Introduction
Arbitration is preferred as an alternate dispute resolution mechanism for its efficiency, discreetness, and facilitation of party autonomy. The process is governed in India by the Arbitration and Conciliation Act, 1996 (“the Act”), which emphasizes principles of minimal judicial intervention and respect for party agreement. However, one question that has cropped up occasionally is whether a party loses its right to arbitration if it approaches the court for litigation. The article deals primarily with the rejection of applications in the referral stage under sections 8 and 11 of the Act. Applications are made under these sections to the court to refer the parties to arbitration. The article covers the issue of Estoppel at this stage and the latest developments to analyse whether courts allow this application where the party has already approached the court by exercising the option of litigation.
Sections 8 and 11 of the Arbitration and Conciliation Act, 1996
Sections 8 and 11 of the Act are the principal statutory provisions whereby courts refer parties to arbitration. Section 8 provides that where a judicial authority is satisfied with an agreement in a contract on arbitration, that authority is obliged to refer the parties to arbitration unless it is “prima facie” evident that no such agreement exists. The clause factors in the policy of the Act towards arbitration by the fact that a dispute goes for adjudication at the agreed forum, hence reducing judicial intervention.
Section 11 provides for the appointment of arbitrators. When parties cannot agree on the appointment of an arbitrator, an application is made to the Supreme Court or High Court. In such cases, the court’s examination is limited to determining the existence of an arbitration agreement rather than its validity. Both sections flow from the same right to arbitrate. If an application is rejected under Section 8, it would also be implied to be rejected under Section 11.
The Doctrine of Estoppel and Its Application in Arbitration
Black’s Law Dictionary defines estoppel as a “bar or impediment raised by the law, which precludes a man from alleging or from denying a certain fact or state of facts, in consequence of his previous allegation or denial or conduct or admission, or in consequence of a final adjudication of the matter in a court of law”. In the context of arbitration, Estoppel was used most frequently to try to argue that a party, through litigation in a court of law, has waived its right to arbitrate and hence shown an intention to abandon the above arbitration agreement.
Case Laws Relating to Estoppel in Arbitration
The courts have interpreted the doctrine of estoppels in many ways to conclude whether a party has ‘lost’ its right to arbitrate merely by approaching the courts.
In the case of Sri Krishna Sarma v. Ramesh Kumar Joshi [2006], it was held that a party may manifest an intention to waive its right to arbitrate upon the same subject matter by filing a suit. The court said that the nature of such conduct is to be regarded as being in conflict with the agreement to arbitrate and as constituting a waiver of the right to arbitration.
Similarly, in the case of Anil v. Rajendra [2014], the Supreme Court held that “once a judicial authority dismisses an application under Section 8, its decision becomes final; and after that, no party can approach the High Court, under section 11(6) seeking constitution of an Arbitrator.” This conforms with the principle that when parties approach civil litigation as opposed to a reference to arbitration, the parties cannot approach the court again through another route, as they are hit by the doctrine of issue estoppel and res judicata if the matter is decided by the court having proper jurisdiction.
The doctrine of Estoppel does not apply automatically. The facts and circumstances are also considered by courts. In Ministry of Sound International Ltd. v. Indus Renaissance Partners Entertainment Pvt. [2009], the court held that filing a suit and subsequently withdrawing it would not constitute abandonment or waiver of the right to arbitration. The case illustrates that the waiver of the right to arbitrate is not automatic and depends on the specific circumstances and conduct of the parties.
Jurisdiction: The Role of the Court and the Arbitral Tribunal
A further question of jurisdiction arises regarding whether a party has lost his right to arbitrate. The crucial issue is whether such a waiver of the right to arbitrate should be decided by the court or left to the arbitral tribunal and allow first-stage referral applications under Section 8 and Section 11.
