Section 41 of the Presidency Small Cause Courts Act Does Not Defeat “Existence” of an Arbitration Agreement at Section 11 Stage; Arbitrability Objections Lie Primarily Under Section 16

1. Introduction

Case: Motilal Oswal Financial Service Limited v. Santosh Cordeiro (2026 INSC 5), Supreme Court of India, decided on 05-01-2026.

The dispute arose out of a Leave and License Agreement dated 06.10.2017 (and an Addendum dated 13.03.2020) concerning commercial premises at Malad (West), Mumbai. The agreement contained an arbitration clause (Clause 33). The licensee (appellant) claimed it handed over possession during COVID-19 and sought refund of security deposit; the licensors (respondents) demanded substantial sums said to be payable for the “balance lock-in period”.

The respondents moved the Bombay High Court under Section 11 of the Arbitration and Conciliation Act, 1996 to appoint an arbitrator. The appellant objected, contending the dispute was non-arbitrable due to Section 41 of the Presidency Small Cause Courts Act, 1882 (exclusive jurisdiction of the Small Causes Court for certain licensor-licensee/landlord-tenant disputes in Greater Bombay). The High Court appointed an arbitrator. The Supreme Court considered whether that Section 11 order was correct, particularly in light of the statutory limitation in Section 11(6A) (still in force as its omission has not been notified).

Key Issue

Whether, at the Section 11 stage, the Court could refuse appointment of an arbitrator on the ground that Section 41 of the 1882 Act makes the dispute non-arbitrable and/or renders the arbitration clause inoperative.

2. Summary of the Judgment

The Supreme Court dismissed the appeal and upheld the appointment of the arbitrator. It held that under Section 11(6A), the Court’s inquiry is confined to a limited examination of the existence of an arbitration agreement, not a contested inquiry into arbitrability or the merits/classification of claims.

The Court declined to treat Central Warehousing Corporation, Mumbai v. Fortpoint Automotive Pvt. Ltd., Mumbai as meaning that an arbitration clause “ceases to exist” merely because Section 41 confers exclusive jurisdiction on the Small Causes Court. Arbitrability objections, including the Section 41 bar and characterization of the monetary claim, were left to be pursued via Section 16 (competence-competence) and other remedies in accordance with law.

The Court also directed that the arbitrator conclude proceedings within six months.

3. Analysis

3.1 Precedents Cited and Their Role

(A) In re Interplay Between Arbitration Agreements under Arbitration and Conciliation Act, 1996 & Stamp Act, 1899 (2024) 6 SCC 1

This seven-judge decision is the backbone of the present judgment’s methodology. The Court relied on it for two propositions:

Section 11(6A) continues to be in force because the statutory omission has not been notified; therefore courts must give effect to the legislature’s intent to narrow Section 11 scrutiny.
Under Section 11(6A), courts must confine themselves to examining the existence of an arbitration agreement—an inspection/scrutiny that is not a “mini-trial”. Substantive questions of existence/validity and jurisdictional objections are principally for the arbitral tribunal under Section 16.

The Supreme Court expressly adopted the “existence-focused” Section 11 approach articulated in In re Interplay, treating it as determinative of the permissible depth of inquiry.

(B) Vidya Drolia And Others v. Durga Trading Corporation (2021) 2 SCC 1 (“Vidya Drolia - II”) and Vidya Drolia and Others v. Durga Trading Corporation (2019) 20 SCC 406 (“Vidya Drolia-I”)

The respondents relied on Vidya Drolia - II to argue that mere conferment of jurisdiction on a specific court is not necessarily decisive of non-arbitrability. The Supreme Court clarified that while In re Interplay corrected Vidya Drolia - II on the (mistaken) assumption about omission of Section 11(6A), other aspects of Vidya Drolia - II remain undiluted.

In particular, the Court highlighted Vidya Drolia - II’s observation that: mere creation of a specific forum or conferment of jurisdiction—though significant—may not be decisive to infer implicit non-arbitrability.

It also noted Vidya Drolia - II’s holding that landlord-tenant disputes under the Transfer of Property Act are arbitrable, but disputes under rent control regimes with exclusive fora and special rights may not be. This framework informed the Court’s reluctance to treat Section 41 as automatically “neutralising” arbitration clauses at the referral stage.

