Once Jurisdictional Challenge U/S 16 Arbitration & Conciliation Act Is Rejected, Party Has To Wait Till Stage Of S. 34 Proceedings: Madhya Pradesh HC

The Jabalpur Bench of the Madhya Pradesh High Court has reiterated that the Arbitration and Conciliation Act, 1996 is a "self contained code" dealing with every aspect of arbitration.

It added that once an Arbitral Tribunal rejects an application disputing its competency in terms of jurisdiction, the same cannot be challenged immediately and the arbitral proceedings may continue till passing of the award. The remedy against such an order of rejection, the Court said, has been deferred till the stage of Section 34 (Application for setting aside arbitral award) of the Act of 1996 arises.

Observing thus, a Bench of Chief Justice Mohammad Rafiq and Justice Vijay Kumar Shukla dismissed a plea challenging the order passed by an Arbitral Tribunal rejecting the application filed under Section 16 of the Act. The High Court observed,

"intention of the legislature in not providing the appeal against the rejection of the application under Section 16(2) is also evident from sub-section (2) of Section 37, which, vide its sub-clause (a), while providing for an appeal to a Court from an order of the arbitral tribunal accepting the plea referred to in sub-section (2) or sub-section (3) of Section 16, purposely does not provide for an appeal against an order of the arbitral tribunal rejecting the plea referred to in sub-section (2) or sub-section (3) of Section 16."

The Court made it clear that argument of the petitioner that the arbitral tribunal does not have the jurisdiction may only be available to it as ground of challenge to the award if eventually the same were to be passed against it.

The reason for the same, the Court elucidated, is "speedy disposal".

Reliance was placed on the Supreme Court's verdict in Fuerst Day Lawson Ltd. Vs. Jindal Exports Ltd., (2011) 8 SCC 333, where it was held that since Section 37(2) of the Act explicitly interdicted second appeals, the appeals filed under Letters Patent would also be so interdicted, policy of the legislature being speedy disposal of the arbitration cases. 

Background

The M.P. Road Development Corporation (petitioner) and the Ministry of Road, Transport and Highways (MORT & H) had entered into a concession agreement.

Upon a dispute having been arisen between the parties, the Respondent- department invoked the Arbitration Clause No.44.3 of the said Concession Agreement and a panel of three arbitrators came to be appointed.

The petitioner on the other hand raised a dispute that the matter was required to be adjudicated by the Arbitration Tribunal constituted under the Madhya Pradesh Madhyastham Adhikaran Adhiniyam, 1983.

It filed an application under Section 16 of the Act before the newly constituted Arbitral Tribunal, contending that it has no jurisdiction to decide the dispute between the parties and also contending that since the dispute between the parties under the Concession Agreement falls within the definition of 'works contract', therefore, in view of Clause 44.4 of the Concession Agreement, Madhya Pradesh Arbitration Tribunal constituted under the Adhiniyam of 1983 would have the exclusive jurisdiction to entertain the dispute.

The Arbitral Tribunal rejected the said application. Aggrieved by this, the petitioner approached the High Court.

Findings

The court relied on Clause 44.3.1 of the agreement entered into between the parties which provided that any dispute, which could not be resolved amicably by conciliation, shall be finally decided by reference to arbitration by a Board of Arbitrators appointed in accordance with Clause 44.3.2, in accordance with the Rules of Arbitration of the International Centre for Alternative Dispute Resolution, New Delhi, subject to the provisions of the Arbitration Act and that the venue of such arbitration shall be at Bhopal.

"If despite existence of the Arbitration Tribunal under the Adhiniyam of 1983, the parties have agreed for arbitration under the aegis of ICADR in accordance with the ICADR Rules and the Arbitration Act and consciously did not mention about existence of the arbitration tribunal established under the Adhiniyam of 1983, which then was already in existence, the petitioner cannot be permitted now to raise this plea," it said.

With this view, the Court refused to transfer the arbitral proceedings or interfere with the constitution of an arbitral tribunal formed in adherence to the provision of the Act of 1996.

It held as under:

"The legislative policy in consolidating all the laws relating to domestic arbitration, international commercial arbitration, enforcement of foreign arbitral awards is aimed at ensuring not only speedy disposal of arbitration cases but also timely execution of the awards."

A perusal of Section 16(2) of the Act shows that a plea alleging that the arbitral tribunal does not have jurisdiction shall be raised not later than the submission of the statement of defence; however, a party shall not be precluded from raising such a plea merely because that it had appointed, or participated in the appointment of, an arbitrator.

Sub-section (5) of Section 16  further provides that the arbitral tribunal shall decide on a plea referred to in sub-section (2) or sub-section (3) and, where the arbitral tribunal takes a decision rejecting the plea, it shall continue with the arbitral proceedings and make an arbitral award.

It was thus noted that the language employed by the Parliament in this sub-section made its intention clear that once if the arbitral tribunal takes a decision to reject the plea, it shall continue with the arbitral proceedings and make an arbitral award.

"It cannot however be said that the aggrieved party has been left remediless against the rejection of its objection as to the jurisdiction of the arbitral tribunal. The only thing is that its remedy has been deferred till the stage of Section 34 of the Act of 1996 arises as is evident from sub-section (6) of Section 16 of the Act of 1996 which interalia provides that the parties aggrieved by such an arbitral award may make an application for setting aside such an arbitral award in accordance with Section 34."

The Court also rejected the argument of Advocate General Purushaindra Kaurav, that the present matter fell within the exceptions to the general rule that High Court, under Article 226 and 227 of the Constitution of India, can interfere with orders "patently lacking in inherent jurisdiction" and also if it suffers from 'bad faith'.

"....the petitioner appears to have coined the argument of "patent lack of inherent jurisdiction" and the "bad faith" only during the course of arguments as none of them find mention either in the application under Section 16(2) filed before the Arbitral Tribunal or in the memorandum of writ petition challenging rejection thereof or even in the rejoinder to the reply of respondent No.2."

In this regard, the Bench relied on the Supreme Court judgment in SBP and Co. Vs. Patel Engineering Ltd wherein it had disapproved the practice adopted by some of the High Courts in entertaining challenge to any order passed by an Arbitral Tribunal in exercise of power under Article 226 or 227 of the Constitution of India by observing that the legislative object of enacting the consolidated Act is to minimize judicial intervention while the matter is in the process of arbitration.

"Had the parties while entering into the agreement wanted to refer their future disputes to the Arbitration Tribunal constituted under the Adhiniyam of 1983, they would have most certainly mentioned about the same in Clause 44.3 or Clause 44.4 rather than wording these clauses in the manner they have been formulated", the Bench added.

In view of this analysis, the Court found no infirmity in the order passed by the Arbitral Tribunal and went on to dismiss the writ petition.

Case Title: M.P. Road Development Corporation v. The Ministry of Road, Transport and Highways (MORT & H) and another

Counsel for the petitioner: Advocate General Purushaindra Kaurav along with Advocate Aditya Khandekar
Counsel for respondent No.1: Advocate Mohan Sausarkar
Counsel for the respondent No.2.: Senior Advocate Ranjeet Kumar with Advocate Akshay Sapre

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