This article is written by Prakhar Rathi, currently pursuing B.A.LLB (Hons) from the Department of Law, Aligarh Muslim University. This is an exhaustive article which deals with the Jurisdiction of the arbitration tribunals under the Arbitration and Conciliation Act, 1996.
Table of Contents
Introduction
Arbitration was conceived as a procedure to avoid the troubles faced in the procedure of civil litigation in courts. In India, it subsisted early in the guise of panchayats, which comprised people who were asked to determine on matters presented before them, and their verdicts were conceded by the parties to the dispute. The British made the first and foremost use of the concept of arbitration for in the Bengal regulations of 1772 and 1813 provisions related to the arbitration of disputes were applied to immovable property and the Arbitration Act of 1899 was repealed by the Arbitration Act, 1940.
These statutes mainly focused to institutionalize the procedure of arbitration in India. But in some duration of time, it was clear that the Arbitration Act of 1940 was not capable enough to tackle the requirements of a rapidly changing India. Therefore, it was substituted by the Arbitration and Conciliation Act in 1996. It is based on the UN Model Law to make our law agreement with the law embraced and acquired by the United Nations Commission on International Trade Law (UNCITRAL). The Act is of amending and consolidating in nature and not exhaustive. It has a much-extended scope of the 1940 Act. It aims for the domestic Arbitration and enforcement of foreign arbitral awards.
Jurisdiction of arbitration tribunals
It would not be appropriate to say that an arbitral tribunal has statutory jurisdiction. The tribunal determines its jurisdiction to adjust the needs of the parties. The arbitral agreement mainly determines the ambit of jurisdiction of the arbitral tribunal. The focal of party-autonomy declares that when the two parties have the remedy to resolve their disputes on their own then they have the remedy to show this right to any third party, to determine overt that squabble.
Thus it is very essential to contemplate a well-drafted agreement because it results in giving complete strength to the tribunal to determine matters related to the jurisdiction. The Arbitration and Conciliation Act, 1996 also specifically mentions the jurisdiction to determine explicit matters in Section 17 of the Act.
- Appointment of a guardian for a person who is of unsound mind or minor age in between the process of arbitration
- Safety/Security/ Confinement/ provisional injunction of the subject matter of the arbitration.
There are some cases in which the competency of the arbitral tribunal is contingent on gaining questions.
The relevant provision under the Act (Sec 16)
Section 16 of the Arbitration and Conciliation Act provides the following provisions:
- The arbitral tribunal may regulate or direct on its own jurisdiction, which also incorporates any objection regarding the validity or existence of the arbitration agreement, and for that objective:
- An arbitration clause which is a term of a contract agreement must be deemed as an agreement free and autonomous of the other terms of the contract, and
- A decision of the arbitral tribunal declaring the contract as invalid does not necessitate ipso jure the invalidity of the arbitration clause.
- A plea which emanates that the arbitral tribunal doesn’t have jurisdiction shall not be made after the defense statement is submitted; however, a party shall not be prevented from making such a plea only because of his participation in the appointment of, or he appointed, an arbitrator.
- A plea claiming that the arbitral tribunal is surpassing the scope of its authority shall be made as soon as the matter alleged to be transcended the scope of its authority is made during the arbitral proceedings.
- In each of two cases referred to in sub-section (2) or sub-section (3), The arbitral tribunal may accept a delayed plea if it concludes with an opinion that the delay is justified.
- The arbitral tribunal shall determine the plea referred to in sub-section (2) or sub-section (3) and take up with arbitral proceedings where the arbitral tribunal takes a decision rejecting the plea.
- A party, if disgruntled by such an arbitral award, may make an application for rescinding such an arbitral award according to Section 34.
Competence of the arbitral tribunal
The Arbitration Act of 1940 lacked such provisions which authorized the Arbitral Tribunal to regulate on its own jurisdiction and it was upon the court to scrutinize and decide on the jurisdiction of the arbitral tribunal. But Section 16 of the Arbitration and Conciliation Act, 1996 grants power to the Arbitral Tribunal to look on its own jurisdiction. Section 16 (1) of the Act provides that the arbitral tribunal may regulate or direct on its own jurisdiction, which also incorporates any objection regarding the validity or existence of the arbitration agreement.
Section 16 of the Arbitration and Conciliation Act incorporates the concept of competence-competence. It contains two facets i.e. the first one reflects that without support from the courts, the tribunal may decide on its jurisdiction and secondly, it shows reluctance from the courts in deciding this issue before the tribunal has decided on this issue. But questions regarding the binding effect of the decisions made by the arbitral tribunals need to be discussed and can these decisions be challenged in courts?
In Union of India vs. M/s. East Coast Boat Builders & Engineers Ltd., the Hon’ble Delhi High Court observed that it was apparent from the scheme of the act that the legislature didn’t grant appeal against the order under Section 16(5) where the arbitral tribunal decides rejects a plea that it has no jurisdiction. Apparently, the intention is that the arbitral tribunal shall proceed with the arbitral proceedings and make an award without any delay and without interference at any stage in the arbitral process due to supervisory role of the court.
