Investment treaty arbitration
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This article is written by Shaheen Qureshi who is pursuing a Certificate Course in Arbitration: Strategy, Procedure and Drafting from Lawsikho.

Introduction 

Arbitration in India is presently governed under the Arbitration and Conciliation Act, 1996 which was enacted with the key purpose of increasing party autonomy and minimising court intervention. Prior to the present Act, dispute resolution in India was governed under the Arbitration Act of 1940, the Arbitration (Protocol and Convention) Act, 1937 and the Foreign Awards (Recognition and Enforcement) Act, of 1961, which empowered the Courts of the country with the discretionary authority to decide if an Arbitral Tribunal has competent jurisdiction to adjudicate a dispute. However, this was revised under the 1996 Act and Section 16 was introduced, which granted power to the Arbitral Tribunal to rule on its own jurisdiction. 

Accordingly, if you want to object to the jurisdiction of the Arbitral Tribunal, you have to raise such a plea before the Arbitral Tribunal itself under the Act. The 1996 Act is largely drawn from the UNCITRAL Model and English Rules, and the particular provision of Section 16 is based on the doctrine of ‘Kompetenz Kompetenz’, which is incorporated in the Model Law as well as the English laws.

The doctrine of ‘Kompetenz Kompetenz’ – Competence-Competence

The doctrine of Competence-Competence states that the Arbitral Tribunal has the ‘competence’ to decide its own ‘competence’. In other words, the doctrine postulates that the Arbitral Tribunal has the authority to decide whether it has the jurisdiction to adjudicate the dispute. This doctrine is incorporated in Article 16 of the UNCITRAL Model Law.

In SBP & Co. vs. Patel Engineering Ltd. and National Insurance Co. Ltd v. Boghara Polyfab (P) Ltd., the Supreme Court attempted to redefine the power of the Courts by expanding the boundaries of the issues required to be looked into by the Courts during reference to arbitration or appointment of arbitrators. This considerably undermined the intention of Section 16 of the Act and the subsequent doctrine of Kompetenz Kompetenz, as the Courts attempted to divest and dilute the power of the Arbitral Tribunals to rule on their competence by appropriating these powers to judicial authorities. The purpose of minimal court intervention in the process of arbitration was considerably being defeated by such judicial decisions. Therefore, the 2015 Amendment introduced Section 11(6A) into the Act, which limited the power of the Court to solely examining the existence of the Arbitration Agreement. The SBP Patel Engineering order, thus, stood overruled and the doctrine of Competence-Competence was reinstated and re-emphasised in the Act. The said amendment and doctrine were subsequently upheld by the Supreme Court in Duro Felguera S.A. v. Gangavaram Port Ltd and umpteen other cases. 

Recently, vide an amendment to the Arbitration Act in 2019, Section 11(6A) was omitted with the purpose of introducing Arbitral Institutions to refer matters to Arbitration instead of the judicial authorities. This particular amendment is yet to be notified. However, in M/s Mayavti Trading Pvt. Ltd. v. Pradyuat Deb Burman, the Supreme Court stated that the omission of Section 11(6A) does not imply the revival of the law existing prior to insertion of such section, wherein courts expanded the boundary of intervention in the Arbitration proceedings. Therefore, Section 16 still remains the only recourse to raise a jurisdictional objection against the Arbitral Tribunal.

Section 16 is a wide provision conferring on the Arbitral Tribunal the power to rule on all jurisdictional issues pertaining to its own competence to adjudicate on the matter. However, for a better understanding of this provision, it is important to know what falls within the ambit of the Arbitral Tribunal’s jurisdiction.

What falls within the ambit of ‘Jurisdiction’ of the Arbitral Tribunal?

