Once the decision taken by a judicial authority under Section 8(1) of the Arbitration & Conciliation Act declining to refer the dispute to arbitration has become final, jurisdiction of the Chief Justice under Section 11(6) of the Act cannot be invoked

The Supreme Court of India has held¹ that either party to the proceedings cannot invoke the jurisdiction of the Chief Justice under Section 11(6) of the Arbitration and Conciliation Act, 1996 after the decision taken by a judicial authority under Section 8(1) of the Act declining to refer the dispute pending before it to arbitration and the said decision has become final.

The case involved a suit filed by a partnership firm, viz., M/s. Rana Sahebram Mannulal and three others before the Court of the Civil Judge Senior Division at Aurangabad, Maharashtra. The appellants before the Supreme Court were defendants 1 to 3 in the said suit. The dispute mainly pertained to the partnership business.

Upon entering appearance, the defendants/appellants had filed an application under Section 9A of the Code of Civil Procedure, 1908 to dismiss the suit for want of jurisdiction since the partnership deed contained a provision for arbitration and hence the disputes were liable to be resolved in terms of the Act. In other words, the application filed by defendants, in essence, was to be treated as an application under Section 8(1) of the Act. The same was opposed by the plaintiff. The trial court upheld the objection and held that it was within the jurisdiction of the court to try the dispute and, therefore, it was not required under law to refer the same to arbitration.

The suit proceeded. The parties have examined all their witnesses.

While so, the respondents herein approached the Chief Justice of the High Court of Judicature at Bombay by filing an application under Section 11(6) of the Act seeking appointment of an arbitrator as per the terms of the partnership deed. The appellants opposed the prayer.

The High Court, as per the impugned order, ignored the objection and held that Section 8(3) of the Act does not preclude appointment of arbitration during course of the litigation pursuant to an agreement

“4. Sub-section (3) of Section 8 of the Act does not preclude appointment of arbitration during course of litigation pursuant to agreement. Taking into account sub-section (3) of Section 8 and Section 11 of the Arbitration and Conciliation Act, 1996, it would be expedient that pursuant to clause 6 of the partnership deed, a proper person be appointed as arbitrator to entertain dispute between the parties,” so held the High Court.

The defendants in the suit, aggrieved by the order of the High Court carried the matter in appeal to the Supreme Court.

The Apex Court Court was thus essentially confronted with the issue as to whether either party to the proceedings can invoke the jurisdiction of the Chief Justice under Section 11(6) of the Act after the decision taken by a judicial authority under Section 8(1) of the Arbitration and Conciliation Act, 1996 (hereinafter referred to as “the Act”) declining to refer the dispute pending before it to arbitration and the said decision has become final. The scope of Section 8(3) of the Act was also an ancillary issue before the Court.

The Court held that the facts of the case would show that the application filed by the respondents before it under Section 11 of the Act was nothing but an abuse of process. “The partnership firm itself is the first plaintiff in the suit. The dispute between the parties is the subject of the suit. Precisely for that reason, the appellants sought the matter to be referred to the arbitrator. That was opposed by the respondents. When the suit is at the final stage, the respondents have sought appointment of an arbitrator under Section 11(6) of the Act. Having approached the civil court and having opposed the reference to arbitration under Section 8(1) of the Act and the decision of the court in that regard having become final, the respondents cannot invoke jurisdiction under Section 11(6) of the Act; it is hit by the principle of issue estoppel.”

The Court explained further: “Under Section 8(1) of the Act, either party is free to apply to the judicial authority within the prescribed time to refer the parties to arbitration, in case the matter pending before it is the subject matter of an arbitration agreement. Section 8(3) of the Act however makes it clear that notwithstanding the application under Section 8(1) of the Act and the issue pending before the judicial authority, arbitration may be commenced or continued and an arbitral award can also be made. In other words, despite the pendency of an application under Section 8(1) of the Act before the judicial authority, Section 8(3) of the Act permits the parties to commence and continue the arbitration and the arbitral tribunal is free to pass an award. That alone is what is contemplated under Section 8(3) of the Act.