In Modi Korea Telecommunications Ltd. v. Appcon Consultants Pvt. Ltd. [1999], it held that while entertaining an application under Section 11, the court is not denuded of jurisdiction to decide whether requirements for invocation of arbitration are fulfilled and said the issue involves prima facie consideration as to the existence of an arbitration agreement and whether the dispute falls within the purview of the said agreement.
In the judgment of the case Sukanya Holdings (P) Ltd. v. Jayesh H. Pandya [2003], decided by the Supreme Court, the order of the Bombay High Court dismissing the application under Section 8 was upheld. It is interpreted that the judicial authority can refer parties to arbitration when the whole subject matter of the suit is covered under the arbitration agreement. The court held that questions as to whether parties were not parties to the arbitration agreement or whether issues were outside the scope of such an agreement had to be left to the court’s discretion. It went further to state unequivocally that courts must assume such jurisdiction.
However, while explaining the case of Sundaram Finance Limited v. T. Thankam [2015], the Supreme Court has explained that with a valid application under Section 8, the said role of the court would be to refer it to arbitration, and any objection regarding jurisdiction has to be decided by the arbitral tribunal itself. This is precisely in keeping with kompetenz-kompetenz, limited judicial intervention, and the self-empowerment of the tribunal to determine its jurisdiction.
Kompetenze-Kompetenze
The “kompetenz-kompetenz” principle, enshrined in Section 16 of the Act, empowers the arbitral tribunal to rule on its jurisdiction, including any objections to the existence or validity of the arbitration agreement. The recent pronouncements are in line with this principle.
Gannon Dunkerley and Company Limited v. Union of India Ministry OF Road Transport and Highways (2024)
The recent case of Gannon Dunkerley and Company Limited v. Union of India Ministry of Road Transport and Highways[2024] underlines the interrelationship between the kompetenze-kompetenze principle vis-à-vis court jurisdiction under Section 8 and 11. The case involved an infrastructure development company invoking the arbitration clause in an agreement executed with the Ministry of Transport and Highways. Respondent’s argument was that the claimant had waived its right to arbitration by filing the writ petitions initially before the High Court without resorting to the arbitration clause.
However, the court held that Section 11 of the Act had given it limited jurisdiction, saying its role was only to look into whether or not there existed an arbitration agreement. It said explicitly that it was not to consider the merits of the dispute or such a preliminary issue as waiver, abandonment, or Estoppel since such matters were peculiarly for the arbitral tribunal. Thus, the court ruled that such an issue as waiver, abandonment, or whether the arbitration clause has been abandoned is to be decided by the arbitral tribunal and not by the court at the referral stage.
Their judgment also represented an emergent trend of judicial jurisprudence, striving for a less cumbersome arbitration process by minimizing judicial intervention at the threshold level. By reinstating the principle of kompetenze-kompetenze of the arbitral tribunal to decide upon its jurisdiction, the court retreated to minimalism and strengthened the pro-arbitration bias of Indian law.
Conclusion
The jurisprudence relating to whether a party forfeits its right to arbitrate by commencing litigation has undergone significant changes in recent years. Although the doctrine of Estoppel may be applied to prevent a party from invoking arbitration after having chosen to litigate, applying this doctrine is by no means automatic. Courts have recognized that each case must be judged on its peculiar facts and, from those facts, whether the party’s actions clearly show an intent to waive the agreement to arbitrate.
The principle of kompetenz-kompetenz further reiterates the autonomy of the arbitral tribunal while making decisions on issues touching on jurisdiction, including any alleged waiver or abandonment of the arbitration agreement. The judgment in Gannon Dunkerley also demonstrates a clear judicial disposition to leave the arbitration to proceed while relegating complex issues of jurisdiction and procedure before the arbitral tribunal. Not only does this approach reinforce the principle of minimal judicial intervention, but it reinforces the sanctity of arbitration agreements.
This blog is written by Agrima Dhyani, 3rd Year Student at Dr. Ram Manohar Lohiya National Law University, Lucknow.