(C) Central Warehousing Corporation, Mumbai v. Fortpoint Automotive Pvt. Ltd., Mumbai (2009 SCC OnLine Bom 2023) (Full Bench, Bombay High Court)

The appellant’s core reliance was on paragraph 40 of Central Warehousing, which had held, inter alia, that Section 41 of the 1882 Act is a special law; it falls within Section 2(3) of the A&C Act; and that arbitration agreements in such cases would be “invalid and inoperative” as permitting parties to contract out of exclusive jurisdiction would be against public policy.

The Supreme Court did not decide the correctness of Central Warehousing (noting that an appeal is pending). Instead, it confined itself to whether that Full Bench ruling compelled a finding that Clause 33 was non-existent for Section 11 purposes. It answered in the negative, for four reasons (detailed below), the most important being:

Contextual distinction (in Central Warehousing the occupant was in possession; here possession had been handed over and the dispute was primarily monetary).
Section 11(6A) limits: arbitrability and characterisation of claims are not to be conclusively tried at Section 11.
Section 41 as jurisdiction-conferring: the Court indicated Section 41 “cannot be interpreted to mean” that it by its own force neutralises arbitration clauses.
Section 28 of the Contract Act, 1872 (missed in Central Warehousing) recognises the legality of arbitration agreements through its Exceptions, reinforcing that an arbitration clause does not evaporate merely because parties have agreed to arbitrate.

(D) Natraj Studios Private Limited. v. Navrang Studios and Another (1981) 1 SCC 523

Cited by the appellant to contend that parties cannot contract out of special statutes conferring exclusive jurisdiction in landlord-tenant disputes. The Supreme Court did not apply Natraj Studios to refuse appointment at Section 11, because the present determination was confined to “existence” and because arbitrability objections were channelled to Section 16 and post-award remedies.

(E) Booz Allen and Hamilton Inc vs. SBI Home Finance Limited And Others (2011) 5 SCC 532

Relied on by the appellant for the proposition that certain tenancy/licensor-licensee disputes governed by special statutes are non-arbitrable. The Court did not adjudicate the merits of that contention at Section 11; it treated it as part of the arbitrability debate reserved for the arbitral process and subsequent challenges.

(F) Globsport India Pvt. Ltd. vs. Mayfair Housing Pvt. Ltd (2015 OnLine Bom 4176)

Relied on by the respondents to support arbitrability of monetary claims connected with a leave and license arrangement. The Supreme Court did not rule on whether Globsport or Central Warehousing is correct on merits; it held this was not the enquiry under Section 11(6A).

(G) Supporting citations on limited referral inquiry and competence-competence

Duro Felguera, S.A v. Gangavaram Port Limited . (2017) 9 SCC 729: cited (via In re Interplay) for the narrow scope of Section 11 inquiry.
Shin-Etsu Chemical Co. Ltd. v. Aksh Optifibre Ltd. (2005) 7 SCC 234: cited (via In re Interplay) supporting a restrained court role at the referral stage.
Interpretation of the Greco-Turkish Agreement of December 1st, 1926, In re (1928 SCC OnLine PCIJ 5): cited in the discussion of the general principle that adjudicatory bodies may decide their own jurisdiction.

3.2 Legal Reasoning

(A) The controlling filter: Section 11(6A) = “existence” only

The Court treated Section 11(6A) as determinative of institutional role. Even if non-arbitrability is alleged, the Section 11 court is not to embark on a “laborious or contested inquiry.” The emphasis was on:

Existence: whether the dealings/contract contain an arbitration clause meeting the formal requirements (principally those in Section 7 of the A&C Act, as understood through In re Interplay).
Not merits/arbitrability: whether the claim is for “license fee”, “debt”, “damages”, “use and occupation”, or falls within Section 41’s exclusive Small Causes Court domain was characterised as beyond the proper Section 11 enquiry here.

(B) Competence-competence (Section 16) as the primary home for arbitrability objections

By reproducing Section 16 and quoting In re Interplay, the Court reinforced a structural preference: jurisdictional objections (including objections about “existence or validity” of arbitration agreement and tribunal jurisdiction) are for the tribunal to “rule” upon, subject to later judicial supervision in the statutory sequence (notably via Section 34 after award, and other applicable remedies).

