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Is It Compulsory for an Arbitral Tribunal to decide an Objection to its Jurisdiction at the very Threshold?

The blog is inscribed by Advocate Advait Ghosh.

Section 16 envisages the concept of Kompetenz-Kompetenz, in other words, it is a recognition of the concept that the arbitral tribunal has the right to decide on a challenge to its own jurisdiction brought forth by one of the parties to the dispute. This provision is read in consonance with Section 5 of The Arbitration & Conciliation Act, 1996. It effectively circumscribes the power of the Civil Courts to interfere with the said function, except the specified avenues. The 2015 Amendment of The Arbitration & Conciliation Act has effectively narrowed down the areas, where the Court can interfere. This has effectively broadened the horizons of Section 16 of The Arbitration & Conciliation Act, 1996. Issues such as limitation, accord, and satisfaction have now been included under the purview of Section 16 of The Arbitration & Conciliation Act, 1996. Therefore, if a party wishes to throw a jurisdictional challenge to the arbitral tribunal it has to prefer an application under Section 16 of The Arbitration & Conciliation Act, 1996.

Section 16 of The Arbitration & Conciliation Act, 1996 deals with jurisdictional challenges, & it can lead to the inference that adjudication under Section 16 is of a preliminary nature, and therefore such application must be disposed of in the initial stages of the adjudication itself. Such an inference can be drawn in terms of sub-section (5) of Section 16, which is as follows:-“The Arbitral Tribunal shall decide on a plea referred to in sub-section (2) or sub-section (3) and where the arbitral tribunal rejects the plea, the arbitral proceedings will continue and the award will be made”.  The above-mentioned observation can lead to the drawing of similarities between Order 7 Rule 11 of The Code of Civil Procedure, 1908, and Section 16 of The Arbitration & Conciliation Act, 1996. It is settled jurisprudence that once an application is filed under Order 7 Rule 11 of the Code of Civil Procedure, 1908, the Court is required to dispose of the same before proceeding with the Trial. In R. K. Roja v. U. S. Rayudu & Anr. [(2016) 14 SCC 275] this issue has been settled.

The question which arises before us is whether it is mandatory for the arbitral tribunal to decide on a challenge to its jurisdiction at the preliminary stage before the trial can be proceeded with? A review of the jurisprudence on this issue leads to a conclusive decision on this aspect.

The High Court of Delhi in the context of Section 16 of The Arbitration Act and concluded with the following words-“39. Under Section 16 of the Act upon a challenge being made to the jurisdiction of the arbitrator, the Arbitral Tribunal though is required to adjudicate the same but there is nothing to show that the arbitrator is to first adjudicate the same and can thereafter only proceed to adjudicate on the merits of the claim. The Arbitral Tribunal in its jurisdiction is entitled to decide the said challenge either as a preliminary issue or together with the entire matter. It is significant that even in the event of the arbitrator deciding against the challenge, no remedy, therefore, is provided and the challenge to such finding can be made only after the arbitral award in accordance with Section 34 of the Act. Thus, it cannot be said that any illegality has been committed by the arbitrator in not deciding the challenge as a preliminary issue as sought for by the petitioner/appellant.”

In a recent judgment in Pankaj Arora v. AVV Hospitality LLP &Ors. [MANU/DE/1405/2020], the High Court of Delhi has reiterated and elaborated upon this procedural flexibility which is available to an Arbitral Tribunal in the following words:

“16. I am unable to read sub-section 5 of Section 16 as casting a mandate, on the arbitrator, or the Arbitral Tribunal, to decide the objection, to its/his jurisdiction, to adjudicate on any claim/counterclaim, necessarily before the recording of evidence. No doubt, issues of jurisdiction are, ordinarily, to be addressed at the outset. That, however, is more a rule of prudence than one of the inflexible procedures. Legally, so long as the said decision is taken prior to the making of the final arbitral award, in my view, no infraction of Section 16 could be said to have occurred.”

A bare reading of these provisions shows that the Arbitral Tribunal has the discretion that it is not mandatory for the Arbitral Tribunal to adjudicate on a jurisdictional challenge at the commencement of the proceedings; the tribunal can postpone the adjudication of such challenge to a belated stage. This “belated stage “can be extended up to the arbitral award itself, as long as the jurisdictional challenge is adjudicated upon. It would be illuminating to refer to the decision of the Supreme Court in the case of Maharshi Dayanand University &Ors. v. Anand Coop. L/C Society Ltd. &Ors. [(2007) 5 SCC 295] wherein this aspect of the matter in relation to the discretion conferred on an Arbitral Tribunal qua jurisdictional issues was discussed and it was held as under:

11. The arbitrator, in the first instance, has to decide whether the existence of an arbitration agreement in terms of Section 7 of the Act is established and also to decide whether the claim now made is a claim that comes within the purview of Clause 25A of the tender conditions in case it is found to be an agreement within the meaning of Section 7 of the Act. Only on deciding these two aspects can the arbitrator go into the merits of the claim made by the respondent. But we clarify that it does not mean, that he should treat these two aspects as preliminary issues and decide them first; but only that he must decide them without fail while proceeding to finally pronounce his award.”

In conclusion, we can thus say that the arbitral tribunal has unrestricted jurisdiction to post-pone the adjudication of the challenge to the jurisdiction of the arbitral tribunal at a later stage, as long as the objection to the jurisdiction is adjudicated upon. The observations made by the Supreme Court in Kvaerner Cementation India Limited v. BajranglalAgarwal [(2012) 5 SCC 215] are important in this regard” The petitioner who is a party to the arbitral proceedings may raise the question of jurisdiction of the Arbitrator as well as the objection on the ground of non-existence of any arbitration agreement in the so-called dispute in question and such an objection being raised, the arbitrator would do well in disposing of the same as a preliminary issue so that it may not be necessary to go into the entire gamut of arbitration proceedings.”

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