SC Reiterates Limited Scrutiny At Arbitrator Appointment Stage Under Arbitration Act

New Delhi, Jan 13 (KNN) The Supreme Court affirmed a Bombay High Court order appointing an arbitrator in a dispute stemming from a leave and licence agreement for Motilal Oswal Financial Services Limited’s office premises in Malad, Mumbai, holding that a valid arbitration agreement existed between the parties.

Limited Scope of Court’s Inquiry Under Section 11

A Bench comprising Justice J.B. Pardiwala and Justice K.V. Viswanathan ruled that the High Court was right in allowing the licensor’s application and appointing a sole arbitrator, noting that at the Section 11(6A) stage, the court’s scrutiny is limited to determining whether an arbitration agreement exists under the Arbitration and Conciliation Act, 1996.

The Court dismissed objections based on Section 41 of the Presidency Small Cause Courts Act, holding that the provision only confers jurisdiction on the Small Causes Court and does not override or invalidate an arbitration clause at the arbitrator-appointment stage.

The Bench held that the Central Warehousing Corporation v. Fortpoint Automotive Pvt. Ltd. ruling only grants exclusive jurisdiction to the Small Causes Court for certain disputes and does not nullify arbitration clauses. Accordingly, Clause 33 of the leave and licence agreement was held to remain valid and operative.

Background of the Dispute

The dispute arose from a leave and licence agreement dated October 6, 2017, under which Motilal Oswal took 2,925 sq ft of office space at Palm Spring Centre, Malad, for 60 months. Though terminated on December 31, 2019, an addendum dated March 13, 2020 extended the licence to 96 months with a 72-month lock-in.

Motilal Oswal said it invoked the force majeure clause during COVID-19, vacated the premises in September 2020 and sought a refund of its security deposit. In June 2023, the licensor claimed over Rs 94.40 lakh for the remaining lock-in period, which the company disputed while seeking return of its Rs 10 lakh deposit.

After the licensor invoked Clause 33, the Bombay High Court appointed an arbitrator on May 2, 2024. Motilal Oswal’s non-arbitrability objection under Section 16 was rejected, following which the Supreme Court stayed the arbitral proceedings in February 2025 pending appeal.

Supreme Court’s Final Ruling

Dismissing the appeal, the Supreme Court reiterated that under Section 11(6A) the court’s role is confined to examining the existence of an arbitration agreement, with issues on arbitrability and Section 41 of the 1882 Act to be decided by the tribunal under Section 16. Relying on Vidya Drolia case, it held that conferring jurisdiction on a court does not by itself bar arbitration.

The Court clarified that it was not expressing any view on the merits of the arbitrability dispute or on the correctness of the Central Warehousing judgment, which is pending consideration. The appeal was dismissed, and the arbitrator was directed to proceed with adjudication and conclude the proceedings within six months from January 5, 2026.

(KNN Bureau)