The Bombay High Court, in the case of Shree Gopal Barasia v. Creative Homes, clarified the jurisdictional boundaries of courts under Section 11 of the Arbitration and Conciliation Act, 1996 (“Arbitration Act”). The judgment reiterates that courts, at the referral stage, must confine their scrutiny to the existence of an arbitration agreement and leave substantive disputes regarding its validity and enforceability to the arbitral tribunal. The ruling reinforces the broad jurisdiction of arbitral tribunals under Section 16 of the Arbitration Act to determine their own jurisdiction, including issues concerning the existence and validity of arbitration agreements.
The petitioner and respondents entered into agreements dated February 19, 2007, and a subsequent deed of cancellation dated August 14, 2015, both containing arbitration clauses. Disputes arose regarding these agreements, prompting the petitioner to invoke arbitration under the arbitration clauses.
The respondents contested the invocation, primarily arguing:
- Authority Under the Partnership Act: The partner who executed the agreement on behalf of the firm lacked explicit authority under Section 19(2)(a) of the Indian Partnership Act, 1932, to bind the partnership to arbitration.
- Validity and Existence of the Arbitration Agreement: They contended that questions regarding the existence and validity of the arbitration agreement could not be referred to the tribunal unless explicitly stated in the arbitration clause.
The petitioner moved the Bombay High Court under Section 11 of the Arbitration Act, seeking the appointment of an arbitrator.
- Can courts under Section 11 of the Arbitration Act adjudicate substantive objections concerning the validity and existence of arbitration agreements?
- Does Section 19(2)(a) of the Indian Partnership Act invalidate an arbitration agreement executed without express authorization from all partners?
- What is the extent of the arbitral tribunal’s jurisdiction under Section 16 of the Arbitration Act to rule on its own jurisdiction?
- Scope of Judicial Scrutiny Under Section 11: The court emphasized that its jurisdiction under Section 11 of the Arbitration Act is confined to ascertaining the existence of an arbitration agreement. It cited the Supreme Court’s judgment in Vidya Drolia v. Durga Trading Corporation (2021), which clarified: “The court at the referral stage is not required to enter into a mini-trial or elaborate review of the facts and evidence to determine arbitrability.” Additionally, the court referred to Ajay Madhusudan Patel v. Jyotindra S. Patel & Ors. (2024), wherein the Supreme Court held: "The scope of examination under Section 11(6) should be confined to the ‘existence of the arbitration agreement’ under Section 7 of the Act, and the ‘validity of an arbitration agreement’ must be restricted to the requirement of formal validity, such as the agreement being in writing." The High Court reiterated that substantive objections regarding the validity and enforceability of the agreement must be adjudicated by the arbitral tribunal.
- Jurisdiction of the Arbitral Tribunal Under Section 16: The court noted that Section 16 of the Arbitration Act grants arbitral tribunals the authority to rule on their own jurisdiction, including objections concerning the validity of the arbitration agreement. The judgment observed: “Under Section 16(1) of the Act, the Arbitral Tribunal may rule on its own jurisdiction. In doing so, the Arbitral Tribunal may also rule on any objections with respect to the existence or validity of the arbitration agreement.” The court further clarified that the arbitration clause is treated as a separate and independent agreement, distinct from the main contract. Quoting the Supreme Court in Avitel Post Studioz Ltd. v. HSBC PI Holdings (Mauritius) Ltd. (2020), the court stated:“Even if the underlying contract is declared void, the arbitration clause may survive and be independently enforceable.”
- Section 19(2)(a) of the Indian Partnership Act: Addressing the respondents’ reliance on Section 19(2)(a) of the Indian Partnership Act, the court observed: “Section 19(2)(a) protects the partnership firm from being bound to arbitration without the consent of all partners. However, whether a partner acted within their authority raises mixed questions of law and fact, best decided by the arbitral tribunal.” The court noted that Section 19(2)(a) does not automatically negate the arbitration clause but requires examination of whether the partner’s actions align with established customs or usages of trade.
- Deference to Arbitral Tribunal’s Discretion: The court relied on the Supreme Court’s judgment in In re: Interplay Between Arbitration Agreements under A&C Act, 1996 & Stamp Act, 1899 (2024), which emphasized: “The referral court under Section 11 must defer substantive disputes to the arbitral tribunal, ensuring minimal interference with the arbitral process.”
- High Threshold for Judicial Intervention: The court reiterated the principle laid down in Perkins Eastman Architects DPC v. HSCC (India) Ltd. (2020), stating: “Judicial intervention in arbitration proceedings should be limited to rare and exceptional circumstances where the arbitral tribunal’s decision is patently perverse or contrary to public policy.”
The Bombay High Court allowed the petitioner’s application, appointing a sole arbitrator to adjudicate the disputes. It reaffirmed that the arbitral tribunal is the appropriate forum to address substantive objections, including the validity and existence of arbitration agreements. By doing so, the judgment reinforces the autonomy of arbitration and underscores the judiciary’s commitment to minimal interference in arbitral proceedings.
This post is for educational and informational purposes only. It is not intended to defame, discredit, or tarnish the reputation of any individual, entity, or organization. The opinions expressed are based on publicly available judicial decisions and are aimed at fostering a better understanding of legal principles. For specific legal advice, readers are encouraged to consult a professional.
