Greenlam Industries Limited v. Steam Equipment Private Limited

1. The petition has been filed under Section 11 of the Arbitration and Conciliation Act, 1996 (the Act), seeking appointment of a Sole Arbitrator, to adjudicate upon the disputes that have arisen between the parties.

2. The case set up by the petitioner is that vide Purchase Order bearing no. 1440000522 dated 20.03.2019, and Purchase Orders bearing NO. 4200003016 and 4200003018, both dated 02.08.2019 (collectively, the Purchase Orders), it had purchased three Sox and NOx analysers along with other ancillary items from the respondent. However, the aforesaid analysers were found to be defective upon their installation by the petitioner. The respondent is alleged to have represented that the defective analysers would KUMAR KAURAV be replaced against a further advance amount of Rs. 2,25,000/- (Rupees Two lakh Twenty-Five Thousand only) and the petitioner, therefore, had sent the defective analysers for replacement along with the aforesaid advance amount.

3. The respondent, allegedly, was not cooperative in the replacement of the analysers despite repeated demands by the petitioner. The petitioner seeks refund of the aforesaid advance amount and return of the analysers/refund of their purchase amount. Therefore, the present petition has been filed.

4. The respondent, in its reply, has raised objections on the ground that the petition is barred by limitation, as the claim is in respect of Purchase Orders of the year 2019. Further objections on the merits of the dispute have also been raised.

5. I have considered the material available on record.

6. Clause 19 of the Purchase Orders is extracted hereinbelow:- ―19. Governing Law and Dispute Resolution: The governing law of this contract/Purchase order will be the laws of India. Any dispute or differences arising out of or in connection with the present contract/Purchase Order shall be settled under the Arbitration and Conciliation Act, 1996 as amended from time to time by a sole arbitrator appointed by Greenlam Industries Ltd. The venue of arbitration shall be Delhi, India and the language of the arbitration shall be English. The award of the arbitrators will be final and binding upon the parties. The cost of arbitration shall be borne by the defaulting party or as may be determined by the arbitrator. The Hon'ble Courts at Delhi will have the exclusive jurisdiction to adjudicate all matters arising out of the contract/Purchase Order.‖

7. In view of the decisions of the Supreme Court in Perkins Eastman Architects DPC v. HSCC (India) Ltd,[1] Central Organisation for Railway 2019 17 SCR 275 Electrification v. M/s ECI SPIC SMO MCML (JV) A Joint Venture Company,[2] the appointment of the Sole Arbitrator, unilaterally, by one of the parties cannot be permitted. However, there is no dispute, herein, that the parties have agreed to the resolution of their disputes by way of arbitration.

8. The law with respect to the scope and standard of judicial scrutiny under Section 11(6) of the Act is no longer res integra. This Court in Pradhaan Air Express Pvt Ltd v. Air Works India Engineering Pvt Ltd[3], has extensively dealt with the scope of interference at the stage of Section

11. Furthermore, in Axis Finance Limited Vs. Mr. Agam Ishwar Trimbak,[4] this Court has held that the scope of inquiry under Section 11 of the Act is limited to a prima facie examination of the existence of an arbitration agreement. Further, it was also reiterated that objections relating to the arbitrability of disputes are not to be entertained by a referral Court acting under Section 8 or 11 of the Act. The relevant extract of the aforesaid decision reads as under:-

19. In In Re: Interplay, the Supreme Court confined the analysis under Section 11 of the Act to the existence of an arbitration agreement and under Section 8 of the Act to the existence and validity of an arbitration agreement. Under both the provisions, examination was to be made at the touchstone of Section 7 of the Act. Further, issues pertaining to the arbitrability of the dispute fell outside the scope of both Section 11(6A) and Section 8 of the Act. The material part of the judgement of the Supreme Court in In Re: Interplay reads as under:

164. The 2015 Amendment Act has laid down different parameters for judicial review under Section 8 and Section 11. Where Section 8 requires the referral Court to look into the prima facie existence of a valid arbitration agreement. Section 11 confines the Court’s jurisdiction to the examination of the existence of an arbitration agreement. Although the object and 2024 INSC 857 2025 SCC OnLine Del 3022 2025:DHC:7477 purpose behind both Sections 8 and 11 is to compel parties to abide by their contractual understanding, the scope of power of the referral Courts under the said provisions is intended to be different. The same is also evident from the fact that Section 37 of the Arbitration Act allows an appeal from the order of an arbitral tribunal refusing to refer the parties to arbitration under Section 8, but not from Section 11. Thus, the 2015 Amendment Act has legislatively overruled the dictum of Patel Engineering (supra) where it was held that Section 8 and Section 11 are complementary in nature. Accordingly, the two provisions cannot be read as laying down a similar standard. 165. The legislature confined the scope of reference under Section 11(6A) to the examination of the existence of an arbitration agreement. The use of the term ―examination‖ in itself connotes that the scope of the power is limited to a prima facie determination. Since the Arbitration Act is a self-contained code, the requirement of ―existence‖ of an arbitration agreement draws effect from Section 7 of the Arbitration Act. In Duro Felguera (supra), this Court held that the referral Courts only need to consider one aspect to determine the existence of an arbitration agreement – whether the underlying contract contains an arbitration agreement which provides for arbitration pertaining to the disputes which have arisen between the parties to the agreement. Therefore, the scope of examination under Section 11(6A) should be confined to the existence of an arbitration agreement on the basis of Section 7Similarly, the validity of an arbitration agreement, in view of Section 7, should be restricted to the requirement of formal validity such as the requirement that the agreement be in writing. This interpretation also gives true effect to the doctrine of competence-competence by leaving the issue of substantive existence and validity of an arbitration agreement to be decided by arbitral tribunal under Section 16. We accordingly clarify the position of law laid down in Vidya Drolia (supra) in the context of Section 8 and Section 11 of the Arbitration Act.

166. The burden of proving the existence of arbitration agreement generally lies on the party seeking to rely on such agreement. In jurisdictions such as India, which accept the doctrine of competencecompetence, only prima facie proof of the existence of an arbitration agreement must be adduced before the referral Court. The referral Court is not the appropriate forum to conduct a minitrial by allowing the parties to adduce the evidence in regard to the existence or validity of an arbitration agreement. The determination of the existence and validity of an arbitration agreement on the basis of evidence ought to be left to the arbitral tribunal. This position of law can also be gauged from the plain language of the statute. 167. Section 11(6A) uses the expression ―examination of the existence of an arbitration agreement.‖ The purport of using the word ―examination‖ connotes that the legislature intends that the referral Court has to inspect or scrutinize the dealings between the parties for the existence of an arbitration agreement. Moreover, the expression ―examination‖ does not connote or imply a laborious or contested inquiry. On the other hand, Section 16 provides that the arbitral tribunal can ―rule‖ on its jurisdiction, including the existence and validity of an arbitration agreement. A ―ruling‖ connotes adjudication of disputes after admitting evidence from the parties. Therefore, it is evident that the referral Court is only required to examine the existence of arbitration agreements, whereas the arbitral tribunal ought to rule on its jurisdiction, including the issues pertaining to the existence and validity of an arbitration agreement. A similar view was adopted by this Court in Shin-Etsu Chemical Co. Ltd. v. Aksh Optifibre Ltd.‖ [Emphasis supplied]

20. The effect of In Re: Interplay was further explained by a Three Judge Bench of the Supreme Court in SBI General Insurance Co. Ltd. v. Krish Spinning[5] wherein the Court declared Vidya Drolia and NTPC Ltd.’s findings qua scope of inquiry under Section 8 and Section 11 of the Act to no longer be compatible with modern principles of arbitration. The material portions of the judgement read as under: ―114. In view of the observations made by this Court in In Re: Interplay (supra), it is clear that the scope of enquiry at the stage of appointment of arbitrator is limited to the scrutiny of prima facie existence of the arbitration agreement, and nothing else. For this reason, we find it difficult to hold that the observations made in Vidya Drolia (supra) and adopted in NTPC v. SPML (supra) that the jurisdiction of the referral Court when dealing with the issue of ―accord and satisfaction‖ under Section 11 extends to weeding out ex-facie non-arbitrable and frivolous disputes would continue to apply despite the subsequent decision in In Re: Interplay (supra). … 118. Tests like the ―eye of the needle‖ and ―ex-facie meritless‖, although try to minimise the extent of judicial interference, yet they require the referral Court to examine contested facts and appreciate prima facie evidence (however limited the scope of enquiry may be) and thus are not in conformity with the principles of modern arbitration which place 2024 SCC OnLine SC 1754 arbitral autonomy and judicial non-interference on the highest pedestal.‖ [Emphasis supplied]

21. Similarly, in BGM and M-RPL-JMCT (JV) v. Eastern Coalfields Ltd[6] the Supreme Court succinctly explained the effect of In Re: Interplay on a Referral Court’s powers under Section 11 of the Act. The relevant part of the judgement is as under:

15. … (a) Section 11 confines the Court's jurisdiction to the examination regarding the existence of an arbitration agreement. (b) The use of the term ―examination‖ in itself connotes that the scope of the power is limited to a prima facie determination.