It is important to note that there is no jurisdiction given to the Arbitral tribunal as a matter of right or inherence or by the statute. Rather, the jurisdiction of the Arbitral Tribunal is derived through the Arbitration Clause or Arbitration Agreement between the parties. The jurisdiction of an Arbitral Tribunal is, thus, determined in accordance with the Arbitration Agreement between the parties and subject to the supplementary provisions of the Arbitration and Conciliation Act, 1996 governing the same. What, however, comes under the jurisdiction of the Arbitral Tribunal?

Section 16 of the Act specifies that ‘The arbitral tribunal may rule on its own jurisdiction, including ruling on any objections with respect to the existence or validity of the arbitration agreement’, the word including here being indicative of the fact that the provision is inclusive in nature. Some of the factors that are considered within the jurisdiction of an Arbitral Tribunal:

  • The existence or validity of an Arbitration Agreement

The existence or the validity of an Arbitration Agreement can be determined by the Arbitral Tribunal as per Section 16. However, this power to decide whether an Arbitration Agreement is existing or not is not exclusive in nature, and can additionally be exercised by the judicial authorities when the parties approach such authority under Sections 8,9 or 11 of the Act. As per the 246th Report of the Law Commission:

  1. If the Courts are of the opinion that the Arbitration agreement prima facie exists –  it shall refer the dispute to Arbitration and whether the Arbitration agreement exists or not shall be decided in finality by the Arbitral Tribunal.
  2. If the Courts are of the decision that the Arbitration Tribunal does not exist – such a decision shall be final.

However, under Section 11(6A), the judicial authority can only determine the existence of an Arbitration Agreement in a preliminary manner. The existence and validity of the Arbitration Agreement is left to be determined by the Arbitral Tribunal, amongst other jurisdictional issues.

  • The subject matter of the dispute

Although the Act or any other legislature of India does not specifically classify any dispute as arbitrable and non-arbitrable, some landmark judicial precedents have categorised a few disputes as non-arbitrable in nature (which is detailed at length in another sub-heading of this article). Accordingly, if the subject matter of the dispute falls within the category of a non arbitrable dispute, the Arbitral Tribunal has no jurisdiction to adjudicate the dispute and an objection can be raised under Section 16 stating that the subject matter of the dispute is beyond the jurisdiction of the Arbitral tribunal.

  • The Scope of authority of the Arbitral Tribunal

The Arbitral Tribunal is a creature of the Arbitration Agreement between the parties. Therefore, the scope of the Arbitral Tribunal is determined in accordance with what is stated in the Arbitration Agreement. If the reference to Arbitration is on an issue that is not mentioned in the Arbitration agreement or falls beyond the bracket of disputes the parties have agreed to refer to Arbitration, an objection can be raised stating that the Arbitral Tribunal does not have jurisdiction to decide on the issue since it is beyond the scope of its authority. 

  • Limitation

The issue of limitation, whether to be constituted as a jurisdictional issue within the ambit of the Arbitral Tribunal or is an issue that is to be separately adjudicated by the Tribunal at later stages has been a grey area so far. The Supreme Court in Indian Farmers Fertilizer Cooperative Limited v. Bhadra Products, decided in 2018, held that the issue of limitation is not a jurisdictional issue to be decided under Section 16 of the Act and an order passed on the issue of limitation by the Arbitral Tribunal is to be construed as an interim award appealable under Section 34 of the Act.

Subsequently, in November, 2019, however, the Supreme Court expressed a contradictory view in Uttarakhand Purv Sainik Kalyan Nigam Limited v. Northern Coal Field Limited, stating that the issue of limitation is an issue that has to be decided by the Arbitral Tribunal under Section 16 of the Act as a jurisdictional issue, and not by the judicial authority during appointment of Arbitrator under Section 11 at the pre-reference stage. In the light of the contrasting views of the Apex Court, it still remains unclear whether limitation is to be decided as a jurisdictional issue under Section 16 of the Act or a preliminary issue under general provisions of the Act. A decision clarifying the position on this issue is awaited.

When any of the above mentioned issues that fall within the scope of the term ‘jurisdiction’ arise, an objection can be raised by the parties competent to do the same.

