This article is written by Arundhati Pawar, a graduate from Fergusson College in Pune and currently a practising advocate in Pune. The author, in this article, has discussed the concept of jurisdiction and its scope under Section 16 of the Arbitration Act.

It has been published by Rachit Garg.

Introduction 

Arbitration is a private practice of resolving disputes arising out of contractual agreements whereby the parties mutually decide to have their disputes resolved by one or more private individuals, i.e., the arbitrators, rather than by a court of law. It is a process where parties resolve disputes without approaching the formal course of the judiciary, i.e., the court. 

Section 16 of the Arbitration and Conciliation Act, 1996, emphasises the competence of the Arbitral Tribunal to rule on its jurisdiction. It entitles the parties to raise jurisdictional questions. The provisions of Section 16 have been established in the UNCITRAL Model Law. Section 16 gives statutory recognition to the doctrine of “Kompetenz-Kompetenz.”

Scope of the Section 

Section 16 specifies that the Arbitral Tribunal has the power to decide whether it has the locus to adjudicate the dispute or not. This provision is read along with Section 5 of the Arbitration and Conciliation Act of 1996. It envisages that civil courts have no power to intervene except where it is specifically stated. The arbitrators are entitled to make a conclusive ruling that defines their jurisdiction.

Before the 2015 Amendment Act, the Constitutional Bench of the Supreme Court held in Arcelor Mittal Nippon Steel India v. Essar Bulk Terminal Ltd (2021) that the jurisdiction issues should be decided at the commencement of the arbitration proceeding. It has to be decided under Section 11. This decision was subsequently reversed, and the principle of Kompetenz-Kompetenz was subsequently maintained in Uttarakhand Purv Sainik Kalyan Nigam Ltd. v. Northern Coal Field Ltd (2018). It said that the issue of limitation is a jurisdictional issue, which would be required to be decided by the arbitrator under Section 16, and not the High Court at the preference stage under Section 11 of the Act. Once the arbitration agreement is undisputedly accepted by both parties, all issues, including the question of jurisdiction are to be decided by the arbitrator.

Essential features of Section 16 

In the case of Indian Farmers Fertilizer Cooperative Ltd v. Bhadra Products (2018) the jurisdiction has been interpreted in a new light and features have been laid down to decide competent jurisdiction. Until these conditions are satisfied,  the tribunal has no jurisdiction to adjudicate the matter.

1.Where there exists a valid arbitration agreement 

Section 16 of the Arbitration and Conciliation Act enables the arbitrator to decide about the existence of an arbitration clause. In Pradeep V. Naik v. Sulakshana A. Naik (2015), it was held that the issue about the existence of an arbitration agreement can only be decided by an arbitrator under Section 16 of the Act and not under Section 11 unless parties lead evidence. The arbitration clause is an independent part of the contract and has to be treated as an individual agreement. The whole contract, if deemed void, will not invalidate the arbitration clause. The arbitration clause would itself be referred to as a valid arbitration agreement.

2. Where the arbitral tribunal is properly constituted

Arbitral Tribunal must be constituted according to the arbitration agreement with the mutual consent of the parties. It  may constitute a sole arbitrator or a group of arbitrators. 

3. Where the subject matter is arbitrable

arbitration

The subject matter should be arbitrable and should be in accordance with the agreement. Disputes pertaining to criminal cases, matrimonial disputes, tenancy disputes, and insolvency disputes are not arbitrable. It should not be barred by law or public policy.

Objection to its jurisdiction

Section 16(2) states that any objections about jurisdiction have to be raised before filing a statement of defence. The objective of this provision is to avoid wastage of time and acknowledge jurisdictional issues at the commencement stage of the proceeding. These limitations are subject to the power given to the arbitrator, which provides that the tribunal may, in either of the cases, admit a later plea if it considers the delay justified.

If the tribunal allows the objection raised by the parties, in such a scenario,  an appeal can be made under Section 37 of the Arbitration and Conciliation Act, 1996. If the Tribunal rejects the objection raised by the parties, the Arbitral Tribunal continues its proceedings, and the party can set aside the award under Section 34 of the Act. 

Criticism of Section 16 of the Arbitration Act

Lack of appeal under Section 16

There is no provision for an appeal under Section 16 if the Tribunal decides it does not have competent jurisdiction, the decision rejecting the plea can be put forward only at the time of final award under Section 37 of the Act. This compels the parties to raise objections while appointing the arbitrator, causing an unreasonable delay.

Preliminary issue

The Act does not specify whether the objection raised should be treated as an interim issue or at the final award. Since this position is not settled, the tribunal ends up wasting the time and money of the parties in cases where it does not have jurisdiction. This provision is widely misused by the parties, encouraging them to prolong proceedings, thereby defeating the very purpose of a speedy trial under the Act.

