2021 (3) TMI 1391 - HC - Indian Laws

Powers of Arbitral Tribunals - arbitral tribunals are tribunals over which jurisdiction under Art. 226/227 is exercisable by High Courts and the scope of interference? - Law governing applications under Section 16 of the Arbitration Conciliation Act, 1996 and manner of consideration by arbitral tribunals - whether interference is warranted challenging the orders passed by the arbitral tribunal? Maintainability - Whether arbitral tribunals are tribunals over which jurisdiction under Art. 226/227 is exercisable by High Courts and what is the scope of interference? - HELD THAT - The law is well settled that Arbitral tribunals are a species of tribunals over which the High Court exercises writ jurisdiction. Challenge to an order of an arbitral tribunal can be raised by way of a writ petition. In UNION OF INDIA VERSUS R. GANDHI PRESIDENT MADRAS BAR ASSOCIATION 2010 (5) TMI 393 - SUPREME COURT the Supreme Court observed on the question as to what constitutes 'Courts' and 'Tribunals' as The term 'Courts' refers to places where justice is administered or refers to Judges who exercise judicial functions. Courts are established by the state for administration of justice that is for exercise of the judicial power of the state to maintain and uphold the rights, to punish wrongs and to adjudicate upon disputes. Tribunals on the other hand are special alternative institutional mechanisms, usually brought into existence by or under a statute to decide disputes arising with reference to that particular statute, or to determine controversies arising out of any administrative law. The following principles are well settled, in respect of the scope of interference under Article 226/227 in challenges to orders by an arbitral tribunal including orders passed under Section 16 of the Act - (i) An arbitral tribunal is a tribunal against which a petition under Article 226/227 would be maintainable; (ii) 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; (iii) For interference under Article 226/227, there have to be 'exceptional circumstances'; (iv) 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; (v) Interference is permissible only if the order is completely perverse i.e., that the perversity must stare in the face; (vi) High Courts ought to discourage litigation which necessarily interfere with the arbitral process; (vii) Excessive judicial interference in the arbitral process is not encouraged; (viii) It is prudent not to exercise jurisdiction under Article 226/227; (ix) The power should be exercised in 'exceptional rarity' or if there is 'bad faith' which is shown; (x) Efficiency of the arbitral process ought not to be allowed to diminish and hence interdicting the arbitral process should be completely avoided. The law governing applications under Section 16 of the Arbitration Conciliation Act, 1996 and the manner of consideration by arbitral tribunals - HELD THAT - Following the principle of kompetenze-kompetenze, an Arbitral Tribunal has the power to rule on its own jurisdiction - The other provisions of appeal are sections 50 and 59 of the Act which are relating to foreign awards and Geneva Convention awards. Therefore, it can be safely said that the impugned order is not appealable order and there is no other option before the petitioner except to approach this court. In the opinion of this 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 submission of the statement of defence. Under Section 16(5), the Tribunal is mandated to decide the said issue. The question that arises is at what stage is the objection to be decided - 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 following factors can be borne in mind when objections are raised under Section 16 of the Act i. 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; ii. 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. iii. 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. iv. 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 manner in which the Arbitral Tribunal, considered the objections/application under Section 16 in the present case - HELD THAT - The ld. Arbitrator has fully applied his mind and given reasons as to why the application of Petitioners (Respondent No. 5 to 10 in the arbitration) under Section 16 of the Act is not to be adjudicated at this stage. The ld. Arbitrator observes that the property in question which was purchased by the Petitioners was subject matter of the reference which was made by the ld. Single Judge of this Court on 9th January, 2018. Ld. Arbitrator, further observes that the Petitioners may be genuine purchasers of the property, however, the sale consideration qua the said property was to be decided between the parties. Thus, notice was issued to the Petitioners so that their rights are not jeopardized in any manner. An application to recall notice of arbitration under Section 16 cannot, therefore, in the opinion of the ld. Arbitrator, be decided at this stage and would rightly have to await completion of pleadings and admission and denial - The property which the Petitioners have purchased is squarely in dispute in the arbitration and, therefore, the Ld. Arbitrator was of the view that the appropriate stage will only be the final stage and the application of the Petitioners was kept on file. Considering this expression used in the order of reference, ld. Arbitrator was of the opinion that a final decision on the application of the Petitioners under Section 16 cannot be taken, without further evidence in the matter. The property which the Petitioners have purchased as per the Arbitrator is clearly subject matter of the arbitral proceedings and thus the ld. Arbitrator, after evidence being recorded may be required to mould relief in the same manner. Thus, the tests for interference under Article 226/227 being extremely strict, this Court does not deem it appropriate to interfere under Article 227. The present petition is disposed of.

Summary

Issues Involved:
1. Maintainability of writ petitions under Article 227 against orders of arbitral tribunals.
2. Scope and extent of interference by High Courts under Article 227 in arbitral proceedings.
3. Law governing applications under Section 16 of the Arbitration and Conciliation Act, 1996.
4. Whether the arbitral tribunal's decision to postpone ruling on jurisdictional objections is permissible.

Detailed Analysis:

1. Maintainability of Writ Petitions under Article 227:
The court confirmed that arbitral tribunals are tribunals over which the High Court exercises writ jurisdiction. The Supreme Court's observations in Union of India v. R. Gandhi and SREI Infrastructure Finance Limited clarified that arbitral tribunals are private tribunals and thus, a petition under Article 227 challenging orders of an arbitral tribunal is maintainable.

2. Scope and Extent of Interference by High Courts:
The court emphasized that interference by a writ court is limited in nature. Recent decisions, such as Deep Industries Ltd. v. ONGC and Ors. and Punjab State Power Ltd. v. Emta Coal Ltd. & Anr., established that the High Court would be extremely circumspect in interfering with arbitral tribunal orders. Interference is restricted to orders that are patently lacking in inherent jurisdiction, and the High Court should discourage litigation that unnecessarily interferes with the arbitral process.

3. Law Governing Applications under Section 16:
Section 16 of the Arbitration and Conciliation Act, 1996, allows an arbitral tribunal to rule on its own jurisdiction. The tribunal is mandated to decide on any jurisdictional plea as a preliminary ground. However, the tribunal has discretion regarding the timing of such decisions, as seen in McDermott International Inc. and Raj International. The court noted that the tribunal should decide jurisdictional objections based on the specific facts and circumstances of each case, potentially requiring evidence before making a ruling.

4. Arbitral Tribunal's Decision to Postpone Ruling on Jurisdictional Objections:
The tribunal's decision to defer the jurisdictional objection under Section 16 until the final award was challenged. The court found that the arbitrator had applied his mind and provided reasons for not deciding the application at that stage. The arbitrator noted that the property purchased by the Petitioners was part of the dispute and required evidence for a proper decision. The court held that the arbitrator's approach was neither perverse nor patently lacking in jurisdiction. However, the court clarified that the arbitrator should decide the jurisdictional objection before passing the final award, aligning with the legal position in McDermott International Inc.

Conclusion:
The court dismissed the petition, emphasizing that the arbitral tribunal should adjudicate the disputes expeditiously and decide the jurisdictional objections before the final award. The parties were directed to appear before the arbitrator on April 5th, 2021, with the expectation that the award would be passed within six months.