1040 SUPREME COURT REPORTS [2020] 11 S.C.R.

A [2000] 3 SCR 113 relied on. Para 28
[1999] 3 SCR 1279 relied on. Para 32
[2000] 3 Suppl. SCR 379 relied on. Para 32
[2006] 9 Suppl. SCR 785 relied on Para 34
B [2017] 13 SCR 800 relied on Para 35
[2018] 1 SCR 1096 relied on Para 35
2013 (134) DRJ 566 (FB) overruled Para 36
[2009] 15 SCR 371 overruled Para 37
C
[1962] SCR 702 relied on Para 37
2021 (4) SCC 713 relied on Para 43
(2019) 8 SCC 710 relied on Para 43
2021 (4) SCC 786 relied on Para 44
D
[2000] 2 Suppl. SCR 563 referred to Para 55
[2002] 1 SCR 728 referred to Para 55
[2008] 13 SCR 638 relied on Para 59
[2013] 17 SCR 496 relied on Para 62
E
[2005] 2 Suppl. SCR 699 relied on Para 63
[2019] 12 SCR 123 relied on Para 65
[2019] 5 SCR 579 relied on Para 68

F [2014] 2 SCR 855 referred to Para 68
[2018] 12 SCR 1085 relied on Para 68
[2018] 4 SCR 826 referred to Para 68
[1976] 2 SCR 62 referred to Para 69
G 2018 (10) SCC 525 referred to Para 71
[1974] 2 SCR 240 referred to Para 82
[1960] SCR 49 referred to Para 82

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[2013] 5 SCR 200 relied on Para 86 A
[2014] 12 SCR 573 relied on Para 92
[2017] 10 SCR 285 relied on Para 92
[2009] 10 SCR 373 relied on Para 92
[2005] 4 Suppl. SCR 688 referred to Para 92 B
In the judgment of N.V. Ramana, J.:
[2017] 10 SCR 139 referred to Para 4
[2019] 12 SCR 123 relied on Para 11
C
[2006] 1 Suppl. SCR 528 referred to Para 19
[2002] 1 SCR 728 referred to Para 29
[2000] 2 Suppl. SCR 563 referred to Para 29
[2005] 4 Suppl. SCR 688 referred to Para 30
D
[2005] 2 Suppl. SCR 699 referred to Para 33
[2007] 4 SCR 279 referred to Para 34
[2008] 13 SCR 638 referred to Para 35
[2012] 13 SCR 402 relied on Para 36
E
[2013] 17 SCR 496 referred to Para 37
[2017] 10 SCR 285 relied on Para 38
[2018] 4 SCR 826 referred to Para 39
[1976] 2 SCR 62 referred to Para 39 F
[2018] 12 SCR 1085 referred to Para 40
[2019] 5 SCR 521 referred to Para 41
[2019] 12 SCR 123 relied on Para 42
2021 (4) SCC 713 relied on Para 52 G
(2011) 5 SCC 532 relied on Para 55
[2016] 11 SCR 521 relied on Para 56

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1042 SUPREME COURT REPORTS [2020] 11 S.C.R.

A [2018] 14 SCR 791 relied on Para 57
[2014] 12 SCR 360 referred to Para 63
[2019] 5 SCR 579 relied on Para 69
CIVIL APPELLATE JURISDICTION : Civil Appeal No. 2402
of 2020.
B From the Judgment and Order dated 07.09.2019 of the High Court
of Calcutta in A.P. No. 286 of 2016.
With
Special Leave Petition (Civil) Nos. 5605-5606 of 2019 and Special
Leave Petition No. 11877 of 2020.
C Manoj Swarup, Sunit S. Shah, K.V.. Vishwanathan, Nakul Dewan,
Maninder Singh, Sr. Advs., Debajyoti Basu, Ms. Soumya Dutta, Ajay
Kumar, Pinakin M. Raval, Pathik Acharya, Neelmani Pant, Ms. Vidisha
Swarup, Ashish Chaubey, Kumar Shivam, Rajith Kumar, Gopal
Shankarnarayanan, Ashok Kumar Jain, Amar Dave, Pankaj Jain, Bijoy
Kumar Jain, Amit Kasera, Vishal Sinha, Mukunda Rao, Raghav Shankar,
D Pradhuman Gohil, Mrs. Taruna Singh Gohil, Ms. Ranu Purohit,
Sambit Nanda, Rohan Naik, Bijal H. Chhatrapati, Anjali Anchayil,
Ms. Avni Sharma, Prabhas Bajaj, Dheeraj Nair, Saurav Agarwal,
Kunal Chatterji, P.C. Sharma, T. R. B. Sivakumar, Ansuman Choudhury,
Pravar Veer Misra, Vibhu Anshuman, Ms. Aakriti Dawar, Advs. for the
appearing parties.
E
The Judgments of the Court were delivered by
SANJIV KHANNA, J.
This judgment decides the reference to three Judges made vide
order dated 28th February, 2019 in Civil Appeal No. 2402 of 2019 titled
Vidya Drolia and Others v. Durga Trading Corporation,1 as it doubts
F the legal ratio expressed in Himangni Enterprises v. Kamaljeet Singh
Ahluwalia2 that landlord-tenant disputes governed by the provisions of
the Transfer of Property Act, 1882, are not arbitrable as this would be
contrary to public policy.
2. A deeper consideration of the order of reference reveals that
G the issues required to be answered relate to two aspects that are distinct
and yet interconnected, namely:
(i) meaning of non-arbitrability and when the subject matter of
the dispute is not capable of being resolved through arbitration; and
1
2019 SCC OnLine SC 358
2
H (2017) 10 SCC 706
VIDYA DROLIA AND OTHERS v. 1043
DURGA TRADING CORPORATION [SANJIV KHANNA, J.]

(ii) the conundrum – “who decides” – whether the court at the A
reference stage or the arbitral tribunal in the arbitration proceedings
would decide the question of non-arbitrability.
The second aspect also relates to 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 B
Conciliation Act, 1996 (for short, the ‘Arbitration Act’).
3. We are not reproducing and examining the factual matrix, as
we are only answering the legal issues raised. However, we would refer,
in brief, to the legal reasoning and the ratio in Himangni Enterprises
and the counter view expressed in the order of reference in Vidya Drolia. C
4. Himangni Enterprises upheld the decision of the High Court
and the District Court rejecting the application filed by the defendant-
tenant under Section 8 of the Arbitration Act in a civil suit seeking its
eviction from a shop in a commercial complex in New Delhi. The suit
was also for the recovery of arrears of rent and permanent injunction. D
The tenancy in question was not protected under the rent control
legislation and the rights and obligations were governed by the Transfer
of Property Act. Two Judges of this Court held that the issue of non-
arbitrability is no longer res integra as it stood answered by decisions in
Natraj Studios (P) Ltd. v. Navrang Studios 3 and Booz Allen & E
Hamilton Inc. v. SBI Home Finance Ltd.4 In Natraj Studios (P)
Ltd., wherein an application under Section 8 of the Arbitration Act, 1940
was dismissed as the tenancy was protected under the Bombay Rents,
Hotel and Lodging Houses Rates Control Act, 1947, it was observed
that on broader consideration of public policy, the arbitrator lacked
F
jurisdiction to decide the question whether the licensee-landlord was
entitled to seek possession. The dispute could be exclusively decided by
the Court of Small Causes, which alone had jurisdiction. In Booz Allen
& Hamilton Inc., it was held that in eviction or tenancy matters governed
by special statutes and where the tenant enjoys statutory protection,
only the specified court has been conferred jurisdiction. Himangni G
Enterprises relying on the said ratios holds that though the Delhi Rent
Act is not applicable, it does not follow that the Arbitration Act would be

3
(1981) 1 SCC 523
4
(2011) 5 SCC 532: (2011) 2 SCC (Civ) 781 H
1044 SUPREME COURT REPORTS [2020] 11 S.C.R.

A applicable so as to confer jurisdiction on the arbitrator. Even in cases of
tenancies governed by the Transfer of Property Act, the dispute would
be triable by the civil court and not by the arbitrator. The exemption
from the applicability of the Rent Act could be withdrawn and thereupon
the rights would be governed by the rent control legislation.
B 5. In Vidya Drolia, another division bench referring to Section
11(6-A) has observed that the referral stage requirement is to only
examine ‘existence of an arbitration agreement’ and not validity of the
arbitration agreement. 246th Report of the Law Commission of India
had suggested twin examination whether the agreement ‘exists’ or is
‘null and void’, albeit the Section 11(6-A), as enacted, requires ‘existence
C of an arbitration agreement’, and the prerequisite that the arbitration
agreement should not be ‘null and void’ was deliberately omitted. The
wording of Section 11(6-A) was contrasted with Section 16(1) to draw
distinction between ‘validity of an arbitration agreement’ and ‘existence
of an arbitration agreement’. Reference was made to observations of
D Kurian Joseph, J. in Duro Felguera, S.A v. Gangavaram Port Limited,5
to the effect that the scope of Section 11(6-A) is limited, only to see
whether an arbitration agreement exists – nothing more, nothing less.
The legislative policy and purpose are to essentially minimize judicial
intervention at the appointment stage. Referring to Sections 111, 114 and
114A of the Transfer of Property Act, it is observed that there is nothing
E in this Act and law to show that a dispute relating to the determination of
lease, arrears of rent etc. cannot be decided by an arbitrator. The grounds
predicated on public policy could be raised before the arbitrator as they
could be raised before the court. The arbitrator could well abide by the
provisions of Sections 114 and 114A, and apply the public policy
F considerations for the protection of tenants as a class. Referring to Booz
Allen & Hamilton Inc., it was observed that the right in rem is a right
exercisable against the world at large and is not amenable to arbitration,
whereas in case of rights in personam an interest is protected against a
specific individual, and is referable to arbitration. Further, subordinate
rights in personam arising from rights in rem have always been
G considered to be arbitrable. Decision in Natraj Studios (P) Ltd. was
distinguishable, as the rent control legislation being applicable, the tenancy
disputes were to be exclusively decided by the small cause court in
Bombay. The legislation had provided that no other court would have
jurisdiction to entertain any suit, proceedings or deal with such claim or
H 5
(2017) 9 SCC 729
VIDYA DROLIA AND OTHERS v. 1045
DURGA TRADING CORPORATION [SANJIV KHANNA, J.]

questions. The exception in the form of non-arbitrable landlord- tenant A
disputes, as per Booz Allen & Hamilton Inc., was confined only to
those cases/matters governed by: (i) special statues, (ii) where the tenant
enjoys statutory protection and (iii) where only specific courts are
conferred jurisdiction to decide disputes. Transfer of Property Act does
not negate arbitrability. In Olympus Superstructures Pvt. Ltd. v. Meena
B
Vijay Khetan and Others,6 it was held that there is no prohibition in the
Specific Relief Act, 1963 for referring disputes relating to specific
performance of contracts to arbitration. Equally, the discretion to refuse
or grant specific performance would not militate against arbitrability.
Reference was made to Vimal Kishor Shah and Others v. Jayesh
Dinesh Shah and Other,7 which had referred to Dhulabhai Etc. v. C
State of Madhya Pradesh and Another,8 in the context of whether the
disputes under the Indian Trusts Act, 1882 were arbitrable. The disputes
under the Trusts Act were held to be non-arbitrable by necessary
implication, as the Trusts Act had conferred specific powers on the
principal judge of the civil court, which powers an arbitrator could not
D
exercise. The judgment in Vimal Kishor Shah was followed by another
Division Bench in Emaar MGF Land Limited v. Aftab Singh,9 a case
relating to the Consumer Protection Act, 1986. Reasoning that the
exemption from rent control legislation can be withdrawn and thereupon
Arbitration Act would not apply, it was observed, was not a valid
justification and ground to hold that the subject matter was not arbitrable. E
6. Learned counsel for the parties have primarily relied upon the
reasoning given in Himangni Enterprises and Vidya Drolia and have
referred to other case law which we would subsequently examine. To
avoid prolixity and repetition, we are not reproducing the respective
contentions and arguments, as the same would be dealt with and F
appreciated during the course of our reasoning. However, we
acknowledge that the oral submissions and compilations have been of
immense help. Similarly, scholarly writings in books and articles expressing
diverse views on non- arbitrability and Who Decides Non-arbitrability
have facilitated us unclog the legal and jurisprudential nuances and
contradictions to try and resolve the issues in the context of domestic G
law of arbitration in India.
6
(1999) 5 SCC 651
7
(2016) 8 SCC 788
8
(1968) 3 SCR 662
9
(2019) 12 SCC 751 H
1046 SUPREME COURT REPORTS [2020] 11 S.C.R.

A 7. At the outset we begin with the caveat that this judgment does
not examine and interpret the transnational provisions of arbitration in
Part II of the Arbitration Act.
Non-Arbitrability
8. Non-arbitrability is basic for arbitration as it relates to the very
B jurisdiction of the arbitral tribunal. An arbitral tribunal may lack jurisdiction
for several reasons. Non-arbitrability has multiple meanings. Booz Allen
& Hamilton Inc. refers to three facets of non-arbitrability, namely: -
“(i) Whether the disputes are capable of adjudication and
settlement by arbitration? That is, whether the disputes, having
C 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).
(ii) Whether the disputes are covered by the arbitration agreement?
That is, whether the disputes are enumerated or described in the
D
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.
(iii) Whether the parties have referred the disputes to arbitration?
E That is, whether the disputes fall under the scope of the submission
to the Arbitral Tribunal, or whether they do not arise out of the
statement of claim and the counterclaim filed before the Arbitral
Tribunal. A dispute, even if it is capable of being decided by
arbitration and falling within the scope of an arbitration agreement,
F will not be “arbitrable” if it is not enumerated in the joint list of
disputes referred to arbitration, or in the absence of such a joint
list of disputes, does not form part of the disputes raised in the
pleadings before the Arbitral Tribunal.”

G John J. Barcelo III, in his paper titled ‘Who Decides the
Arbitrator ’s Jurisdiction? Separability and Competence-
Competence in Transnational Perspective’, 10 in the context of
transnational commercial transactions, has divided facets relating to non-
arbitrability into seven categories:
10
H Vanderbilt Journal of Transnational Law, vol. 36, no.4, October 2003, p. 1115-1136
VIDYA DROLIA AND OTHERS v. 1047
DURGA TRADING CORPORATION [SANJIV KHANNA, J.]

“Stage 1# is crucial concerning whether arbitration is allowed to A
go forward efficaciously or is obstructed by court intervention. At
Stage 1, a party opposing arbitration may raise any of a series of
legal issues requiring court, rather than arbitrator, decision. These
may include any or all of the following claims: (1) the container
contract is invalid (for a reason that would not directly invalidate
B
the arbitration clause); (2) no arbitration agreement came into
existence between the parties; (3) an existing arbitration agreement
is either formally invalid (for example, not in writing) or materially
invalid (for example, violative of mandatory law); (4) a disputed
issue is not within the scope of the arbitration agreement; (5)
mandatory law prohibits a disputed issue, though within the scope C
of the parties’ arbitration agreement, to be arbitrated (a special
type of material invalidity respecting a specific issue fraught with
public policy concerns, such as (formerly) antitrust or securities
fraud); (6) some precondition for permissible arbitration has not
been met (for example, a time-limit on initiating arbitration); (7)
D
the party seeking arbitration has waived its right to arbitrate or is
estopped from claiming that right.”
(#Stage 1 is the referral stage.)
9. Validity of the legal ratio in Himangni Enterprises cannot be
decided without examining when a subject matter or dispute is non- E
arbitrable. Understanding of the different facets of non- arbitrability is
important as it would help us appreciate the consequences. This would
assist in deciding whether the court or the arbitral tribunal has the
jurisdiction to decide the particular facet of non-arbitrability. The
jurisdiction could well depend on the nature and type of the non-arbitrability
alleged. The order of reference in Vidya Drolia draws distinction for F
the purpose of exercise of jurisdiction between non-arbitrability on account
of existence and non-arbitrability on account of the validity of an
arbitration agreement.
10. Arbitration is a private dispute resolution mechanism whereby
two or more parties agree to resolve their current or future disputes by G
an arbitral tribunal, as an alternative to adjudication by the courts or a
public forum established by law. Parties by mutual agreement forgo their
right in law to have their disputes adjudicated in the courts/public forum.
Arbitration agreement gives contractual authority to the arbitral tribunal
to adjudicate the disputes and bind the parties. The expression ‘arbitration H
1048 SUPREME COURT REPORTS [2020] 11 S.C.R.

A agreement’ has been defined in clause (d) of sub-section (2) to mean an
agreement as defined in Section 7 of the Arbitration Act. Section 7 of
the Arbitration Act reads:
“7. Arbitration agreement. — (1) In this Part, “arbitration
agreement” means an agreement by the parties to submit to
B arbitration all or certain disputes which have arisen or which may
arise between them in respect of a defined legal relationship,
whether contractual or not.
(2) An arbitration agreement may be in the form of an arbitration
clause in a contract or in the form of a separate agreement.
C (3) An arbitration agreement shall be in writing.
(4) An arbitration agreement is in writing if it is contained in—
(a) a document signed by the parties;
(b) an exchange of letters, telex, telegrams or other means of
D telecommunication which provide a record of the agreement;
or
(c) an exchange of statements of claim and defense in which
the existence of the agreement is alleged by one party and not
denied by the other.
E (5) The reference in a contract to a document containing an
arbitration clause constitutes an arbitration agreement if the
contract is in writing and the reference is such as to make that
arbitration clause part of the contract.”
11. The term ‘agreement’ is not defined in the Arbitration Act,
F albeit it is defined in Section 10 of the Indian Contract Act, 1872 (for
short, the ‘Contract Act’),11 as contracts made by free consent of parties
competent to contract, for a lawful consideration and with a lawful object,
and are not thereby expressly declared to be void. Section 10 of the
Contract Act also stipulates that aforesaid requirements shall not affect
any law in force in India (and not expressly repealed) by which a contract
G
11
10. What agreements are contracts. — All agreements are contracts if they are
made by the free consent of parties competent to contract, for a lawful consideration
and with a lawful object, and are not hereby expressly declared to be void. Nothing
herein contained shall affect any law in force in India, and not hereby expressly repealed,
by which any contract is required to be made in writing or in the presence of witnesses,
H or any law relating to the registration of documents.
VIDYA DROLIA AND OTHERS v. 1049
DURGA TRADING CORPORATION [SANJIV KHANNA, J.]

is required to be made in writing, in presence of witnesses or any law A
relating to registration of documents. Thus, an arbitration agreement
should satisfy the mandate of Section 10 of the Contract Act, in addition
to satisfying other requirements stipulated in the Section 7 of the
Arbitration Act. Sections 12 to 18 of the Contract Act state when a
person can be said to be of a sound mind for the purpose of contracting
and define the expressions ‘consent’, ‘free consent’, ‘coercion’, ‘undue B
influence’, ‘fraud’ and ‘misrepresentation’. Sections 19 to 23 relate to
voidability of agreements, the power to set aside contracts induced by
undue influence, when both the parties are under mistake as to a matter
of fact, effect of a mistake as to the law, effect of a mistake by one
party as to a matter of fact and what considerations and objects are C
lawful and unlawful. Sections 24 to 30 relate to void contracts and Sections
26 and 27 therein state that agreements in restraint of marriage and
agreements in restraint of trade, respectively are void, albeit Explanation
(1) to Section 27 saves agreements for not carrying out the business of
which goodwill is sold. Section 28 of the Contract Act states that
agreements in restraint of legal proceedings are void, but Explanation D
(1) specifically saves contracts by which two or more persons agree
that any dispute, or one which may arise between them, in respect of
any subject or class of subjects shall be referred to arbitration. Arbitration
agreement must satisfy the objective mandates of the law of contract to
qualify as an agreement. Clauses (g) and (h) of Section 2 of the Contract E
Act state that an agreement not enforceable in law is void and an
agreement enforceable in law is a contract. As a sequitur, it follows that
an arbitration agreement that is not enforceable in law is void and not
legally valid.
12. Sub-section (1) to Section 7 ordains that the arbitration
F
agreement should be in respect of disputes arising from a defined legal
relationship, whether contractual or not. The expression ‘legal relationship’,
again not defined in the Arbitration Act, means a relationship which gives
rise to legal obligations and duties and, therefore, confers a right. These
rights may be contractual or even non-contractual.12 Non-contractual
12
Legal relationship will be normally followed by certain immediate or remote
G
consequences in the form of action or non-action by the judicial and executive agents of
the society as distinct from purely private affairs or other events which have nothing to
do with law. Legal relationship exists in every situation that is or may be procedurally
asserted for a declaration or denial of a right or for imposition of a sanction or any other
purpose within the scope of adjudicative action. In actual practice, objection regarding
defined legal relationship is seldom raised and tested. H
1050 SUPREME COURT REPORTS [2020] 11 S.C.R.

A disputes would require a separate or submission arbitration agreement
based on the cause of action arising in tort, restitution, breach of statutory
duty or some other non-contractual cause of action.13
13. Sub-section (2) to Section 7 is of some importance as it states
that an arbitration clause may be in the form of a separate agreement or
B form a part of the underlying or another contract. Clause (3) of Section
7 of the Arbitration Act states that the arbitration agreement shall be in
writing, that is, the agreement should be evidenced in writing. By clause
(4) the term ‘arbitration agreement in writing’ would include any
agreement by exchange of letters, telegrams, electronic mails or
communications which provide a record of the agreement or exchange
C of statements of claim and defence in which one party claims the
existence of the agreement and the other party does not deny it. Sub-
section (5) to Section 7 states that reference in a contract to a document
containing an arbitration clause would constitute a valid arbitration
agreement if the contract is in writing and reference is made to the
D arbitration clause that forms a part of the contract.
14. Questions as to the existence of an arbitration agreement also
arise when a party opposing the reference raises plea of novation of
contract by entering into a new contract in substitution of the original or
‘accord and satisfaction’ by acceptance of modified obligations in
E discharge of the contract by performance or simple termination by express
or implied consent. Similar plea of discharge can be raised opposing an
application for reference on the ground that the claim is long barred and
dead or there are no outstanding disputes as the parties have accepted
part performance or have absolved the other side from performance,
fully or partly, on account of frustration or otherwise. The contention is
F that once the original contract stands extinguished, abandoned, repudiated
or substituted, the arbitration clause in the underlying/original contract
perishes with it.
15. Arbitration being a matter of contract, the parties are entitled
to fix boundaries as to confer and limit the jurisdiction and legal authority
G of the arbitrator. An arbitration agreement can be comprehensive and
broad to include any dispute or could be confined to specific disputes.
The issue of scope of arbitrator’s jurisdiction invariably arises when the
disputes that are arbitrable are enumerated or the arbitration agreement
provides for exclusions as in case of ‘excepted matters’. The arbitration
H 13
Russell on Arbitration, 24th Edition # 2-004
VIDYA DROLIA AND OTHERS v. 1051
DURGA TRADING CORPORATION [SANJIV KHANNA, J.]

agreement may be valid, but the arbitral tribunal in view of the will of the A
parties expressed in the arbitration agreement, may not have jurisdiction
to adjudicate the dispute. The will of the parties as to the scope of
arbitration is a subjective act and personal to the parties.
16. Another facet, not highlighted earlier, arises from the dictum
in Sukanya Holdings (P) Ltd. v. Jayesh H. Pandya and Another,14 a B
decision upholding rejection of an application under Section 8, on the
ground that there is no provision in the Arbitration Act to bifurcate and
divide the causes or parties, that is, the subject matter of the suit/judicial
proceedings, and parties to the arbitration agreement. The suit should be
in respect of a ‘matter’ which the parties have agreed to refer and
which comes within the ambit of the arbitration agreement. The words C
‘a matter’, it was interpreted, would indicate that the entire subject matter
of the suit should be subject to arbitration agreement. Bifurcation of
subject matter or causes of action in the suit is not permissible and
contemplated. Similarly, the parties to the suit should be bound by the
arbitration agreement, as there is no provision in the Arbitration Act to D
compel third persons who have not exercised the option to give up the
right to have access to courts and be bound by the arbitration clause.
This would violate party autonomy and consensual nature of arbitration.
Bifurcation in such cases would result in a suit being divided into two
parts, one being decided by the arbitral tribunal, and the other by the
court or judicial authorities. This would defeat the entire purpose and E
inevitably delay the proceedings and increase cost of litigation, cause
harassment and on occasions give rise to conflicting judgments and
orders by two different fora. Cause of action in relation to the subject
matter relates to the scope of the arbitration agreement and whether the
dispute can be resolved by arbitration. Second mandate relating to F
common parties exposits the inherent limitation of the arbitration process
which is consensual and mutual, an aspect we would subsequently
examine.
17. A two Judges’ Bench in Booz Allen & Hamilton Inc., while
interpreting the dictum in Sukanya Holdings (P) Ltd., had drawn a G
distinction between ambit and scope of judicial inquiry while deciding an
application under Section 8(1) of the Arbitration Act which is filed in
pending civil suit/judicial proceedings and an application for reference of
the dispute to arbitration under Section 11 of the Arbitration Act. In
14
(2003) 5 SCC 531 H
1052 SUPREME COURT REPORTS [2020] 11 S.C.R.

A Booz Allen & Hamilton Inc. it was observed:
“32. The nature and scope of issues arising for consideration in
an application under Section 11 of the Act for appointment of
arbitrators, are far narrower than those arising in an application
under Section 8 of the Act, seeking reference of the parties to a
B suit to arbitration. While considering an application under Section
11 of the Act, the Chief Justice or his designate would not embark
upon an examination of the issue of “arbitrability” or
appropriateness of adjudication by a private forum, once he finds
that there was an arbitration agreement between or among the
parties, and would leave the issue of arbitrability for the decision
C of the Arbitral Tribunal. If the arbitrator wrongly holds that the
dispute is arbitrable, the aggrieved party will have to challenge
the award by filing an application under Section 34 of the Act,
relying upon sub-section (2)(b)(i) of that section.”
However, in SBP & Co. v. Patel Engineering Ltd. and
D Another,15 the majority judgment of the Constitution Bench of seven
Judges had noticed the complementary nature of Sections 8 and 11 of
the Arbitration Act, and has observed:
“16. We may at this stage notice the complementary nature of
Sections 8 and 11. Where there is an arbitration agreement between
E 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. The expression used in this section is “shall”
F and this Court in P. Anand Gajapathi Raju v. P.V.G. Raju and in
Hindustan Petroleum Corpn. Ltd. v. Pinkcity Midway
Petroleums has held that the judicial authority is bound to refer
the matter to arbitration once the existence of a valid arbitration
clause is established. Thus, the judicial authority is entitled to, has
to and is bound to decide the jurisdictional issue raised before it,
G before making or declining to make a reference. Section 11 only
covers another situation. Where one of the parties has refused to
act in terms of the arbitration agreement, the other party moves
the Chief Justice under Section 11 of the Act to have an arbitrator

15
H (2005) 8 SCC 618
VIDYA DROLIA AND OTHERS v. 1053
DURGA TRADING CORPORATION [SANJIV KHANNA, J.]

appointed and the first party objects, it would be incongruous to A
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 can do so. Obviously, the highest judicial authority
has to decide that question and his competence to decide cannot
be questioned. If it is held that the Chief Justice has no right or
B
duty to decide the question or cannot decide the question, it will
lead to an anomalous situation in that a judicial authority under
Section 8 can decide, but not a Chief Justice under Section 11,
though the nature of the objection is the same and the consequence
of accepting the objection in one case and rejecting it in the other,
is also the same, namely, sending the parties to arbitration. The C
interpretation of Section 11 that we have adopted would not give
room for such an anomaly.”
We are clearly bound by the dictum of the Constitutional Bench
judgment in Patel Engineering Ltd. that the scope and ambit of court’s
jurisdiction under Section 8 or 11 of the Arbitration Act is similar. An D
application under Section 11 of the Arbitration Act need not set out in
detail the disputes or the claims and may briefly refer to the subject
matter or broad contours of the dispute. However, where judicial
proceedings are initiated and pending, specific details of the claims and
disputes are normally pleaded and, therefore, the court or the judicial
authority has the advantage of these details. There is a difference between E
a non-arbitrable claim and non-arbitrable subject matter. Former may
arise on account of scope of the arbitration agreement and also when
the claim is not capable of being resolved through arbitration. Generally
non-arbitrability of the subject matter would relate to non-arbitrability in
law. Further, the decision in Sukanya Holdings (P) Ltd. has to be read F
along with subsequent judgment of this Court in Chloro Controls India
Private Limited v. Severn Trent Water Purification Inc. and Others.16
The effect of amendment by Act 3 of 2016 with retrospective effect
from 20.10.2015 on Sections 8 and 11 of the Arbitration Act with the
stipulation that the amendments apply notwithstanding any earlier
judgment has been examined by us under the heading Who Decides G
Non-arbitrability.
18. Sub-section (3) to Section 2 of the Arbitration Act states:

16
(2013) 1 SCC 641 H
1054 SUPREME COURT REPORTS [2020] 11 S.C.R.

A “Section 2(3)- this Part shall not affect any other law for the time
being in force by virtue of which certain disputes may not be
submitted to arbitration.”
The Arbitration Act clearly recognizes and accepts that certain
disputes or subjects are not capable of being resolved by arbitration.
B Similarly, Section 34(2)(b)(i) of the Arbitration Act states that the courts
may set aside awards when they find that “the subject matter of the
dispute is not capable of settlement by arbitration”. However, the two
sub-sections conspicuously do not enumerate or categorize non-arbitrable
matters or state the principles for determining when a dispute is non-
arbitrable by virtue of any other law17 for the time being in force. It is
C left to the courts by ex visceribus actus to formulate the principles for
determining non-arbitrability. As, exclusion from arbitrability is
predominantly a matter of case law, we begin by examining the case
law on the subject.
19. In Booz Allen & Hamilton Inc., elucidating on the question
D of non- arbitrability of a dispute, it has been observed:
“35. The Arbitral Tribunals are private fora chosen voluntarily by
the parties to the dispute, to adjudicate their disputes in place of
courts and tribunals which are public fora constituted under the
laws of the country. Every civil or commercial dispute, either
E contractual or non-contractual, which can be decided by a court,
is in principle capable of being adjudicated and resolved by
arbitration unless the jurisdiction of the Arbitral Tribunals is
excluded either expressly or by necessary implication. Adjudication
of certain categories of proceedings are reserved by the legislature
F exclusively for public fora as a matter of public policy. Certain
other categories of cases, though not expressly reserved for
adjudication by public fora (courts and tribunals), may by necessary
implication stand excluded from the purview of private fora.
Consequently, where the cause/dispute is inarbitrable, the court
where a suit is pending, will refuse to refer the parties to arbitration,
G under Section 8 of the Act, even if the parties might have agreed
upon arbitration as the forum for settlement of such disputes.
xx xx xx

17
H Section 34(2)(b)(i) of the Arbitration Act
VIDYA DROLIA AND OTHERS v. 1055
DURGA TRADING CORPORATION [SANJIV KHANNA, J.]

37. It may be noticed that the cases referred to above relate to A
actions in rem. A right in rem is a right exercisable against the
world at large, as contrasted from a right in personam which is an
interest protected solely against specific individuals. Actions in
personam refer to actions determining the rights and interests of
the parties themselves in the subject- matter of the case, whereas
B
actions in rem refer to actions determining the title to property
and the rights of the parties, not merely among themselves but
also against all persons at any time claiming an interest in that
property. Correspondingly, a judgment in personam refers to a
judgment against a person as distinguished from a judgment against
a thing, right or status and a judgment in rem refers to a judgment C
that determines the status or condition of property which operates
directly on the property itself. (Vide Black’s Law Dictionary.)
38. Generally and traditionally all disputes relating to rights in
personam are considered to be amenable to arbitration; and all
disputes relating to rights in rem are required to be adjudicated by D
courts and public tribunals, being unsuited for private arbitration.
This is not however a rigid or inflexible rule. Disputes relating to
subordinate rights in personam arising from rights in rem have
always been considered to be arbitrable.”
Booz Allen & Hamilton Inc. states that civil or commercial E
dispute, whether contractual or non-contractual, which can be decided
by a court, is in principle capable of being adjudicated and resolved by
an arbitral tribunal unless the jurisdiction of the arbitral tribunal is either
expressly or by necessary implication excluded.
Legislature is entitled to exclusively reserve certain category of F
proceedings for public forums, be it a court or a forum created or
empowered by the State to the exclusion of private forum. Exclusion of
the jurisdiction of the arbitral tribunal are matters of public policy. When
public policy mandates and states that a case or a dispute is non-arbitrable,
the court would not allow an application under Section 8 (or even Section
11 as observed supra) even if the parties have agreed upon arbitration G
as the mechanism for settlement of such disputes.
20. Exclusion or non-arbitrability when clearly expressed would
pose no difficulty and should be respected. However, exclusion or non-
arbitrability of subjects or disputes from the purview of a private forum
H
1056 SUPREME COURT REPORTS [2020] 11 S.C.R.

