Arbitral Tribunal to Rule its Own Jurisdiction

Arbitration was devised as a method to circumvent the ills plague the process of civil litigation in courts. In India it existed early on in the form of panchayats, which consisted of people who were asked to decide on matters brought before them, and their decisions were accepted by the parties to the dispute. The British, for the first time under their rule, made use of the principle of arbitration in the Bengal regulations of 1772 and 1780. And in 1813 provisions regarding arbitration of disputes were made applicable to immovable property. [1] And in 1940, the Arbitration Act was enacted, which repealed the Arbitration Act of 1899. These statutes aimed to institutionalise the process of arbitration in India. But over a period of time it was found that the Arbitration Act of 1940 was not enough to meet the needs of a fast- changing India. Therefore in 1996 it was replaced by the Arbitration and Conciliation Act.

The Arbitration and Conciliation Act, 1996 provides the parties abundant freedom in matters such as the matter of choosing the place of arbitration, fixing the number of arbitrators, appointment of arbitrators etc. They are even free to determine the matters which they want to submit to the arbitral tribunal formed by their choice. But sometimes a problem whether the Arbitral tribunal has jurisdiction, may arise. One of the parties may claim that the Arbitral Tribunal has no jurisdiction to decide the dispute between them. In fact this happened often under the old Arbitration Act, 1940 where the mere allegation of the invalidity of the main contract would provide jurisdiction to the courts to decide whether a valid arbitration agreement existed between the parties to the dispute. And this delayed the process of arbitration a lot, thus defeating the purpose of arbitration [2] . Now, under the Arbitration and Conciliation Act, 1996 power has been given to the Arbitral Tribunal under Section 16 (1) to rule on its jurisdiction, including ruling on any objections with respect to the existence or validity of the arbitration agreement.

But does the Arbitral Tribunal have the competence to make a binding decision on its own jurisdiction, including the decision ruling on any objections with respect to the existence or validity of an arbitration agreement? Will the Arbitral Tribunal lose jurisdiction if the contract in which the arbitration agreement (clause) is inserted, is declared void? It is the answers to these questions that are sought to be found out.

NATURE AND SCOPE:

The researcher analyses whether the Arbitral tribunal has the competence to decide on its own jurisdiction and whether the Arbitral tribunal will lose jurisdiction if the contract in which the arbitration agreement or clause is inserted is declared void.

RESEARCH QUESTIONS:

Q1. Does the Arbitral Tribunal have the competence to make a binding decision on its own jurisdiction, including decisions ruling on any objections with respect to the existence or validity of an arbitration agreement?

Q2. Will the Arbitral Tribunal lose jurisdiction if the contract in which the arbitration agreement or clause is inserted, is declared void?

Q3. Under what circumstances would the Arbitral tribunal lose jurisdiction to rule on its competence?

RESEARCH METHODOLOGY:

The doctrinal method has been followed. Books and cases have been referred to.

CHAPTERISATION:

The researcher analyses the topic in three parts. In the first part he analyses whether the Arbitral Tribunal has the competence to make a binding decision on its own jurisdiction. In the second part he analyses whether the Arbitral Tribunal would lose jurisdiction if the contract in which the arbitration agreement or clause is inserted, is declared void. And in the third part he analyses the circumstances under which the Arbitral Tribunal would lose jurisdiction to rule on its competence.

COMPETENCE OF ARBITRAL TRIBUNAL TO MAKE A BINDING DECISION ON ITS OWN JURISDICTION

There was no provision under the Arbitration Act of 1940 which allowed the Arbitral Tribunal to make a decision on its own jurisdiction and it was the job of the court to decide on the jurisdiction of the arbitral tribunal. But under Section 16 of the Arbitration and Conciliation Act, 1996 the Arbitral Tribunal has been granted the power to make a ruling on its own jurisdiction. Section 16 (1) of the Arbitration and Conciliation Act states that the Arbitral Tribunal may rule on its own jurisdiction, including ruling on any objection with respect to the existence or validity of the arbitration agreement.

Section 16 of the Arbitration and Conciliation Act incorporates the principle of competence-competence. It has two aspects: first, that the tribunal may decide on its jurisdiction without support from the courts and secondly, that the courts are prevented from determining this issue before the tribunal has made a determination on this issue. [3] But does this determination by the Arbitral Tribunal have a binding effect? Can it not be challenged in courts?

In the case of Union of India vs. M/s. East Coast Boat Builders & Engineers Ltd. [4] it was stated:

“From the scheme of the Act it is apparent that the legislature did not provide appeal against the order under section 16(5) where the arbitral tribunal takes a decision rejecting the plea that the arbitral tribunal has no jurisdiction. The intention appears to be that in such case, the arbitral tribunal shall continue with the arbitral proceedings and make an award without delay and without being interfered in the arbitral process at that stage by any court in their supervisory role.”