Writing the judgment for the Bench, Justice Kurian Joseph opined that the principle of res judicata would also come into play once the decision of the Civil Court under Section 8(1) of the Act had become final. He said: “In the suit instituted by the firm and some of the respondents, the order passed by the civil court that it was well within its jurisdiction to try the suit, despite the objection regarding the existence of a clause for arbitration, has become final. Thereafter, Section 11(6) jurisdiction of the Chief Justice cannot be invoked by either party. The principle of res judicata will also be attracted in such a case.”

The Bench of Kurian Joseph and Anil.R. Dave, JJ. thus held : “once the judicial authority takes a decision not to refer the parties to arbitration, and the said decision having become final, thereafter Section 11(6) route before the Chief Justice is not available to either party.”

The Apex Court accordingly set aside the impugned order and allowed the appeal with costs of Rs.25,000/-.

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1. Anil @ v. Rajendra, Civil Appeal No. 11604 /2014 [Arising out of S.L.P. (Civil) No. 15314 of 2014, decided on 18.12.2014

Objection as to jurisdiction of Arbitral Tribunal : All objections as to jurisdiction of whatever nature must be taken at the stage of the submission of the statement of defence and not afterwards, holds the Supreme Court

The Supreme Court, in an appeal filed by M/s. MSP Infrastructure Ltd. against  Madhya Pradesh Road Development Corporation Ltd.¹, while answering the question, whether a party to an arbitration proceeding may be permitted to raise objections under Section 34 of the Arbitration and Conciliation Act, 1996 (for short "the Arbitration Act, 1996"), with regard to the jurisdiction of the Arbitral Tribunal (for short "the Tribunal") after the stage of submission of the written statement, has held that all objections to jurisdiction of whatever nature must be taken at the stage of the submission of the statement of defence, and must be dealt with under Section 16 of the Arbitration Act, 1996. However, the Court added, “if one of the parties seeks to contend that the subject matter of the dispute is such as cannot be dealt with by arbitration, it may be dealt under Section 34 by the Court”.

 

A commercial dispute between M/s. M.S.P. Infrastructure (Appellant), a contractor, and the Madhya Pradesh Road Development Corporation (Respondent) was referred to arbitration by the Calcutta High Court in terms of the contract between the parties under the provisions of the Arbitration Act, 1996.

The Arbitral Tribunal made an award on 27-11-2006. Aggrieved by the said award, the Respondent filed a petition on 09-01-2007 for setting aside the award under Section 34 of the Arbitration Act, 1996. The Respondent assailed the award as being in contravention of clause (b) of sub-section (2) of Section 34 of the Arbitration Act, 1996.

Subsequently, on 28-02-2009 the Respondent moved an application to amend the original petition under Section 34 to add additional grounds of objection. The Additional District & Sessions Judge, Bhopal (Madhya Pradesh) vide order dated 26-08-2009 rejected the said amendment application. The learned Additional District & Sessions Judge observed that it was absolutely unjust and unfair to file such objections after two years of the filing of the petition under Section 34 of the Arbitration Act, 1996. Aggrieved, the Respondent preferred a Petition under Article 227 before the High Court of Madhya Pradesh at Jabalpur. The Madhya Pradesh High Court without going into the tenability of the amendment application at the stage at which it was moved, i.e., beyond the time permitted by Section 16 of the Arbitration Act, 1996, simply allowed the amendment by observing that they are not deciding the merits of the case and that they were simply considering the amendment application.

On 18-02-2010, the High Court allowed the Respondent's petition and set aside the order of the District Court, thus allowing the amendment application.

Aggrieved by the allowing of the amendment application, the Appellant has moved this Court. The main challenge to the order allowing the amendment, raised by the appellant was that it allows the Respondent to raise an objection to jurisdiction contrary to Section 16 of the Arbitration Act, 1996, which provides that an objection to jurisdiction shall not be raised later than the submission of the statement of defence. 

