Summary
A collaboration agreement for a Gurugram colony allowed disputes over obligations, including those in Clauses 3, 6 and 9, to be specifically enforced in court (Clause 36). All other disputes went to arbitration (Clause 37). On the landowners' Section 11 application, the Delhi High Court appointed arbitrators without deciding the developer's plea that the dispute fell under Clause 36. The Supreme Court held that arbitration clauses are construed strictly and that excepted matters are not arbitrable. Under Vidya Drolia and Indian Oil v NCC, a court at the Section 11 stage must make at least a prima facie inquiry where non-arbitrability is specifically raised. The appointment was set aside and the matter remitted for such an inquiry.
Issues
- Whether, under Section 11(6) of the Arbitration and Conciliation Act, the High Court could appoint arbitrators without a prima facie inquiry into the specific objection that the dispute fell under an excepted clause.
- Whether disputes covered by a clause reserving specific performance to the courts are arbitrable under a clause that applies 'save and except' that clause.
Provisions considered
- Sections 11(5), 11(6) and 11(6-A), Arbitration and Conciliation Act, 1996Read with Vidya Drolia: the referral court's review is limited, but where it is ex facie clear that a dispute is not arbitrable or is excepted, it may decline a reference. A specific plea of non-arbitrability requires at least a prima facie inquiry. (¶¶ 6, 6.5, 6.7, 6.8, 7)
- Section 7(3), Arbitration and Conciliation Act, 1996An arbitration agreement must be in writing and cannot be presumed. Disputes 'excepted' from the arbitration clause cannot be arbitrated (Harsha Construction). (¶ 6.4)
Held
- Clause 37 applied 'save and except' Clause 36, under which disputes about obligations including those in Clauses 3, 6 and 9 were to be enforced through the courts. Such disputes are therefore not arbitrable. (¶ 6.1)
- Arbitration clauses must be strictly construed. Courts cannot rewrite contracts, and where an excepted category is clearly carved out, a reference cannot be made in respect of it (Narbheram Power and Steel, Rajasthan SIDC, Harsha Construction). (¶¶ 6.2, 6.3, 6.4)
- Although the arbitral tribunal is ordinarily the first authority on arbitrability, a court at the Section 11 stage may examine whether a dispute falls within the arbitration agreement or is an excepted matter, applying a prima facie test to cut off deadwood (Vidya Drolia, Indian Oil v NCC). (¶¶ 6.5, 6.7, 6.8)
- The High Court noted Clause 36 but appointed arbitrators without any prima facie view on whether the dispute fell under it. Its order was set aside, and the Section 11 application was remitted for decision after a preliminary inquiry. (¶¶ 7, 8)
Result
Appeal allowed. The High Court's order appointing arbitrators under Clause 37 was set aside and the Section 11 application was remitted. The High Court was to decide it afresh after a preliminary inquiry into whether the dispute falls under Clause 36 and is arbitrable. No costs.