Before delving upon the issue of jurisdiction of arbitral tribunals, let us read the section 16 of the Arbitration and Conciliation Act, 1996 (in short here in after referred to as “Act”)to understand its scope and repercussions during the arbitral proceedings.

Section 16. Competence of arbitral tribunal to rule on its jurisdiction.—

(1) The arbitral tribunal may rule on its own jurisdiction, including ruling on any objections with respect to the existence or validity of the arbitration agreement, and for that purpose,—

(a) an arbitration clause which forms part of a contract shall be treated as an agreement independent of the other terms of the contract; and

(b) a decision by the arbitral tribunal that the contract is null and void shall not entail ipso jure the invalidity of the arbitration clause.

(2) A plea that the arbitral tribunal does not have jurisdiction shall be raised not later than the submission of the statement of defence; however, a party shall not be precluded from raising such a plea merely because that he has appointed, or participated in the appointment of, an arbitrator.

(3) A plea that the arbitral tribunal is exceeding the scope of its authority shall be raised as soon as the matter alleged to be beyond the scope of its authority is raised during the arbitral proceedings.

(4) The arbitral tribunal may, in either of the cases referred to in sub-section (2) or sub-section (3), admit a later plea if it considers the delay justified.

(5) The arbitral tribunal shall decide on a plea referred to in sub-section (2) or sub-section (3) and, where the arbitral tribunal takes a decision rejecting the plea, continue with the arbitral proceedings and make an arbitral award.

(6) A party aggrieved by such an arbitral award may make an application for setting aside such an arbitral award in accordance with section 34.

Genesis:

Section 16 of the Act has been framed in terms and in spirit of Article 16 Chapter IV of UNCITRAL Model Laws on International Commercial Arbitration (1985) (as adopted by the United Nations Commission on International Trade Law on 21 June 1985)

“Article 16 – Competence of arbitral tribunal to rule on its jurisdiction

1. The arbitral tribunal may rule on its own jurisdiction, including any objections with respect to the existence or validity of the arbitration agreement. For that purpose, an arbitration clause which forms part of a contract shall be treated as an agreement independent of the other terms of the contract. A decision by the arbitral tribunal that the contract is null and void shall not entail ipso jure the invalidity of the arbitration clause.
2. A plea that the arbitral tribunal does not have jurisdiction shall be raised not later than the submission of the statement of defence. A party is not precluded from raising such a plea by the fact that he has appointed, or participated in the appointment of, an arbitrator. A plea that the arbitral tribunal is exceeding the scope of its authority shall be raised as soon as the matter alleged to be beyond the scope of its authority is raised during the arbitral proceedings. The arbitral tribunal may, in either case, admit a later plea if it considers the delay justified.
3. The arbitral tribunal may rule on a plea referred to in paragraph (2) of this article either as a preliminary question or in an award on the merits. If the arbitral tribunal rules as a preliminary question that it has jurisdiction, any party may request, within thirty days after having received notice of that ruling, the court specified in article 6 to decide the matter, which decision shall be subject to no appeal; while such a request is pending, the arbitral tribunal may continue the arbitral proceedings and make an award.”

Rationale

Principles of Kompetenz Kompetenz or “Compétence de la recognized” applies to the arbitration tribunal, which is a jurisprudential Doctrine whereby a legal body, such as a court or arbitration tribunal, may have jurisdiction to rule as to the extent of its competence or jurisdiction on an issue before it.

Idea behind the insertion of Section 16 was to stipulates the timeline for raising the issue with regard to the Jurisdiction of an arbitral tribunal, in order to save the time and money of the parties to dispute. However the language of Section 16 especially sub-section (2),(4) & (5) creates an ambiguity with regard to the fact that it gives options to the arbitral tribunal to decide the issue of jurisdiction either as a preliminary issue or at the time of passing of the award. Sub-section 2 stipulates that “the plea of jurisdiction shall not be raised later than statement of defence”, however at the same time a window has been left open in Sub-section 4 the tribunal has been vested power to condone the delay in taking plea of jurisdiction at belated stage on being satisfied by the justification of such delay, though this will be dependent upon the factual matrix of each case.