The ground sought to be added vide the amendment application was that only the Arbitration Tribunal Constituted by the State Govt. of M.P. had the exclusive jurisdiction to decide the said dispute on being submitted to it under sub section 1 of, Section 7 of the M.P. Madhyastham Adhikaran Adhiniyam, 1983 and none else, and as such the Arbitral Tribunal earlier constituted-by the Indian Council of Arbitration, New Delhi has no jurisdiction to entertain and/or decide the dispute, and “the impugned award is a total nullity and non-est in the eye of law.”

The Appellant contended that (i) the Tribunal under the Arbitration Act, 1996 was fully empowered to enter into and decide the dispute submitted to it, since the dispute was referred in pursuance of an arbitration clause contained in the Concession Agreement, (ii) this agreement was entered into by the parties in the year 2002, being fully aware of the existence of the Madhya Pradesh Madhyastham Adhikaran Adhiniyam, 1983 (for short "the M.P. Act of 1983"), (iii) the parties reiterated this agreement before the Calcutta High Court when they specifically agreed vide Clause 'C' of the consent terms that if the Appointing Authority fails to appoint and constitute the Tribunal in terms of the Concession Agreement dated 04-04-2002 within a period of 30 days, the parties shall be at liberty to apply to the Madhya Pradesh High Court for appointment and constitution of the Tribunal under the provisions of the Arbitration Act, 1996. Thus, on two occasions, the parties asserted and consented that the dispute between them would be resolved by Arbitration under the provisions of the Arbitration Act, 1996.

The Appellant therefore contended that there is no merit whatsoever in the ground introduced by the amendment application. Even otherwise, the Appellant contended that the provisions of the Arbitration Act, 1996, being a Parliamentary Statute would have precedence over the M.P. Act of 1983, which is a State Act on the same subject. Above all, it was contended that the introduction of the ground that the Tribunal did not have jurisdiction is grossly belated and impermissible in view of Section 16(2) of the Arbitration Act, 1996.

The Court proceeding to answer the question whether, having regard to Section 16 of the Arbitration Act, 1996, the Respondent was entitled to introduce the ground that the Arbitration Tribunal constituted under the M.P. Act of 1983 would take precedence over the Tribunal constituted under the Arbitration Act, 1996, that too by way of an amendment to the petition under Section 34, held after referring to the provisions of Section 16(2) of the Arbitration Act, 1996 that .there is a prohibition on the party from raising a plea that the Tribunal does not have jurisdiction after the party has submitted its statement of defence. The intention is very clear. “This provision (Section 16(2)) disables a party from petitioning an Tribunal to challenge its jurisdiction belatedly, having submitted to the jurisdiction of the Tribunal, filed the statement of defence, led evidence, made arguments and ultimately challenged the award under Section 34 of the Arbitration Act, 1996. This is exactly what has been done by the Respondent Corporation. They did not raise the question of jurisdiction at any stage. They did not raise it in their statement of defence; they did not raise it at any time before the Tribunal; they suffered the award; they preferred a petition under Section 34 and after two years raised the question of jurisdiction of the Tribunal. In our view, the mandate of Section 34 clearly prohibits such a cause. A party is bound, by virtue of sub-section (2) of Section 16, to raise any objection it may have to the jurisdiction of the Tribunal before or at the time of submission of its statement of defence, and at any time thereafter it is expressly prohibited. Suddenly, it cannot raise the question after it has submitted to the jurisdiction of the Tribunal and invited an unfavourable award. It would be quite undesirable to allow arbitrations to proceed in the same manner as civil suits with all the well-known drawbacks of delay and endless objections even after the passing of a decree.”

The Respondent took the contention that a party is entitled under the law to raise an objection at any stage as to the absence of jurisdiction of the Court which decided the matter, since the order of such a Court is a nullity. Meeting this contention, the Court said that it must be remembered that this position of law has been well settled in relation to civil disputes in Courts and not in relation to arbitrations under the Arbitration Act, 1996. Parliament has the undoubted power to enact a special rule of law to deal with arbitrations and in fact, has done so. Parliament, in its wisdom, must be deemed to have had knowledge of the entire existing law on the subject and if it chose to enact a provision contrary to the general law on the subject, its wisdom cannot be doubted. Accordingly, the Bench rejected the said submission of the Respondent.

