- Apprentice Lawyer
Section 16 of the Arbitration and Conciliation Act, 1996 (‘Arbitration Act’) encapsulates the principle of kompetenz-kompetenz i.e., it expressly empowers the Arbitral Tribunal to rule on a challenge to its jurisdiction which may be brought before it by any of the parties to the dispute. This provision, when read in conjunction with Section 5 of the Arbitration Act, largely proscribes the power of the Civil Courts to interfere with or oversee the said function, except for very limited avenues which are expressly prescribed under the Arbitration Act. From the point of view of determination of jurisdiction, with the further restriction on the scope of determination by a Court when adjudicating a petition under Section 11 of the Arbitration Act as brought about by the Arbitration and Conciliation (Amendment) Act, 2015, the scope and range of issues which are exclusively and solely within the purview of determination by an Arbitral Tribunal under Section 16 have expanded further to include aspects such as limitation, accord and satisfaction etc. [For a detailed elaboration of the scope and purport of the relevant amended Section 11(6)(A), see the judgment of the Supreme Court in Mayavati Trading Pvt. Ltd. v. Pradyut Deb Burman [(2019) 8 SCC 714]. Therefore, for a party that desires to raise a jurisdictional challenge in an arbitration proceeding, the only real recourse in most situations is to file an application under Section 16 of the Arbitration Act before the Arbitral Tribunal.
The fact that a Section 16 determination is concerned with a jurisdictional challenge can lend itself to the understanding that the adjudication thereunder must be preliminary in nature, and that it must be necessarily completed before the proceedings actually proceed to trial. Such an understanding can be said to be further strengthened on account of a plain reading of the text of Section 16(5) of the Arbitration Act which reads as under:
“The Arbitral Tribunal shall decide on a plea referred to in sub-section (2) or sub-section (3) and, where the Arbitral Tribunal takes a decision rejecting the plea, continue with the arbitral proceedings and make an arbitral award.”
The aforesaid understanding sometimes leads to the drawing of a loose equivalence between Section 16 of the Arbitration Act, on the one hand, and Order VII Rule 11 of the Code of Civil Procedure Code, 1908 (‘CPC’), on the other, in terms of a mandatory pre-trial adjudication. In relation to the latter provision, it is settled law that once an application is filed under Order VII Rule 11 of the CPC, then the Court is required to dispose of the same before proceeding with the trial of the suit [Reference in this regard may be made to the judgment of the Supreme Court in R. K. Roja v. U. S. Rayudu & Anr. [(2016) 14 SCC 275].
A question, therefore, arises as to whether it is mandatory for an Arbitral Tribunal to adjudicate upon an objection raised under Section 16 of the Arbitration Act at the very threshold before proceeding with the trial? A review of the applicable precedent on the issue would reveal an unequivocal answer in the negative.
In this regard it is required to be noted at the outset that as observed by the High Court of Delhi in Glencore International AG v. Indian Potash Limited & Ors. [263 (2019) DLT 663], in the absence of an express statutory precept, there is no such fundamental over-arching requirement under Indian law that Arbitral Tribunals are mandatorily required to render a decision on jurisdictional issues at the preliminary stage, and before hearing the matter on merits. The Court noted:
“18. The contention raised that an error had been committed by the Arbitral Tribunal in not ruling on the objection raised with regard to jurisdiction at the very threshold […] was misconceived as the Arbitral Tribunal had the discretion to rule on its jurisdiction either at the preliminary stage or at the time it rendered a final award in the matter.”
