Introduction

Section 16 of the Arbitration and Conciliation Act, 1996 ("Act") embodies the principle of Kompetenz Kompetenz and empowers the arbitral tribunal to rule on its own jurisdiction. Section 16(2) of the Act requires that a plea that the arbitral tribunal does not have jurisdiction shall be raised not later than the submission of the Statement of Defence. Section 16(5) provides that the arbitral tribunal shall decide on a jurisdictional objection and where it takes a decision rejecting such objection, it should continue with the arbitral proceedings and make an arbitral award.

Section 16(5) seems to indicate that the arbitral tribunal has to adjudicate upon an application under Section 16 at the threshold much like an application under Order 7 Rule 11 of the Code of Civil Procedure, 1908 ("CPC"). As far as the applications under Order 7 Rule 11 are concerned, the law is well settled that such applications have to be disposed of by the court before proceeding with the trial.

However, the law regarding the stage at which an application under Section 16 should be decided is not the same and there is also some divergence of judicial opinion on the issue.

Judicial Approach

In McDermott International Inc. vs. Burn Standard Co.1, the Hon'ble Supreme Court observed that the jurisdictional question under Section 16 is "required to be determined as a preliminary ground."

Maharshi Dayanand University v. Anand Coop. L/C Society Ltd.2 took a contrary view wherein while discussing issues concerning the jurisdiction of an arbitrator / arbitral tribunal , it was laid down as under:

"13. But we make it clear that the 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." (emphasis supplied)

While there is a conflict between McDermott International and Maharishi Dayanand, whether the jurisdictional questions have to be decided as a preliminary issue was not in dispute before the Apex court in McDermott International. In the said case, the respondent had not even filed an application under Section 16. Therefore, in the author's view, the above quoted observation in McDermott International is obiter and does not render the decision in Maharashi Dayanand per incuriam.

Consistent with the decision in Maharashi Dayanand (though without expressly relying upon it), the contention that the arbitrator should have decided the challenge to his jurisdiction at the threshold was rejected by the Hon'ble Delhi High Court in Roshan Lal Gupta v. Shri Parasram Holdings Pvt. Ltd. & Ors.[3], while observing the following:

"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." (emphasis supplied)

The decision of the Hon'ble Delhi High Court in Glencore International AG vs. Indian Potash Limited & Ors.4is on similar lines. It was held in Glencore that "...the arbitral tribunal had the discretion to rule on its jurisdiction either at the preliminary stage or at the time it rendered final award in the matter."

However, in Pankaj Arora vs. AVV Hospitality LLP & Ors5a Single Judge of the Hon'ble Delhi High Court held that though the decision on an application under Section could be deferred until after recording of evidence, the issue has to be decided "prior to making the final arbitral award", not in the final award itself.

Similarly it was held in Surender Kumar Singhal & Ors. vs Arun Kumar Bhalotia and Ors.6 which relied upon McDermott International and Pankaj Arora as follows:

"31. In the opinion of this Court, the scheme of Section 16 of the Act envisages that issues of jurisdiction ought to be raised before the Arbitral Tribunal at the earliest, before the submission of the statement of defence. Under Section 16(5), the Tribunal is mandated to decide the said issue. The question that arises is at what stage is the objection to be decided. As per McDermott International Inc. (supra), the jurisdictional question is to be decided as a preliminary ground. This obviously means that the objection has to be decided at the earliest. However, there cannot be a hard and fast rule. Depending on the facts and circumstances of each case, the Tribunal ought to decide the objection under Section 16 of the Act as soon as possible, as a preliminary ground. The following factors can be borne in mind when objections are raised under Section 16 of the Act:

  1. If the issue of jurisdiction can be decided on the basis of admitted documents on record then the Tribunal ought to proceed to hear the matter/ objections under Section 16 of the Act at the inception itself;
  2. If the Tribunal is of the opinion that the objections under Section 16 of the Act cannot be decided at the inception and would require further enquiry into the matter, the Tribunal could consider framing a preliminary issue and deciding the same as soon as possible.
  3. If the Tribunal is of the opinion that objections under Section 16 would require evidence to be led then the Tribunal could direct limited evidence to be led on the said issue and adjudicate the same.
  4. If the Tribunal is of the opinion that detailed evidence needs to be led both written and oral, then after the evidence is concluded, the objections under Section 16 would have to be adjudicated first before proceeding to passing of the award. "

Conclusion

In the authors' humble opinion, the judgments in Pankaj Arora and Surender Kumar Singhal are contrary to Maharashi Dayanand and are per incuriam to the extent they hold that the objections under Section 16 have to be decided before passing of the final award.

It appears that the ambiguity has arisen since the Act does not incorporate the following specific language contained in Article 16(3) of the UNCITRAL Model Law:

"(3) The arbitral tribunal may rule on a plea referred to in paragraph (2) of this article either as a preliminary question or in an award on the merits. "

The correct position of Indian law in the authors' view is consistent with the Model Law which is that the arbitral tribunal has the discretion to decide an application under Section 16 of the Act either at the inception or as a preliminary issue (whether before or after taking evidence) or along with the final award.

Footnotes

1. (2006) 11 SCC 181

2. (2007) 5 SCC 295

3. (2009) 1 Arb LR 304

4. (2019) 5 Arb LR 1

5. O.M.P. (T) (COMM.) 32/2020 decided on 20.07.2020

6. (2021) 279 DLT 636

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