NTPC LTD. versus M/S SPML INFRA LTD

Citation: [2023] 2 S.C.R. 846 · Decided: 10-04-2023 · Supreme Court of India · Bench: D.Y. CHANDRACHUD · Disposal: Appeal(s) allowed

Cited by 4 judgment(s) · cites 9 · see the full citation network in Lexace

Judgment (excerpt)

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SUPREME COURT REPORTS
[2023] 2 S.C.R.
[2023] 2 S.C.R. 846
846
NTPC LTD.
v.
M/S SPML INFRA LTD.
(Civil Appeal No. 4778 of 2022)
APRIL 10, 2023
[DR. DHANANJAYA Y CHANDRACHUD, CJI AND
PAMIDIGHANTAM SRI NARASIMHA, J.]
Arbitration and Conciliation Act 1996 : s. 11(6) – Constitution
of arbitral tribunal – Arbitiability of the dispute – Contract between
the parties – Successful completion of work by SPML and issuance
of completion certificate by NTPC – NTPC released the final payment
– However, NTPC withheld SPML’s Bank Guarantees with respect
to other projects – In turn, SPML raised a claim against NTPC, and
thereafter, filed writ petition seeking release the Bank Guarantees
– During pendency, the parties arrived at a Settlement Agreement
and in compliance thereof, NTPC released the Bank Guarantees
and SPML withdrew the writ petition – After one month, SPML filed
the arbitration petition u/s. 11(6) alleging coercion and economic
duress in the execution of the Settlement Agreement – High Court
allowed the same – On appeal held: No allegations of coercion or
economic duress compelling SPML to withdraw any pending claims
under the subject contract as a condition for the return of the Bank
Guarantees – Only allegation by SPML was with respect to NTPC’s
illegal action of interlinking the release of the Bank Guarantees
with some other contracts –Allegations of coercion and economic
duress not bona fide, and that there were no pending claims between
the parties for submission to arbitration – Claim of SPML was an
attempt to initiate ex facie meritless, frivolous and dishonest litigation
– High Court should have exercised the prima facie test to screen
and strike down the ex-facie meritless and dishonest litigation – It
should have exercised the restricted and limited review to check
and protect parties from being forced to arbitrate – High Court
erred in allowing the application u/s. 11(6), thus, the decision of
the High Court set aside.
s. 11(6) – Pre-referral jurisdiction of the courts u/s. 11(6) –
Scope of – Held: Is very narrow and inheres two inquiries – Primary
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inquiry is about the existence and the validity of an arbitration
agreement and the secondary inquiry is with respect to the non-
arbitrability of the dispute at the reference stage – Standard of
scrutiny to examine the non-arbitrability of a claim is only prima
facie – Limited scrutiny, through the eye of the needle, is necessary
and compelling – If this duty within the limited extent is not exercised,
and the Court becomes too reluctant to intervene, it may undermine
the effectiveness of both, arbitration and the Court – Thus, this
Court or a High Court, while exercising jurisdiction u/s. 11(6) not
expected to act mechanically merely to refer a purported dispute
raised by an applicant to the chosen arbitrator.
Allowing the appeal, the Court
HELD: 1.1 The pre-referral jurisdiction of the courts under
Section 11(6) of the Act is very narrow and inheres two inquiries.
The primary inquiry is about the existence and the validity of an
arbitration agreement, which also includes an inquiry as to the
parties to the agreement and the applicant’s privity to the said
agreement. These are matters which require a thorough
examination by the referral court. The secondary inquiry that may
arise at the reference stage itself is with respect to the non
arbitrability of the dispute. [Para 25][862-E-F]
1.2 As a general rule and a principle, the arbitral tribunal is
the preferred first authority to determine and decide all questions
of non-arbitrability. As an exception to the rule, and rarely as a
demurrer, the referral court may reject claims which are
manifestly and ex-facie non-arbitrable. The standard of scrutiny
to examine the non-arbitrability of a claim is only prima facie.
Referral courts must not undertake a full review of the contested
facts; they must only be confined to a primary first review and let
facts speak for themselves. This also requires the courts to
examine whether the assertion on arbitrability is bona fide or
not. The prima facie scrutiny of the facts must lead to a clear
conclusion that there is not even a vestige of doubt that the claim
is non-arbitrable. On the other hand, even if there is the slightest
doubt, the rule is to refer the dispute to arbitration. [Paras 26,
27][862-G; 863-C-E]
NTPC LTD. v. M/S SPML INFRA LTD.
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1.3 The limited scrutiny, through the e

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