SBP & Co. v. Patel Engg. Ltd., 2005 (8) SCC 618

Indowind Energy Ltd vs Wescare (I) Ltd.& Anr., [CIVIL APPEAL NO.3874. OF 2010]
Union Of India & Ors vs M/S. Master Construction Co., [CIVIL APPEAL NO. 3541 OF 2011]
Indian Oil Corp.Ltd vs M/S Sps Engineering Ltd., [CIVIL APPEAL NO.1282 OF 2011]
Chatterjee Petrochem Co. & Anr vs Haldia Petrochemicals Ltd., [CIVIL APPEAL NO.10932 OF 2013]
M/S Aps Kushwaha (Ssi Unit) vs Municipal Corp.Gwalior & Ors., [CIVIL APPEAL NOS. 1888-1889 OF 2011]
Hindustan Copper Ltd vs Monarch Gold Mining Co. Ltd., [CIVIL APPEAL NO. 7449 OF 2012]
Arasmeta Captive Power Co. Pvt. ... vs Lafarge India P. Ltd., [CIVIL APPEAL NO.11003 OF 2013]
State Of Goa vs M/S Praveen Enterprises, [CIVIL APPEAL NO. 4987 OF 2011]
Chloro Controls(I) P.Ltd vs Severn Trent Water Purification..., [CIVIL APPEAL NO. 7134 OF 2012]
Bharat Aluminium Co vs Kaiser Aluminium Technical ..., [CIVIL APPEAL NO.7019 OF 2005]
S.N.Prasad,M/S Hitek ... vs M/S Monnet Finance Ltd.& Ors., [CIVIL APPEAL NO. 9224 OF 2010]
M/S Reva Electric Car Co.P.Ltd vs M/S Green Mobil, [ARBITRATION PETITION NO.18 OF 2010]
Bharat Rasiklal Ashra vs Gautam Rasiklal Ashra & Anr., [CIVIL APPEAL NO.7334 OF 2011]
Antrix Corp.Ltd vs Devas Multimedia P.Ltd., [ARBITRATION PETITION NO. 20 OF 2011]
Schlumberger Asia Services Ltd vs Oil & Natural Gas Corp.Ltd., [ARBITRATION PETITION NO.6 OF 2013]

The question is covered by the decisions of this Court in S.B.P. & Co. vs. Patel Engineering Ltd. [2005 (8) SCC 618] and National Insurance Co. Ltd. vs. Boghara Polyfab Pvt. Ltd. [2009 (1) SCC 267]. In S.B.P.& Co., a Constitution Bench of this court held that when an application under section 11 of the Act is filed, it is for the Chief Justice or his designate to decide whether there is an arbitration agreement, as defined in the Act and whether the party who has made a request before him, is a party to such an agreement. The said decision also made it clear as to which issues could be left to the decision of the arbitrator. Following the decision in S.B.P. & Co., this court in National Insurance Co. Ltd. held as follows :

"17. Where the intervention of the court is sought for appointment of an Arbitral Tribunal under section 11, the duty of the Chief Justice or his designate is defined in SBP & Co. This Court identified and segregated the preliminary issues that may arise for consideration in an application under section 11 of the Act into three categories, that is (i) issues which the Chief Justice or his Designate is bound to decide; (ii) issues which he can also decide, that is issues which he may choose to decide; and (iii) issues which should be left to the Arbitral Tribunal to decide.

(17.1) The issues (first category) which Chief Justice/his designate will have to decide are:

(a) Whether the party making the application has approached the appropriate High Court.

(b) Whether there is an arbitration agreement and whether the party who has applied under section 11 of the Act, is a party to such an agreement.

(17.2) The issues (second category) which the Chief Justice/his designate may choose to decide (or leave them to the decision of the arbitral tribunal) are:

(a) Whether the claim is a dead (long barred) claim or a live claim.

(b) Whether the parties have concluded the contract/ transaction by recording satisfaction of their mutual rights and obligation or by receiving the final payment without objection.

(17.3) The issues (third category) which the Chief Justice/his designate should leave exclusively to the arbitral tribunal are :

(i) Whether a claim made falls within the arbitration clause (as for example, a matter which is reserved for final decision of a departmental authority and excepted or excluded from arbitration).

(ii) Merits or any claim involved in the arbitration."

(emphasis supplied)

9. It is clear from the said two decisions that the question whether there is an arbitration agreement has to be decided only by the Chief Justice or his designate and should not be left to the decision of the arbitral tribunal. This is because the question whether there is arbitration agreement is a jurisdictional issue and unless there is a valid arbitration agreement, the application under section 11 of the Act will not be maintainable and the Chief Justice or his designate will have no jurisdiction to appoint an arbitrator under section 11 of the Act. This Court also made it clear that only in regard to the issues shown in the second category, the Chief Justice or his designate has the choice of either deciding them or leaving them to the decision of the arbitral tribunal. Even in regard to the issues falling under the second category, this court made it clear that where allegations of forgery or fabrication are made in regard to the documents, it would be appropriate for the Chief Justice or his designate to decide the issue. In view of this settled position of law, the issue whether there was an arbitration agreement ought to have been decided by the designate of the Chief Justice and only if the finding was in the affirmative he could have proceeded to appoint the Arbitrator.

One of the most important effects of the judgment was the prospective ruling direction, which provided that any appointment of an arbitrator under S. 11 made prior to 26.10.2005 had to be treated as valid and objections including the existence or validity of the arbitration agreement, have be decided by the arbitrator under S.16 of the Act. The legal position enunciated by SBP would govern only application to be filed under S.11 of the Act from 26.10.2005 as also applications under S.11 (6) of the Act pending as on 26.10.2005 where arbitrator was not appointed. The decision of the Hon'ble Supreme Court was reiterated in the case of Maharishi Dayanand University v. Anand Coop. L/C Society Ltd & Anr.,25 wherein it was observed by the Court that if an appointment of an arbitrator has been made before 26.10.2005, that appointment has to be treated as valid even if it challenged before this Court.

The next issue which has been raised in many an appeal i.e. who should decide whether there is an arbitration agreement or not. Should it be decided by the Chief Justice or his designate before making an appointment of arbitrator under S.11 or the arbitrator who is appointed under S.11 of the Act? This issue is no longer res-integra. Ever since the decision in SBP., it is recognised law, that any question on whether there is an arbitration agreement or not, or whether the party who has applied under S.11 of the Act, is a party to such an agreement, is an issue which has to be decided by the Chief Justice or his designate under S.11 before making appointment of arbitrator.26

The decision of the Supreme Court in SBP was a watershed moment in the history of the Arbitration Act in India. The decision in SBP has gone a long way in clearing many a legal hurdle in appointment of arbitrators under the Act. It has clearly laid down the law applicable to the exercise of powers by the Chief Justice or his designate under S. 11 of the Act.

The aim of this Article would hence be achieved by summarizing the powers of the Chief Justice or his designate under S.11 - his own jurisdiction, to entertain the request, the existence of a valid arbitration agreement, the existence or otherwise of a live claim, the existence of the condition for exercise of his power and on the qualifications of the arbitrator or arbitrators, and by believing that it has cleared many a doubt on the subject.

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