Failure in raising an objection 

Suppose the party fails to file an application raising objections to the jurisdiction at the commencement of the proceeding. In that case, it is permitted to do so at the final hearing by applying to set  aside an arbitral award under Section 34. The timeline for setting aside such an award is 3 months from the date of award and not any further. This provision has been taken from Article 16 of the UNCITRAL Model Law, as adopted by the United Nations Commission. If the objection is accepted, the arbitral tribunal will not proceed further, and the proceeding shall be discontinued according to Section 37 of the Act.

In M/s Lion Engineering Consultants v. State of Madhya Pradesh and Ors (2015), the award was made in favour of the appellant, and the respondent sought to amend its applications three years after their  rejection by the trial court. It was held that the amendment being “beyond limitation” is not allowed. But there is no restriction on requesting a question of jurisdiction be raised by way of an objection under Section 34 of the Act even if no such objection was raised under Section 16 of the Act.

Conclusion 

The arbitration law in India with respect to jurisdiction does not have a settled position. Various judgments referred to above have put forward inconsistent conclusions. The jurisdictional issues raised have shortcomings that need a solidified position in order to prevent misuse of this provision for slowing down the proceeding. The Arbitration and Conciliation Act has introduced the provision of Section 16 to expedite the proceedings of the Tribunal. The power to rule on its own jurisdiction is stipulated to help the Arbitral Tribunal self-sustain with minimal judicial intervention. The liberal approach taken by the courts hampers speedy remedy, thereby defeating the legislative intent behind this Section. Therefore, Section 16 should be modified to prevent its abuse.

 Frequently Asked Questions (FAQs) 

Whether the tribunal should rule on an objection under Section 16 as a preliminary issue?

The Delhi High Court in Cadre Estate Pvt Ltd. v. Sulochana Goyal and Ors (2010) has held that any kind of objection about jurisdiction should be raised before the filing of a Statement of Defense. The Act does not bar or prevent the party from raising such a plea at a later date if the Arbitral Tribunal is justified about the reasonable delay.

The Tribunal may reject the application under Section 16 and may further continue with the Arbitration proceedings. The party objecting to the decision of the Tribunal can object to setting aside the arbitral award under Section 34. The Act does not provide a separate provision for appeal against Section 16. 

In Maharshi  Dayanand University and Ors. v. Anand Coop. L/C Society Ltd. and Ors. (2007), it was held that the court is at its discretion to decide whether to decide the jurisdictional question at the beginning of the proceeding or at the time of the final award. It is expressly opined by the court that there is no compulsion on the court/Tribunal to decide the jurisdictional issue at the early stage and it can be decided at the time of the final award.

In Pankaj Arora v. AVV Hospitality LLP and Ors (2020),  an objection was raised under Section 16 that the arbitrator did not possess the requisite jurisdiction to adjudicate on the counter-claims. The objection was disposed of and was to be decided at the stage of the final argument. It was held that, though the decision on an application under Section could be deferred until after the recording of evidence, the issue has to be decided “before making the final arbitral award,” not in the final award itself.

In MSP Infrastructure Ltd. v. MPRDC Ltd. (2014) it was held that the question of jurisdiction can be raised either under Section 16 or at the stage of the final award.  The Supreme Court overruled the MSP Infrastructure judgement and held that there is no restriction to raising an objection under Section 34 of the Act.  The objection can be raised at the first instance or at the finality of the award.

In the case of Cadre Estate Pvt. Ltd. v. Sulochana Goyal and Ors. (2010) and Maharshi  Dayanand University and Ors. v. Anand Coop L/C Society Ltd. and Ors. (2007)  the Court upheld that the arbitrator has to decide jurisdiction as a preceding issue, while in Pankaj Arora v. AVV Hospitality LLP and Ors. (2020), it stipulates that there is no such mandate to decide the jurisdiction at the commencement of the proceeding.

Whether the decision of the Tribunal under Section 16 constitutes an order or an award?

The Arbitration Act does not clarify this position of the law. The Delhi High Court has discussed this issue in the case of Union of India and Another v. M/S. East Coast Boat Builders (1998), where it was held that the order under Section 16 would change its nature in two different situations, if the order rejects the prayer of no jurisdiction, it becomes an interim award; if the arbitral tribunal allows the plea of no jurisdiction, it is not an interim award and only appealable. Therefore, it can easily be interpreted that in either case, it is only a preliminary order and not an interim award.

The intention appears to be that in such a case, the arbitral tribunal shall continue with the arbitral proceedings and make an award without delay and without being interfered with in the arbitral process at that stage by any court in their supervisory role.

References 

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