Order Of Arbitrator Rejecting Application U/S 16 Of The A&C Act Cannot Be Challenged In A Writ Petition: Madhya Pradesh High Court

The bench of Justice Sushrut Arvind Dharmadhikari held that a party aggrieved by the rejection of its application under Section 16 of the AC& Act has to wait till the passing of the final award and then challenge the award under Section 34 of the Act including the ground of lack of jurisdiction of the arbitral tribunal.

Facts

The parties executed a Memorandum of Understanding (MoU) dated 01.12.2017. In terms of the agreement, the petitioner was to construct a model house on 11 plots in a residential colony. The MoU also contained an arbitration clause for the resolution of dispute.

Disputes arose between the parties in relation to the performance of the terms of the MoU, accordingly, arbitration clause was invoked by the respondent and the arbitrator was appointed by the Court. Before the arbitral tribunal, the petitioner raised a challenge under Section 16 of the Act on the ground of non-registration and non-stamping of the MoU.

The arbitrator rejected the application by observing that the MoU was in nature of an agreement to sale requiring a stamp duty of Rs. 1,000/- which was already paid by the respondent. Aggrieved thereby, the petitioner filed a writ petition challenging the order of the tribunal.

Contention of the Parties

The petitioner made the following grounds:

• That the arbitrator has passed the order in violation of the judgment of a 5-Judge bench of Supreme Court in N.N. Global Mercantile.
• That the MoU is not a simple agreement for sale of the plots but an agreement with a stipulation for construction, attracting Article 6(d)(i) of the Indian Stamp Act, requiring a higher payment of stamp duty. Therefore, the arbitral tribunal erred in holding that the MoU was merely an agreement to sale.

The respondents made the following submissions:

• That the petition is not maintainable in view of Section 16(5) of the A&C Act which provides that a party aggrieved by the rejection of challenge under Section 16 has to wait till the final award is passed and challenge the award under Section 34 of the Act.
• That the position is no longer res integra and the Supreme Court has put a finality on the issue in the case of Deep Industries v. ONGC.

Analysis by the Court

The Court held that in view of Section 5 of the A&C Act, the scope of judicial interference with the arbitral proceedings is very limited. It held that the Courts would not interfere except as provided under the Act.

The Court held that an order of the arbitral tribunal rejecting a challenge to its jurisdiction under Section 16 of the A&C Act is not challengeable in a writ petition.

The Court held that a party aggrieved by the rejection of its application under Section 16 of the AC& Act has to wait till the passing of the final award and then challenge the award under Section 34 of the Act including the ground of lack of jurisdiction of the arbitral tribunal.

The Court held that in a writ petition, the Court can interfere with the arbitral proceedings only in exceptional circumstances especially when a case regarding lack of inherent jurisdiction is made out or 'bad faith' is shown on the part of the other party. It held that the petitioner has not shown any such grounds for interference.

Accordingly, the Court allowed the preliminary objection raised by the respondent and held that the petition is not maintainable.

Case Title: Suncity Dhoot Colonizers v. Ram Chandra, W.P. No. 28151 of 2023

Citation: 2024 LiveLaw (MP) 17

Date: 16.01.2024

Counsel for the Petitioner: Vijay Kumar Asudani

Counsel for the Respondent: Rohit Kumat Mangal

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