The Supreme Court on July 20, 2022 in the case of Indian Oil Corporation Limited v. NCC Limited held that at the stage of deciding application for appointment of arbitrator, a court can consider whether the dispute falls within the excepted clause and also held that Section 11(6A) of Arbitration Act does not prevent courts from considering issue of arbitrability.

In the instant matter, perusing the contract between the parties, the bench noted that there are clauses which provides that ‘Whether or not a claim sought for arbitration by the contractor is a Notified Claim or any such matter / dispute is specifically excluded from the scope, purview and ambit of arbitration agreement, such matter / dispute shall have to be first decided by the General Manager prior to the arbitral proceeding with or proceeding further with the reference.’ Thus, unless there is a decision by the General Manager on whether or not a claim sought to be referred to arbitration by the contractor is a Notified Claim or not, the Arbitrator or Arbitral Tribunal shall have no jurisdiction to entertain such a dispute, the court noted.

The court observed that the question of jurisdiction and non – arbitrability can be considered by a Court at the stage of deciding an application under Section 11 of Arbitration and Conciliation Act, if the facts are very clear and glaring.

The court further observed:

“Parties to the contract are free to agree on applicability of (1) proper law of contract, (2) proper law of arbitration agreement and (3) proper law of the conduct of arbitration. Parties to the contract also may agree for matters excluded from the purview of arbitration. As observed by this Court in a catena of decisions, unless the effect of agreement results in performance of an unlawful act, an agreement, which is otherwise legal, cannot be held to be void and is binding between the parties.”

The court, therefore, held that the High Court erred in referring the dispute to arbitration and appointing a sole Arbitrator to adjudicate on the dispute with respect to the claims which as such are held to be not Notified Claims by the General Manager.