Summary
IOCL's contracts with NCC limited arbitration to 'Notified Claims' included in the final bill. Clause 9.0.2.0 excluded from arbitration the question whether a claim is a Notified Claim, which the General Manager was to decide first. The Delhi High Court appointed arbitrators in five petitions. The Supreme Court held that even after Section 11(6-A), a court may examine at the Section 11 stage whether a dispute is ex facie non-arbitrable or an excepted matter, and may take a prima facie view on accord and satisfaction. Where accord and satisfaction is seriously disputed, it is best left to the tribunal, so the appointment in the lead case stood. But where the General Manager had decided that claims were not Notified Claims, they were excepted matters and could not be referred. Three appointments were set aside, and one reference was confined to the single Notified Claim.
Issues
- What is the scope of the court's inquiry under Section 11(6) after the insertion of Section 11(6-A), in particular on non-arbitrability, excepted matters and accord and satisfaction?
- Whether claims that the General Manager has decided under Clause 9.0.2.0 are not Notified Claims can be referred to arbitration.
- Whether a dispute over whether the claims were settled by accord and satisfaction, through acceptance of the final bill after a conditional withdrawal of claims, should be decided by the court or by the arbitral tribunal.
Provisions considered
- Sections 11(6) and 11(6-A), Arbitration and Conciliation Act, 1996The court's review is limited and prima facie. It may still decline a reference where a dispute is manifestly non-arbitrable or an excepted matter (Vidya Drolia, Nortel Networks). Arguable or contested issues are referred to the tribunal. (¶¶ 10.9, 10.10, 10.11, 10.12, 13)
- Section 16, Arbitration and Conciliation Act, 1996In the lead case, the tribunal was directed to decide accord and satisfaction and arbitrability first, on the pending Section 16 application. (¶¶ 13, 13.1, 14)
- Clauses 1.21.0.0, 6.6.1.0 to 6.6.4.0, 6.7.1.0, 6.7.2.0, 9.0.1.0 and 9.0.2.0, General Conditions of Contract (IOCL)Only Notified Claims included in the final bill are arbitrable. Whether a claim is a Notified Claim is an excepted matter, to be decided by the General Manager before arbitration, and the tribunal has no jurisdiction over it. (¶¶ 11, 11.1, 11.4, 11.5, 11.6, 11.7, 11.8, 13.2)
Held
- Party autonomy is the backbone of arbitration. Parties may agree that only specified disputes will be arbitrated and that certain matters are excepted and decided by a named officer, and such clauses are construed strictly and bind them (Narbheram, Mitra Guha, Harsha Constructions, Sreekanth Transport). (¶¶ 10.2, 10.3, 10.4, 10.7, 10.8, 13.3)
- The High Court was wrong to hold that, after Section 11(6-A), the court may only ascertain whether a binding arbitration agreement exists. Although the tribunal can decide its jurisdiction and arbitrability, the court at the Section 11 stage may consider whether a dispute is non-arbitrable or within an excepted clause where the facts are clear and glaring. It may also take a prima facie view of accord and satisfaction. (¶ 13)
- In the lead case, whether accepting Rs 4,53,04,021 after the contractor's conditional letter of 02.11.2016 amounted to accord and satisfaction is seriously disputed and reasonably arguable. It is not an open-and-shut case, so it was rightly left to the tribunal. Because the question of Notified Claims was interlinked with it, that too was left to the tribunal. (¶¶ 13, 13.1)
- Under Clauses 9.0.1.0 and 9.0.2.0, only Notified Claims included in the final bill are arbitrable. Whether a claim is a Notified Claim is excepted from arbitration and is to be decided by the General Manager first. Once the General Manager has consciously decided that a claim is not a Notified Claim, it cannot be referred, and the High Court misread these clauses. (¶¶ 11.8, 13.2, 13.4, 13.5)
- Where the General Manager declared only one claim to be a Notified Claim, only that claim may be arbitrated. (¶ 13.6)
Result
Civil Appeal No. 341/2022 (Arbitration Petition 115/2018) dismissed. The arbitrator must first decide accord and satisfaction and arbitrability on the Section 16 application within three months of a first sitting, to be held within one month. Civil Appeal Nos. 342, 343 and 345/2022 allowed and the appointments set aside. Civil Appeal No. 344/2022 partly allowed, confining the reference to the one claim declared a Notified Claim. No costs.