Full Judgment Text
REPORTABLE
IN THE SUPREME COURT OF INDIA
2026 INSC 116
CIVIL APPELLATE JURISDICTION
CIVIL APPEAL NO. 753 OF 2026
(@ SLP (C) No.8299 OF 2021)
M/s Eminent Colonizers
Private Limited …Appellant
Versus
Rajasthan Housing Board and Ors. …Respondents
WITH
CIVIL APPEAL NO. 754 OF 2026
(@ SLP (C) No.8331 OF 2021)
J U D G M E N T
K.V. Viswanathan, J.
1. Leave granted.
2. The issues that arise in both the appeals are common
and they revolve around the interpretation of Clause 23 of
the Contract Agreement and, more particularly, the question
as to whether a dispute with regard to the existence and
Signature Not Verified
Digitally signed by
CHANDRESH
Date: 2026.02.04
15:51:36 IST
Reason:
validity of the said clause could have been raised before the
arbitrator?
Page 1 of 37
3. The Arbitration and Conciliation (Amendment) Act, 2015
did not apply to the arbitral proceedings concerned in these
matters. This aspect of the matter has been dealt with in
detail hereinbelow.
FACTS IN CIVIL APPEAL ARISING OUT OF SLP(C)
NO.8299 OF 2021 : -
4. The present appeal calls in question the correctness of
the judgment and order dated 20.02.2020 of the High Court
of Judicature for Rajasthan, Bench at Jaipur in D.B. Civil
Miscellaneous Application No. 2435 of 2019.
5. On 08.07.2009, the appellant, a sole proprietorship
concern, engaged in the supply and construction business
was awarded the construction work for the structure of 40
HIG-1 houses (High-Income Group) and 10 HIG-2 Flats (Stilt
+ 10 Storey) at Sector-29, Pratap Nagar, Jaipur, Rajasthan by
the respondent. A contract agreement bearing No.11/2009-
10 for a total value of Rs . 5,27,00,070/- on a lump sum basis
was entered into and the work was to be completed in 12
Page 2 of 37
months’ time. It is the claim of the appellant that the work
was completed before the stipulated 12 months’ deadline for
a lower cost of Rs.4,67,72,922/-. The dispute pertained to
non-payment of Rs.18,95,123/- towards escalation cost under
Clause 45 of the agreement with regard to prices, of labour
and material.
6. According to the appellant, since the respondents failed
to pay the disputed amount or to alternatively constitute an
empowered Standing Committee to adjudicate the dispute in
accordance with Clause 23 of the agreement, despite the
appellant’s application and payment of fee, a Section 11
Application came to be filed in the High Court.
7. Clause 23 reads as under: -
“Clause-23. Standing Committee for settlement of
disputes: If any question, difference or objection,
whatsoever shall arise in any way, in connection with or
arising out of this instrument, or the meaning of operation
of any part thereof, or the right duties or liabilities of
either party then, save in so far as the decision of any such
matter, as herein before provided has been otherwise
provided for and whether it has been finally decided
accordingly, or whether the contract should be
terminated, or has been rightly terminated and as regards
the rights or obligations of the parties as the result of such
Page 3 of 37
termination, shall be referred for decision to the
empowered Standing Committee, which would consist of
the followings:
i) Administrative Secretary concerned
ii) Finance Secretary or his nominee, not below the rank
of Dy.Secretary and/or Chief Accounts Officer.
iii) Law Secretary or his nominee, not below the rank of
Joint Legal Remembrancer.
iv) Chief Engineer-cum-Additional Secretary of the
concerned department.
v) Chief Engineer concerned (Member Secretary)
The Engineer-in-Charge on receipt of application
alongwith non refundable prescribed fee, (the fee would
be two percent of the amount in dispute, not exceeding
Rs.One Lac) from the Contractor shall refer the disputes to
the Committee within a period of one month from the date
of receipt of application.
Procedure and Application for referring cases or
settlement by the Standing Committee shall be as given in
Form RPWA 90.”
8. A learned Single Judge allowed the Section 11
Application and appointed a retired High Court Judge,
Hon’ble Mr. Justice J.R. Goyal, as the sole arbitrator on the
following reasoning:-
“Counsel for applicant submits that although the non-
applicants have constituted the Standing Committee but
the same being not in terms of Cl.23 of the contract
agreement, the applicant raised objections regarding
constitution of the committee and that makes the applicant
entitled to get the matter referred to the independent
Arbitrator.
Page 4 of 37
Reply to the application has been filed and counsel for
non-applicants submits that for resolving the dispute
between the Contractor and Rajasthan Housing Board, a
committee of five officers of Rajasthan Housing Board has
been constituted in terms of Cl.23 of the contract
agreement and, therefore, the application is not
maintainable and deserves to be dismissed.
Indisputably, the Committee constituted by Rajasthan
Housing Boad, was not in terms of Cl.23 of the contract
agreement executed between the parties and it is also not
in dispute that this court has territorial jurisdiction to
entertain the present application and that certainly seizes
the power of the non-applicants and it is within the
jurisdiction of this court and the Chief Justice or the
Designated Judge to hold jurisdiction to consider the
application for appointment of Arbitrator u/S.11(6) of the
Act, 1996.
Consequently, the instant application succeeds & is
hereby allowed and this court considers it appropriate to
appoint Hon'ble Mr. Justice J.R. Goyal (Retd.), T-1-10,
Paliwal Park, New Sanghi Farm, Tonk Road, Jaipur as
sole Arbitrator to resolve the arbitral dispute. The cost of
arbitration & fee of Arbitrator shall be determined in
terms of the arbitration manual.”
This order was accepted by the respondents and it attained
finality. It is crucial to note that the order of the learned
Single Judge was dated 23.05.2014 which is before the
introduction of Section 11(6A) in the Arbitration and
Conciliation Act, 1996.
Page 5 of 37
9. Section 11(6) which governed the appointment
procedure before the 23.10.2025 amendments and Section
11(6A) which was brought in by the 2015 amendment are
both extracted hereinbelow:-
“ 11 (6) : Where, under an appointment procedure agreed
upon by the parties.–
(a) A party fails to act as required under that
procedure; or
(b) the parties, or the two appointed arbitrators, fail
to reach an agreement expected of them under that
procedure; or
(c) a person, including an institution, fails to perform
any function entrusted to him or it under that
procedure.
a party may request the Chief Justice or any person or
institution designated by him to take the necessary
measure, unless the agreement on the appointment
procedure provides other means for securing the
appointment.”
w.e.f. 23.10.2015
11(6A) : The Supreme Court or, as the case may be, the
High Court, while considering any application under sub-
section (4) or sub-section (5) or sub-section (6), shall,
notwithstanding any judgment, decree or order of any
Court, confine to the examination of the existence of an
arbitration agreement .”
(Emphasis supplied)
AWARD : -
10. The learned Arbitrator entered upon the reference and,
Page 6 of 37
on 15.09.2015, allowed the claim of the appellant to the tune
of Rs. 17,10,624.70/- along with interest @ 9% per annum
from 13.09.2014 till the date of realization. Dealing with the
objection with regard to the validity of the arbitration clause,
the learned Arbitrator held that, since no appeal was filed
against the order appointing the arbitrator, the objection was
not sustainable. The Arbitrator relied upon the judgment of
this Court in SBP & Co. vs. Patel Engineering Limited &
1
Anr. .
ORDER OF THE SECTION 34 COURT
: -
11. The respondents filed a Section 34-Application before
the Commercial Court No.3, Jaipur seeking to set aside the
award. The challenge was pivoted on the point of the non-
existence of an arbitration clause, the argument being that
Clause 23 of the Agreement did not have the character of an
arbitration clause. The Commercial Court accepted the
submission and on the finding that the order of the Section 11
Court does not have precedential value, held that the order
1
(2005) 8 SCC 618
Page 7 of 37
appointing arbitrator was not binding in nature. The Court
further held that the order appointing the arbitrator did not
pronounce any opinion on the availability or otherwise of the
arbitration agreement in Clause 23 and as such it proceeded
on the basis that the point had been kept open to be decided
by the Arbitrator. It faulted the Arbitrator for not deciding the
point of the existence of the arbitration agreement.
12. The Court relied on two judgments of the Rajasthan High
Court in Mohammed Arif Contractor Vs. State of Rajasthan
2
& Ors. and M/s Marudhar Construction Vs. Rajasthan
3
Housing Board & Ors. to hold that Clause 23 of the
agreement was not an arbitration clause. So holding, the
Commercial Court set aside the award.
APPEAL BEFORE THE HIGH COURT : -
13. The appellant carried the matter in appeal to the High
Court. The High Court, while upholding the order of the
Commercial Court, maintained that Clause 23 was not an
arbitration clause. Aggrieved, the appellant is before us.
2
S.B. Arbitration No.90/2012
3
S.B. Arbitration Application No.132/2014
Page 8 of 37
CONTENTIONS OF THE PARTIES : -
14. We have heard Mr. Akshat Gupta, learned Counsel for
the appellant and Mr. Kailash J. Kashyap, learned Counsel for
the respondents, who ably presented their respective points
of view. The learned counsel for the appellant contends that
the arbitrator was appointed during the SBP and Co. ( supra )
regime and before the incorporation of the legislative
amendments which came into effect from 23.10.2015.
Learned counsel submitted that the execution of the contract
was on 08.07.2009 and the Section 11 order was dated
23.05.2014 and the arbitral award was passed on 15.09.2015.
Learned counsel, by relying on SBP and Co. ( supra ), submits
that under the said regime, the Section 11 court was obliged
to determine the “existence” as well as “validity” of an
arbitration agreement before passing an order appointing
the arbitrator. Learned counsel contrasted the situation with
the introduction of Section 11(6A) w.e.f. 23.10.2015 where
only the Section 11 court is obliged to determine the
existence of arbitration agreement [Section 11(6A) though
Page 9 of 37
deleted, the deletion has not yet been notified].
15. Learned counsel submitted that when the Section 11
court appointed the arbitrator, proceeding on the basis that
Clause 23 is an arbitration clause and when the said order
was accepted by the respondents, the respondents have
waived their right to object to the validity of the arbitration
clause. Reliance was placed on Section 4 of the A&C Act,
1996.
16. In response, the learned counsel for the respondents
contended by referring to the decision of the Commercial
Court that an order under Section 11 could not have
precedential value and in any event there is no decision on
the existence and validity of the arbitration agreement in the
order appointing the arbitrator and, hence, the said question
was available to be decided by the arbitral tribunal.