A like arbitration by necessary implication requires setting out the principles
that should be applied.
21. Booz Allen & Hamilton Inc. draws a distinction between
actions in personam, that is, actions which determine the rights and
interests of parties themselves in the subject matter of the case, and
B actions in rem which refer to actions determining the title of the property
and the rights of the parties not merely amongst themselves but also
against all the persons at any time claiming an interest in that property.
Rights in personam are considered to be amenable to arbitration and
disputes regarding rights in rem are required to be adjudicated by the
courts and public tribunals. The latter actions are unsuitable for private
C arbitration. Disputes relating to subordinate rights in personam arising
from rights in rem are considered to be arbitrable. Paragraph 36 of the
judgment in Booz Allen & Hamilton Inc. refers to certain examples of
non- arbitrable disputes and reads:
“36. The well-recognised examples of non-arbitrable disputes are:
D (i) disputes relating to rights and liabilities which give rise to or
arise out of criminal offenses; (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
E administration and succession certificate); and (vi) eviction or
tenancy matters governed by special statutes where the tenant
enjoys statutory protection against eviction and only the specified
courts are conferred jurisdiction to grant eviction or decide the
disputes.”

F 22. Landlord-tenant disputes governed by rent control legislation
are not actions in rem, yet they are non-arbitrable. In Booz Allen &
Hamilton Inc. reference was made to Russell on Arbitration (22nd
Edition) in Para 2.007 at Page 28 wherein the author has observed that
certain matters in English Law are reserved for the court alone and if an
arbitral tribunal purports to deal with them the resulting award would be
G unenforceable. These matters would include where the type of remedy
required is not one which the arbitral tribunal is empowered to give.
Reference was made to Law and Practice of Commercial Arbitration
in England (2nd Ed. 1989) by Mustill and Boyd which states that certain
types of remedies which the arbitrator can award are limited by
H consideration of public policy and as arbitrator is appointed by the parties
VIDYA DROLIA AND OTHERS v. 1057
DURGA TRADING CORPORATION [SANJIV KHANNA, J.]

and not by the State. Arbitrator cannot impose fine, give imprisonment, A
commit a person for contempt or issue a writ of subpoena nor can he
make an award binding on third parties and affect public at large, such
as a judgment in rem. Mustill and Boyd in their 2001 Companion Volume
have observed that axiomatically rights that are valid as against the whole
world, cannot be a subject of private arbitration, although subordinate
B
rights in personam derived from such rights may be ruled upon by the
arbitrators. Therefore, rights under a patent license may be arbitrated
but the validity of the underlying patent may not be arbitrable. Similarly,
an arbitrator who derives its power from a private agreement between
A and B, plainly has no jurisdiction to bind a third person by a decision on
whether the patent is valid or not, for no one else has mandated him to C
make the decision and the decision which attempts to do so would be
useless.
23. Analysing provisions of Order XXXIV of the Code of Civil
Procedure, 1908, Booz Allen & Hamilton Inc. holds that this Order not
only relates to execution of a decree, it provides for preliminary and final D
decrees to satisfy the substantive rights of mortgagees with reference
to their mortgage security. The provisions of Transfer of Property Act
read with the Code relating to mortgage suits makes it clear that all
persons having interest either in the mortgage security or in the right of
redemption have to be joined as parties whether they are parties to the
mortgage or not. The object of the provisions is to avoid multiplicity of E
suits/proceedings and to enable all the interested persons to raise their
defences and claims, which are to be taken note of while dealing with
the claim in the mortgage suit. By passing a preliminary decree or final
decree, the court adjudicates, adjusts and safeguards the interests of not
only the mortgager or mortgagee but also puisne/mesne mortgagees, F
persons entitled to the equity of redemption, persons having an interest
in the mortgaged property, auction-purchasers and persons in possession,
which an arbitral tribunal cannot do. Therefore, a suit for foreclosure or
redemption of mortgage property can be dealt with by a public forum
and not by a private forum.
G
24. D.Y. Chandrachud, J. in A. Ayyasamy v. A. Paramasivam
and Others,18 referring to the dictum in Booz Allen & Hamilton Inc.,
has made two important comments:

18
(2016) 10 SCC 386 H
1058 SUPREME COURT REPORTS [2020] 11 S.C.R.

A “35...This Court held that this class of actions operates in rem,
which is a right exercisable against the world at large as contrasted
with a right in personam which is an interest protected against
specified individuals. All disputes relating to rights in personam
are considered to be amenable to arbitration while rights in rem
are required to be adjudicated by courts and public tribunals...
B
xx xx xx
38. Hence, in addition to various classes of disputes which are
generally considered by the courts as appropriate for decision by
public fora, there are classes of disputes which fall within the
C exclusive domain of special fora under legislation which confers
exclusive jurisdiction to the exclusion of an ordinarily civil court.
That such disputes are not arbitrable dovetails with the general
principle that a dispute which is capable of adjudication by an
ordinary civil court is also capable of being resolved by arbitration.
However, if the jurisdiction of an ordinary civil court is excluded
D by the conferment of exclusive jurisdiction on a specified court or
tribunal as a matter of public policy such a dispute would not then
be capable of resolution by arbitration.”
25. In Vimal Kishor Shah disputes relating to private trusts,
trustees, and beneficiaries of the trust and the Trusts Act were held to
E be non-arbitrable. The Order of Reference explains why disputes under
the Trusts Act are non-arbitrable by necessary implication, for which
reference was made to few sections of the Trusts Act to demonstrate
how the disputes could not be made the subject matter of arbitration.
The reasoning is illustrative and elucidating: -
F “27...Under Section 34 of the Indian Trusts Act, a trustee may,
without instituting a suit, apply by petition to a principal Civil Court
of original jurisdiction for its opinion, advice, or direction on any
present questions respecting management or administration of trust
property, subject to other conditions laid down in the Section.
G Obviously, an arbitrator cannot possibly give such opinion, advice,
or direction. Under Section 46, a trustee who has accepted the
trust, cannot afterward renounce it, except, inter alia, with the
permission of a principal Civil Court of original jurisdiction. This
again cannot be the subject matter of arbitration. Equally, under
Section 49 of the Indian Trusts Act, where a discretionary power
H
VIDYA DROLIA AND OTHERS v. 1059
DURGA TRADING CORPORATION [SANJIV KHANNA, J.]

conferred on a trustee is not exercised reasonably and in good A
faith, only a principal Civil Court of original jurisdiction can control
such power, again making it clear that a private consensual
adjudicator has no part in the scheme of this Act. Under Section
53, no trustee may, without the permission of a principal Civil
Court of original jurisdiction, buy or become mortgagee or lessee
B
of the trust property or any part thereof. Here again, such
permission can only be given by an arm of the State, namely, the
principal Civil Court of original jurisdiction. Under Section 74 of
the Indian Trusts Act, under certain circumstances, a beneficiary
may apply by petition to a principal Civil Court of original jurisdiction
for the appointment of a trustee or a new trustee, and the Court C
may appoint such trustee accordingly. Here again, such an
appointment cannot possibly be by a consensual adjudicator. It
can only be done by a petition to a principal Civil Court of original
jurisdiction. Also, it is important to note that it is not any civil court
that has jurisdiction, but only one designated court, namely, a
D
principal Civil Court of original jurisdiction. All this goes to show
that by necessary implication, disputes arising under the Indian
Trusts Act cannot possibly be referred to arbitration.”
26. In Emaar MGF Land Limited, the Division Bench referred
to the object and the purpose behind the Consumer Protection Act, 1986
as a law that meets the long-felt necessity of protecting the common E
man as a consumer against wrongs and misdeeds for which the remedy
under the ordinary law has become illusory as the enforcement machinery
does not move, or moves ineffectively or inefficiently. Thus, to remove
helplessness and empower consumers against powerful businesses and
the might of the public bodies, the enactment has constituted consumer F
forums with extensive and wide powers to award, wherever appropriate,
compensations to the consumers and to impose penalties for non-
compliance with their orders. The Consumer Protection Act has specific
provisions for execution and effective implementation of their orders
which powers are far greater than the power of the ordinary civil court.
After referring to the amendments made to Sections 8 and 11 of G
Arbitration Act by Act No. 3 of 2016, it was observed that the amendments
cannot be given such expansive meaning so as to inundate entire regime
of special legislation where such disputes are not arbitrable. This
amendment was not intended to side-line or override the settled law on
non-arbitrability. Reference was made to an earlier decision in Premier H
1060 SUPREME COURT REPORTS [2020] 11 S.C.R.

A Automobiles Ltd. v. Kamlekar Shantaram Wadke of Bombay and
Others19 wherein examining Section 9 of the Code of Civil Procedure in
the context of rights and remedies under Industrial Disputes Act, 1947 it
was observed that the legislature has made provisions for the investigation
and settlement of industrial disputes between unions representing the
workmen and the management. The authorities constituted under the
B
Act have extensive powers in the matter of industrial disputes. Labour
Court and Tribunal can lay down new industrial policy for industrial peace
and order, or reinstatement of dismissed workmen, which no civil court
can do. For this, the provisions of Industrial Disputes Act completely
oust the jurisdiction of the civil court for trial of the industrial disputes.
C The intent of the legislature is to protect the interest of workmen and
consumers in larger public interest in the form of special rights and by
constituting a judicial forum with powers that a civil court or an arbitrator
cannot exercise. Neither the workmen nor consumers can waive their
right to approach the statutory judicial forums by opting for arbitration.
D 27. In Olympus Superstructures Pvt. Ltd., this Court had held
that an arbitrator can grant specific performance as there is no prohibition
in the Specific Relief Act, 1963. This decision on the question of
arbitrability has observed, and in our humble opinion rightly, as under:
“34. In our opinion, the view taken by the Punjab, Bombay and
E Calcutta High Courts is the correct one and the view taken by the
Delhi High Court is not correct. We are of the view that the right
to specific performance of an agreement of sale deals with
contractual rights and it is certainly open to the parties to agree
— with a view to shorten litigation in regular courts — to refer
the issues relating to specific performance to arbitration. There is
F no prohibition in the Specific Relief Act, 1963 that issues relating
to specific performance of a contract relating to immovable
property cannot be referred to arbitration. Nor is there such a
prohibition contained in the Arbitration and Conciliation Act, 1996
as contrasted with Section 15 of the English Arbitration Act, 1950
G or Section 48(5)(b) of the English Arbitration Act, 1996 which
contained a prohibition relating to specific performance of contracts
concerning immovable property.
35. It is stated in Halsbury’s Laws of England, 4th Edn.,
(Arbitration, Vol. 2, para 503) as follows:
19
H (1976) 1 SCC 496
VIDYA DROLIA AND OTHERS v. 1061
DURGA TRADING CORPORATION [SANJIV KHANNA, J.]

“503. Nature of the dispute or difference.—The dispute or A
difference which the parties to an arbitration agreement agree
to refer must consist of a justiciable issue triable civilly. A fair
test of this is whether the difference can be compromised
lawfully by way of accord and satisfaction (Cf. Bac Abr
Arbitrament and Award A).”
B
28. In V.H. Patel & Company and Others v. Hirubhai
Himabhai Patel and Others,20 this Court has held that in deference to
the arbitration clause covering all matters there was no principle of law
or provision that bars an arbitrator from deciding whether the dissolution
of a partnership is just and equitable.
C
29. Having examined and analysed the judgments, we would
coalesce and crystalize the legal principles for determining non-
arbitrability. We begin by drawing principles that draw distinction between
adjudication of actions in rem and adjudication of actions in personam.
30. A judgment is a formal expression of conclusive adjudication
D
of the rights and liabilities of the parties. The judgment may operate in
two ways, in rem or in personam. Section 41 of the Indian Evidence
Act, 1872 on the question of relevancy of judgments in the context of
conclusiveness of a judgment, order or decree provides:
“41. Relevancy of certain judgments in probate, etc.,
jurisdiction.—A final judgment, order or decree of a competent E
Court, in the exercise of probate, matrimonial admiralty or
insolvency jurisdiction which confers upon or takes away from
any person any legal character, or which declares any person to
be entitled to any such character, or to be entitled to any specific
thing, not as against any specified person but absolutely, is relevant F
when the existence of any such legal character, or the title of any
such person to any such thing, is relevant.
Such judgment, order or decree is conclusive proof—
that any legal character, which it confers accrued at the time
when such judgment, order or decree came into operation; G
that any legal character, to which it declares any such person
to be entitled, accrued to that person at the time when such
judgment, [order or decree] declares it to have accrued to that
person;
20
(2000) 4 SCC 368 H
1062 SUPREME COURT REPORTS [2020] 11 S.C.R.

A that any legal character which it takes away from any such
person ceased at the time from which such judgment, [order
or decree] declared that it had ceased or should cease;
and that anything to which it declares any person to be so
entitled was the property of that person at the time from which
B such judgment, [order or decree] declares that it had been or
should be his property.”
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
C parties, privies or strangers of the matter actually decided. Such a
judgment “settles the destiny of the res itself” and binds all persons
claiming an interest in the property inconsistent with the judgment even
though pronounced in their absence. 21 By contrast, a judgment in
personam, “although it may concern a res, merely determines the rights
of the litigants inter se to the res”.22 Distinction between judgments in
D rem and judgments in personam turns on their power as res judicata,23
i.e. judgment in rem would operate as res judicata against the world,
and judgment in personam would operate as res judicata only against
the parties in dispute. Use of expressions “rights in rem” and “rights in
personam” may not be correct for determining non-arbitrability because
E of the inter-play between rights in rem and rights in personam. Many a
times, a right in rem results in an enforceable right in personam. Booz
Allen & Hamilton Inc. refers to the statement by Mustill and Boyd
that the subordinate rights in personam derived from rights in rem can
be ruled upon by the arbitrators, which is apposite. Therefore, a claim
for infringement of copyright against a particular person is arbitrable,
F though in some manner the arbitrator would examine the right to copyright,
a right in rem. Arbitration by necessary implication excludes actions in
rem.
31. Exclusion of actions in rem from arbitration, exposits the
intrinsic limits of arbitration as a private dispute resolution mechanism,
G which is only binding on ‘the parties’ to the arbitration agreement. The
21
G.C. Cheshire & P.M. North, Private International Law 12th ed. by North & Fawcett
(London: Butterworth’s, 1992, p. 362
22
Ibid
23
G.C. Cheshire & P.M. North, Private International Law 12th ed. by North & Fawcett
H (London: Butterworth’s, 1992
VIDYA DROLIA AND OTHERS v. 1063
DURGA TRADING CORPORATION [SANJIV KHANNA, J.]

courts established by law on the other hand enjoy jurisdiction by default A
and do not require mutual agreement for conferring jurisdiction. The
arbitral tribunals not being courts of law or established under the auspices
of the State cannot act judicially so as to affect those who are not bound
by the arbitration clause. Arbitration is unsuitable when it has erga omnes
effect, that is, it affects the rights and liabilities of persons who are not
B
bound by the arbitration agreement. Equally arbitration as a decentralized
mode of dispute resolution is unsuitable when the subject matter or a
dispute in the factual background, requires collective adjudication before
one court or forum. Certain disputes as a class, or sometimes the dispute
in the given facts, can be efficiently resolved only through collective
litigation proceedings. Contractual and consensual nature of arbitration C
underpins its ambit and scope. Authority and power being derived from
an agreement cannot bind and is non-effective against non-signatories.
An arbitration agreement between two or more parties would be limpid
and inexpedient in situations when the subject matter or dispute affects
the rights and interests of third parties or without presence of others, an
D
effective and enforceable award is not possible. Prime objective of
arbitration to secure just, fair and effective resolution of disputes, without
unnecessary delay and with least expense, is crippled and mutilated when
the rights and liabilities of persons who have not consented to arbitration
are affected or the collective resolution of the disputes by including non-
parties is required. Arbitration agreement as an alternative to public fora E
should not be enforced when it is futile, ineffective, and would be a no
result exercise.24
32. 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.25 For example, it is generally accepted F
that monopoly rights can only be granted by the State. 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 G
maintenance of law and order, internal security, grant of pardon etc., as
24
Prof. Stavros Brekoulakis – ‘On Arbitrability: Persisting Misconceptions and New
Areas of Concern’
25
Ajar Raib – Defining Contours of the Public Policy Exception – A New Test for
Arbitrability H
1064 SUPREME COURT REPORTS [2020] 11 S.C.R.

A distinguished from commercial activities, economic adventures and
welfare activities.26 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.
B
In these matters the State enjoys monopoly in dispute resolution.
33. Fourth principle of non-arbitrability is alluded to in the Order
of Reference, which makes specific reference to Vimal Kishor Shah,
which decision quotes from Dhulabhai, a case which dealt with exclusion
of jurisdiction of civil courts under Section 9 of the Civil Procedure Code.
C The second condition in Dhulabhai reads as under:
“32. (2) Where there is an express bar of the jurisdiction of the
court, an examination of the scheme of the particular Act to find
the adequacy or the sufficiency of the remedies provided may be
relevant but is not decisive to sustain the jurisdiction of the civil
D court.
Where there is no express exclusion the examination of the
remedies and the scheme of the particular Act to find out the
intendment becomes necessary and the result of the inquiry may
be decisive. In the latter case, it is necessary to see if the statute
E creates a special right or a liability and provides for the
determination of the right or liability and further lays down that all
questions about the said right and liability shall be determined by
the tribunals so constituted, and whether remedies normally
associated with actions in civil courts are prescribed by the said
F statute or not.”
The order of reference notes that Dhulabhai refers to three
categories mentioned in Wolverhampton New Waterworks Co. v.
Hawkesford,27 to the following effect:
“There are three classes of cases in which a liability may be
G established founded upon a statute. One is, where there was a
liability existing at common law, and that liability is affirmed by a
statute which gives a special and peculiar form of remedy different
26
Common Cause v. Union of India, (1999) 6 SCC 667 and Agricultural Produce
Market Committee v. Ashok Harikuni & Another, (2000) 8 SCC 61.
27
H 9 [1859] 6 C.B. (NS) 336
VIDYA DROLIA AND OTHERS v. 1065
DURGA TRADING CORPORATION [SANJIV KHANNA, J.]

from the remedy which existed at common law; there, unless the A
statute contains words which expressly or by necessary implication
exclude the common law remedy, and the party suing has his
election to pursue either that or the statutory remedy. The second
class of cases is, where the statute gives the right to sue merely,
but provides no particular form of remedy: there, the party can
B
only proceed by action at common law. But there is a third class,
viz. where a liability not existing at common law is created by a
statute which at the same time gives a special and particular remedy
for enforcing it.”
Dhulabhai’s case is not directly applicable as it relates to exclusion
of jurisdiction of civil courts, albeit we respectfully agree with the Order C
of Reference that the condition No.2 is apposite while examining the
question of non-arbitrability. 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 D
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. Therefore, mere creation of a
specific forum as a substitute for civil court or specifying the civil court,
may not be enough to accept the inference of implicit non- arbitrability.
Conferment of jurisdiction on a specific court or creation of a public E
forum though eminently significant, may not be the decisive test to answer
and decide whether arbitrability is impliedly barred.
34. 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. F
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.
In Transcore v. Union of India and Another,28 this Court had examined
the doctrine of election in the context whether an order under proviso to
Section 19(1) of the Recovery of Debts Due to Banks and Financial G
Institutions Act,1993 (the ‘DRT Act’) is a condition precedent to taking
recourse to the Securitisation and Reconstruction of Financial Assets
and Enforcement of Security Interest Act, 2002 (the ‘NPA Act’). For
analysing the scope and remedies under the two Acts, it was held that
28
(2008) 1 SCC 125 H
1066 SUPREME COURT REPORTS [2020] 11 S.C.R.

A NPA Act is an additional remedy which is not inconsistent with the DRT
Act, and reference was made to the doctrine of election in the following
terms:
“64. In the light of the above discussion, we now examine the
doctrine of election. There are three elements of election, namely,
B existence of two or more remedies; inconsistencies between such
remedies and a choice of one of them. If anyone of the three
elements is not there, the doctrine will not apply. According to
American Jurisprudence, 2d, Vol. 25, p. 652, if in truth there is
only one remedy, then the doctrine of election does not apply. In
the present case, as stated above, the NPA Act is an additional
C remedy to the DRT Act. Together they constitute one remedy
and, therefore, the doctrine of election does not apply. Even
according to Snell’s Principles of Equity (31st Edn., p. 119), the
doctrine of election of remedies is applicable only when there are
two or more co-existent remedies available to the litigants at the
D time of election which are repugnant and inconsistent. In any event,
there is no repugnancy nor inconsistency between the two
remedies, therefore, the doctrine of election has no application.”
Doctrine of election to select arbitration as a dispute resolution
mechanism by mutual agreement is available only if the law accepts
E existence of arbitration as an alternative remedy and freedom to choose
is available. There should not be any inconsistency or repugnancy between
the provisions of the mandatory law and arbitration as an alternative.
Conversely and in a given case when there is repugnancy and
inconsistency, the right of choice and election to arbitrate is denied. This
requires examining the “text of the statute, the legislative history, and
F ‘inherent conflict’ between arbitration and the statute’s underlying
purpose”29 with reference to the nature and type of special rights
conferred and power and authority given to the courts or public forum to
effectuate and enforce these rights and the orders passed. When
arbitration cannot enforce and apply such rights or the award cannot be
G 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. In
essence, 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
29
H Jennifer L. Peresie, Reducing the Presumption of Arbitrability.
VIDYA DROLIA AND OTHERS v. 1067
DURGA TRADING CORPORATION [SANJIV KHANNA, J.]

the specified court or the public forum so constituted, and whether the A
remedies beyond the ordinary domain of the civil courts are prescribed.
When the answer is affirmative, arbitration in the absence of special
reason is contraindicated. The dispute is non- arbitrable.
35. In M.D. Frozen Foods Exports Private Limited and
Others v. Hero Fincorp Limited,30 and following this judgment in B
Indiabulls Housing Finance Limited v. Deccan Chronicle Holdings
Limited and Others,31 it has been held that even prior arbitration
proceedings are not a bar to proceedings under the NPA Act. The NPA
Act sets out an expeditious, procedural methodology enabling the financial
institutions to take possession and sell secured properties for non-payment
of the dues. Such powers, it is obvious, cannot be exercised through the C
arbitral proceedings.
36. In Transcore, on the powers of the Debt Recovery Tribunal
(DRT) under the DRT Act, it was observed:
“18. On analysing the above provisions of the DRT Act, we find D
that the said Act is a complete code by itself as far as recovery of
debt is concerned. It provides for various modes of recovery. It
incorporates even the provisions of the Second and Third
Schedules to the Income Tax Act, 1961. Therefore, the debt due
under the recovery certificate can be recovered in various ways.
The remedies mentioned therein are complementary to each other. E
The DRT Act provides for adjudication. It provides for adjudication
of disputes as far as the debt due is concerned. It covers secured
as well as unsecured debts. However, it does not rule out the
applicability of the provisions of the TP Act, in particular, Sections
69 and 69-A of that Act. Further, in cases where the debt is secured F
by a pledge of shares or immovable properties, with the passage
of time and delay in the DRT proceedings, the value of the pledged
assets or mortgaged properties invariably falls. On account of
inflation, the value of the assets in the hands of the bank/FI
invariably depletes which, in turn, leads to asset-liability mismatch.
These contingencies are not taken care of by the DRT Act and, G
therefore, Parliament had to enact the NPA Act, 2002.”
Consistent with the above, observations in Transcore on the power
30
(2017) 16 SCC 741
31
(2018) 14 SCC 783 H
1068 SUPREME COURT REPORTS [2020] 11 S.C.R.

A of the DRT conferred by the DRT Act and the principle enunciated in
the present judgment, we must overrule the judgment of the Full Bench
of the Delhi High Court in HDFC Bank Ltd. v. Satpal Singh Bakshi,32
which holds that matters covered under the DRT Act are arbitrable. It is
necessary to overrule this decision and clarify the legal position as the
decision in HDFC Bank Ltd. has been referred to in M.D. Frozen
B
Foods Exports Private Limited, but not examined in light of the legal
principles relating to non-arbitrability. Decision in HDFC Bank Ltd.
holds that only actions in rem are non-arbitrable, which as elucidated
above is the correct legal position. However, non-arbitrability may arise
in case the implicit prohibition in the statute, conferring and creating
C special rights to be adjudicated by the courts/public fora, which right
including enforcement of order/provisions cannot be enforced and applied
in case of arbitration. To hold that the claims of banks and financial
institutions covered under the DRT Act are arbitrable would deprive and
deny these institutions of the specific rights including the modes of
recovery specified in the DRT Act. Therefore, the claims covered by
D
the DRT Act are non-arbitrable as there is a prohibition against waiver
of jurisdiction of the DRT by necessary implication. The legislation has
overwritten the contractual right to arbitration.
37. In Natraj Studios (P) Ltd., a case under the Arbitration
Act,1940, it was observed that on broader consideration of public policy
E the disputes were non-arbitrable. In N. Radhakrishnan v. Maestro
Engineers and Others, 33 reliance was placed on the following
observations in Abdul Kadir Samshuddin Bubere v. Madhav
Prabharkar Oak and Another:34
“There is no doubt that when a serious allegation of fraud is laid
F against the party and the party who charged with the fraud desires
that the matter should be tried in the open court it would be sufficient
cause for the court for the court not to order an arbitration
agreement to be filed and not to make the reference.”
N. Radhakrishnan upheld the order rejecting the application
G under Section 8 of the Arbitration Act on the ground that it would be in
furtherance of justice that the allegations as to fraud and manipulation of
finances in the partnership firm are tried in the court of law which is
32
2013 (134) DRJ 566 (FB)
33
(2010) 1 SCC 72
34
H AIR 1962 SC 406
VIDYA DROLIA AND OTHERS v. 1069
DURGA TRADING CORPORATION [SANJIV KHANNA, J.]

more competent and has means to decide a complicated matter. However, A
in A. Ayyasamy, notwithstanding the allegations of fraud, the civil appeal
was allowed, the civil suit was stayed and reference to arbitration under
Section 8 of the Arbitration Act was made. A.K. Sikri J. held that the
Arbitration Act does not make any specific provision for excluding any
category of disputes terming them as non-arbitrable but there are a number
B
of pronouncements which hold that fraud is one such category where
the dispute would be considered as non-arbitrable. Elucidating on the
exclusion, he observed that pleading of a mere allegation of fraud by one
party is not enough. The allegation of fraud should be such which makes
a virtual case of a criminal offence. On the question of non-arbitrability
when there are allegations of fraud, he observed: C
“25... finds that there are very serious allegations of fraud which
make a virtual case of criminal offense 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, D
the court can sidetrack 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 E
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...Such categories of non-arbitrable subjects are carved
out by the courts, keeping in mind the principle of common law F
that certain disputes which are of public nature, etc. are not capable
of adjudication and settlement by arbitration and for resolution of
such disputes, courts i.e. public fora, are better suited than a private
forum of arbitration...”
D.Y. Chandrachud, J. in his concurring judgment unclasped the
G
mandatory nature of Section 8 of the Arbitration Act to observe that
allegations of fraud can be made a subject matter of arbitration by relying
on Russell on Arbitration, Redfer Hunter on International Arbitration
and Gary B. Born in International Commercial Arbitration. Reliance
was placed on the principle of separation and legal effect of the doctrine
of competence- competence, to observe: H
1070 SUPREME COURT REPORTS [2020] 11 S.C.R.

A “13. Once an application in due compliance with Section 8 of the
Arbitration Act is filed, the approach of the civil court should be
not to see whether the court has jurisdiction. It should be to see
whether its jurisdiction has been ousted. There is a lot of difference
between the two approaches. Once it is brought to the notice of
the court that its jurisdiction has been taken away in terms of the
B
procedure prescribed under a special statute, the civil court should
first see whether there is ouster of jurisdiction in terms or
compliance with the procedure under the special statute. The
general law should yield to the special law — generalia
specialibus non derogant. In such a situation, the approach shall
C not be to see whether there is still jurisdiction in the civil court
under the general law. Such approaches would only delay the
resolution of disputes and complicate the redressal of grievance
and of course unnecessarily increase the pendency in the court.”
xx xx xx
D 43. Hence, the allegations of criminal wrongdoing or of statutory
violation would not detract from the jurisdiction of the Arbitral
Tribunal to resolve a dispute arising out of a civil or contractual
relationship on the basis of the jurisdiction conferred by the
arbitration agreement.”
E Elucidating and summarising the legal position, D.Y.Chandrachud
J. has observed:
“53. The Arbitration and Conciliation Act, 1996, should in my view
be interpreted so as to bring in line the principles underlying its
interpretation in a manner that is consistent with prevailing
F approaches in the common law world. Jurisprudence in India must
evolve towards strengthening the institutional efficacy of
arbitration. Deference to a forum chosen by parties as a complete
remedy for resolving all their claims is but part of that evolution.
Minimising the intervention of courts is again a recognition of the
G same principle.”
38. Arbitrability as noticed above in essence is a matter of national
policy.35 A statute, on the basis of public policy, can expressly or by

35
A Second Look at Arbitrability: Approaches to Arbitration in the United States,
H Switzerland and Germany by Patrick M. Baron and Stefan Liniger
VIDYA DROLIA AND OTHERS v. 1071
DURGA TRADING CORPORATION [SANJIV KHANNA, J.]

implication restrict or prohibit arbitrability of disputes. To this extent there A
is uniformity and consensus. However, N. Radhakrishnan while
accepting that the dispute may be arbitrable under the applicable
mandatory law, holds that the dispute would be non-arbitrable on public
policy consideration if it relates to serious allegations of fraud. The two
views in A. Ayyasamy exposit the predicament on the role of public
B
policy in deciding the question of law of non-arbitrability. Whether a
subject matter or a dispute should be held as non-arbitrable on public
policy is vexed and not free from difficulty as reflected in the strong
opinions expressed in the judgments. Indeed, under the Arbitration Act,
1940, the case law in view of the statutory discretion under sub- section
(4) to Sections 20 and 34 clearly supports and accepts the role and C
relevance of public policy. Legal position under the Arbitration Act as
examined under the heading ‘Who decides non- arbitrability’, however,
is different.
39. We begin by examining sub-clauses (i) and (ii) of clause (b) to
Sub-section (2) to Section 34, which read as under: D
“34. Application for setting aside arbitral award. –
xx xx xx
(2) An arbitral award may be set aside by the Court only if –
(a) ... E
(b) the Court finds that––
(i) the subject-matter of the dispute is not capable of settlement
by arbitration under the law for the time being in fore, or
(ii) the arbitral award is in conflict with the public policy of F
India.
Explanation 1. - For the avoidance of any doubt, it is clarified that
an award is in conflict with the public policy of India, only if, ––
(i) the making of the award was induced or affected by fraud
or corruption or was in violation of section 75 or section 81; or G

(ii) it is in contravention with the fundamental policy of Indian
law; or
(iii) it is in conflict with the most basic notions of morality or
justice.
H
1072 SUPREME COURT REPORTS [2020] 11 S.C.R.

