Mayavati Trading Pvt. Ltd. v Pradyut Deb Burman (2019) 8 SCC 714 (decided on 5 September 2019)
The arbitration petition was filed by Mayavati Trading before the Calcutta High Court under Section 11(6) and (6A) of the Arbitration and Conciliation Act, 1996 (“Act”). The High Court held that the arbitration agreement does not exist or survived beyond the declared performance of the said agreement in which it is contained. Therefore, the arbitration petition was dismissed vide order dated 12 March 2019. The High Court was challenged before the Supreme Court. While the three-Judge Bench of the Supreme Court did not interfere with the impugned decision, it examined the correctness of decision rendered in United India Insurance Co. Ltd. v. Antique Art Exports Pvt. Ltd. (2019) 5 SCC 362.
Whether United India Insurance lays down the correct law?
In United India Insurance, the decision of Delhi High Court appointing arbitrator under Section 11 was under challenge. The High Court had held that in view of the 2015 Amendment to Section 11(6A) of the Act, the Court was to only examine the existence of the arbitration agreement and the questions regarding coercion or undue influence had to be examined by the arbitral tribunal.
The Division Bench of the Supreme Court in United India Insurance, followed Duro Felguera, S.A. vs. Gangavaram Port Limited, (2017) 9 SCC 729 and held that appointment of an arbitrator is a judicial power and is not a mere administrative function leaving some degree of judicial intervention; when it comes to the question to examine the existence of a prima facie arbitration agreement, it is always necessary to ensure that the dispute resolution process does not become unnecessarily protracted. It further held that High Court has committed a mechanical approach in appointing the arbitrator without supporting evidence on record to prima facie substantiate that arbitral dispute needs to be referred to arbitration.
A review petition was preferred by Antique, but the same was dismissed by the Supreme Court vide order dated 10 July 2019.
When the issue had come up in Mayavati Trading, the three-Judge Bench examined the issue from legislative intention perspective. Section 11(6A) was inserted by 2015 Amendment which conferred power on the Supreme Court and High Court to examine existence of arbitration agreement while deciding appointment of arbitrator. Section 11(6A) was omitted by 2019 Amendment, though the same (Section 3 of the 2019 Amendment Act) has not been given effect yet. The omission is pursuant to a High Level Committee Review regarding institutionalisation of arbitration in India. The Court further held that the omission is not so as to resuscitate the law that was prevailing prior to the amendment Act of 2015.
The Court observed that 2019 Amendment has omitted Section 11(6A) because appointment of arbitrators is to be done institutionally, in which case the Supreme Court or the High Court under the old statutory regime are no longer required to appoint arbitrators and consequently to determine whether an arbitration agreement exists.
The Court held that the law prior to the 2015 Amendment that has been laid down by this Court, which would have included going into whether accord and satisfaction has taken place, has now been legislatively overruled. Therefore, the Court was of the view that it does not agree with the reasoning contained in United India Insurance as Section 11(6A) is confined to the examination of the existence of an arbitration agreement and is to be understood in the narrow sense as has been laid down in the judgment Duro Felguera, S.A.
The three-Judge Bench overruled the judgment in United India Insurance as not having laid down the correct law.
The approach taken by the Supreme Court is obvious because of the legislative consequence omitting Section 11(6A). The decision is well accepted as the Court further paves the way to institutional arbitration and also to reduce judicial intervention, which are the objectives of 2019 Amendment.