17. We have carefully considered the submissions of the
learned counsels for the parties and perused the written
submissions.
Page 10 of 37
QUESTION FOR CONSIDERATION:-
18. The question that arises for consideration is considering
that the appointment of the arbitrator in this case was in SBP
& Co. ( supra ) regime and before the legislative amendments
which came into effect from 23.10.2015, were the courts
below justified in setting aside the award by holding that the
Clause 23 of the contract was not an arbitration agreement?
ANALYSIS AND CONCLUSION :-
19. In view of the categoric holding by the Seven-Judge
Bench in SBP (supra) , we have no hesitation in holding that
the Section 34 court erred in going into the existence and
validity of Clause 23. The appointment of the Arbitrator
happened prior to the amendments to the Arbitration Act
which came into effect from 23.10.2015. The introduction of
Section 11(6A) brought a paradigm shift in the scope of
jurisdiction of the Section 11 court. Post the amendment, the
only enquiry is about the existence of the arbitration clause.
That is very well settled.
Page 11 of 37
20. However, the present case arose during the SBP (supra)
regime. It will be useful to extract relevant passages from
SBP (supra) to understand the scope of the Section 11 court.
8
“ . We will first consider the question, as we see it. On
a plain understanding of the relevant provisions of the
Act, it is seen that in a case where there is an
arbitration agreement, a dispute has arisen and one of
the parties had invoked the agreed procedure for
appointment of an arbitrator and the other party has
not cooperated, the party seeking an arbitration, could
approach the Chief Justice of the High Court if it is an
internal arbitration or of the Supreme Court if it is an
international arbitration to have an arbitrator or
Arbitral Tribunal appointed. The Chief Justice, when
so requested, could appoint an arbitrator or Arbitral
Tribunal depending on the nature of the agreement
between the parties and after satisfying himself that
the conditions for appointment of an arbitrator
under sub-section (6) of Section 11 do exist. The
Chief Justice could designate another person or
institution to take the necessary measures. The
Chief Justice has also to have the qualification of
the arbitrators in mind before choosing the
arbitrator. An Arbitral Tribunal so constituted, in
terms of Section 16 of the Act, has the right to
decide whether it has jurisdiction to proceed with
the arbitration, whether there was any agreement
between the parties and the other matters referred
to therein.
9 . Normally, any tribunal or authority conferred with a
power to act under a statute, has the jurisdiction to
satisfy itself that the conditions for the exercise of that
power existed and that the case calls for the exercise of
Page 12 of 37
that power. Such an adjudication relating to its own
jurisdiction which could be called a decision on
jurisdictional facts, is not generally final, unless it is
made so by the Act constituting the tribunal. Here, sub-
section (7) of Section 11 has given a finality to the
decisions taken by the Chief Justice or any person or
institution designated by him in respect of matters
falling under sub-sections (4), (5) and (6) of Section 11.
Once a statute creates an authority, confers on it
power to adjudicate and makes its decision final on
matters to be decided by it, normally, that decision
cannot be said to be a purely administrative
decision. It is really a decision on its own
jurisdiction for the exercise of the power conferred
by the statute or to perform the duties imposed by
the statute. Unless the authority satisfies itself that
the conditions for exercise of its power exist, it
could not accede to a request made to it for the
exercise of the conferred power. While exercising
the power or performing the duty under Section 11(6)
of the Act, the Chief Justice has to consider whether the
conditions laid down by the section for the exercise of
that power or the performance of that duty exist.
Therefore, unaided by authorities and going by
general principles, it appears to us that while
functioning under Section 11(6) of the Act, a Chief
Justice or the person or institution designated by
him, is bound to decide whether he has jurisdiction,
whether there is an arbitration agreement, whether
the applicant before him is a party, whether the
conditions for exercise of the power have been
fulfilled, and if an arbitrator is to be appointed, who
is the fit person, in terms of the provision. Section
11(7) makes his decision on the matters entrusted to
him, final.
12 . …… We are inclined to the view that the
Page 13 of 37
decision of the Chief Justice on the issue of
jurisdiction and the existence of a valid arbitration
agreement would be binding on the parties when
the matter goes to the Arbitral Tribunal and at
subsequent stages of the proceeding except in an
appeal in the Supreme Court in the case of the
decision being by the Chief Justice of the High
Court or by a Judge of the High Court designated by
him.
20 . …… But where the jurisdictional issues are decided
under these sections, before a reference is made,
Section 16 cannot be held to empower the Arbitral
Tribunal to ignore the decision given by the judicial
authority or the Chief Justice before the reference to it
was made. The competence to decide does not enable
the Arbitral Tribunal to get over the finality conferred
on an order passed prior to its entering upon the
reference by the very statute that creates it. That is the
position arising out of Section 11(7) of the Act read with
Section 16 thereof. The finality given to the order of the
Chief Justice on the matters within his competence
under Section 11 of the Act are incapable of being
reopened before the Arbitral Tribunal. In Konkan Rly .
what is considered is only the fact that under Section
16, the Arbitral Tribunal has the right to rule on its own
jurisdiction and any objection, with respect to the
existence or validity of the arbitration agreement.
What is the impact of Section 11(7) of the Act on the
Arbitral Tribunal constituted by an order under
Section 11(6) of the Act, was not considered.
Obviously, this was because of the view taken in
that decision that the Chief Justice is not expected
to decide anything while entertaining a request
under Section 11(6) of the Act and is only
performing an administrative function in
appointing an Arbitral Tribunal. Once it is held that
Page 14 of 37
there is an adjudicatory function entrusted to the
Chief Justice by the Act, obviously, the right of the
Arbitral Tribunal to go behind the order passed by
the Chief Justice would take another hue and would
be controlled by Section 11(7) of the Act.
25 . … … While constituting an Arbitral Tribunal, on
the scheme of the Act, the Chief Justice has to
consider whether he as the Chief Justice has
jurisdiction in relation to the contract, whether
there was an arbitration agreement in terms of
Section 7 of the Act and whether the person before
him with the request, is a party to the arbitration
agreement. On coming to a conclusion on these
aspects, he has to enquire whether the conditions
for exercise of his power under Section 11(6) of the
Act exist in the case and only on being satisfied in
that behalf, could he appoint an arbitrator or an
Arbitral Tribunal on the basis of the request. It is
difficult to say that when one of the parties raises an
objection that there is no arbitration agreement,
raises an objection that the person who has come
forward with a request is not a party to the
arbitration agreement, the Chief Justice can come
to a conclusion on those objections without
following an adjudicatory process. Can he
constitute an Arbitral Tribunal, without considering
these questions? If he can do so, why should such a
function be entrusted to a high judicial authority
like the Chief Justice. Similarly, when the party
raises an objection that the conditions for exercise
of the power under Section 11(6) of the Act are not
fulfilled and the Chief Justice comes to the
conclusion that they have been fulfilled, it is
difficult to say that he was not adjudicating on a
dispute between the parties and was merely
passing an administrative order. It is also not correct
Page 15 of 37
to say that by the mere constitution of an Arbitral
Tribunal the rights of the parties are not affected.
Dragging a party to an arbitration when there existed
no arbitration agreement or when there existed no
arbitrable dispute, can certainly affect the right of that
party, and, even on monetary terms, impose on him a
serious liability for meeting the expenses of the
arbitration, even if it be the preliminary expenses and
his objection is upheld by the Arbitral Tribunal.
Therefore, it is not possible to accept the position
that no adjudication is involved in the constitution
of an Arbitral Tribunal.
30 . … … We also feel that adequate attention was
not paid to the requirement of the Chief Justice
having to decide that there is an arbitration
agreement in terms of Section 7 of the Act before he
could exercise his power under Section 11(6) of the
Act and its implication. The aspect, whether there
was an arbitration agreement, was not merely a
jurisdictional fact for commencing the arbitration
itself, but it was also a jurisdictional fact for
appointing an arbitrator on a motion under Section
11(6) of the Act, was not kept in view. A Chief
Justice could appoint an arbitrator in exercise of his
power only if there existed an arbitration
agreement and without holding that there was an
agreement, it would not be open to him to appoint
an arbitrator saying that he was appointing an
arbitrator since he has been moved in that behalf
and the applicant before him asserts that there is an
arbitration agreement. Acceptance of such an
argument, with great respect, would reduce the
high judicial authority entrusted with the power to
appoint an arbitrator, an automaton and
subservient to the Arbitral Tribunal which he
himself brings into existence. ……
Page 16 of 37
39. It is necessary to define what exactly the Chief
Justice, approached with an application under
Section 11 of the Act, is to decide at that stage.
Obviously, he has to decide his own jurisdiction in
the sense whether the party making the motion has
approached the right High Court. He has to decide
whether there is an arbitration agreement, as
defined in the Act and whether the person who has
made the request before him, is a party to such an
agreement. It is necessary to indicate that he can
also decide the question whether the claim was a
dead one; or a long-barred claim that was sought to
be resurrected and whether the parties have
concluded the transaction by recording satisfaction
of their mutual rights and obligations or by
receiving the final payment without objection……
47 (i) The power exercised by the Chief Justice of the
High Court or the Chief Justice of India under Section
11(6) of the Act is not an administrative power. It is a
judicial power.
( iv ) The Chief Justice or the designated Judge will have
the right to decide the preliminary aspects as indicated
in the earlier part of this judgment. These will be his
own jurisdiction to entertain the request, the existence
of a valid arbitration agreement, the existence or
otherwise of a live claim, the existence of the condition
for the exercise of his power and on the qualifications
of the arbitrator or arbitrators. The Chief Justice or the
designated Judge would be entitled to seek the opinion
of an institution in the matter of nominating an
arbitrator qualified in terms of Section 11(8) of the Act
if the need arises but the order appointing the
arbitrator could only be that of the Chief Justice or the
designated Judge.
Page 17 of 37
( vii ) Since an order passed by the Chief Justice of the
High Court or by the designated Judge of that Court is
a judicial order, an appeal will lie against that order
only under Article 136 of the Constitution to the
Supreme Court.”
(Emphasis supplied)
21. This principle was reiterated in State of West Bengal
4
vs. Sarkar & Sarkar .
“ 8. It was the vehement contention of the learned counsel
for the appellant based on a series of judgments rendered
by this Court that Clause 12 (extracted above) was not an
arbitral clause and that the arbitrator as well as the High
Court had erred in determining the same.