Who may object?

The Arbitration Agreement is a contract under the Indian Contract Act, 1872 and consequently, the doctrine of privity of contract applies to it. Therefore, only parties to the Arbitration Agreement have the authority to make a plea under Section 16 of the Act challenging the jurisdiction of the Arbitral Tribunal. A plea can be made by the parties even if they have appointed or participated in the appointment of the Arbitral Tribunal, This position was reaffirmed by the Supreme Court in Travancore Devaswom Board vs Panchami Pack Pvt. Ltd., emphasising that participation in the appointment of the Arbitral Tribunal is no bar to raising an objection under Section 16. Additionally, the Arbitral Tribunal may take suo moto cognisance of its competence to adjudicate a dispute and decide on its jurisdiction accordingly. In order to defeat the parties using this provision for prolonging proceedings and additionally, to save time and costs, the Arbitration Act prescribes the manner and the time frame within which an objection to jurisdiction can be raised.

How and when to object?

An objection to the jurisdiction of the Arbitral Tribunal is to be raised in the form of a plea to be presented before the Arbitral Tribunal. The plea must substantiate the brief facts and the grounds on which such an objection is being raised in a clear and precise manner. The time frame within which it should be raised before the Arbitral Tribunal, as per Section 16, is detailed as under:

A plea that the Arbitral Tribunal lacks jurisdiction:

  1. Such a plea must be raised at the beginning of the Arbitration proceedings, before or at the time of submission of the Statement of Defence.
  • The position under this section was upheld by the Supreme Court in M/s MSP Infrastructure Ltd v/s M.P. Road Development Corporation Ltd. In this case, the Calcutta High Court permitted a party to Arbitration to amend a Section 34 Petition to raise an objection that the Arbitral Tribunal did not have jurisdiction to entertain the said dispute. The Supreme Court set aside this order of the High Court, stating that upon a perusal of Section 16 of the Act, it is undoubtedly clear that an objection that the Arbitral Tribunal lacks jurisdiction must be raised before or at the time of submission of the Statement of Defence. Therefore, raising such an objection under Section 34 would defeat the provisions of Section 16 of the Act.
  • In 2018, a conflicting decision was given by the Supreme Court in Lion Engineering Consultants v. State of M.P., wherein a fresh plea for objection to the Arbitral Tribunal’s jurisdiction was allowed 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.

A plea that the Arbitral Tribunal is exceeding the scope of its authority

  1. Such a plea must be raised as soon as the issue, which exceeds the scope of authority of the Arbitral Tribunal, is brought up during the Arbitration proceedings.

The Arbitral Tribunal may admit a plea of objection at a stage later than the stages mentioned above in a discretionary manner. If the Arbitral Tribunal is of the opinion that the delay in raising a plea of objection is justified, the Arbitral Tribunal may admit the plea. However, if the Arbitral Tribunal, upon an examination of the matter, is of the opinion that the delay is unjustified, it is at complete liberty to dismiss the same.

At what stage is the objection decided by the Arbitral Tribunal?

Section 16 makes no specific provision to clarify whether the determination of the issue of objection to jurisdiction is to be decided as a preliminary issue before delving into the merits of the dispute or can be done at later stages of the proceedings. Clause 5 of Section 16 prescribes that the Arbitral Tribunal shall, upon rejecting a plea of objection to jurisdiction, continue with the Arbitration proceedings and pass an Award in respect of the same. This clause has been construed liberally in some judgements to suggest that the legislation intended for the plea to be decided at the threshold. The Supreme Court in  Kvaerner Cementation India Limited v. Bajranglal Agarwal stated that it is advisable for the Arbitral Tribunal to decide jurisdictional issues at the preliminary stage before heading into the Arbitration proceedings. 

