Jurisdictional disputes of Arbitral Tribunal

Article submitted by Yazhini, SASTRA Deemed to be University.

Jurisdictional disputes of Arbitral Tribunal

Introduction:

The arbitration is considered as one of the most preferred methods of resolving commercial disputes after the amendment of the Arbitration and Conciliation Act. Earlier in India, panchayats were considered as an effective mode of dispute resolution. Now the present-day arbitration is a form of the panchayat. Initially, the British used the method of arbitration in the Bengal Regulations in the year 1772 and 1780, which later become the Arbitration Act and was implemented in the year 1940.Later, the Arbitration and Conciliation Act was implemented in the year 1996. This act had various improvements in terms of freedom of choice, for example, choosing the place of arbitration, the appointment of the arbitrators, matters that the parties have to present to the Arbitral Tribunal, number of arbitrators, etc. Despite this freedom of choices, in certain cases, the problem may arise related to the jurisdiction of the tribunal.

Arbitrator:

An arbitrator is a professional who helps the parties in dispute to arrive at a settlement. The arbitrator has certain duties and powers to conduct the proceedings in the matter like the power to take interim measures, the power to proceed ex-parte, the power to appoint an expert, the power to rule on the validity and existence of the agreement of arbitration and the power to rule on its jurisdiction.

Jurisdiction based decision by the Arbitral Tribunal:

The initial 1940 Act of Arbitration did not have any provision relating to the jurisdiction the Arbitral Tribunal. The Arbitration and Conciliation Act, 1996, under Section 16(1), made a provision that the Arbitral Tribunal can decide on its own jurisdiction.

Under Section 16(1) of the Arbitration and Conciliation Act, the provision formed two aspects—1) deciding the jurisdiction without any help from the court and 2) Preventing the courts from determining jurisdiction before a determination is made by the Arbitral Tribunal on this issue.

In Union of India v. M/S East Coast Boat Builders and Engineers Ltd[1], the court stated that “From the scheme of the Act it is apparent that the legislature did not provide appeal against the order under section 16(5) where the Arbitral Tribunal takes a decision rejecting the plea that the Arbitral Tribunal has no jurisdiction. The intention appears to be that in such a case, the Arbitral Tribunal shall continue with the arbitral proceedings and make an award without delay and without being interfered in the arbitral process at that stage by any court in their supervisory role."

In Nav Sansad Vihar Coop. Group Housing Society Ltd. (Regd.) vs. Ram Sharma and Associates[2], the court stated that if the plea is rejected by the Arbitral Tribunal under section 16(5) of the Arbitration and Conciliation Act, the arbitral proceedings shall continue, and an award shall be given and the aggrieved party will have to wait till the award is given. No separate remedy is given under this order. But under section 37(2) of the Arbitration and Conciliation Act, a conclusion of the tribunal accepting the plea that says that the tribunal does not have jurisdiction or it is exceeding the scope of authority is appealable.

In the case of Pharmaceutical Products of India Ltd. vs. Tata Finance Ltd.[3] the court stated that “Where the Arbitral Tribunal decides to reject the plea regarding its jurisdiction, sub-section (5) clearly empowers the Tribunal to continue with the arbitral proceedings and make an arbitral award. Sub-section (5) provides for how such an arbitral award may be challenged. It provides that such an award can only be challenged following section 34.”

Jurisdictional dispute settled by the arbitrator:

In Court proceedings, Order VII Rule 11 of the Code of Civil Procedure Code, 1908 (‘CPC’), mandates that a challenge on jurisdiction must be disposed of pretrial. Thus, a question arises.

A question arises as to whether an Arbitral Tribunal has to mandatorily dispose of a jurisdictional challenge before trial proceedings. Glencore International AG v. Indian Potash Limited & Ors.[4] when the decision of the tribunal was challenged on the basis that jurisdictional challenge was not heard pre-trial, the Delhi High Court held that it is the discretion of the tribunal and there is no mandatory obligation to conclude this challenge pretrial. Successive judgments also reiterated the same.

However, in Kvaerner Cementation India Limited v. Bajranglal Agarwal[5], the Apex Court stated that it is better if the jurisdictional dispute is disposed of pre-trial to prevent later challenges on its credibility.

Role of the parties in jurisdictional disputes:

When the seat of the arbitration is already decided by the parties involved, the decision of the parties will be upheld. In Indus Mobile Distribution Private Limited v. Datawind Innovations Private Limited[6], the arbitration agreement said the seat of arbitration shall be at Mumbai. The application for appointment of an arbitrator was filed in the High Court of Delhi on the ground that cause of action arose at Delhi and the agreement mentioning the seat of arbitration as Mumbai is not valid. The Supreme Court held that Section 20 of the Arbitration and Conciliation Act, 1996 has the provision that allows the parties to choose a seat of arbitration where no part of the cause of action arose. The court also said that once the seat is determined by the parties, it is final even if does not have any jurisdiction under sections 16 to 21 of the Civil Procedure Code. So, Mumbai has to be the seat of arbitration.

If the parties have an agreement in terms of the seat of arbitration, as per Section 20, the Arbitral Tribunal is the one that decides the place of arbitration by considering the convenience of the parties. In the case of Aarka Sports Management Pvt. Ltd v. Kalsi Buildcon Pvt. Ltd[7], the court said that if the parties have not agreed to the seat of arbitration, an application will be entertained under Section 11 of the Arbitration and Conciliation Act, that the word “court” as defined in Section 2(1)(e) of the Act read with sections 16 to 20 of the Civil Procedure Code. Thus, the seat of arbitration cannot be a place where no part of the cause of action arose or has no nexus to the parties if the seat of arbitration was not decided by the parties to the arbitration agreement.

When the Arbitral Tribunal loses competence in deciding its own jurisdiction?

Under Section 11(6) of the Arbitration and Conciliation Act, 1996, it is stated that if one of the person, or institution, or parties to the contract fails to act as required by the procedure, the Chief Justice or his or her delegate is required to take steps for deciding the jurisdiction and the decision made by the Chief Justice or the delegate is final.

The party seeking to challenge the jurisdiction of the Arbitral Tribunal:

If the party to the dispute is challenging the jurisdiction including the existence of an arbitration agreement, the objection has to arise before the statement of defence. If there is any query in the proceeding that the tribunal is exceeding its scope of authority in terms of jurisdiction, then the plea has to be made as soon as the scope of authority is exceeded. A plea as to the jurisdiction of the tribunal may be accepted by the tribunal at a later stage provided the delay is justified.

Conclusion:

Thus, if a party desires to raise a challenge in the jurisdictional matter in an arbitrational proceeding, the party has to rely on Section 16 of the Arbitration Act in the Arbitrational Tribunal. The jurisdictional challenge under Section 16 must be preliminary in nature and it has to be completed before the issue has proceeded in the trial. Jurisdiction is a fundamental issue with respect to the validity of the arbitration proceedings and the enforceability of the arbitral award or settlement. In the arbitration procedure, preparing for the jurisdictional issues and challenges requires strategy. Once the Arbitral Tribunal rejects the plea regarding its jurisdiction, it cannot be appealed in the higher courts. Thus, in most legal systems, the Arbitral Tribunal has the authority to rule upon its own jurisdiction.

[1] 76 (1998) DLT 958 [2] 2000 IVAD Delhi 614 [3] 2992 (6) BomCR 168 [4] 263 (2019) DLT 663 [5] (2012) 5 SCC 215 [6] (2017) 2 SCC 678 [7] ARB. P. 662/2019