By Karan Parihar, Advocate Rajasthan High Court
Supreme Court in Vidya Drolia and Ors. Vs. Durga Trading Corporation (2021) 2 SCC 1, dealt with two important issues; first being the issue of non-arbitrability, especially when the subject matter of the dispute is not capable of being resolved through arbitration; and second issue being with respect to the power to decide the question of non-arbitrability at the reference stage, that is who should decide the question of non-arbitrability at the reference stage whether it would be appropriate for court to decide at the reference stage or should it be left for the arbitral tribunal to decide.
While discussing the above legal issues, Court held that-
a. Sections 8 and 11 of the Arbitration and Conciliation Act, 1996 (for short, the ‘Arbitration Act’). have the same ambit with respect to judicial interference.
b. Usually, subject matter arbitrability cannot be decided at the stage of Sections 8 or 11 of the Act, unless it’s a clear case of deadwood.
c. The Court, Under Sections 8 and 11, has to refer a matter to arbitration or to appoint an arbitrator, as the case may be, unless a party has established a prima facie (summary findings) case of non-existence of valid arbitration agreement, by summarily portraying a strong case that he is entitled to such a finding.
d. The Court should refer a matter if the validity of the arbitration agreement cannot be determined on a prima facie basis, as laid down above, i.e., ‘when in doubt, do refer’.
e. The scope of the Court to examine the prima facie validity of an arbitration agreement includes only:
i. Whether the arbitration agreement was in writing? or
ii. Whether the arbitration agreement was contained in exchange of letters, telecommunication etc?
iii. Whether the core contractual ingredients qua the arbitration agreement were fulfilled?
iv. On rare occasions, whether the subject-matter of dispute is arbitrable?
Thus Supreme Court in this case, clarified the scope of interference by the courts while deciding the application under Section 8 and 11 of the Arbitration Act which is a welcome move. Thus it limits the scope of interference by the court. SC took into consideration legislative intent behind introduction of Section 11 (6A) of the Act which aims at limiting the interference of the courts and furthering the object of making India as arbitration friendly country.