Section 11(6A) of the Arbitration and Conciliation Act, 1996

Source: Supreme Court  

Why in News? 

Recently, Justices PS Narasimha and Manoj Misra held that a clause stating arbitration "may be sought" is merely permissive and does not constitute a binding arbitration agreement. 

• The Supreme Court held this in the matter of BGM AND M-RPL-JMCT (Jv) v. Eastern Coalfields Limited (2025). 

What was the Background of BGM AND M-RPL-JMCT (Jv) v. Eastern Coalfields Limited Case? 

• The appellant, BGM AND M-RPL-JMCT (JV), and the respondent, Eastern Coalfields Limited, entered into a contract relating to transportation and handling of goods, during the subsistence of which disputes arose between the parties. 
• The central issue revolved around the interpretation of Clause 13 of the General Terms and Conditions, which was appended to the e-tender notice and formed part of the contract, with the appellant relying upon this clause as constituting an arbitration agreement. 
• Clause 13, titled "Settlement of Disputes," established a multi-tiered dispute resolution mechanism requiring contractors to first settle disputes at company level, make written requests to the Engineer-in-charge within 30 days, and follow a two-stage resolution process involving Area CGM/GM and a committee constituted by the owner. 
• The crucial provision in Clause 13 stated that for parties other than government agencies, "the redressal of the dispute may be sought through Arbitration and Conciliation Act, 1996 as amended by amendment act of 2015." 
• Treating the underscored portion of Clause 13 as an arbitration agreement, the appellant filed an application under Section 11(6) of the Arbitration and Conciliation Act, 1996, seeking appointment of an arbitrator for settlement of disputes between the parties. 
• Eastern Coalfields Limited objected to the prayer for appointment of an arbitrator on the ground that Clause 13 lacked the essential ingredients to constitute a valid arbitration agreement and did not establish a binding commitment to arbitration. 
• The respondent also relied upon Clause 32 of the Instructions to Bidders, which provided that matters relating to disputes arising out of the tender and subsequent contract would be subject to the jurisdiction of the District Court where the subject work was to be executed, arguing that disputes were intended to be resolved through regular court proceedings rather than arbitration. 
• The High Court accepted the respondent's objection and dismissed the appellant's application by emphasizing the use of the word "may" before "be sought" in Clause 13, concluding that this language did not demonstrate a clear intention of the parties to refer disputes to arbitration, and the appellant subsequently approached the Supreme Court challenging this decision dated 19th January 2024. 

What were the Court’s Observations? 

• The Supreme Court observed that Section 11 confines the Court's jurisdiction to the examination regarding the existence of an arbitration agreement, with the use of the term "examination" connoting that the scope of power is limited to a prima facie determination without requiring a laborious or contested inquiry. 
• The Court noted that the intention of parties to enter into an arbitration agreement must be gathered from the terms of the agreement, and words used should disclose a determination and obligation to go to arbitration rather than merely contemplating the possibility of going for arbitration, as where there is merely a possibility of parties agreeing to arbitration in future there is no valid and binding arbitration agreement. 
• The Court observed that Clause 13 does not bind parties to use arbitration for settlement of disputes, as the use of words "may be sought" implies that there is no subsisting agreement between parties that they would have to seek settlement of disputes through arbitration, making it merely an enabling clause requiring further agreement between parties. 
• The Court distinguished that mere use of the word "arbitration" or "arbitrator" in a clause will not make it an arbitration agreement if it requires or contemplates a further or fresh consent of the parties for reference to arbitration, noting that such clauses merely indicate a desire or hope to have disputes settled by arbitration rather than a binding commitment. 
• The Court observed that in cases where one party relies on a single clause as constituting an arbitration agreement while the other disputes this characterization, a plain reading of the clause would suffice to determine whether it constitutes an arbitration agreement without holding a mini-trial or inquiry, as such limited exercise serves to weed out frivolous claims for appointment of arbitrators. 
• The Court concluded that the High Court was justified in holding that Clause 13 does not constitute an arbitration agreement and in rejecting the application seeking appointment of an arbitrator, since the phraseology of Clause 13 was not indicative of a binding agreement that any party could independently seek redressal of disputes through arbitration. 

What is Section 11 and Section 11(6A) of the Arbitration and Conciliation Act, 1996 ? 

• Section 11 of the Arbitration and Conciliation Act, 1996, deals with the appointment of arbitrators and provides a comprehensive framework for ensuring that arbitration proceedings can commence even when parties fail to agree on the appointment procedure or when the agreed procedure breaks down, while establishing that persons of any nationality may serve as arbitrators unless parties agree otherwise. 
• The section primarily empowers parties to agree on their own procedure for appointing arbitrators but provides judicial intervention mechanisms through the Supreme Court, High Court, or designated institutions when such agreements fail, parties default in following agreed procedures, or deadlocks occur in the appointment process. 
• Section 11 distinguishes between arbitration with three arbitrators, where each party appoints one arbitrator and the two appointed arbitrators select the third presiding arbitrator, and arbitration with a sole arbitrator, where parties must mutually agree on the appointment within specified timeframes. 
• Section 11(6A), introduced by the 2015 Amendment Act, specifically restricts the scope of judicial examination when courts consider applications for appointment of arbitrators under sub-sections (4), (5), or (6), mandating that courts shall confine their examination solely to determining the existence of an arbitration agreement. 
• This provision represents a legislative clarification aimed at limiting judicial intervention to a prima facie determination of whether an arbitration agreement exists, thereby preventing courts from conducting detailed inquiries into the validity or merits of arbitration agreements at the appointment stage and ensuring courts do not exceed their jurisdictional limits. 
• Section 11(6A) serves as a procedural safeguard that balances the need for judicial oversight in ensuring genuine arbitration agreements exist while preventing unnecessary delays that could arise from extensive judicial scrutiny, with such detailed analysis being reserved for the arbitral tribunal itself under the competence-competence doctrine. 
• The introduction of Section 11(6A) was intended to states the arbitrator appointment process by clearly delineating the limited scope of judicial examination, thereby reducing delays and promoting the pro-arbitration approach while upholding the doctrine of competence-competence, wherein arbitral tribunals have primary authority to determine their own jurisdiction including ruling on the existence, validity, and scope of arbitration agreements.