9. The learned counsel for the respondent Sarkar & Sarkar
contested the claim of the appellant. It was submitted that
the appellant could not be permitted even to raise the
instant plea so as to assail the order passed either by the
arbitrator (on 15-1-2004) or by the High Court (on 16-5-
2006). The instant submission of the learned counsel for
the respondent was premised on the judgment rendered
by this Court in SBP & Co. v. Patel Engg. Ltd. Our pointed
attention was drawn to the conclusions drawn by the
Constitution Bench in the above judgment in para 20. Para
20 is reproduced below: (SCC pp. 649-50)
“ 20 . Section 16 is said to be the recognition of the
principle of Kompetenz-Kompetenz . The fact that the
Arbitral Tribunal has the competence to rule on its own
jurisdiction and to define the contours of its jurisdiction,
only means that when such issues arise before it, the
Tribunal can, and possibly, ought to decide them. This
4
(2018) 12 SCC 736
Page 18 of 37
can happen when the parties have gone to the Arbitral
Tribunal without recourse to Section 8 or 11 of the Act.
But where the jurisdictional issues are decided under
these sections, before a reference is made, Section 16
cannot be held to empower the Arbitral Tribunal to
ignore the decision given by the judicial authority or the
Chief Justice before the reference to it was made. The
competence to decide does not enable the Arbitral
Tribunal to get over the finality conferred on an order
passed prior to its entering upon the reference by the
very statute that creates it. That is the position arising
out of Section 11(7) of the Act read with Section 16
thereof. The finality given to the order of the Chief
Justice on the matters within his competence under
Section 11 of the Act are incapable of being reopened
before the Arbitral Tribunal . In Konkan Railway what is
considered is only the fact that under Section 16, the
Arbitral Tribunal has the right to rule on its own
jurisdiction and any objection, with respect to the
existence or validity of the arbitration agreement.
What is the impact of Section 11(7) of the Act on the
Arbitral Tribunal constituted by an order under
Section 11(6) of the Act, was not considered.
Obviously, this was because of the view taken in that
decision that the Chief Justice is not expected to
decide anything while entertaining a request under
Section 11(6) of the Act and is only performing an
administrative function in appointing an Arbitral
Tribunal. Once it is held that there is an adjudicatory
function entrusted to the Chief Justice by the Act,
obviously, the right of the Arbitral Tribunal to go
behind the order passed by the Chief Justice would
take another hue and would be controlled by Section
11(7) of the Act .”
10. It was the submission of the learned counsel for the
respondent that proceedings could not have been
Page 19 of 37
entertained by the arbitrator under Section 16 of the
Arbitration Act in the present controversy because by
the orders of the High Court dated 24-5-2002 and 26-9-
2002 (extracted above), the appointment of the
arbitrator was made in exercise of the powers vested
in the High Court under Section 11 of the Arbitration
Act. The factual position depicted hereinabove as also
the orders referred to hereinabove, leave no room for
doubt that Justice (Retired) S.S. Ganguly was actually
appointed as an arbitrator by the High Court in
exercise of the powers vested in the High Court under
Section 11 of the Arbitration Act. That being the
position, the learned counsel for the respondent is
fully justified in her submission that the said order
could not be tested by the arbitrator while considering
the claim raised by the appellant State of West Bengal
under Section 16 of the Arbitration Act. Thus viewed,
irrespective of whether Clause 12 extracted
hereinabove postulated the adjudication of dispute
between the parties through an arbitrator, it is now
not open to the appellant before this Court to raise a
challenge to the order passed by the High Court
appointing an arbitrator.”
(emphasis supplied)
22. As held in SBP (supra), a Section 11 court was bound to
decide whether there was an arbitration agreement and
further that such a finding on the existence of a valid
arbitration agreement would be binding on the parties when
the matter goes to the Arbitral Tribunal and at subsequent
stages of the proceedings. The only exception being when
the order appointing the Arbitrator is challenged before this
Page 20 of 37
Court. The highlighted portion of SBP (supra), as extracted
above, puts this matter beyond any controversy. In the
present case, the order appointing the Arbitrator attained
finality with no challenge being thrown. The respondents
accepted the order and did not challenge the appointment in
this Court. We have extracted the findings of the order
appointing the Arbitrator. The parties proceeded on the
basis that Clause 23 was an arbitration clause and in this
scenario, the only conclusion possible is that though not very
categoric there is an implied holding in the order appointing
the Arbitrator about the existence and validity of the
arbitration agreement. For if it were not so, the appointment
could not have been and would not have been made. The
fact that the respondents accepted the order and did not
challenge it only puts the matter beyond any pale of
controversy. The further finding of the Commercial Court in
the Section 34 application that the order of the Section 11
court did not have any precedential value and hence the
Page 21 of 37
order will not be binding is in the teeth of the judgment in
SBP (supra) .
LEGAL POSITION FROM 23.10.2015 : -
23. The scenario would have been totally different if the
2015 (Amendment) Act had applied to the arbitral
proceedings. The scope of the inquiry has been clarified in
In re Interplay Between Arbitration Agreements under
5
Arbitration and Conciliation Act, 1996 & Stamp Act, 1899 ,
in the following terms : -
“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 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 Engg.
5
(2024) 6 SCC 1
Page 22 of 37
[SBP & Co. v. Patel Engg. Ltd., (2005) 8 SCC 618]
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(6-A) 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 [Duro Felguera, S.A. v.
Gangavaram Port Ltd., (2017) 9 SCC 729, 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(6-A)
should be confined to the existence of an
arbitration agreement on the basis of Section 7.
Similarly, 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
Page 23 of 37
in Vidya Drolia [Vidya Drolia v. Durga Trading
Corpn., (2021) 2 SCC 1 in the context of Section 8
and Section 11 of the Arbitration Act.
167. Section 11(6-A) 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
scrutinise 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. [ P.
Ramanatha Aiyar, The Law Lexicon (2nd Edn.,
1997) 666.] 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., (2005) 7
SCC 234].
169. When the Referral Court renders a prima facie
opinion, neither the Arbitral Tribunal, nor the Court
enforcing the arbitral award will be bound by such a
prima facie view. If a prima facie view as to the
existence of an arbitration agreement is taken by the
Referral Court, it still allows the Arbitral Tribunal to
examine the issue in depth. Such a legal approach
will help the Referral Court in weeding out prima
facie non-existent arbitration agreements. It will also
Page 24 of 37
protect the jurisdictional competence of the Arbitral
Tribunals to decide on issues pertaining to the
existence and validity of an arbitration agreement.”
[Emphasis supplied]
The above is set out only to bring out the contrast.
Section 26 of the 2015 Amendment Act also made this very
explicit.
“ 26. Act not to apply to pending arbitral proceedings .–
Nothing contained in this Act shall apply to the arbitral
proceedings commenced, in accordance with the
provisions of Section 21 of the principal Act, before the
commencement of this Act unless the parties otherwise
agree but this Act shall apply in relation to arbitral
proceedings commenced on or after the date of
commencement of this Act”
PRECEDENT AND RES JUDICATA – DISTINCTION : -
24. There is a clear conceptual distinction between
precedent and res judicata. Salmond on Jurisprudence P.J.
th
Fitzgerald (12 Edition) page 141 states “ a judicial precedent
speaks in England with authority; it is not merely evidence of
the law but a source of it, and the courts are bound to follow
the law that is so established ”. A decision between two
parties which sets out a principle of law will operate as a
precedent for disputes between two other parties too. A
Page 25 of 37
precedent operates in rem. In contrast, a res judicata
operates in personam between the same parties either in the
later stage of the same litigation between them or in a
different litigation between them. That is the essential
distinction between the two.
25. This Court in State of Rajasthan vs. Nemi Chand
6
Mahela and Others , held as under:-
“11. The learned counsel for the petitioners had drawn
our attention to para 22 of the decision in Manmohan
Sharma case [ Manmohan Sharma v. State of Rajasthan ,
(2014) 5 SCC 782 which refers to the case of one Danveer
Singh whose writ petition had been allowed [ Danveer
Singh v. Rural Development & Panchyati Raj Deptt. , WP (C)
No. 2200 of 2000 sub nom Jayanti Sharma v. Rural
Development & Panchyati Raj Deptt. , WP (C) No. 1646 of
2000, order dated 26-2-2001 (Raj)] and the order had
attained finality as it was not challenged before the
Division Bench or before the Supreme Court. Termination
of services in the case of Danveer Singh, it was
accordingly held, was not justified and in accordance with
law. The reasoning given in paras 22 and 23 in Manmohan
Sharma case [ Manmohan Sharma v. State of Rajasthan ,
(2014) 5 SCC 782 relating to the case of Danveer Singh
would reflect the difference between the doctrine of res
judicata and law of precedent. Res judicata operates in
personam i.e. the matter in issue between the same
parties in the former litigation, while law of precedent
operates in rem i.e. the law once settled is binding on all
6
(2019) 14 SCC 179
Page 26 of 37
under the jurisdiction of the High Court and the Supreme
Court. Res judicata binds the parties to the proceedings
for the reason that there should be an end to the litigation
and therefore, subsequent proceeding inter se parties to
the litigation is barred. Therefore, law of res judicata
concerns the same matter, while law of precedent
concerns application of law in a similar issue. In res
judicata, the correctness of the decision is normally
immaterial and it does not matter whether the previous
decision was right or wrong, unless the erroneous
determination relates to the jurisdictional matter of that
body. [See Makhija Construction & Engg. (P) Ltd. v. Indore
Development Authority , (2005) 6 SCC 304] ]”
26. The Commercial Court to hold against the appellant
relied on two judgments of the Rajasthan High Court, namely,
Mohammed Arif Contractor ( supra ) and M/s Marudhar
Construction ( supra ). The finding of the Commercial Court
was that in Mohammed Arif ( supra ) (judgment dated
08.04.2015) a learned single judge, while adjudicating a
Section 11 Application, held an identical Clause 23 to be not
an arbitration clause. M/s Marudhar Construction ( supra )
was a short order dated 06.05.2016 in a Section 11
Application which followed Mohammed Arif ( supra ).
27. The said judgments will not enure to the support of the
respondents. In the present case, while adjudicating a
Page 27 of 37
Section 11 Application a learned single judge, who had
jurisdiction, interpreted the contractual document and
appointed an arbitrator. We have already held hereinabove
that in the said order though the finding is not categoric,
there is an implied holding about the existence and validity
of the arbitration agreement. As held in Nemi Chand ( supra )
the correctness of the decision is immaterial and it did not
matter whether the previous decision was right or wrong
unless their erroneous determination relates to the
jurisdiction of the body.