In the case of Nav Sansad Vihar Coop. Group Housing Society Ltd. (Regd.) vs. Ram Sharma and Associates [5] it was stated that if a plea is rejected by the Arbitral Tribunal under section 16(5) of the Arbitration and Conciliation Act the arbitral proceedings shall continue, an award shall be given and the aggrieved party shall have to wait till the giving out of the award and there is no separate remedy against such order.

But under section 37(2) of the Arbitration and Conciliation Act a decision of the tribunal accepting the plea that it does not have jurisdiction or is exceeding its scope of authority is appealable. In the case of Pharmaceutical Products of India Ltd. vs. Tata Finance Ltd. [6] it was stated:

“Where the Arbitral Tribunal decides to reject the plea regarding its jurisdiction, sub-section (5) clearly empowers the Tribunal to continue with the arbitral proceedings and make an arbitral award. Sub-section (5) provides for the manner in which such an arbitral award may be challenged. It provides that such an award can only be challenged in accordance with section 34. On the other hand, if the Arbitral Tribunal decides to accept the plea that it has no jurisdiction, then such an order is appealable under section 37(2) of the Act… .”

Thus we see that when the Arbitral Tribunal decides to reject a plea regarding its jurisdiction then the order made regarding its jurisdiction is not appealable but when the Arbitral tribunal decides to accept the plea that it has no jurisdiction then such an order is appealable under section 37(2) of the Arbitration and Conciliation Act.

JURISDICTION OF ARBITRAL TRIBUNAL WHEN CONTRACT CONTAINING ARBITRATION CLAUSE DECLARED VOID

There may be instances when the arbitration agreement may not be made as a separate agreement. Instead, it may be embedded, or inserted, as a clause, in the contract between the parties. And it may happen that the agreement or the contract between the parties is declared void or illegal. What happens to the agreement in such cases? Will the arbitration clause in such cases become void?

In the case of Jawaharlal Burman vs. Union of India [7] it was stated:

“It is, therefore, theoretically possible, that a contract may come to an end and the arbitration contract may not. It is also theoretically possible that the arbitration agreement may be void and yet the contact may be valid; and in that sense there is a distinction between the arbitration agreement and the contract of which it forms a part; but… in the present case, the challenge to the contract itself involves a challenge to the arbitration agreement; if there is a concluded contract the arbitration agreement is valid. If there is not a concluded contract the arbitration agreement is invalid… indeed, we apprehend that in a very large majority of cases where the arbitration agreement is a part of the main contract itself, challenge to the existence or validity of one would mean a challenge to the existence or validity of the other.”

Then in the case of Waverly Jute Mills Co. Ltd. Vs. Raymon and Co. (India) Ltd. [8] it was stated:

“A dispute as to the validity of a contract could be the subject-matter of an agreement of arbitration in the same manner as a dispute relating to a claim made under the contract. But such an agreement would be effective and operative only when it is separate from and independent of the contract which is impugned as illegal. Where, however, it is a term of the very contract whose validity is in question, it has, as held by us in Khardah Co. Ltd. case, no existence apart from the impugned contract and must perish with it.”

In the case of Jaikishan Dass Mull vs. Luchhiminarain Kanoria & Co. [9] it was stated by the court:

“Now there can be no doubt that if a contract is illegal and void, an arbitration clause, which is one of the terms thereof, must also perish along with it. As pointed out by Viscount Simon, L.C. in Heyman vs. Darwins Ltd. [10] “… if one party to the alleged contract is contending that it is void ab initio, the arbitration clause cannot operate, for on this view the clause itself is void”. The arbitration clause being an integral part of the contract cannot stand, if the contract itself is held to be illegal.”

But the position has changed now. The Arbitration and Conciliation Act was enacted in 1996. And Section 16 (1) of this Act states that the arbitration clause if inserted in a contract shall be considered to be an independent from the rest of the contract and a decision by the Arbitral Tribunal that the contract is null and void shall not entail ipso jure the invalidity of the arbitration clause.

In the case of Olympus Superstructures vs. Meena Vijay Khaitan [11] it was stated:

“It will be noticed that under the Act of 1996 the arbitral tribunal is now invested with power under sub-section (1) of section 16 to rule on its own jurisdiction including ruling on any objection with respect to the existence or validity of the arbitration agreement and for that purpose, the arbitration clause which forms part of the contract and any decision by the arbitral tribunal that the contract is null and void shall not entail ipso jure affect the validity of the arbitration clause. This is clear from clause (b) of section 16(1) which states that a decision by the arbitral tribunal that the main contract is null and void shall not entail ipso jure the invalidity of the arbitration clause.”

And in the case of National Agricultural Coop. Marketing Federation India Ltd. vs. Gains Trading Ltd. [12] it was stated that a decision that the contract is null and void shall not entail ipso jure the invalidity of the arbitration clause.

