Arbitration- Tribunals Should Decide Objections On Its Jurisdiction As Preliminary Issue; High Courts Have Limited Power To Interfere In Proceedings :Delhi HC
The Delhi High Court recently made significant observations with regard to the power of an Arbitral Tribunal to rule on its own jurisdiction and the manner of deciding the same. A Single Bench of Justice Prathiba M. Singh also addressed the issue of jurisdiction of High Courts over arbitral tribunals and the scope of such interference. Law governing applications under Section 16...
The Delhi High Court recently made significant observations with regard to the power of an Arbitral Tribunal to rule on its own jurisdiction and the manner of deciding the same.
A Single Bench of Justice Prathiba M. Singh also addressed the issue of jurisdiction of High Courts over arbitral tribunals and the scope of such interference.
Law governing applications under Section 16 of the Arbitration & Conciliation Act, 1996 and manner of consideration by arbitral tribunals.
With respect to the first aspect, the High Court has held that following the principle of kompetenze-kompetenze, an Arbitral Tribunal has the power to rule on its own jurisdiction. However, depending on each case, the Tribunal ought to decide Section 16 applications— raising objection as to its jurisdiction— as soon as possible or with a sense of urgency as a preliminary ground.
The order stated,
"Section 16 of the Arbitration and Conciliation Act, 1996 deals with the competence of a Tribunal. Following the principle of kompetenze-kompetenze, an Arbitral Tribunal has the power to rule on its own jurisdiction. However, Section 16(5) requires that the Tribunal ought to decide the plea.
…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."
Reliance was placed on McDermott International Inc. v. Burn Standard Co. Ltd. & Ors., (2006) 11 SCC 181, where the Supreme Court held that under Section 16 of the Act, the party questioning the jurisdiction of the arbitrator has an obligation to raise the said question before the arbitrator. Further, the jurisdictional question is required to be determined as a preliminary ground.
Similarly, in Raj International v. Tripura Jute Mills Ltd 2008 SCC Online Gau 333, the Gauhati High Court had observed that without giving decision on the question of jurisdiction, the arbitrator has no right to proceed for making an arbitral award.
In her order, Justice Singh observed that the following factors can be borne in mind when objections are raised under Section 16 of the Act:
- 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;
- 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.
- 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.
- 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.
Whether arbitral tribunals are tribunals over which jurisdiction under Art. 226/227 is exercisable by High Courts and what is the scope of interference?
The Single Bench observed that the law on this issue is well settled that Arbitral tribunals are a species of tribunals over which the High Court exercises writ jurisdiction. Challenge to an order of an arbitral tribunal can be raised by way of a writ petition.
It noted that the Supreme Court has, in a plethora of judgments, held that arbitral tribunals are private tribunals unlike those tribunals set up under the statute or specialized tribunals under the Constitution of India. Thus, a Petition under Article 227 challenging orders of an Arbitral Tribunal would be maintainable.
Scope of interference in arbitral proceedings under Art. 227 of the Constitution
The Bench observed that while there is no doubt that the arbitral tribunal is a tribunal over which writ jurisdiction can be exercised, the said interference by a writ court is limited in nature.
It referred to the case of Deep Industries Ltd. v. ONGC and Ors,, whereby the Supreme Court had categorically held that the jurisdiction of the writ court under Article 227 would not be barred. However, the High Court would be extremely circumspect in interfering and the jurisdiction would be exercised only where the Arbitrator patently lacks inherent jurisdiction.
The Supreme Court had said,
"there is no doubt whatsoever that if petitions were to be filed Under Articles 226/227 of the Constitution against orders passed in appeals Under Section 37, the entire arbitral process would be derailed and would not come to fruition for many years. At the same time, we cannot forget that Article 227 is a constitutional provision which remains untouched by the non-obstante Clause of Section 5 of the Act. In these circumstances, what is important to note is that though petitions can be filed Under Article 227 against judgments allowing or dismissing first appeals Under Section 37 of the Act, yet the High Court would be extremely circumspect in interfering with the same."
In this backdrop, Justice Singh noted that the following principles are well settled, in respect of the scope of interference under Article 226/227 in challenges to orders by an arbitral tribunal including orders passed under Section 16 of the Act:
- An arbitral tribunal is a tribunal against which a petition under Article 226/227 would be maintainable;
- The non-obstante clause in section 5 of the Act does not apply in respect of exercise of powers under Article 227 which is a Constitutional provision;
- For interference under Article 226/227, there have to be `exceptional circumstances';
- Though interference is permissible, unless and until the order is so perverse that it is patently lacking in inherent jurisdiction, the writ court would not interfere;
- Interference is permissible only if the order is completely perverse i.e., that the perversity must stare in the face;
- High Courts ought to discourage litigation which necessarily interfere with the arbitral process;
- Excessive judicial interference in the arbitral process is not encouraged;
- It is prudent not to exercise jurisdiction under Article 226/227;
- The power should be exercised in `exceptional rarity' or if there is `bad faith' which is shown;
- Efficiency of the arbitral process ought not to be allowed to diminish and hence interdicting the arbitral process should be completely avoided.
Case Title: Surender Kumar Singhal & Ors. v. Arun Kumar Bhalothia
Appearance: Advocates Arjun Garg, S. Mahesh Sahasrananan, Devansh Srivastava, Rati Tandon, Sona Kamra, Nirmal Prasad and Abhinav Shrivastava for Petitioners; Advocates Smita Maan, Vishal Maan Aakash Sehrawat and Satyawan Rathi for Respondents.
Read Order