Arbitration Act | Jurisdictional Objection Rejected By Arbitrator Cannot Be Independently Challenged Under Sections 34 Or 37: Supreme Court

The Supreme Court has held that an arbitral tribunal's decision to dismiss the plea challenging its jurisdiction cannot be challenged independently under Sections 34 or 37 of the Arbitration and Conciliation Act. The matter can be challenged only after the conclusion of the proceedings, while appealing against the award.

“…there is no option for the party aggrieved by the decision of the arbitrator upon the application filed under Section 16 except to wait till the conclusion of the arbitral proceedings and then raise that issue by way of an application under Section 34 against the final award.”, observed a bench of Justice Sanjay Kumar and Justice K. Vinod Chandran.

The Respondent sought to challenge the jurisdiction of the arbitral tribunal; however, it remained unsuccessful after the arbitrator dismissed the plea on the grounds of limitation. Aggrieved by this, the Respondent filed an application under Section 34 of the Act before the District Judge, which had also dismissed the application on merits, leading to an appeal under Section 37 before the High Court.

The High Court's decision to allow the appeal, accepting the Respondent's jurisdiction challenge on merits, led to an appeal before the Supreme Court.

Setting aside the impugned decision, the judgment authored by Justice Sanjay Kumar noted that while the District Judge was correct in dismissing the respondent's plea, both the District Judge and the High Court erred in examining the issue on merits, having overlooked Section 16 of the Act, which vests the arbitral tribunal with the authority to rule on its own jurisdiction.

“…we are of the opinion that neither the learned District Judge nor the Division Bench were correct in entertaining the matters brought before them, i.e., under Section 34 and, thereafter, under Section 37, of the Arbitration Act. In this regard, we may note that Section 16 of the Arbitration Act is titled 'Competence of arbitral tribunal to rule on its jurisdiction' and Section 16(1) provides that the arbitral tribunal may rule on its own jurisdiction, including ruling on any objection with respect to existence or validity of the arbitration agreement.”, the court observed.

In essence, the Court said that the courts below have erred in maintaining the plea against the arbitrator's jurisdiction and deciding the same on merits.

“…the respondent was not entitled to file an application under Section 34 of the Arbitration Act against the order dated 19.05.2023 passed by the learned Arbitrator rejecting its plea of lack of jurisdiction on the ground of limitation. As the said application was not even maintainable, the question of an appeal under Section 37 of the Arbitration Act being entertained against the decision passed thereon did not arise. The Delhi High Court erred in overlooking this crucial aspect and in deciding the appeal on merits.”, the court observed.

Accordingly, the appeal was allowed.

“It would be open to the respondent to test the validity of the order dated 19.05.2023 passed by the learned Arbitrator only after passing of the final award and if the situation so warrants, by way of an application under Section 34 of the Arbitration Act.”, the court held.

Headnote

Arbitration and Conciliation Act, 1996 - Section 16, Section 16(5), Section 16(6), Section 34, and Section 37(2) – Maintainability of Section 34 application against rejection of Section 16 plea – When an Arbitrator rejects an application filed under Section 16(2) or 16(3) challenging the jurisdiction of the Tribunal (such as on the ground of limitation), the aggrieved party cannot immediately file an application under Section 34 to set aside that order - The statutory drill under Section 16 dictates that upon rejection of a jurisdictional plea, the Arbitral Tribunal shall continue with the arbitral proceedings and make an arbitral award - The party aggrieved by such rejection can only test its validity after the final arbitral award is passed, by moving an application under Section 34 against the final award - Piecemeal challenges impermissible – Entertaining a Section 34 application or a subsequent Section 37 appeal against a pre-award rejection order under Section 16(2) is erroneous, unsustainable, and does violence to the scheme of the Arbitration Act - Under Section 37(2), an appeal lies directly only if the Arbitrator accepts/upholds the plea of lack of jurisdiction and puts an end to the proceedings. [Distinguished from Indian Farmers Fertilizer Cooperative Limited vs. Bhadra Products (2018) 2 SCC 534; Paras 8 – 17]

Cause Title: M/s. MCM Worldwide Private Limited versus M/s. Construction Industry Development Council

Citation : 2026 LiveLaw (SC) 440

Click here to download judgment

Appearance:

For Petitioner(s) Mr. Shreyan Das, Adv. Mr. Rishi Raj, Adv. Ms. Mohini Priya, AOR

For Respondent(s) Mr. Nikhil Nayyar, Sr. Adv. Mr. N. K. Kantawala, Adv. Mr. Satyender Chahar, Adv. Ms. Sugandha Batra, Adv. Mr. Siddharth Vardhman, Adv. Ms. Anu Gupta, Adv.