The Honourable Supreme Court of India in its recent judgment held that in circumstances where the arbitration agreement specifically excludes certain conflicts from the scope of the arbitration clause and if there is “accord and satisfaction,” the courts may/can decide the question of jurisdiction and arbitrability under Section 11 of the Arbitration and Conciliation Act,1996.

The recent ruling in Indian Oil Corporation Limited (IOCL) v NCC Limited, the Supreme Court clarifies the parameters of Section 11 of the Arbitration and Conciliation Act,1996. The courts may examine the issues under Section 11, if the facts are “clear and glaring,” even though the arbitral tribunal has the power and authority to determine on the question of jurisdiction and arbitrability.

Essential Facts Related to Arbitrability

Pursuant to a tender floated by the Indian Oil Corporation Ltd, NCC Limited was appointed as contractor to the IOCL, for the completion of certain civil, structural, and associated UG piping works at its Paradip Refinery. According to the contract, NCC Limited was supposed to give written notification of its claims (notified claims) for additional costs to the Engineer in Charge and the Site Engineer.

The NCC Limited submitted a Final Bill with its Notified Claims to the Engineer in Charge, to which the IOCL responded that none of the claims were Notified Claims. Aggrieved by this, NCC Limited invoked the arbitration clause in the contract, pursuant to which IOCL referred the NCCL dispute to the General Manager of IOCL.

The arbitration clause in the contract specified that any dispute pertaining to Notified Claims included in the Final Bill could be sent to arbitration, and the decision whether a claim was a notified claim or not was to be taken by the General Manager of the Indian Oil Corporation Limited prior to the arbitration proceeding.

The General Manager decided that the claims were not notified claims and will not come under the arbitration clause in the contract. Aggrieved, the NCC Limited approached the Delhi High Court under Section 11(6) for the appointment of a sole arbitrator, which was allowed. The IOCL preferred appeals to the Supreme Court challenging the decision of the Delhi High Court.

The appeal by IOCL challenging the decision of the Delhi High Court was based, mainly on the question, whether the Court has the jurisdiction to examine claims relating to ‘Accord and Satisfaction’ and ‘Exempted Claims’ in an application filed under Section 11 of the Arbitration Act.

Opinion of Supreme Court

Upon elaborate perusal of the submissions of both sides, the apex court held that in the said case if a particular claim was not considered as a Notified Claim, then it would come under the exempted matter, which will not come under the preview of arbitration.The Supreme Court held that while determining an application under Section 11, the court can/may address the issues of ‘accord and satisfaction’ of the claims. If the facts were ‘very clear and glaring’ and the clause in the agreement were detailed, the court may also consider whether the issue is non-arbitrable or comes under the exempted clause. However, the court also held that in the present case the High Court has not committed any error in determining that aspect with regard to ‘Accord and Satisfaction’ have to be left to the Arbitral Tribunal.

The Supreme Court observed that the limited jurisdiction under the Section 11, does not prevent it from its judicial responsibility to conduct ‘prima facie review’ that extends beyond the mere existence of the arbitration provision.

Even though an Arbitral Tribunal may have jurisdiction and power to resolve disputes, including challenges on jurisdiction and arbitrability, the same could be examined by a court under Section 11 of the Act if specific matters are excluded from the arbitration clause.

This ruling by the apex court widened the scope of Section 11 of the Arbitration Act. The Supreme Court stated in Vidya Drolia v. Durga Trading Corporation that even if section 11(6A) is repealed, the rationale for its inclusion would continue to apply and guide the courts on its extent of jurisdiction and pre-arbitration stage.

Even though the Supreme Court has broadened the extent of jurisdiction under Section 11 of the Act, in the long run this decision may to some extent result in pendency of an even larger number of cases before the High Courts and the Supreme Court. The current decision makes it more likely that the Courts will delve into disputed facts and become compelled to adjudicate on issues such as arbitrability of the dispute and jurisdiction; questions that ought to be left to the Arbitral Tribunals.