Arbitration and Conciliation Act, 1996 – s.11 – Scope of inquiry under – Standard of judicial scrutiny – Master Services Agreement between the appellant and the respondent – Dispute between parties – Application by the appellant u/s.11 of the Act, seeking appointment of an arbitrator to adjudicate disputes and claims in terms of Clause 18.12 of the Master Services Agreement – Rejected by the High Court holding that although the audit report highlighted poor returns on investment and inconsistent metrics, yet it did not support the assertions made by the appellant regarding fraudulent practices of the respondent – Correctness:
Held: Scope of inquiry u/s.11 is limited to ascertaining the prima facie existence of an arbitration agreement – On facts, the High Court exceeded this limited scope by undertaking a detailed examination of the factual matrix – High Court erroneously proceeded to assess the auditor’s report in detail and dismissed the arbitration application – Such an approach does not give effect to the legislative intent behind the 2015 amendment to the 1996 Act, which limited the judicial scrutiny at the stage of s.11 – Frivolity in litigation too is an aspect which the referral court should not decide at the stage of s.11 as the arbitrator is equally, if not more, competent to adjudicate the same – Limited jurisdiction of the referral Courts u/s.11 must not be misused by parties in order to force other parties to the arbitration agreement to participate in a time-consuming and costly arbitration process – Existence of the arbitration agreement in Clause 18.12 of the MSA not disputed by the respondent – Question whether there exists a valid dispute to be referred to arbitration can be addressed by the Arbitral Tribunal as a preliminary issue – Order passed by the High Court set aside. [Paras 18-21]
As published in the Supreme Court Reports, Supreme Court of India. Headnotes prepared by: Nidhi Jain. Text from the Indian Supreme Court Judgments open data set (Dattam Labs), CC BY 4.0.
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