A Explanation 2. - For the avoidance of doubt, the test as to whether
there is a contravention with the fundamental policy of Indian law
shall not entail a review on the merits of the dispute.”
Section 34(2)(b) consists of two sub-clauses both accrediting the
court with the power to set aside an award. Under sub-clause (i) an
B award is liable to be set aside when the subject matter is not capable of
settlement by arbitration under law for the time being in force. Under
sub-clause (ii) an award can be set aside if it is in conflict with the public
policy of India. As per Explanation No. 1, an award is in conflict with the
public policy of India only if it was induced or affected by fraud,
corruption, etc. or it is in contravention with the fundamental policy of
C Indian law or is in conflict with the most basic notions of morality or
justice. Explanation 2 cautions the courts not to review on the merits of
the case while examining the question whether an award is in
contravention with the fundamental policy of law. Therefore, conflict
with the public policy of India and a subject matter of dispute not capable
D of settlement by arbitration, are two separate and independent grounds
on which the court can set aside the award. Reference to public policy
in Booz Allen & Hamilton Inc. and in the present matter and non-
arbitrability of the subject matter is completely different and has nothing
in common with the public policy of India referred to in sub-clause (ii) of
Section 34(2)(b) of the Arbitration Act. Public policy in the context of
E non-arbitrability refers to public policy as reflected in the enactment,
that is, whether the enactment confers exclusive jurisdiction to the specified
court or the special forum and prohibits recourse to arbitration. Public
policy in the context of sub-clause(ii) to Section 34(2)(b) refers to the
public policy of the enactment, defining and fixing rights and obligations,
F and application of those rights and obligations by the arbitrator. Statutes
unfailingly have a public purpose or policy which is the basis and purpose
behind the legislation. Application of mandatory law to the merits of the
case do not imply that the right to arbitrate is taken away. Mandatory
law may require a particular substantive rule to be applied, but this would
not preclude arbitration. Implied non-arbitrability requires prohibition
G against waiver of jurisdiction, which happens when a statute gives special
rights or obligations and creates or stipulates an exclusive forum for
adjudication and enforcement. An arbitrator, like the court, is equally
bound by the public policy behind the statute while examining the claim
on merits. The public policy in case of non-arbitrability would relate to
H conferment of exclusive jurisdiction on the court or the special forum set
VIDYA DROLIA AND OTHERS v. 1073
DURGA TRADING CORPORATION [SANJIV KHANNA, J.]

up by law for decision making. Non-arbitrability question cannot be A
answered by examining whether the statute has a public policy objective
which invariably every statue would have. There is a general presumption
in favour of arbitrability, which is not excluded simply because the dispute
is permeated by applicability of mandatory law. Violation of public policy
by the arbitrator could well result in setting aside the award on the ground
B
of failure to follow the fundamental policy of law in India, but not on the
ground that the subject matter of the dispute was non-arbitrable.
40. However, the above discussion would not be a complete answer
to N. Radhakrishnan that if justice demands, then notwithstanding the
arbitration clause, the dispute would be tried in the open court. To accept
this reasoning one would have to agree that arbitration is a flawed and C
compromised dispute resolution mechanism that can be forgone when
public interest or public policy demands the dispute should be tried and
decided in the court of law. The public policy argument proceeds on the
foundation and principle that arbitration is inferior to court adjudication
as: (i) fact finding process in arbitration is not equivalent to judicial fact D
finding, which is far more comprehensive and in-depth; (ii) there is limited
or lack of reasoning in awards; (iii) arbitrators enjoy and exercise
extensive and unhindered powers and therefore are prone in making
arbitrary and despotic decisions; (iv) there is no appeal process in
arbitration which combined with the (iii) above and limited review of an
arbitral award in post-award court proceedings, arbitration may have E
devastating consequences for the losing party and undermines justice;
(v) arbitration proceedings are usually private and confidential; (vi)
arbitrators are unfit to address issues arising out of the economic power
disparity or social concerns;36 (vii) business and industry, by adopting
and compulsorily applying arbitration process, leave the vulnerable and F
weaker sections with little or no meaningful choice but to accept
arbitration. A few people realize and understand the importance of loss
of their right to access the court of law or public forum, which are
impartial, just and fair;37 and (viii) arbitration is expensive and costly in
comparison to court adjudication.38
G
36
(i) to (vi) from Prof. Stavros Brekoulakis – On Arbitrability: Persisting Misconceptions
and New Area of Concern.
37
(vii) from the preamble of the text of the bill of 2007 Arbitration Fairness Act as was
written by the sponsor and submitted to the House for consideration
38
Union of India v. Singh Builders Syndicate, (2009) 4 SCC 523.
H
1074 SUPREME COURT REPORTS [2020] 11 S.C.R.

A 41. While it would not be correct to dispel the grounds as mere
conjectures and baseless, it would be grossly irrational and completely
wrong to mistrust and treat arbitration as flawed and inferior adjudication
procedure unfit to deal with the public policy aspects of a legislation.
Arbitrators, like the courts, are equally bound to resolve and decide
disputes in accordance with the public policy of the law. Possibility of
B
failure to abide by public policy consideration in a legislation, which
otherwise does not expressly or by necessary implication exclude
arbitration, cannot form the basis to overwrite and nullify the arbitration
agreement. This would be contrary to and defeat the legislative intent
reflected in the public policy objective behind the Arbitration Act.
C Arbitration has considerable advantages as it gives freedom to the parties
to choose an arbitrator of their choice, and it is informal, flexible and
quick. Simplicity, informality and expedition are hallmarks of arbitration.
Arbitrators are required to be impartial and independent, adhere to natural
justice, and follow a fair and just procedure. Arbitrators are normally
experts in the subject and perform their tasks by referring to facts,
D
evidence, and relevant case law. Complexity is not sufficient to ward off
arbitration. In terms of the mandate of Section 89 of the Civil Procedure
Code and the object and purpose behind the Arbitration Act and the
mandatory language of Sections 8 and 11, the mutually agreed arbitration
clauses must be enforced. The language of Sections 8 and 11 of the
E Arbitration Act are peremptory in nature. Arbitration Act has been enacted
to promote arbitration as a transparent, fair, and just alternative to court
adjudication. Public policy is to encourage and strengthen arbitration to
resolve and settle economic, commercial and civil disputes. Amendments
from time to time have addressed the issues and corrected the
inadequacies and flaws in the arbitration procedure. It is for the
F
stakeholders, including the arbitrators, to assure that the arbitration is as
impartial, just, and fair as court adjudication. It is also the duty of the
courts at the post-award stage to selectively yet effectively exercise the
limited jurisdiction, within the four corners of Section 34(2)(b)(ii) read
with Explanation 1 and 2 and check any conflict with the fundamental
G policy of the applicable law. We would subsequently refer to the ‘second
look’39 principle which is applicable in three specific situations dealing
with arbitrability as per the mandate of Section 34 of the Arbitration Act.

39
Mitsubishi Motors Corp v. Soler Chrysler Plymouth Inc, 473 U.S. 614 S Ct 3346
H (1985) (U.S. Supreme Court, 2 July 1985)
VIDYA DROLIA AND OTHERS v. 1075
DURGA TRADING CORPORATION [SANJIV KHANNA, J.]

42. Recently, the Supreme Court of Canada in TELUS A
Communications Inc. v. Avraham Wellman,40 while conceding that
arbitration as a method of dispute resolution was met with “overt hostility”
for a long time on public policy grounds as it ousts jurisdiction of courts,
observed that the new legislation, the Arbitration Act of 1991, marks a
departure as it encourages parties to adopt arbitration in commercial
B
and other matters. By putting party autonomy on a high pedestal, the
Act mandates that the parties to a valid arbitration agreement must abide
by the consensual and agreed mode of dispute resolution. The courts
must show due respect to arbitration agreements particularly in
commercial settings by staying the court proceedings, unless the legislative
language is to the contrary. The principle of party autonomy goes hand C
in hand with the principle of limited court intervention, this being the
fundamental principle underlying modern arbitration law. Party autonomy
is weaker in non-negotiated “take it or leave it” contracts and, therefore,
the legislature can through statutes shield the weakest and vulnerable
contracting parties like consumers. This is not so in negotiated agreements
D
or even in adhesion contracts having an arbitration clause in commercial
settings. Virtues of commercial and civil arbitration have been recognised
and accepted and the courts even encourage the use of arbitration.
43. A recent judgment of this Court in Avitel Post Studioz Limited
and Others v. HSBC PI Holdings (Mauritius) Limited41 has examined
the law on invocation of ‘fraud exception’ in great detail and holds that E
N. Radhakrishnan as a precedent has no legs to stand on. We
respectfully concur with the said view and also the observations made in
paragraph 14 of the judgment in Avitel Post Studioz Limited, which
quotes observations in Rashid Raza v. Sadaf Akhthar42:
“4. The principles of law laid down in this appeal make a distinction F
between serious allegations of forgery/ fabrication in support of
the plea of fraud as opposed to “simple allegations”. Two working
tests laid down in para 25 are: (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 G
upon the internal affairs of the parties inter se having no implication
in the public domain.”
40
(2019) SCC 19 (CanLII)
41
Civil Appeal No. 5145 of 2016 and connected matters, decided on 19.08.2020
42
(2019) 8 SCC 710 H
1076 SUPREME COURT REPORTS [2020] 11 S.C.R.

A to observe in Avitel Post Studioz Limited:
“it is clear that serious allegations of fraud arise only if either of
the two tests laid down are satisfied and not otherwise. The first
test is satisfied only when it can be said that the arbitration clause
or agreement itself cannot be said to exist in a clear case in which
B the court finds that the party against whom breach is alleged cannot
be said to have entered into the agreement relating to arbitration
at all. The second test can be said to have been met in cases in
which allegations are made against the State or its instrumentalities
of arbitrary, fraudulent, or mala fide conduct, thus, necessitating
the hearing of the case by a writ court in which questions are
C raised which are not predominantly questions arising from the
contract itself or breach thereof but questions arising in the public
law domain.”
The judgment in Avitel Post Studioz Limited interprets Section
17 of the Contract Act to hold that Section 17 would apply if the contract
D itself is obtained by fraud or cheating. Thereby, 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.
E 44. In Deccan Paper Mills Co. Ltd. v. Regency Mahavir
Properties43, legal proceedings for cancellation of documents under
Section 31 of the Specific Relief Act, 1963 were held to be actions in
personam and not actions in rem. Significantly, the judgment refers to
the definition of action in rem by R.H. Graveson (Conflict of Laws 98,
F 7th ed. 1974), which reads as under:
“An action in rem is one in which the judgment of the Court
determines the title to property and the rights of the parties, not
merely as between themselves, but also as against all persons at
any time dealing with them or with the property upon which the
G Court had adjudicated.”
45. In view of the above discussion, we would like to propound a
four- fold test for determining when the subject matter of a dispute in an
arbitration agreement is not arbitrable:

43
H Civil Appeal No. 5147 of 2016, decided on 19.08.2020
VIDYA DROLIA AND OTHERS v. 1077
DURGA TRADING CORPORATION [SANJIV KHANNA, J.]

(1) when cause of action and subject matter of the dispute relates A
to actions in rem, that do not pertain to subordinate rights in
personam that arise from rights in rem.
(2) 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 B
and enforceable;
(3) 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
(4) when the subject-matter of the dispute is expressly or by C
necessary implication non-arbitrable as per mandatory statute(s).
These tests are not watertight compartments; they dovetail and
overlap, albeit when applied holistically and pragmatically will help and
assist in determining and ascertaining with great degree of certainty
when as per law in India, a dispute or subject matter is non-arbitrable. D
Only when the answer is affirmative that the subject matter of the dispute
would be non-arbitrable.
However, the aforesaid principles have to be applied with care
and caution as observed in Olympus Superstructures Pvt. Ltd.:
E
“35...Reference is made there to certain disputes like criminal
offences of a public nature, disputes arising out of illegal
agreements and disputes relating to status, such as divorce, which
cannot be referred to arbitration. It has, however, been held that
if in respect of fats relating to a criminal matter, say, physical
injury, if there is a right to damages for personal injury, then such F
a dispute can be referred to arbitration (Keir v. Leeman). Similarly,
it has been held that a husband and a wife may refer to arbitration
the terms on which they shall separate, because they can make a
valid agreement between themselves on that matter (Soilleux v.
Herbst, Wilson v. Wilson and Cahill v. Cahill).”
G
46. Applying the above principles to determine non-arbitrability, it
is apparent that insolvency or intracompany disputes have to be addressed
by a centralized forum, be the court or a special forum, which would be
more efficient and has complete jurisdiction to efficaciously and fully
dispose of the entire matter. They are also actions in rem. Similarly,
H
1078 SUPREME COURT REPORTS [2020] 11 S.C.R.

A grant and issue of patents and registration of trademarks are exclusive
matters falling within the sovereign or government functions and have
erga omnes effect. Such grants confer monopoly rights. They are non-
arbitrable. Criminal cases again are not arbitrable as they relate to
sovereign functions of the State. Further, violations of criminal law are
offenses against the State and not just against the victim. Matrimonial
B
disputes relating to the dissolution of marriage, restitution of conjugal
rights etc. are not arbitrable as they fall within the ambit of sovereign
functions and do not have any commercial and economic value. The
decisions have erga omnes effect. Matters relating to probate,
testamentary matter etc. are actions in rem and are a declaration to the
C world at large and hence are non-arbitrable.
47. In view of the aforesaid discussions, we overrule the ratio in
N. Radhakrishnan inter alia observing that allegations of fraud can
be made a subject matter of arbitration when they relate to a civil dispute.
This is subject to the caveat that fraud, which would vitiate and invalidate
D the arbitration clause, is an aspect relating to non- arbitrability. We have
also set aside the Full Bench decision of the Delhi High Court in the
case of HDFC Bank Ltd. which holds that the disputes which are to be
adjudicated by the DRT under the DRT Act are arbitrable. They are
non-arbitrable.
E 48. 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.
F 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. Transfer of
Property Act, like all other Acts, has a public purpose, that is, to regulate
landlord- tenant relationships and the arbitrator would be bound by the
G provisions, including provisions which enure and protect the tenants.
49. In view of the aforesaid, we overrule the ratio laid down in
Himangni Enterprises and hold that landlord-tenant disputes are
arbitrable as the Transfer of Property Act does not forbid or foreclose
arbitration. However, landlord-tenant disputes covered and governed by
H rent control legislation would not be arbitrable when specific court or
VIDYA DROLIA AND OTHERS v. 1079
DURGA TRADING CORPORATION [SANJIV KHANNA, J.]

forum has been given exclusive jurisdiction to apply and decide special A
rights and obligations. Such rights and obligations can only be adjudicated
and enforced by the specified court/forum, and not through arbitration.
Who decides non-arbitrability?
50. Lord Mustill’s well-known comparison of the relationship
between courts and arbitrators to a relay race, reads: B

“Ideally, the handling of arbitrable disputes should resemble a relay
race. In the initial stages, before the arbitrators are seized of the
dispute, the baton is in the grasp of the court; for at that stage
there is no other organisation which could take steps to prevent
the arbitration agreement for being ineffectual. When the arbitrators C
take charge they take over the baton and retain it until they have
made an award. At this point, having no longer a function to fill,
the arbitrators hand back the baton so that the court can in case
of need lend its coercive powers to the enforcement of the award.”
Thus, the legal problem of allocation of decision-making authority D
between courts and arbitral tribunals.
51. Issue of non-arbitrability can be raised at three stages. First,
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; secondly, before the arbitral tribunal during the course E
of the arbitration proceedings; or thirdly, before the court at the stage of
the challenge to the award or its enforcement. Therefore, the question –
‘Who decides non- arbitrability?’ and, in particular, the jurisdiction of
the court at the first look stage, that is, the referral stage.
52. Who decides the question of non-arbitrability? - a jurisdictional F
question is a technical legal issue, and requires clarity when applied to
facts to avoid bootstrapping and confusion. The doubt as to who has the
jurisdiction to decide could hinder, stray, and delay a many arbitration
proceedings. Unfortunately, who decides non-arbitrability remains a
vexed question that does not have a straightforward universal answer
G
as would be apparent from opinions in the at-variance Indian case laws
on this subject. To some extent, the answer depends on how much
jurisdiction the enactment gives to the arbitrator to decide their own
jurisdiction as well as the court’s jurisdiction at the reference stage and
in the post-award proceedings. It also depends upon the jurisdiction
bestowed by the enactment, viz. the facet of non-arbitrability in question, H
1080 SUPREME COURT REPORTS [2020] 11 S.C.R.

A the scope of the arbitration agreement and authority conferred on the
arbitrator.
53. Under the Arbitration Act, 1940, the jurisdiction to settle and
decide non-arbitrability issues relating to existence, validity, scope as
well as whether the subject matter was capable of arbitration, with
B possible exception in case of termination, novation, frustration and ‘accord
and satisfaction’ when contested on facts, was determined and decided
at the first or at the reference stage by the courts. The principle being
that 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,
C however, not concerned with the merits or sustainability of the disputes.
Despite best efforts to contain obstructive tactics, adjudication and final
decision of non-arbitrability issues at the reference stage would invariably
stop, derail and thwart the proceedings in the courts for years.
54. The Arbitration Act based upon the UNCITRAL Model Law
D introduced an entirely new regimen with the objective to promote
arbitration in commercial and economic matters as an alternative dispute
resolution mechanism that is fair, responsive and efficient to contemporary
requirements. One of the primary objectives of the Arbitration Act is to
reduce and minimize the supervisory role of courts. Accordingly, the
statutory powers of the arbitral tribunal to deal with and decide
E jurisdictional issues of non-arbitrability were amplified and the principles
of separation and competence- competence were incorporated, while
the courts retained some power to have a ‘second look’ in the post-
award challenge proceeding. On the jurisdiction of the court at the referral
stage, views of this Court have differed and there have been statutory
amendments to modify and obliterate the legal effect of the court
F decisions.
55. The legal position as to who decides the question of non-
arbitrability under the Arbitration Act can be divided into four phases.
The first phase was from the enforcement of the Arbitration Act till the
decision of the Constitution Bench of seven Judges in Patel Engineering
G Ltd. on 26th October 2005. For nearly ten years, the ratio expressed in
Konkan Railway Corpn. Ltd. and Others v. Mehul Construction Co.,44
affirmed by the Constitution Bench of five Judges in Konkan Railway
Construction Ltd. and Another v. Rani Construction Pvt. Ltd.,45 had
44
(2000) 7 SCC 201
45
H (2002) 2 SCC 388
VIDYA DROLIA AND OTHERS v. 1081
DURGA TRADING CORPORATION [SANJIV KHANNA, J.]

prevailed. The second phase commenced with the decision in Patel A
Engineering Ltd. till the legislative amendments, which were made to
substantially reduce court interference and overrule the legal effect of
Patel Engineering Ltd. vide Act 3 of 2016 with retrospective effect
from 23rd October 2015. The third phase commenced with effect from
23rd October 2015 and continued till the enactment of Act 33 of 2019
B
with effect from 9th August 2019, from where commenced the fourth
phase, with a clear intent to promote institutionalized arbitration rather
than ad hoc arbitration. The amendments introduced by Act 33 of 2019
have been partially implemented and enforced. In the present case, we
are primarily concerned with the legal position in the third phase with
effect from 23rd October 2015 when amendments by Act 3 of 2016 C
became operative.
56. We begin by reproducing the relevant statutory provisions,
namely, Sections 8, 11, 16, sub-sections (1) and (2) to Section 34 including
clause (b), which has been partly quoted in paragraph 39 above, and
sub-sections (1), (2), (3) to Section 43 of the Arbitration Act. D
For the sake of clarity and convenience, we are reproducing below
the provisions of Sections 8 and 11 of the Arbitration Act in a tabulated
form as Sections 8 and 11 were amended by Act 3 of 2016 with
retrospective effect from 23rd October, 2015 and Section 11 has
undergone another amendment vide Act 33 of 2019 with effect from 9th E
August, 2019.
Section 8, pre and post Act 3 of 2016, read as under:

SECTION 8 SECTION 8
(before Act 3 of 2016) (post Act 3 of 2016)
8. Power to refer parties to 8. Power to refer parties to arbitration where there
F
arbitration where there is an is an arbitration agreement.—
arbitration agreement. —
(1) A judicial authority before (1) A judicial authority, before which an action is brought
which an action is brought in a in a matter which is the subject of an arbitration
matter which is the subject of an agreement shall, if a party to the arbitration agreement or
arbitration agreement shall, if a any person claiming through or under him, so applies not
party so applies not later than later than the date of submitting his first statement on the G
when submitting his first substance of the dispute, then, notwithstanding any
statement on the substance of the judgment, decree or order of the Supreme Court or any
dispute, refer the parties to court, refer the parties to arbitration unless it finds that
arbitration. prima facie no valid arbitration agreement exists.

H
1082 SUPREME COURT REPORTS [2020] 11 S.C.R.

A (2) The application referred to in (2) The application referred to in sub- section (1) shall not
sub-section (1) shall not be be entertained unless it is accompanied by the original
entertained unless it is arbitration agreement or a duly certified copy thereof.
accompanied by the original [Provi ded that where the origi nal arbitration agreement or
arbitration agreement or a duly a certified copy thereof is not available with the party
certifi ed copy thereof. applyi ng for reference to arbitration under sub-section
(1), and the said agreement or certified copy is retained
by t he other party to that agreement, then, the party so
B applyi ng shall file such application along wit h a copy of
the arbitration agreement and a petition praying the Court
to call upon the other party to produce t he original
arbitration agreement or its duly certified copy before that
Court.]
(3) Notwithstanding that an (3) Notwithstanding that an application has been made
application has been made under under sub-section (1) and that the issue is pending before
sub-section (1) and that the issue the judicial authority, an arbitration may be commenced
C is pending before the judicial or continued and an arbitral award made.
authority, an arbitration may be
commenced or continued and an
arbitral award made.

xx xx xx
Section 11, pre and post amendments vide Act 3 of 2016 and Act
D
33 of 2019, reads as under:
SECTION 11 SECTION 11 SECTION 11
(before Act 3 of (post Act 3 of 2016) (post Act 33 of 2019)
2016)
11. Appointment of 11. Appointment of 11. Appointment of
arbitrators. – arbitrators. – arbitrators. —
(1) A person of any (1) A person of any (1) A person of any
E nationality may be an nationality may be an nationality may be an
arbitrator, unless otherwise arbitrator, unless otherwise arbitrator, unless otherwise
agreed by the parties. agreed by the parties. agreed by the parties.
(2) Subject to sub-section (2) Subject to sub-section (6), (2) Subject to sub-section (6),
(6), the parties are free to agree on the parties are free to agree on
the parties are free to agree a procedure for appointing the a procedure for appointing the
on a procedure for arbitrator or arbitrators. arbitrator or arbitrators.
appointing the arbitrator or
F arbitrators.
(3) Failing any agreement (3) Failing any agreement (3) Failing any agreement
referred to in sub-section referred to in sub-section (2), referred to in sub-section (2),
(2), in an arbitration with in an arbitration with three in an arbitration with three
three arbitrators, each arbitrations, each party shall arbitrators, each party shall
party shall appoint one appoint one arbitrator, and the appoint one arbitrator, and the
arbitrator, and the two appointed arbitrators shall two appointed arbitrators shall
two appointed arbitrators appoint the third arbitrator appoint the third arbitrator
G shall who shall act as the presiding who shall act as the presiding
appoint the third arbitrator arbitrator. arbitrator.
who shall act as the (3-A) The Supreme Court and
presiding arbitrator. the High Court shall have the
power to designate, arbitral
institutions, from time to time,
which have been graded by
the Council under Section 43-
H I, for the purposes of this Act:
VIDYA DROLIA AND OTHERS v. 1083
DURGA TRADING CORPORATION [SANJIV KHANNA, J.]

Provided that in respect of A
those High Court
jurisdict ions, where no graded
arbitral institution are
available, then, the Chief
Justice of the concerned High
Court may maintain a panel of
arbitrators for discharging the
functions and duties of arbitral B
institution and any reference
to the arbitrator shall be
deemed to be an arbitral
institution for the purposes of
this section and the arbitrator
appointed by a party shall be
entitled to such fee at the rate
as specified in the Fourth C
Schedule:
Provided further that the Chief
Justice of the concerned High
Court may, from time to time ,
review the panel of
arbitrators.
(4) If the appointment (4) If the appointment (4) If [the appointment shall
procedure in sub-section (3) procedure in sub-section (3) be made, on an application of D
applies and–– applies and –– the party, by the arbitral
(a) a party fails to appoint an (a) a party fails to appoint an institution designated by the
arbitrator within thirty days arbitrat or within thirty days Supreme Court, in case of
from the receipt of a request from the receipt of a request international commercial
to do so from the other party; to do so from the other party; arbitration, or by the High
or or Court, in case of arbitrations
(b) the two appointed (b) the two appointed other than int ernational
arbitrators fail to agree on the arbitrat ors fail to agree on the commercial arbitration, as the E
third arbitrator within thirty third arbitrator within thirty case may be].
days from the date of their days from the date of their
appointment, the appointment appointment, the appointment
shall be made, upon request of shall be made, upon request of
a party, by the Chief Justice or a party, by the Supreme Court
any person or institution or, as the case may be, the
designated by him. High Court or any person or
institution designated by such F
Court.
(5) Failing any agreement (5) Failing any agreement (5) Failing any agreement
referred to in sub-section (2), referred to in sub-section (2), referred to in sub-secti on (2),
in an arbitration with a sole in an arbitration with a sol e in an arbitration wit h a sol e
arbitrator, if the parties fail to arbitrat or, if the parties fail to arbitrator, if the parties fail to
agree on the arbitrator within agree on the arbitrator within agree on the arbitrator within
thirty days from receipt of a thirty days from receipt of a thirty days from receipt of a
request by one party from the request by one party from the request by one party from the G
other party t o so agree the other party to so agree the other party to so agree [the
appointment shall be made, appointment shall be made, appointment shall be made on
upon request of a party, by upon request of a party, by an application of the party in
the Chi ef Justice or any the Supreme Court or, as the accordance with the provisions
person or institution case may be, the High Court contained in sub- section (4)].
designated by him. or any person or institution
desi gnated by such Court.
H
1084 SUPREME COURT REPORTS [2020] 11 S.C.R.

A (6) Where, under an (6) Where, under an (6) Where, under an
appointment procedure appointment procedure appointment procedure
agreed upon by the parties,–– agreed upon by the parties,–– agreed upon by the parties,—
(a) a party fails to act as (a) a party fails to act as (a) a party fails to act as
required under that required under that required under that
procedure; or procedure; or procedure; or
(b) the parties, or the two (b) the parties, or the two (b) the parties, or the two
B appointed arbitrators, fail to appointed arbitrators, fail to appointed arbitrators, fail to
reach an agreement expected reach an agreement expected reach an agreement expected
of them under that procedure; of them under that procedure; of them under that procedure;
or or or
(c) a person, including an (c) a person, including an (c) a person, including an
institution, fails to perform institution, fails to perform institution, fails to perform
any function entrusted to him any function entrusted to him any function entrusted to him
or it under that procedure, a or it under that procedure, a or it under that procedure, a
C party may request the Chief party may request the [the appointment shall be
Justice or any person or Supreme Court or, as the case made, on an application of the
institution designated by him may be, the High Court or any party, by the arbitral
to take the necessary measure, person or institution institution designated by the
unless the agreement on the designated by such Court to Supreme Court, in case of
appointment procedure take the necessary measure, international commercial
provides other means for unless the agreement on the arbitration, or by the High
D securing the appointment. appointment procedure Court, in case of arbitrations
provides other means for other than international
securing the appointment. commercial arbitration, as the
case may be] to take the
necessary measure, unless the
agreement on the
appointment procedure
provides other means for
E securing the appointment.
(6-A) The Supreme Court or, (6-A) [* * *]
as the case may be, the High
Court, while considering any
application under sub-section
NA (4) or sub-section (5) or sub-
section (6), shall,
F notwithstanding any
judgment, decree or order of
any Court, confine to the
examination of the existence
of an arbitration agreement.
(6-B) The designation of any (6-B) The designation of any
person or institution by the person or institution by the
G Supreme Court or, as the case Supreme Court or, as the case
may be, the High Court, for may be, the High Court, for the
NA the purposes of this section purposes of this section shall
shall not be regarded as a not be regarded as a delegation
delegation of judicial power of judicial power by the
by the Supreme Court or the Supreme Court or the High
High Court. court.]
H
VIDYA DROLIA AND OTHERS v. 1085
DURGA TRADING CORPORATION [SANJIV KHANNA, J.]

(7) A decision on a matter (7) A decision on a matter (7) [* * *] A
entrusted by sub-section (4) or entrusted by sub-section (4) or
sub-section (5) or sub- section sub-section (5) or sub- section
(6) to the Chief Justice or the (6) to the Supreme Court or,
person or institution designated as the case may be, the High
by him is final. Court or the person or
institution designated by such
Court is final and no appeal B
including Letters Patent
Appeal shall lie against
such decision.
(8) The Chief Justice or the (8) The Supreme Court or, as (8) [The arbitral institution
person or institution the case may be, the High referred to in sub-sections (4),
designated by him, in Court or the person or (5) and (6)], before appointing
appointing an arbitrator, shall institution designated by such an arbitrator, shall seek a C
have due regard to–– Court, before appointing an disclosure in writing from the
(a) any qualifications required arbitrator, shall seek a prospective arbitrator in terms
of the arbitrator by the disclosure in writing from the of sub-section (1) of Section
agreement of the parties; and prospective arbitrator in terms 12, and have due regard to—
(b) other considerations as of sub-section (1) of section (a) any qualifications required
are likely to secure the 12, and have due regard to–– for the arbitrator by the
appointment of any (a) any qualifications required agreement of the parties; and D
independent and impartial for the arbitrator by the (b) the contents of the
arbitrator. agreement of the parties; and disclosure and other
(b) the contents of the considerations as are likely to
disclosure and other secure the appointment of an
considerations as are likely to independent and impartial
secure the appointment of an arbitrator.]
independent and impartial E
arbitrator.
(9) In the case of appointment (9) In the case of appointment (9) In the case of appointment
of sole or third arbitrator in an of sole or third arbitrator in an of sole or third arbitrator in an
international commercial international commercial international commercial
arbitration, the Chief Justice of arbitration, the Supreme Court arbitration, [the arbitral
India or the person or institution or the person or institution institution designated by the
designated by him may appoint designated by that Court may Supreme Court] may appoint
F
an arbitrator of a nationality appoint an arbitrator of a an arbitrator of a nationality
other than the nationalities of nationality other than the other than the nationalities of
the parties where the parties nationalities of the parties the parties where the parties
belong to different nationalities. where the parties belong to belong to different
different nationalities. nationalities.
(10) The Chief Justice may (10) The Supreme Court or, as (10) [* * *] G
make such scheme1 as he may the case may be, the High
deem appropriate for dealing Court, may make such
with matters entrusted by sun- scheme as the said Court may
section (4) or sub- section (5) or deed appropriate for dealing
sub-section (6) to him. with matters entrusted by sub-
section (4) or sub- section (5)
or sub-section (6), to it. H
1086 SUPREME COURT REPORTS [2020] 11 S.C.R.

A (11) Where more than one (11) Where more than one (11) Where more than one
request has been made under request has been made under request has been made under
sub-section (4) or sub-section sub-section (4) or sub-section sub-section (4) or sub-section
(5) or sub-section (6) to the (5) or sub-section (6) to 3 (5) or sub-section (6) to
Chief Justices of different different High Courts or their different arbitral institutions,
High Courts or their designates, the High Court or the arbitral institution to
designates, the Chief Justice its designate to whom the which the request has been
or his designate to whom the request has been first made first made under the relevant
B request has been first made under the relevant sub-section sub- section shall be
under the relevant sub-section shall alone be competent to competent to appoint.
shall alone be competent to decide on the request
decide on the request.
(12) (a) Where the matters (12) (a) Where the matters (12) Where the matter
referred to in sub-sections (4), referred to in sub-sections (4), referred to in sub-sections
(5), (6), (7), (8) and (10) arise (5), (6), (7), (8) and sub- (4), (5), (6) and (8) arise in an
in an international section (10) arise in an international commercial
C commercial arbitration, the international commercial arbitration or any other
reference to Chief Justice in arbitration, the reference to arbitration, the reference to
those sub- sections shall be the Supreme Court or, as the the arbitral institution in
construed as a reference to the case may be, the High Court those sub-sections shall be
Chief Justice of India in those sub-sections shall be construed as a reference to
(b) Where the matters referred construed as a reference to the the arbitral institution
to in sub-sections (4), (5), (6), Supreme Court; and (b) where designated under sub-section
D (7), (8) and (10) arise the matters referred to in sub- (3-A).
in any other arbitration, the sections (4), (5), (6),
reference to Chief Justice in (7), (8) and sub-section (10)
those sub-sections shall be arise in any other arbitration,
construed as a reference to the the reference to the Supreme
Chief Justice of the High Court or, as the case may be,
Court within whose local the High Court in those
limits the principal Civil subsections shall be construed
E Court referred to in clause (e) as a reference to the High
of sub-section (1) of section 2 Court within whose local
is situate and, where the High limits the principal Civil
Court itself is the Court Court referred to in clause (e)
referred to in that clause, to of sub-section (1) of section 2
the Chief Justice of that High is situate, and where the High
Court. Court itself is the Court
referred to in that clause, to
F that High Court.
(13) An application made (13) An application made
under this section for under this section for
appointment of an arbitrator appointment of an arbitrator
or arbitrators shall be or arbitrators shall be
disposed of by the Supreme disposed of by the arbitral
Court or the High Court or the institution within a period of
person or institution thirty days from the date of
G NA designated by such Court, as service of notice on the
the case may be, as opposite party.
expeditiously as possible and
an endeavour shall be made to
dispose of the matter within a
period of sixty days from the
date of service of notice on
the opposite party.
H
VIDYA DROLIA AND OTHERS v. 1087
DURGA TRADING CORPORATION [SANJIV KHANNA, J.]