In the case of Nav Sansad Vihar Coop. Group Housing Society Ltd. (Regd.) vs. Ram Sharma and Associates the Hon’ble Delhi High Court held that if the Arbitral Tribunal rejects a plea under Section 16(5) of the Arbitration and Conciliation Act, the arbitral process shall take place and the award shall be declared and meanwhile, the aggrieved party shall wait till the award is announced and there is no remedy against such order.
But determination made by the tribunal to admit the plea that it doesn’t have jurisdiction or that it is surpassing its ambit of authority is appealable and triable under Section 37(2) of the Arbitration and Conciliation Act. In the case of Pharmaceutical Products of India Ltd. vs. Tata Finance Ltd., the Hon’ble Bombay High Court opined that in cases where the Arbitral Tribunal rejects the plea related to its jurisdiction, Section16(5) of the Arbitration and Conciliation Act clearly empowers the Tribunal to resume with the arbitral proceedings and declare an arbitral award. Section 16(5) grants procedure to challenge an arbitral award. It states that only in accordance with Section 34, such an award can be challenged. whereas, if the Arbitral Tribunal determines to accept the plea that it does not have jurisdiction, then such decision can be appealed under Section 37(2) of the Arbitration and Conciliation Act.
Thus, it is clear that when the Arbitral Tribunal decides to reject a plea that it does not have the jurisdiction then the order made related to its jurisdiction cannot be appealed but when the Arbitral Tribunal accepts the plea that it does not have jurisdiction then such an order can be appealed under Section 37(2) of the Arbitration and Conciliation Act.
Jurisdiction of the arbitral tribunal when contract containing an arbitration clause is declared void
There may be cases where the arbitration agreement is not made as a separate agreement. Instead, it is embedded, as a clause, in the agreement between the parties and such contract or the agreement between the parties is pronounced void or illicit. The question which arises is that what happens to the agreement in such cases and can the arbitration clause in such cases become void?
In the case of Jawaharlal Burman vs. Union of India, the Hon’ble Supreme Court held that it is theoretically possible that the contract may end and the arbitration contract may not and similarly it is also theoretically possible that the contract may be valid whereas the arbitration agreement may be void and in that sense, there is a difference between the contract and its part of arbitration agreement but in the present situation, a challenge to the contract itself includes a challenge to the arbitration agreement. If there is a concluded contract the arbitration clause is also valid and if there is not a concluded contract the arbitration clause is also invalid. The Court also acknowledged that there could be a vast majority of cases in which the arbitration agreement exists as a part of the main contract itself, and challenging the validity or even existence of one would mean a challenge to the validity or existence of others.
In the case of Waverly Jute Mills Co. Ltd. Vs. Raymon and Co. (India) Ltd., The Hon’ble Supreme Court opined that discourse to the legitimacy of a contract could be the subject matter of an agreement of arbitration similarly as a debate identifying with a case made under the contract. But such an agreement would be operative and effective only when it is distinct from and independent of the contract which is disputed as illegal.
In the case of Jaikishan Dass Mull vs. Luchhiminarain Kanoria & Co., the Hon’ble Apex Court of India opined that there cannot be any doubts that if a contract is void and illegal, then, the arbitration clause must also perish along with the contract itself. As Viscount Simon, L.C. also pointed out in Heyman vs. Darwins Ltd. that if one party to the contract contends that it is void ab initio, and for this view, the clause itself is void and therefore the arbitration clause cannot operate. The arbitration clause, which is an essential content of the contract, cannot stand if the contract itself is declared to be illegal.
But the position has changed after the enactment of The Arbitration and Conciliation Act in 1996. And Section 16 (1) of this Act declares that the arbitration clause even if inserted in a contract, shall be considered as an independent from the remaining of the contract and a determination made by the Arbitral Tribunal regarding the invalidity of the contract shall not require ipso jure invalidation of the arbitration clause.
In the case of Olympus Superstructures vs. Meena Vijay Khaitan, the Apex Court stated that it shall be noticed that the arbitral tribunal is now empowered under sub-section (1) of Section 16 of the Act to look and reconsider on its own jurisdiction which also includes deciding on any objection related to the validity or even existence of the arbitration agreement and for such purpose, the arbitration clause which is a part of the contract and any decision by the arbitral tribunal related to the invalidity of the contract shall not require ipso jure affect the validity of the arbitration clause. It is clear from clause (b) of Section 16(1) which provides that a decision by the arbitral tribunal related to invalidation of the main contract shall not require ipso jure invalidation of the arbitration clause.
Loss of competence of arbitral tribunal to rule on its jurisdiction
Section 11(6) of the Act states that a party may appeal to the designate of Chief Justice or the Chief Justice himself in order to take necessary steps when concurred by the parties under an appointment procedure, one of them doesn’t act as necessary under the procedure, or the two mediators fall short to stick to an agreement as contemplated of them under the procedure, or a person or institution falls short to execute a function endowed to him under the procedure.