28. In an erudite judgment, speaking for this Court Rohinton
Fali Nariman, J. in Canara Bank vs. N.G. Subbaraya Setty
7
and Another , summarised the principles thus:-
“ 34. Given the conspectus of authorities that have been
referred to by us hereinabove, the law on the subject may
be stated as follows:
34.1. The general rule is that all issues that arise directly
and substantially in a former suit or proceeding between
the same parties are res judicata in a subsequent suit or
7
(2018) 16 SCC 228
Page 28 of 37
proceeding between the same parties. These would
include issues of fact, mixed questions of fact and law, and
issues of law.
34.2. To this general proposition of law, there are certain
exceptions when it comes to issues of law:
34.2.1. Where an issue of law decided between the same
parties in a former suit or proceeding relates to the
jurisdiction of the court, an erroneous decision in the
former suit or proceeding is not res judicata in a
subsequent suit or proceeding between the same parties,
even where the issue raised in the second suit or
proceeding is directly and substantially the same as that
raised in the former suit or proceeding. This follows from
a reading of Section 11 of the Code of Civil Procedure
itself, for the Court which decides the suit has to be a
court competent to try such suit. When read with
Explanation I to Section 11, it is obvious that both the
former as well as the subsequent suit need to be decided
in courts competent to try such suits, for the “former suit”
can be a suit instituted after the first suit, but which has
been decided prior to the suit which was instituted
earlier. An erroneous decision as to the jurisdiction of a
court cannot clothe that court with jurisdiction where it has
none. Obviously, a civil court cannot send a person to jail
for an offence committed under the Penal Code. If it does
so, such a judgment would not bind a Magistrate and/or
Sessions Court in a subsequent proceeding between the
same parties, where the Magistrate sentences the same
person for the same offence under the Penal Code.
Equally, a civil court cannot decide a suit between a
landlord and a tenant arising out of the rights claimed
under a Rent Act, where the Rent Act clothes a special
court with jurisdiction to decide such suits. As an
example, under Section 28 of the Bombay Rent Act, 1947,
the Small Cause Court has exclusive jurisdiction to hear
Page 29 of 37
and decide proceedings between a landlord and a tenant
in respect of rights which arise out of the Bombay Rent
Act, and no other court has jurisdiction to embark upon
the same. In this case, even though the civil court, in the
absence of the statutory bar created by the Rent Act,
would have jurisdiction to decide such suits, it is the
statutory bar created by the Rent Act that must be given
effect to as a matter of public policy. [See, Natraj Studios
(P) Ltd. v. Navrang Studios at SCR p. 482]. An erroneous
decision clothing the civil court with jurisdiction to
embark upon a suit filed by a landlord against a tenant, in
respect of rights claimed under the Bombay Rent Act,
would, therefore, not operate as res judicata in a
subsequent suit filed before the Small Cause Court
between the same parties in respect of the same matter
directly and substantially in issue in the former suit.
34.2.2. An issue of law which arises between the same
parties in a subsequent suit or proceeding is not res
judicata if, by an erroneous decision given on a statutory
prohibition in the former suit or proceeding, the statutory
prohibition is not given effect to. This is despite the fact
that the matter in issue between the parties may be the
same as that directly and substantially in issue in the
previous suit or proceeding. This is for the reason that in
such cases, the rights of the parties are not the only matter
for consideration (as is the case of an erroneous
interpretation of a statute inter partes), as the public
policy contained in the statutory prohibition cannot be set
at naught. This is for the same reason as that contained in
matters which pertain to issues of law that raise
jurisdictional questions. We have seen how, in Natraj
Studios , it is the public policy of the statutory prohibition
contained in Section 28 of the Bombay Rent Act that has to
be given effect to. Likewise, the public policy contained in
other statutory prohibitions, which need not necessarily
go to jurisdiction of a court, must equally be given effect
Page 30 of 37
to, as otherwise special principles of law are fastened
upon parties when special considerations relating to
public policy mandate that this cannot be done.
34.3. Another exception to this general rule follows from
the matter in issue being an issue of law different from that
in the previous suit or proceeding. This can happen when
the issue of law in the second suit or proceeding is based
on different facts from the matter directly and
substantially in issue in the first suit or proceeding.
Equally, where the law is altered by a competent authority
since the earlier decision, the matter in issue in the
subsequent suit or proceeding is not the same as in the
previous suit or proceeding, because the law to be
interpreted is different.”
29. The learned single judge, in the present case, when he
entertained a Section 11 Application and interpreted a
contractual document had jurisdiction to do so under
Section 11. Right or wrong, that decision should bind. The
respondents did not carry the order appointing an arbitrator
in appeal. In view of the same, the holding in SBP (supra) ,
squarely applies and on the present facts the respondents
could not have challenged the existence and validity of the
arbitration clause before the arbitrator. For the very same
reason, the judgments in Mohammed Arif Contractor
Page 31 of 37
( supra ) and M/s Marudhar Construction ( supra ) can have
no application to the present facts.
30. In the present case, the order appointing the Arbitrator
read with the law laid down in SBP (supra), clearly operates
as a res judicata, insofar as the existence of and validity of
the arbitration agreement between the parties is concerned.
In the SBP (supra) regime, this was the legal position.
31. SBP (supra) also puts the matter beyond any
controversy by holding that not only will the parties be
bound before the Arbitrator with regard to the finding on
existence and validity of the arbitration agreement they will
also be bound during the subsequent stages of the
proceedings which will include the Section 34 application
stage, the Section 37 appeal stage and before this Court. The
Commercial Court had missed the conceptual distinction
between “Precedent” and “Res judicata” and consequently
fell into an error.
CONCLUSION AND DIRECTIONS : -
32. In view of what we have held hereinabove, the
Page 32 of 37
Commercial Court and the High Court clearly erred in going
into the existence and validity of Clause 23 and pronouncing
that the said clause was not an arbitration clause. We,
accordingly, set aside the judgment of the High Court dated
20.02.2020 in D.B. Civil Miscellaneous Appeal No. 2435 of
2019. The appeal stands allowed. The result will be that the
proceedings before the Commercial Court in Arbitration
Case No. 221 of 2018 will stand set aside and the matter is
remitted to the Commercial Court, Judge No.3, Jaipur for
hearing Arbitration Case No. 221 of 2018 on grounds other
than what has been concluded hereinabove. We say so for
the reason that while allowing the Section 34 application on
the ground that Section 23 was not an arbitration clause, the
Commercial Court recorded that the other objections were
not considered. It is only fair that the matter should be
remitted for consideration of the other objections.
Considering the fact that the Award is of the year 2015, we
direct the Commercial Court No. 3 to dispose of Arbitration
Case No. 221 of 2018 within a period of three months from the
Page 33 of 37
date of receipt of this judgment. Parties to bear their own
costs.
FACTS IN CIVIL APPEAL ARISING OUT OF SPECIAL
LEAVE PETITION (CIVIL) NO. 8331 of 2021:-
33. Leave granted.
34. On 11.10.2007, the appellant was awarded work by the
respondents for construction of the structure of 180 LIG
skeleton flats (stilt + 10 storey) at Sector 29, Pratap Nagar,
Sanganer, Jaipur, Rajasthan and entered into a contract
agreement bearing No. 207/2007-08. The contract was for a
lump sum value of Rs.4,58,05,217.45. The date of
commencement was agreed to be 20.10.2007 and completion
was 19.07.2008. Additional work to the tune of Rs.
64,01,689/- was awarded. The appellant raised an Escalation
Bill amounting to Rs.55,77,080/- under Clause 45 of the
Agreement in order to recover the prices of labour and
material which had arisen during the period of completion of
the construction work. Since the Escalation Bill was not paid
and also penalty levied of Rs.2.5 lakhs was not refunded and
Page 34 of 37
claiming that the respondents failed to constitute an
empowered Standing Committee under Clause 23 of the
Agreement, a Section 11 application came to be filed. By an
order of 23.05.2014, a learned Single Judge held that since
indisputably the Committee constituted was not in terms of
Clause 23, appointed Mr. Justice Anoop Chand Goyal (Retd.)
as the sole Arbitrator. The sole Arbitrator entered upon the
reference and passed an Award on 25.02.2016 directing
refund of Rs. 2.50 lakhs as penalty and awarding escalation
charge to the tune of Rs.5,09,468/-. Further interest @ 10%
from 13.08.2010 was awarded. Even though the Award was
passed on 25.02.2016, the arbitral proceedings commenced
before the commencement of the Amendment Act of 2015.
Before the Arbitrator, the respondents contended that Clause
23 of the Agreement was not an arbitration clause. The
arbitrator held that since the Section 11 application stood
allowed, the Arbitral Tribunal cannot sit over the order of the
High Court.
Page 35 of 37
35. The respondents filed a Section 34 application
challenging the award. The Commercial Court, by relying
on the judgments of the Rajasthan High Court in Mohd. Arif
Contractor (Supra) and Marudhar Construction (Supra) held
that Clause 23 was not an arbitration clause. In appeal
before the High Court, the findings of the Commercial Court
were confirmed.
36. Our reasoning and conclusion in Civil Appeal arising
out of Special Leave Petition (C) No. 8299 of 2021 fully
applies to the present set of facts. Appling the same
reasoning, the appeal would stand allowed. The order of the
High Court dated 20.02.2020 in D.B. Civil Miscellaneous
Appeal No. 796 of 2019 stands set aside. The consequence
will be that the matter will stand remitted to the Commercial
Court, Judge No.3, Jaipur in hearing Arbitration Case No. 114
of 2018 on grounds other than what has been concluded
hereinabove. We say so for the reason that while allowing
the Section 34 application on the ground that Section 23 was
not an arbitration clause, the Commercial Court recorded
Page 36 of 37
that the other objections are not considered. In view of our
holding hereinabove, it is only fair that the matter should be
remitted for consideration of other objections. Considering
the fact that the Award is of the year 2016, we direct the
Commercial Court No.3 to dispose of Arbitration Case No.
114 of 2018 within a period of three months from the date of
receipt of this judgment. Parties to bear their own costs.
37. Both the appeals are disposed of in the above terms.
……….........................J.
[ J.B. PARDIWALA ]
……….........................J.