(14) For the purpose of (14) The arbitral institution A
determination of the fees of shall determine the fees of
the arbitral tribunal and the the arbitral tribunal and the
manner of its payment to the manner of its payment to the
arbitral tribunal, the High arbitral tribunal subject to the
Court may frame such rules as rates specified in the Fourth
may be necessary, after taking Schedule.
into consideration the rates B
specified in the Fourth
Schedule. Explanation.–– For
NA the removal of doubts, it is
hereby clarified that this sub-
section shall not apply to
international commercial
arbitration and in arbitrations
C
(other than international
commercial arbitration) in
case where parties have
agreed for determination of
fees as per the rules of an
arbitral institution.
xx xx xx D
Section 16 of the Arbitration Act reads as under:
“16. Competence of arbitral tribunal to rule on its
jurisdiction.- (1) The arbitral tribunal may rule on its own
jurisdiction, including ruling on any objections with respect to the
existence or validity of the arbitration agreement, and for that E
purpose, -
(a) an arbitration clause which forms part of a contract shall be
treated as an agreement independent of the other terms of the
contract; and
F
(b) a decision by the arbitral tribunal that the contract is null and
void shall not entail ipso jure the invalidity of the arbitration clause.
(2) A plea that the arbitral tribunal does not have jurisdiction shall
be raised not later than the submission of the statement of defense;
however, a party shall not be precluded from raising such a plea
merely because that he has appointed, or participated in the G
appointment of, an arbitrator.
(3) A plea that the arbitral tribunal is exceeding the scope of its
authority shall be raised as soon as the matter alleged to be beyond
the scope of its authority is raised during the arbitral proceedings.
H
1088 SUPREME COURT REPORTS [2020] 11 S.C.R.

A (4) The arbitral tribunal may, in either of the cases referred to in
sub-section (2) or sub-section (3), admit a later plea if it considers
the delay justified.
(5) The arbitral tribunal shall decide on a plea referred to in sub-
section (2) or sub-section (3) and, where the arbitral tribunal takes
B a decision rejecting the plea, continue with the arbitral proceedings
and make an arbitral award.
(6) A party aggrieved by such an arbitral award may make an
application for setting aside such an arbitral award in accordance
with section 34.
C xx xx xx
Sub-sections (1) and (2) of Section 34 of the Arbitration Act read
as under:
“34. Application for setting aside arbitral award. -
D (1) Recourse to a Court against an arbitral award may be made
only by an application for setting aside such award in accordance
with sub-section (2) and sub- section (3).
(2) An arbitral award may be set aside by the Court only if -
(a) the party making the application establishes on the basis of the
E record of the arbitral tribunal that -
(i) a party was under some incapacity, or
(ii) the arbitration agreement is not valid under the law to which
the parties have subjected it or, failing any
F indication thereon, under the law for the time being in force; or
(iii) the party making the application was not given proper notice
of the appointment of an arbitrator or of the arbitral proceedings
or was otherwise unable to present his case; or
(iv) the arbitral award deals with a dispute not contemplated by or
G
not falling within the terms of the submission to arbitration, or it
contains decisions on matters beyond the scope of the submission
to arbitration:
Provided that, if the decisions on matters submitted to arbitration
can be separated from those not so submitted, only that part of
H
VIDYA DROLIA AND OTHERS v. 1089
DURGA TRADING CORPORATION [SANJIV KHANNA, J.]

the arbitral award which contains decisions on matters not submitted A
to arbitration may be set aside; or
(v) the composition of the arbitral tribunal or the arbitral procedure
was not in accordance with the agreement of the parties, unless
such agreement was in conflict with a provision of this Part from
which the parties cannot derogate, or, failing such agreement, was B
not in accordance with this Part; or
(b) the Court finds that -
(i) the subject-matter of the dispute is not capable of settlement
by arbitration under the law for the time being in force, or
C
(ii) the arbitral award is in conflict with the public policy of India.
Explanation 1 - For the avoidance of any doubt, it is clarified that
an award is in conflict with the public policy of India, only if,—
(i) the making of the award was induced or affected by fraud or
corruption or was in violation of section 75 or section 81; or D
(ii) it is in contravention with the fundamental policy of Indian
law; or
(iii) it is in conflict with the most basic notions of morality or justice.
Explanation 2 - For the avoidance of doubt, the test as to whether E
there is a contravention with the fundamental policy of Indian law
shall not entail a review on the merits of the dispute.”
xx xx xx
Sub-sections (1), (2) and (3) of Section 43 of the Arbitration Act
reads as under: F
“43. Limitations. – (1) The Limitation Act, 1963 (36 of 1963),
shall apply to arbitrations as it applies to proceedings in Courts.
(2) For the purposes of this section and the Limitation Act, 1963
(36 of 1963), an arbitration shall be deemed to have commenced
G
on the date referred in section 21.
(3) Where an arbitration agreement to submit future disputes to
arbitration provides that any claim to which the agreement applies
shall be barred unless the agreement, and a dispute arises to which
the agreement applies, the Court , if it is of opinion that in the
H
1090 SUPREME COURT REPORTS [2020] 11 S.C.R.

A circumstances of the case undue hardship would otherwise be
caused, and notwithstanding that the time so fixed has expired,
may on such terms, if any, as the justice of the case may require,
extend the time for such period as it thinks proper.”
57. In, Rani Construction Pvt. Ltd. the Constitution Bench
B reiterated the earlier view expressed in Mehul Construction Co., that
an order appointing 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
C the arbitrator at the first instance.
58. However, a Constitution Bench of seven Judges vide majority
judgment in Patel Engineering Ltd. overruled this ratio and held:
“38… But the basic requirement for exercising his power under
D Section 11(6), is the existence of an arbitration agreement in terms
of Section 7 of the Act and the applicant before the Chief Justice
being shown to be a party to such an agreement. It would also
include the question of the existence of jurisdiction in him to
entertain the request and an enquiry whether at least a part of the
cause of action has arisen within the State concerned. Therefore,
E a decision on jurisdiction and on the existence of the arbitration
agreement and of the person making the request being a party to
that agreement and the subsistence of an arbitrable dispute require
to be decided and the decision on these aspects is a prelude to the
Chief Justice considering whether the requirements of sub-section
F (4), sub-section (5) or sub-section (6) of Section 11 are satisfied
when approached with the request for appointment of an
arbitrator......
39. It is necessary to define what exactly the Chief Justice,
approached with an application under Section 11 of the Act, is to
G decide at that stage. Obviously, he has to decide his own jurisdiction
in the sense whether the party making the motion has approached
the right High Court. He has to decide whether there is an
arbitration agreement, as defined in the Act and whether the person
who has made the request before him, is a party to such an
agreement. It is necessary to indicate that he can also decide the
H question whether the claim was a dead one; or a long-barred
VIDYA DROLIA AND OTHERS v. 1091
DURGA TRADING CORPORATION [SANJIV KHANNA, J.]

claim that was sought to be resurrected and whether the parties A
have concluded the transaction by recording satisfaction of their
mutual rights and obligations or by receiving the final payment
without objection. 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
B
to be decided by the Arbitral Tribunal on taking evidence, along
with the merits of the claims involved in the arbitration. The Chief
Justice has to decide whether the applicant has satisfied the
conditions for appointing an arbitrator under Section 11(6) of the
Act. For the purpose of taking a decision on these aspects, the
Chief Justice can either proceed on the basis of affidavits and the C
documents produced or take such evidence or get such evidence
recorded, as may be necessary. We think that adoption of this
procedure in the context of the Act would best serve the purpose
sought to be achieved by the Act of expediting the process of
arbitration, without too many approaches to the court at various
D
stages of the proceedings before the Arbitral Tribunal.”
In Patel Engineering Ltd., the Court also held that Section 16 of
the Arbitration Act makes explicit, what is otherwise implicit, that 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 E
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. Majority judgment also clarified that when
an arbitral tribunal has been constituted by the parties without having F
taken recourse to a court order, the arbitral tribunal will have jurisdiction
to decide all matters contemplated by Section 16 of the Arbitration Act.
59. In National Insurance Company Limited v. Boghara
Polyfab Private Limited,46 a two Judges’ Bench of this Court, elucidating
on Patel Engineering Ltd., had identified and segregated the issues G
that arise for consideration in an application under Section 11 of the
Arbitration Act into three categories, viz. (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 or leave it to the arbitral
46
(2009) 1 SCC 267 H
1092 SUPREME COURT REPORTS [2020] 11 S.C.R.

A tribunal to decide; and (iii) issues which should be left to the arbitral
tribunal to decide, and thereafter had enumerated them as under:
“22.1 The issues (first category) which the Chief Justice/his
designate will have to decide are:
(a) Whether the party making the application has approached
B the appropriate High Court.
(b) 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.

C 22.2 The issues (second category) which the Chief Justice/his
designate may choose to decide (or leave them to the decision of
the Arbitral Tribunal) are:
(a) Whether the claim is a dead (long-barred) claim or a live
claim.
D (b) 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.
22.3 The issues (third category) which the Chief Justice/his
designate should leave exclusively to the Arbitral Tribunal are:
E (i) 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).
(ii) Merits or any claim involved in the arbitration.”
F
23. It is clear from the scheme of the Act as explained by this
Court in SBP & Co., that in regard to issues falling under the
second category, if raised in any application under Section 11 of
the Act, the Chief Justice/his designate may decide them, if
necessary, by taking evidence. Alternatively, he may leave those
G issues open with a direction to the Arbitral Tribunal to decide the
same. If the Chief Justice or his designate chooses to examine
the issue and decides it, the Arbitral Tribunal cannot re-examine
the same issue. The Chief Justice/his designate will, in choosing
whether he will decide such issue or leave it to the Arbitral Tribunal,
H be guided by the object of the Act (that is expediting the arbitration
VIDYA DROLIA AND OTHERS v. 1093
DURGA TRADING CORPORATION [SANJIV KHANNA, J.]

process with minimum judicial intervention). Where allegations of A
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.”
24. What is however clear is when a respondent contends that
the dispute is not arbitrable on account of discharge of the contract B
under a settlement agreement or discharge voucher or no-claim
certificate, and the claimant contends that it was obtained by fraud,
coercion or undue influence, the issue will have to be decided
either by the Chief Justice/his designate in the proceedings under
Section 11 of the Act or by the Arbitral Tribunal as directed by the
order under Section 11 of the Act. A claim for arbitration cannot C
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.”
60. The issues included in the first category were: whether the
party making the application had approached the appropriate High Court, D
that is, the jurisdictional High Court; whether there is an arbitration
agreement and whether the person who had applied under Section 11 is
a party to such agreement. This would include the question whether the
defendant or the opposite party is a party to the arbitration agreement or
bound by the arbitration agreement in terms of Section 7 of the Arbitration E
Act. With respect to the second category, the Court observed that the
Chief Justice or his designate may decide the issue, if necessary, by
taking evidence or in the alternative may leave the issues open with the
direction to the arbitral tribunal to decide the same. Where the Chief
Justice or his designate examines the issue and decides it, the arbitral
tribunal cannot re-examine the issue. The Chief Justice or his designate F
would exercise this choice being guided by the object of the Arbitration
Act, that is, expediting the arbitration process with minimum judicial
intervention. Where dispute arises on account of settlement agreement,
discharge voucher, no claim certificate amounting to discharge or accord
and satisfaction, and the other side contends that such certificates were G
obtained by fraud, coercion or undue influence, the issue will have to be
decided either by the Chief Justice or his designate in proceedings under
Section 11 or by the arbitral tribunal as directed by the order under Section
11 of the Act. A claim for arbitration cannot be rejected merely or solely
on the ground that the settlement agreement or discharge voucher had
H
1094 SUPREME COURT REPORTS [2020] 11 S.C.R.

A been executed if its validity is disputed. The third category would cover
all other questions within the arbitration clause, which the court believed
are within the exclusive jurisdiction of the arbitral tribunal at the first
stage. This was explained by giving an example of a matter purportedly
reserved for the final determination of the departmental authority or
excepted or excluded matters. It would also include merits of any claim
B
involved in arbitration.
61. Paragraph 22 of Boghara Polyfab Private Limited, if read
carefully, states that the factors to be considered while deciding an
application under Sections 8 and 11 of the Arbitration Act would require
an examination of whether there exists an arbitration agreement, that is,
C the agreement provides for arbitration proceedings in respect of disputes
which have arisen between the parties to the agreement. The latter
portion requires the court to apply its mind whether the disputes which
have arisen can be settled by the arbitration agreement. The aforesaid
observations, in our opinion, would be in conformity with the majority
D decision of the Constitution Bench in Patel Engineering Ltd. wherein
it was observed that Sections 8 and 11 of the Arbitration Act are
complimentary in nature and the Court, while exercising powers under
the two Sections on whether the matter should be referred to arbitration,
enjoys equal powers, otherwise, it would lead to an anomalous situation
in that a judicial authority has wider power under Section 8 but lesser
E power of examination under Section 11.
62. In Arasmeta Captive Power Company Private Limited and
Another v. Lafarge India Private Limited,47 this Court had examined
whether there is any conflict between Patel Engineering Ltd. and
Boghara Polyfab Private Limited on the question of the scope of inquiry
F while deciding an application under Section 11(6) of the Arbitration Act.
The Division Bench in Arasmeta Captive Power Co. Pvt. Ltd. had
referred to paragraph 39 and sub-para (iv) of paragraph 47 in Patel
Engineering Ltd., to observe:
“18. On a careful reading of para 39 and Conclusion (iv), as set
G out in para 47 of SBP case [SBP & Co. v. Patel Engg. Ltd.,
(2005) 8 SCC 618] , it is limpid that for the purpose of setting into
motion the arbitral procedure the Chief Justice or his designate is
required to decide the issues, namely, (i) territorial jurisdiction, (ii)

47
H (2013) 15 SCC 414
VIDYA DROLIA AND OTHERS v. 1095
DURGA TRADING CORPORATION [SANJIV KHANNA, J.]

existence of an arbitration agreement between the parties, (iii) A
existence or otherwise of a live claim, and (iv) existence of the
conditions for exercise of power and further satisfaction as regards
the qualification of the arbitrator. That apart, under certain
circumstances the Chief Justice or his designate is also required
to see whether a long- barred claim is sought to be restricted and
B
whether the parties had concluded the transaction by recording
satisfaction of the mutual rights and obligations or by receiving
the final payment without objection.”
Thereafter, reference was made to the opinion expressed in
judgment in Shree Ram Mills Ltd. v. Utility Premises (P) Ltd.,48 which
it was contented had taken a different view from one in Boghara Polyfab C
Private Limited. Disagreeing, the Court referred to the three Judge
Bench decision in Chloro Controls India Private Limited which had
considered the issue whether there was any variance between Shree
Ram Mills Ltd. and Boghara Polyfab Private Limited, to hold that
there was none and both the judgments are capable of being read in D
harmony to bring in line with the law declared in Patel Engineering
Ltd. In particular, a reference was made to the following portion of the
paragraph 27 of Shree Ram Mills Ltd. and paragraph 119 of Chloro
Controls India Private Limited which read as under:
“27. … If the Chief Justice does not, in the strict sense, decide E
the issue, in that event it is for him to locate such issue and record
his satisfaction that such issue exists between the parties. It is
only in that sense that the finding on a live issue is given. Even at
the cost of repetition we must state that it is only for the purpose
of finding out whether the arbitral procedure has to be started
that the Chief Justice has to record satisfaction that there remains F
a live issue in between the parties. The same thing is about the
limitation which is always a mixed question of law and fact. The
Chief Justice only has to record his satisfaction that prima facie
the issue has not become dead by the lapse of time or that any
party to the agreement has not slept over its rights beyond the G
time permitted by law to agitate those issues covered by the
agreement. It is for this reason that it was pointed out in the above
paragraph that it would be appropriate sometimes to leave the
question regarding the live claim to be decided by the Arbitral
48
(2007) 4 SCC 599 H
1096 SUPREME COURT REPORTS [2020] 11 S.C.R.

A Tribunal. All that he has to do is to record his satisfaction that the
parties have not closed their rights and the matter has not been
barred by limitation. Thus, where the Chief Justice comes to a
finding that there exists a live issue, then naturally this finding
would include a finding that the respective claims of the parties
have not become barred by limitation.”
B
xx xx xx
“119. Thus, the Bench while explaining the judgment of this Court
in SBP [SBP & Co. v. Patel Engg. Ltd., (2005) 8 SCC 618] has
stated that the Chief Justice may not decide certain issues finally
C and upon recording satisfaction that prima facie the issue has not
become dead even leave it for the Arbitral Tribunal to decide.”
In Arasmeta Captive Power Co. (P) Ltd., elucidating on the
question whether the dispute was arbitrable within the scope of the
arbitration clause should be decided by the Chief Justice/designate Judge
D or by the arbitrator, this Court has observed:
“... The stress laid thereon may be innovative but when the learned
Judges themselves have culled out the ratio decidendi in para 39,
it is extremely difficult to state that the principle stated in SBP
[SBP & Co. v. Patel Engg. Ltd., (2005) 8 SCC 618] requires the
E Chief Justice or his designate to decide the controversy when
raised pertaining to arbitrability of the disputes. Or to express an
opinion on excepted matters. Such an inference by syllogistic
process is likely to usher in catastrophe in jurisprudence developed
in this field. We are disposed to think so as it is not apposite to
pick up a line from here and there from the judgment or to choose
F one observation from here or there for raising it to the status of
“the ratio decidendi”. That is most likely to pave one on the path
of danger and it is to be scrupulously avoided. The propositions
set out in SBP, in our opinion, have been correctly understood by
the two-Judge Bench in Boghara Polyfab (P) Ltd. and the
G same have been appositely approved by the three-Judge Bench
in Chloro Controls India (P) Ltd. and we respectfully concur
with the same. We find no substance in the submission that the
said decisions require reconsideration, for certain observations
made in SBP, were not noticed. We may hasten to add that the
three-Judge Bench has been satisfied that the ratio decidendi of
H the judgment in SBP is really inhered in para 39 of the judgment.”
VIDYA DROLIA AND OTHERS v. 1097
DURGA TRADING CORPORATION [SANJIV KHANNA, J.]

63. B.N. Srikrishna, J. in Shin-Etsu Chemical Co. Ltd. v. Aksh A
Optifibre Ltd. and Another,49 a case relating to transnational arbitration
under the New York Convention, had invoked the principle of ex
visceribus actus for interpretation of the Arbitration Act. Sub-section
(3) of Section 8 of the Arbitration Act envisages that even in a situation
where an application to the court has been made in a pending proceeding,
B
arbitration proceedings may commence and continue and even an award
can be made. Section 16, it was held, incorporates the principles of
separation and competence-competence thereby clearly indicating
that the arbitrator can decide his or her own jurisdiction even when the
validity of the main contract or the arbitration agreement is challenged.
Section 34 states that the Court can go into three different aspects of C
arbitrability at the post-award stage. Therefore, the Arbitration Act itself
envisages that the arbitral tribunal should rule on the questions of non-
arbitrability subject to the second look of the court post the award. This
helps in expeditious and quick disposal of matters before the court at the
first stage while reserving the court’s power to examine the three facets
D
of arbitrability at the third stage. This also prevents the possibility of a
multiplicity of trials, an aspect highlighted in Sukanya Holdings (P)
Ltd. On the ambit of the Court’s jurisdiction at the reference stage, it
was observed that the correct approach to the review of the arbitration
agreement would be restricted to prima facie finding that there exists
an arbitration agreement that is not null and void, inoperative or incapable E
of being performed. The key rationale for holding that the courts’ review
of the arbitration agreement should be limited to a prima facie standard
is the principle of competence- competence. Further, were the courts
are to be empowered to fully scrutinize the arbitration agreement an
arbitral proceeding would have to be stayed until such time that the
F
court seized of the matter renders a decision on the arbitration agreement.
If the finding of the courts would be a final and determinative conclusion,
then it is obvious that, until such a pronouncement is made, the arbitral
proceedings would have to hang in abeyance. This evidently would defeat
the credo and ethos of the Arbitration Act, which is to enable expeditious
arbitration without avoidable intervention by the judicial authorities. As a G
result, the approach to be adopted at the reference stage is whether it is
‘plainly arguable’ that the arbitration agreement is in existence. The
judgment laid emphasis on the fact that the rule of priority in favour of
the arbitrators is counter-balanced by the courts’ power to review the
49
(2005) 7 SCC 234 H
1098 SUPREME COURT REPORTS [2020] 11 S.C.R.

A existence and validity of the arbitration agreement at the end of the
arbitral process. It was elucidated:
“Even 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
B arbitrator from trying the issue fully and rendering a final decision
thereupon … 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
C 48(1)(a). The award will be set aside if the party against whom it
is invoked satisfies the court inter alia that the agreement was
not valid under the law to which the parties had subjected it or
under the law of the country where the award was made. The
two basic requirements, namely, expedition at the pre- reference
D stage, and a fair opportunity to contest the award after full trial,
would be fully satisfied by the interpreting Section 45 as enabling
the court to act on a prima facie view.
[T]he object of the Act would be defeated if the proceedings
remain pending in the court even after commencing of the
E arbitration. It is precisely for this reason that I am inclined to the
view that at the pre- reference stage contemplated by Section 45,
the court is required to take only a prima facie view for making
the reference, leaving the parties to a full trial either before the
Arbitral Tribunal or before the court at the post-award stage.”

F D.M. Dharmadhikari, J. in his partly concurring opinion agreed
with the view expressed by B.N. Srikrishna, J. on most of the above
aspects with the following reservation:
“112. Whether such a decision of the judicial authority or the court,
of refusal to make a reference on grounds permissible under Section
G 45 of the Act would be subjected to further re-examination before
the Arbitral Tribunal or the court in which eventually the award
comes up for enforcement in accordance with Section 48(1)(a)
of the Act, is a legal question of sufficient complexity and in my
considered opinion since that question does not directly arise on
the facts of the present case, it should be left open for consideration
H
VIDYA DROLIA AND OTHERS v. 1099
DURGA TRADING CORPORATION [SANJIV KHANNA, J.]

in an appropriate case where such a question is directly raised A
and decided by the court.”
While Y.K.Sabharwal, J. (as His Lordship then was) dissented.
64. We would now refer to decisions of this court post enforcement
of Act 3 of 2016 with effect from 23rd October,2015. Reference Order
observes that “one moot question that therefore arises, and which needs B
to be authoritatively decided by a Bench of three learned Judges, is
whether the word ‘existence’ would include weeding-out arbitration
clauses in agreements which indicate that the subject matter is incapable
of arbitration”. Thereafter paragraph 59 from Duro Felguera S.A. as
to the scope of Section 11(6-A) is quoted. C
65. In Mayavati Trading Private Limited v. Pradyuat Deb
Burman,50 a three Judge Bench has held that the legislature by inserting
sub- section (6-A) to Section 11 and making amendments to Section 8
by Act 3 of 2016 has legislatively introduced a new regime so as to dilute
and legislatively overrule the effect and ratio of the judgment of this D
Court in Patel Engineering Ltd. Reliance was placed on paragraph 48
and 59 in Duro Felguera S.A. The concluding paragraph in Mayavati
Trading Private Limited records:
“10. This being the position, it is clear that the law prior to the
2015 Amendment that has been laid down by this Court, which E
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 aforesaid judgment, as Section 11(6- A) 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 F
judgment in Duro Felguera, SA.”
66. Paragraph 48 and paragraph 59 of Duro Felguera, S.A.
referred to above, read as under:
“48...From a reading of Section 11(6-A), the intention of the
G
legislature is crystal clear i.e. the court should and need only look
into one aspect—the existence of an arbitration agreement. What
are the factors for deciding as to whether there is an arbitration
agreement is the next question. The resolution to that is simple—
50
(2019) 8 SCC 714 H
1100 SUPREME COURT REPORTS [2020] 11 S.C.R.

A it needs to be seen if the agreement contains a clause which
provides for arbitration pertaining to the disputes which have arisen
between the parties to the agreement.
xx xx xx
59. The scope of the power under Section 11(6) of the 1996 Act
B was considerably wide in view of the decisions in SBP and Co.
and Boghara Polyfab . This position continued till the amendment
brought about in 2015. After the amendment, all that the courts
need to see is whether an arbitration agreement exists— nothing
more, nothing less. The legislative policy and purpose is essentially
C to minimise the Court’s intervention at the stage of appointing the
arbitrator and this intention as incorporated in Section 11(6-A)
ought to be respected.”
67. Dr. D.Y. Chandrachud, J. in A. Ayyasamy observed that
Section 8 of the Arbitration Act has made a departure from Article 8 of
D UNCITRAL Model Law as the former uses the expression ‘judicial
authority’ rather than court and the words “unless it finds that the
agreement is null and void, inoperative and incapable of being performed”
mentioned in Article 8 do not find place in Section 8. Section 16 empowers
the arbitral tribunal to rule upon its own jurisdiction, including the ruling
with respect to the existence or validity of the arbitration agreement.
E Further clause (b) to Section 16(1) stipulates that a decision by an arbitral
tribunal that the main contract is void, will not entail ipso jure the invalidity
of the arbitration clause. The arbitration agreement survives for
determining whether the contract in which the arbitration clause is
embodied is null and void, which would include voidability. The severability
F doctrine in arbitration is of crucial significance. Reference was made to
the judgment of the U.K. Court of Appeal in Fiona Trust and Holding
Corpn. v. Privalov,51 which judgment was affirmed by the House of
Lords in Filli Shipping Co. Limited v. Premium Nafta Products Ltd.,52
to highlight that the arbitration clause should be liberally construed in
favour of one-stop arbitration. Mere allegation that the agent had no
G authority to enter into the main contract is not necessarily an attack on
the arbitration agreement. The principle of severability treats arbitration
agreement as a distinct agreement that can be void or voidable only on
the ground that relates to the arbitration agreement. Reference was also
51
(2007) 1 All ER (Comm) 891 : 2007 Bus LR 686 (CA)
52
H 2007 UKHL 40 : 2007 Bus LR 1719 (HL)
VIDYA DROLIA AND OTHERS v. 1101
DURGA TRADING CORPORATION [SANJIV KHANNA, J.]

made to the opinion of Scalia, J. of the Supreme Court of America in A
Buckeye Check Cashing Inc. v. Cardegna53 that arbitration agreement
is severable from the remainder of the contract and unless the challenge
is to the arbitration clause itself, the issue of contract’s validity should be
considered by the arbitrator in the first instance. In conclusion, it was
observed:
B
“48. The basic principle which must guide judicial decision-making
is that arbitration is essentially a voluntary assumption of an
obligation by contracting parties to resolve their disputes through
a private tribunal. The intent of the parties is expressed in the
terms of their agreement. Where commercial entities and persons
of business enter into such dealings, they do so with a knowledge C
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.
xx xx xx D

53. The Arbitration and Conciliation Act, 1996, should in my view
be interpreted so as to bring in line the principles underlying its
interpretation in a manner that is consistent with prevailing
approaches in the common law world. Jurisprudence in India must
evolve towards strengthening the institutional efficacy of E
arbitration. Deference to a forum chosen by parties as a complete
remedy for resolving all their claims is but part of that evolution.
Minimising the intervention of courts is again a recognition of the
same principle.”
68. In Garware Wall Ropes Limited v. Coastal Marine F
Constructions and Engineering Limited,54 the question related to the
effect of an arbitration clause contained in the master contract which
was required to be stamped. The second part of Section 7(2) was
applicable. The issue was whether the judge hearing the Section 11
application should impound the main contract and ensure that duty and G
penalty, if any, are paid or in view of sub-section (6-A) to Section 11 this
issue should be examined and decided by the arbitrator. The argument
drawing distinction between validity and existence was raised before
53
163 L Ed 2d 1038 : 546 US 440 (2006) : 2006 SCC OnLine US SC 14
54
(2019) 9 SCC 209 H
1102 SUPREME COURT REPORTS [2020] 11 S.C.R.

A the Court (see paragraph 5 which records the contention) but was rejected
for several reasons, including the reasoning given in Patel Engineering
Ltd., to hold that it is difficult to accede to the argument that Section 16
of the Arbitration Act makes it clear that an arbitration agreement has
an independent existence of its own. Secondly, on the connect between
existence and validity of an arbitration agreement, it was observed:
B
“20. Looked at from a slightly different angle, an arbitration
agreement which is contained in an agreement or conveyance is
dealt with in Section 7(2) of the 1996 Act. We are concerned with
the first part of Section 7(2) on the facts of the present case, and
therefore, the arbitration clause that is contained in the sub-contract
C in question is the subject-matter of the present appeal. It is
significant that an arbitration agreement may be in the form of an
arbitration clause “in a contract”.
21. Sections 2(a), 2(b), 2(g) and 2(h) of the Contract Act, 1872
(the Contract Act) read as under:
D
“2. Interpretation clause.—In this Act the following words
and expressions are used in the following senses, unless a
contrary intention appears from the context—
(a) When one person signifies to another his willingness to do
or to abstain from doing anything, with a view to obtaining the
E
assent of that other to such act or abstinence, he is said to
make a proposal;
(b) When the person to whom the proposal is made signifies
his assent thereto, the proposal is said to be accepted. A proposal,
when accepted, becomes a promise;
F
xx xx xx
(g) An agreement not enforceable by law is said to be void;
(h) An agreement enforceable by law is a contract;

G 22. When an arbitration clause is contained “in a contract”, it is
significant that the agreement only becomes a contract if it is
enforceable by law. We have seen how, under the Stamp Act, an
agreement does not become a contract, namely, that it is not
enforceable in law, unless it is duly stamped. Therefore, even a
plain reading of Section 11(6-A), when read with Section 7(2) of
H the 1996 Act and Section 2(h) of the Contract Act, would make it
VIDYA DROLIA AND OTHERS v. 1103
DURGA TRADING CORPORATION [SANJIV KHANNA, J.]

clear that an arbitration clause in an agreement would not exist A
when it is not enforceable by law. This is also an indicator that
SMS Tea Estates has, in no manner, been touched by the
amendment of Section 11(6-A).”
Thereafter, reference was made to paragraph 83 in Enercon
(India) Ltd. v. Enercon GmbH55 wherein the concept of separability B
of arbitration clause or agreement from the underlying contract was
dealt with, and it was observed that it is necessary to ensure that the
intention of the parties does not evaporate into thin air when there is a
challenge to the legality, validity, finality, or breach of the underlying
contract. This is the mandate of Section 16 of the Arbitration Act which
accepts the concept that the main contract and the arbitration agreement C
form two different contracts. It is true that support of the national courts
would be required to ensure the success of arbitration but this would not
detract from the legitimacy or independence of the collateral arbitration
agreement even if it is contained in a contract, which is claimed to be
void or voidable or un-concluded. However, this judgment was D
distinguished in Garware Wall Ropes Limited as a case relating to the
controversy whether an arbitration clause was to apply even if there is
no concluded contract, but the finding was to the contrary as the case
was within the second part and not under the first part of Section 7(2) of
the Arbitration Act. In Enercon (India) Ltd., on facts it was held that
the arbitration clause was separate from the main contract as the disputes E
relating to the intellectual property right license agreement were arbitrable.
Thereafter, reference was made to the decision in United India
Insurance Co. Ltd. v. Hyundai Engg. & Construction Co. Ltd.56 and
it was observed that the arbitration clause was identical as in Oriental
Insurance Company Limited v. Narbheram Power and Steel Private F
Limited57 with the conditional expression of intent only when the liability
was unequivocally admitted by the insurer and the dispute was related
to the quantum to be paid under the policy. On the question of ‘existence’
and ‘validity’, the Bench held:
“29. This judgment in Hyundai Engg. case is important in that
G
what was specifically under consideration was an arbitration clause
which would get activated only if an insurer admits or accepts
liability. Since on facts it was found that the insurer repudiated the
55
(2014) 5 SCC 1 : (2014) 3 SCC (Civ) 59
56
(2018) 17 SCC 607 : (2019) 2 SCC (Civ) 530
57
(2018) 6 SCC 534 H
1104 SUPREME COURT REPORTS [2020] 11 S.C.R.

