Petition Under Section 34 Not Maintainable Against Rejection Of Application Under Section 16 By Arbitrator: Gujarat High Court

The Gujarat High Court bench of Chief Justice Sunita Agarwal and Justice Aniruddha P. Mayee has held a petition under Section 34 of the Arbitration and Conciliation Act, 1996 is not maintainable against the order of rejection of the application under Section 16 challenging challenging the jurisdiction of an arbitrator on the plea of res judicata and bar under Order 2 Rule 2 CPC.Order 2 Rule 2 addresses the principle of res judicata concerning claims and reliefs that could have been included in an earlier suit but were not.Further, the bench held that decisions of arbitral tribunal on issues like limitation and res judicata are interim awards and can be challenged under Section 34 of the Arbitration Act independently without waiting for the final award.The bench held that arbitral tribunal's decision on limitation does not fall under the jurisdictional ambit of Section 16 of the Arbitration Act and thus cannot be directly appealed under Section 37 of the Arbitration Act.The High Court noted that Section 5, commencing with a non-obstante clause, restricts judicial intervention except as provided in Part I of the Arbitration Act. Section 16 empowers the Arbitral Tribunal to rule on its jurisdiction, including objections regarding the existence or validity of the arbitration agreement. Subsections (2) and (3) specify the timing for raising jurisdictional pleas, and subsections (5) and (6) provide that the tribunal shall continue with proceedings and make an award if it overrules such objections with the aggrieved party entitled to challenge the award under Section 34.The High Court referred to the Supreme Court in SBP & Co. v. Patel Engineering Ltd. (2005) 8 SCC 618 where it was held that Section 16 embodies the principle of Kompetenz-Kompetenz which allows the arbitral tribunal to rule on its jurisdiction. This section explicitly permits parties to raise jurisdictional objections, even if they have participated in the appointment of the arbitrator. The Supreme Court clarified that if the tribunal's jurisdiction is upheld an immediate challenge can be made through appeal; otherwise, objections can be raised against the final award.In M/s Deep Industries Ltd. vs Oil And Natural Gas Corporation Ltd (2020 (15) SCC 706, the Supreme Court addressed the maintainability of a petition under Article 227 of the Constitution of India challenging an order under Section 17 of the Arbitration Act. The Supreme Court noted that disputes about jurisdiction do not imply a lack of inherent jurisdiction by the Arbitral Tribunal.In Chintels India Ltd. v. Bhayana Builders Pvt. Ltd., the Supreme Court examined whether an order refusing to condone delay in filing an application under Section 34 is appealable under Section 37(1)(c). The Supreme Court applied the "effect doctrine" from Essar Constructions v. N.P. Rama Krishna Reddy and held that refusing to set aside an award due to delay effectively denies the application. The Supreme Court held that such refusals are appealable under Section 37(1)(c).The High Court noted that Section 37(2)(a) allows appeals against orders accepting jurisdictional pleas under Section 16. However, no appeal is provided for rejecting such pleas; it held that, the tribunal must proceed with arbitration and the final award can then be challenged under Section 34. The High Court held that an interim award such as one on limitation is covered under Section 16 if it involves jurisdictional issues. The ruling in M/s Indian Farmers Fertilizer Co. clarified that an interim award includes decisions that could be part of a final award.The High Court noted that initially arbitrators could not rule on the existence or validity of the arbitration clause but this changed with the adoption of the Kompetenz-Kompetenz principle by the UNCITRAL Model Law. Section 16 of the Arbitration Act, mirroring the UNCITRAL Model Law, allows the arbitral tribunal to rule on its own jurisdiction which encompasses three specific aspects: the validity of the arbitration agreement, the proper constitution of the tribunal, and whether the matters submitted to arbitration pertain to the agreement.The high Court noted that the term “jurisdiction” has multiple interpretations. Referring the Supreme Court's decision in Ittavira Mathai v. Varkey Varkey, the High Court differentiated between erroneous decisions within jurisdiction and actions beyond jurisdiction. It held that that jurisdiction in Section 16 concerns whether the tribunal can embark upon inquiries into the issues raised by the parties to the dispute.Further, the High Court referred to National Thermal Power Corp. Vs. Siemens Atkeingesellschaft (2007) 4 SCC 45. The NTPC decision clarified that appeals under Section 37 of the Arbitration Act are permissible only when there is a clear lack of jurisdiction or an excessive exercise of jurisdiction by the arbitral tribunal. The High Court also addressed the concept of interim awards in arbitration. It held that decisions on issues like ...

Petition Under Section 34 Not Maintainable Against Rejection Of Application Under Section 16 By Arbitrator: Gujarat High Court

Rajesh Kumar

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