Petition Under Section 34 Not Maintainable Against Rejection Of Application Under Section 16 By Arbitrator: Gujarat High Court

The Gujarat High Court bench of Chief Justice Sunita Agarwal and Justice Aniruddha P. Mayee has held a petition under Section 34 of the Arbitration and Conciliation Act, 1996 is not maintainable against the order of rejection of the application under Section 16 challenging challenging the jurisdiction of an arbitrator on the plea of res judicata and bar under Order 2 Rule 2 CPC.

Order 2 Rule 2 addresses the principle of res judicata concerning claims and reliefs that could have been included in an earlier suit but were not.

Further, the bench held that decisions of arbitral tribunal on issues like limitation and res judicata are interim awards and can be challenged under Section 34 of the Arbitration Act independently without waiting for the final award.

The bench held that arbitral tribunal's decision on limitation does not fall under the jurisdictional ambit of Section 16 of the Arbitration Act and thus cannot be directly appealed under Section 37 of the Arbitration Act.

The High Court noted that Section 5, commencing with a non-obstante clause, restricts judicial intervention except as provided in Part I of the Arbitration Act. Section 16 empowers the Arbitral Tribunal to rule on its jurisdiction, including objections regarding the existence or validity of the arbitration agreement. Subsections (2) and (3) specify the timing for raising jurisdictional pleas, and subsections (5) and (6) provide that the tribunal shall continue with proceedings and make an award if it overrules such objections with the aggrieved party entitled to challenge the award under Section 34.

The High Court referred to the Supreme Court in SBP & Co. v. Patel Engineering Ltd. (2005) 8 SCC 618 where it was held that Section 16 embodies the principle of Kompetenz-Kompetenz which allows the arbitral tribunal to rule on its jurisdiction. This section explicitly permits parties to raise jurisdictional objections, even if they have participated in the appointment of the arbitrator. The Supreme Court clarified that if the tribunal's jurisdiction is upheld an immediate challenge can be made through appeal; otherwise, objections can be raised against the final award.

In M/s Deep Industries Ltd. vs Oil And Natural Gas Corporation Ltd (2020 (15) SCC 706, the Supreme Court addressed the maintainability of a petition under Article 227 of the Constitution of India challenging an order under Section 17 of the Arbitration Act. The Supreme Court noted that disputes about jurisdiction do not imply a lack of inherent jurisdiction by the Arbitral Tribunal.

In Chintels India Ltd. v. Bhayana Builders Pvt. Ltd., the Supreme Court examined whether an order refusing to condone delay in filing an application under Section 34 is appealable under Section 37(1)(c). The Supreme Court applied the "effect doctrine" from Essar Constructions v. N.P. Rama Krishna Reddy and held that refusing to set aside an award due to delay effectively denies the application. The Supreme Court held that such refusals are appealable under Section 37(1)(c).

The High Court noted that Section 37(2)(a) allows appeals against orders accepting jurisdictional pleas under Section 16. However, no appeal is provided for rejecting such pleas; it held that, the tribunal must proceed with arbitration and the final award can then be challenged under Section 34. The High Court held that an interim award such as one on limitation is covered under Section 16 if it involves jurisdictional issues. The ruling in M/s Indian Farmers Fertilizer Co. clarified that an interim award includes decisions that could be part of a final award.

The High Court noted that initially arbitrators could not rule on the existence or validity of the arbitration clause but this changed with the adoption of the Kompetenz-Kompetenz principle by the UNCITRAL Model Law. Section 16 of the Arbitration Act, mirroring the UNCITRAL Model Law, allows the arbitral tribunal to rule on its own jurisdiction which encompasses three specific aspects: the validity of the arbitration agreement, the proper constitution of the tribunal, and whether the matters submitted to arbitration pertain to the agreement.

The high Court noted that the term “jurisdiction” has multiple interpretations. Referring the Supreme Court's decision in Ittavira Mathai v. Varkey Varkey, the High Court differentiated between erroneous decisions within jurisdiction and actions beyond jurisdiction. It held that that jurisdiction in Section 16 concerns whether the tribunal can embark upon inquiries into the issues raised by the parties to the dispute.