The judgment’s practical instruction is clear: once an arbitration clause exists on the face of the contract, and Section 11(6A) applies, the referral court should appoint; the contest then shifts to Section 16 and the post-award challenge architecture.

(C) Why Central Warehousing did not negate “existence” in this case

The Court gave four reasons, which together form the operative doctrinal contribution:

Context matters: Central Warehousing involved a party in possession and a Section 8 objection in a Section 41 suit; here possession had already been handed over and the dispute was monetary. The Court used this contrast to resist transposing a broad invalidity conclusion into the Section 11 “existence” enquiry in the present fact-pattern.
Vidya Drolia - II reduces the decisiveness of “exclusive forum” alone: the Court drew support from the principle that conferment of jurisdiction on a specific court/public forum, though significant, is not by itself conclusive of implied non-arbitrability.
Section 41 is jurisdiction-conferring, not necessarily arbitration-neutralising: the Court stated that Section 41 “cannot be interpreted to mean that ex proprio vigore (by its own force), it neutralizes arbitration clauses in agreements.”
Section 28 of the Contract Act, 1872: by emphasising the statutory “saving” of arbitration agreements under Exceptions 1 and 2 to Section 28, the Court reaffirmed that arbitration clauses have a recognised legal foundation and do not become “non-existent” merely because another statute assigns disputes to a particular court—at least not for the limited Section 11(6A) determination.

3.3 Impact

Hard separation of functions at Section 11: the judgment strengthens the post-In re Interplay trend that Section 11 is not the forum to conclusively decide statutory non-arbitrability pleas when an arbitration clause exists on the face of the contract.
Section 41 objections shift to Section 16 (and beyond): parties resisting arbitration in Greater Bombay licensor-licensee disputes can still press Section 41, but must ordinarily do so before the tribunal and through the A&C Act’s remedial ladder rather than blocking appointment.
Limits the practical reach of Central Warehousing at referral stage: without overruling it (and expressly noting a pending appeal), the Court nonetheless prevents Central Warehousing from being used as an automatic “no-arbitration-at-all” bar at Section 11, at least where an arbitration clause is facially present and Section 11(6A) governs.
Expedition: directing completion within six months signals a pro-efficiency stance, particularly relevant where jurisdictional skirmishes might otherwise stall resolution.

4. Complex Concepts Simplified

Section 11(6A) “existence” of arbitration agreement: At the arbitrator-appointment stage, the court mostly checks: “Is there an arbitration clause/agreement in writing between these parties?” It generally does not decide whether the dispute should ultimately be arbitrated under other laws.
Arbitrability: Whether a particular kind of dispute is legally capable of being decided by arbitration (as opposed to only by a court/tribunal under a special statute).
Competence-competence / kompetenz-kompetenz (Section 16): The arbitral tribunal can decide its own jurisdiction first, including objections that the arbitration agreement is invalid/inapplicable or that the subject matter is not arbitrable. Courts review later in the statutory sequence.
Section 41 of the Presidency Small Cause Courts Act, 1882: A provision conferring jurisdiction on the Small Causes Court in Greater Bombay for specified licensor-licensee/landlord-tenant disputes, including recovery of possession and recovery of licence fee/rent.
“Ex proprio vigore”: “By its own force.” The Court used this to say Section 41 should not automatically be read as wiping out arbitration clauses for the limited purpose of deciding “existence” under Section 11(6A).

5. Conclusion

The Supreme Court’s central contribution is institutional and procedural: where Section 11(6A) applies and an arbitration clause is facially present, the referral court should not convert Section 11 into a forum for final adjudication of statutory bars such as Section 41 of the 1882 Act. The Court held that Central Warehousing Corporation, Mumbai v. Fortpoint Automotive Pvt. Ltd., Mumbai does not compel a finding that such an arbitration clause becomes “non-existent” for Section 11 purposes.

The judgment thereby reinforces a clear pathway: appoint the arbitrator upon finding an arbitration agreement exists; litigate arbitrability and jurisdiction through Section 16 and the A&C Act’s structured remedies. This approach prioritises the statutory design of arbitration law, preserves tribunal-first jurisdictional adjudication, and limits premature judicial intervention at the threshold.