Can Jurisdictional Objection Be Raised At Any Stage Of The Arbitration Proceeding? - A Legal Conundrum

The issue which arises is whether a party can raise a jurisdictional objection for the first time in a proceeding under Section 34 of the Act or will the party be deemed to have waived its right to object to the jurisdiction having regard to Section 16 read with Section 4 of the Act. This issue is better understood by analyzing the case laws in this regard.

In MSP Infrastructure Ltd. v. Madhya Pradesh Road Development Corporation Ltd.^[1], the issue before a 2 Judge Bench of the Supreme Court was whether a party to the arbitration proceeding could be permitted to raise a jurisdictional objection that the Arbitral Tribunal constituted under the Madhya Pradesh Madhyastham Adhikaran Adhiniyam, 1983 ("MP Act of 1983") would take precedence over the one constituted under the 1996 Act that too by way of an amendment to the petition filed under Section 34 of the Act. It was held in paragraph 16 of the judgment that "all objections to jurisdiction of whatever nature must be taken at the stage of submission of the statement of defence, and must be dealt with under Section 16 of the Act. However, if one of the parties seeks to contend that the subject-matter of the dispute is such as cannot be dealt with by arbitration, it may be dealt under Section 34 by the Court"^[2]Further, the Court in paragraph 17 also held that public policy of India does not refer to a State law and refers only to an all-India law.^[3]

In paragraphs 16 and 17 in MSP Infrastructure the Supreme Court drew a distinction between a challenge to jurisdiction under Section 16 of the Act and a petition to set aside an arbitral award under Section 34 of the Act holding that the courts under Section 34 of the Act can decide only upon the "subject matter of the dispute not being arbitrable" and does not refer to "jurisdiction".

Subsequently, a three Judge Bench of the Supreme Court in Lion Engineering Consultants v. State of Madhya Pradesh and Ors.^[4], overruled the observations in paragraphs 16 and 17 of MSP Infrastructure. It is pertinent to note that the other paragraphs of the judgment in MSP Infrastructure were not overruled and still lay down the correct law and thus have to be abided. In MSP Infrastructure, the counsel for Respondent also argued that objection as to absence of jurisdiction can be raised at any stage since the order of a court passed without jurisdiction is a nullity. However, the Court held that this position of law is settled in relation to civil disputes in court but not in relations to arbitration.^[5] Parliament having enacted a special law (1996 Act) in its wisdom having knowledge of the existing law if it chose to enact a provision contrary to the general law on the subject, its wisdom cannot be doubted.^[6] It is important to keep in mind this ratio of the Court in MSP Infrastructure while deciding cases of jurisdictional objections in an arbitration proceeding.

In Lion Engineering it was contended that the Arbitrator's jurisdiction was circumscribed MP Act of 1983which provided for a specific forum to adjudicate the dispute in question. Although this plea was not raised before the Arbitrator under Section 16 of the Act, the Supreme Court held:"We do not see any bar to plea of jurisdiction being raised by way of an objection under Section 34 of the Act even if no such objection was raised under Section 16".

Lion Engineering has far reaching impact on subsequent cases wherein parties to the arbitration proceeding relying on Lion Engineering case have raised a jurisdictional objection directly in proceeding under Section 34 of the Act despite the fact that the same could have been raised but not raised before the Arbitrator under Section 16 of the Act. One such case is Salar Jung Museum &Anr. v. Design Team Consultants Pvt. Ltd^[7] wherein a petition was filed before the Delhi High Court under Section 34 of the Act seeking to set aside an arbitral award. It is pertinent to note that in this case the Arbitrator was appointed on an application filed by the Respondent before the Delhi High Court under Section 11 of the Act. The reference order of the Court under Section 11 of the Act stated that the appointment of the Arbitrator was confined to the claim of the alleged shortfall in consultancy fees alone. It was contended that the learned Arbitrator had exceed his jurisdiction by deciding claims of refund of security deposit and balance of supervision charges other than the claim for consultancy fees. This jurisdictional objection was not raised in the course of arbitration proceedings. The question was whether it can be taken for the first time in proceedings under Section 34 of the Act. The Petitioner relied on Lion Engineering to support its submission that such an objection could be raised for the first time in a proceeding filed under Section 34 of the Act. However, a Single Judge Bench of the Delhi High Court distinguished the judgment in Lion Engineering stating that the objection in Lion Engineering arose from a statutory bar which governed the jurisdiction of the Arbitrator. Contrary to the same, in the present case, the challenge was not based upon any inherent lack of jurisdiction in the Arbitrator but upon the reference order itself. The Delhi High Court held that in such a case, the party concerned cannot be permitted to participate in the arbitration proceedings, contest the claim on merits, and thereafter raise a jurisdictional objection. The Delhi High Court relied on the concept of consensual dispute resolution to state that where the jurisdictional objection is capable of waiver [Section 4] by the affected party, the failure to raise it before the Arbitrator signifies consent to the Arbitrator's jurisdiction. A party cannot, in such a case, participate in the proceedings without demur and then seek to assail the validity of the proceedings in the face of an unfavorable award. Similarly, even in situations where a specific dispute is referred to the Arbitrator, and the Claimant subsequently seeks adjudication of other claims as well, if the Respondent does not object, the resulting claims may also have been agreed to arbitrate as well.

The Delhi High Court in Salar Jung Museumcase relied on the judgment of a Single Judge of the Supreme Court in Quippo Construction Equipment Limited v. Janardan Nirman Pvt. Limited^[8] wherein objection regarding the venue of arbitration and holding of a common arbitration arising out of several agreements was raised in a proceedings filed under Section 34 of the Act by a party which did not participate in the proceedings at all. The aforesaid objections were not raised by the Respondent before the Arbitrator and the Respondent let the arbitral proceedings conclude and culminate in an ex-parte award. Therefore, the issue was whether the Respondent could be said to have waived the right to raise any of the aforesaid objections. The Supreme Court held that "Considering the facts that the Respondent failed to participate in the proceedings before the Arbitrator and did not raise any submission that the Arbitrator did not have jurisdiction or that he was exceeding the scope of his authority, the Respondent must be deemed to have waived all such objections".

The intention of Section 16 of the Act is clear. It seeks to disable a party from challenging the jurisdiction of Arbitrator / Arbitral Tribunal belatedly, having submitted to the jurisdiction. It is interesting to see how the judgment in Lion Engineering will be considered in future or will it be reconsidered in view of Supreme Court's observation in MSP Infrastructure where it upheld the prohibition laid down under Section 16(2) of the Act and stated that the intention of the legislature in enacting Section 16 of the Act was to prevent the mischief of challenging the jurisdiction of the Arbitral Tribunal at a later stage and further observed that "It would be quite undesirable to allow arbitrations to proceed in the same manner as civil suits with all the well-known drawbacks of delay and endless objections even after the passing of a decree."

Thus, if a party is allowed to raise a jurisdictional objection at any stage of the arbitration proceeding, then the very purpose of Section 16 of the Act would be rendered redundant. Further, the view in Lion Engineering is also increasingly being (mis)used as a mechanism to delay the arbitration proceedings, which is against the very purpose of using arbitration as a speedy dispute resolution mechanism in contrast to ordinary judicial proceedings before the Courts.