Supreme Court Aligns Judicial Interference in Arbitration with Modern Principles
In a significant pro-arbitration judgment, the Supreme Court held that referral courts must adhere to the scope of enquiry under the Arbitration and Conciliation Act, 1996, and cannot exceed their jurisdiction. The Bench of Chief Justice DY Chandrachud, Justices JB Pardiwala, and Manoj Misra emphasized the importance of maintaining arbitral autonomy and minimizing judicial interference.
The Court criticized previous tests for judicial interference, such as the “eye of the needle” and “ex-facie meritless,” stating they required courts to examine contested facts and prima facie evidence, which contradicts modern arbitration principles. The judgment was delivered in the case of SBI General Insurance Co Ltd v. Krish Spinning, where the Court addressed the issue of whether a referral court can rule on a plea of “accord and satisfaction” under Section 11(6) of the Act.
The case involved insurance claims related to fire incidents at Krish Spinning’s factory. When the dispute was not resolved amicably, the respondent invoked arbitration. The Gujarat High Court appointed an arbitrator, despite the appellant’s contention that the claim was settled through a discharge voucher.
The Supreme Court ruled that disputes over whether a contract has been discharged are arbitrable and should be decided by the arbitral tribunal. The Court also clarified that Section 11(6A) limits the referral court’s jurisdiction to examining the existence of an arbitration agreement, not the merits of “accord and satisfaction.” This approach upholds arbitral autonomy and prevents courts from interfering in matters within the arbitral tribunal’s jurisdiction.
The Court’s decision reaffirms the principle that arbitral tribunals should have the first opportunity to rule on their jurisdiction and related issues, promoting expediency and reducing judicial intervention in arbitration proceedings.
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