Supreme Court Restricts Referral Court Jurisdiction Under Section 11(6A) Exclusively to Verifying the Existence of an Arbitration Agreement

Overview of the Judicial Pronouncement

In a significant legal development, the Supreme Court of India has clarified the boundaries of judicial intervention at the stage of appointing an arbitrator. In the matter of Managing Director Bihar State Food And Civil Supply Corporation Limited & Anr. Vs Sanjay Kumar, the Apex Court dismissed a batch of appeals challenging a Patna High Court decision. The High Court had previously approved multiple applications filed under Section 11 of the Arbitration and Conciliation Act 1996, thereby appointing arbitrators to resolve conflicts between the state corporation and various private rice millers.

The primary contention before the Supreme Court revolved around whether disputes involving severe allegations of financial irregularities and criminal proceedings could be resolved through arbitration. Ultimately, the Court determined that the mandate of a referral court under Section 11(6), when read in conjunction with Section 11(6A), is strictly limited to confirming whether an arbitration agreement exists between the disputing parties. Since the presence of the arbitration clause was undisputed, the Court ruled that all other jurisdictional challenges must be adjudicated by the arbitral tribunal itself.

Factual Matrix of the Dispute

Contractual Obligations and Dispute Resolution Mechanisms

The dispute traces back to a procurement scheme initiated by the Food Corporation of India. Under this framework, the Bihar State Food and Civil Supplies Corporation collected paddy from local farmers and subsequently executed agreements with various rice millers for custom milling operations. According to the contractual terms, the millers were obligated to process the paddy and return rice equivalent to 67% of the raw material supplied.

The contracts contained specific clauses governing defaults and dispute resolution:

• Clause 15: Stipulated that any financial losses or defaults by the millers could be recovered as land revenue arrears under the provisions of the Bihar and Orissa Public Demands Recovery Act 1914.
• Clause 16: Outlined the dispute resolution mechanism, requiring parties to first attempt mutual settlement. If unsuccessful, the conflict was to be referred to arbitration, with the District Collector designated as the sole arbitrator.