Order Under S. 16 Of A&C Act Can Be Challenged Under Article 227 Only On Exceptional Circumstances: Calcutta High Court Reiterates

The Calcutta High Court has reiterated that the remedy under Article 227 of the Constitution of India against the order of the Arbitral Tribunal rejecting the challenge to its jurisdiction under Section 16 of the Arbitration and Conciliation Act, 1996 (A&C Act), can be invoked only on ground of the Arbitrator’s patent lack in inherent jurisdiction, or exceptional circumstances, or ‘bad faith’ on part of the other party.

The bench of Justice Bivas Pattanayak made the observation while dismissing the revisional application filed under Article 227 of the Constitution against the order of the Arbitral Tribunal where it had dismissed the application of the petitioner under Section 16 of the A&C Act.

While holding that no patent inherent lack of jurisdiction, exceptional circumstances or ‘bad faith’ of the opposite party had been shown, the bench dismissed the revisional application, adding that the petitioners were not remediless since they have a chance of appeal under Section 34 of the A&C Act.

The court further remarked that it is a well-recognised principle that the parties should avail the alternative remedies before resorting to constitutional remedies. Thus, it held that the application under Article 227 of the Constitution of India was not maintainable.

The petitioners, who carry on a partnership business under the name M.D. Creations (petitioner no. 1), entered into a leave and license agreement with the opposite party/ claimant, Ashok Kumar Gupta. After certain disputes arose between the parties, the claimant invoked the arbitration clause contained in the agreement.

In the arbitral proceedings, the petitioners filed an application under Section 16 of the A&C Act before the Sole Arbitrator seeking dismissal of the arbitral reference, which was dismissed by the Arbitral Tribunal.

Against this, the petitioners filed a revisional application under Article 227 of the Constitution before the Calcutta High Court.

The petitioner, M.D. Creations, contended that the Section 16 application was filed on the ground that the agreement containing the arbitration clause was unstamped and unregistered and thus, it cannot be acted upon. Thus, it pleaded that the Arbitrator did not have the jurisdiction to determine the dispute and the claims raised by the claimant.

The petitioner further claimed that it had no other alternative but to file a revisional application under Article 227 against the order of the Arbitral Tribunal.

Referring to the facts of the case, the court reckoned that the Arbitrator had dismissed the application of the petitioner under Section 16 of the A&C Act. Yet, after placing reliance on Section 35 of the Indian Stamp Act, the Arbitrator kept the issue raised with regard to unstamped document open since such a defect is curable upon payment of deficit stamp duty and such aspect can be decided upon evidence, the court said.

The court further noted that Section 5 of the A&C Act clearly express that there should be no judicial intervention in the matters governed by Part I of the A&C Act except where it is provided in the Act.

Referring to Section 16 of the A&C Act, the bench held that according to the doctrine of kompetenz kompetenz, the arbitral tribunal has the authority to decide whether it has the jurisdiction to adjudicate the dispute or not. Also, the arbitral tribunal can decide on any objection with respect to the existence or validity of the arbitration agreement.

The court observed that if the arbitral tribunal finds that it does not have jurisdiction then an appeal can be filed under Section 37 of the Act. But where the plea challenging the jurisdictional competency of the arbitrator is dismissed, the aggrieved party has to wait till the passing of the final award, and then he can file an application for setting aside such an arbitral award under Section 34 of the A&C Act, the bench said.

The court added: “There is no segregated challenge permissible only on the question of the competency of the Arbitral Tribunal. Therefore, in the usual course the Arbitration Act provides for a mechanism of challenge under Section 34 of the Act and hence the aggrieved party cannot be said to be remediless in the circumstances of dismissal of application under Section 16 (2) of the Act,” The bench thus reiterated that the petitioners are not left remediless and have statutorily been provided a chance of appeal.

While dealing with the issue whether Article 227 of the Constitution can be invoked where jurisdictional objections have been rejected by the arbitrator, the court referred to the decision of the Apex Court in Deep Industries Ltd versus ONGC & Anr. (2020) 15 SCC 706. The court concluded that a petition under Article 227 of the Constitution can be filed against the arbitral tribunal’s order dismissing the application under Section 16, only if the “possible conclusion is that there is a patent lack in inherent jurisdiction”. The court added that nothing has been indicated in the present case which shows a patent inherent lack of jurisdiction.

Referring to the top court’s decision in Bhaven Construction versus Executive Engineer, Sardar Sarovar Narmada Nigam Ltd. & Anr, (2022) 1 SCC 75, the bench further said, “The principle which culls out from the aforesaid decisions of the Hon’ble Court is that application under Article 227 of the Constitution of India can be invoked on the ground of patent lack in inherent jurisdiction or exceptional circumstances or ‘bad faith’ of the opposite party. It is already found that none of the aforesaid grounds exist so far as the present case is concerned.” It added, “There are no materials on record of any exceptional circumstances or ‘bad faith’ of the opposite party has been shown.”

The court thus dismissed the revisional application.

Case Title: M.D. Creations & Others versus Ashok Kumar Gupta

Dated: 09.06.2023

Counsel For the Petitioners: Mr. Rahul Karmakar, Advocate Mr. S. K. Podder, Advocate, Mr. Sounak Mukherjee, Advocate

Counsel For the Opposite Party: Mr. Farhan Gaffar, Advocate Ms. Sagufta Saba Yasmin, Advocate Mr. Pathik Bandhu Banerjee, Advocate

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