Source: Delhi High Court  

Why in News? 

Recently, Justice Jyoti Singh has held that in a petition under Section 11 of the Arbitration and Conciliation Act, 1996 (A&C Act) , the referral court cannot decide whether claims are barred by res judicata, as such issues fall exclusively within the domain of the Arbitral Tribunal. 

• The Delhi High Court held this in the matter of Hindustan Construction Company Ltd v. Indian Strategic Petroleum Reserves Ltd. (2025). 

What was the Background of Hindustan Construction Company Ltd v. Indian Strategic Petroleum Reserves Ltd.,2025 Case? 

• Hindustan Construction Company Ltd. (Petitioner) was awarded a Contract by Indian Strategic Petroleum Reserves Ltd. (Respondent) vide Letter of Acceptance dated 29th December 2009 for civil works for underground rock caverns for strategic storage of crude oil at Padur, Karnataka. 
• A formal Contract valued at Rs. 374,65,80,000/- was signed on 30.07.2010 with the original stipulated date of completion being 29th March 2012. 
• Disputes arose between the parties, leading the Petitioner to invoke arbitration on 24.02.2017 in terms of Clause 9.0.1.0 of the General Conditions of Contract. 
• Upon receiving no response, the Petitioner filed a petition under Section 11 of the A&C Act (ARB.P. 403/2017), which was allowed on 24th July 2017 with the appointment of a Sole Arbitrator. 
• The arbitrator rendered an Award on 26.06.2021 granting Rs. 35,99,86,464/- with 9% interest to the Petitioner while rejecting some of its claims. 
• Both parties challenged the Award through separate petitions - the Respondent challenged the Award in its entirety (O.M.P.(COMM.) 366/2021), while the Petitioner contested the partial and complete disallowance of several claims (O.M.P.(COMM.) 78/2022). 
• On 02th August 2024, both petitions were disposed of by a common order where, with the consent of the parties, the Respondent's petition was allowed, setting aside the Award of Rs. 35,99,86,464/-, and the Petitioner's petition was declared infructuous. 
• Following this disposition, the Petitioner invoked fresh arbitration on 13th September  2024, proposing three names of independent Arbitrators for adjudication of the disputes. 
• The Respondent sent a reply on 12th October 2024 declining arbitration, contending that the Petitioner was committing an offence against proper legal procedure by attempting to reagitate claims that had already been conclusively determined. 

What were the Court’s Observations? 

• The Delhi High Court determined that the central issue for consideration was whether a Court, while entertaining a petition under Section 11 of the A&C Act, possesses jurisdiction to examine whether a claim is barred by the principle of res judicata. 
• The Court held that it is not within the purview of the referral Court in a petition filed under Section 11 to examine whether the claim is barred by res judicata, as such determination falls exclusively within the domain of the Arbitral Tribunal. 
• The Court affirmed that the scope of jurisdiction under Section 11 does not permit examination of the tenability of claims sought to be referred to arbitration by the applicant, but is restricted solely to determining the existence of an Arbitration Agreement and whether the petition itself is barred by limitation. 
• The Court placed reliance on the Supreme Court's judgment in Indian Oil Corporation Limited v. SPS Engineering Limited (2011), which established that the limited scope of Section 11 does not permit examination into the contention that the claim is barred by res judicata. 
• The Court observed that raising the bar of res judicata at the threshold stage would constitute an offence against established principles of arbitration jurisprudence, as there can be no threshold consideration and rejection of a claim on the ground of res judicata while considering an application under Section 11. 
• The Court allowed the petition and appointed Justice Swatanter Kumar, former Judge of the Supreme Court, as the Sole Arbitrator to adjudicate the disputes between the parties, with the specific direction that the fee of the Arbitrator shall be as per the Fourth Schedule of the 1996 Act. 
• The Court explicitly left open the issue of whether the claims sought to be referred to arbitration are barred by the principle of res judicata, to be raised by the Respondent before the learned Arbitrator and adjudicated in accordance with law.

What is Section 11 of the Act ?

• Section 11 deals with the appointment of arbitrators in arbitration proceedings. 
• Section 11(1) establishes that a person of any nationality may be an arbitrator, unless the parties agree otherwise. 
• Section 11(2) grants parties the freedom to agree on a procedure for appointing arbitrators, subject to the provisions of sub-section (6). 
• Section 11(3)-(5) provides default mechanisms for appointment of arbitrators when parties fail to agree on such appointments. 
• Section 11(6) allows a party to request the Supreme Court or High Court to take necessary measures when there are failures in the agreed appointment procedure. 
• Section 11(6A) limits the court's examination, while considering applications under sub-sections (4), (5), or (6), to only the existence of an arbitration agreement, notwithstanding any judgment, decree, or order of any court. 
• Section 11(7) establishes that decisions made by the Supreme Court or High Court under sub-sections (4), (5), or (6) are final, with no appeals permitted. 
• Section 11(8) requires the court to seek written disclosure from prospective arbitrators and consider qualifications required by the parties' agreement and other factors to secure independent and impartial arbitrators. 
• Section 11(13) mandates expeditious disposal of applications for appointment of arbitrators, with an endeavor to dispose of such matters within 60 days from the date of service of notice on the opposite party. 
• Section 11(14) empowers High Courts to frame rules for determination of arbitrators' fees, taking into consideration rates specified in the Fourth Schedule (except for international commercial arbitration or when parties have agreed on determination of fees as per rules of an arbitral institution).