Summary
Where an arbitrator was appointed under Section 11(6) before the 2015 amendments, in the SBP & Co. regime, and the appointment order went unchallenged, the Supreme Court held that the order impliedly decided the existence and validity of the arbitration agreement and bound the parties as res judicata, so the Section 34 court and High Court erred in setting aside the awards on the ground that Clause 23 was not an arbitration clause; the matters were remitted for the other objections.
Issues
- Whether, for arbitral proceedings governed by the law before the 2015 Amendment Act, the respondents could challenge the existence and validity of the arbitration clause before the arbitrator and in Section 34 proceedings after an unchallenged Section 11 order appointing the arbitrator.
- Whether the Section 34 court could treat the Section 11 order as not binding because it had no precedential value, and rely on other High Court decisions holding an identical Clause 23 not to be an arbitration clause.
Provisions considered
- Section 11(6) and (7) (pre-2015), Arbitration and Conciliation Act, 1996Following SBP & Co., the Chief Justice or designate exercising this power performs a judicial function, must decide whether a valid arbitration agreement exists, and the decision binds the parties before the tribunal and at later stages save in an appeal to the Supreme Court. (¶¶ 9, 20, 22, 31)
- Section 11(6A), Arbitration and Conciliation Act, 1996Introduced from 23.10.2015 and confining the inquiry to existence of the agreement; set out only to contrast it with the earlier position, as it did not apply here. (¶¶ 9, 19, 23)
- Section 16, Arbitration and Conciliation Act, 1996Under the SBP regime, the tribunal's competence to rule on its jurisdiction does not let it reopen jurisdictional issues decided by the Chief Justice under Section 11 before the reference. (¶¶ 20, 21, 29)
- Section 26, Arbitration and Conciliation (Amendment) Act, 2015The 2015 amendments do not apply to arbitral proceedings commenced before the amendment came into force unless parties agree, so the pre-amendment SBP position governed. (¶¶ 3, 23)
Held
- In the SBP & Co. regime, a Section 11 court was bound to decide whether there was a valid arbitration agreement, and that finding bound the parties before the arbitral tribunal and at all later stages, including Section 34 and Section 37 proceedings, the only exception being a challenge to the appointment order before the Supreme Court. (¶¶ 19, 20, 21, 22, 31)
- Although the order appointing the arbitrator was not categorical, it contained an implied holding on the existence and validity of the arbitration agreement, since otherwise no appointment could have been made; the respondents' acceptance of the order without challenge put the matter beyond controversy. (¶¶ 22, 27)
- Precedent operates in rem whereas res judicata operates in personam between the same parties; the Section 11 order operated as res judicata on the existence and validity of the arbitration agreement, so its correctness was immaterial, and the Commercial Court erred in disregarding it as lacking precedential value. (¶¶ 24, 25, 27, 29, 30, 31)
- Decisions of the Rajasthan High Court in other Section 11 applications holding an identical Clause 23 not to be an arbitration clause could not help the respondents, because the binding effect between these parties flowed from the unchallenged order in their own case. (¶¶ 26, 27, 29)
- Had the 2015 Amendment Act applied, the position would have been different, because under Section 11(6A) as explained in In re Interplay the referral court takes only a prima facie view on existence, leaving existence and validity to the tribunal. (¶ 23)
Result
Both appeals allowed and disposed of; High Court judgments of 20.02.2020 set aside; Section 34 proceedings (Arbitration Case Nos. 221 of 2018 and 114 of 2018) remitted to Commercial Court No. 3, Jaipur to decide the other objections within three months; parties to bear own costs.