[ K. V. VISWANATHAN ]
New Delhi;
th
4 February, 2026
Page 37 of 37
IN THE SUPREME COURT OF INDIA
2026 INSC 116
CIVIL APPELLATE JURISDICTION
CIVIL APPEAL NO. 753 OF 2026
(@ SLP (C) No.8299 OF 2021)
M/s Eminent Colonizers
Private Limited …Appellant
Versus
Rajasthan Housing Board and Ors. …Respondents
WITH
CIVIL APPEAL NO. 754 OF 2026
(@ SLP (C) No.8331 OF 2021)
J U D G M E N T
K.V. Viswanathan, J.
1. Leave granted.
2. The issues that arise in both the appeals are common
and they revolve around the interpretation of Clause 23 of
the Contract Agreement and, more particularly, the question
as to whether a dispute with regard to the existence and
Signature Not Verified
Digitally signed by
CHANDRESH
Date: 2026.02.04
15:51:36 IST
Reason:
validity of the said clause could have been raised before the
arbitrator?
Page 1 of 37
3. The Arbitration and Conciliation (Amendment) Act, 2015
did not apply to the arbitral proceedings concerned in these
matters. This aspect of the matter has been dealt with in
detail hereinbelow.
FACTS IN CIVIL APPEAL ARISING OUT OF SLP(C)
NO.8299 OF 2021 : -
4. The present appeal calls in question the correctness of
the judgment and order dated 20.02.2020 of the High Court
of Judicature for Rajasthan, Bench at Jaipur in D.B. Civil
Miscellaneous Application No. 2435 of 2019.
5. On 08.07.2009, the appellant, a sole proprietorship
concern, engaged in the supply and construction business
was awarded the construction work for the structure of 40
HIG-1 houses (High-Income Group) and 10 HIG-2 Flats (Stilt
+ 10 Storey) at Sector-29, Pratap Nagar, Jaipur, Rajasthan by
the respondent. A contract agreement bearing No.11/2009-
10 for a total value of Rs . 5,27,00,070/- on a lump sum basis
was entered into and the work was to be completed in 12
Page 2 of 37
months’ time. It is the claim of the appellant that the work
was completed before the stipulated 12 months’ deadline for
a lower cost of Rs.4,67,72,922/-. The dispute pertained to
non-payment of Rs.18,95,123/- towards escalation cost under
Clause 45 of the agreement with regard to prices, of labour
and material.
6. According to the appellant, since the respondents failed
to pay the disputed amount or to alternatively constitute an
empowered Standing Committee to adjudicate the dispute in
accordance with Clause 23 of the agreement, despite the
appellant’s application and payment of fee, a Section 11
Application came to be filed in the High Court.
7. Clause 23 reads as under: -
“Clause-23. Standing Committee for settlement of
disputes: If any question, difference or objection,
whatsoever shall arise in any way, in connection with or
arising out of this instrument, or the meaning of operation
of any part thereof, or the right duties or liabilities of
either party then, save in so far as the decision of any such
matter, as herein before provided has been otherwise
provided for and whether it has been finally decided
accordingly, or whether the contract should be
terminated, or has been rightly terminated and as regards
the rights or obligations of the parties as the result of such
Page 3 of 37
termination, shall be referred for decision to the
empowered Standing Committee, which would consist of
the followings:
i) Administrative Secretary concerned
ii) Finance Secretary or his nominee, not below the rank
of Dy.Secretary and/or Chief Accounts Officer.
iii) Law Secretary or his nominee, not below the rank of
Joint Legal Remembrancer.
iv) Chief Engineer-cum-Additional Secretary of the
concerned department.
v) Chief Engineer concerned (Member Secretary)
The Engineer-in-Charge on receipt of application
alongwith non refundable prescribed fee, (the fee would
be two percent of the amount in dispute, not exceeding
Rs.One Lac) from the Contractor shall refer the disputes to
the Committee within a period of one month from the date
of receipt of application.
Procedure and Application for referring cases or
settlement by the Standing Committee shall be as given in
Form RPWA 90.”
8. A learned Single Judge allowed the Section 11
Application and appointed a retired High Court Judge,
Hon’ble Mr. Justice J.R. Goyal, as the sole arbitrator on the
following reasoning:-
“Counsel for applicant submits that although the non-
applicants have constituted the Standing Committee but
the same being not in terms of Cl.23 of the contract
agreement, the applicant raised objections regarding
constitution of the committee and that makes the applicant
entitled to get the matter referred to the independent
Arbitrator.
Page 4 of 37
Reply to the application has been filed and counsel for
non-applicants submits that for resolving the dispute
between the Contractor and Rajasthan Housing Board, a
committee of five officers of Rajasthan Housing Board has
been constituted in terms of Cl.23 of the contract
agreement and, therefore, the application is not
maintainable and deserves to be dismissed.
Indisputably, the Committee constituted by Rajasthan
Housing Boad, was not in terms of Cl.23 of the contract
agreement executed between the parties and it is also not
in dispute that this court has territorial jurisdiction to
entertain the present application and that certainly seizes
the power of the non-applicants and it is within the
jurisdiction of this court and the Chief Justice or the
Designated Judge to hold jurisdiction to consider the
application for appointment of Arbitrator u/S.11(6) of the
Act, 1996.
Consequently, the instant application succeeds & is
hereby allowed and this court considers it appropriate to
appoint Hon'ble Mr. Justice J.R. Goyal (Retd.), T-1-10,
Paliwal Park, New Sanghi Farm, Tonk Road, Jaipur as
sole Arbitrator to resolve the arbitral dispute. The cost of
arbitration & fee of Arbitrator shall be determined in
terms of the arbitration manual.”
This order was accepted by the respondents and it attained
finality. It is crucial to note that the order of the learned
Single Judge was dated 23.05.2014 which is before the
introduction of Section 11(6A) in the Arbitration and
Conciliation Act, 1996.
Page 5 of 37
9. Section 11(6) which governed the appointment
procedure before the 23.10.2025 amendments and Section
11(6A) which was brought in by the 2015 amendment are
both extracted hereinbelow:-
“ 11 (6) : Where, under an appointment procedure agreed
upon by the parties.–
(a) A party fails to act as required under that
procedure; or
(b) the parties, or the two appointed arbitrators, fail
to reach an agreement expected of them under that
procedure; or
(c) a person, including an institution, fails to perform
any function entrusted to him or it under that
procedure.
a party may request the Chief Justice or any person or
institution designated by him to take the necessary
measure, unless the agreement on the appointment
procedure provides other means for securing the
appointment.”
w.e.f. 23.10.2015
11(6A) : The Supreme Court or, as the case may be, the
High Court, while considering any application under sub-
section (4) or sub-section (5) or sub-section (6), shall,
notwithstanding any judgment, decree or order of any
Court, confine to the examination of the existence of an
arbitration agreement .”
(Emphasis supplied)
AWARD : -
10. The learned Arbitrator entered upon the reference and,
Page 6 of 37
on 15.09.2015, allowed the claim of the appellant to the tune
of Rs. 17,10,624.70/- along with interest @ 9% per annum
from 13.09.2014 till the date of realization. Dealing with the
objection with regard to the validity of the arbitration clause,
the learned Arbitrator held that, since no appeal was filed
against the order appointing the arbitrator, the objection was
not sustainable. The Arbitrator relied upon the judgment of
this Court in SBP & Co. vs. Patel Engineering Limited &
1
Anr. .
ORDER OF THE SECTION 34 COURT
: -
11. The respondents filed a Section 34-Application before
the Commercial Court No.3, Jaipur seeking to set aside the
award. The challenge was pivoted on the point of the non-
existence of an arbitration clause, the argument being that
Clause 23 of the Agreement did not have the character of an
arbitration clause. The Commercial Court accepted the
submission and on the finding that the order of the Section 11
Court does not have precedential value, held that the order
1
(2005) 8 SCC 618
Page 7 of 37
appointing arbitrator was not binding in nature. The Court
further held that the order appointing the arbitrator did not
pronounce any opinion on the availability or otherwise of the
arbitration agreement in Clause 23 and as such it proceeded
on the basis that the point had been kept open to be decided
by the Arbitrator. It faulted the Arbitrator for not deciding the
point of the existence of the arbitration agreement.
12. The Court relied on two judgments of the Rajasthan High
Court in Mohammed Arif Contractor Vs. State of Rajasthan
2
& Ors. and M/s Marudhar Construction Vs. Rajasthan
3
Housing Board & Ors. to hold that Clause 23 of the
agreement was not an arbitration clause. So holding, the
Commercial Court set aside the award.
APPEAL BEFORE THE HIGH COURT : -
13. The appellant carried the matter in appeal to the High
Court. The High Court, while upholding the order of the
Commercial Court, maintained that Clause 23 was not an
arbitration clause. Aggrieved, the appellant is before us.
2
S.B. Arbitration No.90/2012
3
S.B. Arbitration Application No.132/2014
Page 8 of 37
CONTENTIONS OF THE PARTIES : -
14. We have heard Mr. Akshat Gupta, learned Counsel for
the appellant and Mr. Kailash J. Kashyap, learned Counsel for
the respondents, who ably presented their respective points
of view. The learned counsel for the appellant contends that
the arbitrator was appointed during the SBP and Co. ( supra )
regime and before the incorporation of the legislative
amendments which came into effect from 23.10.2015.
Learned counsel submitted that the execution of the contract
was on 08.07.2009 and the Section 11 order was dated
23.05.2014 and the arbitral award was passed on 15.09.2015.
Learned counsel, by relying on SBP and Co. ( supra ), submits
that under the said regime, the Section 11 court was obliged
to determine the “existence” as well as “validity” of an
arbitration agreement before passing an order appointing
the arbitrator. Learned counsel contrasted the situation with
the introduction of Section 11(6A) w.e.f. 23.10.2015 where
only the Section 11 court is obliged to determine the
existence of arbitration agreement [Section 11(6A) though
Page 9 of 37
deleted, the deletion has not yet been notified].
15. Learned counsel submitted that when the Section 11
court appointed the arbitrator, proceeding on the basis that
Clause 23 is an arbitration clause and when the said order
was accepted by the respondents, the respondents have
waived their right to object to the validity of the arbitration
clause. Reliance was placed on Section 4 of the A&C Act,
1996.
16. In response, the learned counsel for the respondents
contended by referring to the decision of the Commercial
Court that an order under Section 11 could not have
precedential value and in any event there is no decision on
the existence and validity of the arbitration agreement in the
order appointing the arbitrator and, hence, the said question
was available to be decided by the arbitral tribunal.