A claim, though an arbitration clause did “exist”, so to speak, in the
policy, it would not exist in law, as was held in that judgment,
when one important fact is introduced, namely, that the insurer
has not admitted or accepted liability. Likewise, in the facts of the
present case, it is clear that the arbitration clause that is contained
in the sub-contract would not “exist” as a matter of law until the
B
sub-contract is duly stamped, as has been held by us above. The
argument that Section 11(6-A) deals with “existence”, as opposed
to Section 8, Section 16 and Section 45, which deal with “validity”
of an arbitration agreement is answered by this Court’s
understanding of the expression “existence” in Hyundai Engg.
C case, as followed by us.”
69. In Narbheram Power and Steel Private Limited, a three
Judges’ Bench of this Court had decided the Civil Appeal arising from
an application under Section 11(6) of the Arbitration Act in an insurance
contract. Primarily relying upon the decision of three Judges’ Bench in
D Vulcan Insurance Co. Ltd. v. Maharaj Singh and Another,58 it was
held that the disputes were not arbitrable as in terms of the arbitration
clause as the insurer had disputed and not accepted the liability. The
arbitration clause applies only if there is a dispute pertaining to the
quantum. This decision, though dated 2nd May 2018, did not refer to
Section 11(6-A) of the Arbitration Act and interpret the same. The Civil
E Appeal had arisen from the correspondence exchanged between the
insurance company and the insured in the years 2013 and 2014. However,
reference was made to the concurring opinion of Dr. D.Y. Chandrachud,
J. in A. Ayyasamy, and it was observed that the decision was not
applicable to the case at hand. The decision in Chloro Controls India
F Private Limited was held to be not remotely relevant for deciding the
lis in the said case.
70. This decision in Narbheram Power and Steel Private Limited
was followed in Hyundai Engg. & Construction Co. Ltd., wherein a
similar arbitration clause had come up for consideration. However, in this
G case, reference was made to Section 11(6-A) of the Arbitration Act. It
is, therefore, clear that on two occasions, in Narbheram Power and
Steel Private Limited and Hyundai Engineering and Construction
Company Limited, a three Judges’ Bench of this Court affirmatively
and in clear terms held that the question of non-arbitrability relating to
58
H (1976) 1 SCC 943
VIDYA DROLIA AND OTHERS v. 1105
DURGA TRADING CORPORATION [SANJIV KHANNA, J.]

the enquiry whether the dispute was governed by the arbitration clause, A
can be examined by the courts at the reference stage and may not be
left unanswered to be examined and decided by the arbitral tribunal.
These are decisions by a Bench of three Judges and, as noticed above,
were quoted with affirmation in Garware Wall Ropes Limited by a
Bench of two Judges.
B
71. In M/s. PSA Mumbai Investments PTE. Limited v. The
Board of Trustees of the Jawaharlal Nehru Port Trust and Another,59
a division bench of this Court, after referring to in detail the global
invitation of request for qualification and the request for proposal, came
to the conclusion that the arbitration clause in the request for qualification
documents would not be applicable and govern the disputes. Therefore, C
the respondent was left to pursue its claim before an appropriate forum,
in accordance with law. The decision was made at the first or the referral
stage.
72. At this stage we would like to refer to different views expressed
by scholars on the subject, which also refer to the legal position in different D
countries. Stavros Brekoulakis in his paper titled On Arbitrability:
Persisting Misconceptions and New Areas of Concern accepts that
as per prevailing view in-arbitrability of the subject matter of the
arbitration agreement renders the arbitration agreement invalid. However,
he argues that in-arbitrability of the subject matter is an issue concerning E
jurisdiction of arbitral tribunal rather than the validity of the arbitration
agreement. Referring to Article V(1)(a) and Article V(2)(a) of the New
York Convention, he draws a distinction between in-arbitrability and
invalidity. Arbitration agreements are sui generis contracts with both
contractual and jurisdictional features. The latter is wider in scope. The
courts at the referral stage may review only whatever is related to the F
formation of the arbitration agreement as a substantive contract, that is,
contractual aspects of the arbitration agreement and jurisdictional aspects
of the arbitration agreement should be left to the arbitral tribunal. In
other words, at the stage of referral, the courts may review only whatever
is related to the formation of the arbitration agreement (the contractual G
aspects of the arbitration agreement) and the issues relating to the
jurisdictional aspects of the arbitration agreement, which as per the author
includes the question relating to non-arbitrability of the claims, should be
under the exclusive jurisdiction of the arbitral tribunals. Thus, distinction
59
Civil Appeal No. 9352 of 2018 decided on 11th September 2018. H
1106 SUPREME COURT REPORTS [2020] 11 S.C.R.

A is drawn between validity in terms of substantive and formal validity of
an arbitration agreement as contractual aspects; and whether a claim is
non-arbitrable. The latter question would be arbitrable and not for the
courts to decide at the referral stage. However, on referring to Articles
II(1) and II(3) of the New York Convention the author did observe that
it seems to include arbitrability of subject matter within the essential
B
meaning of an arbitration agreement.
73. Emmanuel Gaillard and Yas Banifatemi in Negative Effect of
Competence-Competence: The Rule of Priority in Favour of the
Arbitrators observe that it is the basic requirement that the parties to
the arbitration agreement should honour their undertaking to submit to
C the arbitration any dispute covered by the agreement. This entails the
consequence that the courts are prohibited from hearing such disputes.
On the question of courts’ interference at the reference stage in terms
of Article II(3) of the New York Convention, they are of the opinion that
there is no indication provided as to the standard that should be applied
D for such determination, that is, whether the courts are required to conduct
in-depth investigation into the merits of the existence and validity of the
arbitration agreement and issue a final decision on the question, or the
court should restrict itself to prima facie verification that the arbitration
agreement exists and is valid, and reserve its full review until the time
when there is an action to enforce or set aside the arbitral award. The
E question, in effect, is one of timing and to the extent the courts are
entitled to review the existence and validity of the arbitration agreement.
The answer, they observe, is found in the notion of competence-
competence, one of the founding principles of the international arbitration
law that provides the arbitrators with power to rule on their own jurisdiction
F and embodies the mirroring effect that the court should refrain from
engaging in examination of the arbitrator’s jurisdiction before the
arbitrators themselves have an opportunity to do so. This, they state, by
no means suggests that the domestic courts relinquish their power to
review the existence and validity of an arbitration agreement which is
first left to the arbitrators to rule. The courts enjoy the power of scrutiny
G after the award is rendered. They have referred to decisions of the
higher courts of Switzerland,60 England, France, Canada and India (Shin-
60
Article 5 of the Concordat (domestic law) provides that any dispute concerning
rights the parties may freely dispose of is capable of resolution by arbitration, unless
the subject matter of the dispute falls within the exclusive jurisdiction of a state authority
H by virtue of mandatory law.
VIDYA DROLIA AND OTHERS v. 1107
DURGA TRADING CORPORATION [SANJIV KHANNA, J.]

Etsu Chemical Co. Ltd.) to observe that the court’s review at the first A
stage is limited to prima facie verification of existence and validity of
the arbitration clause without the question being analysed in detail which
the tribunal is empowered to decide when necessary. At the reference
stage, the court shall decline jurisdiction if the summary examination of
the arbitration agreement does not allow it to find that the agreement is
B
null and void, inoperative and incapable of being performed. The Canadian
courts, apply the general rule that in any case involving an arbitration
clause, a challenge to arbitrator’s jurisdiction must be resolved first by
the arbitrator and the court will depart from this rule of systematic referral
of arbitration only if the challenge to arbitrator’s jurisdiction is solely
based on a question of law. Exercise of court’s jurisdiction in the latter C
case would be justified as the court is the forum to which the parties first
apply when requesting for referral and that the arbitrator’s jurisdiction
regarding his or her jurisdiction can be reviewed by the court. Further, it
allows the court to decide the legal argument for once and for all and
avoids duplication of a strictly legal debate. Another condition is that the
D
court must be satisfied that the challenge to the arbitrator’s jurisdiction
is not a delaying tactic and that it will not unduly impair the conduct of
arbitration proceedings. This means that the court, when considering
one of the exceptions, may allow the arbitrator to rule on his or her
competence as would be best for the arbitration process.
74. Referring to the House of Lords decision in Premium Nafta E
Products Ltd., the authors have observed that the decision reaffirms
the principle of severability of an arbitration agreement and the proper
approach is to stay the court proceedings in favour of arbitration. Lord
Hoffmann speaking for the House of Lords in Premium Nafta Products
Ltd. has observed: F
“to determine on the evidence before the court that [an arbitration
agreement] does exist in which case (if the disputes fall within
the terms of that agreement) a stay must be granted, in the light
of the mandatory ‘shall’ in section 9(4). It is this mandatory
provision which is the statutory enactment of the relevant article G
of the New York Convention, to which the United Kingdom is a
party.”
xx xx xx
“the arbitrators are, ‘in general’, recognised the right ‘to be the
first tribunal to consider whether they have jurisdiction to determine H
1108 SUPREME COURT REPORTS [2020] 11 S.C.R.

A the dispute’ are limited by the requirement that a valid arbitration
agreement exist, as well as the further requirements that the
arbitration agreement be ‘wide enough to comprise the relevant
dispute’ and that the arbitration agreement not be ‘directly
impeached by whatever ground... to attack the invalidity of the
contract in which the arbitration clause is contained’. In other
B
words, to the extent that the English courts retain a degree of
scrutiny as regards the existence, validity and scope of the
arbitration agreement, the question of the extent to which English
courts will give effect to the negative effect of competence-
competence remains uncertain.”
C 75. John J. Barcelo III, in his paper titled ‘Who Decides the
Arbitrator’s Jurisdiction? Separability and Competence-Competence
in Transnational Perspective’, observes that the greater the number
of issues required to be fully adjudicated at Stage I, the greater is the
potential for disruption of the arbitration process by an obstructing party
D even in case of a genuine agreement to arbitration. An extremely pro-
arbitration approach with no or minimal judicial scrutiny might send all
the questions to the arbitrators. At the same time arbitration is no holy
grail and not all parties resisting arbitration are obstructionists. A party
must have its say in the court, unless he has agreed to arbitrate. A good
legal order must decide what weight be given to these competing values
E and how to structure the process to maximize overall value by reducing
opportunities for obstructionism while preserving legitimate claims for
reasonably prompt judicial decision. Referring to the competence-
competence and severability principles the author has observed: -
“Competence-competence thus addresses the “who decides”
F question on a broader scale and is more central to resolving the
policy tension between protecting arbitration from obstruction, on
one hand, and preserving legitimate disputes over arbitrator
jurisdiction for a prompt court hearing, on the other... Whereas
separability is universally accepted, competence-competence is
G controversial and has spawned a range of different national
responses.”
The French approach, as the paper notes, is that if an arbitral
tribunal is already seized of the matter, the court will refuse jurisdiction
and leave questions as to existence, validity and scope of the arbitration
H agreement to the arbitrators. However, if the arbitral tribunal is not yet
VIDYA DROLIA AND OTHERS v. 1109
DURGA TRADING CORPORATION [SANJIV KHANNA, J.]

seized of the matter, the court will undertake a limited scrutiny of the A
challenge and will retain jurisdiction only if the arbitration agreement is
manifestly null. The German Law of Kompetenz-Kompetenz prior to
the new 1998 German Arbitration Act was relatively unique, or arguably
so, as some commentaries maintain that when express power to decide
their jurisdiction is conferred on the arbitrator, then it would exclude
B
judicial scrutiny at state 1 and stage 3. However, the 1998 German
Arbitration Act based upon UNCITRAL Model Law, states that the
court may only decide the arbitrator’s jurisdiction if requested to do so
before the arbitral tribunal is constituted. The German Law expostulates
preference for the arbitrator to decide the jurisdiction in an interim award.
Referring to the UNCITRAL Model Law, reference is made to the C
competence-competence as spelled in Article 8(1) which directly deals
with judicial review at Stage I, which is limited to the existence of a valid
arbitration agreement. It postulates that the parties shall be referred to
arbitration, unless the court finds that the agreement is null and void,
inoperative or incapable of being performed. This, the author feels, could
D
be read as authorizing full judicial determination and settlement of
arbitration agreement’s existence and validity. Article 16 (1) embodies
the positive competence-competence concept and Articles 16(3) and
8(2) enact a partial negative competence- competence principle. The
latter allows arbitration proceedings to go forward despite the court
consideration of the arbitrator’s jurisdiction. Article 16(3) encourages E
outcome by expressly empowering arbitrators to rule over their jurisdiction
as a preliminary question. The British Arbitration Act of 1996 based on
the Model Law requires the court to stay the legal proceedings, ‘unless
satisfied’ that the arbitration agreement is null and void, inoperative or
incapable of being performed. “Unless satisfied”, the author observes,
F
is closer to “unless it is manifest”, rather than it is to the Model Law
terminology “unless it finds”. The British Act allows the arbitrator to
render his/her decision on jurisdiction either in the preliminary award or
in the final award, but allows the parties to insist the arbitrators for
preliminary and an early decision as a check against wasteful proceedings.
The paper also deals with the American approach in domestic and G
international arbitration. In domestic law the issues of arbitrability have
been divided into procedural and substantial objections. Procedural
arbitrability issues include whether a time limit for bringing a claim has
been observed or whether a party has waived its right to arbitrate and
also issues like waiver or estoppel thereby denying a party from claiming
H
1110 SUPREME COURT REPORTS [2020] 11 S.C.R.

A the right or any pre-condition for invoking arbitration has not been made,
etc. These issues are ‘gateway questions’61 that are presumptively for
the arbitrator to decide and not for the courts to decide, at least at the
first stage. The substantive aspects are those wherein the court at the
first stage would go into prima facie examination. Substantive issues
pertaining to the validity and existence of the arbitration agreement (Legal
B
position in domestic law post- Buckeye Check Cashing Inc. is explained
below.) He observes that the United States Supreme Court has frequently
been more receptive to international as opposed to domestic agreements.
An important consideration being that international agreements are
commercial and involve sophisticated, generally well-advised parties and
C there is a need for uniformity of interpretation under the New York
Convention.
76. The United States Supreme Court in Buckeye Check Cashing
Inc., relying on earlier decisions in Prima Paint Corpn. v. Flood &
Conklin Mfg. Co.62 and Southland Corpn. v. Keating,63 in respect of
D the domestic American law has clarified the legal position as establishing
the following propositions:
“First, as a matter of substantive federal arbitration law, an
arbitration provision is severable from the remainder of the contract.
Second, unless the challenge is to the arbitration clause itself, the
E issue of the contract’s validity is considered by the arbitrator in
the first instance...Applying them to this case, we conclude that
because respondents challenge the Agreement, but not specifically
its arbitration provisions, those provisions are enforceable apart
from the remainder of the contract. The challenge should therefore
be considered by an arbitrator, not a court.”
F
However, these observations have to be read with caution as
American law states that:
“(a) party aggrieved by the alleged failure... of another to
arbitrate... (the) court shall hear the parties, and upon being satisfied
G that the making of the agreement for arbitration or the failure to
comply therewith is not an issue, the court shall make an order
directing the parties to arbitration....if the making of the arbitration
61
First Options of Chicago v. Kaplan, 514 U.S. 938 (1995) and Howsam v. Dean
Witter Reynolds, Inc., 537 U.S. 79 (2002).
62
18 L Ed 2d 1270: 388 US 395 (1967): 1967 SCC OnLine US SC 160
H 63
79 L Ed. 2d 1: 465 US 1 (1984): 1984 SCC OnLine US SC 19
VIDYA DROLIA AND OTHERS v. 1111
DURGA TRADING CORPORATION [SANJIV KHANNA, J.]

agreement or the failure, neglect or refusal to perform the same A
be in issue, the court shall proceed summarily to the trial thereof.”
Therefore, in case of issue, if in the trial the court determines that
arbitration agreement was not made it does not order the parties to
arbitration. However, this principle does not apply when the arbitration
clause is contained in a ‘container contract’ by the application of B
‘separability’ doctrine. In Buckeye Check Cashing Inc., the US
Supreme Court held that separability doctrine applies to both voidable
and void ‘container contract’ with an arbitration agreement. Distinction
is drawn and different principles apply to ‘container contract’ with an
arbitration clause, and stand-alone arbitration agreement.64 Buckeye
Check Cashing Inc. ruled that courts must send to arbitrators any C
“challenge to the validity of the contract as a whole,” (the container
contract), while courts themselves must resolve any challenge directed
“specifically to the arbitration clause”. When arbitrators hear any
challenge to the container contract’s validity, Buckeye Check Cashing
Inc. cautioned: D
“The issue of the contract’s validity is different from the issue of
whether any agreement between the alleged obligor and oblige
was ever concluded.”
77. Prof. Alan Scott Rau65 questions the “abstract distinction
between ‘invalidity and nonexistence” as “nothing”. The author while E
supporting the principle of separability rejects the argument that formation
of a contract is different from enforcement of the contract as when the
agreement is invalid there is no agreement to anything. He observes:
“But how much of an improvement is it, really, to sweep away the
conceptual distinction between “void and voidable” contracts— F
only to replace it with the equally abstract distinct between
“invalidity” and “nonexistence”? These are all, as a colleague of
mine likes to say, nothing but word balloons.
Ingenious riffs on this metaphysical distinction between contract
“invalidity” and contract “nonexistence” have long been a staple G
of Continental legal learning. It has been well-established for over
a century in learned treatises on the law of obligations. Its tendency
64
Prof. Stephen J. Ware in Arbitration Law’s Separability Doctrine After Buckeye
Check Cashing, Inc. v. Cardegna
65
Alan Scott Rau in Separability in the United States Supreme Court H
1112 SUPREME COURT REPORTS [2020] 11 S.C.R.

A to take metaphor for reality, its personification of legal concepts,
its characterization of doctrine in terms of what is “unthinkable”
or “impossible”...of all of this exemplifies the worst excesses of
formalism....But like the “void/voidable” distinction that it closely
resembles...to which indeed it may even be identical50...this is not
only slippery, but serves no instrumental function whatever. Happily,
B
some modern scholarship seems now at last to appreciate that
the whole notion of “nonexistence” is not only sterile and purely
verbal...but what is worse, is completely unnecessary. And
particularly when we come to the doctrine of “separability,” this
is a distinction that leads precisely.
C Foot note 50 reads as:
“See Christian Larroumet, 3 Droit Civil: Les Obligations, Le
Contrat 539-540, 580-81 (5th ed. 2003) (French case law has
often conflated the notions of a contract’s “nonexistence” and its
“invalidity”; if an essential condition imposed by the law is missing
D then whether the agreement is termed void [null] or nonexistent
“amounts to the same thing, for what is void is treated to all intents
and purpose as if it had never existed”, nonexistence and
“voidness” are “one and the same notion”).”
78. Prof. Stephen J. Ware in Arbitration Law’s Separability
E Doctrine After Buckeye Check Cashing, Inc., with reference to the
American Law projects a different view:
“under the contractual approach to arbitration law, the right to
litigate (like other rights) would be alienable through an enforceable
contract but not a contract that is unenforceable due to
F misrepresentation, duress, illegality, or any other contract-law
defense. By contrast, the separability doctrine holds that a party
alienates its right to litigate when that party forms a contract
containing an arbitration clause even if that contract is
unenforceable...The only way to fix this problem is to repeal the
G separability doctrine and allow courts to hear defenses to the
enforcement of the contract containing the arbitration clause.
Courts should send cases to arbitration only after rejecting any
such defenses.”
79. In order to appreciate the effect of the amendments made by
Act 3 of 2016, it would be appropriate to refer to the Law Commission’s
H
VIDYA DROLIA AND OTHERS v. 1113
DURGA TRADING CORPORATION [SANJIV KHANNA, J.]

246th Report which had given reasons for amendments to Sections 8 A
and 11 of the Arbitration Act, including insertion of sub-section (6- A) to
Section 11. The said reasons read as under:
“24. Two further sets of amendments have been proposed in this
context. First, it is observed that a lot of time is spent for
appointment of arbitrators at the very threshold of arbitration B
proceedings as applications under section 11 are kept pending for
many years. In this context, the Commission has proposed a few
amendments. The Commission has proposed changing the existing
scheme of the power of appointment being vested in the “Chief
Justice” to the “High Court” and the “Supreme Court” and has
expressly clarified that delegation of the power of “appointment” C
(as opposed to a finding regarding the existence/nullity of the
arbitration agreement) shall not be regarded as a judicial act. This
would rationalise the law and provide greater incentive for the
High Court and/or Supreme Court to delegate the power of
appointment (being a non-judicial act) to specialised, external D
persons or institutions. The Commission has further recommended
an amendment to section 11(7) so that decisions of the High Court
(regarding existence/nullity of the arbitration agreement) are final
where an arbitrator has been appointed, and as such are non-
appealable. The Commission further proposes the addition of
section 11(13) which requires the Court to make an endeavour to E
dispose of the matter within sixty days from the service of notice
on the opposite party.
xx xx xx
31. The Commission is of the view that, in this context, the same F
test regarding scope and nature of judicial intervention, as
applicable in the context of section 11, should also apply to sections
8 and 45 of the Act – since the scope and nature of judicial
intervention should not change upon whether a party (intending to
defeat the arbitration agreement) refuses to appoint an arbitrator
in terms of the arbitration agreement, or moves a proceeding before G
a judicial authority in the face of such an arbitration agreement.
32. In relation to the nature of intervention, the exposition of the
law is to be found in the decision of the Supreme Court in Shin
Etsu Chemicals Co. Ltd. v. Aksh Optifibre, (2005) 7 SCC 234,
(in the context of section 45 of the Act), where the Supreme H
1114 SUPREME COURT REPORTS [2020] 11 S.C.R.

A Court has ruled in favour of looking at the issues/controversy only
prima facie.
33. It is in this context, the Commission has recommended
amendments to sections 8 and 11 of the Arbitration and Conciliation
Act, 1996. The scope of judicial intervention is only restricted to
B situations where the Court/Judicial Authority finds that the
arbitration agreemend does not exist or is null and void. In so far
as the nature of intervention is concerned, it is recommended that
in the event the Court/Judicial Authority is prima facie satisfied
against the argument challenging the arbitration agreement, it shall
appoint the arbitrator and/or refer the parties to arbitration, as the
C case may be. The amendment envisages that the judicial authority
shall not refer the parties to arbitration only if it finds that there
does not exist an arbitration agreement or that it is null and void.
If the judicial authority is of the opinion that prima facie the
arbitration agreement exists, then it shall refer the dispute to
D arbitration, and leave the existence of the arbitration agreement
to be finally determined by the arbitral tribunal. However, if the
judicial authority concludes that the agreement does not exist, then
the conclusion will be final and not prima facie. The amendment
also envisages that there shall be a conclusive determination as to
whether the arbitration agreement is null and void. In the event
E that the judicial authority refers the dispute to arbitration and/or
appoints an arbitrator, under sections 8 and 11 respectively, such
a decision will be final and non-appealable. An appeal can be
maintained under section 37 only in the event of refusal to refer
parties to arbitration, or refusal to appoint an arbitrator.”
F The Law Commission’s Report specifically refers to the decision
of this Court in Shin-Etsu Chemical Co. Ltd., a decision relating to
transnational arbitration covered by the New York Convention.
80. The Statement of Objects and Reasons of Act 3 of 2016 read
as under:
G
“Statement of Objects and Reasons
***
6. It is proposed to introduce the Arbitration and Conciliation
(Amendment) Bill, 2015, to replace the Arbitration and Conciliation
H (Amendment) Ordinance, 2015, which inter alia, provides for the
VIDYA DROLIA AND OTHERS v. 1115
DURGA TRADING CORPORATION [SANJIV KHANNA, J.]

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

(iv) to provide that while considering any application for
appointment of arbitrator, the High Court or the Supreme Court
shall examine the existence of a prima facie arbitration agreement
and not other issues;
D
(v) to provide that the Arbitral Tribunal shall make its award within
a period of twelve months from the date it enters upon the reference
and that the parties may, however, extend such period up to six
months, beyond which period any extension can only be granted
by the Court, on sufficient cause;
E
(vi) to provide that a model fee schedule on the basis of which
High Courts may frame rules for the purpose of determination of
fees of Arbitral Tribunal, where a High Court appoints arbitrator
in terms of Section 11 of the Act;
(vii) to provide that the parties to dispute may at any stage agree
F
in writing that their dispute be resolved through fast-track
procedure and the award in such cases shall be made within a
period of six months;
(viii) to provide for neutrality of arbitrators, when a person is
approached in connection with possible appointment as an
arbitrator; G
(ix) to provide that application to challenge the award is to be
disposed of by the Court within one year.
7. The amendments proposed in the Bill will ensure that arbitration
process becomes more user-friendly, cost effective and leads to
expeditious disposal of cases.” H
1116 SUPREME COURT REPORTS [2020] 11 S.C.R.

A 81. We would now examine the principles of separability and
competence-competence. Clauses (a) and (b) to sub-section (1) to
Section 16 enact the principle of separation of the arbitration agreement
from the underlying or container contract. Clause (a), by legal fiction,
gives an independent status to an arbitration clause as if it is a standalone
B agreement, even when it is only a clause and an integral part of the
underlying or container contract. Clause (b) formulates a legal rule that
a decision by the arbitral tribunal holding that the main contract is null
and void shall not ipso jure entail invalidity of the arbitration clause.
Successful challenge to the existence or invalidity or rescission of the
main contract does not necessarily embrace an identical finding as to
C the arbitration agreement, provided the court is satisfied that the arbitration
clause had been agreed upon. The arbitration agreement can be avoided
only on the ground which relates directly to the arbitration agreement.
Notwithstanding the challenge to the underlying or container contract,
the arbitration clause in the underlying or container contract survives for
D determining the disputes. The principle prevents boot-strapping as it is
primarily for the arbitral tribunal and not for the court to decide issues of
existence, validity and rescission of the underlying contract. Principle of
separation authorises an arbitral tribunal to rule and decide on the
existence, validity or rescission of the underlying contract without an
earlier adjudication of the questions by the referral court.
E
82. An interesting and relevant exposition, when assertions claiming
repudiation, rescission or ‘accord and satisfaction’ are made by a party
opposing reference, is to found in Damodar Valley Corporation v. K.K.
Kar,66 which had referred to an earlier judgment of this Court in Union
of India v. Kishorilal Gupta & Bros.,67 to observe:
F
“11. After a review of the relevant case law, Subba Rao, J., as he
then was, speaking for the majority enunciated the following
principles: “(1) An arbitration clause is a collateral term of a
contract as distinguished from its substantive terms; but none the
less it is an integral part of it; (2) however comprehensive the
G terms of an arbitration clause may be, the existence of the contract
is a necessary condition for its operation; it perishes with the
contract; (3) the contract may be non est in the sense that it

66
(1974) 1 SCC 141
67
H AIR 1959 SC 1362
VIDYA DROLIA AND OTHERS v. 1117
DURGA TRADING CORPORATION [SANJIV KHANNA, J.]

never came legally into existence or it was void ab initio; (4) A
though the contract was validly executed, the parties may put an
end to it as if it had never existed and substitute a new contract
for it solely governing their rights and liabilities thereunder;
(5) in the former case, if the original contract has no legal existence,
the arbitration clause also cannot operate, for along with the original B
contract, it is also void; in the latter case, as the original contract is
extinguished by the substituted one, the arbitration clause of the original
contract perishes with it; and (6) between the two falls many categories
“of disputes in connection with a contract, such as the question of
repudiation, frustration, breach etc. In those cases it is the performance
of the contract that has come to an end, but the contract is still in existence C
for certain purposes in respect of disputes arising under it or in connection
with it. As the contract subsists for certain purposes, the arbitration clause
operates in respect of these purposes.” In those cases, as we have
stated earlier, it is the performance of the contract that has come to an
end but the contract is still in existence for certain purposes in respect of D
disputes arising under it or in connection with it. We think as the contract
subsists for certain purposes, the arbitration clause operates in respect
of these purposes.”
Reference was also made to the minority judgment of Sarkar,
J. in Kishorilal Gupta & Bros. to observe that he had only E
disagreed with the majority on the effect of settlement on the arbitration
clause, as he had held that arbitration clause did survive to settle the
dispute as to whether there was or was not an ‘accord and satisfaction’.
It was further observed that this principle laid down by Sarkar, J. that
‘accord and satisfaction’ does not put an end to the arbitration clause, F
was not disagreed to by the majority. On the other hand, proposition (6)
seems to be laying the weight on to the views of Sarkar, J. These decisions
were under the Arbitration Act,1940. The Arbitration Act specifically
incorporates principles of separation and competence-competence and
empowers the arbitral tribunal to rule on its own jurisdiction.
G
83. Principles of competence-competence have positive and
negative connotations. As a positive implication, the arbitral tribunals are
declared competent and authorised by law to rule as to their jurisdiction
and decide non-arbitrability questions. In case of expressed negative
effect, the statute would govern and should be followed. Implied negative
effect curtails and constrains interference by the court at the referral H
1118 SUPREME COURT REPORTS [2020] 11 S.C.R.

A stage by necessary implication in order to allow the arbitral tribunal to
rule as to their jurisdiction and decide non-arbitrability questions. As per
the negative effect, courts at the referral stage are not to decide on
merits, except when permitted by the legislation either expressly or by
necessary implication, such questions of non-arbitrability. Such
prioritisation of arbitral tribunal over the courts can be partial and limited
B
when the legislation provides for some or restricted scrutiny at the ‘first
look’ referral stage. We would, therefore, examine the principles of
competence-competence with reference to the legislation, that is, the
Arbitration Act.
84. Section 16(1) of the Arbitration Act accepts and empowers
C the arbitral tribunal to rule on its own jurisdiction including a ruling on the
objections, with respect to all aspects of non-arbitrability including validity
of the arbitration agreement. A party opposing arbitration, as per sub-
section (2), should raise the objection to jurisdiction of the tribunal before
the arbitral tribunal, not later than the submission of statement of defence.
D However, participation in the appointment procedure or appointing an
arbitrator would not preclude and prejudice any party from raising an
objection to the jurisdiction. Obviously, the intent is to curtail delay and
expedite appointment of the arbitral tribunal. The clause also indirectly
accepts that appointment of an arbitrator is different from the issue and
question of jurisdiction and non-arbitrability. As per sub-section (3), any
E objection that the arbitral tribunal is exceeding the scope of its authority
should be raised as soon as the matter arises. However, the arbitral
tribunal, as per sub-section (4), is empowered to admit a plea regarding
lack of jurisdiction beyond the periods specified in sub-section (2) and
(3) if it considers that the delay is justified. As per the mandate of sub-
section (5) when objections to the jurisdiction under sub-sections (2) and
F (3) are rejected, the arbitral tribunal can continue with the proceedings
and pass the arbitration award. A party aggrieved is at liberty to file an
application for setting aside such arbitral award under Section 34 of the
Arbitration Act. Sub-section (3) to Section 8 in specific terms permits an
arbitral tribunal to continue with the arbitration proceeding and make an
award, even when an application under sub-section (1) to Section 8 is
G
pending consideration of the court/forum. Therefore, pendency of the
judicial proceedings even before the court is not by itself a bar for the
arbitral tribunal to proceed and make an award. Whether the court should
stay arbitral proceedings or appropriate deference by the arbitral tribunal
are distinctly different aspects and not for us to elaborate in the present
H reference.
VIDYA DROLIA AND OTHERS v. 1119
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85. Section 34 of the Act is applicable at the third stage post the A
award when an application is filed for setting aside the award. Under
Section 34, an award can be set aside – (i) if the arbitration agreement
is not valid as per law to which the party is subject; (ii) if the award deals
with the disputes not contemplated by or not falling within the submission
to arbitration, or contains a decision on the matter beyond the scope of
B
submission to arbitration; and (iii) when the subject matter of the dispute
is not capable of settlement by arbitration under the law for the time
being in force. Thus, the competence - competence principle, in its
negative effect, leaves the door open for the parties to challenge the
findings of the arbitral tribunal on the three issues. The negative effect
does not provide absolute authority, but only a priority to the arbitral C
tribunal to rule the jurisdiction on the three issues. The courts have a
‘second look’ on the three aspects under Section 34 of the Arbitration
Act. 68
86. The courts at the referral stage do not perform ministerial
functions. They exercise and perform judicial functions when they decide D
objections in terms of Sections 8 and 11 of the Arbitration Act. Section 8
prescribes the courts to refer the parties to arbitration, if the action brought
is the subject of an arbitration agreement, unless it finds that prima
facie no valid arbitration agreement exists. Examining the term ‘prima
facie’, in Nirmala J. Jhala v. State of Gujarat and Another,69 this
Court had noted: E

“48. A prima facie case does not mean a case proved to the hilt
but a case which can be said to be established if the evidence
which is led in support of the case were [to be] believed. While
determining whether a prima facie case had been made out or not
the relevant consideration is whether on the evidence led it was F
possible to arrive at the conclusion in question and not whether
that was the only conclusion which could be arrived at on that
evidence.”
Prima facie case in the context of Section 8 is not to be confused
with the merits of the case put up by the parties which has to be G
established before the arbitral tribunal. It is restricted to the subject matter
of the suit being prima facie arbitrable under a valid arbitration
68
The nature and extent of power of judicial review under Section 34 has not been
examined and answered in this reference.
69
(2013) 4 SCC 301 H
1120 SUPREME COURT REPORTS [2020] 11 S.C.R.

