A division bench of the Supreme Court judges B.R. GAVAI and B.V. NAGARATHNA reiterated that when considering an application for an arbitrator's appointment, the Court cannot consider contract novation or the merits of any claim involved in the arbitration.

The bench noted the following principle in various decisions, including Vidya Drolia vs. Durga Trading Corporation (2021) 2 SCC 1:

The first category of issues, namely, whether the party has approached the appropriate High Court, whether there is an arbitration agreement and whether the party who has applied for reference is party to such agreement would be subject to a more thorough examination in comparison to the second and third categories/issues which are presumptively, save in exceptional cases, for the arbitrator to decide. In the first category, the question or issues are relating to whether the cause of action relates to action in personam or rem; whether the subject­matter of the dispute affects third­party   rights,   have erga omnes effect, requires centralized adjudication; whether the subject­matter relates to inalienable sovereign and public interest functions or by necessary implication non­arbitrable as per mandatory statutes.  

Furthermore, the bench also stated, "court at the referral stage can interfere only when it is manifest that the claims are ex facie time­barred   and dead, or there is no subsisting dispute.   In   the context of issue of limitation period, it should be referred to the Arbitral Tribunal for decision on merits. Similar would be the position in case of disputed "no­claim certificate" or defence on the plea of novation and "accord and satisfaction"."

At the referral stage, the court can only intervene if it is clear that the claims are prima facie time-barred and dead, or if there is no ongoing dispute. The issue of the limitation period should be referred to the arbitral tribunal for a decision on the merits. The same would be true in the case of a disputed "no-claim certificate" or a defence based on novation and "accord and satisfaction."

The bench then appointed Justice R. Subhash Reddy, a former Supreme Court of India judge, as the sole arbitrator to settle the parties' dispute.

Case Title: Meenakshi Solar Power Pvt. Ltd. vs Abhyudaya Green Economic Zones Pvt. Ltd.

Citation: CA 8818 OF 2022 

Link: https://main.sci.gov.in/supremecourt/2021/16838/16838_2021_11_1501_40071_Judgement_23-Nov-2022.pdf