Summary: A common misconception is that arbitral tribunals must decide every jurisdictional challenge under Section 16 of the Arbitration and Conciliation Act, 1996, at the threshold before proceeding with the arbitration. This article explains why neither Section 16 nor the judicial precedents interpreting it mandate such a requirement and highlights the tribunal’s discretion to decide judicial issues when appropriate. Many jurisdictional challenges involve disputed facts or evidence, making an early determination impractical. Understanding this helps parties manage procedural expectations and avoid misplaced comparisons with Order 7 Rule 11 CPC.
Introduction
Jurisdictional objections are a common feature of arbitration proceedings. Parties frequently rely on grounds such as settlement, accord and satisfaction, discharge, etc., to challenge the arbitral tribunal’s jurisdiction under Section 16 of the Arbitration and Conciliation Act, 1996 (“Arbitration Act”).
Many are of the view that the tribunal must decide a Section 16 application immediately upon its filing, before proceeding on the merits of the dispute. The rationale behind this is that if the jurisdictional challenge is successful, the tribunal could obviate the need for elaborate proceeding, saving time and costs, thereby extricating an innocent party at the threshold.
An extension of this argument is that a Section 16 application should also be decided first before the trial begins just as it is mandated for an application under Order 7 Rule 11 Code of Civil Procedure, 1908 (“CPC”).
While seemingly logical, the argument falls foul of both the statutory provision and the judicial precedents interpreting it.
Order 7 Rule 11 and Section 16: Different remedies, different scopes of enquiry
Order 7 Rule 11 CPC
Order 7 Rule 11 provides for the rejection of a plaint on various grounds, including no cause of action, barred by law, etc.
It is well settled that an application under Order 7 Rule 11 must be decided before proceeding with the trial. The rationale for this can be considered from the Hon’ble Supreme Court’s explanation in R.K Roja v U.S. Rayudu & Anr., [1] where it was held “Once an application is filed under Order VII Rule 11 of the CPC, the court has to dispose of the same before proceeding with the trial. There is no point or sense in proceeding with the trial of the case, in case the plaint.is only to be rejected at the threshold.”
Pertinently, the Court considers only the averments in the plaint for deciding an application under Order 7 Rule 11. The Defendant’s rebuttal or defence is irrelevant at this stage. If the application is allowed, the plaint is rejected, ending the matter. Accordingly, the Order 7 Rule 11 requirement that the application be decided before proceeding with the trial limits the scope of enquiry to the contents of the plaint.
Section 16 Arbitration Act
Section 16 of the Arbitration Act embodies the kompetenz-kompetenz principle and empowers the arbitral tribunal to rule on its own jurisdiction.
Section 16(5) provides that the tribunal shall decide a plea regarding jurisdiction and, if it rejects the plea, continue with the proceedings and render an award. However, crucially, it is silent on the stage at which to render such decision, giving rise to the misconception.
Consequently, while Section 16 empowers and obliges the tribunal to decide objections relating to its jurisdiction, it does not mandate that every such objection be determined as a preliminary issue. Depending on the nature of the challenge (whether it requires consideration of evidence. etc.), the tribunal may decide it at an early stage or together with the final award. The provision ensures this flexibility.
Judicial precedents
A series of judgments have underscored the preceding position.
In Roshan Lal Gupta vs. Shri Parasram Holding Pvt. Ltd. and Anr. (“Roshan Lal Gupta”) [2] the Hon’ble Delhi High Court rejected the submission that the arbitrator was bound to decide a jurisdictional challenge under Section 16 of the Arbitration Act at the threshold. The Court held: “The next plea is that the arbitrator failed to decide first the challenge to the arbitration proceedings This contention is also not tenable in law. Under Section 16 of the Act upon a challenge being made to the jurisdiction of the arbitrator, the arbitral tribunal though is required to adjudicate the same but there is nothing to show that the arbitrator is to first adjudicate the same and can thereafter only proceed to adjudicate on the merits of the claim. The arbitral tribunal in its jurisdiction is entitled to decide the said challenge either as a preliminary issue or together with the entire matter. It is significant that even in the event of the arbitrator deciding against the challenge, no remedy therefor is provided and the challenge to such finding can be made only after the arbitral award in accordance with Section 34 of the Act.”
In the writ petition United Spirits Ltd v. Ms Stitch Craft (India) (“United Spirits”),[3]the Hon’ble Delhi High Court specifically considered “Whether the Arbitral Tribunal is mandatorily required to take a decision on the plea referred to in sub-section (3) of the Act before it proceeds further in the matter or it can decide such a plea at a later stage while making the arbitral award?”.
Answering in the negative, the Court held: “though the Arbitral Tribunal, may in its discretion, treat the plea referred to in sub-section (2) or (3) of Section 16 as a preliminary issue, it is not obligatory for the said Tribunal to do, in every case.”
The Hon’ble Delhi High Court reiterated its position in Pankaj Arora vs Avv Hospitality Llp & Ors (“Pankaj Arora”),[4] where it negated the specific contention that Section 16(5) mandates that the arbitral tribunal decide jurisdiction objections before even recording evidence. The High Court reasoned that “no case is made out, to direct the learned Sole Arbitrator to take a decision on the application, of the petitioner under Section 16 of the 1996 Act, at this stage itself, without deferring the issue for decision after recording of evidence. The procedure to be followed, in arbitral proceedings, is essentially the province of the arbitrator, or the arbitral tribunal.”
Dealing specifically with the argument qua Section 16(5), the Court further held that it was “unable to read sub-section 5 of Section 16 as casting a mandate, on the arbitrator, or the arbitral tribunal, to decide the objection, to its/his jurisdiction, to adjudicate on any claim/counter claim, necessarily before recording of evidence. No doubt, issues of jurisdiction are, ordinarily, to be addressed at the outset. That, however, is more a rule of prudence than one of inflexible procedure. Legally, so long as the said decision is taken prior to the making of the final arbitral award, in my view, no infraction of Section 16 could be said to have occurred.”
Relying on the judgment in Pankaj Sharma, the Hon’ble Orissa High Court in Mahanadi Coalfields Limited And Anr vs Sri Ram Construction[5]rejected the argument that it was necessary for the arbitrator to first decide the jurisdictional objections before considering the merits of the matter.
Conclusion
The text of Section 16 and the judgments discussed above make it clear that it is erroneous to suggest that a tribunal must decide jurisdictional objections as a preliminary point/at the threshold.
While Section 16 mandates that the tribunal decide jurisdictional objections before deciding the merits, this obligation cannot be construed as a mandate to decide them at the outset/at the threshold.
This position is also consistent with the UNCITRAL Model Law, from which Section 16 is derived. Article 16 expressly permits a tribunal to rule on its jurisdiction either as a preliminary question or in an award on the merits. The Model Law, therefore, leaves the sequencing of such issues to the tribunal’s discretion, depending on the facts of the case.
The analogy with Order 7 Rule 11 CPC is also a misplaced comparison, as the two provisions operate in different settings and involve different scopes of enquiry. Thus, while a party may raise an objection under Section 16 and make the request, the tribunal is under no obligation to decide it at the threshold. The counterpoint of whether the mandate ought to be there is a matter for another time.
For further information, please contact:
Raunak Dhillon, Partner, Cyril Amarchand Mangaldas
raunak.dhillon@cyrilshroff.com
[1] Civil Appeal No. 5540 of 2016
[2] 2009 (157) DLT 712
[3] 2013 ARBLR DELHI 4 526
[4] O.M.P.(T) (COMM.) 32/2020
[5] ARBA No.1 of 2006
