Section 16 of the Arbitration and Conciliation Act, 1996 ("A&C Act") has been framed in accordance with Article 16 of the UNCITRAL Model law, which embodies elemental jurisprudential doctrine i.e., "Kompetenze - Kompetenze". This doctrine empowers the court or an arbitral tribunal to rule upon its 'own' jurisdiction, brought forth by one of the parties to the dispute. Section 16 (1) of the A&C Act states that an arbitral tribunal may rule on its own jurisdiction, including ruling on any objection with respect to the existence or validity of the arbitration agreement.
However, Section 16 of A&C Act is silent on whether it is permissible for an arbitral tribunal to determine other issues (of preliminary nature) at the threshold of an application filed under Section 16 of the A&C Act. Curiously, several rulings of the Supreme Court of India ("SCI") on the scope of jurisdiction under Section 16 of the A&C Act stands divided and appear to be contradictory. This lack of clarity has created much dubiety around the true scope of determination under Section 16 of the A&C Act.
II. Scope of 'jurisdiction' under Section 16
Though Section 16 of the A&C Act has not undergone any amendment since its enactment, the revisions introduced by Arbitration and Conciliation (Amendment) Act, 2015 ("2015 Amendment") and the Arbitration and Conciliation (Amendment) Act, 2019 ("2019 Amendment") in respect to Section 11, has significant importance in truly understanding and correctly interpreting the scope of Section 16(1) of the A&C Act. Few relevant cases are set out below:
Pre 2015 Amendment
The SCI (constitution bench) in the case of SBP & Co. vs. Patel Engineering Ltd.1 ("SBP Case") held that all the preliminary/threshold issues with respect to jurisdiction of the arbitral tribunal should be examined by the Court under Section 11 of the A&C Act. This ruling chipped away the inherent importance of the Kompetenze-Kompetenze principle incorporated in Section 16 of the A&C Act. Consequently, the 2015 Amendment inserted Section 11(6A) in order to restrict the powers of the courts to merely examining the existing of an arbitration agreement (and nothing more). The insertion of Section 11(6A) and the principle of 'Kompetenze-Kompetenze' was subsequently upheld by the SCI in the case of Duro Felguera S.A vs. Gangavaram Port Limited.2 Accordingly, the SBP Case stood legislatively overruled.
Post 2015 Amendment
The SCI (division bench), in the case of Indian Farmers Fertilizers Cooperative Limited vs. Bhadra Products3 ("IFFCO Case"), interpreted the contours of Section 16 of A&C Act elaborately and in detail.
The issues involved in the IFFCO Case were: a) whether an award on the issue of limitation can be said to be an interim award and can be set aside under Section 34 of the A&C Act ("First Issue"); and b) whether a decision on a point of limitation would go to jurisdiction and, therefore, be covered by Section 16 of the A&C Act ("Second Issue").
The SCI, on the First Issue, answered in the affirmative, and on the Second Issue, made the following observations:
- a) that Section 16(1) to 16(4) of the A&C Act are based on Article 16 of the UNCITRAL Model Law and the 'Kompetenze-Kompetenze' principle deals with the arbitral tribunal's jurisdiction in the narrow sense of ruling on objections with respect to the existence or validity of the arbitration agreement; and
- b) that the language of Section 16(1) states that Arbitral Tribunal may rule on its own jurisdiction, which makes it clear that it refers to whether the arbitral tribunal may embark upon an enquiry into the issues brought forth by the parties.
The SCI further placed reliance on the Section 30 and 31 of the English Arbitration Act, 1996 (which is also based on 'Kompetenze-Kompetenze' principle) and held that the issue of limitation is not a matter of tribunal's jurisdiction under Section 16 of A&C Act. It also held that the term 'jurisdiction' mentioned in Section 16 of the A&C Act means reference to a three part test only: a) whether there is existence of a valid arbitration agreement; b) whether the arbitral tribunal is properly constituted; and c) whether the matters submitted for arbitration are in accordance with the arbitration agreement ("Three Determinatives").
Certain contradictory court rulings have been discussed in the subsequent Section III of this piece.
Post 2019 Amendment
The 2019 Amendment omitted Section 11(6A) (though yet to be notified)4 of the A&C Act and the implications of this omission was addressed by the SCI in the case of Mayavti Trading Pvt. Ltd. vs Pradyuat Deb Burman5, wherein it was held that 11(6A) was not deleted in order to resuscitate the law that was in place prior to 2015 Amendment, but to enable the appointment of arbitrator(s) by arbitral institutions(s) appointed by the SCI in case of international commercial arbitrations or by the High Courts in case of all other arbitrations.
III. The unsettled position
The IFFCO Case clarified that the scope of enquiry under Section 16 of A&C Act is limited to the Three Determinatives only. As a result, issues (of preliminary nature) such as an issue of limitation or non-joinder of necessary or proper parties could not be raised under Section 16 of A&C Act and remained a subject for determination as part of the merits of the case.