A agreement. Prima facie case means that the assertions on these aspects
are bona fide. When read with the principles of separation and
competence-competence and Section 34 of the Arbitration Act, referral
court without getting bogged-down would compel the parties to abide
unless there are good and substantial reasons to the contrary.70
B 87. Prima facie examination is not full review but a primary first
review to weed out manifestly and ex facie non-existent and invalid
arbitration agreements and non-arbitrable disputes. The prima facie
review at the reference stage is to cut the deadwood and trim off the
side branches in straight forward cases where dismissal is barefaced
and pellucid and when on the facts and law the litigation must stop at the
C first stage. Only when the court is certain that no valid arbitration
agreement exists or the disputes/subject matter are not arbitrable, the
application under Section 8 would be rejected. At this stage, the court
should not get lost in thickets and decide debatable questions of facts.
Referral proceedings are preliminary and summary and not a mini trial.
D This necessarily reflects on the nature of the jurisdiction exercised by
the court and in this context, the observations of B.N. Srikrishna, J. of
‘plainly arguable’ case in Shin-Etsu Chemical Co. Ltd. are of importance
and relevance. Similar views are expressed by this Court in Vimal
Kishore Shah wherein the test applied at the pre-arbitration stage was
whether there is a “good arguable case” for the existence of an arbitration
E agreement. The test of “good arguable case” has been elaborated by
the England and Wales High Court in Silver Dry Bulk Company Limited
v. Homer Hulbert Maritime Company Limited,71 in the following
words:
“Good arguable case” is an expression which has been hallowed
F by long usage, but it means different things in different contexts.
For the purpose of an application under Section 18, I would hold
that what must be shown is a case which is somewhat more than

70
The European Convention on International Commercial Arbitration appears to
recognise the prima facie test in Article VI (3):
G “Where either party to an arbitration agreement has initiated arbitration proceedings
before any resort is had to a court, courts of Contracting States subsequently asked to
deal with the same subject-matter between the same parties or with the question
whether the arbitration agreement was non-existent or null and void or had lapsed, shall
stay their ruling on the arbitrator’s jurisdiction until the arbitral award is made, unless
they have good and substantial reasons to the contrary.”
71
H (2017) EWHC 44 (Comm.)
VIDYA DROLIA AND OTHERS v. 1121
DURGA TRADING CORPORATION [SANJIV KHANNA, J.]

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

72
Arbitration Petition No. 115 of 2018, decided on 08.02.2019 H
1122 SUPREME COURT REPORTS [2020] 11 S.C.R.

A situation or a black and white situation without shades of grey, the
concerned court hearing the Section 11 petition should follow the
more conservative course of allowing parties to have their say
before the arbitral tribunal.”
88. The nature and facet of non-arbitrability could also determine
B the level and nature of scrutiny by the court at the referral stage. Stravos
Brekoulakis has differentiated between contractual aspects of arbitration
agreement which the court can examine at referral stage and jurisdictional
aspects of arbitration agreement which he feels should be left to the
arbitral tribunal. John J. Barcelo III, referring to some American
decisions had divided the issue of non-arbitrability into procedural and
C substantive objections. The procedurals are ‘gateway questions’ which
would presumptively be for the arbitrator to decide at least at the first
stage. In the Indian context, we would respectfully adopt the three
categories in Boghara Polyfab Private Limited. The first category of
issues, namely, whether the party has approached the appropriate High
Court, whether there is an arbitration agreement and whether the party
D who has applied for reference is party to such agreement would be
subject to more thorough examination in comparison to the second and
third categories/issues which are presumptively, save in exceptional cases,
for the arbitrator to decide. In the first category, we would add and
include the question or issue relating to whether the cause of action
E relates to action in personam or rem; whether the subject matter of the
dispute affects third party rights, have erga omnes effect, requires
centralized adjudication; whether the subject matter relates to inalienable
sovereign and public interest functions of the State; and whether the
subject matter of dispute is expressly or by necessary implication non-
arbitrable as per mandatory statue(s). Such questions arise rarely and,
F when they arise, are on most occasions questions of law. On the other
hand, issues relating to contract formation, existence, validity and non-
arbitrability would be connected and intertwined with the issues underlying
the merits of the respective disputes/claims. They would be factual and
disputed and for the arbitral tribunal to decide. We would not like be too
G prescriptive, albeit observe that the court may for legitimate reasons, to
prevent wastage of public and private resources, can exercise judicial
discretion to conduct an intense yet summary prima facie review while
remaining conscious that it is to assist the arbitration procedure and not
usurp jurisdiction of the arbitral tribunal. Undertaking a detailed full review
or a long-drawn review at the referral stage would obstruct and cause
H delay undermining the integrity and efficacy of arbitration as a dispute
VIDYA DROLIA AND OTHERS v. 1123
DURGA TRADING CORPORATION [SANJIV KHANNA, J.]

resolution mechanism. Conversely, if the court becomes too reluctant to A
intervene, it may undermine effectiveness of both the arbitration and the
court. There are certain cases where the prima facie examination may
require a deeper consideration. The court’s challenge is to find the right
amount of and the context when it would examine the prima facie case
or exercise restraint. The legal order needs a right balance between
B
avoiding arbitration obstructing tactics at referral stage and protecting
parties from being forced to arbitrate when the matter is clearly non-
arbitrable.73
89. Accordingly, when it appears that prima facie review would
be inconclusive, or on consideration inadequate as it requires detailed
examination, the matter should be left for final determination by the arbitral C
tribunal selected by the parties by consent. The underlying rationale being
not to delay or defer and to discourage parties from using referral
proceeding as a rue to delay and obstruct. In such cases a full review by
the courts at this stage would encroach on the jurisdiction of the arbitral
tribunal and violate the legislative scheme allocating jurisdiction between D
the courts and the arbitral tribunal. Centralisation of litigation with the
arbitral tribunal as the primary and first adjudicator is beneficent as it
helps in quicker and efficient resolution of disputes.
90. The Court would exercise discretion and refer the disputes to
arbitration when it is satisfied that the contest requires the arbitral tribunal E
should first decide the disputes and rule on non- arbitrability. Similarly,
discretion should be exercised when the party opposing arbitration is
adopting delaying tactics and impairing the referral proceedings.
Appropriate in this regard, are observations of the Supreme Court of
Canada in Dell Computer Corporation v. Union des consommateurs
and Olivier Dumoulin,74 which read: F

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

73
Ozlem Susler – ‘The English Approach to Competence-Competence’
74
[2007] 2 S.C.R. 801, 2007 SCC 34 H
1124 SUPREME COURT REPORTS [2020] 11 S.C.R.

A 86. Before departing from the general rule of referral, the court
must be satisfied that the challenge to the arbitrator’s jurisdiction
is not a delaying tactic and that it will not unduly impair the conduct
of the arbitration proceeding. This means that even when
considering one of the exceptions, the court might decide that to
allow the arbitrator to rule first on his or her competence would
B
be best for the arbitration process.”
Judgment in Dell’s case has been elucidated and diluted by the
Supreme Court of Canada in TELUS Communications Inc. v. Avraham
Wellman, viz. interpretation of Section 7(5) of the Arbitration Act, 1991,
an aspect with which we are not concerned.
C
91. We would now examine Section 11 of the Arbitration Act. As
noticed above sub-section (6-A) was inserted by the Act 3 of 2016 with
retrospective effect from 23rd October, 2015 and omitted by Act 33 of
2019. Section 11 (6) requires the court to appoint an arbitrator on an
application made by a party. Section (6-A) to Section 11 stipulates that
D the court shall, at the stage of appointment under sub-section (4), (5) or
(6), confine itself to the examination of the existence of an arbitration
agreement. Sub- section (6-A) was omitted by Act 33 of 2019, but the
omission is in view of the introduction of a new regime of institutionalised
arbitration as per the report of the committee headed by Justice B.N.
E Srikrishna, dated 30.07.2017 which records for the reason of
recommending the omission as:
“Thus, it can be seen that after the Amendment Act of 2019,
Section 11 (6-A) has been omitted because appointment of
arbitrators is to be done institutionally, in which case the Supreme
F Court or the High Court under the old statutory regime are no
longer required to appoint arbitrators and consequently to determine
whether an arbitration agreement exists.”
As observed earlier, Patel Engineering Ltd. explains and holds
that Sections 8 and 11 are complementary in nature as both relate to
G reference to arbitration. Section 8 applies when judicial proceeding is
pending and an application is filed for stay of judicial proceeding and for
reference to arbitration. Amendments to Section 8 vide Act 3 of 2016
have not been omitted. Section 11 covers the situation where the parties
approach a court for appointment of an arbitrator. Mayavati Trading
Private Ltd., in our humble opinion, rightly holds that Patel Engineering
H Ltd. has been legislatively overruled and hence would not apply even
VIDYA DROLIA AND OTHERS v. 1125
DURGA TRADING CORPORATION [SANJIV KHANNA, J.]

post omission of sub-section (6-A) to Section 11 of the Arbitration Act. A
Mayavati Trading Private Ltd. has elaborated upon the object and
purposes and history of the amendment to Section 11, with reference to
sub-section (6-A) to elucidate that the Section, as originally enacted,
was facsimile with Article 11 of the UNCITRAL Model of law of
arbitration on which the Arbitration Act was drafted and enacted.
B
Referring to the legislative scheme of Section 11, different interpretations,
and the Law Commission’s Reports, it has been held that the omitted
sub-section (6-A) to Section 11 of the Arbitration Act would continue to
apply and guide the courts on its scope of jurisdiction at stage one, that is
the pre-arbitration stage. Omission of sub-section (6-A) by Act 33 of
2019 was with the specific object and purpose and is relatable to by C
substitution of sub-sections (12), (13) and (14) to Section 11 of the
Arbitration Act by Act 33 of 2019, which, vide sub-section (3A) stipulates
that the High Court and this court shall have the power to designate the
arbitral institutions which have been so graded by the Council under
Section 43-I, provided where a graded arbitral institution is not available,
D
the concerned High Court shall maintain a panel of arbitrators for
discharging the function and thereupon the High Court shall perform the
duty of an arbitral institution for reference to the arbitral tribunal.
Therefore, it would be wrong to accept that post omission of sub-section
(6-A) to Section 11 the ratio in Patel Engineering Ltd. would become
applicable. E
92. We now proceed to examine the question, whether the word
‘existence’ in Section 11 merely refers to contract formation (whether
there is an arbitration agreement) and excludes the question of
enforcement (validity) and therefore the latter falls outside the jurisdiction
of the court at the referral stage. On jurisprudentially and textualism it is F
possible to differentiate between existence of an arbitration agreement
and validity of an arbitration agreement. Such interpretation can draw
support from the plain meaning of the word “existence’. However, it is
equally possible, jurisprudentially and on contextualism, to hold that an
agreement has no existence if it is not enforceable and not binding.
Existence of an arbitration agreement presupposes a valid agreement G
which would be enforced by the court by relegating the parties to
arbitration. Legalistic and plain meaning interpretation would be contrary
to the contextual background including the definition clause and would
result in unpalatable consequences. A reasonable and just interpretation
of ‘existence’ requires understanding the context, the purpose and the H
1126 SUPREME COURT REPORTS [2020] 11 S.C.R.

A relevant legal norms applicable for a binding and enforceable arbitration
agreement. An agreement evidenced in writing has no meaning unless
the parties can be compelled to adhere and abide by the terms. A party
cannot sue and claim rights based on an unenforceable document. Thus,
there are good reasons to hold that an arbitration agreement exists only
when it is valid and legal. A void and unenforceable understanding is no
B
agreement to do anything. Existence of an arbitration agreement means
an arbitration agreement that meets and satisfies the statutory
requirements of both the Arbitration Act and the Contract Act and when
it is enforceable in law. We would proceed to elaborate and give further
reasons:
C (i) In Garware Wall Ropes Ltd., this Court had examined the
question of stamp duty in an underlying contract with an arbitration clause
and in the context had drawn a distinction between the first and second
part of Section 7(2) of the Arbitration Act, albeit the observations made
and quoted above with reference to ‘existence’ and ‘validity’ of the
D arbitration agreement being apposite and extremely important, we would
repeat the same by reproducing paragraph 29 thereof:
“29. This judgment in Hyundai Engg. case is important in that
what was specifically under consideration was an arbitration clause
which would get activated only if an insurer admits or accepts
E liability. Since on facts it was found that the insurer repudiated the
claim, though an arbitration clause did “exist”, so to speak, in the
policy, it would not exist in law, as was held in that judgment,
when one important fact is introduced, namely, that the insurer
has not admitted or accepted liability. Likewise, in the facts of the
present case, it is clear that the arbitration clause that is contained
F in the sub- contract would not “exist” as a matter of law until the
sub-contract is duly stamped, as has been held by us above. The
argument that Section 11(6-A) deals with “existence”, as opposed
to Section 8, Section 16 and Section 45, which deal with “validity”
of an arbitration agreement is answered by this Court’s
G understanding of the expression “existence” in Hyundai Engg.
case, as followed by us.”;
Existence and validity are intertwined, and arbitration agreement
does not exist if it is illegal or does not satisfy mandatory legal
requirements. Invalid agreement is no agreement.
H
VIDYA DROLIA AND OTHERS v. 1127
DURGA TRADING CORPORATION [SANJIV KHANNA, J.]

(ii) The court at the reference stage exercises judicial powers. A
‘Examination’, as an ordinary expression in common parlance, refers to
an act of looking or considering something carefully in order to discover
something (as per Cambridge Dictionary). It requires the person to inspect
closely, to test the condition of, or to inquire into carefully (as per Merriam-
Webster Dictionary). It would be rather odd for the court to hold and
B
say that the arbitration agreement exists, though ex facie and manifestly
the arbitration agreement is invalid in law and the dispute in question is
non-arbitrable. The court is not powerless and would not act beyond
jurisdiction, if it rejects an application for reference, when the arbitration
clause is admittedly or without doubt is with a minor, lunatic or the only
claim seeks a probate of a Will. C
(iii) Most scholars and jurists accept and agree that the existence
and validity of an arbitration agreement are the same. Even Starvos
Brekoulakis accepts that validity, in terms of substantive and formal
validity, are questions of contract and hence for the court to examine.
(iv) Most jurisdictions accept and require prima facie review by D
the court on non-arbitrability aspects at the referral stage.
(v) Sections 8 and 11 of the Arbitration Act are complementary
provisions as was held in Patel Engineering Ltd.. The object and
purpose behind the two provisions is identical to compel and force parties
to abide by their contractual understanding. This being so, the two E
provisions should be read as laying down similar standard and not as
laying down different and separate parameters. Section 11 does not
prescribe any standard of judicial review by the court for determining
whether an arbitration agreement is in existence. Section 8 states that
the judicial review at the stage of reference is prima facie and not final. F
Prima facie standard equally applies when the power of judicial review
is exercised by the court under Section 11 of the Arbitration Act.
Therefore, we can read the mandate of valid arbitration agreement in
Section 8 into mandate of Section 11, that is, ‘existence of an arbitration
agreement’.
G
(vi) Exercise of power of prima facie judicial review of existence
as including validity is justified as a court is the first forum that examines
and decides the request for the referral. Absolute “hands off” approach
would be counterproductive and harm arbitration, as an alternative dispute
resolution mechanism. Limited, yet effective intervention is acceptable
as it does not obstruct but effectuates arbitration. H
1128 SUPREME COURT REPORTS [2020] 11 S.C.R.

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

75
(2014) 8 SCC 470
76
H (2009) 7 SCC 696
VIDYA DROLIA AND OTHERS v. 1129
DURGA TRADING CORPORATION [SANJIV KHANNA, J.]

Thereafter, reference was specifically made to Patel Engineering Ltd. A
and Boghara Polyfab Private Limited to observe that the legislative
policy is essential to minimise court’s interference at the pre-arbitral
stage and this was the intention of sub-section (6) to Section 11 of the
Arbitration Act. Paragraph 48 in Duro Felguera specifically states that
the resolution has to exist in the arbitration agreement, and it is for the
B
court to see if the agreement contains a clause which provides for
arbitration of disputes which have arisen between the parties. Paragraph
59 is more restrictive and requires the court to see whether an arbitration
agreement exists – nothing more, nothing less. Read with the other
findings, it would be appropriate to read the two paragraphs as laying
down the legal ratio that the court is required to see if the underlying C
contract contains an arbitration clause for arbitration of the disputes
which have arisen between the parties - nothing more, nothing less.
Reference to decisions in Patel Engineering Ltd. and Boghara Polyfab
Private Limited was to highlight that at the reference stage, post the
amendments vide Act 3 of 2016, the court would not go into and finally
D
decide different aspects that were highlighted in the two decisions.
(x) In addition to Garware Wall Ropes Limited case, this Court
in Narbheram Power and Steel Private Limited and Hyundai Engg.
& Construction Co. Ltd., both decisions of three Judges, has rejected
the application for reference in the insurance contracts holding that the
claim was beyond and not covered by the arbitration agreement. The E
court felt that the legal position was beyond doubt as the scope of the
arbitration clause was fully covered by the dictum in Vulcan Insurance
Co. Ltd. Similarly, in M/s. PSA Mumbai Investments PTE. Limited,
this Court at the referral stage came to the conclusion that the arbitration
clause would not be applicable and govern the disputes. Accordingly, the F
reference to the arbitral tribunal was set aside leaving the respondent to
pursue its claim before an appropriate forum.
(xi) The interpretation appropriately balances the allocation of the
decision-making authority between the court at the referral stage and
the arbitrators’ primary jurisdiction to decide disputes on merits. The G
court as the judicial forum of the first instance can exercise prima facie
test jurisdiction to screen and knockdown ex facie meritless, frivolous
and dishonest litigation. Limited jurisdiction of the courts ensures
expeditious, alacritous and efficient disposal when required at the referral
stage.
H
1130 SUPREME COURT REPORTS [2020] 11 S.C.R.

A 93. Section 43(1) of the Arbitration Act states that the Limitation
Act, 1963 shall apply to arbitrations as it applies to court proceedings.
Sub-section (2) states that for the purposes of the Arbitration Act and
Limitation Act, arbitration shall be deemed to have commenced on the
date referred to in Section 21. Limitation law is procedural and normally
disputes, being factual, would be for the arbitrator to decide guided by
B
the facts found and the law applicable. The court at the referral stage
can interfere only when it is manifest that the claims are ex facie time
barred and dead, or there is no subsisting dispute. All other cases should
be referred to the arbitral tribunal for decision on merits. Similar would
be the position in case of disputed ‘no claim certificate’ or defence on
C the plea of novation and ‘accord and satisfaction’. As observed in
Premium Nafta Products Ltd., it is not to be expected that commercial
men while entering transactions inter se would knowingly create a system
which would require that the court should first decide whether the contract
should be rectified or avoided or rescinded, as the case may be, and then
if the contract is held to be valid, it would require the arbitrator to resolve
D
the issues that have arisen.
94. We would also resolve the question of principles applicable to
interpretation of an arbitration clause. This is important and directly
relates to scope of the arbitration agreement. In Premium Nafta
Products Ltd., on the question of interpretation and construction of an
E arbitration clause, it is observed:
“In approaching the question of construction, it is therefore
necessary to inquire into the purpose of the arbitration clause. As
to this, I think there can be no doubt. The parties have entered
into a relationship, an agreement or what is alleged to be an
F agreement or what appears on its face to be an agreement, which
may give rise to disputes. They want those disputes decided by a
tribunal which they have chosen, commonly on the grounds of
such matters as its neutrality, expertise and privacy, the availability
of legal services at the seat of the arbitration and the unobtrusive
G efficiency of its supervisory law. Particularly in the case of
international contracts, they want a quick and efficient adjudication
and do not want to take the risks of delay and, in too many cases,
partiality, in proceedings before a national jurisdiction.”
In Narbheram Power and Steel Private Ltd., this Court while
H dealing with the arbitration clause in the insurance agreement, has held
VIDYA DROLIA AND OTHERS v. 1131
DURGA TRADING CORPORATION [SANJIV KHANNA, J.]

that the arbitration clause should be strictly construed, relying on the A
principles of strict interpretation that apply to insurance contracts. These
observations have been repeated in other cases.
What is true and applicable for men of commerce and business
may not be equally true and apply in case of laymen and to those who
are not fully aware of the effect of an arbitration clause or had little B
option but to sign on the standard form contract. Broad or narrow
interpretations of an arbitration agreement can, to a great extent, effect
coverage of a retroactive arbitration agreement. Pro-arbitration broad
interpretation, normally applied to international instruments, and
commercial transactions is based upon the approach that the arbitration
clause should be considered as per the true contractual language and C
what it says, but in case of doubt as to whether related or close disputes
in the course of parties’ business relationship is covered by the clause,
the assumption is that such disputes are encompassed by the agreement.
The restrictive interpretation approach on the other hand states that in
case of doubt the disputes shall not be treated as covered by the clause. D
Narrow approach is based on the reason that the arbitration should be
viewed as an exception to the court or judicial system. The third approach
is to avoid either broad or restrictive interpretation and instead the intention
of the parties as to scope of the clause is understood by considering the
strict language and circumstance of the case in hand. Terms like ‘all’,
‘any’, ‘in respect of’, ‘arising out of’ etc. can expand the scope and E
ambit of the arbitration clause. Connected and incidental matters, unless
the arbitration clause suggests to the contrary, would normally be covered.
Which approach as to interpretation of an arbitration agreement
should be adopted in a particular case would depend upon various factors
including the language, the parties, nature of relationship, the factual F
background in which the arbitration agreement was entered, etc. In case
of pure commercial disputes, more appropriate principle of interpretation
would be the one of liberal construction as there is a presumption in
favour of one-stop adjudication.
95. Accordingly, we hold that the expression ‘existence of an G
arbitration agreement’ in Section 11 of the Arbitration Act, would include
aspect of validity of an arbitration agreement, albeit the court at the
referral stage would apply the prima facie test on the basis of principles
set out in this judgment. In cases of debatable and disputable facts, and
good reasonable arguable case, etc., the court would force the parties to H
1132 SUPREME COURT REPORTS [2020] 11 S.C.R.

A abide by the arbitration agreement as the arbitral tribunal has primary
jurisdiction and authority to decide the disputes including the question of
jurisdiction and non-arbitrability.
96. Discussion under the heading ‘Who decides Arbitrability?’
can be crystallized as under:
B (a) Ratio of the decision in Patel Engineering Ltd. on the scope
of judicial review by the court while deciding an application under
Sections 8 or 11 of the Arbitration Act, post the amendments by
Act 3 of 2016 (with retrospective effect from 23.10.2015) and
even post the amendments vide Act 33 of 2019 (with effect from
C 09.08.2019), is no longer applicable.
(b) Scope of judicial review and jurisdiction of the court under
Section 8 and 11 of the Arbitration Act is identical but extremely
limited and restricted.
(c) The general rule and principle, in view of the legislative mandate
D 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
E terms of sub-clauses (i), (ii) or (iv) of Section 34(2)(a) or sub-
clause (i) of Section 34(2)(b) of the Arbitration Act.
(d) Rarely as a demurrer the court may interfere at the Section 8
or 11 stage when it is manifestly and ex facie certain that the
arbitration agreement is non- existent, invalid or the disputes are
F non-arbitrable, though the nature and facet of non-arbitrability
would, to some extent, determine the level and nature of judicial
scrutiny. The restricted and limited review is to check and protect
parties from being forced to arbitrate when the matter is
demonstrably ‘non-arbitrable’ and to cut off the deadwood. The
court by default would refer the matter when contentions relating
G to non-arbitrability are plainly arguable; when consideration in
summary proceedings would be insufficient and inconclusive; when
facts are contested; when the party opposing arbitration adopts
delaying tactics or impairs conduct of arbitration proceedings. This
is not the stage for the court to enter into a mini trial or elaborate
review so as to usurp the jurisdiction of the arbitral tribunal but to
H
VIDYA DROLIA AND OTHERS v. 1133
DURGA TRADING CORPORATION [SANJIV KHANNA, J.]

affirm and uphold integrity and efficacy of arbitration as an A
alternative dispute resolution mechanism.
97. Reference is, accordingly, answered.
98. In view of the aforesaid findings and ratio, we dispose of the
Civil Appeal and the Special Leave Petitions in the following manner:
B
Civil Appeal No. 2402 of 2019
In view of the fact that the Arbitral Tribunal is hearing the matter,
we leave the issue of arbitrability to the Tribunal to decide and come to
a conclusion on the same. Further, the parties are at liberty to execute or
challenge the award in accordance with law. The direction that the award C
cannot be executed without applying for permission of this Court is hereby
vacated.
Special Leave Petition (Civil) Nos. 5605-5606 of 2019
In this case, arbitral award has been passed on 24th August 2019.
It is apprised before this Bench that the Arbitral Tribunal has rejected D
the objection to the Tribunal’s jurisdiction. In this view, the petitioner is
at liberty to pursue the remedy available under Section 34 of the
Arbitration Act.
Special Leave Petition (Civil) No. 11877 of 2020
In view of the fact that the Arbitral Tribunal is hearing the matter, E
we leave the issue of arbitrability to the Tribunal to decide and come to
a conclusion on the same. Further, the parties are at liberty to challenge
the award if they are not satisfied with the same in this regard.
N. V. RAMANA, J.
F
1. I have had the advantage of reading in advance the opinion of
my learned Brother Justice Sanjiv Khanna. The present matters deal
with a very important aspect in the arbitration jurisprudence in this country,
which necessitate a separate opinion.
2. Recently, Mr. Fali S. Nariman, in one of his lectures had alluded G
that the development of arbitration in India is not attributable to the success
in arbitration, rather to the failures of the Court. This reflects an
uncomfortable relationship which arbitration has had with litigation all
these days. The judicial hesitancy of the courts to be more accommodative
towards the tribunal and the need for respecting arbitral awards
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1134 SUPREME COURT REPORTS [2020] 11 S.C.R.

A requires this Court to extensively reflect and bring the Court’s
jurisprudence in tune with the liberal intention sought to be furthered
post the 2015 amendment to the Arbitration and Conciliation Act, 1996
(hereinafter referred to as “the Act”).
3. Before we delve into the merits of the matters, we need to
B have a brief reference to the facts which are necessary for the disposal
of these cases. As all the cases are similar, we take facts from Civil
Appeal No. 2402 of 2019, to indicate the history of this litigation and the
questions which arise from the same. In the year 2006, appellants (tenants)
entered into a tenancy agreement with the predecessor title holder with
respect to certain buildings. Clause 23 of the agreement contained a
C dispute resolution clause. In the year 2012, the tenancy was attorned to
the respondent, after which the appellants started paying monthly rent to
the respondent (landlord). On 24.08.2015, the respondent (landlord) wrote
a letter seeking vacant possession of the property as the period of lease
was expiring on 01.02.2016. Appellants (tenants) did not vacate.
D Aggrieved, the respondent (landlord) invoked the arbitration under the
dispute resolution mechanism provided under the contract. On 28.04.2016,
the respondent filed the present Section 11 petition before the Calcutta
High Court for appointment of an arbitrator. On 07.09.2016, the High
Court passed the impugned order appointing an arbitrator, after rejecting
the appellants objections on the arbitrability of the dispute.
E
4. Aggrieved by the same, the appellants (tenants) have
approached this Court in the present proceedings, on the reason that,
after the judgment of the High Court was rendered appointing the
arbitrator, this Court in Himangni Enterprises v. Kamaljeet Singh
Ahluwalia, (2017) 10 SCC 706 [hereinafter referred as ‘Himangni
F Enterprises’] held that where the Transfer of Property Act, 1882 applied
between the landlord and tenant disputes between the said parties would
not be arbitrable.
5. When Civil Appeal No. 2402 of 2019 was listed for hearing on
28.02.2019, then the said matter was referred to a three- Judge Bench,
G with following observations:
“7. It will be noticed that “validity” of an arbitration agreement is,
therefore, apart from its “existence”. One moot question that
therefore, arises, and which needs to be authoritatively decided
by a Bench of three learned Judges, is whether the word
H “existence” would include weeding-out arbitration clauses in
VIDYA DROLIA AND OTHERS v. 1135
DURGA TRADING CORPORATION [N. V. RAMANA, J.]

agreements which indicate that the subject-matter is incapable of A
arbitration…
xxxxxxxxxx
30. In this view of the matter, this case is referred to a Bench of
three Hon’ble Judges.
B
31. Given the facts of this case and the fact that 18 hearings have
been held, the stay that has been granted to the arbitral proceedings
by our order dated 13.08.2018 is lifted, and the proceedings may
go on and culminate in an award. The award cannot be executed
without applying to this Court. The appeal is disposed of
accordingly.” C
6. The reference order primarily indicates that there are two
substantive issues to be settled by this Court herein, namely:
I. To what extent does the Court decide the question of
non-arbitrability under Section 11 of the Act?
D
II. Whether tenancy disputes are capable of being resolved
through arbitration?
7. Before we analyze the issue, we need to observe arguments
canvassed by the counsel appearing for the parties, who set the tone for
these cases. E
8. Learned senior counsel, Mr. K. V. Vishwanathan, appearing
for the petitioners in SLP (C.) No. 5605-5606 of 2019, submitted as
under:
• That Section 11(6A) of the Act is a unique provision, which
is neither traceable to UNCITRAL Model Law nor any other F
domestic legislation.
• In spite of the absence of legislative provision in other
countries, Courts have adjudicated on the existence of the
arbitration agreement at the stage of the appointment of the
arbitrator itself. G
• The standard of ‘good arguable case’ as expounded in Noble
Denton Middle East v. Noble Denton International Ltd.,
[2010] EWHC 2574 (Comm.), should be applied by the
Courts to examine the existence of a valid arbitration
agreement.
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1136 SUPREME COURT REPORTS [2020] 11 S.C.R.

A • Therefore, the scope of judicial enquiry at the stage of
reference/appointment is not limited to the mere presence
of the arbitration clause.
9. Learned Senior advocate, Mr. Nakul Dewan on behalf of the
Respondent in SLP (C.) No. 5605-5606 of 2019, argued that:
B
• Section 11(6A) was a conscious departure from the
earlier existing judicial interpretation, which had widened the
scope of judicial enquiry.
• The 246th Law Commission Report stated that Section 11(6A)
limits the scope of judicial enquiry to determination of a
C
prima facie existence.
• Word ‘existence’ under Section 11(6A) means legally
enforceable existence and not mere presence in the contract.
• While examining the issue of existence in an application under
D Section 11, this Court is merely functioning as an appointing
authority.
10. Learned senior counsel, Mr. Manoj Swarup on behalf of the
Petitioner in SLP (C.) No. 11877 of 2020, has submitted that:
• Lease hold rights under the Transfer of Property Act, 1882
E [hereinafter referred to as “TP Act”]are rights in rem.
• A contractual tenant upon determination of lease becomes a
statutory tenant and is entitled to the statutory protection..
Therefore, the arbitration in that case would be ousted.
• Section 11 is not the stage for determination of the issue of
F arbitrability in those cases where the test of Section 89, CPC
is to be applied.
11. Learned senior counsel, Mr. Gopal Shankarnarayan on behalf
of the Petitioners in SLP (C.) No. 5605-5606 of 2019, submitted that:

G • Section 11(6A) mandates an ‘examination of the evidence
of an arbitration agreement’.
• The 2015 Amendment does not convert the judicial power
conferred in Section 11(6) into an administrative power.
• The decision in Mayavati Trading Pvt. Ltd. v. Pradyuat
H Deb Burman, (2019) 8 SCC 714 is inapplicable.
VIDYA DROLIA AND OTHERS v. 1137
DURGA TRADING CORPORATION [N. V. RAMANA, J.]

