## Facts

- In November 2000, Shin-Etsu Chemical Co. Ltd. (Japan) and Aksh Optifibre Ltd. (India) entered a long-term sales and purchase agreement for optical-fiber preforms.
- The agreement was governed by Japanese substantive law.
- The contract contained an arbitration clause providing for ICC arbitration seated in Tokyo, Japan.
- In December 2002, Shin-Etsu terminated the agreement and initiated ICC arbitration in Tokyo.
- Aksh filed a civil suit in India seeking declaratory and injunctive relief aimed at avoiding the sales agreement and resisting arbitration, alleging the agreement (including the arbitration clause) was void and unenforceable on grounds such as unconscionability and undue influence.
- Shin-Etsu applied in the trial court under Section 8 of India’s Arbitration and Conciliation Act, 1996, seeking an order directing Aksh to proceed with arbitration in Japan.
- The trial court granted the application and referred the parties to arbitration.
- On Aksh’s challenge, the High Court set aside the trial court’s order, holding that because the arbitration was foreign-seated in a New York Convention country, Section 45 (Part II), not Section 8 (Part I), governed the referral question; it remanded for reconsideration under Section 45.
- Shin-Etsu appealed to the Supreme Court of India. Before the Supreme Court, the parties proceeded on the basis that Section 45 applied, and the dispute centered on the nature and depth of the court’s inquiry under Section 45.

## Issues

1. Under Section 45 of the Arbitration and Conciliation Act, 1996 (implementing Article II(3) of the New York Convention), must a court make a final determination of whether a foreign-seated arbitration agreement is “null and void, inoperative or incapable of being performed,” or is a prima facie determination sufficient at the referral stage?
2. On the record in this case, should the parties be referred to ICC arbitration in Tokyo notwithstanding Aksh’s allegations that the contract and arbitration clause were void?

## Decision

- The Supreme Court held that when an objection is raised under Section 45 that an arbitration agreement is “null and void, inoperative or incapable of being performed,” the court is to conduct only a prima facie examination at the referral stage, not a full trial or conclusive adjudication on merits.
- If, on a prima facie review of the pleadings and materials, the arbitration agreement does not appear clearly invalid or incapable of performance, the court should refer the parties to arbitration.
- Applying that standard, the Supreme Court allowed Shin-Etsu’s appeal, set aside the High Court’s remand order, and directed that the dispute be referred to arbitration in accordance with the ICC clause providing for arbitration in Tokyo.
- The majority view was delivered by Srikrishna, J., with Dharmadhikari, J., concurring (with separate reasoning), and Sabharwal, J., dissenting on the standard of review (favoring a final determination by the court before referral).

## Legal Principles

- Section 45 requires a court to refer parties to arbitration unless, on a prima facie assessment, the arbitration agreement is shown to be null and void, inoperative, or incapable of being performed.
- The term “finds” in Section 45 does not mandate a full evidentiary hearing and final judgment on validity at the referral stage; requiring a full trial would defeat the Act’s objective of limiting pre-arbitration court proceedings in New York Convention matters.
- The court’s Section 45 task is threshold in nature: it should screen for clear cases of invalidity or non-performability, while leaving deeper validity disputes to the arbitral tribunal, subject to later review mechanisms under the Act for foreign awards.
- Although Section 8 and Section 45 differ in structure and placement (Part I versus Part II), a Section 45 inquiry is not intended to replicate a full civil trial on contract formation, consent, or related defenses where the arbitration agreement is not plainly defective.
- A party is not left without remedies by a prima facie referral standard; objections connected to arbitration-agreement validity may still be raised at later stages available under the foreign-award framework, consistent with the New York Convention scheme.

## Conclusion

In *Shin-Etsu Chemical Co. Ltd v. Aksh Optifibre Ltd*, the Supreme Court of India held that a judicial authority considering a referral request under Section 45 need only decide, on a prima facie basis, whether the foreign-seated arbitration agreement is null and void, inoperative, or incapable of being performed; because the agreement was not clearly invalid on that threshold review, the Court set aside the High Court’s remand and ordered the parties to proceed to ICC arbitration in Tokyo.


Shin-Etsu Chemical Co. Ltd v. Aksh Optifibre Ltd, XXXI Y.B. Comm. Arb. 747 (2006)