17. We have carefully considered the submissions of the
learned counsels for the parties and perused the written
submissions.
Page 10 of 37
QUESTION FOR CONSIDERATION:-
18. The question that arises for consideration is considering
that the appointment of the arbitrator in this case was in SBP
& Co. ( supra ) regime and before the legislative amendments
which came into effect from 23.10.2015, were the courts
below justified in setting aside the award by holding that the
Clause 23 of the contract was not an arbitration agreement?
ANALYSIS AND CONCLUSION :-
19. In view of the categoric holding by the Seven-Judge
Bench in SBP (supra) , we have no hesitation in holding that
the Section 34 court erred in going into the existence and
validity of Clause 23. The appointment of the Arbitrator
happened prior to the amendments to the Arbitration Act
which came into effect from 23.10.2015. The introduction of
Section 11(6A) brought a paradigm shift in the scope of
jurisdiction of the Section 11 court. Post the amendment, the
only enquiry is about the existence of the arbitration clause.
That is very well settled.
Page 11 of 37
20. However, the present case arose during the SBP (supra)
regime. It will be useful to extract relevant passages from
SBP (supra) to understand the scope of the Section 11 court.
8
“ . We will first consider the question, as we see it. On
a plain understanding of the relevant provisions of the
Act, it is seen that in a case where there is an
arbitration agreement, a dispute has arisen and one of
the parties had invoked the agreed procedure for
appointment of an arbitrator and the other party has
not cooperated, the party seeking an arbitration, could
approach the Chief Justice of the High Court if it is an
internal arbitration or of the Supreme Court if it is an
international arbitration to have an arbitrator or
Arbitral Tribunal appointed. The Chief Justice, when
so requested, could appoint an arbitrator or Arbitral
Tribunal depending on the nature of the agreement
between the parties and after satisfying himself that
the conditions for appointment of an arbitrator
under sub-section (6) of Section 11 do exist. The
Chief Justice could designate another person or
institution to take the necessary measures. The
Chief Justice has also to have the qualification of
the arbitrators in mind before choosing the
arbitrator. An Arbitral Tribunal so constituted, in
terms of Section 16 of the Act, has the right to
decide whether it has jurisdiction to proceed with
the arbitration, whether there was any agreement
between the parties and the other matters referred
to therein.
9 . Normally, any tribunal or authority conferred with a
power to act under a statute, has the jurisdiction to
satisfy itself that the conditions for the exercise of that
power existed and that the case calls for the exercise of
Page 12 of 37
that power. Such an adjudication relating to its own
jurisdiction which could be called a decision on
jurisdictional facts, is not generally final, unless it is
made so by the Act constituting the tribunal. Here, sub-
section (7) of Section 11 has given a finality to the
decisions taken by the Chief Justice or any person or
institution designated by him in respect of matters
falling under sub-sections (4), (5) and (6) of Section 11.
Once a statute creates an authority, confers on it
power to adjudicate and makes its decision final on
matters to be decided by it, normally, that decision
cannot be said to be a purely administrative
decision. It is really a decision on its own
jurisdiction for the exercise of the power conferred
by the statute or to perform the duties imposed by
the statute. Unless the authority satisfies itself that
the conditions for exercise of its power exist, it
could not accede to a request made to it for the
exercise of the conferred power. While exercising
the power or performing the duty under Section 11(6)
of the Act, the Chief Justice has to consider whether the
conditions laid down by the section for the exercise of
that power or the performance of that duty exist.
Therefore, unaided by authorities and going by
general principles, it appears to us that while
functioning under Section 11(6) of the Act, a Chief
Justice or the person or institution designated by
him, is bound to decide whether he has jurisdiction,
whether there is an arbitration agreement, whether
the applicant before him is a party, whether the
conditions for exercise of the power have been
fulfilled, and if an arbitrator is to be appointed, who
is the fit person, in terms of the provision. Section
11(7) makes his decision on the matters entrusted to
him, final.
12 . …… We are inclined to the view that the
Page 13 of 37
decision of the Chief Justice on the issue of
jurisdiction and the existence of a valid arbitration
agreement would be binding on the parties when
the matter goes to the Arbitral Tribunal and at
subsequent stages of the proceeding except in an
appeal in the Supreme Court in the case of the
decision being by the Chief Justice of the High
Court or by a Judge of the High Court designated by
him.
20 . …… But where the jurisdictional issues are decided
under these sections, before a reference is made,
Section 16 cannot be held to empower the Arbitral
Tribunal to ignore the decision given by the judicial
authority or the Chief Justice before the reference to it
was made. The competence to decide does not enable
the Arbitral Tribunal to get over the finality conferred
on an order passed prior to its entering upon the
reference by the very statute that creates it. That is the
position arising out of Section 11(7) of the Act read with
Section 16 thereof. The finality given to the order of the
Chief Justice on the matters within his competence
under Section 11 of the Act are incapable of being
reopened before the Arbitral Tribunal. In Konkan Rly .
what is considered is only the fact that under Section
16, the Arbitral Tribunal has the right to rule on its own
jurisdiction and any objection, with respect to the
existence or validity of the arbitration agreement.
What is the impact of Section 11(7) of the Act on the
Arbitral Tribunal constituted by an order under
Section 11(6) of the Act, was not considered.
Obviously, this was because of the view taken in
that decision that the Chief Justice is not expected
to decide anything while entertaining a request
under Section 11(6) of the Act and is only
performing an administrative function in
appointing an Arbitral Tribunal. Once it is held that
Page 14 of 37
there is an adjudicatory function entrusted to the
Chief Justice by the Act, obviously, the right of the
Arbitral Tribunal to go behind the order passed by
the Chief Justice would take another hue and would
be controlled by Section 11(7) of the Act.
25 . … … While constituting an Arbitral Tribunal, on
the scheme of the Act, the Chief Justice has to
consider whether he as the Chief Justice has
jurisdiction in relation to the contract, whether
there was an arbitration agreement in terms of
Section 7 of the Act and whether the person before
him with the request, is a party to the arbitration
agreement. On coming to a conclusion on these
aspects, he has to enquire whether the conditions
for exercise of his power under Section 11(6) of the
Act exist in the case and only on being satisfied in
that behalf, could he appoint an arbitrator or an
Arbitral Tribunal on the basis of the request. It is
difficult to say that when one of the parties raises an
objection that there is no arbitration agreement,
raises an objection that the person who has come
forward with a request is not a party to the
arbitration agreement, the Chief Justice can come
to a conclusion on those objections without
following an adjudicatory process. Can he
constitute an Arbitral Tribunal, without considering
these questions? If he can do so, why should such a
function be entrusted to a high judicial authority
like the Chief Justice. Similarly, when the party
raises an objection that the conditions for exercise
of the power under Section 11(6) of the Act are not
fulfilled and the Chief Justice comes to the
conclusion that they have been fulfilled, it is
difficult to say that he was not adjudicating on a
dispute between the parties and was merely
passing an administrative order. It is also not correct
Page 15 of 37
to say that by the mere constitution of an Arbitral
Tribunal the rights of the parties are not affected.
Dragging a party to an arbitration when there existed
no arbitration agreement or when there existed no
arbitrable dispute, can certainly affect the right of that
party, and, even on monetary terms, impose on him a
serious liability for meeting the expenses of the
arbitration, even if it be the preliminary expenses and
his objection is upheld by the Arbitral Tribunal.
Therefore, it is not possible to accept the position
that no adjudication is involved in the constitution
of an Arbitral Tribunal.
30 . … … We also feel that adequate attention was
not paid to the requirement of the Chief Justice
having to decide that there is an arbitration
agreement in terms of Section 7 of the Act before he
could exercise his power under Section 11(6) of the
Act and its implication. The aspect, whether there
was an arbitration agreement, was not merely a
jurisdictional fact for commencing the arbitration
itself, but it was also a jurisdictional fact for
appointing an arbitrator on a motion under Section
11(6) of the Act, was not kept in view. A Chief
Justice could appoint an arbitrator in exercise of his
power only if there existed an arbitration
agreement and without holding that there was an
agreement, it would not be open to him to appoint
an arbitrator saying that he was appointing an
arbitrator since he has been moved in that behalf
and the applicant before him asserts that there is an
arbitration agreement. Acceptance of such an
argument, with great respect, would reduce the
high judicial authority entrusted with the power to
appoint an arbitrator, an automaton and
subservient to the Arbitral Tribunal which he
himself brings into existence. ……
Page 16 of 37
39. It is necessary to define what exactly the Chief
Justice, approached with an application under
Section 11 of the Act, is to decide at that stage.
Obviously, he has to decide his own jurisdiction in
the sense whether the party making the motion has
approached the right High Court. He has to decide
whether there is an arbitration agreement, as
defined in the Act and whether the person who has
made the request before him, is a party to such an
agreement. It is necessary to indicate that he can
also decide the question whether the claim was a
dead one; or a long-barred claim that was sought to
be resurrected and whether the parties have
concluded the transaction by recording satisfaction
of their mutual rights and obligations or by
receiving the final payment without objection……
47 (i) The power exercised by the Chief Justice of the
High Court or the Chief Justice of India under Section
11(6) of the Act is not an administrative power. It is a
judicial power.
( iv ) The Chief Justice or the designated Judge will have
the right to decide the preliminary aspects as indicated
in the earlier part of this judgment. These will be his
own jurisdiction to entertain the request, the existence
of a valid arbitration agreement, the existence or
otherwise of a live claim, the existence of the condition
for the exercise of his power and on the qualifications
of the arbitrator or arbitrators. The Chief Justice or the
designated Judge would be entitled to seek the opinion
of an institution in the matter of nominating an
arbitrator qualified in terms of Section 11(8) of the Act
if the need arises but the order appointing the
arbitrator could only be that of the Chief Justice or the
designated Judge.
Page 17 of 37
( vii ) Since an order passed by the Chief Justice of the
High Court or by the designated Judge of that Court is
a judicial order, an appeal will lie against that order
only under Article 136 of the Constitution to the
Supreme Court.”
(Emphasis supplied)
21. This principle was reiterated in State of West Bengal
4
vs. Sarkar & Sarkar .
“ 8. It was the vehement contention of the learned counsel
for the appellant based on a series of judgments rendered
by this Court that Clause 12 (extracted above) was not an
arbitral clause and that the arbitrator as well as the High
Court had erred in determining the same.
