DELHI HIGH COURT HOLDS OBJECTIONS REGARDING JURISDICTION UNDER ARBITRATION AND CONCILIATION ACT, 1996 HAS TO BE RAISED AT THE INCEPTION

A Single Judge Bench of the Hon’ble #HighCourt of #Delhi comprising of Justice Pratibha M Singh passed a Judgment dated 25-03-2021 in the case of Surender Kumar Singhal & Ors. v. Arun Kumar Bhalotia & Ors. {CM(M) 1272/2019 & CM APPLs. 38560/2019, 38561/2019, 41024/2019} and held that the issue of #Jurisdiction under Section 16 of the #ArbitrationandConciliation Act, 1996 (the Act) has to be raised at the inception i.e. before the submission of the Statement of Defense.

In the present case, disputes arose between two branches of one family in relation to a family settlement/partition dated 15-07-2009. An Application under Section 8 of the Act was filed by the Respondent No. 5 before the Hon’ble High Court of Delhi (the High Court), vide Order dated 09-01-2018 which referred the dispute to arbitration by a sole arbitrator. In view of this, a Claim Petition and a Counter Claim was raised before the Arbitrator by the Respondent No. 5.

During the course of Arbitral Proceedings, the Petitioners were arrayed as Respondents No. 5 to 10. Vide Order dated 11-04-2019; a Notice was issued to the said Respondents for appearing before the Arbitrator and on 16-04-2019, a Notice was served to the Petitioners.

Thereafter, the Petitioners filed an Application under Section 16 of the Act, thereby raising an Objection that the Tribunal does not have any jurisdiction to adjudicate the claims against the Petitioners. One of the grounds that was raised in the Application was that the Petitioners being the bonafide purchasers of one of the properties have a valid title to the same and are therefore, not bound by the Arbitration Clause. Thus, a prayer was made to quash the Arbitration proceedings on the ground that the Arbitral Tribunal has no jurisdiction to entertain the claims against the Petitioners. Vide Order dated 08-07-2019, it was held by the Arbitrator that the Objection as to the jurisdiction would be decided along with the Final Award. Subsequently, an Application for recall of the Order was filed, and the same got rejected on 07-08-2019.

Aggrieved, a Petition was filed under Article 227 of the Constitution of India impugning the Orders dated 08-07-2019 and 07-08-2019 in the High Court.

The following issues were framed before the High Court:

1. “Whether arbitral tribunals are tribunals over which jurisdiction under Art. 226/227 is exercisable by High Courts and what is the scope of interference?
2. Law governing applications under Section 16 of the Arbitration & Conciliation Act, 1996 and manner of consideration by arbitral tribunals.
3. Whether on the facts of the present case, interference is warranted challenging the orders passed by the arbitral tribunal?”

Taking into consideration the arguments advanced by the Parties to the Dispute, the Single Judge Bench observed as follows:

I) MAINTAINABILITY

The Court held that High Courts can exercise writ jurisdiction over an Arbitral Tribunal and the order of an Arbitral Tribunal can be challenged by way of a writ petition. Placing reliance on the judgments passed by the Hon’ble Supreme Court of India in the case of Union of India v. R. Gandhi, President Madras Bar Association (2010) 11 SCC 1 and SREI Infrastructure Finance Limited v. Tuff Drilling Private Limited (2018) 11 SCC 470, the Court observed that it has been held by the Apex Court that a Petition under Article 227 challenging orders of an Arbitral Tribunal would be maintainable.

 

II) SCOPE OF INTERFERENCE

While referring to the landmark Judgments passed by the Apex Court in the case of Deep Industries Ltd. v. ONGC and Ors. (Civil Appeal No.9106/2019) and S.B.P. & Company v. Patel Engineering Ltd. and Anr. (2005)8 SCC 618, the Bench noted that there have to be “exceptional circumstances” for an interference under Article 226 and 227. Furthermore, such interference is only allowed if the Order is completely perverse.

 

III) SECTION 16 OF THE ACT AND CONSIDERATION BY ARBITRAL TRIBUNALS

The High Court held that Section 16 envisages that issues pertaining to jurisdiction have to be raised before the Tribunal, before the submission of the Statement of Defense. The Court stated that the following factors should be borne in mind when objections are raised under Section 16 of the Act:

a) “If the issue of jurisdiction can be decided on the basis of admitted documents on record then the Tribunal ought to proceed to hear the matter/ objections under Section 16 of the Act at the inception itself;

b) If the Tribunal is of the opinion that the objections under Section 16 of the Act cannot be decided at the inception and would require further enquiry into the matter, the Tribunal could consider framing a preliminary issue and deciding the same as soon as possible.

 

c) If the Tribunal is of the opinion that objections under Section 16 would require evidence to be led then the Tribunal could direct limited evidence to be led on the said issue and adjudicate the same.

d) If the Tribunal is of the opinion that detailed evidence needs to be led both written and oral, then after the evidence is concluded, the objections under Section 16 would have to be adjudicated first before proceeding to passing of the award.”

Furthermore, the High Court observed that in order to ensure that the efficiency of the arbitral system is maintained, the Parties to whom the arbitral clause is applicable contractually, are obliged to arbitrate.

While disposing of the Petition, the Court held that the question of jurisdiction would have to be adjudicated first, prior to the passing of the final award. This would be in line with the legal position as held in McDermott International Inc. v. Burn Standard Co. Ltd. And Ors. (2006) 11 SCC 181. Further, directions were given that the Parties have to appear before the Arbitrator on 05-04-2021 and the Ld. Arbitrator has to adjudicate and pass an award within a period of six months.

Suchitra Upadhyay

Associate

The Indian Lawyer & Allied Services