Party Failing To Raise The Issue Of Jurisdiction At Section 11 Notice Stage Or During The Arbitral Proceedings, Ground Not Available Under Section 34: Gujarat High Court

The Single Bench of Justice A.G. Uraizee rejected the contention that the issue of jurisdiction being a legal issue can be raised at any stage. The Court held that since the party had not raised the issue of lack of jurisdiction of the Arbitrator by responding to the notice issued under Section 11 of the A&C Act nor had it participated in the arbitral proceedings to raise the said issue, the arbitral award could not be set aside on the ground of lack of jurisdiction of the Arbitrator.

An arbitral award was passed by the Arbitral Tribunal in favour of the respondent Mehul Industries. The appellant/award debtor Leepee Enterprise filed an application under Section 34 of the A&C Act to set aside the award. The Additional District Judge (ADJ) dismissed the application filed by the appellant, against which the appellant filed an appeal under Section 37 of the A&C Act before the Gujarat High Court.

The appellant Leepee Enterprise submitted before the High Court that there was no valid bipartite arbitration agreement between the parties. The appellant contended that it had purchased goods from the respondent and an arbitration clause was unilaterally incorporated in the invoice which was signed by the respondent. The appellant added that the said invoice was not signed by the appellant or its authorized representative. Thus, the appellant averred that the arbitration proceedings conducted on the basis of such unilateral arbitration clause was without jurisdiction and was not binding on the appellant.

The appellant contended that the issue of jurisdiction of the Arbitrator is a legal issue which can be raised at any stage. Thus, the appellant averred that even though it did not participate in the arbitral proceedings and did not raise the issue regarding lack of jurisdiction of the Arbitrator before the Arbitral Tribunal, the appellant cannot be debarred from raising the said issue of jurisdiction in an application under Section 34 to set aside the award or in an appeal filed under Section 37 of the A&C Act. The appellant submitted that since the arbitral award was rendered without jurisdiction, the same was null and void and, therefore, not binding on the appellant.

The respondent Mehul Industries averred that the appellant accepted the goods from the respondent under the invoice which contained an arbitration clause. Hence, the respondent submitted that appellant could not contend that there was no bipartite arbitration agreement between the parties.

The High Court observed that the appellant did not respond to the notice issued by the respondent under Section 11 of the A&C Act for appointment of the Arbitrator, and it had failed to raise any objection that there was no bipartite arbitration agreement between the parties or that the arbitration clause in the said invoice was unilateral and, therefore, not binding on the appellant.

The Court noted that the appellant did not appear before the Arbitrator nor did it participate in the arbitration proceedings and raise the issue of jurisdiction of the Arbitrator on the basis of an alleged unilateral arbitration clause.

The Court held that the conduct of the appellant spoke volumes and could not be ignored.

The Court ruled that the issue of jurisdiction of the arbitrator ought to be raised at the first available opportunity, i.e., when the notice under Section 11 of the A&C Act is served. The Court held that the appellant showed a lackadaisical approach and took the arbitration proceedings very casually by not participating in the arbitration proceedings.

The Court observed that the ADJ, while dismissing the application of the appellant under Section 34 of the A&C Act to set aside the arbitral award, had noted that the appellant had not raised the issue of jurisdiction before the Arbitrator.

The Court held that the scope of Section 34 of the A&C Act for setting aside an arbitral award is very limited. The court noted that the appellant had assailed the arbitral award on the sole ground that the Arbitrator lacked jurisdiction since the arbitration agreement between the parties was not valid. The Court held that the plea raised by the appellant regarding lack of jurisdiction of the Arbitrator was a valid plea under Section 34 (2) (a) (i) of the A&C Act to set aside the arbitral award. However, the Court added, the party ought to raise such an issue regarding lack of jurisdiction of the Arbitrator at the first available opportunity.

The Court rejected the contention of the appellant that the issue of jurisdiction being a legal issue can be raised at any stage. The Court ruled that since the appellant had not raised the issue of jurisdiction by responding to the notice issued under Section 11 of the A&C Act nor had it participated in the arbitral proceedings to raise the said issue, the arbitral award could not be set aside on the ground of lack of jurisdiction of the Arbitrator.

The Court thus dismissed the appeal of the appellant.

Case Title: Leepee Enterprise versus Mehul Industries

Citation: 2022 LiveLaw (Guj) 165

Counsel for the Appellant: Mr. Vasim Mansuri

Counsel for the Respondent: Mr. BB Gogia

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