INTRODUCTION
With the successful implementation of the Arbitration and Conciliation Act, 1996 (“the Act”), Arbitration has rapidly risen as India’s predominant Alternative Dispute Resolution (ADR) mechanism, apart from Mediation and Conciliation.
The term Arbitration has been defined by the Black’s Law Dictionary, Fourth Edition as “the submission for determination of disputed matter to private unofficial persons selected in the manner provided by law or agreement.”
Based on the aforementioned definition, Arbitration refers to a mechanism wherein parties to an agreement, being a valid Arbitration agreement, submit their dispute concerning the principal agreement to an unofficial private person appointed in the manner provided by law or the agreement. Thus, the Arbitrator is appointed by the parties through their own devised procedure, provided it is accordance with the statutory mandate concerning Arbitration.
Since India became a signatory to the United Nations Commission on International Trade Law (UNCITRAL) Model Law on International Commercial Arbitration, 1985, the Arbitration Act of 1940 was repealed and the Act which is currently in force and governs Indian seated Arbitration, was modelled around the UNCITRAL Model Law.
Subsequently, the Act has been amended time and again to ensure that the Arbitration mechanism within India is at par with global standards. The Act stipulates various provisions of law which govern both domestic and international arbitration. The Act was primarily promulgated with the object to enable disputing parties to resolve such disputes outside the court in a cost and time effective manner, to be adjudicated by a neutral Arbitral Tribunal.
This article intends to analyse the jurisdiction of the Arbitral Tribunal, and the judicial interpretation of the jurisdiction of an Arbitral Tribunal when a question is placed before a Court of Law regarding jurisdiction.
ARBITRABILITY OF DISPUTES
Not all disputes between the parties are susceptible to Arbitration. Only those disputes which are specially agreed upon between parties to the Arbitration agreement or which can naturally be inferred to be a dispute arising from the Arbitration agreement can be the subject matter of Arbitration, as held in Zenith Drugs & Allied Agencies (P) Ltd. v. Nicholas Piramal (India) Ltd. 2019 SCC OnLine SC 946.
However, not all subject matter can be arbitrable solely due to the presence of Arbitration clauses in the main contract. A significant difference exists between non-arbitral claims and non-arbitrable subject matter: the former may arise on account of the Arbitration agreement’s scope and when the claim is not capable of being resolved through Arbitration.
At the same time, generally, the non-arbitrability of the subject matter would relate to non-arbitrability in law. Though the Act recognises and accepts that certain disputes or subjects are not capable of being resolved by Arbitration under Section 2(3) and Section 34(2)(b)(i) of the Act, the Court may determine the arbitrability of a dispute from ‘ex visceribus actus’, i.e. from the very essence of the Act and within its four corners, to formulate the principles for determining non-arbitrability, as held in Vidya Drolia v. Durga Trading Corpn., 2019 SCC OnLine SC 358 (“Vidya Drolia”).
The Supreme Court in the Vidya Drolia case laid down the four-fold test to determine non-arbitrable subject matter in as follows:
- The cause of action and the subject matter of the dispute should be actions in rem, that do not concern subordinate rights in personam emerging from rights in rem;
- The cause of action and subject matter of the dispute affect third-party rights, have erga omnes effect, i.e., when rights or liabilities are owed to everyone, necessitate unified adjudication, and decentralised adjudication would be inappropriate and unenforceable;
- The cause of action and subject matter of the dispute pertains to the State’s inalienable sovereign and public interest functions, and mutual adjudication would be unenforceable; and
- A specific statute declares the subject matter of the dispute as non-arbitrable, either expressly or by necessary implication.
Pursuant to the last test of ‘necessary implication’ laid down by the Supreme Court, disputes such as probate and testamentary matters, criminal cases, intellectual property disputes, insolvency or disputes under special statutes are generally considered as non-arbitrable disputes.
JURISDICTION OF ARBITRAL TRIBUNAL
The jurisdiction of an Arbitral Tribunal is laid down by Chapter IV of the Act. From a plain reading of Section 16 of the Act, it becomes clear that the Tribunal’s core competence is determined by the Arbitration agreement itself, whereby parties may choose to expressly limit or determine the manner of conduct of the Tribunal.
