High Court cannot decide on arbitrability of a dispute: Delhi High Court

The Delhi High Court recently observed that it cannot decide on the arbitrability of a dispute while exercising its limited jurisdiction under Section 11 (6) (appointment of an arbitrator) of the Arbitration and Conciliation Act, 1996 [Payu Payments Private Limited vs. The New India Assurance Co Ltd].

Justice C Hari Shankar made the observation while dealing with a plea by online payment gateway services company, PayU which had sought the appointment of an arbitrator to settle a dispute with the New India Assurance Company.

The insurance company had opposed the plea by questioning whether the dispute could be referred to arbitration at all.

However, the Court observed that it cannot delve into such issues, given the limited scope of its powers under Section 11(6) of the Arbitration and Conciliation Act, 1996.

Justice Shankar explained that this position was settled in the Supreme Court's ruling in SBI General Insurance Co Ltd v Krish Spinning.

"The Supreme Court, in SBI General Insurance, has clearly held, inter alia in para 120 of the decision, that any question of arbitrability or non-arbitrability of the dispute has to be relegated to the arbitral tribunal ... The decision in SBI General Insurance ... has resulted in a paradigm shift in the scope of examination by a Section 11 court. As of today, a Section 11 court cannot examine the aspect of arbitrability of the dispute," the High Court said.

Justice Shankar further noted that in the SBI General Insurance case, the Supreme Court left no scope of doubt on this issue by observing that the scope of enquiry at the stage of appointment of arbitrator is limited to the scrutiny of prima facie existence of arbitration agreement "and nothing else."

The dispute between PayU and the New India Assurance Company arose after the insurance company refused to reimburse an insurance claim raised by PayU.

PayU raised the claim after its security was breached and it suffered losses due to certain fraudulent transactions. PayU had availed two insurance policies, one worth ₹20 crores and the other covering an amount of ₹6.5 crores.

After suffering losses due to the fraudulent transactions, PayU lodged an insurance claim of over ₹8 crores with New India Assurance. However, the insurer rejected PayU’s insurance claim.  

The dispute was then sought to be referred to arbitration, but the parties could not agree upon who was to be appointed as the arbitrator.

Hence, PayU approached the High Court seeking its intervention to appoint an arbitrator.

Before the High Court, the insurance company countered that no arbitrable dispute existed in this case since it had rightly repudiated PayU's claim. The insurer denied any liability towards the claims raised.  

The Court, however, declined to give any finding on the arbitrability of the dispute and left it for the arbitral tribunal to decide on this aspect.

It proceeded to allow the parties to appoint two members of a three-member arbitral tribunal, adding that the members so nominated could appoint the third member of the arbitration panel.

“All questions of facts and law including the arbitrability of the dispute and the issue of repudiation that has been raised before this Court shall remain open to be agitated before the learned Arbitral Tribunal,” the Court said.

Senior Advocate Rajeeve Mehra, along with advocates V Anush Raajan and Tanisha Dhoot appeared for PayU.

Advocate Dr. Amit George, along with Advocates Gurkaranbir Singh and Dushyant Kishan Kaul appeared for the insurance company. 

[Read Judgment]