Arbitral

Jurisdiction Of Arbitral Tribunal

“According to Black’s Law Dictionary, Arbitration in practice is the investigation and determination of a matter or matters of difference between contending parties, by one or more unofficial persons, chosen by the parties.”

Overview

In the Arbitration and Conciliation Act, 1996 section 16 describes the competency of an arbitral tribunal to rule on its own jurisdiction. The arbitration tribunal has the power to resolve/settle a dispute raised by the parties regarding the jurisdiction of Arbitral tribunal on its own. When the Arbitration Act, 1940 (hereinafter referred to as Act, 1940) was in force there was major involvement of the courts in the arbitration proceeding. The Act 1940 allowed courts to interfere at every stage of the arbitration proceeding, starting from the appointment of the arbitrator, the interim stage till the passing of the award. Thus the court started overseeing the arbitration proceedings and not giving arbitration the status of an alternate resolution mechanism. This overseeing, pending and backlogged cases increased the workload of the courts which resulted in the delayed decision of the cases. In Act 1940, if a specific question of law was referred to the Arbitrator by the parties, the decision of the Arbitrator was final and binding on the parties. Similarly, the decision of the arbitrator regarding jurisdiction was also deemed to be final. Therefore due to the above-stated reason among other reasons, there was an urgent need to amend the then provisions of the Arbitration Act, 1940. And thus the Arbitration Act 1940 was repealed by The Arbitration and Conciliation Act, 1996. According to Act 1996, the Jurisdiction of arbitral tribunal held power to decide on its own jurisdiction whereby, if Arbitrator has wrongly decided the issue of jurisdiction and has made the award in consonance to section 34(b) of the Act 1996 the decision can be challenged before the court of law. This section is based on the Kompetenz–Kompetenz principle, according to which the Jurisdiction of arbitral tribunal has the jurisdiction to determine its own jurisdiction.

Doctrine of Competence–Competence (Kompetenz–Kompetenz) 

In German, it is referred to as the concept of “kompetenz–kompetenz”. Kompetenz-kompetenz means an arbitral tribunal is allowed to make a decision on its jurisdiction and validity of an arbitration agreement. According to the principle of kompetenz-kompetenz, validity or expiry of an agreement that includes an arbitration clause does not necessarily mean that an arbitration agreement is invalid or has expired. It is a method of overcoming the problem that would have occurred where a tribunal decides initially that the arbitration agreement is invalid. 

The principle gives the tribunal the legal standing to set proceedings in motion when faced with an objection raised by an uncooperative respondent. But this principle also has an adverse impact on Arbitration as Azhar between entitled to be the first to determine the jurisdiction which is later reviewable by the court,  when there is no action to enforce or set aside the arbitral award. A similar view was taken in a Supreme Court judgment namely Chloro Controls (I) P. Ltd. v. Seven Trent Water Purification Inc. JT 2012 (10) SC 187, where the dispute is not before an Arbitral Tribunal, the court must also decline the jurisdiction unless the arbitration agreement is patently void, inoperative and incapable of being performed.

Key Feature of Section 16: Competence of an Arbitral Tribunal to Rule on its own Jurisdiction.

  • The arbitral tribunal is competent to rule on its own jurisdiction, along with, on any dispute arising from the existence or validity of an arbitration agreement.
  • According to the repealed Arbitration Act, 1940 all applications regarding the conduct of arbitration proceedings or otherwise arising out of such proceedings shall be made to the Court where the award has been or may be, filed, and to no other Court. But as per the Arbitration and Conciliation Act,1996 the tribunal holds the power to rule on its own jurisdiction.
  • In case, if there is no separate arbitration agreement between the parties then the arbitration clause of the agreement between the parties will be considered as the arbitration agreement independent of other terms of the agreement.
  • If the arbitral tribunal holds the agreement null and void then that will not amount to the invalidity of the arbitration clause of the agreement.
  • The parties are required to submit their objection regarding the issue related to the jurisdiction of the arbitral tribunal before the statement of defense has been filed. All disputant parties have the liberty to file their objection despite if such a party has appointed the arbitrator or was involved in the appointment of the arbitrator.
  • A plea that the arbitral tribunal has exceeded its scope the parties are required to raise their objection as soon as the arbitrator has gone beyond its scope of authority during the arbitral proceeding.
  • The parties file/raise their objection regarding jurisdiction or scope exceeded by the arbitrator before the arbitral tribunal only. The arbitral tribunal may allow such objection for consideration at a later stage if the delay is justified by the party and the tribunal agrees with such justification for delay. 
  • The arbitral tribunal will decide upon the plea raised by the parties and if the tribunal denies the plea the arbitration proceeding will be resumed and subsequently, an award will be passed by the arbitral tribunal.
  • The parties are also at the liberty to file an application under Section 34 of the Act once the award has been passed by the arbitral tribunal to set aside such an award.

Conclusion

The decision of the Arbitral tribunal rejecting a plea regarding its jurisdiction is not appealable but if such tribunal accepts the plea but later on it is found by the parties that the arbitrator has decided beyond their scope of authority, the party in such circumstances may move an application in an appropriate court of law thereby making it an appealable award. Moreover, the invalidity of the agreement does not amount to the invalidity of the arbitration clause of such agreement. According to a judgment of Jharkhand High Court, State of Jharkhand v. Himachal Construction Co. Pvt. Ltd., AIR 2006 NOC 249 (Jhar), during the pendency of an arbitration proceeding, a civil court has no jurisdiction to entertain the petition and decide the nature of objections raised therein, the questions can be raised before and decided by the arbitrator.

Article by:

Saumya Johari

Legal Consultant at Credgenics

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