Determination of Jurisdiction
In consonance with the kompetenz-kompetenz principle, sub-section (1) of Section 16 of the Act states that the Arbitral Tribunal may rule on its jurisdiction, including ruling on any objections concerning the existence or validity of the Arbitration agreement.
Though the Arbitration agreement or the Arbitration clause is essentially a part of the main contract, it is treated as an independent agreement outside of the main contract. If the Tribunal finds that the primary contract is null and void, it does not entail ipso jure, i.e., by the law itself, invalidity of the Arbitration clause.
Thus, the Arbitral Tribunal whose jurisdiction is determined by the Arbitration agreement/Arbitration clause, may very well exercise its jurisdiction even if the main contract is void, giving sanctity to the Tribunal’s jurisdiction.
Challenging the Jurisdiction of Arbitral Tribunal
Section 16(2) of the Act enables a party to raise a plea challenging the jurisdiction of the Arbitral Tribunal not later than the submission of the statement of defence by the Respondent. However, a party’s conduct of participating in the appointment, or appointing the Arbitrator cannot preclude such party from raising a plea challenging jurisdiction.
Further, a plea challenging the jurisdiction of the Arbitral Tribunal may be raised during the proceedings, if a party to the proceeding finds that the Tribunal’s conduct is beyond its core competence as provided in Section 16(3) of the Act.
Deciding on a plea challenging Jurisdiction
Section 16(5) of the Act states that as and when such challenged is raised against the Arbitral Tribunal’s core competence, the Tribunal is mandated to adjudicate such challenge on priority. If the Tribunal finds on negative of such challenge, it can continue with the Arbitral proceedings and make an Arbitral award.
Sub-section (4) of Section 16 of the Act empowers the Tribunal to condone the delay in raising a plea challenging jurisdiction. Subsequently, a party aggrieved by the Arbitral award deciding on jurisdiction of the Tribunal may make an application for setting aside such Arbitral award under Section 34 of the Act.
Jurisdiction of the Arbitral Tribunal for Interim Measures
Section 17 of the Act empowers the Arbitral Tribunal to, on an application made by the party, to pass awards of interim measures. The Tribunal’s jurisdiction to grant interim measures is analogous to the power of Courts to pass interim awards under Section 9 of the Act.
It is pertinent to note that the party is at liberty to approach either the Tribunal, under Section 17 of the Act, or the Court, under Section 9 of the Act, for interim measures. Notwithstanding the same, the parties to the Arbitration agreement may choose to restrict the jurisdiction of the Arbitral Tribunal from granting interim measures.
The Arbitral Tribunal possess the jurisdiction to grant the following interim measures under Section 17(1) of the Act:
- Appointment of a guardian for a minor or person of unsound mind, for the purpose of Arbitral proceedings; and
- Interim measure of protection for:
- the preservation, interim custody or sale of any goods being subject matter of Arbitration agreement;
- securing the amount in dispute in Arbitration;
- the detention, preservation or inspection of any property or thing which is the subject matter of the dispute in Arbitration;
- interim injunction or the appointment of a receiver; and
- other interim measures deemed just and convenient by the Arbitral Tribunal.
Section 17(2) of the Act stipulates that any interim measures granted by the Arbitral Tribunal shall be deemed to be an order of the Court and be enforceable under the Code of Civil Procedure, 1908.
JUDICIAL PRECEDENTS
I. Jurisdiction of Arbitral Tribunals
The Delhi High Court, in the case of Nav Sanad Vihar Cooperative Housing Society v. Ram Sharma and Associates 2000 IVAD Delhi 614, held that in terms of Section 16 of the Act, if the Arbitral Tribunal rejects the challenge to its jurisdiction, the party aggrieved by the determination cannot appeal against the same to the Tribunal.
Such party has to wait till the final award is made, as it is the legislative intent to let the Tribunal proceed with the Arbitral proceedings and make an award without delay or interference at any stage by the Court of law arising from the Court’s supervisory jurisdiction. The determination of jurisdiction by the Tribunal can be challenged by the aggrieved party after conclusion of Arbitral proceedings under Section 34 of the Act.
In the case of Madhya Pradesh Rural Road Development Authority and Anr. V. L.G. Chaudhary Engineers and Contractors (2018) 10 SCC 826, the Supreme Court of India delved into the permissibility of challenge to jurisdiction at various stages of proceedings. The Supreme Court held that if no objection to the jurisdiction of the Arbitration was taken at the relevant stage under Section 16(2) of the Act, that award cannot be annulled only on the ground of jurisdiction.