And Section 11(7) declares that a resolution which is taken by the Chief justice or the person designated by him under Section 11(4), Section 11(5) or Section 11(6) shall be final. It shows that a limit of the tribunal to reconsider its own jurisdiction when the Chief Justice has already considered and decided it.
In the case of Konkan Railway Corporation Ltd. vs. Rani Construction Pvt. Ltd. the judgment held that in a case when the chief justice or any person designated by him may have nominated the arbitrator through the thirty days had not expired then the Arbitral Tribunal would not have been constituted properly and therefore be without jurisdiction. The aggrieved party, in that case, could require the Arbitral Tribunal to rule on its jurisdiction and Section 16 provides provision for this and declares that the Arbitral Tribunal may look on its jurisdiction.
In the case of Sundaram Finance Ltd. vs. NEPC India Ltd., the Hon’ble Supreme Court held that an order stated under Section 11 of the Act is an administrative order. It means that no appeal could exist under Article 136(1) of the Constitution. This case shows unwillingness on the part of the Court to affect the freedom enjoyed by the arbitration process and by declaring that the functions of the Chief Justice are administrative, the Court had essentially forbidden the Chief Justice from adjudicating questions such as the validity or existence of the arbitration agreement.
Section 16 of the act cannot be declared to empower the Arbitral tribunal to take no notice of the decision which is given by the judicial authority or the Chief justice before the reference to it was made. The authority to decide does not permit the Arbitral tribunal to ignore the finality granted to an order passed earlier to its entering upon the reference by the very statute which creates it.
Thus, if the Chief Justice or a person designated by him has looked into the validity or presence of the arbitration provision and on its jurisdiction then the Arbitral Tribunal can’t rethink the topic of its jurisdiction. It would in such a case be forbidden from looking into the matter of its jurisdiction.
Jurisdiction for enforcement of the arbitral awards
The procedure for execution of decrees in India is governed through the Code of Civil Procedure, 1908 whereas that of arbitral awards is governed through the Arbitration & Conciliation Act, 1996 (“Act”) as well as the CPC.
In the case of Sundaram Finance vs. Abdul Samad & Anr, a two-Judge Bench of the Hon’ble Apex Court of India had cleared the doubts related to the jurisdiction for the enforcement of the arbitral award. The Supreme Court removed the doubt by mentioning that an arbitral award under the Arbitration and Conciliation Act, 1996 can be discharged in any court of competent jurisdiction and that getting a transfer order from any court. It was certainly a landmark judgment that extended the ambit and power of the arbitral tribunal.
The appeal of arbitral awards
There can be no appeal of arbitral awards against the jurisdiction related to the merits of the arbitral award. The Hon’ble Supreme Court has observed that an arbitrator should be deemed as a judge which is appointed by the parties and an award passed by him should not be lightly interfered with. In one judgment, the Supreme Court declared that the consideration of the award being satisfactory cannot be decided solely on the premise of the impulse of any person. However, this doesn’t mean that the arbitral award is absolute and it does not prevent from questioning the result of arbitration.
There are certain remedies which are made by the law to ensure proper and efficient conduct of proceedings. The repealed Arbitration and Conciliation act 1940 Act provided three remedies against an arbitration award which are modification, remission and setting aside which has been further amended by the Arbitration and Conciliation Act, 1996 and the remedies are divided into two parts. And the remedy for rectification of errors has been handed over the Tribunal and to the parties to decide.
The remedy for setting aside is amended and the award after the arbitration process will be returned back to the tribunal for removal of defects. Section 34 provides some grounds to set aside the arbitral award which includes an invalid agreement, the incongruity, inefficiency on the part of one of the parties, incapacity in the subject of the arbitration process and the arbitral award, opposing the public policy, a discrepancy in the appointment of the arbitrators etc.
The Act of 1996 specifies that an arbitral award cannot be overturned by the court merely because of re-appreciation of evidence or an erroneous application of the law. In the case of Brijendra Nath vs. Mayank, the Hon’ble Supreme court declared that if during the pendency of the application challenging the validity of the arbitral award, the parties have acted upon it, then it would lead to estoppel against attacking the award.
Conclusion
The arbitration started as a procedure to avoid the troubles of civil litigation. British Government spread it in India. The Arbitration Act, 1940 focused to institutionalize the procedure of arbitration in India. Later this act was amended by the Arbitration and Conciliation Act of 1996. An arbitral tribunal does not have statutory jurisdiction. The tribunal determines its own jurisdiction to adjust the needs of the parties. The arbitral agreement mainly determines the ambit of jurisdiction of the arbitral tribunal. There can be no appeal of arbitral awards against the jurisdiction related to the merits of the arbitral award. Section 11(7) declares that a resolution which is taken by the Chief justice or the person designated by him under Section 11(4), Section 11(5) or Section 11(6) shall be final. It shows that a limit of the tribunal to reconsider its own jurisdiction when the Chief Justice has already considered and decided it.
References
- https://www.lexology.com/library/detail.aspx?g=137061bc-e438-42dd-b184-d0ab17ac68cd
- https://www.legalbites.in/jurisdiction-of-the-arbitral-tribunal/
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