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

• Relying upon various judgments, including certain High Court
judgments that were passed after the judgment in Himangni
Enterprises (supra) to state that, on facts, Himangni
Enterprises (supra) was wholly distinguishable as it did
not apply to a situation of a lease expiring by efflux of time. C
• certain High Court judgments had, after the judgment in
Himangni Enterprises (supra), distinguished the said
judgment on this and other grounds. As an alternative
submission, he said that, in any case, Himangni Enterprises
(supra) would require reconsideration as it did not state the D
law correctly.
13. We answer the two questions in seriatim.
14. Arbitration is a creature of consensus. It is completely
dependent on party autonomy and the intention expressed in the
agreement. A contract, having multiple clauses including arbitration E
agreements, can be divided into two parts. The clauses relating to the
commercial relationship, i.e., the obligations and duties of each party,
can be referred to as the ‘main contract’. The arbitration agreement so
to say is a separate contract in itself.
15. The separability of the arbitration agreement from the main F
contract, historically existed in Roman law. Since early times, arbitration
was viewed with suspicion, which allowed for the development of
separability. Ironically, the ‘pro- arbitration’ function of separability in
the present day is a late 19th and 20th century development, traceable to
Germanic and Swiss jurisprudence.
G
16. In India, arbitration was governed earlier by the Arbitration
Act of 1899, and later 1940. Presently, arbitration is governed by
the Act of 1996, with subsequent amendments. A cursory reading of the
legislative history points to the fact that the intention of the legislature is
to make the regime ‘pro-arbitration’. Whenever this Court has afforded
H
1138 SUPREME COURT REPORTS [2020] 11 S.C.R.

A a contrary view, there has been a trend to undo the changes to bring it in
line with the international standards prevailing in certain arbitration
havens such as Singapore, London and Hong Kong.
17. Before we move to the analysis of the case, we need to briefly
describe the structure of the Arbitration Act, 1996 with subsequent
B amendments. The set-up of both international and domestic arbitration
is contained under PARTS I, IA and II of the Act. The preamble to the
Act provides that it was enacted with a view to have uniformity of the
law of arbitral procedures to establish a fair and efficient mechanism to
resolve disputes.

C 18. Section 2 provides for the definition of ‘arbitration agreement’
which is to be interpreted in terms of Section 7 of the Act, which states
as under:
7. Arbitration agreement. -
(1) In this Part, “arbitration agreement” means an agreement by
D the parties to submit to arbitration all or certain disputes which
have arisen or which may arise between them in respect of a
defined legal relationship, whether contractual or not.
(2) An arbitration agreement may be in the form of an arbitration
clause in a contract or in the form of a separate agreement.
E (3) An arbitration agreement shall be in writing.
(4) An arbitration agreement is in writing if it is contained in—
(a) a document signed by the parties;
(b) an exchange of letters, telex, telegrams or other means of
F telecommunication including communication through
electronic means which provide a record of the agreement;
or
(c) an exchange of statements of claim and defence in which
the existence of the agreement is alleged by one party and
G not denied by the other.
(5) The reference in a contract to a document containing an
arbitration clause constitutes an arbitration agreement if the
contract is in writing and the reference is such as to make that
arbitration clause part of the contract.
H
VIDYA DROLIA AND OTHERS v. 1139
DURGA TRADING CORPORATION [N. V. RAMANA, J.]

19. Section 5 emphasizes a very important principle, that judicial A
interference in arbitral proceedings should be minimum and should be
limited to instances where it is specifically provided for under the Act.
Although the provision envisages a wide amplitude, various judgments
of this Court have restricted the utility of same. [ICICI Bank Ltd. v.
Sidco Leathers Ltd., (2006) 10 SCC 452]
B
20. Section 8 of the Act in its present and earlier form, are
extracted below:

C

D

E

F

G

H
1140 SUPREME COURT REPORTS [2020] 11 S.C.R.

A Under the old Arbitration Act, 1940, the Court had the discretion
in referring the parties to arbitration, however such discretion is done
away with after the coming into force of the 1996 Act. The Arbitration
and Conciliation Act, 1996 does not, in specific terms, exclude any
category of disputes—civil or commercial—from arbitrability. Intrinsic
legislative material is in fact to the contrary. Section 8 contains a mandate
B
that where an action is brought before a judicial authority in a matter
which is the subject of an arbitration agreement, the parties shall be
referred by it to arbitration, if a party to or a person claiming through a
party to the arbitration agreement applies not later than the date of
submitting the first statement on the substance of the dispute. The only
C exception is where the authority finds, prima facie, that there is no valid
arbitration agreement. Section 8 contains a positive mandate and obligates
the judicial authority to refer parties to arbitration in terms of the
arbitration agreement. While dispensing with the element of judicial
discretion, the statute imposes an affirmative obligation on every judicial
authority to hold down parties to the terms of the agreement entered into
D
between them to refer disputes to arbitration. Article 8 of the UNCITRAL
Model Law enabled a court to decline to refer parties to arbitration if it
is found that the arbitration agreement is null and void, inoperative or
incapable of being performed. Section 8 of the Act has made a departure
from the UNCITRAL law which is indicative of the wide reach and
E ambit of the statutory mandate. Section 8 uses the expansive expression
“judicial authority” rather than “court” and the words “unless it finds
that the agreement is null and void, inoperative and incapable of being
performed” do not find place in Section 8.
21. On the 2015 amendment to Section 8, Justice Indu
F Malhotra, comments as under:
Section 8 was amended by the 2015 Amendment to clarify the
scope of enquiry by the judicial authority at the pre-reference
stage. The court would be required to make a prima facie
determination as to whether there is valid arbitration agreement.77
G We must state that we are partly in agreement with the aforesaid,
wherein the judicial authorities have been given a clear mandate for
interference at the pre-reference stage, however, the threshold standard
is worded differently, as pointed herein.
77
Justice Indu Malhotra, Commentary on the Law of Arbitration, Vol. I, 4th Ed., p.
H 317.
VIDYA DROLIA AND OTHERS v. 1141
DURGA TRADING CORPORATION [N. V. RAMANA, J.]

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

B

C

D

E

F

G

H
1142 SUPREME COURT REPORTS [2020] 11 S.C.R.

A

B

C

D

E

F

G

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

(8) The Chief Justice or sub-section(4) or days from receipt of a A
the person or institution sub-section(5) or request by one party
designated by him, in sub-section(6), shall, from the other party to
appointing an arbitrator, notwithstanding any so agree the appointment
shall have due regard to judgment, decree or order shall be made on an
– of any Court, confine to application of the party
(a) any qualification the examination of the in accordance with the
required of the arbitrator existence of an arbitration provisions contained in B
by the agreement of the agreement. sub- section(4).
parties; and
(6B) The designation of (6) Where, under an
(b) other considerations any person or institution appointment procedure
as are likely to secure the by the Supreme Court or, agreed upon by the
appointment of an as the case may be, the parties, -
independent and High Court, for the (a) a party fails to act as
impartial arbitrator. purposes of this section required under that C
shall not be regarded as a procedure; or
(9) In the case of delegation of judicial
appointment of sole or power by the Supreme (b) the parties, or the two
third arbitrator in an Court or the High Court. appointed arbitrators,
international commercial fail to reach an
arbitration, the Chief (7) A decision on a matter agreement expected of
Justice of India or the entrusted by them under that D
person or institution sub-section(4) or procedure; or
designated by him may sub-section(5) or
appoint an arbitrator of a sub-section(6) to the (c) a person, including
nationality other than the Supreme Court or, as the an institution, fails to
nationalities of the case may be, the High perform any function
parties where the parties Court or the person or entrusted to him or it
belong to different institution designated by under that procedure, the E
nationalities. such Court is final and no appointment shall be
appeal including Letters made, on an application
(10) The Chief Justice Patent Appeal shall lie of the party, by the
may make such scheme against such decision arbitral institution
as he may deem designated by the
appropriate for dealing (8) The Supreme Court Supreme Court, in case
with matters entrusted by or, as the case may be, the of international
sub- section(4) or sub- High Court or the person commercial arbitration, F
section(5) or sub- or institution designated or by the High Court, in
section(6) to him. by such Court, before case of arbitrations other
appointing an arbitrator, than international
(11) Where more than shall seek a disclosure in commercial arbitration,
one request has been writing from the as the case may be to
made under sub- prospective arbitrator in take the necessary
section(4) or sub- terms of sub-section(1) of measure, unless the G
section(5) or section 12, and have due agreement on the
sub-section(6) to the regard to— appointment procedure
Chief Justices of (a) any qualifications provides other means for
different High Courts or required for the arbitrator securing the
their designates, the by the agreement of the appointment.
Chief Justice or his parties; and
designate to whom the
H
1144 SUPREME COURT REPORTS [2020] 11 S.C.R.

A

B

C

D

E

F

G

H
VIDYA DROLIA AND OTHERS v. 1145
DURGA TRADING CORPORATION [N. V. RAMANA, J.]

A

B

C

D

E

F

G

H
1146 SUPREME COURT REPORTS [2020] 11 S.C.R.

A

B

C

D
23. Section 12 imposes, upon a person approached to be an
arbitrator, the obligation to disclose to the parties in writing any
circumstance that may give rise to justifiable doubts as to his independence
and impartiality. An arbitrator can be challenged if there are circumstances
that give rise to justifiable doubts about his independence and impartiality
E or if he does not possess the qualifications agreed to by the parties, but
such challenge can be made only for reasons which the party challenging
becomes aware of after the appointment has been made. Section 13
speaks of the challenge procedure. It states that the parties are free to
agree on such a procedure. Failing that, the party who makes the challenge
F must within fifteen days after becoming aware of the constitution of the
Arbitral Tribunal or of any of the circumstances mentioned in Section
12, send a written statement of the reasons for the challenge to the
Arbitral Tribunal. Unless the challenged arbitrator withdraws or the other
party to the arbitration agrees to the challenge, the Arbitral Tribunal shall
decide upon the challenge and if the challenge is not successful it
G shall continue the arbitration proceedings and make an award. That award
can be sought to be set aside under Section 34.
24. Section 16 empowers the Arbitral Tribunal to rule on its own
jurisdiction. Sub-section (1) of Section 16 is relevant, and reads thus:
H
VIDYA DROLIA AND OTHERS v. 1147
DURGA TRADING CORPORATION [N. V. RAMANA, J.]

“16. (1) The Arbitral Tribunal may rule on its own jurisdiction, A
including ruling on any objections with respect to the existence or
validity of the arbitration agreement, and for that purpose, -
(a) an arbitration clause which forms part of a contract shall be
treated as an agreement independent of the other terms of the B
contract; and
(b) a decision by the Arbitral Tribunal that the contract is null and
void shall not entail ipso jure the invalidity of the arbitration clause.”
25. Section 34 of the Act is as under: C

D

E

proof

F

under

G

H
1148 SUPREME COURT REPORTS [2020] 11 S.C.R.

A (iii)

B

(iv)

C

D

(v) the

E

F

G

H
VIDYA DROLIA AND OTHERS v. 1149
DURGA TRADING CORPORATION [N. V. RAMANA, J.]

(b) A

B

C

D

E

F

G

H
1150 SUPREME COURT REPORTS [2020] 11 S.C.R.

A
that

that

Provided that an
B award shall not be set
aside merely on the
Provided that an award ground of an erroneous
shall not be set aside application of the law or
merely on the ground of by reappreciation of
an erroneous application evidence.
of the law orby
C reappreciation of An application for setting
evidence. aside may not be made
after three months
(3) An application for
setting aside may not be the party
made after three months making that application
have elapsed from the arbitral
date on which award or,
D the party making that
application had received
the arbitral award or, if a
request had been made by
under section 33, from the arbitral tribunal:
the date on which that
request had been
E Provided that if the Court
disposed of by the
is
arbitral tribunal:
prevented
Provided that if the
by sufficient cause from
Court is satisfied that the
making the application
applicant was
within the said period of
prevented by
three months it may
sufficient cause from
F entertain the application
making the application
within a further period of
within the said period of
thirty days, but not
three months it may
thereafter.
entertain the application
within a further period of
(4) On receipt of an
thirty days, but not
application under
thereafter.
sub-section (1), the
G
(4) On receipt of an
appropriate
application under
sub-section (1), the Court
may, where it is
time
appropriate and it is so
requested by a party,
H
VIDYA DROLIA AND OTHERS v. 1151
DURGA TRADING CORPORATION [N. V. RAMANA, J.]

A

B

C

D

E

F

G

The intention of the legislators to provide for Section 34 in its
present form, is to have a limited review of the award instead of a
full-fledged appeal process. A party intending to object to an award, is
first required to file an application under Section 34 (1) indicating the
H
1152 SUPREME COURT REPORTS [2020] 11 S.C.R.

A objections along with the copy of an award and other necessary
documents, which are required as proof to satisfy grounds provided under
Section 34(2)(a) and (b) of the Act. Such complete petition is required to
be filed within the time period prescribed under Section 34 (3) of the
Act, failing which the appeal is rendered nugatory. The limitation
prescribed under Section 34(3) is bound with the right to file objections
B
itself. The objections filed under Section 34 must be relatable to the
limited grounds provided under Section 34 (2) of the Act. It is the
legislative intention to provide for numerous limitations under Section 34
of the Act, which are required to be strictly adhered to so as to make
Indian arbitration time-bound and commercially prudent to opt for the
C same. Section 37 of the Act, provides for limited appeal against the
Section 34 order, as well as against certain other specified orders.
26. It is important to observe Section 45 of the Act, which provides
a judicial authority with the power to refer parties to arbitration when
Part II of the Act applies, in the following manner:
D

E

F

G

H
VIDYA DROLIA AND OTHERS v. 1153
DURGA TRADING CORPORATION [N. V. RAMANA, J.]

27. The present structure of arbitration is such that Courts are to A
assist and support arbitration and leave the substantive part of adjudication
to the arbitral tribunal. Some scholars have suggested that the judicial
mechanism that comports with the rule of law may be fundamentally at
odds with non- judicial/arbitral mechanism which is therefore less formal.
But our understanding is that that the rule of law is less in tension with
B
arbitration than critics imagine, because they both aim to serve the same
goal-the pursuit of justice.
28. On a plain reading of the Act, whenever a dispute arises
between parties, they are free to approach an appropriate judicial forum
to get their dispute resolved. If the parties have contemplated an
arbitration agreement, then they can approach a tribunal for getting the C
matter resolved. Once they choose the non-judicial method, a party
aggrieved by the award, has a chance to approach judicial institutions
under Section 34 and 37 (appeal jurisdiction), if the award is violative of
the grounds provided thereunder.
29. With this understanding, we need to have regards to certain D
precedents of this Court, in order to understand the dispute. The
case, which started the debate was the case of Konkan Railway Corpn.
Ltd. v. Mehul Construction Co., (2000) 7 SCC 201, wherein a Bench
of three Judges of this Court, emphasized the utility of ‘Chief Justice’ as
occurring under the earlier Section 11, to come to a conclusion that the E
power of appointment of an arbitrator was an administrative action. The
proposition laid down in the aforesaid case, was confirmed by a
Constitution Bench of this Court in Konkan Railway Corporation Ltd.
v. Rani Construction (P.) Ltd., (2002) 2 SCC 388. It may be
relevant to quote the following observation by this Court:
F
“21. It might also be that in a given case the Chief Justice or his
designate may have nominated an arbitrator although the period
of thirty days had not expired. If so, the Arbitral Tribunal would
have been improperly constituted and be without jurisdiction. It
would then be open to the aggrieved party to require the Arbitral
Tribunal to rule on its jurisdiction. Section 16 provides for this. It G
states that the Arbitral Tribunal may rule on its own jurisdiction.
That the Arbitral Tribunal may rule “on any objections with
respect to the existence or validity of the arbitration
agreement” shows that the Arbitral Tribunal’s authority
under Section 16 is not confined to the width of its H
1154 SUPREME COURT REPORTS [2020] 11 S.C.R.

A jurisdiction, as was submitted by learned counsel for the
appellants, but goes to the very root of its jurisdiction. There
would, therefore, be no impediment in contending before the
Arbitral Tribunal that it had been wrongly constituted by reason
of the fact that the Chief Justice or his designate had nominated
an arbitrator although the period of thirty days had not expired
B
and that, therefore, it had no jurisdiction.”
(emphasis supplied)
30. Again, the aforesaid decision came to be referred to a seven-
Judge Bench in SBP & Co. v. Patel Engineering Ltd., (2005) 8 SCC
C 618, wherein majority was penned by Justice P.K. Balasubramanyan
and the minority dissent was by Justice C. K. Thakker.
31. The majority opinion, concluded that the power of reference
under Section 11 is a judicial function for the following reasons:
First, the sub-section (7) of Section 11 makes the adjudication
D by the Chief Justice, final. Such final determination in usual
course would be a judicial determination.
Second, the reason for delegating the power to the highest
judicial authority in the State or the Country, is to provide credibility
for the process.
E
Third, the power of a persona designata cannot be delegated,
unless such power is judicial power.
Fourth, Section 8 and 11 are complimentary and the ambit of
power is the same.
F Fifth, the principle of Kompetenz-Kompetenz, as enshrined under
Section 16, will come to play only if the parties approach the
Arbitral Tribunal, without taking recourse to Section 8 or 11.
Sixth, it is incongruous to permit the order of the Chief Justice
under Section 11(6) of the Act being subjected to scrutiny under
G Article 226 of the Constitution.
Seventh, the Court on earlier instances did not concentrate on
the threshold satisfaction of the Chief Justice, before the same is
referred to an arbitration.
Eighth, it would be a wasteful exercise for parties to arbitrate on
H
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the jurisdiction, only to find that tribunal did not have sufficient A
jurisdiction to entertain the arbitration.
32. The minority view posits that the function of the Chief
Justice was administrative rather than judicial, for the following reasons:
First, merely because a decision adversely affects a party, cannot
be the sole reason to conclude that the function is judicial. B

Second, finality of decision taken by the Chief Justice under
Section 11(7) refers to only matters such as qualification,
independence and impartiality of the arbitrator. The aforesaid does
not necessarily make the determination judicial or quasi-judicial.
C
Third, Section 16 spells out a rule of chronological priority.
Fourth, Section 16 has a negative effect, that is, it allows the
arbitrators to decide their jurisdiction prior to the Courts stepping
in post rendering of the award.
Fifth, there is a duty cast upon the Chief Justice under Section D
11(6) ‘to act fairly’.
In our consideration, the aforesaid case was heavily caught in the
obfuscated concept of judicial or administrative duty, and there is scarce
observation on the appropriate standards of judicial enquiry or what
aspects does the Court need to consider, while referring a matter to E
arbitration.
33. In Shin-Etsu Chemical Co. Ltd. v. Aksh Optifibre Ltd.,
(2005) 7 SCC 234, this Court decided the ambit of Section 45 of the Act,
which relates to the provision for referring parties to arbitration under
the New York Convention. While deciding the scope of Section 45 of F
the Act, Justice Y. K. Sabharwal, as he then was, held in his opinion that
a judicial forum seized of the mater should fully rule on the validity and
existence of the agreement, before referring the same to the arbitration.
The prima facie standard, which the Court found to be gaining popularity
across the globe, could not be applied as the statutory language of Section
45, as it existed, did not support such a standard. It may be necessary to G
observe certain passage from Justice Sabharwal’s opinion:
“55. I may also deal with the contention urged on behalf of the
appellant that only a prima facie finding is required to be given on
a combined reading of Sections 45, 48 and 50 from which it can
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A be culled out that a party who has suffered an award can always
challenge the same under Section 48 on the ground that the
arbitration agreement is null and void. This read in conjunction
with the right of appeal given under Section 50 and the power of
the arbitrator to rule on his own jurisdiction clearly shows the
intent of the legislature to avoid delay which would be inevitable if
B
it has to be a final decision and it would defeat the object of soon
placing all material before the Arbitral Tribunal. I am afraid that
this cannot be accepted as the real purpose of Section 48 is to
ensure that at some stage whether pre-award, post-award or both,
a judicial authority must decide the validity, operation, capability
C of performance of the arbitration agreement. In various cases the
parties may not resort to Section 45 in the first place, and to
overcome such eventuality, the legislature has enacted Section
48(1)(a). In other words, 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
D
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. As far as the question of Section 50
is concerned, it is well settled in law that an appeal is a creature
of statute (M. Ramnarain (P) Ltd. v. State Trading Corpn. of
E India Ltd. [(1983) 3 SCC 75] ) and a right to appeal inheres in no
one. (Gujarat Agro Industries Co. Ltd. v. Municipal Corpn. of the
City of Ahmedabad [(1999) 4 SCC 468]). 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. The fact that a provision is not made
F
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 legislature has granted the right of appeal in the event of
refusal to refer but not in the event of order being made for
G reference of the parties to arbitration. This provision for appeal is
not determinative of the scope of Section 45 to mean that the
determination thereunder has to be only prima facie.”
Justice B. N. Srikrishna, on the other hand, held that the language
of Section 8 and 45 are different, wherein the judicial authority is
H empowered under Section 45 to refuse reference to arbitration, if it finds
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that the agreement is ‘null and void, inoperative or incapable of being A
performed’. He further held that ex visceribus interpretation of the
Section 45 clearly points to a prima facie view. Justice Dharmadhikari,
for different reasons, agreed with the reasoning of Justice B. N.
Srikrishna, in the following manner:
“111. With utmost respect to both of them, I am inclined to agree B
with the view expressed by learned Brother Srikrishna, J. but
only with a rider and a partly different reason which may I state
below:
The main issue is regarding the scope of power of any judicial
authority including a regular civil court under Section 45 of the C
Act in making or refusing a reference of dispute arising from an
international arbitration agreement governed by the provisions
contained in Part III Chapter I of the Act of 1996. I respectfully
agree with learned Brother Srikrishna, J. only to the extent that if
on a prima facie examination of the documents and material on
record including the arbitration agreement on which request for D
reference is made by one of the parties, the judicial authority or
the court decides to make a reference, it may merely mention the
submissions and contentions of the parties and summarily decide
the objection if any raised on the alleged nullity, voidness,
inoperativeness or incapability of the arbitration agreement. In E
case, however, 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, is inclined to reject
the request for reference on the ground that the agreement is
“null and void” or “inoperative” or “incapable of being performed” F
within the meaning of Section 45 of the Act, the judicial authority
or the 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 and pass an elaborate G
reasoned order. 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
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A the Act and further appeal to this Court under sub-section (2) of
the said section.”
34. In Shree Ram Mills Ltd. v. Utility Premises (P) Ltd.,(2007)
4 SCC 599, while observing the scope of the Court under Section 11 (6),
the Court held as under:
B “27……..A glance on this para would suggest the scope of the
order under Section 11 to be passed by the Chief Justice or his
designate. Insofar as the issues regarding territorial jurisdiction
and the existence of the arbitration agreement are concerned, the
Chief Justice or his designate has to decide those issues because
C otherwise the arbitration can never proceed. Thus, the Chief Justice
has to decide about the territorial jurisdiction and also whether
there exists an arbitration agreement between the parties and
whether such party has approached the court for appointment of
the arbitrator. The Chief Justice has to examine as to whether the
claim is a dead one or in the sense whether the parties have already
D concluded the transaction and have recorded satisfaction of their
mutual rights and obligations or whether the parties concerned
have recorded their satisfaction regarding the financial claims. In
examining this if the parties have recorded their satisfaction
regarding the financial claims, there will be no question of any
E issue remaining. It is in this sense that the Chief Justice has to
examine as to whether there remains anything to be decided
between the parties in respect of the agreement and whether the
parties are still at issue on any such matter. If the Chief Justice
does not, in the strict sense, decide the issue, in that event it is for
him to locate such issue and record his satisfaction that such issue
F exists between the parties. It is only in that sense that the finding
on a live issue is given. Even at the cost of repetition we must
state that it is only for the purpose of finding out whether the
arbitral procedure has to be started that the Chief Justice has to
record satisfaction that there remains a live issue in between the
G parties. The same thing is about the limitation which is always a
mixed question of law and fact. The Chief Justice only has to
record his satisfaction that prima facie the issue has not become
dead by the lapse of time or that any party to the agreement has
not slept over its rights beyond the time permitted by law to agitate
those issues covered by the agreement. It is for this reason that it
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was pointed out in the above para that it would be appropriate A
sometimes to leave the question regarding the live claim to be
decided by the Arbitral Tribunal. All that he has to do is to record
his satisfaction that the parties have not closed their rights and the
matter has not been barred by limitation. Thus, where the Chief
Justice comes to a finding that there exists a live issue, then naturally
B
this finding would include a finding that the respective claims of
the parties have not become barred by limitation.”
35. The next jurisprudential jump was provided by National
Insurance Company Limited v. Boghara Polyfab Private Limited,
(2009) 1 SCC 267, wherein this Court observed as under:
C
“19. In SBP & Co. v. Patel Engg. Ltd. [(2005) 8 SCC 618] , a
seven-Judge Bench of this Court considered the scope of Section
11 of the Act and held that the scheme of Section 11 of the Act
required the Chief Justice or his designate to decide whether there
is an arbitration agreement in terms of Section 7 of the Act before
exercising his power under Section 11(6) of the Act and its D
implications. … This Court held: (SCC pp. 660-61 & 663, paras
39 & 47)
“39.… He has to decide whether there is an arbitration
agreement, as defined in the Act and whether the person who
has made the request before him, is a party to such an E
agreement. It is necessary to indicate that he can also decide
the question whether the claim was a dead one; or a
long-barred claim that was sought to be resurrected and
whether the parties have concluded the transaction by
recording satisfaction of their mutual rights and obligations F
or by receiving the final payment without objection. … 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. …
G
(emphasis supplied)
…
22. Where the intervention of the court is sought for appointment
of an Arbitral Tribunal under Section 11, the duty of the Chief
Justice or his designate is defined in SBP & Co. [(2005) 8 SCC H
1160 SUPREME COURT REPORTS [2020] 11 S.C.R.

A 618] This 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;
and (iii) issues which should be left to the Arbitral Tribunal to
B
decide.
22.1 The issues (first category) which the Chief Justice/his
designate will have to decide are:
(a) Whether the party making the application has approached the
C appropriate High Court.
(b) 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.
22.2 The issues (second category) which the Chief Justice/his
D designate may choose to decide (or leave them to the decision of
the Arbitral Tribunal) are:
(a) Whether the claim is a dead (long-barred) claim or a live claim.
(b) Whether the parties have concluded the contract/transaction
by recording satisfaction of their mutual rights and obligation or
E
by receiving the final payment without objection.
22.3 The issues (third category) which the Chief Justice/his
designate should leave exclusively to the Arbitral Tribunal are:
(i) Whether a claim made falls within the arbitration clause (as
F for example, a matter which is reserved for final decision of a
departmental authority and excepted or excluded from arbitration).
(ii) Merits or any claim involved in the arbitration.
23. It is clear from the scheme of the Act as explained by this
Court in SBP & Co. [(2005) 8 SCC 618] , that in regard to issues
G falling under the second category, if raised in any application under
Section 11 of the Act, the Chief Justice/his designate may decide
them, if necessary, by taking evidence. Alternatively, he may leave
those issues open with a direction to the Arbitral Tribunal to decide
the same. If the Chief Justice or his designate chooses to
H examine the issue and decides it, the Arbitral Tribunal
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cannot re-examine the same issue. The Chief Justice/his A
designate will, in choosing whether he will decide such issue
or leave it to the Arbitral Tribunal, be guided by the object of the
Act (that is expediting the arbitration process with minimum judicial
intervention). Where allegations of forgery/fabrication are made
in regard to the document recording discharge of contract by full
B
and final settlement, it would be appropriate if the Chief Justice/
his designate decides the issue.”
(emphasis supplied)
36. In Chloro Controls India Private Ltd. v. Severn Trent Water
Purification Inc., (2013) 1 SCC 641, this Court had to expound the C
scope of Section 45 in a multi-party arbitration. The Court held as under:
“84. The issue of whether the courts are empowered to review
the existence and validity of the arbitration agreement prior to
reference is more controversial. A majority of the countries admit
to the positive effect of kompetenzkompetenz principle, which D
requires that the Arbitral Tribunal must exercise jurisdiction over
the dispute under the arbitration agreement. Thus, challenge to
the existence or validity of the arbitration agreement will not prevent
the Arbitral Tribunal from proceeding with hearing and ruling upon
its jurisdiction. If it retains jurisdiction, making of an award on the
substance of the dispute would be permissible without waiting for E
the outcome of any court action aimed at deciding the issue of the
jurisdiction. The negative effect of the kompetenzkompetenz
principle is that arbitrators are entitled to be the first to determine
their jurisdiction which is later reviewable by the court, when there
is action to enforce or set aside the arbitral award. Where the F
dispute is not before an Arbitral Tribunal, the court must also
decline jurisdiction unless the arbitration agreement is
patently void, inoperative or incapable of being performed.”
(emphasis supplied)
37. In Arasmeta Captive Power Company Private Limited G
v. Lafarge India Pvt. Ltd., (2013) 15 SCC 414, this Court had to answer
the issue concerning the conflict between Chloro Controls Case
(supra) and SBP Case (supra), which the Court formulated in the
following manner:
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1162 SUPREME COURT REPORTS [2020] 11 S.C.R.

A “2. We have commenced our opinion with the aforesaid exposition
of law as arguments have been canvassed by Mr Ranjit Kumar,
learned Senior Counsel for the appellants, with innovative
intellectual animation how a three-Judge Bench in Chloro
Controls India (P) Ltd. v. Severn Trent Water Purification
Inc., (2013) 1 SCC 641 has inappositely and incorrectly understood
B
the principles stated in the major part of the decision rendered by
a larger Bench in SBP & Co. v. Patel Engg. Ltd., (2005) 8 SCC
618 and, in resistance, Mr Harish Salve and Dr A.M. Singhvi,
learned Senior Counsel for the respondent, while defending the
view expressed later by the three-Judge Bench, have laid immense
C emphasis on consistency and certainty of law that garner public
confidence, especially in the field of arbitration, regard being had
to the globalisation of economy and stability of the jurisprudential
concepts and pragmatic process of arbitration that sparkles the
soul of commercial progress. We make it clear that we are not
writing the grammar of arbitration but indubitably we intend, and
D
we shall, in course of our delineation, endeavour to clear the maze,
so that certainty remains “A Definite” and finality is “Final”.”
The Court answering the question, answered thus:
“40. From the aforesaid authorities itis luculent that the larger
E Bench in SBP [SBP & Co. v. Patel Engg. Ltd., (2005) 8 SCC
618], after deliberating at length with regard to the role of the
Chief Justice or his designate, while dealing with an application
under Section 11(6) of the Act, has thought it appropriate to define
what it precisely meant in para 39 of the judgment. The majority,
if we allow ourselves to say so, was absolutely conscious that it
F required to be so statedand hence, it did so. The deliberation was
required to be made as the decision in Konkan Railway Corpn.
Ltd. v. Rani Construction (P) Ltd. [(2002) 2 SCC 388] where
the Constitution Bench had held that an order passed by the
Chief Justice under Section 11(6) is an administrative order
G and not a judicial one and, in that context, the Bench in many a
paragraph proceeded to state about the role of the Chief Justice
or his designate. The phrases which have been emphasised by
Mr Ranjit Kumar, it can be irrefragably stated, they cannot be
brought to the eminence of ratio decidendi of the judgment. The
stress laid thereon may be innovative but when the learned Judges
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themselves have culled out the ratio decidendi in para 39, it is A
extremely difficult to state that the principle stated in SBP [SBP
& Co. v. Patel Engg. Ltd., (2005) 8 SCC 618] requires the Chief
Justice or his designate to decide the controversy when raised
pertaining to arbitrability of the disputes. Or to express an opinion
on excepted matters. Such an inference by syllogistic process is
B
likely to usher in catastrophe in jurisprudence developed in this
field. We are disposed to think so as it is not apposite to pick up a
line from here and there from the judgment or to choose one
observation from here or there for raising it to the status of “the
ratio decidendi”. That is most likely to pave one on the path of
danger and it is to be scrupulously avoided. The propositions set C
out in SBP [SBP & Co. v. Patel Engg. Ltd., (2005) 8 SCC 618]
, in our opinion, have been correctly understood by the two-Judge
Bench in Boghara Polyfab (P) Ltd. [National Insurance Co.
Ltd. v. Boghara Polyfab (P) Ltd., (2009) 1 SCC 267] and the
same have been appositely approved by the three- Judge Bench
D
in Chloro Controls India (P) Ltd. [Chloro Controls India (P)
Ltd. v. Severn Trent Water Purification Inc., (2013) 1 SCC 641]
and we respectfully concur with the same. We find no substance
in the submission that the said decisions require reconsideration,
for certain observations made in SBP [SBP & Co. v. Patel Engg.
Ltd., (2005) 8 SCC 618], were not noticed. We may hasten to add E
that the three-Judge Bench has been satisfied that the ratio
decidendi of the judgment in SBP [SBP & Co. v. Patel Engg.
Ltd., (2005) 8 SCC 618] is really inhered in para 39 of the
judgment.”
38. This Court in Duro Felguera, S.A. v. Gangavaram Port, F
(2017) 9 SCC 729, held as under:
(Justice Banumathi)
“20…Since the dispute between the parties arose in 2016, the
amended provision of sub-section (6-A) of Section 11 shall govern the
issue, as per which the power of the Court is confined only to examine G
the existence of the arbitration agreement.”
Justice Kurian Joseph)
“59. The scope of the power under Section 11(6) of the 1996 Act
was considerably wide in view of the decisions in SBP and Co. H
1164 SUPREME COURT REPORTS [2020] 11 S.C.R.

