Stage of consideration of objections under Section 16 of the Arbitration and Conciliation Act, 1996

The principle of least judicial interference was legislatively codified as Section 5 of the Arbitration and Conciliation Act, 1996[1] (Act) in order to ensure continuation of the arbitration without periodic interdicts by any court. Section 16[2] of the said Act carves out an exception to the general rule by providing a right to the parties before arbitration to raise the plea of objection to the competency of an Arbitral Tribunal. This is based on the principle of kompetenz-kompetenz i.e., the power of the Tribunal to rule on its own jurisdiction[3]. The reason is that if an arbitrator is himself of the view that he is not competent, no purpose would be served by continuation of the arbitration proceedings. If the arbitrator finds lack of competency, the arbitral proceedings would come to an end. It is in view thereof that an appeal has been provided under Section 37[4] of the said Act. The position would be however different where the Arbitral Tribunal finds that it is competent to proceed with the arbitration. No appeal has been provided in such a case. The consequences of such a decision are provided in Section 16(5) of the said Act is that the arbitral proceedings would continue resulting in an arbitral award. The remedy is provided in Section 16(6) of the said Act which is to challenge the ultimate award under Section 34[5] of the said Act. There is no segregated challenge permissible only on the question of the competency of the Arbitral Tribunal.

The question then would be, at what stage should the jurisdictional objections raised by a party to the arbitration be considered and decided by the Arbitral Tribunal? This question also arises in view of the prevalent trend of Arbitral Tribunals deferring the consideration of jurisdictional objections to the stage of final award which often results in the party which has raised the objection at the threshold, having to contest the entire proceedings, thereby wasting considerable amount of time and that too at great expense.

In the respectful view of the author, the bare reading of Section 16(2) along with Section 16(5) of the Act leaves no manner of doubt that the Tribunal has no discretion in deferring a decision on an application under Section 16 of the Act. Section 16(2) stipulates that a party raising jurisdictional objections shall have to do so not later than the submission of the statement of defence. The very purpose of having a party raise objections at the threshold would get defeated in the event the decision on these objections is also not taken with equal promptitude. As per Section 16(5) of the Act, the Arbitral Tribunal “shall” decide on the jurisdictional objections, and where the Arbitral Tribunal takes a decision rejecting the plea, the Tribunal shall continue with the arbitral proceedings and make an arbitral award. The reading of Section 16(5) indicates that a decision rejecting the jurisdictional objections is a statutory precondition for continuance of arbitral proceedings. The statute envisages only one of two situations i.e. first, where Section 16 objections are accepted and Tribunal holds that it does not have jurisdiction and second, where the objections are rejected by the Tribunal. In the first case, the remedy of Section 37 appeal is available and in the latter, the award passed by the Tribunal can be assailed under Section 34 of the Act. Therefore, once a statutory remedy has been provided against an order passed on a challenge to the jurisdiction of the Tribunal under Section 16, then, such a challenge must, in the opinion of the author be determined at the threshold itself and there is no apparent reason for deferring a decision on the Section 16 application.

Any refusal to go into the merits of the dispute is a jurisdictional issue.[6] Therefore, it would be manifest, that a decision on any objection regarding the competence of the Tribunal to go into the merits of the dispute must not, and indeed cannot be deferred and must be taken at the preliminary stage itself. This position is consistent with the decisions of the Supreme Court in McDermott[7], Kvaerner Cementation[8] and also in Ayyasamy[9], where it was held that “the jurisdictional challenge is required to be determined as a preliminary ground”.

In several cases, while deferring the consideration of a challenge under Section 16, parties and Tribunals have placed reliance on the decision in Maharshi Dayanand University v. Anand Coop. L/C Society Ltd.[10] where it was held by a two-Judge Bench of the Supreme Court that there is no mandatory requirement to decide jurisdictional challenge as a preliminary matter, and that the same can be decided along with the final award. It is to be noted that the decision in Maharshi[11] did not consider the previous decision in McDermott[12], therefore, it could be argued that the decision in Maharshi[13] is “per-incuriam” and would not be good law. Similarly, in SAIL v. Indian Council of Arbitration[14] the Delhi High Court held that the wordings of Sections 16(2) and 16(5) do not place any mandatory condition of deciding preliminary objections to jurisdiction of the Tribunal at the threshold. Again, the High Court in arriving at its conclusion did not take into account the decision in McDermott[15] and Kvaerner Cementation[16], as such, the decision of the High Court cannot be said to be good law.

Another aspect of the matter is the impact of the introduction of the Arbitration and Conciliation (Amendment) Act, 2015[17] (“2015 Amendment”) on the timeline and stage of consideration of the jurisdictional objections under Section 16 of the Act. The 2015 Amendment was introduced with the objective of making arbitration user-friendly, cost effective and expeditious disposal.[18] In particular, Section 29-A was introduced mandating strict timelines of approximately one year for conclusion of arbitration proceedings. With the introduction of the stricter timelines, there is a stronger case to be made for threshold examination of any jurisdictional objections at the preliminary stage itself. This would be consistent with the objective of expeditious disposal of arbitration proceedings and would also ensure that in cases of abuse of process, apparent jurisdictional bar, the party raising such objections is not made to wait till the conclusion of the proceedings for determination of these fundamental objections. Such a course, if adopted, in the opinion of the author would pave way for furthering the cause of expeditious, and inexpensive arbitration proceedings.

† Advocate, Delhi High Court and Supreme Court of India.

[1] <http://www.scconline.com/DocumentLink/87bn601l>.

[2] <http://www.scconline.com/DocumentLink/C8X6A4y5>.

[3] Chloro Controls India (P) Ltd. v. Severn Trent Water Purification Inc., (2013) 1 SCC 641; Duro Felguera SA v. Gangavaram Port Ltd., (2017) 9 SCC 729; Uttarakhand Purv Sainik Kalyan Nigam Ltd. v. Northern Coal Field Ltd., (2020) 2 SCC 455.

[4] <http://www.scconline.com/DocumentLink/0Vi7sQsH>.

[5] <http://www.scconline.com/DocumentLink/teuo89l3>.

[6] National Thermal Power Corpn. Ltd. v. Siemens Atkeingesellschaft, (2007) 4 SCC 451.

[7] McDermott International Inc. v. Burn Standard Co. Ltd., (2006) 11 SCC 181.

[8] Kvaerner Cementation India Ltd. v. Bajranglal Agarwal, (2012) 5 SCC 214.

[9] A. Ayyasamy v. A. Paramasivam, (2016) 10 SCC 386.

[10] (2007) 5 SCC 295.

[11] (2007) 5 SCC 295.

[12] (2006) 11 SCC 181.

[13] (2007) 5 SCC 295.

[14] 2013 SCC OnLine Del 4490.

[15] (2012) 5 SCC 214.