The Supreme Court, in a recent ruling has held that even though the Arbitral Tribunal may have the jurisdiction and authority to decide disputes including the question of jurisdiction and non-applicability, the same can also be considered by the Court at the stage of deciding the Section 11 Application.
- The Indian Oil Corporation Limited (“IOCL”) had floated a tender in respect of certain works for its Paradip Refinery Project. NCC Limited (“NCCL”) was the successful bidder. Thereafter a formal agreement was executed between the parties by which, NCCL was appointed as the contractor. As per the agreement, no claim of the contractor other than a “Notified Claim” as defined in the Agreement could be referred for arbitration. A detailed procedure for classifying a claim as a Notified Claim was set out in the Agreement. As per the contract, any dispute concerning whether a claim made by the contractor was a Notified Claim or not was to be decided by the General Manager of IOCL prior to the Arbitrator proceeding with the reference and the jurisdiction of the Arbitrator was expressly excluded in that regard as per the terms of the Agreement.
- On account of the extension of the scheduled completion date of the project for reasons attributable to IOCL, the execution of the project was delayed. After completion of the project, disputes arose between the parties whereby, NCCL had made certain claims against IOCL arising out of the contract. NCCL thereafter invoked the arbitration clause contained in the agreement and referred the matter relating to Arbitrability of NCCL’s claims to the General Manager of IOCL. The General Manager of IOCL in his communication addressed to NCCL held that the NCCL had after submitting their Notified Claims, withdrawn their Notified Claims and therefore there was no dispute to be referred to arbitration on account of such withdrawal.
- NCCL thereafter filed an Application u/s 11 (6) of the Arbitration Act before the Delhi High Court for the appointment of an Arbitrator. The Delhi High Court allowed the Arbitration Application appointing a sole arbitrator. The Delhi High Court while allowing the Arbitration Application held that after the insertion of Sub-Section 6-A in Section 11 in the Arbitration Act, the scope of inquiry by the Court in a Section 11 Application, once it is satisfied that it has jurisdiction in the matter, is confined to ascertaining as to whether or not a binding arbitration exists qua the parties before it which is relatable to the disputes at hand. The High Court also held that where there is contestation, or the decision rendered by the General Manager leaves scope for argument as to whether the claims lodged by a contractor can be categorised as “Notified Claims”, it is best left to the Arbitral Tribunal.
- Being aggrieved by the order and judgment of the Delhi High Court, IOCL challenged the same before the Supreme Court. The Supreme Court overturned the judgement of the Delhi High Court holding that it did not agree with the conclusion arrived at by the High Court that after the insertion of Sub-Section 6-A in Section 11 of the Arbitration Act the scope of inquiry by the court in Section 11 Application is confined only to ascertain as to whether or not a binding arbitration agreement exists qua the parties before it, which is relatable to the disputes at hand. The Supreme Court expressed its view that the Arbitral Tribunal may have jurisdiction and authority to decide the disputes including the questions of jurisdiction and non- arbitrability, the same can also be considered by the court at the stage of deciding Section 11 Application, if the facts are very clear and glaring and in view of the specific clauses in the agreement binding between the parties, as to whether the dispute is non-arbitrable and/ or falls within the excepted clause.
- The Supreme Court also held that in view of the matter, the High Court had misread and misinterpreted clauses 22.214.171.124 and 126.96.36.199 and had seriously erred in holding that where there is contestation or the decision rendered by the General Manager leaves scope for argument as to whether the claims alleged by the contractor can be categorised as ‘Notified Claims’, it is best left to the Arbitral Tribunal. The dispute whether the claim is a notified claim or not is specifically excluded from the scope, purview and ambit of the arbitration agreement. Therefore, once such a dispute falls within the ‘excepted matters’, any decision by the General Manager on the issue of Notified Claims cannot be the subject matter of arbitration proceedings.1
By - Chaitanyaa Bhandarkar
- Civil Appeal No.341 of 2022 (@ SLP (C) No.13161 of 2019). D/d. 20.7.2022. Indian Oil Corporation Limited v/s. NCC Limited