However, the SCI (also a division bench), subsequently in Uttarakhand Purv Sainak Kalyan Nigam Limited vs. Northern Coal Field Limited6 ("UPSKNL Case") while dealing with the issue whether the court is entitled to reject an application under Section 11 of the A&C Act, on the ground that it was barred by limitation, held that the issue of limitation alongwith all other preliminary jurisdictional issues cannot be determined by the court under Section 11 of the A&C Act. In UPSKNL Case, the SCI after incorrectly relying on the IFFCO Case, observed that the arbitral tribunal (as and when constituted) shall be empowered to determine the issue of limitation under the Section 16 of the A&C Act.
Relying on the UPSKNL Case, the High Court of Bombay ("BHC") recently in C. Shamsuddin vs. Now Realty Ventures LLP and others7 ("RVL Case") also gave a similar finding and held that the question of limitation will be kept open for decision by the arbitral tribunal under Section 16 of A&C Act. Interestingly, similar to UPSKNL Case, RVL Case was also concerned with an application under Section 11 of the A&C Act.
In view of the divided findings of the SCI in the IFFCO and UPSKNL judgment (both division benches) and of the BHC in RVL Case, the scope of jurisdiction under Section 16 of the A&C Act remains unclear.
IV. Conclusion & Analysis
As mentioned above, the interesting facet is the absurdity of conclusions arrived at by both UPSKNL Case and RVL Case by incorrectly interpreting and applying the IFFCO Case and has left the scope of 'jurisdiction' under Section 16 in dubiety. Therefore, a decision of the SCI clarifying on the issue of scope of 'jurisdiction' under Section 16 is much awaited, as the existing dubiety might put the Arbitral Tribunals in a dilemma in interpreting the scope of jurisdiction under Section 16 of the A&C Act.
However, in such a scenario, recourse to the position of law in relation to conflicting judgments of co-equal benches can be analysed. It is a settled proposition of law that if there are conflicting judgments of co-equal benches of the Apex Court then the sub-ordinate courts must follow the judgment which appears to state law more elaborately and more accurately.8
In view of the aforesaid position, it can be argued that the reliance in respect to the law on the scope of jurisdiction under Section 16 of the A&C Act shall be placed upon the IFFCO judgment and not on UPSKNL judgment, as the IFFCO judgment has specifically dealt with the issue of scope of jurisdiction under Section 16 of the A&C Act and has stated the law in relation to its scope more elaborately and accurately.
In any case, the UPSKNL Case was limited to examining whether the courts were empowered to determine the issue of limitation as part of an application filed under Section 11 of the A&C Act. Thus, the observation of the SCI in UPSKNL Case that all the preliminary issues including limitation will be kept open for decision by the arbitral tribunal under Section 16 of the A&C Act, was clearly an obiter dictum, and thus not binding as a precedent.
Also, it is a settled law that if an issue is not raised before the court, no arguments are addressed on that issue and no reasons on an issue is recorded by the court, then such a judgment cannot be treated as a precedent.9 Further, according to the well-settled theory of precedents, the essence in a decision is its ratio and not every observation found therein or what logically follows from the various observations made in the judgment. The enunciation of the reason or principle on which a question before a court has been decided is alone binding as a precedent10. As a result, the UPSKNL Case, as far as its observation on the scope of jurisdiction under Section 16 of A&C Act is concerned, cannot be treated as a valid precedent, as the issue before the SCI in this case was rather with respect to Section 11 of the A&C Act.
Resultantly, till the time an issue arises before the SCI driving it to deliver a more focused judgment on the scope of Section 16 of the A & C Act, the position as laid down under the IFFCO Case should be held to be the predominant position.
1. (2005) 8 SCC 618
2. (2017) 9 SCC 729.
3. (2018) 2 SCC 534.
5. (2019) 8 SCC 714.
6. (2020) 2 SCC 455
7. AIROnline 2020 Bom 76
8. The Oriental Fire and General Insurance Company vs. Panapati Devi II (1989) ACC 617; Also see, Amar Singh Yadav and Ors. Vs. Shanti Devi and Ors, AIR 1987 Pat 191; and Jabalpur Bus Operators Association and Ors. vs. State of M.P. and Ors., AIR 2003 MP 81; M. Krishnamoorthy vs. K. Pondeepankar and Ors, (2017) 4 MLJ 571; Devayammal vs. Poosappan and Ors, MANU/TN/9690/2019
9. R.S. Jiwani and Ors. Ircon International Ltd., A Government of India and Ors., 2010 (112) BOMLR 491.
10. Union of India (UOI) vs. Dhanwanti Devi and Ors., (1996) 6 SCC 44; Also see Ex-Sevicemen, Chotanagpur Carrier Pvt. Limited and Ors. vs. Central Coalfield Limited, MANU/JH/0473/2020.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.