Jurisdictional Objection Under Sec. 16 of Arbitration And Conciliation Act Has To Be Raised At Inception With Sense Of Alacrity: Delhi High Court

The Delhi High Court on Thursday observed that a jurisdictional objection under sec. 16 of the Arbitration and Conciliation Act by its very nature would be one which has to be raised at inception, at the earliest stage. The Court also observed that under the scheme of the Act, such an objection has to be raised with a "sense of alacrity" which must be decided by the Arbitral Tribunal with a "sense of urgency".

A single judge bench comprising of Justice Pratibha M Singh observed thus:

"A jurisdictional objection by its very nature would be one which has to be raised at the inception itself. The statute contemplates that the party raising the objection has to raise it with alacrity and hence by an overall reading of Section 16 and especially Section 16(5) of the Act, there is no doubt that the Tribunal also ought to decide the objection with a sense of urgency. Such dispensation would be favoured especially in order to ensure that parties to whom the arbitral proceedings may not even be applicable are not entangled to long drawn arbitral proceedings with substantial costs being incurred."

Background of the Case

A single judge of the High Court vide order dated 9th January 2018 referred the dispute between 2 branches of one family in relation to a family settlement/partition dated 15.07.2009 to arbitration by a sole arbitrator. This was done on an application filed by Respondent No. 5 under sec. 8 of the Arbitration and Conciliation Act. In view of this, a claim petition and a counter claim was raised before the Arbitrator.

During the course of Arbitral proceedings, the petitioners were arrayed as Respondents 5 to 10 and notice was issued vide order dated 11th April 2019 to appear before the Arbitrator.

Subsequently, the petitioners filed an application under sec. 16 of the Act raising objection on the jurisdiction of the Tribunal by submitting that the said Tribunal does not have a jurisdiction to adjudicate claims against them.

One of the grounds raised in the application was that the Petitioners were bonafide purchasers of one of the properties and have valid title to the same and that the arbitration clause does not bind them. 

The Arbitrator vide order dated 8th July 2019 held that the objection as to jurisdiction would be decided along with the final award. 

An application for recall of the order was rejected on 7th August 2019. Therefore, orders dated 8th July 2019 and 7th August 2019 were challenged before the Court under Art. 227.

Issues before the Court

1. Whether arbitral tribunals are tribunals over which jurisdiction under Art. 226/227 is exercisable by High Courts and what is the scope of interference?

2. Law governing applications under Section 16 of the Arbitration & Conciliation Act, 1996 and manner of consideration by arbitral tribunals.

3. Whether on the facts of the present case, interference is warranted challenging the orders passed by the arbitral tribunal?

Maintainability and Scope of Interference

While the Court observed that there was no doubt that the arbitral tribunal is a tribunal over which writ jurisdiction can be exercised, it was also observed that the said interference by a writ court is limited in nature.

The Court also referred to a bunch of landmark judgments and therefore held that for interference under Art. 226 and 227, there have to be `exceptional circumstances'. The Court also observed that such an interference is permissible only if the order is completely perverse i.e., that the perversity must stare in the face. 

Sec. 16 and Consideration by Arbitral Tribunal

The Court after analysing sec. 16 of the Act observed that the provision envisages that issues of jurisdiction ought to be raised before the Arbitral Tribunal at the earliest, before the submission of the statement of defence.

Noting that no fast rule can be adopted by the Court in such matters, the Court observed that the following factors can be borne in mind when objections are raised under Section 16 of the Act:

i. 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;

ii. If the Tribunal is of the opinion that the objections under sec. 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.

iii. 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.

iv. 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.

The Court went ahead to observe that in order to maintain the efficiency of the arbitral system, it is necessary that only those parties to whom the arbitral Clause is applicable contractually are obliged to arbitrate.

Observing that the Arbitrator had fully applied his mind and gave reasons to the petitioner as to why the application could not be adjudicated at the stage, the Court held that:

"Thus, the question of jurisdiction raised by the Petitioners would have to be adjudicated first, prior to the passing of the final award. The present petition is disposed of in the above terms. The ld. Arbitrator would proceed to adjudicate the disputes expeditiously and pass an award, preferably within a period of six months. Parties to appear before the arbitrator on April 5th, 2021."

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