However, 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. In Maharshi Dayanand University & Ors. v. Anand Coop. L/C Society Ltd. & Ors., the Supreme Court stated the Arbitral Tribunal is at liberty to decide on jurisdictional issues at any stage of proceedings, but must strictly decide the same while it proceeds to pass the final award. The flexibility bestowed upon the Arbitral Tribunal was also upheld by the High Court of Delhi in the recent case of Pankaj Arora v. AVV Hospitality LLP & Ors., 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 Court, in line with the Supreme Court in the Maharshi Dayanand University Case, also stated that the Arbitral Tribunal must, however, decide on jurisdiction prior to rendering the final Award.

In light of the above precedents, it is quite clear that the Arbitral Tribunal has the autonomy to decide on the plea objecting to jurisdiction at any stage of the proceedings before determination of the Arbitral proceedings. The Arbitral Tribunal then closely examines the objection on merits and proceeds to pass an order. However, the finding of the Arbitral Tribunal under Section 16 is not conclusive. An appellate machinery is provided to the party aggrieved by the order of the Arbitral Tribunal, which is detailed below.

What is the recourse when aggrieved by the decision of the Arbitral Tribunal?

The first challenge to the jurisdiction of the Arbitral Tribunal must always be made before the Arbitral Tribunal itself. However, the Arbitration Act does not bestow finality on the rulings of the Arbitral Tribunal in this regard. While primary challenge to the jurisdiction is made before the Arbitral Tribunal, any party aggrieved by such an order are provided legal recourse to judicial authorities.

Accepting the plea of objection to jurisdiction:

  • If the Arbitral Tribunal accepts the objection and passes an order ruling that it lacks jurisdiction or is exceeding the scope of its authority, an appeal can be made against such an order to a Court of competent jurisdiction under section 37(2)(a).
  • With the purpose of facilitating minimal court intervention and a speedy settlement of disputes, the Act only allows for limited appealable orders and one tier of appellate mechanism. 
  • Accordingly, as per Section 37(3), no second appeal shall lie from an order of the Appellate Court. That is not, however, applicable to the power of the Supreme Court to entertain SLPs. 

Dismissing the plea of objection to jurisdiction:

  • If the arbitral Tribunal dismisses the plea and rules that it has the jurisdiction to adjudicate the present dispute, it shall proceed with the dispute and pass an Award in determination of the same.
  • Thereafter, an Application/Petition for setting aside such an order can be made under section 34 of the Act, containing the facts in brief, the grounds as to why the award is liable to be set aside for want or excess of jurisdiction and a prayer for setting aside the impugned Award.
  • The Application/Petition must be made within a period of 3 months from the date of receipt of order by the aggrieved party and must be disposed of by the Court within a period of 1 year from the date of the Appellant notifying the other party of its intention to invoke Section 34.
  • An order, which sets aside the Arbitral award or refuses to set aside the arbitral award can be appealed against by virtue of Section 37(1)(b)
  • However, filing an application to set aside an award does not, ipso facto, impose a stay on the enforcement of the award. The award can still be enforced, unless the Appellant files an application under Section 36 praying for stay of enforcement.

What are the circumstances under which no objection can be raised?

Section 16 elaborates on the time within which a plea objecting to the jurisdiction can be raised. The party making such a plea is strictly required to adhere to this time bracket, except when there is justified delay, in case of which the Arbitral Tribunal may admit the plea beyond the prescribed time at its discretion. However, apart from the excepted circumstances mentioned in the section, any objection that goes beyond the confines of these mandates precludes the parties from raising such an objection by means of waiver under Section 4. Section 4, which enshrines the provision to waiving the right to object, states that any party who has knowledge of non-compliance with any statutory or contractual provision, and continues with the arbitration proceedings without objecting to such non-compliance timely shall be deemed to have waived his right to object thereto. Accordingly, waiver of the right to object can be under the following circumstances:

Participation in the Arbitration proceedings:

In S.N. Malhotra & Sons vs. Airport Authority of India & Ors., the Delhi High Court dissected the anatomy of Section 4 and stated that the provision prescribes 4 pre-conditions to constitute a deemed waiver of the right to object. Applying those postulates to section 16, there is deemed waiver of the right to object to the jurisdiction of the Arbitral Tribunal, if:

  1. The Arbitral Tribunal is lacking or exceeding jurisdiction;
  2. Either of the parties to the Arbitration Agreement has knowledge of such want or excess of jurisdiction;
  3. The said party continues continues with the Arbitration proceedings without raising an objection to jurisdiction; 
  4. The said party raises an objection;
  • With delay that is not justified; or
  • After the submission of Statement of Defence or not as soon as the matter which is beyond the scope of authority of the Arbitral Tribunal is raised during the proceedings.

Non-participation in the proceedings:

In the recent case of Quippo Construction Equipment Limited Vs Janardan Nirman Pvt. Limited, the Supreme Court held that when a party does not participate in the Arbitration proceedings, he is deemed to waive his right to object resultantly and cannot object to the jurisdiction of the Arbitral Tribunal at a later stage.

In the above mentioned circumstances, thus, a party is precluded from raising an objection to the jurisdiction, by reason of estoppel. 

What if a non-arbitrable dispute is referred to Arbitration?

Though the Act makes no such classification of disputes as arbitrable or non arbitrable, Section 2(3) states the provisions of the Act shall not affect any other statute under which some disputes cannot be submitted to Arbitration. This section recognises the concept of subject matter arbitrability under which certain disputes, which are reserved to be adjudicated by special judicial authorities constituted under the legislation for the said purpose, cannot be referred to Arbitration. In the landmark case of Booz-Allen Hamilton Inc. vs. SBI Home Finance Ltd. & Ors., the Supreme Court recognised the following disputes as being non arbitrable in nature:

  1. Criminal offences;
  2. Matrimonial disputes such as divorce, judicial separation, etc
  3. Guardianship disputes;
  4. Disputes relating to insolvency and winding up;
  5. Testamentary matters; and
  6. Eviction and Tenancy matters.

Additional matters which, by implication, are constituted as non-arbitrable are revenue matters, disputes pertaining to serious allegations of fraud, etc. When any of the above mentioned dispute is referred to Arbitration, the Arbitral Tribunal does not have the jurisdiction to adjudicate the dispute, even if the parties to the Agreement have expressly agreed to refer the same to Arbitration. The Arbitral Tribunal is barred by law from adjudicating such a dispute and either of the parties may raise a plea under Section 16 stating that the subject matter of the dispute is not arbitrable in nature by the virtue of the laws in force in India. A suo moto cognisance of the same may also be taken by the Arbitral Tribunal.

Conclusion

All issues pertaining to the jurisdiction of the Arbitral Tribunal shall be decided only by the Arbitral Tribunal once it has been constituted. The judicial authorities are only required to intervene, in a limited capacity, either when the Arbitral Tribunal has not been yet constituted or becomes functus officio. The anatomy of the provisions facilitating the process of raising objection to the jurisdiction of the Arbitral Tribunal is indicative of the pro-arbitration approach of India and the desire to constitute an effective Alternative Dispute Resolution machinery devoid of any lacunae. Section 16, thus, is one of the key provisions of the Arbitration and Conciliation Act, 1996, which furthers the objective of making Arbitration a process which is characterised by self sufficiency and minimal court intervention.

References

http://lawtimesjournal.in/doctrine-of-competence-competence/#:~:text=The%20doctrine%20of%20competence%2Dcompetence,In%20Kvaerner%20Cementation%20India%20Ltd.

http://arbitrationblog.kluwerarbitration.com/2018/11/19/blowing-hot-cold-assessing-permissibility-fresh-jurisdictional-challenges-setting-aside-proceedings/

https://legodesk.com/legopedia/jurisdiction-of-arbitral-tribunal/

https://www.lawnn.com/arbitral-tribunal/

https://indiacorplaw.in/2019/10/section-16-arbitration-conciliation-act-1996-model-law-approach-india.html


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