Arbitrability Disputes to be Primarily Decided by Arbitral Tribunal, Court's Role Limited at S.11 Stage: Allahabad High Court - 2024-01-19

Allahabad High Court Affirms Limited Judicial Intervention in Arbitrator Appointments, Emphasizes Tribunal's Jurisdiction on Arbitrability

Allahabad, [Date of Judgement - January 19, 2024] - In a recent judgment, the Allahabad High Court, presided over by Acting Chief Justice Manoj KumarGupta , addressed an application under Section 11(6) of the Arbitration and Conciliation Act, 1996, concerning the appointment of an arbitrator. The court reiterated the principle of minimal judicial interference at the stage of arbitrator appointment, emphasizing that the arbitral tribunal holds primary jurisdiction to determine the arbitrability of disputes.

Case Background: Contract Dispute and 'Excepted Matters'

The case arose from a contract dated 07.08.2017 between M/S Neelkanth Construction (Applicant) and the Union of India & Others (Opposite Parties), pertaining to construction work for Indian Railways. Disputes emerged, and Neelkanth Construction invoked the arbitration clause (Clauses 63 & 64 of the General Conditions of Contract 2014).

The Union of India objected to the arbitration, contending that the contract was determined under Clause 61.1, and disputes arising from such determination fell under 'excepted matters' as per Clause 63, making them non-arbitrable. Clause 61.1 pertains to the Railway's right to terminate a contract due to paucity of funds or other causes, while Clause 63 lists certain matters as 'excepted matters' not subject to arbitration.

Arguments Presented Before the Court

Applicant (M/S Neelkanth Construction):

• Argued that the contract determination notice was not issued by the competent authority (Divisional Railway Manager) as per the contract.
• Contended that subsequent actions by the Railways, such as extending the contract period and issuing directions to continue work, constituted a waiver of the determination notice under Clause 61.1.
• Submitted that the issue of arbitrability itself was a matter to be decided by the arbitrator.

Opposite Parties (Union of India & Others):

• Maintained that the contract was validly determined under Clause 61.1, making the dispute non-arbitrable under Clause 63.
• Argued that the communication issued by the Assistant Divisional Engineer effectively served as a determination notice.
• Claimed that the applicant had directly approached the court without following the contractual procedure of first referring the matter to the General Manager.

Court's Observations and Reliance on Precedents

The High Court acknowledged the limited scope of judicial review under Section 11(6) of the Arbitration and Conciliation Act, especially concerning the arbitrability of disputes. Justice Gupta referred to the Supreme Court's landmark judgment in Vidya Drolia and Others vs. Gujarat Informatics Limited , which clarified the extent of court intervention at the referral stage.

The court quoted key principles from Vidya Drolia , emphasizing that:

> "…the Arbitral Tribunal is the preferred first authority to determine and decide all questions of non-arbitrability."

> "Rarely as a demurrer the Court may interfere at Section 8 or 11 stage when it is manifestly and ex facie certain that the arbitration agreement is non-existent, invalid or the disputes are non-arbitrable… The Court by default would refer the matter when contentions relating to non-arbitrability are plainly arguable…"

The court also noted the principle reiterated in BSNL v. Nortel Networks (India) (P) Ltd. regarding the limited power of the court under Section 11(6).

Analyzing the contentions, the High Court observed that the dispute regarding arbitrability was not "outrightly non-arbitrable" and involved "debatable questions of fact." The court opined that adjudicating the waiver of notice and the applicability of Clause 61.1 required "appreciation of evidence," a task best suited for the arbitral tribunal.

Addressing the procedural objection raised by the Railways, the court noted that Neelkanth Construction had indeed sent a notice dated 04.07.2022 to the Chief General Manager, which was rejected by the Railways on 23.09.2022, citing the 'excepted matter' clause. Given this refusal to refer the dispute to arbitration, the court found no merit in rejecting the application on procedural grounds.

Decision and Appointment of Arbitrator

Ultimately, the Allahabad High Court allowed the application and appointed Sri Shashi Kant Gupta , a retired Judge of the High Court, as the sole arbitrator to adjudicate the disputes between M/S Neelkanth Construction and the Union of India.

This judgment reinforces the pro-arbitration stance of the Indian judiciary, highlighting the principle that issues of arbitrability, especially when factually contested, should be primarily addressed by the arbitral tribunal, with courts exercising limited intervention at the stage of arbitrator appointment under Section 11 of the Arbitration and Conciliation Act, 1996.