The Supreme Court of India by a 7 Judge Bench decision in S.B.P & Co. v. Patel Engineering, 2005 (9) SCALE 1 overruled its earlier 5 Judge Bench decision in the case of Konkan Railway Corporation v. Rani Construction Pvt. Ltd., (2002) 2 SCC 388. Section 11 of the Arbitration Act, 1996 (Act) provides for appointment of an arbitrator by the Chief Justice of India, in the case of international arbitration and by the Chief Justice of the High Court, in the case of domestic arbitrations (in the event the parties’ envisaged mechanism for constituting the tribunal breaks down). This simple provision has engrossed the mind of the judiciary for quite sometime. The earlier view, taken in the Konkan Railway case was that the power to make an appointment is administrative in nature and to be exercised expeditiously, with minimum judicial procedure. All contentious issues would be left open to be determined by the arbitral tribunal, as it is empowered to under Section 16 of the Act. However, this view now stands overruled by S.B.P & Co. v. Patel Engineering. The Court would now assume a far more interventionist approach. Since the power now would be judicial (and not administrative) the court would decide contentious issues pertaining to validity of the arbitration agreement. This is how the Supreme Court decision puts it:

“It is necessary to define what exactly the Chief Justice, approached with an application under Section 11 of the Act, is to decide at that stage. Obviously, he has to decide his own jurisdiction in the sense, whether the party making the motion has approached the right High Court. He has to decide whether there is an arbitration agreement, as defined in the Act and whether the person who has made the request before him, is a party to such an agreement. It is necessary to indicate that he can also decide the question whether the claim was a dead one; or a long barred claim that was sought to be resurrected and whether the parties have concluded the transaction by recording satisfaction of their mutual rights and obligations or by receiving the final payment without objection. It may not be possible at that stage, to decide whether a live claim made is one which comes within the purview of the arbitration clause. It will be appropriate to leave that question to be decided by the arbitral tribunal on taking evidence, along with the merits of the claims involved in the arbitration. The Chief Justice has to decide whether the applicant has satisfied the conditions for appointing an arbitrator under Section 11 (6) of the Act. For the purpose of taking a decision on these aspects, the Chief Justice can either proceed on the basis of affidavits and the documents produced or take such evidence or get such evidence recorded, as may be necessary.”

This decision impacts certain fundamental tenets of the arbitration laws of India. The jurisdiction of arbitrators to rule on their own jurisdiction (Competence –Competence principle) conferred by Section 16 of the Act stands curtailed. Now the tribunal cannot rule on its own jurisdiction in cases where the same is challenged before the Court in a Section 11 proceeding, and the court makes a finding thereon. In such cases, the Court would have jurisdiction and their decision shall be final.

Further, by an obiter the Supreme Court has held that where a court action is brought in a matter which is the subject of an arbitration agreement, the Court would not simply refer the matter to the arbitral tribunal (as it would have earlier). It would examine whether there is in existence a valid arbitration clause (thereby entering into contentious issues). The earlier interpretation of Section 8 of the Act was that the Court would not entertain contentious issues, but would merely refer the parties to arbitration and leave it to the arbitral tribunal to determine these (Hindustan Petroleum Corporation v. Pink City Midway Petroleum, (2003) 6 SCC 503).