Shin etsu chemical co ltd v. M/s Aksh Optifibre Ltd & Anr Civil Appeal No 5048 of 2005

SHIN ETSU CHEMICAL V. M/S AKSH OPTIFIBRE LTD.

When a party objects to the enforceability of an arbitration agreement, does Section 45 of the Arbitration and Conciliation Act of 1996 require a prima facie finding or a final judgment on its validity?
Whether the Arbitration and Conciliation Act of 1996 aims to reduce judicial intervention in the arbitral procedure and accelerate dispute settlement by the UNCITRAL Model Law on International Commercial Arbitration?

The key problem is the interpretation of Section 45 of the Arbitration and Conciliation Act, 1996, which focuses on the type of adjudication required when a party claims that the arbitration agreement is “null and void, inoperative, or incapable of being performed.” The rule requires the judicial authority to evaluate whether a prima facie decision or a final ruling on the objection should be issued.

The issue concerns a disagreement between the Appellant and Respondent No. 1, who signed into an agreement on November 16th and 18th, 2000, that includes an arbitration clause.
The agreement stipulated that any issues would be resolved through arbitration in Tokyo, Japan, by the International Chamber of Commerce regulations.
On December 31, 2002, the Appellant canceled the agreement.
Respondent No. 1 filed a suit against the Appellant seeking a declaration and injunction to cancel the agreement, claiming that the terms were unconscionable, unfair, against public policy, and entered into under duress, rendering it void and incapable of performance.
The trial court granted the Appellant’s Section 8 application and referred the parties to arbitration.
Respondent No. 1 filed a petition under Article 227 of the Indian Constitution, stating that Section 45 of the Act should have been applied instead of Section 8.
The High Court ruled that the trial court should have used Section 45 and ordered a new trial under Section 45.

The court based its conclusion on the parties’ affidavits and business realities, as it was impossible to study the records in-depth due to a lack of evidence confirming the broker’s authorization to act on behalf of the shipping company.
Because the arbitral tribunal would revisit the issue, the court used the criteria of a “plainly arguable case” or a “strongly arguable case.” However, it was not established that this criterion must be followed in all circumstances because it may not be prescribed by legislation in other countries.
It was recognized that the Arbitration and Conciliation Act of 1996 is not an exact adaptation of the UNCITRAL Model Law and that the articles of the Hong Kong Arbitration Ordinance deviate from the requirements of the UNCITRAL Model Law.
The case ordered that applications filed under Section 45 to dispute the validity of an arbitration agreement be considered as soon as possible, ideally within three months of filing. In rare circumstances requiring oral evidence, the judicial authority may extend the term by three months with a report to the superior/appellate authority.