It was next contended on behalf of the Respondent by placing reliance on clause (b) of sub-section (2) of Section 34 that objections to the jurisdiction of a Tribunal may be of several kinds as is well-known, and Section 16 does not cover them all. It was further contended that where the objection was of such a nature that it would go to the competence of the Arbitral Tribunal to deal with the subject matter of arbitration itself and the consequence would be the nullity of the award, such objection may be raised even at the hearing of the petition under Section 34 of the Act.

This argument also did not favour with the Court which said that there is nothing to warrant the inference that all objections to the jurisdiction of the Tribunal cannot be raised under Section 16 and that the Tribunal does not have power to rule on its own jurisdiction.The Court said that Parliament has employed a different phraseology in Clause (b) of Section 34. That phraseology is "the subject matter of the dispute is not capable of settlement by arbitration." The Coirt held that this phrase does not necessarily refer to an objection to 'jurisdiction' as the term is well known. “In fact, it refers to a situation where the dispute referred for arbitration, by reason of its subject matter is not capable of settlement by arbitration at all. Examples of such cases have been referred to by the Supreme Court in the case of Booz Allen and Hamilton Inc. Vs. SBI Home Finance Limited and Ors.²This Court observed as follows:-

"36. The well-recognised examples of non-arbitrable disputes are:

(i) disputes relating to rights and liabilities which give rise to or arise out of criminal offences;

(ii) matrimonial disputes relating to divorce, judicial separation, restitution of conjugal rights, child custody;

(iii) guardianship matters;

(iv) insolvency and winding-up matters;

(v) testamentary matters (grants of probate, letters of administration and succession certificate); and

(vi) eviction or tenancy matters governed by special statutes where the tenant enjoys statutory protection against eviction and only the specified courts are conferred jurisdiction to grant eviction or decide the disputes."

Accordingly the Bench of the Supreme Court comprising of Justices Mr. J. Chelameswar and Mr. S.A. Bobde held that all objections to jurisdiction of whatever nature must be taken at the stage of the submission of the statement of defence, and must be dealt with under Section 16 of the Arbitration Act, 1996. “However, if one of the parties seeks to contend that the subject matter of the dispute is such as cannot be dealt with by arbitration, it may be dealt under Section 34 by the Court.”

The Apex Court holding that the amendment application raised a ground which was contrary to law and ought not to have been allowed by the High Court, accordingly, set aside the judgment and order of the High Court.

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1. Civil Appeal No.10778 of 2014 arising out of SLP (Civil) No. 16539 of 2010 decided on 05.12.2014

2. (2011) 5 SCC 532

Attorney General recommends repeal of the Arbitration & Conciliation Act, 1996

Attorney General of India, Mukul Rohatgi, in a legal opinion to the Ministry of Law and Justice, Government of India, has recommended the repeal of the Arbitration and Conciliation Act, 1996 and mooted a new law in tune with the Union Government’s larger push to provide a business-friendly environment for foreign investors.

(File photo: Mukul Rohatgi)

The Attorney General had tendered his legal opinion on the subject after the Ministry of Law and Justice, Government of India had specifically sought his views of the same. In his legal opinion, AG, Mukul Rohatgi has advised the Government to replace the present law with a new one stressing timely settlement of business disputes and fixing greater onus on arbitrators against delay.

To strengthen the arbitration mechanism framework, the AG has suggested to the Government, the introduction of  statutory measures like a “strict” time limit of probably six months for giving the arbitration award in a dispute. The AG also recommended the imposition of penalty on arbitrators who delay matters.

Mr. Rohatgi has further suggested a ceiling for arbitration fee and expenses. In case of challenge to an arbitration award, a provision should be introduced in the statute, whereby a stay is granted after hearing both parties. 

 

The AG's legal opinion on repeal of the Arbitration and Conciliation Act, 1996 which has been on the statute books for 18 years now, comes close on the heels of the Union Law Minister D.V. Sadananda Gowda's Law Day speech at the Supreme Court, wherein he had said that changing the 1996 law was a top priority for the government’s ‘Make in India’ policy to attract foreign investments.