Further, the High Court referred to National Thermal Power Corp. Vs. Siemens Atkeingesellschaft (2007) 4 SCC 45. The NTPC decision clarified that appeals under Section 37 of the Arbitration Act are permissible only when there is a clear lack of jurisdiction or an excessive exercise of jurisdiction by the arbitral tribunal.

The High Court also addressed the concept of interim awards in arbitration. It held that decisions on issues like limitation and res judicata are indeed interim awards and can be challenged under Section 34 of the Arbitration Act independently without waiting for the final award. However, it held that such decisions do not require following the procedures outlined in Section 16(5) and (6).

The bench held that:

“On the first issue as to whether the award on the issue of limitation can be said to be an interim award, holding that the decision on the point of res judicata and limitation being the question of jurisdiction, is an interim award and being an arbitral award, can be challenged separately and independently under Section 34 of the Act has, thus, been answered in affirmative. However, it was further concluded that such an award, which does not relate to the arbitral tribunal's own jurisdiction under Section 16, does not have to follow the drill of Section 16(5) and (6) of the Act. Meaning thereby, the decision taken on the point of limitation can be challenged under Section 34 as an interim award and the party aggrieved is not required to wait till all issues are decided to challenge the order of the arbitrator on the issue.”

Further, the High Court held that the arbitral tribunal's order on the limitation could be challenged under Section 34 contrary to the Appellant's argument that these should only be challenged with the final award. The High Court also clarified that issues such as res judicata and the bar under Order 2 Rule 2 CPC, though related to jurisdiction, should be addressed within the arbitration proceedings and do not fall within the scope of Section 16.

The bench held that:

“We may further clarify that the question of bar under Section 11, Explanation 4 or under Order 2 Rule 2 CPC cannot be permitted to be raised within the scope of Section 16, which has been enacted on the Kompetenz-Kompetenz principle to rule on its own jurisdiction and the preliminary issue such as existence or validity of the arbitration agreement and matters submitted to arbitration being within the realm of the arbitration agreement. The issues such as res judicate and bar of Order 2 Rule 2 CPC though are the plea of law, which concerns the jurisdiction of the arbitrator, but they can very well be raised in the arbitration proceedings and issues have to be framed on the same by the Arbitrator, which may be decided as preliminary issues, but such plea cannot be said to fall within the scope and context of the expression "jurisdiction" in various sub-sections of Section 16.”

Consequently, the appeal was dismissed.

Brief Background:

The matter pertained to an order passed by an arbitrator in an arbitration proceeding between Babasaheb Ambedkar Open University (Appellant) and Abhinav Knowledge Services Private Limited (Respondent). The impugned order was passed under Section 16 of the Arbitration Act where the Arbitrator's competence to proceed with the arbitration was challenged on the grounds that the Respondent's claim was barred by the principles of res judicata and under the provisions of Order 2 Rule 2 of the Civil Procedure Code.

The learned Arbitrator rejected the application and held that the issues raised in the arbitral proceedings were not the subject matter of inquiry in the earlier proceedings. The Appellant challenged the order under Section 34 of the Arbitration Act on the basis that the order of rejection under Section 16 of the Arbitration Act being an interim award was amenable to challenge under Section 34.

The Judge of the Commercial Court held that orders under Section 16 are amenable to challenge under Section 34 at the time of challenging the final award. Feeling aggrieved, the Appellant approached the High Court.

#GujaratHighCourt #ArbitrationAct #Section34 #Section16 #ArbitrationJurisdiction #ResJudicata #Order2Rule2 #KompetenzKompetenz #InterimAwards

Case Title: Babasaheb Ambedkar Open University Versus Abhinav Knowledge Services Private Limited

LL Citation: 2024 LiveLaw (Guj) 97

Case Number: R/FIRST APPEAL NO. 1632 of 2019

Advocate for the Appellant: Kamal B Trivedi with Mitul Shelat and Disha N Nanavaty

Advocate for the Respondent: Nirav C Thakkar

Date of Judgment: 12/07/2024

Click Here To Read/Download Order or Judgment