Arbitration and Conciliation Act, 1996 — Section 11 (pre-2015 regime) — Scope of power — Judicial determination of existence and validity of arbitration agreement — Finality under Section 11(7) — Binding effect at Section 34 stage — Reopening impermissible — SBP & Co. followed.
Arbitration and Conciliation (Amendment) Act, 2015 — Section 11(6A) — Prospective application — Limited scrutiny confined to “existence” post-amendment — Contrast drawn with pre-amendment regime.
Res Judicata vs Precedent — Conceptual distinction — Section 11 order operates as res judicata inter partes, not as precedent in rem — Section 34 Court erred in treating earlier Section 11 order as non-binding.
Section 34 — Award set aside on ground of non-existence of arbitration clause — Impermissible where Section 11 court had already appointed arbitrator in pre-amendment regime and order attained finality.
Result — High Court and Commercial Court orders set aside — Matters remitted for adjudication on other grounds — Time-bound disposal directed.
CORE ISSUE
Whether, in arbitral proceedings commenced prior to 23.10.2015 (pre-2015 Amendment regime), the Section 34 Court could reopen the question of existence and validity of an arbitration clause after an arbitrator had been appointed under Section 11 and the appointment order had attained finality.
FACTUAL MATRIX (Common Thread in Both Appeals)
-
Contracts between appellant-contractor and Rajasthan Housing Board.
-
Clause 23 provided for dispute resolution by an Empowered Standing Committee.
-
Section 11 applications filed in 2014.
-
High Court appointed retired High Court Judges as sole arbitrators (pre-2015 Amendment).
-
Awards passed in 2015–2016.
-
Section 34 Courts set aside awards holding Clause 23 was not an arbitration clause.
-
High Court affirmed Section 34 orders.
-
Appeals before Supreme Court.
LEGAL FRAMEWORK
I. Pre-2015 Legal Position — SBP Regime
The Court relied extensively on:
SBP & Co. v. Patel Engineering Ltd.
Seven-Judge Bench held:
-
Section 11 power is judicial, not administrative.
-
Chief Justice/designate must decide:
-
Existence of arbitration agreement,
-
Validity,
-
Jurisdictional aspects,
-
Live claim.
-
-
Section 11(7) gives finality.
-
Such determination binds:
-
Arbitrator,
-
Section 34 Court,
-
Appellate Courts,
-
Except via appeal under Article 136.
-
Thus, once an arbitrator was appointed, existence/validity of arbitration clause could not be reopened.
II. Reinforcement by Later Authority
The Court also relied on:
State of West Bengal v. Sarkar & Sarkar
Held:
-
Arbitrator cannot re-examine validity of arbitration clause when Section 11 order has attained finality.
-
Jurisdictional findings under Section 11 are binding.
III. Post-2015 Contrast — Limited Inquiry
The Court clarified that had the proceedings commenced after 23.10.2015, the outcome could have differed.
Referred to:
In re: Interplay Between Arbitration Agreements under A&C Act & Stamp Act
Post-amendment position:
-
Section 11(6A) limits court to examining “existence” only.
-
Inquiry is prima facie.
-
Substantive validity left to arbitral tribunal under Section 16.
-
No finality comparable to SBP regime.
But Section 26 of 2015 Amendment makes amendments prospective.
Since present arbitrations commenced before 23.10.2015, SBP regime governed.
RES JUDICATA vs PRECEDENT — KEY CLARIFICATION
The Commercial Court reasoned that Section 11 order had no “precedential value”.
The Supreme Court held this was a fundamental conceptual error.
Distinction:
| Precedent | Res Judicata |
|---|---|
| Operates in rem | Operates in personam |
| Binds future cases generally | Binds same parties |
| Concerned with legal principle | Concerned with finality between parties |
Relied on:
State of Rajasthan v. Nemi Chand Mahela
Canara Bank v. N.G. Subbaraya Setty
Holding:
-
Section 11 order operates as res judicata inter partes.
-
Correctness of decision irrelevant unless jurisdictional nullity.
-
Commercial Court wrongly treated issue as precedent question instead of finality issue.
SUPREME COURT’S CONCLUSION
-
Section 11 order (2014) impliedly held Clause 23 to be an arbitration clause.
-
Respondents did not challenge appointment.
-
Order attained finality.
-
Under SBP regime:
-
Existence and validity stood conclusively decided.
-
-
Section 34 Court had no jurisdiction to reopen that issue.
-
High Court erred in affirming Section 34 Court.
OPERATIVE DIRECTIONS
-
High Court judgments dated 20.02.2020 set aside.
-
Matters remitted to Commercial Court, Jaipur.
-
Section 34 applications to be heard on other grounds only.
-
Disposal directed within three months.
-
Parties to bear own costs.
RATIO DECIDENDI
In arbitral proceedings commenced prior to the 2015 Amendment, an order appointing an arbitrator under Section 11 necessarily entails a judicial determination of the existence and validity of the arbitration agreement. Such determination attains finality under Section 11(7) and operates as res judicata inter partes. The issue cannot be reopened at the Section 34 stage.
SIGNIFICANCE OF THE JUDGMENT
This decision:
-
Reinforces doctrinal clarity between SBP regime and post-2015 regime.
-
Reasserts binding effect of pre-amendment Section 11 determinations.
-
Clarifies difference between precedent and res judicata in arbitration jurisprudence.
-
Protects finality of Section 11 orders in legacy arbitrations.
