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Does dispute relating to the novation of the Contract need to be examined by the Arbitral Tribunal or by the Court u/s 11?
Does dispute relating to the novation of the Contract need to be examined by the Arbitral Tribunal or by the Court u/s 11?
Section 11 does not prescribe any standard of review by the court to work out whether an arbitration agreement exists. But as per Section 8 states that the review at the stage of reference is prima facie and not final. Clear standard equally applies when the facility of review is exercised by the court under Section 11 of the Arbitration Act. Therefore, we can read the mandate of the valid arbitration agreement in Section 8 into the mandate of Section 11, that is, “the existence of an arbitration agreement”
This controversy was addressed by the Delhi high court. It's associated with the scope of examination under Section 11 of the Arbitration & Conciliation Act at a pre-referral stage. The matter within the case of SPML INFRA LTD v NTPC LTD[1] the contention relating to the novation of the contract was raised. The Court placed reliance on a series of cases and observed that law before the 2015 Amendment that had been laid down by Supreme Court, which permitted courts to go into whether accord and satisfaction have taken place, had now been overruled. The court then held that it must provide the parties to arbitration unless it can conclude that the dispute raised by the claimant concerning the validity of the settlement is deprived of any merit; isn't bonafide or maybe a frivolous one.
In this case, the petitioner SPML Infra Ltd. is a company incorporated under the Companies Act, 1956 which deals with the work of engineering. The respondent here is NTPC Ltd., a Public Sector Undertaking which is essentially involved within the commissioning and operation of thermal power plants.
SPML has filed the petition under Section 11 of the Arbitration and Conciliation Act, 1996 for the constitution of an Arbitral Tribunal to adjudicate the disputes between the parties concerning the Contract Agreement. On the date, the parties have entered into a contract that SPML will install a thermal power station for NTPC at Vishakhapatnam that SPML had furnished Performance Bank Guarantees and Advance Bank Guarantee. SPML duly completed the project and accordingly, was granted a completion certificate. it was SPML's case in which the NTPC failed and neglected to release the Bank Guarantees even after the issuance of the completion certificate.
Aggrieved by this the SPML had filed a Writ Petition before the Court seeking release of the Bank Guarantees. Although it had secured an interim order restraining NTPC from invoking the Bank Guarantees, SPML continued to run the danger that the proceedings could also be protracted. In the meanwhile, the non-fund-based facilities granted to SPML continued to be blocked and therefore the same constrained SPML in its business.
In conclusion, The Court then held that when it's established that the parties had entered into an arbitration agreement, the courts must relegate the parties to arbitration to adjudicate the dispute. The Court observed that the question of novation of contract containing an article can't be considered by the Court during a petition.
[1] [ARB. P. 477/2020]
(This Article Does Not Intend To Hurt The Sentiments Of Any Individual Community, Sect, or Religion, Etcetera. This Article Is Based Purely On The Authors Personal Views And Opinions In The Exercise Of The Fundamental Right Guaranteed Under Article 19(1)(A) And Other Related Laws Being Force In India, For The Time Being. Further, despite all efforts made to ensure the accuracy and correctness of the information published, White Code VIA Mediation and Arbitration Centre Foundation shall not be responsible for any errors caused due to human error or otherwise.)
- Section 11 does not prescribe any standard of review by the court to work out whether an arbitration agreement exists.
- when it's established that the parties had entered into an arbitration agreement, the courts must relegate the parties to arbitration to adjudicate the dispute.
- But as per Section 8 states that the review at the stage of reference is prima facie and not final.
