Section 45 of the Arbitration and Conciliation Act, 1996 is a vital provision that allows a judicial authority in India, upon the request of one of the parties involved in a legal dispute, to refer the parties to arbitration. It must be noted that this provision is only applicable if the judicial authority finds that the arbitration agreement is not null and void, ineffective, or incapable of being performed.
However, the interpretation and application of Section 45 have been complex, leading to various legal debates. Through their in-depth analysis and experience, legal experts at SimranLaw dissect these complexities below.
**The Underlying Principle of Section 45**
The principle underpinning Section 45 lies in ‘Kompetenz – Kompetenz,’ a doctrine stipulating that the arbitral tribunal has the competence to determine its jurisdiction. This principle allows for a swift dispute resolution process, reducing the burden on courts. However, it has led to a parallel stream of jurisdictional contests, where the courts and tribunals both assess the validity of an arbitration agreement.
**The Roles and Powers of Judicial Authority**
Under Section 45, the role of judicial authorities is to scrutinize the arbitration agreement thoroughly before referring the parties to arbitration. If the agreement is seen as null or void, ineffective, or incapable of being performed, the reference to arbitration can be refused.
Interpreting what constitutes an ‘ineffective’ or ‘incapable’ arbitration agreement has been a matter of debate. In the landmark case of Pramodrai Desai vs Dhirajlal Girdharlal & Sons, (AIR 2003 SC 4209) the court ruled that ‘incapable of being performed’ refers to physical or literal impossibilities and not to legal or contractual impossibilities.
**Clarifying the ‘Null and Void’ Agreement**
In the case of SMS Tea Estates Pvt. Ltd v. Chandmari Tea Co. Pvt. Ltd. (2011), the Supreme Court opined that if an arbitration clause is contained in an unregistered (and hence unenforceable) contract, the clause would be rendered inoperative or incapable of being performed, essentially making it ‘null and void.’ This position was reversed in the 2019 Garware Wall Ropes vs. Coastal Marine Constructions & Engineering Ltd. judgment, where the court held that the arbitration agreement would not become ‘null and void’ merely because the underlying contract was not registered.
**Exhausting Legal Remedies before Section 45 is Invoked**
Indian courts have emphasized that all possible legal remedies should be exhausted before Section 45 can be invoked. In the World Sport Group (Mauritius) Ltd. v MSM Satellite (Singapore) Pte Ltd. (2014) case, the Supreme Court ruled that the parties could not bypass available remedies under Indian law through an application under Section 45.
In conclusion, while Section 45 empowers a judicial authority to refer parties to arbitration, its application is subject to interpretations of arbitration agreements, careful adherence to the principles of ‘Kompetenz – Kompetenz’, and mindful regard for exhausting available legal remedies. By navigating these complexities, parties can effectively leverage this provision for efficient dispute resolution. At SimranLaw, we continue to stay at the forefront of these legal developments, providing clients with informed advice rooted in years of experience and expertise.