The Indian legal system has had to grapple with the delicate balance between respecting party autonomy and upholding the integrity and effectiveness of arbitration, particularly in the context of determining arbitrability.
Arbitrability refers to the question of whether a particular dispute is capable of being resolved through arbitration. It is a threshold issue that must be determined before arbitration can proceed. However, the question of arbitrability is often a contentious one, as parties may have differing interpretations of the scope of their arbitration agreement.
Historically, Indian courts had broad powers in determining arbitrability, which often resulted in excessive delays and defeated the purpose of alternative dispute resolution. This led to the 2015 amendments to the Arbitration and Conciliation Act, which restricted the court’s powers of inquiry under Section 11 to merely determining the existence of an arbitration agreement. While this was a step in the right direction, the recent case of Indian Oil Corporation Limited vs NCC Limited has highlighted the need for further clarity on the role of courts in determining arbitrability.
In the IOCL case, the Supreme Court held that the court’s jurisdiction is limited to upholding the integrity and effectiveness of arbitration, and it should avoid usurping the tribunal’s competence. The court reaffirmed that the arbitral tribunal is the preferred first authority to decide on non-arbitrability, and the court’s role is primarily to identify the existence of an arbitration agreement and determine if the issue in dispute is arbitrable.
However, if circumstances indicate that the matter is non-arbitrable, courts may intervene and prevent further arbitration. This was seen in the IOCL case, where the court dissolved the arbitration proceedings at an early stage as the issue in dispute was specifically excluded from the scope of the arbitration agreement. However, there is a thin line between the court performing its duty and overstepping the role of an arbitrator. Therefore, it is essential for courts to strike a balance between respecting party autonomy and ensuring the effectiveness of arbitration.