A [SBP and Co. v. Patel Engg. Ltd., (2005) 8 SCC 618] and
Boghara Polyfab [National Insurance Co. Ltd. v. Boghara
Polyfab (P) Ltd., (2009) 1 SCC 267]. 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.
B
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(6-
A) ought to be respected.”
(emphasis supplied)
C
39. However, in Oriental Insurance Company Ltd. v.
Narbheram Power and Steel Private Limited, (“Oriental Insurance”)
(2018) 6 SCC 534, a three-Judge Bench of this Court, following the
decision in Vulcan Insurance v. Maharaj Singh, (1976) 1 SCC 943,
dismissed an application under Section 11 of the Act after examining the
D arbitrability of the dispute. It may be noted that the Court did not answer
the question as to the power of the Court under Section 11 of the Act in
this case.
40. Similarly, in United India Insurance Company Limited v.
Hyundai Engineering and Construction Company Limited,
E (“Hyundai Engineering”) (2018) 17 SCC 607, the Court examined
the arbitrability of the dispute as well as whether the dispute fell within
the ambit of an excepted matter by placing heavy reliance on the
decision in Oriental Insurance (supra). These two cases are, by
necessary, implication to be restricted to the facts and circumstances of
F the case.
41. Further, in United India Insurance Company Limited v.
Antique Art Exports Private Limited (“Antique Arts”), (2019) 5 SCC
362, this Court, in a proceeding under Section 11 of the Act, distinguished
the holding in Duro Felguera (supra) on the grounds that the same
G was a mere general observation about the effect of the amended
provisions and that the said decision was distinguishable on the facts of
the case. The Court held that the power under Section 11 with the Chief
Justice/ his designates is a judicial power and not an administrative
function, therefore leaving some degree of judicial intervention. The Court
went on to hold that when it comes to examining the prima facie
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existence of an arbitration agreement, it is always necessary to ensure A
that the dispute resolution process does not become unnecessarily
protracted. On this basis, the Court, in a proceeding under Section 11 of
the Act, analyzed the effect of the execution of a discharge voucher and
the settlement of the claim by accord and satisfaction. On finding the
claim to have been settled by accord and satisfaction, the Court held
B
that there was no dispute under the agreement to be referred to an
arbitrator for adjudication.
42. In Mayavati Trading Pvt. Ltd. v. Pradyuat Deb Burman,
(2019) 8 SCC 714, a Bench of three Judges, while overruling the Antique
Arts Case (supra), held as under:
C
“10. This being the position, it is clear that the law prior to the
2015 Amendment that has been laid down by this Court, which
would have included going into whether accord and satisfaction
has taken place, has now been legislatively overruled. This being
the position, it is difficult to agree with the reasoning contained in
the aforesaid judgment [United India Insurance Co. Ltd. v. D
Antique Art Exports (P) Ltd., (2019) 5 SCC 362] , as Section
11(6-A) 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 in Duro Felguera, SA
[Duro Felguera, SA v. Gangavaram Port Ltd., (2017) 9 SCC E
729] — see paras 48 & 59 [Ed.: The said paras 48 & 59 of Duro
Felguera, SA v. Gangavaram Port Ltd., (2017) 9 SCC 729,
for ready reference, read as follows:”48. Section 11(6-A)
added by the 2015 Amendment, reads as follows:”11. (6- A) The
Supreme Court or, as the case may be, the High Court, while
considering any application under sub-section (4) or sub- section F
(5) or sub-section (6), shall, notwithstanding any judgment,
decree or order of any court, confine to the examination of
the existence of an arbitration agreement.”(emphasis supplied)
From a reading of Section 11(6-A), the intention of the legislature
is crystal clear i.e. the court should and need only look into one G
aspect— the existence of an arbitration agreement. What are the
factors for deciding as to whether there is an arbitration agreement
is the next question. The resolution to that is simple—it needs to
be seen if the agreement contains a clause which provides for
arbitration pertaining to the disputes which have arisen between
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1166 SUPREME COURT REPORTS [2020] 11 S.C.R.

A the parties to the agreement.***59. The scope of the power under
Section 11(6) of the 1996 Act was considerably wide in view of
the decisions in SBP & Co. v. Patel Engg. Ltd., (2005) 8 SCC
618 and National Insurance Co. Ltd. v. Boghara Polyfab (P)
Ltd., (2009) 1 SCC 267. This position continued till the amendment
brought about in 2015. After the amendment, all that the courts
B
need to see is whether an arbitration agreement exists— nothing
more, nothing less. The legislative policy and purpose is essentially
to minimise the Court’s intervention at the stage of appointing the
arbitrator and this intention as incorporated in Section 11(6-A)
ought to be respected.”].
C 11. We, therefore, overrule the judgment in Antique Art Exports
(P) Ltd. [United India Insurance Co. Ltd. v. Antique Art
Exports (P) Ltd., (2019) 5 SCC 362] as not having laid down
the correct law but dismiss this appeal for the reason given in
para 3 above.”
D 43. From the study of the precedents, the following propositions,
concerning Section 11 of the Act, are clear and binding:
1. Reference power under Section 11 of the Act is judicial and
not administrative.

E 2. There was a wide discretion for judicial interference at the
stage of reference under Section 11 of the Act, prior to the
Arbitration Amendment Act of 2015.
3. Amendment in 2015 was brought into force to limit the power
of judicial interference under Section 11 of the Act.
F 44. Having observed the precedents holding the field in respect of
Section 11, we now come to an analysis of Section 8. Section 8 of the
Act applies, when a matter is brought by one of the parties before the
Court, and the other party brings to the notice of the Court of existence
of such arbitration agreement. Under these circumstances, the Court is
obligated to refer a matter to arbitration, on satisfaction that a valid
G
arbitration agreement exists between the parties. The 2015 amendment
clarified that the test to be utilized by the Court is on a prima facie
basis.
45. The primary reason for the same, is the negative effect of
Kompetenz Kompetenz under Section 16, which mandates that the
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arbitral tribunal is required to first look into any objections as to the A
jurisdiction of the tribunal itself. It is due to the fact that parties may
abuse and protract the proceedings if there is no gatekeeping mechanism,
that the legislature has found a balance, wherein the Court is required to
examine the validity of an arbitration agreement on a prima facie basis.
46. In this context, we need to examine the meaning of ‘validity B
of arbitration agreement’ as occurring under Section 8 of the Act. There
is no doubt that ‘validity’ to be examined under Section 8(2) of the Act,
could be interpreted to mean formal validity as expressed under Section
7 of the Act. Such an interpretation would operate as a full application of
the negative facet of Section 16, as the jurisdiction of the Court to step-in
at the -reference stage would be limited. However, the burden of the C
precedents stops us from accepting such a narrow interpretation.
47. This brings us to the issue whether the issue of ‘arbitrability’
can be analyzed by the Courts under Section 8 or 11 of the Act?
48. There is no doubt that ‘arbitrability’ has acquired various D
meaning around the world. In this context, this Court is required to first
identify the various meaning for the aforesaid term, in order to recognize
its meaning in the Indian context. Outside the United States of America,
the term “arbitrability” has a reasonably precise and limited meaning,
relating to whether specific classes of disputes are barred from arbitration
because of national legislation or judicial authority. In the United States E
of America, arbitrability also refers to the complicated balance between
courts and arbitrators regarding who should be the initial decision-maker
on issues such as the validity of the arbitration agreement. Out of the
two meanings, we subscribe to the international flavor, which is one of
the cherished legislative intentions, i.e., to bring the arbitration act in F
tune with the global march. Having ascertained the meaning of arbitrability,
we need to analyze whether arbitrability could be determined by the
Court at the reference stage.
49. No doubt, arbitrability finds a close nexus with the validity of
the arbitration agreement, yet we need to observe the unique nature of G
the arbitration agreement, which is a bundle of contractual and
jurisdictional elements. Even if a Tribunal comes to an understanding
that there exists a valid arbitration agreement, still it does not mean that
certain subject matters are arbitrable per se. This distinction is required
to be kept in mind.
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A 50. Section 34 (2)(b) provides the statutory basis for objecting
that an award which may not be capable of being settled by arbitration,
or is against the public policy of India. The legislative intention of not
arbitrating issues of public policy are intertwined with the fact that
monopolies of the State activities should not be subject matter of a private
tribunal, as the concerns of the State cannot not be dealt effectively.
B
Further, an award, which has an erga omnes effect on third parties,
would not be in tune with the contractual nature of arbitration, which is
binding on the consenting parties alone. However, this feature alone,
does not explicitly mandate that the tribunal cannot first adjudicate a
claim based on the public policy argument.
C 51. It is to be noted that whether a subject matter can or cannot
be arbitrated should necessarily be dealt on a case to case basis, rather
than a having a bold exposition that certain subject matters are incapable
of arbitration. This case is one such example of over-broad ratio,
expounded by this Court by laying that certain subject areas cannot be
D arbitrated per se. At this juncture, we may observe the case of The
London Steamship Owners’ Mutual Insurance Association Ltd v The
Kingdom of Spain and The French State, [2015] EWCA Civ 333.
The case relates to an oil spill off the coast of Spain and France
from a vessel named ‘The Prestige’, which resulted in the Government
of Spain and France taking action against the Captain of the ship and
E other officers under the Spanish Criminal Code, as well as instituting a
case against the Owner to pay punitive damages under the Spanish Penal
Code. It may be noted that the claim was also brought against the insurer
of the ship for indemnity. Those claims were based both on the insurer’s
obligation to indemnify the owners against their obligations under the
F International Convention on Civil Liability for Oil Pollution Damage and
on its obligation to indemnify them against their independent liability for
the tortious acts of the master, chief officer and chief engineer. The
insurers took pre-emptive action by commencing arbitral proceedings
for declaratory relief: a declaration that France and Spain were bound
by the arbitration clause provided in the insurers’ rules and that the
G insurers were not liable under the underlying contract. The relief sought
was granted in favour of the insurers in the form of arbitral awards. The
insurers attempted to enforce the arbitral awards in England before the
judgment was rendered in the Spanish legal proceedings. France and
Spain opposed this enforcement of the arbitral awards on various grounds.
H One such reason, which was raised on behalf of Spain, was that the
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matter was incapable of being resolved by arbitration. The Court while A
dismissing the aforesaid objection, held that:
In my view this passage amounts to a finding that a conviction is
not an integral element of the cause of action. The distinction is
important, because even if a conviction were a pre-condition to
the right to recover against the insurer, there would be no reason B
why an arbitrator should not determine a claim of this kind, taking
into account whether the condition has or has not been satisfied.
He cannot, on the other hand, formally convict any person of a
criminal offence.
This Court does recognize the jurisdictional differences and C
uniqueness between England and India, while placing reliance on the
same. However, the important aspect is that the plea of public policy is
required to be specifically identified, pleaded and shown with respect to
how the award is contrary to the public policy. It may be possible that
there may be certain claims abutting a restricted sphere, which may not
be specifically hit by public policy or have erga omnes effect. If that be D
so, it would be too early at the stage of reference to determine the same
as it would require complete examination of the issue at hand, which is
more suited to be first dealt by the Tribunal and thereafter be looked into
at the stage of enforcement.
52. To this extent, even this Court in Avitel Post Studioz Limited E
v. HSBC PI Holdings (Mauritius) Limited, Civil Appeal No. 5145 of
2016 has held as under:
“16. In the light of the aforesaid judgments, paragraph 27(vi) of
Afcons [Afcons Infrastructure Ltd. v. Cherian Varkey
Construction Co. (P) Ltd., (2010) 8 SCC 24] and paragraph 36(i) F
of Booz Allen [Booz Allen & Hamilton Inc. v. SBI Home Finance
Ltd., (2011)5 SCC 532, must now be read subject to the rider that
the same set of facts may lead to civil andcriminal proceedings
and if it is clear that a civil dispute involvesquestions of fraud,
misrepresentation, etc. which can be the subject matter of such G
proceeding under section 17 of the Contract Act, and/or the tort
of deceit, the mere fact that criminal proceedings can or have
been instituted in respect of the same subject matter would not
lead to the conclusion that a dispute which is otherwise arbitrable,
ceases to be so.”
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A 53. It is important to note that various countries have already
allowed inter-partes arbitration with respect to in rem rights concerning
intellectual property etc., through a statutory framework. It is worthwhile
to study the feasibility of the same, if we want to provide impetus to
arbitration.
B 54. On a different note, we need to keep in mind that an arbitration
agreement would, as a necessary implication, carry with it a presumption
of a one-stop mechanism. When parties decide to enter into an arbitration
agreement, they agree to take all their disputes before arbitration. This
presumption, is a rebuttable presumption. Therefore, Section 8 and 11
has to be interpreted with sufficient strictness, wherein the jurisdiction
C of the Court to decide issues should be limited to those expressly provided
by the law.
55. This Court has dealt with various judgments on the issue of
arbitrability, which are required to be discussed at this point. The first
case is of Booz Allen and Hamilton Inc. v. SBI Home Finance Ltd.,
D (2011) 5 SCC 532, wherein a Division Bench dealt with the ambit of
Section 8 and 11 (prior to amendment), qua subject matter arbitrability.
This Court observed as under:
“32. The nature and scope of issues arising for consideration in
an application under Section 11 of the Act for appointment of
E arbitrators, are far narrower than those arising in an application
under Section 8 of the Act, seeking reference of the parties to a
suit to arbitration. While considering an application under Section
11 of the Act, the Chief Justice or his designate would not embark
upon an examination of the issue of “arbitrability” or
F appropriateness of adjudication by a private forum, once he finds
that there was an arbitration agreement between or among the
parties, and would leave the issue of arbitrability for the decision
of the Arbitral Tribunal. If the arbitrator wrongly holds that the
dispute is arbitrable, the aggrieved party will have to challenge
the award by filing an application under Section 34 of the Act,
G relying upon sub-section (2)(b)(i) of that section.”
The Court was cognizant of the fact that prior to the 2015
amendment, Section 11 posits a limited jurisdiction for the Courts to deal
with, in comparison to Section 8, which occurs at a different stage. In
this context, it is relevant to quote paragraphs 33 and 36, which reads as
H under:
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33. But where the issue of “arbitrability” arises in the context A
of an application under Section 8 of the Act in a pending suit, all
aspects of arbitrability will have to be decided by the court seized
of the suit, and cannot be left to the decision of the arbitrator.
Even if there is an arbitration agreement between the parties, and
even if the dispute is covered by the arbitration agreement, the
B
court where the civil suit is pending, will refuse an application
under Section 8 of the Act, to refer the parties to arbitration, 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.
XXXXXX C

36. The well-recognised 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 D
matters; (v) testamentary matters (grant of probate, letters
of administration and succession certificate); and (vi) eviction or
tenancy matters governed by special statutes where the tenant
enjoys statutory protection against eviction and only the specified
courts are conferred jurisdiction to grant eviction or decide the E
disputes.
The Court came to the aforesaid conclusion, of ascertaining certain
subject matters as non-arbitrable, on two main reasons, (1.) that certain
matters are excluded for examination by a private forum; (2) that in rem
rights cannot be arbitrated. F
56. In A. Ayysamy v. A. Paramsivam, (2016) 10 SCC 386, this
Court had to deal with an issue concerning the arbitrability of fraud
under the Act, prior to the 2015 amendment. The Court by two separate
opinions delivered by Justice A. K. Sikri and Dr. D. Y. Chandrachud,
has recognized that the Court at the reference stage, could classify a G
matter and accordingly refer a matter to arbitration which does not have
serious allegations of fraud.
57. In Emaar MGF Land Limited v. Aftab Singh, (2019) 12
SCC 751, this Court held that Consumer Protection Act cases are not
arbitrable. On a perusal of the judgment, no doubt reliance was placed
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1172 SUPREME COURT REPORTS [2020] 11 S.C.R.

A on the Booz Allen Case (supra) and there is some discussion on the
scope of Section 8 of the Arbitration Act. However, the thrust of the
reasoning is not on the question of arbitrability, rather it was on the fact
that the Consumer Protection Act, had an implied bar for referring a
matter to arbitration, being a special legislation. The difference is subtle,
yet it is required to be recognized that the Consumer Protection Act,
B
impliedly barred the application of the Arbitration Act.
58. From a study of the above precedents, the following conclusion,
with respect to adjudication of subject-matter arbitrability under Section
8 or 11 of the Act, are pertinent:
C a) In line with the categories laid down by the earlier judgment
of Boghara Polyfab (supra), the Courts were examining
‘subject-matter arbitrability’ at the pre-arbitral stage, prior
to the 2015 amendment.
b) Post the 2015 amendment, judicial interference at the
D reference stage has been substantially curtailed.
c) Although subject matter arbitrability and public policy
objections are provided separately under Section 34 of the
Act, the Courts herein have understood the same to be
interchangeable under the Act. Further, subject matter
E arbitrability is inter-linked with in-rem rights.
d) There are special classes of rights and privileges, which enure
to the benefit of a citizen, by virtue of constitutional or
legislative instrument, which may affect the arbitrability of a
subject matter.
F 59. It may be noted that the Act itself does not exclude any category
of disputes as being non-arbitrable. However, the Courts have used the
‘public policy’ reason to restrict arbitration with respect to certain subject
matters. In line with the aforesaid proposition, the Courts have interfered
with the subject matter arbitrability at the pre-reference stage.
G 60. However, post the 2015 amendment, the structure of the Act
was changed to bring it in tune with the pro-arbitration approach. Under
the amended provision, the Court can only give prima facie opinion on
the existence of a valid arbitration agreement. In line with the amended
language and the statutory scheme, the examination of the subject matter
arbitrability may not be appropriate at the stage of reference under Section
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8 of the Arbitration Act. It is more appropriate to be taken up by the A
Court at the stage of enforcement under Section 34 of the Act. Having
said so, in clear cases where the subject matter arbitrability is clearly
barred, the Court can cut the deadwood to preserve the efficacy of the
arbitral process.
61. At this stage a word of caution needs to be said for arbitrators. B
They have been given jurisdiction to decide on the subject matter
arbitrability. They are required to identify specific public policy in order
to determine the subject matter arbitrability. Merely because a matter
verges on a prohibited territory, should not by in itself stop the arbitrator
from deciding the matter. He/she should be careful in considering the
question of non-arbitrability. C

62. This brings us to the question of what prima facie case means,
as is required to determine the non-existence of a valid arbitration
agreement under Section 8 of the Act. The meaning and scope of ‘prima
facie’ has greatly varied in common law as well as the civil law systems.
Immediately, at least two meanings can be attributed to this term. First, D
it means a party is said to have established a prima facie case when he
has satisfied his burden of producing evidence. The second meaning
postulates that a party has established a prima facie case only when he
has made such a strong showing that he is entitled to a presumption in
his favor. Shin-Etsu Case (supra), categorically laid that prima facie E
test is to be adopted under Section 45 of the Act (prior to the 2015
amendment). The Court was of the opinion that prima facie
determination was seen as the view of Court, which can again be gone
into by the Tribunal.
63. In Antique Arts (supra) (subsequently over-ruled on a F
different point), this Court while following New India Assurance Co.
Ltd. v. Genus Power Infrastructure Ltd., (2015) 2 SCC 424 held that
that a bald plea of fraud, coercion, duress or undue influence is not
enough and the party who sets up a plea, must establish the same on a
prima facie basis by placing material before the Chief Justice/his
designate. This categorically establishes that prima facie case is relatable G
to establishment of initial presumption, rather than an evidentiary
standard.
64. The 246th Law Commission Report, in respect of scope and
nature of pre-arbitral judicial intervention, states as under:
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1174 SUPREME COURT REPORTS [2020] 11 S.C.R.

A “28. The Act recognizes situations where the intervention of the
Court is envisaged at the pre-arbitral stage i.e. prior to the
constitution of the Arbitral Tribunal, which includes Sections 8, 9,
11 in the case of Part I arbitrations and Section 45 in the case of
Part II arbitrations. Sections 8, 45 and also Section 11 relating to
“reference to arbitration” and “appointment of the Tribunal”,
B
directly affect the constitution of the Tribunal and functioning of
the arbitral proceedings. Therefore, their operation has a direct
and significant impact on the “conduct” of arbitrations. Section 9,
being solely for the purpose of securing interim relief, although
having the potential to affect the rights of parties, does not affect
C the “conduct” of the arbitration in the same way as these other
provisions. It is in this context the Commission has examined and
deliberated the working of these provisions and proposed certain
amendments.
29. The Supreme Court has had occasion to deliberate upon the
D scope and nature of permissible pre- arbitral judicial intervention,
especially in the context of Section 11 of the Act. Unfortunately,
however, the question before the Supreme Court was framed in
terms of whether such a power is a “judicial” or an “administrative”
power — which obfuscates the real issue underlying such
nomenclature/description as to —
E
— the scope of such powers — i.e. the scope of arguments which
a court (Chief Justice) will consider while deciding whether to
appoint an arbitrator or not — i.e. whether the arbitration
agreement exists, whether it is null and void, whether it is voidable,
etc.; and which of these it should leave for decision of the Arbitral
F Tribunal.
— the nature of such intervention — i.e. would the court (Chief
Justice) consider the issues upon a detailed trial and whether the
same would be decided finally or be left for determination of the
Arbitral Tribunal.
G
30. After a series of cases culminating in the decision in SBP &
Co. v. Patel Engg. Ltd., (2005) 8 SCC 618 , the Supreme Court
held that the power to appoint an arbitrator under Section 11 is a
“judicial” power. The underlying issues in this judgment, relating
to the scope of intervention, were subsequently clarified by
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Raveendran, J. in National Insurance Co. Ltd. V. Boghara A
Polyfab (P) Ltd., (2009) 1 SCC 267,
…..
…..
32. In relation to the nature of intervention, the exposition of the B
law is to be found in the decision of the Supreme Court in Shin-Etsu
Chemical Co. Ltd. V. Aksh Optifibre Ltd., (2005) 7 SCC 234] ,
(in the context of Section 45 of the Act), where the Supreme
Court has ruled in favour of looking at the issues/controversy only
prima facie.
C
33. It is in this context, the Commission has recommended
amendments to Sections 8 and 11 of the Arbitration and
Conciliation Act, 1996. The scope of the judicial
intervention is only restricted to situations where the court/
judicial authority finds that the arbitration agreement does
not exist or is null and void. Insofar as the nature of D
intervention is concerned, it is recommended that in the
event the court/judicial authority is prima facie satisfied
against the argument challenging the arbitration agreement,
it shall appoint the arbitrator and/or refer the parties to
arbitration, as the case may be. The amendment envisages E
that the judicial authority shall not refer the parties to
arbitration only if it finds that there does not exist an
arbitration agreement or that it is null and void. If the judicial
authority is of the opinion that prima facie the arbitration
agreement exists, then it shall refer the dispute to
arbitration, and leave the existence of the arbitration F
agreement to be finally determined by the Arbitral Tribunal.
However, if the judicial authority concludes that the
agreement does not exist, then the conclusion will be final
and not prima facie. The amendment also envisages that
there shall be a conclusive determination as to whether G
the arbitration agreement is null and void. In the event that
the judicial authority refers the dispute to arbitration and/
or appoints an arbitrator, under Sections 8 and 11
respectively, such a decision will be final and non-appealable.

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1176 SUPREME COURT REPORTS [2020] 11 S.C.R.

A An appeal can be maintained under Section 37 only in the
event of refusal to refer parties to arbitration, or refusal to
appoint an arbitrator.”
(emphasis supplied)
65. The difference of statutory language provided under the
B amended Section 8, which states refer the parties to arbitration unless
it finds that prima facie no valid arbitration agreement exists’ in
comparison with the amended Section 11(6A), creates disparities which
need to be ironed out. While the Court in the Shin-Etsu case
(supra) and the Duro Felguera case (supra) recommended for finding
C a valid arbitration agreement on a prima facie basis qua Section 11,
however, the negative language used under the amended Section 8
mandates for referring a matter to arbitration unless the Court prima
facie finds that no valid arbitration exists. It is to be noted that a finding
of non- existence of arbitration agreement is final subject to the appeal
process only, without further scope for arbitration tribunal to decide
D anything as there can be no further reference. If that be the case, then
the usage of phrase ‘prima facie’ stands at odds with the established
precedents on prima facie standards. In this context, we can only stress
on the requirement of quality legislative drafting protocols to eliminate
such complications.
E 66. From the aforesaid discussion, we can conclude that the
respondent/defendant has to establish a prima facie case of
non-existence of valid arbitration agreement, wherein it is to be summarily
portrayed that a party is entitled to such a finding. If a party cannot
satisfy the Court of the same on the basis of documents produced,
F and rather requires extensive examination of oral and documentary
production, then the matter has to be necessarily referred to the Tribunal
for full trial. Such limited jurisdiction vested with the Court, is necessary
at the pre-reference stage to appropriately balance the power of the
Tribunal with judicial interference.

G 67. The amendment to the aforesaid provision was meant to cut
the dead wood in extremely limited circumstances, wherein the respondent
is able to ex-facie portray non-existence of valid arbitration agreement,
on the documents and the pleadings produced by the parties. The prima
facie view, which started its existence under Section 45 through Shin-Etsu
Case (supra), has been explicitly accommodated even under domestic
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arbitration by the 2015 amendment with appropriate modifications. A
68. Before we part with this aspect, it was extensively argued
before us that the test for the Court is to see whether a party is able to
establish a ‘good arguable case’ for establishing the existence of the
arbitration agreement. However, the statutory language under Sections
8 and 11 emphasizes on the threshold requirement for a party for B
establishing the opposite. No doubt, the aforesaid approach may have
merits. However, if the ‘good arguable case standard’ is integrated for a
party requiring to show non- existence, then the same would amount to
judicial activism. Such attempts to integrate alien formulations into the
Act, which has already suffered sufficient judicial subjectivism, needs to
be dissuaded. C

69. Having established the threshold standard for the Court to
examine the extent of validity of the arbitration agreement, as a starting
point, it is necessary to go back to Duro Felguera (supra), which laid
down:
D
“48…..From a reading of Section 11(6-A), 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. What
are the factors for deciding as to whether there is an arbitration
agreement is the next question. The resolution to that is simple — E
it needs to be seen if the agreement contains a clause which
provides for arbitration pertaining to the disputes which have arisen
between the parties to the agreement.”
At first blush, the Court seems to have read the existence of the
arbitration agreement by limiting the examination to an examination of
F
its factual existence. However, that is not so, as the existence of
arbitration agreement does not mean anything unless such agreement is
contractually valid. This view is confirmed by the Duro Felguera case
(supra), wherein the reference to the contractual aspect of arbitration
agreement is ingrained under the Section 7 analysis. A mere agreement
is not legally binding, unless it satisfies the core contractual requirements, G
concerning consent, consideration, legal relationship, etc. In Mayavati
Trading Case (supra) and Garware Wall Ropes Ltd. v. Coastal
Marine Construction and Engineering Ltd., [2019] 9 SCC 209, the
aforesaid stand has been confirmed. Therefore, the scope of the Court
to examine the prima facie validity of an arbitration agreement includes
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1178 SUPREME COURT REPORTS [2020] 11 S.C.R.

A only the determination of the following:
92. Whether the arbitration agreement was in writing? or
93. Whether the arbitration agreement was contained in exchange
of letters, telecommunication, etc?
B 94. Whether the core contractual ingredients qua the arbitration
agreement were fulfilled?
95. On rare occasions, whether the subject-matter of dispute is
arbitrable?
At the cost of repetition, we note that Section 8 of the Act
C mandates that a matter should not be referred to an arbitration by a
court of law unless it finds that prima facie there is no valid arbitration
agreement. The negative language used in the Section is required to be
taken into consideration, while analyzing the Section. The Court should
refer a matter if the validity of the arbitration agreement cannot be
D determined on a prima facie basis, as laid down above. Therefore, the
rule for the Court is ‘when in doubt, do refer’.
70. Moreover, the amendment to Section 8 now rectifies the
short-comings pointed out in the Chloro Control Case (supra) with
respect to domestic arbitration. Jurisdictional issues concerning whether
certain parties are bound by a particular arbitration, under group-company
E
doctrine or good faith, etc., in a multi-party arbitration raises complicated
factual questions, which are best left for the tribunal to handle. The
amendment to Section 8 on this front also indicates the legislative intention
to further reduce the judicial interference at the stage of reference.
71. Courts, while analyzing a case under Section 8, may choose
F
to identify the issues which require adjudication pertaining to the validity
of the arbitration agreement. If the Court cannot rule on the invalidity of
the arbitration agreement on a prima facie basis, then the Court should
stop any further analysis and simply refer all the issues to arbitration to
be settled.
G 72. Coming to the scope of judicial interference under Section 11,
the 246th Law Commission Report noted that:
“31. The Commission is of the view that, in this context, the same
test regarding scope and nature of judicial intervention, as
applicable in the context of Section 11, should also apply to Sections
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8 and 45 of the Act — since the scope and nature of judicial A
intervention should not change upon whether a party (intending to
defeat the arbitration agreement) refuses to appoint an arbitrator
in terms of the arbitration agreement, or moves a proceeding before
a judicial authority in the face of such an arbitration agreement.”
73. We are cognizant of the fact that the statutory language of B
Section 8 and 11 are different, however materially they do not vary and
both Sections provide for limited judicial interference at reference stage,
as enunciated above.
74. In line with our holding on question no. 1, generally it would
not have been appropriate for us to delve into the second question. C
However, considering that a question of law has been referred to us, we
agree with the conclusions reached by our learned brother.
75. Before we part, the conclusions reached, with respect to
question no. 1, are:
a. Sections 8 and 11 of the Act have the same ambit with respect D
to judicial interference.
b. Usually, subject matter arbitrability cannot be decided at the
stage of Sections 8 or 11 of the Act, unless it’s a clear case
of deadwood.
E
c. The Court, under Sections 8 and 11, has to refer a matter to
arbitration or to appoint an arbitrator, as the case may be,
unless a party has established a prima facie (summary
findings) case of non-existence of valid arbitration
agreement, by summarily portraying a strong case that he is
entitled to such a finding. F
d. The Court should refer a matter if the validity of the arbitration
agreement cannot be determined on a prima facie basis, as
laid down above, i.e., ‘when in doubt, do refer’.
e. The scope of the Court to examine the prima facie validity
of an arbitration agreement includes only: G

a. Whether the arbitration agreement was in writing? or
b. Whether the arbitration agreement was contained in
exchange of letters, telecommunication etc?
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1180 SUPREME COURT REPORTS [2020] 11 S.C.R.

A c. Whether the core contractual ingredients qua the
arbitration agreement were fulfilled?
d. On rare occasions, whether the subject-matter of dispute
is arbitrable?

B Kalpana K. Tripathy Referred questions answered and appeals and SLPs disposed of.

C

D

E

F

G

H