Court’s Decision
The Delhi High Court allowed the petition under Section 11(6) of the Arbitration and Conciliation Act, 1996, and appointed Justice Swatanter Kumar, former Supreme Court Judge, as the Sole Arbitrator to adjudicate the disputes between the parties. The Court held that the issue of whether the claims are barred by res judicata cannot be decided at the threshold under Section 11 and must be left to the Arbitral Tribunal.
The Court reiterated:
“There can be no threshold consideration and rejection of a claim on the ground of res judicata, while considering an application under Section 11 of the Act.”
Facts
The petitioner was awarded a contract on 29.12.2009 by the respondent for civil works related to underground rock caverns for crude oil storage in Padur, Karnataka. The contract, valued at ₹374.65 crores, was formalised on 30.07.2010.
Following disputes, arbitration was invoked in 2017, resulting in an award dated 26.06.2021 granting the petitioner ₹35.99 crores with interest, while some claims were rejected. Both parties challenged the award under Section 34: the respondent sought complete annulment while the petitioner challenged partial rejections.
On 02.08.2024, the High Court—with consent of the parties—set aside the award in the respondent’s petition and disposed of the petitioner’s as infructuous, granting liberty to raise claims and defences in accordance with law. A second invocation of arbitration was made on 13.09.2024 by the petitioner, which the respondent opposed, citing estoppel and res judicata.
Issues
- Whether the High Court, in a Section 11(6) petition, can adjudicate if the claims are barred by res judicata.
- Whether a second arbitration is maintainable in light of the earlier disposal of Section 34 petitions and award.
Petitioner’s Arguments
- The maintainability or tenability of claims, including whether they are barred by res judicata, is not within the scope of a Section 11(6) petition.
- Cited the Supreme Court judgment in Indian Oil Corporation Ltd. v. SPS Engineering Ltd. (2011) 3 SCC 507 to argue that such issues must be left to the Arbitral Tribunal.
- Submitted that the appointment of an Arbitrator should be made, and the issue of res judicata can be raised before the Tribunal.
Respondent’s Arguments
- Opposed the petition on the ground that the claims were already adjudicated and rejected either fully or partially in the prior arbitration.
- Argued that the petitioner’s consent to set aside the earlier award amounts to a waiver and an irrevocable abandonment of the right to re-agitate claims.
- Asserted that allowing a second arbitration amounts to a misuse of process and is barred by res judicata.
Analysis of the Law
The Court relied on the Supreme Court’s decision in Indian Oil Corporation Ltd. v. SPS Engineering Ltd., which held:
“The question whether a claim is barred by res judicata does not arise for consideration in a proceeding under Section 11… Such an issue will have to be examined by the Arbitral Tribunal.”
It emphasized that Section 11’s limited scope permits only an inquiry into the existence of an arbitration agreement and whether the petition is barred by limitation, not the tenability or legal admissibility of claims.
Precedent Analysis
- Indian Oil Corporation Ltd. v. SPS Engineering Ltd., (2011) 3 SCC 507:
The Supreme Court clearly held that res judicata and similar defences should be raised before the Arbitral Tribunal, not under Section 11.
This precedent directly governed the case, barring the High Court from pre-emptively adjudicating on res judicata.
Court’s Reasoning
The Court found that the respondent’s objection was outside the scope of Section 11 jurisdiction:
“It is a settled law that in the scope of jurisdiction under Section 11… the referral Court does not examine the tenability of the claims…”
“There can be no threshold consideration and rejection of a claim on the ground of res judicata…”
The Court reaffirmed that such a defence, while available to the respondent, must be raised before the Tribunal.
Conclusion
The Court appointed Justice Swatanter Kumar as Sole Arbitrator under Section 11(6) of the Act. It made it clear:
- The Arbitrator must make disclosures under Section 12 before entering the reference.
- All issues regarding res judicata are left open to be decided by the Tribunal.
- The Court expressed no view on the merits of the disputes.
Implications
This judgment reiterates the narrow scope of judicial intervention under Section 11 of the Arbitration Act, reinforcing party autonomy and arbitral jurisdiction. It safeguards the principle that defences like res judicata must be adjudicated by the Arbitral Tribunal, thereby promoting minimal court interference in arbitration proceedings.
