The Court’s Emphasis on “Existence” of Arbitration Agreements under Section 11 of the Arbitration and Conciliation Act

1. Introduction

In the matter of Shreegopal Barasia v. Creative Homes (Bombay High Court, decided on January 6, 2025), the Court addressed critical questions surrounding the scope of the Court’s powers under Section 11 of the Arbitration and Conciliation Act, 1996 (“the Act”) while appointing an arbitrator. The dispute arose under two related instruments: an agreement dated February 19, 2007, and a deed that canceled the previous agreement dated August 14, 2015. Both instruments contained identical arbitration clauses.

The Petitioner sought to refer all disputes to arbitration under Section 11 of the Act. The Respondents, however, raised significant challenges based on Section 19(2)(a) of the Indian Partnership Act, 1933 (“the Partnership Act”), which restricts a partner’s implied authority to submit disputes to arbitration. In essence, they contended that unless a partner had explicit authority to incorporate an arbitration clause, the agreement itself might be invalid. The Court ultimately rejected these arguments at the threshold stage and appointed the arbitrator, emphasizing that only the formal presence of an arbitration clause needs to be established by the Court under Section 11. Substantive validity or lack thereof, including questions of implied authority under the Partnership Act, must be explored by the arbitrator.

2. Summary of the Judgment

The Bombay High Court held that it has a limited role while exercising jurisdiction under Section 11 of the Act. The Court is primarily required only to determine whether an arbitration agreement “exists” in writing; if such an agreement is prima facie evident on a merely formal basis, the Court ought to refer the matter to arbitration. Allegations about the underlying agreement’s substantive invalidity, unauthorized execution, or any other detailed factual or legal issues are to be assessed by the arbitrator.

The Court appointed a Sole Arbitrator, former Judge Justice Akil Kureshi, and clarified that the controversies regarding Section 19(2)(a) of the Partnership Act, including any factual aspects of whether the partner had implied or explicit authority to sign the agreement, would be determined by the arbitrator. The Judgment thereby firmly reiterates the principle that once it is established there is a written arbitration agreement, the question of whether it is validly or invalidly executed (in substance) must be decided by the arbitrator.

3. Analysis

3.1 Precedents Cited

The Court referred to multiple judgments of the Supreme Court, notably the recent seven-judge bench decision in In re: Interplay Between Arbitration Agreements under A&C Act, 1996 & Stamp Act (“Interplay Judgment”), reported at (2024) 6 SCC 1.

This landmark decision amplified the principle that a court’s scrutiny under Section 11 of the Arbitration and Conciliation Act should only ascertain the existence of an arbitration agreement. Substantive challenges—such as the agreement’s validity or whether it was properly executed—should remain outside the scope of the Court’s inquiry and lie within the province of the arbitrator’s powers under Section 16 of the Act.

Additionally, the Court relied on Ajay Madhusudan Patel & Ors. v. Jyotindra S. Patel & Ors., 2024 SCC OnLine SC 2597, which reaffirmed the narrow scope of review at the referral stage. In cohesive alignment with Vidya Drolia and other Supreme Court judgments, the Bombay High Court clarified that issues of existence and validity—particularly those hinging on facts or evidentiary proofs—must be left to the arbitral tribunal.

3.2 Legal Reasoning

The central thrust of the High Court’s legal reasoning rests on two pillars:

1. Limited Review Function under Section 11: The Court emphasized that Section 11 of the Act does not vest it with the authority to delve into intricate factual or legal disputes but merely to see if a valid arbitration agreement exists on its face. Once the presence of an agreement is “ruled in” as existing (i.e., a written clause is in place), deeper questions concerning validity or scope must be resolved by the arbitrator under Section 16 of the Act.
2. Interpretation of Section 19(2)(a) of the Partnership Act: The Respondents contended that a partner’s lack of implied authority to enter into an arbitration agreement under Section 19(2)(a) invalidates any agreement containing such a clause. The Court, however, reasoned that whether a partner was properly authorized is a question that goes to substantive validity rather than the formal existence of the arbitration clause. At the Section 11 appointment stage, the Court need not conclusively rule on the authority question; that is within the arbitrator’s remit.

Thus, the Judgment solidifies the principle that Section 19(2)(a) of the Partnership Act does not necessarily preclude existence of an arbitration clause in a contract. Even if there is a challenge to the partner’s authority or the firm’s relationship with the signatory, the Court’s role in a Section 11 petition remains limited to verifying whether there is a written arbitration clause. Any deeper factual inquiry—such as whether the partner was expressly authorized or whether trade custom permits such an arbitration submission—must be tackled by the arbitral tribunal.

3.3 Impact

This Judgment carries significant implications for commercial transactions involving partnerships:

• Reaffirmation of Competence-Competence: The Court has reiterated the competence-competence principle under Section 16 of the Act, ensuring that arbitrators can fully adjudicate on issues concerning the existence, validity, and scope of the arbitration agreement.
• Clarification on Authorizations within Partnerships: Although the Court did not categorically decide whether signing a contract containing an arbitration clause equates to “submitting an existing dispute to arbitration”, the door is left open for an arbitrator to examine whether a partner had the requisite authority. This protects the autonomy of the arbitral process and avoids pre-emptive judicial interference.
• Reduced Delay in Arbitration Proceedings: By limiting the court’s role to a summary check of formal existence, the process of referring parties to arbitration can be expedited. This fosters the efficiency that arbitration seeks to achieve.
• Guidance for Drafting Future Agreements: Partnerships and other business entities shall more diligently clarify and record the authority of their representatives in partnership deeds or board resolutions, especially where standard contracts frequently contain arbitration clauses.

4. Complex Concepts Simplified

Existence vs. Validity in Arbitration: Under the Act, courts merely look at whether an arbitration clause is present in writing. If so, it “exists.” The question of whether that clause is effective or enforceable in substance is considered an aspect of “validity,” which the arbitrator typically decides.

Competence-Competence Principle: This principle (captured in Section 16 of the Act) states that an arbitral tribunal can rule on its own jurisdiction, including any objections concerning the validity or scope of the arbitration agreement. Courts respect this by not engaging in a detailed inquiry at the referral stage.

Section 19(2)(a) of the Partnership Act: This provision says that a partner generally does not have the implied authority to submit a dispute to arbitration. Whether signing a contract that contains an arbitration clause amounts to the same “submission” is debatable. The High Court clarified that the practical effect of such a bar must be decided by the arbitrator examining the existence and validity of said contract in accordance with the relevant facts and usage of trade.

Section 11 of the Arbitration and Conciliation Act: This provision empowers courts to appoint an arbitrator if the parties fail to do so themselves. The Court’s job at this stage is limited to confirming that the arbitration agreement is indeed in writing and that parties intend to arbitrate qualifying disputes.

5. Conclusion

The Shreegopal Barasia v. Creative Homes decision fortifies a consistent and crucial legal stance: when handling a petition under Section 11 of the Arbitration and Conciliation Act, the determining factor is the formal existence of an arbitration agreement in writing. All other issues, including deeper factual questions about authority (such as those raised under Section 19(2)(a) of the Partnership Act), are referred to the arbitral tribunal to decide. The Court once again underscores that doubts as to the contractual or substantive validity of the arbitration clause must remain for arbitral consideration, not judicial determination at the threshold.

This Judgment will undoubtedly shape how future commercial disputes, especially those involving partnerships, are approached. It provides clarity and reassurance that judicial intervention at the pre-arbitral stage aims to safeguard rather than thwart the arbitration process, aligning with the legislative purpose of expedited dispute resolution and party autonomy under the Act.