Thus we see that though the invalidity of the main clause affected the validity of the arbitration clause inserted in it earlier, now the law has changed after insertion of Section 16(1) into the Arbitration and Conciliation Act, 1996. And now the invalidity of the main contract does not result in the invalidity of the arbitration clause inserted in it, ipso jure because of the application of the doctrine of separability, which results in the arbitration clause being treated as independent from the main contract.

LOSS OF COMPETENCE OF ARBITRAL TRIBUNAL TO RULE ON ITS OWN JURISDICTION

There may be certain instances when the Arbitral Tribunal may lose the competence to rule on its jurisdiction.

Section 11(6) of the Arbitration and Conciliation Act states that a party may request the Chief Justice or his designate to take required steps when under an appointment procedure agreed to by the parties, one of them fails to act as required under the procedure, or the parties or the two arbitrators fail to reach an agreement expected of them under the procedure, or a person or institution fails to perform a function entrusted to him under such procedure. And section 11(7) states that a decision taken by the Chief justice or his designate under section 11(4), section 11(5) or section 11(6) shall be final. Which means that the arbitral tribunal cannot look into the question of its own jurisdiction when the Chief Justice has looked into it earlier.

In the case of Konkan Railway Corporation Ltd. vs. Rani Construction Pvt. Ltd. [13] it was stated by the court that the constitution of the Arbitral tribunal by the Chief Justice may be challenged before the Arbitral Tribunal on the ground of being in violation of the Act. It was observed by the court:

“It might also be that in a given case the Chief Justice or his designate may have nominated the arbitrator though the period of thirty days had not expired. If so, the Arbitral Tribunal would have been improperly constituted and be without jurisdiction. It would then be open to the aggrieved party to require the Arbitral tribunal to rule on its jurisdiction. Section 16 provides for this. It states that the Arbitral Tribunal may rule on its own jurisdiction.”

But in the case of SBP and Co. vs. Patel Engineering Ltd. [14] it was stated that the Arbitral tribunal could not rule on its own jurisdiction once it had been appointed by the Chief Justice. It was stated:

“The question, in the context of sub-section (7) of Section 11 is, what is the scope of the right conferred on the Arbitral Tribunal to rule upon its own jurisdiction and the existence of the arbitration clause, envisaged by section 16(1), once the Chief Justice or the person designated by him had appointed an arbitrator after satisfying himself that the conditions for the exercise of power to appoint an arbitrator are present in the case. Prima facie, it would be difficult to say that in spite of the decision of the Chief Justice, the Arbitral tribunal can still go behind that decision and rule on its own jurisdiction or on the existence of an arbitration clause.

…

Section 16 cannot be held to empower the Arbitral tribunal to ignore the decision given by the judicial authority or the Chief justice before the reference to it was made. The competence to decide does not enable the Arbitral tribunal to get over the finality conferred to an order passed prior to its entering upon the reference by the very statute that creates it.”

This case overruled the judgment given in the case of Konkan Railway Corporation Ltd. vs. Rani Construction Pvt. Ltd [15] .

Thus we see that if the Chief Justice or his designate has looked into the existence of the arbitration clause and on its jurisdiction then the Arbitral Tribunal cannot look into the question of its jurisdiction. It would in such a case be barred from looking into the matter of its jurisdiction.

CONCLUSION:

The decision of the Arbitral tribunal rejecting a plea regarding its jurisdiction is not appealable but its decision regarding acceptance of plea about having no jurisdiction is appealable. And the invalidity of the main contract no longer affects the arbitration clause which is considered from the main contract. And when the Chief Justice has already looked into the question of jurisdiction the Arbitral Tribunal cannot look into its jurisdiction once again.

TABLE OF CASES

Heyman vs. Darwins Ltd. 1942 AC 356

Jawaharlal Burman vs. Union of India AIR 1962 SC 378

Waverly Jute Mills Co. Ltd. vs. Raymon and Co. (India) Ltd. AIR 1962 SC 1810

Jaikishan Dass Mull vs. Luchhiminarain Kanoria (1974)2 SCC 521

Union of India vs. m/s. East Coast Boat Builders and Engineers Ltd. 76 (1998) DLT 958

Olympus Superstructures vs. Meena Vijay Khaitan (1999)5 SCC 651

Nav Sansad Vihar Coop. Group Housing Society Ltd. (Regd.) vs. Ram Sharma and Associates MANU/DE/0704/2000

Konkan Railway Corporation Ltd. vs. Rani Construction Pvt. Ltd. (2002)2 SCC 388

Pharmaceutical Products of India Ltd. vs. Tata Finance Ltd. (2002)4 AllMR 412

SBP and Co. vs. Patel Engineering Ltd. (2005)8 SCC 618

National Agricultural marketing Federation India Ltd. vs. Gains Trading Ltd. (2007)5 SCC 692

Konkan Railway Ltd. vs. Rani Construction Pvt. Ltd. (2002)2 SCC 388

SBP & Co. vs. Patel Engineering Ltd. (2005)6 SCC 288