An interesting issue arose in Shin-Etsu Chemical Co. Ltd. Vs. Aksh Optifibre Ltd. [2005 (6) SCALE 561] on the interpretation of section 45 of the Arbitration Act, as to whether a ruling by a court on the validity or otherwise of an arbitration agreement is to be on a prima facie basis or a final decision. If it were to be a final decision, it would involve a full trial and consequently years and years of judicial proceedings which would frustrate the arbitration agreement. Keeping this and the object of the Act in mind, the Supreme Court by a 2:1 decision held that a challenge to the arbitration agreement under Section 45 on the ground that it is “null and void, inoperative or incapable of being performed” is to be determined on a prima facie basis. It said:

“If it were to be held that the finding of the court under Section 45 should be a final, determinative conclusion, then it is obvious that, until such a pronouncement is made, the arbitral proceedings would have to be in limbo. This evidently defeats the credo and ethos of the Act, which is to enable expeditious arbitration without avoidable intervention by judicial authorities.”

This would mean that a court decision under Section 45 would not operate as res judicata and the aggrieved party would be able to challenge the same in subsequent proceedings. Thus, in effect, a person challenging an arbitration agreement on the ground that it is null and void, inoperative or incapable of being performed would have three rounds to vent his grievance - the first, under Section 45 before an Indian court; the second time around before the arbitral tribunal itself; and finally at the stage of enforcement of the arbitral award. The judgment of the Supreme Court is no doubt welcome. Any other interpretation would have brought about a situation where it would take very little for a dishonest litigant to derail a foreign arbitration. At the same time an issue would remain as to what is to be done in cases where the court does in fact come to a conclusion that the arbitral agreement is null and void, inoperative or incapable of being performed. A decision to this effect is appealable under Section 50 of the Arbitration Act. Thus a ruling on a prima facie view alone would not be satisfactory. One of the judges addressed this and held that if the court were to arrive at a prima facie conclusion that the agreement is in fact null and void, it would go ahead and hold a full trial and enter a final verdict. In such situation therefore a foreign arbitration may well come to a halt pending final decision from an Indian court, but otherwise Section 45 proceedings would not have any significant impeding effect on progress of a foreign arbitration.