In the case of Pharmaceuticals Products of India v. Tata Finance Ltd. 2002 (6) BomCR 168, the Bombay High Court held that the Arbitral Tribunal is authorised under Section 16(5) of the Act to resume the Arbitral proceedings in the event that the Arbitral Tribunal rejects the plea challenging its jurisdiction. However, if the Arbitral Tribunal accepts the plea challenging its jurisdiction, then such a decision may be appealed under Section 37(2) of the Act.
In the case of Bharat Petroleum Corporation Limited v. Go Airlines (India) Limited (2019) 10 SCC 250 the Arbitral Tribunal was posed with a plea challenging jurisdiction in respect of counterclaim being not arbitrable and falling beyond the scope of reference to Arbitration. The Supreme Court held that in such a situation, the Arbitral Tribunal could not at the outset itself dismiss counterclaim of opposing party citing lack of jurisdiction without conducting any enquiry into it. The Tribunal is mandated to conduct proper enquiry and legal due diligence and provide reasons for such dismissal based on lack of jurisdiction.
The Supreme Court in the case of Indian Farmers Fertilizer Cooperative Limited v. Bhadra Products (2018) 2 SCC 534, held that the Arbitral Tribunal’s decision on limitation could not amount to a ruling on its ‘jurisdiction’ within the meaning of Section 16 of the Act. An erroneous decision by the Arbitral Tribunal on a question of limitation or res judicata would not oust the jurisdiction of the Tribunal. Further, an award that dos not relate to the jurisdiction of the Arbitral Tribunal under Section 16 could not be further challenged by the procedure laid down by sub-section (5) and (6) of Section 16 of the Act.
II. Jurisdiction of Arbitral Tribunal to grant Interim Measures
Any interim measure passed by the Arbitral Tribunal cannot be such that it affects the rights and remedies of third parties who are not a party to proceedings, as held by the Supreme Court in State Bank of India v. Ericsson (India) (P) Ltd. (2018) 16 SCC 617.
In this case, the Arbitral Tribunal passed an interim award under Section 17 of the Act restraining the Claimants and the third party-secured creditors from alienation, encumbering or transferring any of its assets without the permission of Arbitral Tribunal. The said interim award was confirmed by the High Court on appeal by the Claimant and the creditors.
Thereafter, the Supreme Court held that the Arbitral Tribunal did not have the jurisdiction to affect the rights and remedies of the third party-secured creditors in the course of determining disputes pending before it, and set aside the interim award passed by the Arbitral Tribunal.
In the case of Alka Chandewar v. Shamshul Ishrar Khan (2017) 16 SCC 199, the Supreme Court held that a party failing to comply with the interim measures granted by the Arbitral Tribunal under Section 17 of the Act shall be deemed to be guilty of contempt of the Arbitral Tribunal, in accordance with Section 27(5) of the Act.
AMLEGALS REMARKS
The introduction of Arbitration as a form of ADR was for the purpose of enabling parties to resolve disputes, in a time and cost saving manner, without judicial interference. In accordance with the primary object of the Act, i.e. to promote party autonomy, the Act has granted broad jurisdictional powers to the Arbitral Tribunal.
The autonomous nature of the Arbitral Tribunal and its jurisdiction are largely derived from the need to ensure party autonomy in an Arbitral proceeding. Thus, parties to the Arbitration agreement are free to determine the jurisdiction of the Arbitral Tribunal, and can similarly raise a plea challenging the jurisdiction or competence of the Arbitral Tribunal.
However, such attempts to maintain party autonomy over the jurisdictional ambit of Arbitral Tribunal must be in accordance with the principles of natural justice, and subject to the conditions and restrictions imposed by law under various statutes, including the Act.
In conclusion, the Act confers exemplary jurisdictional powers to the Arbitral Tribunal, which is to be ascertained and enforced by the parties to the Arbitration agreement. Nonetheless, the Act does not confer boundless jurisdiction to the Tribunals. Significantly, the legislative intent as well the judicial opinion has always aimed to maintain a positive balance between the law, and party autonomy, in conferring jurisdiction to Arbitral Tribunals.
For any queries or feedback, please feel free to get in touch with rohit.lalwani@amlegals.com or riddhi.dutta@amlegals.com.
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