Courts Cannot Decide Arbitrability While Appointing Arbitrators: Supreme Court Dismisses Motilal Oswal's Appeal

The Supreme Court of India recently held that courts cannot decide questions of arbitrability while appointing arbitrators, even when a party relies on a special statute to oppose arbitration.

At the Section 11 stage, the court said judges are required to “confine to the examination of the existence of an arbitration agreement” and nothing beyond that.

On that basis, the court dismissed an appeal filed by Motilal Oswal Financial Services Limited challenging the appointment of an arbitrator in its dispute with licensor Santosh Cordeiro and upheld a Bombay High Court order allowing the arbitration to proceed.

A division bench of Justice J B Pardiwala and Justice K V Viswanathan delivered the judgment on January 5, 2026. While dealing with Motilal Oswal's reliance on Section 41 of the Presidency Small Causes Courts Act, 1882, the Court held that the provision only confers jurisdiction on a particular court and does not, by itself, nullify arbitration clauses.

“Section 41 is a provision conferring jurisdiction on the Small Causes Court for certain types of disputes and cannot be interpreted to mean that ex proprio vigore (by its own force), it neutralizes arbitration clauses in agreements,” the bench said.

The dispute arose from a leave and licence agreement signed in October 2017, under which Motilal Oswal took commercial premises at Malad West, Mumbai. An addendum executed in March 2020 extended the lock-in period to 72 months.

In September 2020, citing the COVID-19 pandemic, the company terminated the agreement, handed over possession of the premises, and sought a refund of its Rs. 10 lakh security deposit. Cordeiro later demanded Rs. 94.40 lakh with 24 percent interest, claiming dues for the remaining lock-in period up to June 2023.

When Motilal Oswal denied liability, Cordeiro invoked the arbitration clause. The company objected, arguing that Section 41 confers exclusive jurisdiction on the Small Causes Court in Greater Mumbai and relied on the Bombay High Court Full Bench ruling in Central Warehousing Corporation v. Fortpoint Automotive to contend that such disputes are not arbitrable.

Cordeiro maintained that the claim was for compensation arising from breach of the lock-in period, not for recovery of possession or licence fees, and relied on the Supreme Court's ruling in Vidya Drolia.

The Supreme Court said these issues could not be decided while appointing an arbitrator. It noted that Section 11(6A) of the Arbitration and Conciliation Act, which continues to remain in force, restricts courts to a narrow inquiry into the existence of an arbitration agreement.

The bench emphasised that questions on whether Section 41 applies, whether the claim is in the nature of licence fees or a debt, and how earlier precedents should be applied must be left to the arbitral tribunal under Section 16.

"In exercise of our jurisdiction under Section 11, we are not concerned with the said dispute. That will be for the arbitrator to decide," the court said.

Holding that all substantive jurisdictional objections must be decided by the arbitrator, the Court dismissed the appeal, imposed no costs, and directed that the arbitration proceedings be concluded within six months.

Case Title: Motilal Oswal Financial Services Limited v. Santosh Cordeiro and Anr.

Case Number: Civil Appeal no. 36 of 2026

Citation: 2026 LLBiz SC 4

For Appellant: Advocate Chirag M. Shah

For Respondents: Advocate Rishabh Shah