A 3 judge bench of the Supreme Court has held that the expression “existence of arbitration agreement” which is included in Section 11 of the Arbitration Act shall also include the aspect of validity of arbitration agreement.
The Supreme Court also explained that at the stages that are included in Section 8 and 11 of the Arbitration Act the courts should undertake a prima facie examination to determine the validity of the arbitration agreement.
SECTION 8 AND SECTION 11 OF THE ARBITRATION AND CONCILIATION ACT
Section 8 of the Arbitration and Conciliation Act actually obligates any judicial authority to refer the dispute to arbitration where there was a valid arbitration agreement. A clear reading of Section 8 of the Act would give you an idea about what it says. It clears the fact that when it is compared to the UNCITRAL Model Law it differs from the Article 8 of the model law The Article 8 actually enables a court to decline to refer parties to arbitration in case the arbitration agreement is found to be void or null or in capable of being performed. In this aspect Section 8 has made a departure which indicates that it has a wider ambit and reach. Section 8 uses the expansive expression judicial authority instead of the term court.
Section 11 of the Arbitration and Conciliation Act deals with the appointment of arbitrators.
While answering a reference made to it by a division bench on the issue of whether landlord tenant disputes under the transfer of property act are arbitrable the Apex court held that such disputes could become the subject matter of the arbitration if they are not covered by rent control laws.
The court also went on to discuss the issues relating to the stages when the question of arbitrability can be decided and the scope of examination under section 11 and section 8 of the act.
OBSERVATIONS MADE IN THE JUDGMENT-
The judgement also observed that during the reference stage the courts do not perform ministerial functions and they exercise and perform judicial functions whenever they take decisions on objections in terms of Section 8 and 11 of the Arbitration Act.
While discussing prima facie examination under Section 8 the Court was of the opinion that Section 8(1) after the 2016 amendment has enjoined the court to undertake prima facie examination when it comes to the validity of an agreement.
The Judgement went on to clarify that prima facie case in the context of Section 8 of the Arbitration Act should not be confused for the merits of the case that have been put up by the parties which has to be established before the arbitral tribunal. Its restriction lies in the subject matter of the being prima facie arbitrable when it falls under a valid arbitration agreement. Here prima facie case would mean that the assertions on these aspects are bonafide.
The code explained how prima facie examination is not full review but is actually a primary first review in order to manifestly weed out invalid arbitration agreement sand non arbitrable disputes. The review at the reference stage in terms of prima facie is done in order to cut the dead wood and trim the branches in terms of straight forward cases where the dismissal is quite evident and where the law and facts dealing with the litigation must stop at the first stage.
Everything depends upon the certainty of the court that there is no valid arbitration agreement that exists or the subject matter of the disputes are not arbitrable and only then an application under Section 8 could be rejected.
The judgement also had in opinion about Section 11 subsection 6A that had been inserted with the coming in off the 2016 amendment and prescribe that the court at the stage of appointing an arbitrator should confine itself to examine whether there was the existence of an arbitration agreement. However this subsection was later removed in the 2019 amendment. The court however made it noted that the existence of an arbitration agreement would mean an arbitration agreement that is able to satisfy the statutory requirements of the Arbitration Act as well as the contract act and also to meet ends and be enforceable in law.
The apex court thus made it clear that section 8 and 11 are indeed complementary provisions and the court also made it clear that it can read the mandate of a valid arbitration agreement in Section 8 into the mandate of section 11 which would include the existence of an arbitration agreement.