Court Should Hold Preliminary Inquiry About Arbitrability Of Issue Before Appointing Arbitrator- SC Reiterates

The Supreme Court has reiterated that if a clause stipulates that under certain circumstances there can be no arbitration and they are demonstrably clear then the controversy pertaining to the appointment of Arbitrator has to be put to rest.

The Court placed reliance on its Judgment in Oriental Insurance Co Ltd. Vs. Narbheram Power and Steel (P) Ltd., (2018) where it had observed as aforesaid.

The Bench of Justice MR Shah and Justice Krishna Murari was dealing with an appeal challenging the Judgment and Order passed by Delhi High Court by which, the High Court in exercise of powers under Section 11(6) of the Arbitration and Conciliation Act, 1996 appointed arbitrators to resolve the dispute between the parties.

Aggrieved the original respondent M/s EMMAR India Limited approached Supreme Court.

Advocate Dhanesh Relan appeared for the Appellant whereas Senior Advocate Siddharth Bhatnagar appeared for Respondents.

The short question for consideration before the Court was- whether in the facts and circumstances of the case, the High Court was justified in appointing the arbitrators in an application under Section 11(5) and (6) of the Arbitration Act without holding any preliminary inquiry or inquiry on whether the dispute is arbitrable or not?

On a bare reading of Clause 36 of the Agreement, the Court noted that it clearly stipulates that in the event of any dispute as mentioned in Clauses 3, 6 and 9, other party shall have a right to get the Agreement specifically enforced through the appropriate Court of law. The Court observed that with respect to any dispute as mentioned in Clauses 3, 6 & 9, such disputes are not arbitrable at all.

While placing reliance on a catena of cases the Court noted "…when a specific plea was taken that the dispute falls within Clause 36 and not under Clause 37 and therefore, the dispute is not arbitrable, the High Court was at least required to hold a primary inquiry/review and prima facie come to conclusion on whether the dispute falls under Clause 36 or not and whether the dispute is arbitrable or not."

The Court observed that the High Court did not appreciate and consider the fact that in case of dispute as mentioned in Clauses 3, 6 and 9 for enforcement of the Agreement, the dispute is not arbitrable at all.

Therefore the Court set aside the judgment and order passed by the Delhi High Court appointing the arbitrators.

"The impugned judgment and order passed by the High Court appointing the arbitrators in terms of Clause 37 of the Addendum Agreement dated 19.04.2011 is hereby quashed and set aside. The matter is remitted to the High Court to decide the application under Section 11(5) and (6) of the Arbitration Act afresh and to pass an appropriate order after holding a preliminary inquiry/review on whether the dispute is arbitrable or not and/or whether the dispute falls within Clause 36 of the Addendum Agreement or not", the Court held.

Cause Title- M/S. Emaar India Ltd v. Tarun Aggarwal Projects LLP & Anr

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