Supreme Court Recommends Amendments in Sections 11(7), 37 of Arbitration Act To Bring Sections 8 & 11 At Par On Appealability

Supreme Court Recommends Amendments in Sections 11(7), 37 of Arbitration Act To Bring Sections 8 & 11 At Par On Appealability

The Supreme Court of India (SC) on 8 March 2021, has observed in the case titled Pravin Electricals Pvt. Ltd. (Appellant) v. Galaxy Infra and Engineering Pvt Ltd. (Respondent) that the amendments to Section 11(7) and 37 of the Arbitration and Conciliation Act, 1996 (Arbitration Act) are necessary so that the orders passed under Section(s) 8 and 11 of the Act are brought at par as far as appealability is concerned.

The SC bench comprising of Justices RF Nariman, BR Gavai, Hrishikesh Roy, while considering the complexity of facts observed that the question of the validity of the arbitration agreement has to be left to the arbitrator.

Section 8 of the Arbitration Act deals with the power of the Court to refer the dispute of the parties to arbitration, the said provision was amended in 2015 and provided that such reference should not be made unless the Court finds that prima facie a valid arbitration agreement exists.

Section 37 of the Arbitration Act was amended in 2015 that allowed the appeals against an order refusing to refer parties to arbitration under Section 8.

The said amendments were brought to the Arbitration Act based on the recommendations of the Law Commission of India. However, no amendment was made to Section 37 allowing an appeal against an order refusing to appoint an arbitrator under Section 11 of the Arbitration Act, even though such a recommendation was also made by the Law Commission.

According to the judgment of the Apex Court in Vidya Drolia v. Durga Trading Corporation, the Courts have to enter a prima facie satisfaction under both Section 8 and 11 regarding the existence of a valid arbitration agreement. While a finding against the existence of an arbitration agreement under Section 8 is appealable, such a finding under Section 11 is not appealable.

Justice Nariman authored the judgment and observed that "By a process of judicial interpretation, Vidya Drolia (supra) has now read the "prima facie test" into Section 11(6A) to bring the provisions of Sections 8(1) and 11(6) r/w11(6A) on par."

The judgment added, "Considering that Section 11(7) and Section 37 have not been amended, an anomaly thus arises. Whereas in cases decided under Section 8, a refusal to refer parties to arbitration is appealable under Section 37(1)(a), a similar refusal to refer parties to arbitration under Section 11(6) read with Sections 6(A) and 7 is not appealable."

Justice Nariman emphasized in the judgment that "Parliament may need to have a re-look at Section 11(7) and Section 37 so that orders made under Sections 8 and 11 are brought on par qua appealability as well."

The Top Court while allowing the appeal set aside the order of the HC which appointed an arbitrator under Section 11(6) of the Act. The SC found that the conclusive finding of the HC was incorrect.