Arbitral Tribunal ought to decide objection under Section 16 of the Arbitration and Conciliation Act as soon as possible as a preliminary ground: Delhi High Court

Arbitral Tribunal ought to decide objection under Section 16 of the Arbitration and Conciliation Act as soon as possible as a preliminary ground: Delhi High Court

The Delhi High Court has ruled that an arbitral tribunal ought to decide the objection under Section 16 of the Arbitration & Conciliation Act, 1996 (Act) as soon as possible, as a preliminary ground.

According to the Court, the scheme of Section 16 of the Act envisages that issues of jurisdiction ought to be raised before the Arbitral Tribunal at the earliest, before the statement of defence has been submitted.

Justice Pratibha M Singh of the Delhi High Court held that under Section 16(5) of the Act, the Arbitral Tribunal is mandated to decide the said issue. As to the question regarding the stage at which the objection is to be decided, the Court held that the objection has to be decided at the earliest. However, there cannot be a hard and fast rule. Depending on the facts and circumstances of each case, the Tribunal ought to decide the objection under Section 16 of the Act as soon as possible, as a preliminary ground.

The Court laid down factors to be borne in mind when objections are raised under Section 16 of the Act:

1. 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;

2. 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.

3. 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.

4. 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.

The Court further stated, "A jurisdictional objection by its very nature would be one which has to be raised at the inception itself. The statute contemplates that the party raising the objection has to raise it with alacrity and hence by an overall reading of Section 16 and especially Section 16(5) of the Act, there is no doubt that the Tribunal also ought to decide the objection with a sense of urgency."

According to the Court, such dispensation would be favoured especially in order to ensure that parties to whom the arbitral proceedings may not even be applicable are not entangled to long drawn arbitral proceedings with substantial costs being incurred. Moreover, in order to maintain the efficiency of the arbitral system, it is necessary that only those parties to whom the arbitral Clause is applicable contractually are obliged to arbitrate.

In the instant case, an application was moved by the Petitioner seeking recall of an earlier order passed by the arbitrator. In the said application, the Arbitrator heard the submissions of the parties and rejected the prayer for recall. According to the arbitrator, a final decision on the application of the Petitioners under Section 16 could not be taken without further evidence in the matter and therefore, would be decided at the final stage after the completion of pleadings and admission and denial.

According to the Court, the approach of the Arbitrator cannot be set out as either perverse or patently lacking in jurisdiction. The fact situation does not present an `exceptional rarity' requiring exercise of jurisdiction.

The Court observed that the tests for interference under Article 226/227 being extremely strict, the Delhi High Court did not deem it appropriate to interfere under Article 227.

As to the question of whether arbitral tribunals are tribunals over which jurisdiction under Art. 226/227 is exercisable by High Courts and what is the scope of interference, the Court ruled that although the arbitral tribunal is a tribunal over which writ jurisdiction can be exercised, the said interference by a writ court is limited in nature.

The Court relied on a number of judgments and ruled that:

1. An arbitral tribunal is a tribunal against which a petition under Article 226/227 would be maintainable;

2. The non-obstante clause in section 5 of the Act does not apply in respect of exercise of powers under Article 227 which is a Constitutional provision;

3. For interference under Article 226/227, there have to be 'exceptional circumstances' ;

4. Though interference is permissible, unless and until the order is so perverse that it is patently lacking in inherent jurisdiction, the writ court would not interfere;

5. Interference is permissible only if the order is completely perverse i.e., that the perversity must stare in the face;

6. High Courts ought to discourage litigation which necessarily interfere with the arbitral process;

7. Excessive judicial interference in the arbitral process is not encouraged;

8. It is prudent not to exercise jurisdiction under Article 226/227;

9. The power should be exercised in 'exceptional rarity' or if there is 'bad faith' which is shown;

10. Efficiency of the arbitral process ought not to be allowed to diminish and hence interdicting the arbitral process should be completely avoided.

The Court directed the Arbitrator to proceed to adjudicate the disputes expeditiously and pass an award, preferably within a period of six months.