Increasing Scope of Judicial Scrutiny in Indian Arbitration Proceedings: Applicability post DLF case
Shivam Bhattacharya and Shivika Agrawal[i]
The Indian courts have time and again examined what is required to be assessed by arbitral tribunals when dealing with cases falling under the purview of Section 11 of the Arbitration and Conciliation Act, 1996 (‘the Act’). Section 11 of the Act is crucial in commencing arbitral proceedings in the Indian legal system. One of the more recent developments in this regard was the judgment given in the case of DLF Home Developers Limited v.Rajapura Homes Private Limited & Anr. (‘DLF v. Rajapura’).
This article, firstly, looks at the increasing scope of examination under Section 11 of the Act, secondly, strives to explain and analyze the application of the Kompetenz-Kompetenz principle in light of the recent Supreme Court judgment, and lastly, delves briefly into the impact of increased judicial inquiry in streamlining the process of arbitration in India.
Increasing Scope of Judicial Examination
Judicial scrutiny, as a concept, has gained a lot of momentum as it pertains to the actual application of mind by the judges. The scope of judicial inquiry or examination under Section 11 of the Act has been a major point of discussion in recent times. One of the first major cases involving the determination of this scope was that of SBP & Co. v.Patel Engineering wherein it was held by the Apex Court that this power was, in essence, ‘judicial powers’ and not ‘administrative powers’. Following this judgment, the extent of judicial examination was reassessed through the 2015 Amendment to the Act, wherein it was provided that the extent of the judicial inquiry was restricted only to determining the ‘existence of the arbitration agreement’. This principle was given by adding a new proviso, Section 11(6)(a) to the Act.
This amendment made it peremptory to answer this question, thereby giving predominance to the kompetenz-kometenz principle by mandating the arbitral tribunal to decide the question of the existence and validity of the arbitration agreement under Section 16 of the Act.
However, the recent judgment of the Court given in DLF v. Rajapura has broadened the scope of judicial examination of arbitration disputes by courts. The judgment has, in effect, discarded the role of the courts of merely determining the ‘existence of the dispute’ to a more active role of ensuring that the dispute between the parties relates to the arbitration agreement entered into by them. The courts now have the power to reject the application for arbitration if the parties fail to show this relation, a power previously mainly vested only with the arbitral tribunals. Whether this increased power of examination by the courts manages to create a more efficient and transparent system, time will tell.
The Challenge to the Kompetenz-Kompetenz Principle
The ‘Kompetenz-Kompetenz principle’ gives primacy to arbitral tribunals to determine questions pertaining to the validity and existence of the arbitration agreement. This principle enshrines the fact that an arbitral tribunal is the primary ‘court of jurisdiction’, bestowed with the powers to determine disputes relating to an arbitration agreement. The underlying objective is to provide the arbitral tribunal with the authority to rule on the jurisdictional issues. This doctrine, in essence, provides the tribunal to determine issues freely without any interference by the Courts. It encapsulates that the tribunal should exercise jurisdiction of the dispute within the arbitration agreement. This principle is also being used in several jurisdictions.
However, with the recent judgment of the Apex Court in the case of DLF v. Rajapura, the utility of this doctrine has been greatly diminished in the Indian arbitration landscape. This judgment has made it clear that courts are required to apply their minds and, accordingly, determine whether the dispute relates to arbitration agreement between the parties. The key holding of the Court, as has been stated above, was that the judiciary cannot act mechanically in such cases, and there is a requirement of correlation between the dispute and the arbitration agreement.
The widened scope of judicial scrutiny provided by the Apex Court in this case has been welcomed by many. However, on the flip side, some critics have pointed out that empowering courts to determine the question of the validity of an arbitration agreement would involve a lot of time and create hassles in the resolution of the dispute. Moreover, as has been the case previously, the decision rendered by the court will override that of the tribunal in case of a conflict. This, in turn, would potentially reduce the power of the arbitral tribunal to determine the issues before it.
The precedent, thus, laid down in this case has served as a direct contrast to the principle of ‘Kompetenz-Kompetenz’ and reignited the debate surrounding the ‘scope of judicial intervention’ in arbitration proceedings.
Streamlining of the Arbitration Process?
The recent verdict of the Apex Court has opened the gates for courts to be actively involved in the process of arbitration. This judgment has been welcomed by many stating that it would allow both the judiciary and the arbitral tribunal to determine the issues together.
As had been noted in this case that courts are, in fact, “obliged to apply their mind to the core preliminary issues, albeit, within the framework of Section 11(6-A) of the Act.” This has allowed both the organs to work collaboratively and in consonance with each other, in order to expedite the process of resolving the dispute. If this ideal scenario of collaborative efforts between both courts and arbitral tribunals is achieved, then only a proper streamlining of the arbitration procedure would be ensured.
Granting courts as well as arbitral tribunals the power to decide on the question of ‘arbitration agreement’ would serve both as a challenge and an opportunity to work in coordination to execute their main duty - that is the speedy and efficient resolving of the disputes. Balancing the widened scope of judicial enquiry with the principle of ‘Kompetenz-Kompetenz’ in this regard, would be key in ensuring that this coordination is maintained.
Thus, the recent judgment by the Apex Court has facilitated and broadened the scope of judicial powers in arbitration proceedings. While this does lead to a better application of mind by courts and potentially streamlines the arbitration procedure, nevertheless, it does not take into consideration the possible departures and inconsistencies in the approach undertaken by courts and tribunals. It has now become pertinent for the Courts to tread carefully by ensuring that ‘judicial scrutiny’ is not replaced with ‘judicial interference’.
Therefore, the decisions to be taken by the Courts following this judgment in this regard will demonstrate whether the increased scrutiny by courts helps in efficiently resolving arbitration disputes, or whether it leads to more uncertainty in the process due to the overlap of powers.
Shivam Bhattacharya and Shivika Agrawal are 3rd year students of Gujarat National Law University, Gandhinagar. Both have a keen interest in the field of Arbitration Law. For any discussion related to the article, they can be contacted via mail at firstname.lastname@example.org and email@example.com respectively.