"Maintainability" And "Jurisdiction" Cannot Be Conflated While Deciding Application U/S 20 Of Arbitration Act, 1940: Bombay HC

Brief Facts:

The petitioner is challenging the order dated 10th November 2014 passed by the 3rd Joint Civil Judge Senior Division, Nashik, in Civil Miscellaneous Application No. 321 of 2000 filed under Section 20 of the Arbitration Act, 1940, wherein it was held that the Court had no jurisdiction to entertain the application.

On 28th May 1995, an arbitration agreement was executed between the parties which was to be governed by the Arbitration Act, 1940. Subsequently,a dispute arose between the parties in 1994, leading to the appointment of an Arbitrator. The Arbitrator submitted a draft arbitration award on 17th February 1997, which was accepted by the petitioner but refused by respondent No. 1.

Thereafter, a Civil Miscellaneous Application under section 9 of the Arbitration Act was filed in the Nasik Court in which interim injunction against the respondent was sought and the injunction was granted .

This order was challenged by the respondent before the ADJ who heard the matter and set aside the injunction order on the ground that the learned civil judge is not a court within the meaning of section 2(e) of the Arbitration Act therefore it has no jurisdiction.However, the applicant was allowed to file appropriate application.

A Civil Miscellaneous Application was filed by the Applicant under section 20 of the Arbitration Act, 1940 which was dismissed by the learned Civil Judge by the impugned order on the ground that it lacked jurisdiction to entertain the application.

Contentions:

The applicant submitted that the plea that the present arbitration agreement cannot be governed by the Arbitration Act, 1940 cannot be allowed to be taken in these proceedings on the ground of principle of estoppel. They had themselves admitted before the Supreme Court that the agreement was governed by the Act of 1940.

It was also contended that the impugned order is liable to set aside on the ground that it conflated the maintainability with the jurisdiction which in fact are two different things altogether.

Per contra, the respondents submitted that the proceedings in the present case did not start before the Arbitration Act of 1996 came into force and as per section 85 of the New Act the Arbitration Act of 1940 stood repealed therefore the proceedings will be governed by the New Act.

It was also submitted that the Trial Court correctly framed and decided the preliminary issue of jurisdiction under Order XIV Rule 2 of the Code of Civil Procedure, 1908, as it pertains to the foundational competence of the Court to entertain the matter.

Decision of The Court:

The court observed that there is a distinction between maintainability and jurisdiction which were conflated by the Trial Court while deciding the application.

It observed “the terms "jurisdiction" and "maintainability" are often mistakenly used interchangeably, yet they hold distinct legal connotations. A precise understanding of the distinction is crucial for judicial adjudication. Jurisdiction refers to the power and authority of a court or tribunal to adjudicate a dispute and render a binding decision.”

It was observed that jurisdiction derives its authority from statutes conferring power on the court. Maintainability arises from procedural and statutory compliance requirements for initiating proceedings. Lack of jurisdiction results in the nullity of proceedings, as the court inherently lacks authority to adjudicate. Non-compliance with maintainability bars leads to dismissal without deciding the merits of the case but does not affect the court's inherent power.

It was observed that the Trial Court framed the issue of jurisdiction in the impugned order. However, while recording its findings,it came to the conclusion that “the proceeding was not maintainable due to the inapplicability of Section 20 of the Arbitration Act, 1940.”

It further observed that “this approach demonstrates a fundamental misunderstanding of the distinction between jurisdiction and maintainability.”

The court further observed that the admission of the respondents before the Supreme Court assumes significance in light of section 85 of the Arbitration Act of 1996 which saves proceedings initiated under the old Act before the commencement of the New Act. This was completely lost sight of by the trial court while arriving at the conclusion that it did not have jurisdiction.

“The Trial Court improperly conflated the provisions of Section 20 with maintainability. Jurisdiction must be determined based on the pleadings in the application. The petitioner's averments regarding the arbitration agreement and the alleged consent by respondent No. 1 to appoint the arbitrator establish a prima facie case for jurisdiction under the 1940 Act.” the court observed.

It also observed that the issue of whether respondent No. 1 consented to the arbitrator's appointment or the draft award is a matter for substantive adjudication and does not affect the Court's jurisdiction to entertain the application

Accordingly, the impugned order was set aside and the application was restored to be decided on merits.

Case Title: Deepak Manaklal Katariay V/s. Ahsok Motilal Katariya and Ors.

Case Number: WRIT PETITION NO.2315 OF 2015

Date Of Judgment: 29/11/2024

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