SEC. 16 RELATION WITH SEC.

S 8, 9 AND 11 OF THE ACT

In proceedings before the court under Sec.s 8, 9 and 11 (whereupon judicial intervention is
permissible) of the 1996 Act, the agreement to arbitrate between the parties will also be
examined.

In proceedings u/s 8 – where a suit has been filed by one of the parties to an arbitration
agreement and the other party places an application in the court requesting for taking notice of
the agreement to arbitrate and refer the dispute to arbitration for settlement – the court will first
recognize the existence of a valid arbitration clause/agreement.

In proceedings u/s 9 – whereby the court has the power to grant interim relief to party to an
arbitration agreement who makes an application before it – the court must be convinced that
that prima facie, a valid arbitration agreement exists before it makes orders granting such relief
requested.

In proceedings u/s 11, the court may step in to appoint an arbitrator(s) where the parties failed to
do so in accordance with the terms of their arbitration agreement. Once again, the court shall
enquire into the existence and validity of the agreement before it shall appoint such arbitrator(s)
on behalf of the parties.

EFFECT OF 2015 AMENDMENT ON COMPETETENCE COMPETENCE

PRINCIPLE

Prior to 2015 Amendment-

A seven judge constitution bench of the Hon’ble SC of India in SBP & Co. v. Patel Engineering
Ltd., defined the scope of power of the Chief Justice under Sec. 11. The Court held that the scope
of power exercised under Sec. 11 was to first decide:

 whether there was a valid arbitration agreement;

 whether the person who has made the request under Sec. 11, was a party to the arbitration
agreement; and
 whether the party making the motion had approached the appropriate HC.
Further, the Chief Justice was required to decide all threshold issues with respect to jurisdiction,
the existence of the agreement, whether the claim was a dead one; or a time−barred claim sought
to be resurrected; or whether the parties had concluded the transaction by recording satisfaction
of their mutual rights and obligations, and received the final payment without objection, under
Sec. 11, at the pre−reference stage. The object behind the Arbitration Act is to reduce the burden
of the Courts, minimize judicial intervention and to increase the powers of the Arbitrator and to
make them competent.

Recommendations of the Law Commission

The Commission has recommended amendments to Sec’s 8 and 11 of the Arbitration and
Conciliation Act, 1996. The scope of the judicial intervention is only restricted to situations
where the Court/Judicial Authority finds that the arbitration agreement does not exist or is null
and void. In so far as the nature of intervention is concerned, it is recommended that in the event
the Court/Judicial Authority is prima facie satisfied against the argument challenging the
arbitration agreement, it shall appoint the arbitrator and/or refer the parties to arbitration, as the
case may be.

The amendment envisages that the judicial authority shall not refer the parties to arbitration only
if it finds that there does not exist an arbitration agreement or that it is null and void. If the
judicial authority is of the opinion that prima facie the arbitration agreement exists, then it shall
refer the dispute to arbitration, and leave the existence of the arbitration agreement to be finally
determined by the arbitral tribunal.

2015 Amendment-

Based on the recommendations of the Law Commission, Sec. 11 was substantially amended by
the 2015 Amendment Act, to overcome the effect of all previous judgments rendered on the
scope of power by a non obstante clause, and to reinforce the competence-competence principle
enshrined in Sec. 16 of the 1996 Act.

The 2015 Amendment Act inserted sub−Sec. (6A) to Sec. 11 which provides that :
“The SC or, as the case may be, the HC, while considering any application under sub− Sec. (4)
or sub−Sec. (5) or sub−Sec. (6), shall, notwithstanding any judgment, decree or order of any
Court, confine to the examination of the existence of an arbitration agreement.”

By virtue of the non obstante clause incorporated in Sec. 11(6A), previous judgments rendered in
Patel Engineering were legislatively over−ruled. The scope of examination is now confined only
to the existence of the arbitration agreement at the Sec. 11 stage, and nothing more. The Court
should and need only look into one aspect−the existence of an arbitration agreement. What are
the factors for deciding as to whether there is an arbitration agreement is the next question.

In view of the legislative mandate contained in Sec. 11(6A), the Court is now required only to
examine the existence of the arbitration agreement. All other preliminary or threshold issues are
left to be decided by the arbitrator under Sec. 16, which enshrines the competence-competence
principle. However, the negative effect of the competence-competence principle is that
arbitrators are entitled to be the first to determine their jurisdiction which is later reviewable by
the Court, when there is action to enforce or set aside the arbitral award. Where the dispute is not
before an arbitral tribunal, the Court must also decline jurisdiction unless the arbitration
agreement is patently void, inoperative or incapable of being performed

Thus Justice Thakker, in his dissenting opinion, in Patel Engineering stated that the legislative
intent was to allow the tribunal to rule on its jurisdiction 1 and that Sec. 16 was a ‘self-contained
Code’ with respect to jurisdiction of the arbitral tribunal.

1 Patel Engineering (n 19), [68].