9. The learned counsel for the respondent Sarkar & Sarkar
contested the claim of the appellant. It was submitted that
the appellant could not be permitted even to raise the
instant plea so as to assail the order passed either by the
arbitrator (on 15-1-2004) or by the High Court (on 16-5-
2006). The instant submission of the learned counsel for
the respondent was premised on the judgment rendered
by this Court in SBP & Co. v. Patel Engg. Ltd. Our pointed
attention was drawn to the conclusions drawn by the
Constitution Bench in the above judgment in para 20. Para
20 is reproduced below: (SCC pp. 649-50)
“ 20 . Section 16 is said to be the recognition of the
principle of Kompetenz-Kompetenz . The fact that the
Arbitral Tribunal has the competence to rule on its own
jurisdiction and to define the contours of its jurisdiction,
only means that when such issues arise before it, the
Tribunal can, and possibly, ought to decide them. This
4
(2018) 12 SCC 736
Page 18 of 37
can happen when the parties have gone to the Arbitral
Tribunal without recourse to Section 8 or 11 of the Act.
But where the jurisdictional issues are decided under
these sections, before a reference is made, Section 16
cannot be held to empower the Arbitral Tribunal to
ignore the decision given by the judicial authority or the
Chief Justice before the reference to it was made. The
competence to decide does not enable the Arbitral
Tribunal to get over the finality conferred on an order
passed prior to its entering upon the reference by the
very statute that creates it. That is the position arising
out of Section 11(7) of the Act read with Section 16
thereof. The finality given to the order of the Chief
Justice on the matters within his competence under
Section 11 of the Act are incapable of being reopened
before the Arbitral Tribunal . In Konkan Railway what is
considered is only the fact that under Section 16, the
Arbitral Tribunal has the right to rule on its own
jurisdiction and any objection, with respect to the
existence or validity of the arbitration agreement.
What is the impact of Section 11(7) of the Act on the
Arbitral Tribunal constituted by an order under
Section 11(6) of the Act, was not considered.
Obviously, this was because of the view taken in that
decision that the Chief Justice is not expected to
decide anything while entertaining a request under
Section 11(6) of the Act and is only performing an
administrative function in appointing an Arbitral
Tribunal. Once it is held that there is an adjudicatory
function entrusted to the Chief Justice by the Act,
obviously, the right of the Arbitral Tribunal to go
behind the order passed by the Chief Justice would
take another hue and would be controlled by Section
11(7) of the Act .”
10. It was the submission of the learned counsel for the
respondent that proceedings could not have been
Page 19 of 37
entertained by the arbitrator under Section 16 of the
Arbitration Act in the present controversy because by
the orders of the High Court dated 24-5-2002 and 26-9-
2002 (extracted above), the appointment of the
arbitrator was made in exercise of the powers vested
in the High Court under Section 11 of the Arbitration
Act. The factual position depicted hereinabove as also
the orders referred to hereinabove, leave no room for
doubt that Justice (Retired) S.S. Ganguly was actually
appointed as an arbitrator by the High Court in
exercise of the powers vested in the High Court under
Section 11 of the Arbitration Act. That being the
position, the learned counsel for the respondent is
fully justified in her submission that the said order
could not be tested by the arbitrator while considering
the claim raised by the appellant State of West Bengal
under Section 16 of the Arbitration Act. Thus viewed,
irrespective of whether Clause 12 extracted
hereinabove postulated the adjudication of dispute
between the parties through an arbitrator, it is now
not open to the appellant before this Court to raise a
challenge to the order passed by the High Court
appointing an arbitrator.”
(emphasis supplied)
22. As held in SBP (supra), a Section 11 court was bound to
decide whether there was an arbitration agreement and
further that such a finding on the existence of a valid
arbitration agreement would be binding on the parties when
the matter goes to the Arbitral Tribunal and at subsequent
stages of the proceedings. The only exception being when
the order appointing the Arbitrator is challenged before this
Page 20 of 37
Court. The highlighted portion of SBP (supra), as extracted
above, puts this matter beyond any controversy. In the
present case, the order appointing the Arbitrator attained
finality with no challenge being thrown. The respondents
accepted the order and did not challenge the appointment in
this Court. We have extracted the findings of the order
appointing the Arbitrator. The parties proceeded on the
basis that Clause 23 was an arbitration clause and in this
scenario, the only conclusion possible is that though not very
categoric there is an implied holding in the order appointing
the Arbitrator about the existence and validity of the
arbitration agreement. For if it were not so, the appointment
could not have been and would not have been made. The
fact that the respondents accepted the order and did not
challenge it only puts the matter beyond any pale of
controversy. The further finding of the Commercial Court in
the Section 34 application that the order of the Section 11
court did not have any precedential value and hence the
Page 21 of 37
order will not be binding is in the teeth of the judgment in
SBP (supra) .
LEGAL POSITION FROM 23.10.2015 : -
23. The scenario would have been totally different if the
2015 (Amendment) Act had applied to the arbitral
proceedings. The scope of the inquiry has been clarified in
In re Interplay Between Arbitration Agreements under
5
Arbitration and Conciliation Act, 1996 & Stamp Act, 1899 ,
in the following terms : -
“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 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 Engg.
5
(2024) 6 SCC 1
Page 22 of 37
[SBP & Co. v. Patel Engg. Ltd., (2005) 8 SCC 618]
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(6-A) 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 [Duro Felguera, S.A. v.
Gangavaram Port Ltd., (2017) 9 SCC 729, 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(6-A)
should be confined to the existence of an
arbitration agreement on the basis of Section 7.
Similarly, 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
Page 23 of 37
in Vidya Drolia [Vidya Drolia v. Durga Trading
Corpn., (2021) 2 SCC 1 in the context of Section 8
and Section 11 of the Arbitration Act.
167. Section 11(6-A) 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
scrutinise 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. [ P.
Ramanatha Aiyar, The Law Lexicon (2nd Edn.,
1997) 666.] 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., (2005) 7
SCC 234].
169. When the Referral Court renders a prima facie
opinion, neither the Arbitral Tribunal, nor the Court
enforcing the arbitral award will be bound by such a
prima facie view. If a prima facie view as to the
existence of an arbitration agreement is taken by the
Referral Court, it still allows the Arbitral Tribunal to
examine the issue in depth. Such a legal approach
will help the Referral Court in weeding out prima
facie non-existent arbitration agreements. It will also
Page 24 of 37
protect the jurisdictional competence of the Arbitral
Tribunals to decide on issues pertaining to the
existence and validity of an arbitration agreement.”
[Emphasis supplied]
The above is set out only to bring out the contrast.
Section 26 of the 2015 Amendment Act also made this very
explicit.
“ 26. Act not to apply to pending arbitral proceedings .–
Nothing contained in this Act shall apply to the arbitral
proceedings commenced, in accordance with the
provisions of Section 21 of the principal Act, before the
commencement of this Act unless the parties otherwise
agree but this Act shall apply in relation to arbitral
proceedings commenced on or after the date of
commencement of this Act”
PRECEDENT AND RES JUDICATA – DISTINCTION : -
24. There is a clear conceptual distinction between
precedent and res judicata. Salmond on Jurisprudence P.J.
th
Fitzgerald (12 Edition) page 141 states “ a judicial precedent
speaks in England with authority; it is not merely evidence of
the law but a source of it, and the courts are bound to follow
the law that is so established ”. A decision between two
parties which sets out a principle of law will operate as a
precedent for disputes between two other parties too. A
Page 25 of 37
precedent operates in rem. In contrast, a res judicata
operates in personam between the same parties either in the
later stage of the same litigation between them or in a
different litigation between them. That is the essential
distinction between the two.
25. This Court in State of Rajasthan vs. Nemi Chand
6
Mahela and Others , held as under:-
“11. The learned counsel for the petitioners had drawn
our attention to para 22 of the decision in Manmohan
Sharma case [ Manmohan Sharma v. State of Rajasthan ,
(2014) 5 SCC 782 which refers to the case of one Danveer
Singh whose writ petition had been allowed [ Danveer
Singh v. Rural Development & Panchyati Raj Deptt. , WP (C)
No. 2200 of 2000 sub nom Jayanti Sharma v. Rural
Development & Panchyati Raj Deptt. , WP (C) No. 1646 of
2000, order dated 26-2-2001 (Raj)] and the order had
attained finality as it was not challenged before the
Division Bench or before the Supreme Court. Termination
of services in the case of Danveer Singh, it was
accordingly held, was not justified and in accordance with
law. The reasoning given in paras 22 and 23 in Manmohan
Sharma case [ Manmohan Sharma v. State of Rajasthan ,
(2014) 5 SCC 782 relating to the case of Danveer Singh
would reflect the difference between the doctrine of res
judicata and law of precedent. Res judicata operates in
personam i.e. the matter in issue between the same
parties in the former litigation, while law of precedent
operates in rem i.e. the law once settled is binding on all
6
(2019) 14 SCC 179
Page 26 of 37
under the jurisdiction of the High Court and the Supreme
Court. Res judicata binds the parties to the proceedings
for the reason that there should be an end to the litigation
and therefore, subsequent proceeding inter se parties to
the litigation is barred. Therefore, law of res judicata
concerns the same matter, while law of precedent
concerns application of law in a similar issue. In res
judicata, the correctness of the decision is normally
immaterial and it does not matter whether the previous
decision was right or wrong, unless the erroneous
determination relates to the jurisdictional matter of that
body. [See Makhija Construction & Engg. (P) Ltd. v. Indore
Development Authority , (2005) 6 SCC 304] ]”
26. The Commercial Court to hold against the appellant
relied on two judgments of the Rajasthan High Court, namely,
Mohammed Arif Contractor ( supra ) and M/s Marudhar
Construction ( supra ). The finding of the Commercial Court
was that in Mohammed Arif ( supra ) (judgment dated
08.04.2015) a learned single judge, while adjudicating a
Section 11 Application, held an identical Clause 23 to be not
an arbitration clause. M/s Marudhar Construction ( supra )
was a short order dated 06.05.2016 in a Section 11
Application which followed Mohammed Arif ( supra ).
27. The said judgments will not enure to the support of the
respondents. In the present case, while adjudicating a
Page 27 of 37
Section 11 Application a learned single judge, who had
jurisdiction, interpreted the contractual document and
appointed an arbitrator. We have already held hereinabove
that in the said order though the finding is not categoric,
there is an implied holding about the existence and validity
of the arbitration agreement. As held in Nemi Chand ( supra )
the correctness of the decision is immaterial and it did not
matter whether the previous decision was right or wrong
unless their erroneous determination relates to the
jurisdiction of the body.
