[The following post has been authored by Vasundhara Shankar, Founding and Managing Partner, Verum Legal, and Aastha Arora, Partner, Verum Legal]
Arbitration is an alternative dispute mechanism process wherein the parties intend to resolve the dispute expeditiously without judicial intervention. With this intent, the Arbitration and Conciliation Act, 1996 was enacted and amended subsequently to meet the requirements of the changing legal scenario with substantial amendments in 2021.
An arbitration agreement is the law that binds the parties to each other. It is defined under section 7 of the Act, to mean an agreement where the parties agree to submit their disputes, arising between them. Therefore, it would not be wrong to say that a well-drafted agreement gives full strength to the arbitral tribunal to determine matters related to the jurisdiction, seat and venue.
Reference to arbitration
Section 8 of the Act empowers the judicial authority to refer the dispute to Arbitration. This was affirmed in the matter of Haryana Telecom v. Sterlite Industries, wherein the Court held that the competence of an arbitral tribunal could be one of the grounds for the grant of reference under section 8. In another case of Booz-Allen v. SBI Home Finance, the Court accepted the proposition that despite the explicit grounds provided on which reference can be made, section 8 also lays down the implicit ground of competence of the arbitral tribunal.
There is limited intervention of the Court under section 11 of the Act. Under this section, the Court only has to view whether there exists a valid Arbitration Agreement and if so, refer the dispute between the parties to be adjudicated through Arbitration. Therefore, the Court under section 11 of the Act does not possess the powers to determine the jurisdiction of the arbitral tribunal. This issue of limited judicial intervention was also dealt with by the Supreme Court in SBP v. Patel Engineering, in which the Court laid down its observations on the much debated provision determining power of courts, and held that the power mentioned in the Section 11(6) is judicial in nature. The view taken was subsequently upheld, pursuant to the insertion of section 11(6A), in Mayavati Trading v. Pradyut Deb Burman, wherein the Court has penned down scope and power of Courts under Section 11 of the Act.
Challenging the jurisdiction of the arbitral tribunal
Section 16 of the Act deals with “competence of an arbitral tribunal to rule on its jurisdiction”. This section gives rise to the doctrine of Kompetenz-Kompetenz. Section 16, read with section 5 of the Act, determines the power of any civil court to interfere with or oversee the function of an arbitral tribunal, except for very limited avenues which are expressly prescribed under the Act. The Act also grants opportunities to a party to challenge the jurisdiction of an arbitral tribunal on various grounds. However, in most cases, a party intending to raise a jurisdictional challenge in an arbitration proceeding must file an application under section 16 of the Act before the arbitral tribunal.
Section 16 contains two facets – firstly, it reflects that the arbitral tribunal may decide on its jurisdiction without any aid/intervention from the civil courts, and secondly, it bars the courts to decide this issue before the arbitral tribunal has decided on this issue. When the Tribunal rules on its competence and chooses to proceed with the proceedings, the parties cannot challenge this ruling until an Award is passed by the arbitral tribunal. In the case of Union of India v. East Coast Boat Builders, the Court observed that under the scheme of the Act, the intent of the legislature was clear not to provide an appeal under and not interfere with the proceedings of the arbitral tribunal. In the event the arbitral tribunal has ruled in its favour and has ruled to have jurisdiction, the party aggrieved of this order can either prefer an appeal under section 37 of the Act or either wait for the completion of the proceedings and while challenging the Award under section 34 of the Act, challenge the jurisdiction of the arbitral tribunal.
Challenging the jurisdiction pursuant to the filing of counter claim
Sub-clause 2 of section 16 has two components – first, the last stage to challenge the jurisdiction of the tribunal is before the submission of a statement of defense, and second, that merely because a party participated in the appointment of arbitrator does not necessarily preclude itself from raising the plea of jurisdiction. In MSP Infrastructure v. M.P. Road Development Corporation, the Madhya Pradesh High Court permitted a party to amend its pleadings while challenging the award under section 34, to include the ground for challenge of jurisdiction. This view was subsequently set aside by the Supreme Court which went on to hold that from the bare perusal of the Act, it is clear that the objection of jurisdiction shall be taken after the submission of the statement of defense.
However, an opposing view has been taken in the case of Lion Engineering Consultants v. the State of M.P., wherein a fresh plea over-ruling the plea of allowing the amendment by the M.P. High Court, the Supreme Court allowed the objection to the arbitral tribunal’s jurisdiction to be raised under a Section 34 Petition before the Court, grossly defeating the provisions of Section 16 and the purpose of minimal court intervention. Hence, in the absence of a statutory mandate to clarify the stance, the Courts have adopted a flexible approach and preferably left the issue at the discretion of the arbitral tribunal and the Civil Courts. The Court upheld the flexibility granted upon the arbitral tribunal in the case of Pankaj Arora v. AVV Hospitality, wherein the Court refused to construe section 16(5) as a legal mandate upon the arbitral tribunal to adjudicate any objection to jurisdiction at the outset of a dispute.
The analysis of this topic stipulates that in any arbitration dispute, statutory reference is minimum, while more emphasis is given on the precedents. The case laws have clarified that an arbitral tribunal can entertain any issue relating to jurisdiction after its constitution in light of the doctrine of Kompetenz-Kompetenz. The Act has made it clear that the judicial authorities have limited power of intervention in this matter. The anatomy of the provisions facilitating the process of raising objection to the arbitral tribunal jurisdiction indicates the pro-arbitration approach of India and the desire to constitute an effective alternative dispute resolution machinery devoid of any cavities. Section 16, thus, is one of the critical provisions of the Arbitration and Conciliation Act, 2021, which furthers the objective of making Arbitration a process characterized by self-sufficiency and minimal court intervention.
Further, it can be concluded that the plea of jurisdiction can be raised at any stage before filing of the Statement of Defence or even at the stage of challenge to the Arbitral Award. In case the arbitral tribunal rejects the plea of jurisdiction, it will continue with the arbitral proceedings and pass an Arbitral Award, which can be challenged by the aggrieved party by way of appeal under Section 34 of the Act. If the arbitral tribunal accepts the plea of want of jurisdiction, it will not proceed further with the arbitration on merits and the arbitral proceedings shall be terminated under Section 32 of the Act. Such decision, however, is appealable under Section 37. The same was accepted in the case of Lion Engineering Consultants v. State of M.P. This judgment widened the scope of challenge to an arbitral award under Section 34(2)(b)(ii) of the Act. This judgment has also diluted the effectiveness of Section 16(2) of the Act.
In our view there exists minimum judicial intervention to the proceedings of the arbitral tribunal under the present law. The arbitral tribunal is also empowered to rule over its own jurisdiction under Section 16. Since the intent of the legislators was to provide an alternate yet speedy mechanism to the litigants for adjudicating the dispute, the legislators took away the power of the litigants to move an appeal challenging the order of the arbitral tribunal while ruling on its jurisdiction.
– Vasundhara Shankar & Aastha Arora