Author: Mahima, 5th Year student at School of Law, UPES, Dehradun.
Citation: CM(M) 1272/2019
Date of judgment: March 25, 2021
Bench: Prathiba M. Singh
Original copy: View
Issues in question:
- Whether Arbitral Tribunals are tribunals over which jurisdiction under Article 226/227 is exercisable by the High Courts and what is the scope of interference?
- Provisions for filing applications under Section 16 of the Arbitration and Conciliation Act, 1996 and the criteria for consideration by Arbitral Tribunals.
- Whether, in the present case, interference is warranted challenging the orders passed by the Arbitral Tribunal?
Background of the case:
- A property dispute arose between the petitioners and the respondents where one of the respondents filed an application under Section 8 of the Arbitration and Conciliation Act, 1996 for referring the same to the Arbitral Tribunal. In the order dated 9th January, 2018, the learned Single Judge referred the disputes to Arbitration by Shri B.B. Chaudhary, District and Sessions Judge (retd.) as sole arbitrator.
- The petitioners were made respondents in the arbitral proceedings. A notice for appearance before the Arbitrator was served to the petitioners via an order dated 11th April, 2019, in return of which, they filed an application under Section 16 of the 1996 Act raising an objection to jurisdiction of the tribunal to adjudicate any claims against the petitioners. One of the grounds was that they have a valid title as they were bona fide purchasers of one of the properties and therefore, the arbitration clause was not binding on them. They further contended that they were a party to the arbitration agreement nor to the suit filed in High Court and therefore, they cannot be obligated to participate in arbitral proceedings. Therefore, the prayer for dismissal of the arbitral proceedings against the petitioners was made and the Arbitrator in the order dated 8th July, 2019, held that any objection to the scope of jurisdiction would be decided along with the final award.
- An application for recall of the order dated 8th July, 2019 was filed which was rejected on 7th August, 2019 due to which the petitioners filed a petition under Article 227 at the Delhi High Court.
- The petitioners argued that the issue of jurisdiction must be decided at the initial stage otherwise parties with similar contentions as the petitioners would be lumbered with arbitral proceedings for a long time and incur huge costs which defeats the purpose of Section 16(5) of the Arbitration and Conciliation Act, 1996.
- The petitioners, with respect to maintainability, further submitted that the provisions of the Act cannot oust the jurisdiction of the High Courts under Article 227. Although, the power enclosed within Article 227 is to be exercised sparingly, the jurisdiction of High Court cannot be ousted especially when there is an error by the Arbitral Tribunal or abdication of duty.
- The respondents submitted that the orders of an Arbitral Tribunal are not amenable to writ jurisdiction. Under Section 16, where the objection of maintainability is upheld by the Tribunal, an appeal lies within Section 37 of the 1996 Act. If the plea raising the objection is rejected by the Tribunal, the proceedings would continue and it can be challenged only after the final award is passed.
- The respondents further submitted that the question of petitioners being bona fide purchasers of the property is a complex question of fact which cannot be decided without examining the evidence. The partition deed consisted of the arbitration clause which deals with 20 properties and they had claimed ownership and title over one such property. It was also maintained that even a non-party to an arbitral agreement could be party to arbitral proceedings.
- The Arbitrator observed that the property purchased by the petitioners was subject matter of reference and that the petitioners might have been the genuine purchasers of the property but the sale consideration was to be decided between the parties and therefore the notice was issued to the petitioners and not to jeopardize the rights of the petitioners. He, therefore, opined that the recall notice of arbitration under Section 16 cannot be decided prior to the completion of pleadings.
- Regarding maintainability, the Court observed that the petitions under Article 227 challenging orders of an Arbitral Tribunal are tenable. They explained the law to be well settled that Arbitral tribunals were tribunals over which High Courts exercise writ jurisdictions. In Union of India v. R. Gandhi, President Madras Bar Association, the Supreme Court had demarcated the clear distinction between ‘Courts’ and ‘Tribunals’ and explained that while Courts are established for administration of justice by exercising judicial powers of the state to maintain and uphold rights, punish wrongs and adjudicate upon disputes, tribunals are alternative dispute resolution institutions existing by virtue of a statute for adjudicating upon disputes arising out of statute or any administrative law.
- Regarding scope of interference, the Court maintained that the interference of High Courts under writ jurisdiction is limited in nature. It opined that High Courts should discourage litigation interfering with arbitral process as to reduce judicial intervention and the power should be exercised in ‘exceptional rarity’ and the order is completely perverse. The Court referred to the case of M/s Deep Industries Limited v. Oil and Natural Gas Corporation Limited, the interplay of Section 5 of the 1996 Act and Article 227 empowering High Court with writ jurisdiction was analysed and it was concluded that while petitions against judgments allowing or dismissing first appeals under Section 37 can be filed under Article 227, the High Court would be extremely circumspect in interfering with the same restricted to the orders that are passed which are patently lacking in inherent jurisdiction.
- Regarding the laws governing the applications filed under Section 16 of the 1996 Act and the manner of consideration by the Arbitral Tribunal, the principle of kompetenze-kompetenze was discussed to explain the Arbitral Tribunal’s power to rule on its own jurisdiction. It concluded that the issues of jurisdiction should be raised before the Arbitral Tribunal at earliest, before the submission of statement of defence and the Tribunal should decide the same with a sense of urgency. Reference to McDermott International Ink v Burn Standard Co Ltd & Ors was made where the Supreme Court had held that the party questioning the jurisdiction of the Arbitrator is obligated to raise the question either during the arbitration proceedings or soon after initiation thereof as the jurisdictional question is required to be determined as a preliminary ground.
- Applying the settled legal approach towards the case, the Court found that the Arbitrator’s approach cannot be labelled as perverse or patently lacking in jurisdiction. The tests of jurisdiction under Article 226/227 are extremely strict and therefore, the court deems it inappropriate to interfere. While disposing off the petition, the Court stated that the question of jurisdiction should be adjudicated prior to the passing of the final award and that the Arbitrator should continue with the adjudication of disputes and pass an award within six months.
- The judgment in this case seeks to restrict instances where Tribunals customarily prorogue a decision on jurisdictional protestations until the conclusion of the trial.
- This judgment seeks to ensure that parties raising jurisdictional objections do not get caught in the lengthy proceedings and incur huge costs as that would defeat the entire purpose of arbitration.
- This case also reinstated the findings of Raj International v Tripura Jute Mills Ltd, where it was observed that without answering the objections regarding the jurisdiction, the Arbitrator has no right to proceed with the arbitral award. He is entitled to accepting or rejecting the plea but he cannot refuse from giving any decision at all.