The Act is silent with regard to the fact as to whether the issue of jurisdiction is to be mandatorily decided as a preliminary issue, even the opinion of the Hon’ble Courts as well as interpretation by the Hon’ble Courts on issue of jurisdiction has been divided.

However I personally feel, that the benefit of treating the jurisdiction issue as a preliminary issue will result in quick culmination of arbitral proceedings and shall be cost effective as well, whereas if the decision on the issue of jurisdiction is taken at the time of passing of the award by the tribunal and ultimately tribunal comes to the conclusion that it lacks jurisdiction, it results in wastage of the time of the parties to dispute and tribunal as well and also increases the cost of litigation and effective adjudication of the claim is delayed. Such flexibility in the decision making process not only hampers the growth in International business, FDI but also hampers India from becoming an International hub for Commercial Arbitration.

Section 16 further creates another ambiguity, if the in terms of sub-section 5, the tribunal decides the plea of jurisdiction treating as preliminary issue than an appeal would lie to court in terms of Section 37(2)(a) of the Act, however if the tribunal decides to adjudicate upon the plea of jurisdiction at the stage of passing of Award than recourse under Section 34 shall be applicable as the award can only be challenged under Section 34 of the Act.

Important Judgments:

M/s Uttarakhand Purv Sainik Kalyan Nigam Limited vs Northern Coal Field Limited (Special Leave Petition (C) No. 11476 of 2018) decided on 27.11.2019

All other preliminary or threshold issues are left to be decided by the arbitrator under Section 16, which enshrines the Kompetenz­Kompetenz principle. 9.9. The doctrine of “Kompetenz­Kompetenz”, also referred to as “Compétence­Compétence”, or “Compétence de la recognized”, implies that the arbitral tribunal is empowered and has the competence to rule on its own jurisdiction, including determining all jurisdictional 5 (2017) 9 SCC 729.

In Bhushan Steel Ltd. Vs. Singapore International Arbitration Centre 2010 SCC OnLine Del 2236 relying on Kvaerner Cementation India Limited supra (2012) 5 SCC 214 and Roshan Lal Gupta supra holding, that once it is held there is a valid Arbitration Agreement between the parties, a suit for declaration that the Arbitral Tribunal has no jurisdiction or for permanent injunction to restrain arbitration would not be maintainable; (ix) the ICC Rules are akin to Section 16 of the Arbitration Act; and, (x) that Kvaerner Cementation India Limited supra has recently been cited with approval in National Aluminum Company Ltd. Vs. Subhash Infra Engineers Pvt. Ltd. 2019 SCC OnLine SC 1091 holding that if the plaintiff therein wanted to raise an objection with regard to existence or validity of the Arbitration Agreement, it was open for it to move an application before the Arbitrator but with such plea he cannot maintain a suit for declaration and injunction.

In Pandey & Co. Builders Private Limited Versus State of Bihar, AIR 2007 SC 465, held forum of appellate court must be determined with reference to definition of court in section 2(1)(e) of the Act. If a High Court does not exercise the Original Jurisdiction, it would not be a ‘Court’ within the meaning of the said provision.

M/s Lion Engineer Consultants Versus State of Madhya Pradesh 2018 AIR (SC) 1895

In this Judgment Hon’ble Supreme Court held that even if the objection of jurisdiction is not taken before the arbitral tribunal, than also the same can be raised during the challenge to the arbitral award under section 34 of the Act. The Hon’ble Court overruled its own judgement delivered in the case of MSP Infrastructure Ltd. v. Madhya Pradesh Road Development Corporation Ltd. (2015) 13 SCC 713 wherein it was held that all objections of jurisdictions must be raised at the submission of the statement of defence and must be dealt with under Section 16 of the Act.

– By Ravinder Singh Randhawa, Advocate Founder Partner, & Harjeet Savra, Advocate Senior Associate