The Supreme Court while overturning an order of the High Court u/s 11 (6) of the Arbitration Act as to the appointment of an Arbitrator, directed the High Court to conduct a preliminary inquiry into the arbitrability of the dispute in light of the specific clauses of the agreement.

Facts:-

1. A Petition was filed before the Delhi High Court under section 11 (6) of the Arbitration Act for the appointment of an Arbitrator. The Petition was filed in terms of Clause 37 of the Agreement between the parties. The Petition was opposed by the Respondent on the ground that the dispute fell under Clause 36 of the agreement and not under Clause 37 which incorporated an arbitration clause.
2. Clause 36 of the Agreement provided that in the event of any dispute between the parties as mentioned in Clauses 3, 6 and 9 of the Agreement, the other party shall have a right to get the agreement specifically enforced through the appropriate court of law. Whereas, Clause 37 provided that save and except Clause 36 of the Agreement, all disputes arising out of, or touching upon or in relation to the terms of the Agreement would be referred to arbitration.
3. Delhi High Court noted that Clause 36 of the agreement stipulated that in the event of any dispute with regard to Clauses 3, 6 and 9, the other party shall have a right to get the Agreement specifically enforced through appropriate court of law. The High Court allowed the Petition and appointed an Arbitrator in terms of Clause 37 of the Agreement. While doing so, the High Court observed that a conjoint reading of Clauses 36 and 37 makes it clear that a party does have a right to seek enforcement of agreement before the court of law but it does not bar settlement of disputes through the Arbitration and Conciliation, Act, 1996.
4. The Respondent challenged the order of the Delhi High Court before the Hon’ble Supreme Court. The issue before the Supreme Court to be decided was whether the High Court was justified in appointing an Arbitrator without holding any preliminary inquiry on whether the dispute was arbitrable or not.
5. The Supreme Court overturned the decision of the High Court for the appointment of an arbitrator and remitted the matter to the High Court to decide the application for the appointment of an arbitrator after holding a preliminary inquiry/ review on whether the dispute is arbitrable or not and whether the dispute falls within clause 36 of the agreement or not.
6. While doing so, the Hon’ble Supreme Court applied the ratio laid down by the Supreme Court in Vidya Drolia & Ors. V/s Durga Trading Corporation reported at (2021) 2 SCC 1 where it was held that rarely as a demurrer, the court may interfere at the stage of Section 8 or Section 11 when it is manifestly and ex-facie certain that the arbitration agreement is non-existent, invalid or the disputes are non-arbitrable, though the nature and facet of non-arbitrability would to some extent determine the level or nature of judicial scrutiny. It was further observed that the restricted and limited review is to check and protect parties from being forced to arbitrate when the matter is demonstrably “non-arbitrable” and to cut of the deadwood and trim off the side branches in straightforward cases where dismissal is barefaced and pellucid and when on the facts and law the litigation must stop at the first stage. The Supreme Court also relied upon the ruling of the Supreme Court in Indian Oil Corporation V/s NCC Limited reported at 2022 SSC Online SC 2896 which followed the view taken in the case of Vidya Drolia wherein it was held that at the stage of Section 11 of the Arbitration Act, a preliminary enquiry is permissible if the dispute is raised with respect to the arbitrability.
7. In light of the rulings in the case of Vidya Drolia and Indian Oil Corporation, the Hon’ble Supreme Court held that the High Court had not appreciated and considered 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. This objection was taken by the Respondent at the Section 11 stage. The High Court however did not hold a preliminary enquiry on whether the dispute is arbitrable or not and whether the dispute falls within Clause 36 or not. Therefore, the decision of the High Court to appoint an arbitrator without conducting such inquiry was held to be unsustainable in law.¹

By - Chaitanyaa Bhandarkar