28. In an erudite judgment, speaking for this Court Rohinton
Fali Nariman, J. in Canara Bank vs. N.G. Subbaraya Setty
7
and Another , summarised the principles thus:-
“ 34. Given the conspectus of authorities that have been
referred to by us hereinabove, the law on the subject may
be stated as follows:
34.1. The general rule is that all issues that arise directly
and substantially in a former suit or proceeding between
the same parties are res judicata in a subsequent suit or
7
(2018) 16 SCC 228
Page 28 of 37
proceeding between the same parties. These would
include issues of fact, mixed questions of fact and law, and
issues of law.
34.2. To this general proposition of law, there are certain
exceptions when it comes to issues of law:
34.2.1. Where an issue of law decided between the same
parties in a former suit or proceeding relates to the
jurisdiction of the court, an erroneous decision in the
former suit or proceeding is not res judicata in a
subsequent suit or proceeding between the same parties,
even where the issue raised in the second suit or
proceeding is directly and substantially the same as that
raised in the former suit or proceeding. This follows from
a reading of Section 11 of the Code of Civil Procedure
itself, for the Court which decides the suit has to be a
court competent to try such suit. When read with
Explanation I to Section 11, it is obvious that both the
former as well as the subsequent suit need to be decided
in courts competent to try such suits, for the “former suit”
can be a suit instituted after the first suit, but which has
been decided prior to the suit which was instituted
earlier. An erroneous decision as to the jurisdiction of a
court cannot clothe that court with jurisdiction where it has
none. Obviously, a civil court cannot send a person to jail
for an offence committed under the Penal Code. If it does
so, such a judgment would not bind a Magistrate and/or
Sessions Court in a subsequent proceeding between the
same parties, where the Magistrate sentences the same
person for the same offence under the Penal Code.
Equally, a civil court cannot decide a suit between a
landlord and a tenant arising out of the rights claimed
under a Rent Act, where the Rent Act clothes a special
court with jurisdiction to decide such suits. As an
example, under Section 28 of the Bombay Rent Act, 1947,
the Small Cause Court has exclusive jurisdiction to hear
Page 29 of 37
and decide proceedings between a landlord and a tenant
in respect of rights which arise out of the Bombay Rent
Act, and no other court has jurisdiction to embark upon
the same. In this case, even though the civil court, in the
absence of the statutory bar created by the Rent Act,
would have jurisdiction to decide such suits, it is the
statutory bar created by the Rent Act that must be given
effect to as a matter of public policy. [See, Natraj Studios
(P) Ltd. v. Navrang Studios at SCR p. 482]. An erroneous
decision clothing the civil court with jurisdiction to
embark upon a suit filed by a landlord against a tenant, in
respect of rights claimed under the Bombay Rent Act,
would, therefore, not operate as res judicata in a
subsequent suit filed before the Small Cause Court
between the same parties in respect of the same matter
directly and substantially in issue in the former suit.
34.2.2. An issue of law which arises between the same
parties in a subsequent suit or proceeding is not res
judicata if, by an erroneous decision given on a statutory
prohibition in the former suit or proceeding, the statutory
prohibition is not given effect to. This is despite the fact
that the matter in issue between the parties may be the
same as that directly and substantially in issue in the
previous suit or proceeding. This is for the reason that in
such cases, the rights of the parties are not the only matter
for consideration (as is the case of an erroneous
interpretation of a statute inter partes), as the public
policy contained in the statutory prohibition cannot be set
at naught. This is for the same reason as that contained in
matters which pertain to issues of law that raise
jurisdictional questions. We have seen how, in Natraj
Studios , it is the public policy of the statutory prohibition
contained in Section 28 of the Bombay Rent Act that has to
be given effect to. Likewise, the public policy contained in
other statutory prohibitions, which need not necessarily
go to jurisdiction of a court, must equally be given effect
Page 30 of 37
to, as otherwise special principles of law are fastened
upon parties when special considerations relating to
public policy mandate that this cannot be done.
34.3. Another exception to this general rule follows from
the matter in issue being an issue of law different from that
in the previous suit or proceeding. This can happen when
the issue of law in the second suit or proceeding is based
on different facts from the matter directly and
substantially in issue in the first suit or proceeding.
Equally, where the law is altered by a competent authority
since the earlier decision, the matter in issue in the
subsequent suit or proceeding is not the same as in the
previous suit or proceeding, because the law to be
interpreted is different.”
29. The learned single judge, in the present case, when he
entertained a Section 11 Application and interpreted a
contractual document had jurisdiction to do so under
Section 11. Right or wrong, that decision should bind. The
respondents did not carry the order appointing an arbitrator
in appeal. In view of the same, the holding in SBP (supra) ,
squarely applies and on the present facts the respondents
could not have challenged the existence and validity of the
arbitration clause before the arbitrator. For the very same
reason, the judgments in Mohammed Arif Contractor
Page 31 of 37
( supra ) and M/s Marudhar Construction ( supra ) can have
no application to the present facts.
30. In the present case, the order appointing the Arbitrator
read with the law laid down in SBP (supra), clearly operates
as a res judicata, insofar as the existence of and validity of
the arbitration agreement between the parties is concerned.
In the SBP (supra) regime, this was the legal position.
31. SBP (supra) also puts the matter beyond any
controversy by holding that not only will the parties be
bound before the Arbitrator with regard to the finding on
existence and validity of the arbitration agreement they will
also be bound during the subsequent stages of the
proceedings which will include the Section 34 application
stage, the Section 37 appeal stage and before this Court. The
Commercial Court had missed the conceptual distinction
between “Precedent” and “Res judicata” and consequently
fell into an error.
CONCLUSION AND DIRECTIONS : -
32. In view of what we have held hereinabove, the
Page 32 of 37
Commercial Court and the High Court clearly erred in going
into the existence and validity of Clause 23 and pronouncing
that the said clause was not an arbitration clause. We,
accordingly, set aside the judgment of the High Court dated
20.02.2020 in D.B. Civil Miscellaneous Appeal No. 2435 of
2019. The appeal stands allowed. The result will be that the
proceedings before the Commercial Court in Arbitration
Case No. 221 of 2018 will stand set aside and the matter is
remitted to the Commercial Court, Judge No.3, Jaipur for
hearing Arbitration Case No. 221 of 2018 on grounds other
than what has been concluded hereinabove. We say so for
the reason that while allowing the Section 34 application on
the ground that Section 23 was not an arbitration clause, the
Commercial Court recorded that the other objections were
not considered. It is only fair that the matter should be
remitted for consideration of the other objections.
Considering the fact that the Award is of the year 2015, we
direct the Commercial Court No. 3 to dispose of Arbitration
Case No. 221 of 2018 within a period of three months from the
Page 33 of 37
date of receipt of this judgment. Parties to bear their own
costs.
FACTS IN CIVIL APPEAL ARISING OUT OF SPECIAL
LEAVE PETITION (CIVIL) NO. 8331 of 2021:-
33. Leave granted.
34. On 11.10.2007, the appellant was awarded work by the
respondents for construction of the structure of 180 LIG
skeleton flats (stilt + 10 storey) at Sector 29, Pratap Nagar,
Sanganer, Jaipur, Rajasthan and entered into a contract
agreement bearing No. 207/2007-08. The contract was for a
lump sum value of Rs.4,58,05,217.45. The date of
commencement was agreed to be 20.10.2007 and completion
was 19.07.2008. Additional work to the tune of Rs.
64,01,689/- was awarded. The appellant raised an Escalation
Bill amounting to Rs.55,77,080/- under Clause 45 of the
Agreement in order to recover the prices of labour and
material which had arisen during the period of completion of
the construction work. Since the Escalation Bill was not paid
and also penalty levied of Rs.2.5 lakhs was not refunded and
Page 34 of 37
claiming that the respondents failed to constitute an
empowered Standing Committee under Clause 23 of the
Agreement, a Section 11 application came to be filed. By an
order of 23.05.2014, a learned Single Judge held that since
indisputably the Committee constituted was not in terms of
Clause 23, appointed Mr. Justice Anoop Chand Goyal (Retd.)
as the sole Arbitrator. The sole Arbitrator entered upon the
reference and passed an Award on 25.02.2016 directing
refund of Rs. 2.50 lakhs as penalty and awarding escalation
charge to the tune of Rs.5,09,468/-. Further interest @ 10%
from 13.08.2010 was awarded. Even though the Award was
passed on 25.02.2016, the arbitral proceedings commenced
before the commencement of the Amendment Act of 2015.
Before the Arbitrator, the respondents contended that Clause
23 of the Agreement was not an arbitration clause. The
arbitrator held that since the Section 11 application stood
allowed, the Arbitral Tribunal cannot sit over the order of the
High Court.
Page 35 of 37
35. The respondents filed a Section 34 application
challenging the award. The Commercial Court, by relying
on the judgments of the Rajasthan High Court in Mohd. Arif
Contractor (Supra) and Marudhar Construction (Supra) held
that Clause 23 was not an arbitration clause. In appeal
before the High Court, the findings of the Commercial Court
were confirmed.
36. Our reasoning and conclusion in Civil Appeal arising
out of Special Leave Petition (C) No. 8299 of 2021 fully
applies to the present set of facts. Appling the same
reasoning, the appeal would stand allowed. The order of the
High Court dated 20.02.2020 in D.B. Civil Miscellaneous
Appeal No. 796 of 2019 stands set aside. The consequence
will be that the matter will stand remitted to the Commercial
Court, Judge No.3, Jaipur in hearing Arbitration Case No. 114
of 2018 on grounds other than what has been concluded
hereinabove. We say so for the reason that while allowing
the Section 34 application on the ground that Section 23 was
not an arbitration clause, the Commercial Court recorded
Page 36 of 37
that the other objections are not considered. In view of our
holding hereinabove, it is only fair that the matter should be
remitted for consideration of other objections. Considering
the fact that the Award is of the year 2016, we direct the
Commercial Court No.3 to dispose of Arbitration Case No.
114 of 2018 within a period of three months from the date of
receipt of this judgment. Parties to bear their own costs.
37. Both the appeals are disposed of in the above terms.
……….........................J.
[ J.B. PARDIWALA ]
……….........................J.
[ K. V. VISWANATHAN ]
New Delhi;
th
4 February, 2026
Page 37 of 37