In the specific context of Section 16 of the Arbitration Act, the High Court of Delhi in Roshan Lal Gupta v. Shri Parasram Holdings Pvt. Ltd. & Ors. [MANU/DE/0146/2009] rejected the contention that it was obligatory for an Arbitral Tribunal to decide an objection raised under Section 16 of the Arbitration Act as a preliminary issue before proceeding with the merits of the case and came to the following conclusion:
“39. Under Section 16 of the Act upon a challenge being made to the jurisdiction of the arbitrator, the Arbitral Tribunal though is required to adjudicate the same but there is nothing to show that the arbitrator is to first adjudicate the same and can thereafter only proceed to adjudicate on the merits of the claim. The Arbitral Tribunal in its jurisdiction is entitled to decide the said challenge either as a preliminary issue or together with the entire matter. It is significant that even in the event of the arbitrator deciding against the challenge, no remedy therefore is provided and the challenge to such finding can be made only after the arbitral award in accordance with Section 34 of the Act. Thus, it cannot be said that any illegality has been committed by the arbitrator in not deciding the challenge as a preliminary issue as sought for by the petitioner/appellant.”
In a recent judgement in Pankaj Arora v. AVV Hospitality LLP & Ors. [MANU/DE/1405/2020], the High Court of Delhi has reiterated and elaborated upon this procedural flexibility which is available to an Arbitral Tribunal in the following words:
“16. I am unable to read sub-section 5 of Section 16 as casting a mandate, on the arbitrator, or the Arbitral Tribunal, to decide the objection, to its/his jurisdiction, to adjudicate on any claim/counter claim, necessarily before recording of evidence. No doubt, issues of jurisdiction are, ordinarily, to be addressed at the outset. That, however, is more a rule of prudence than one of inflexible procedure. Legally, so long as the said decision is taken prior to the making of the final arbitral award, in my view, no infraction of Section 16 could be said to have occurred.”
A reading of the aforesaid precedent would demonstrate that an Arbitral Tribunal need not decide a jurisdictional challenge under Section 16 of the Arbitration Act at the threshold, and it can opt to postpone the said adjudication to a later stage. This ‘later stage’ can extend up to the Arbitral Award itself as long as the jurisdictional challenge is dealt with therein. Thus, Section 16(5) of the Arbitration Act seems to have been read as permitting the encapsulation of the decision to ‘reject’ the plea of lack of jurisdiction and to ‘proceed to pronounce’ the Arbitral Award at a later stage within one document i.e., the Arbitral Award itself. In this regard, it would be instructive to refer to the observations of the Supreme Court in Maharshi Dayanand University & Ors. v. Anand Coop. L/C Society Ltd. & Ors. [(2007) 5 SCC 295] wherein this aspect of the matter in relation to the discretion conferred on an Arbitral Tribunal qua jurisdictional issues was discussed and it was held as under:
“11. [T]he arbitrator, in the first instance, has to decide whether the existence of an arbitration agreement in terms of Section 7 of the Act is established and also to decide whether the claim now made is a claim that comes within the purview of Clause 25A of the tender conditions in case it is found to be an agreement within the meaning of Section 7 of the Act. Only on deciding these two aspects can the arbitrator go into the merits of the claim made by the respondent. But we clarify that it does not mean, that he should treat these two aspects as preliminary issues and decide them first; but only that he must decide them without fail while proceeding to finally pronounce his award.”
To conclude, while it is now well-settled that an Arbitral Tribunal has unbridled discretion to postpone a Section 16 determination to the very fag end of the proceedings, it is advisable that in certain situations the said determination does take place at a preliminary stage so that the rigmarole of a full-fledged trial can be avoided. The observations of the Supreme Court in Kvaerner Cementation India Limited v. Bajranglal Agarwal [(2012) 5 SCC 215] are apposite in this regard, which are as under:
“The petitioner who is a party to the arbitral proceedings may raise the question of jurisdiction of the Arbitrator as well as the objection on the ground of non-existence of any arbitration agreement in the so-called dispute in question and such an objection being raised, the arbitrator would do well in disposing of the same as a preliminary issue so that it may not be necessary to go into the entire gamut of arbitration proceedings.”
The authors are Dr. Amit George and Rishabh Dheer, Advocates practicing before the High Court of Delhi.