Facts: M/s Eminent Colonizers Private Limited (Appellant) was awarded construction work by Rajasthan Housing Board (Respondent). A dispute arose regarding non-payment of escalation costs. The Appellant invoked Clause 23 of the contract agreement, which stipulated a Standing Committee for dispute resolution. The Respondent failed to constitute the committee as per Clause 23. The Appellant filed a Section 11 application in the High Court for appointment of an arbitrator. A Single Judge allowed the application and appointed an arbitrator. The arbitrator allowed the Appellant's claim. The Respondent challenged the arbitral award under Section 34, arguing Clause 23 was not an arbitration clause. The Commercial Court set aside the award, a decision upheld by the High Court.
Procedural Posture: The Appellant appealed to the Supreme Court against the High Court's decision upholding the Commercial Court's order that set aside the arbitral award under Section 34. The core issue was whether the courts below were justified in holding that Clause 23 was not an arbitration agreement, thereby setting aside the award.
Issue: Given that the arbitrator's appointment occurred before the 2015 amendments to the Arbitration and Conciliation Act, specifically Section 11(6A), were the lower courts correct in setting aside the award by determining that Clause 23 of the contract was not an arbitration agreement? Further, did the acceptance of the Section 11 order by the respondents, without challenge, preclude them from later contesting the validity of the arbitration clause?
Holding: No, the Commercial Court and the High Court erred in going into the existence and validity of Clause 23 and pronouncing that the said clause was not an arbitration clause. The Supreme Court set aside the judgment of the High Court.
Reasoning: The Supreme Court relied on the seven-judge bench decision in SBP & Co., stating that the Section 34 court erred in examining the existence and validity of Clause 23. Since the arbitrator's appointment predated the 2015 amendments, the SBP & Co. regime applied, where the Section 11 court was required to determine both the existence and validity of the arbitration agreement. The acceptance of the Section 11 court's order by the respondents, without challenge, implied an acceptance of the existence and validity of the arbitration agreement, operating as res judicata. The Commercial Court's finding that the Section 11 order lacked precedential value was incorrect. The matter was remitted to the Commercial Court to consider other objections, excluding the validity of Clause 23 as an arbitration agreement.