Order Rejecting Jurisdictional Objections U/S 16 Of Arbitration Act Can Be Challenged U/S 34, Not Under Writ Jurisdiction: Telangana HC

The Telangana High Court bench of Justice P. Sam Koshy and Justice Namavarapu Rajeshwar Rao has held that an order rejecting jurisdictional objections under Section 16 of the Arbitration and Conciliation Act, 1996 (Arbitration Act) can only be challenged under section 34 of the Arbitration Act after an award is passed, and no writ petition against such an order can be entertained. Brief Facts: There was a joint venture cum shareholders agreement executed between the petitioners and respondents for the construction and maintenance of hotel and Spa in Hyderabad through a Special Purpose Vehicle (for short, 'SPV'). The respondent No.2 was the SPV with 74% of its shares with respondent No.1 and 26% of the shares being with the petitioners. On 26.09.2008, the respondents addressed a letter to the petitioners seeking transfer of the 26% of shares. The petitioners by their letter dated 02.06.2009 categorically denied the request of transferring the shares as per the sale deed. After the Sole Arbitrator had taken up the proceedings, the statement of claim was filed by the respondents. After the respondents filed the statement of claim, the petitioners filed an application under Section 16 of the Arbitration Act contending that the Sole Arbitrator/Arbitral Tribunal does not have the jurisdiction to decide the said matter as the entire claim of the respondents was hopelessly barred by limitation. The Objections were rejected. Against this order, the present petition has been filed. Contentions: The Petitioners submitted that if the last rejection is to be taken for the purpose of limitation i.e. 07.08.2019, the limitation of three years would come to an end on 07.08.2022. However, the notice invoking the arbitration for the first time was issued by the respondents only on 15.09.2022 i.e. much beyond the three years of limitation from the dates as contended by the respondents themselves on which the cause of action arises. It was also argued that there being no provision of an appeal against the rejection of Section 16 petition, it is only the writ remedy that the petitioners have. Per contra, the Respondent submitted that except for rejecting the plea of limitation that the petitioners have raised, no substantial orders have been passed by the Sole Arbitrator calling the order to be one which is perverse and there is nothing to hold that the order passed by the Arbitral Tribunal to be unreasonable and in excess of its jurisdiction therefore writ petition is not maintainable. It was also argued that exercising of writ jurisdiction in an arbitral proceedings, particularly when only an application of preliminary objection is being decided, would defeat the very purpose for which the Arbitration Act has been enacted. Observations: The court noted that the Supreme Court in SPB Co. vs. Patel Engineering Ltd. and Another (2006) held that “the object of minimising judicial intervention while the matter is in the process of being arbitrated upon, will certainly be defeated if the High Court could be approached under Article 227 or under Article 226 of the Constitution against every order made by the Arbitral Tribunal. Therefore, it is necessary to indicate that once the arbitration has commenced in the Arbitral Tribunal, parties have to wait until the award is pronounced unless, of course, a right of appeal is available to them under Section 37 of the Act even at an earlier stage.” Similarly, the Supreme Court in Punjab State Power Corporation Limited vs. Emta Coal Limited and Another (2020) held that a foray to the writ court from a Section 16 application being dismissed by the arbitrator can only be if the order passed is so perverse that the only possible conclusion is that there is a patent lack in inherent jurisdiction. The Delhi High Court in Cadre Estate Pvt. Ltd. vs. Salochna Goyal and Ors. (2010) held that a party may challenge an Arbitrator's jurisdiction under section 16 of the Arbitration Act, but if the challenge is rejected, it must wait until the award is made. As per section 37(2) of the Arbitration Act, an appeal is allowed only when jurisdictional objections are allowed and not when rejected therefore the Act explicitly requires an aggrieved party to wait until the award is passed before challenging it under section 34 of the Arbitration Act. The Delhi High Court again in IDFC First Bank Ltd. vs. Hitachi MGRM Net Ltd.(2023) held that it is only under exceptional circumstances or when there is bad faith or perversity that writ petitions ought to be entertained again an order rejecting the jurisdictional objections under section 16 of the Arbitration Act. Based on the above, the court held that since the Sole Arbitrator provided justification for the conclusion, there was no perversity in the order. However, this does not mean that the conclusion on limitation is correct on merits. The...

Order Rejecting Jurisdictional Objections U/S 16 Of Arbitration Act Can Be Challenged U/S 34, Not Under Writ Jurisdiction: Telangana HC

Mohd Malik Chauhan

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