Wednesday 1 August 2012

Scope of Court Intervention under S. 37(2)(b)


Introduction
To what extent a Court can be permitted to exercise jurisdiction during the life of the arbitral tribunal is an issue, the answer to which can define a legal system’s attitude towards alternative dispute resolution mechanisms. In a recent decision of the High Court of Bombay, this issue cropped up once again.[2]

Facts
The Appellant and the Respondent were partners in a partnership firm. Disputes arose, resulting in the Respondent invoking the arbitration clause in the Deed of Partnership. Under the said clause arbitration was to be carried out by a sole arbitrator mutually appointed by the parties. In the event the parties could not agree, the tribunal was to comprise of two arbitrators, one each appointed by each party.

The Respondent nominated an arbitrator and called upon the Appellant to confirm the same. The Appellant resisted the appointment in writing. The Respondent seemingly did not disclose this fact to the arbitrator and the arbitrator proceeded ex-parte. Despite the Appellant pointing out its written objection to the tribunal, the arbitrator held that she had jurisdiction and scheduled hearings for interim orders. The Appellant boycotted the hearing on account of its objection to the very formation and hence jurisdiction of the arbitral tribunal.

The arbitrator passed interim orders under S. 17 of the A&C Act, 1996, directing the Appellant to redeposit money withdrawn from the partnership firm’s accounts and restrained the Appellant from interfering in the business of the firm.

Against this interim order the Appellant moved the Bombay High Court under S. 37(2) of the A&C Act, 1996 which reads as under: 
     Appeal shall also lie to a court from an order of the arbitral tribunal 
     a).....
     b)Granting or refusing to grant an interim measure under section 17.

Submissions
The Appellant submitted that the tribunal was constituted against the agreed terms of the arbitration clause in the Deed of Partnership. The Appellant sought a declaration that the arbitral proceedings were null and void and thus the interim order passed by the Tribunal was required to be vacated.

The Respondent resisted the appeal on the ground that the scope of a Court’s jurisdiction under S. 37(2)(b) was limited to examining the arbitral tribunal’s refusal or grant of interim orders. The Respondent submitted that the Court could not go into the issue of jurisdiction of the arbitral tribunal as the same was a question which was only to be decided at the time of challenge to the arbitral award under S. 34 read with S. 16(6).

Decision
The learned single judge of the High Court of Bombay held that the bar created by S. 34 r/w S. 16(6) whereby the party against whom the issue of jurisdiction is decided by the Arbitrator against them is entitled to challenge the same along with other grounds under Section 34 of the Arbitration Act is in no way sufficient to take away the rights of the Appellate Court under Section 17 to grant and consider in this background, the merit and demerit of the appointment of the Arbitral Tribunal as it goes to the root of the matter. Merely because the Appellate Court under Section 37 against the order passed under Section 17 of the Arbitration Act cannot disturb and/or set aside the order passed by the Arbitrator under Section 16 confirming its jurisdiction, that itself cannot be the reason and/or takes away the Appellate Court's power to consider the case of the Appellant with regard to the jurisdiction at least for the time being till the Arbitral Tribunal decides all disputes and/or differences finally through the Award.

The learned judge held that the arbitral tribunal having been improperly constituted, the interim order was liable to be vacated. The learned judge however directed that the arbitration should continue and result in an award.

Analysis
Before we analyze the judgment, it is important to bear in mind that the judge has in his decision often used the words interim award interchangeably with interim orders. There is a distinction between the two. An award is final and operates not just merely during the course of the arbitral proceedings, though it may be on partial points and hence in a manner of speaking, interim. An interim order on the other hand is an order which has a lifespan only limited to the course of arbitral proceedings. While the former can be challenged and set aside under S. 34, the latter can only be appealed against under S. 37.

We now analyze the decision.

The scope of intervention by a Court in arbitral proceedings must be limited. The A&C Act, 1996 borrows from the Model Law and states under S. 5 that no judicial authority shall intervene except so provided in that part of the statute.

Court intervention under S. 37(2)(b) is limited to sitting in appeal over the interim order passed by or the refusal to pass an interim order by the Arbitral Tribunal under S. 17. In such a scenario can the court in the appeal review questions of constitution/jurisdiction of the arbitral tribunal? More so when such questions are to be exclusively dealt with by the court at the stage of challenge to the arbitral award under S. 34 r/w S. 16(6).

It is arguable that arbitration is an ADR mechanism where court intervention must be minimal as emphasized by S. 5. It is further arguable that when excusive provisions have been carved out wherein court intervention is permitted to deal with questions of constitution and jurisdiction of the arbitral tribunal, under other provisions, the court must not entertain and desist from trying such issues. Furthermore an appellate court’s jurisdiction is bound to be far more restricted. It may also be noted that the Court under S. 37(2)(b) has the power to vacate an interim order passed by the tribunal or pass an interim order which was refused by the arbitral tribunal. However no power has been granted to interfere with the arbitral process by any other means, including questioning the jurisdiction of the arbitral tribunal. It is reasonably arguable that the Court must only look into the merits of the interim order and decide whether the three requisites (prima facie case, balance of convenience and irreparable injury) exist for granting or refusing to grant the interim order.

However it is worth contemplating whether a court while sitting in appeal over an interim order can go into questions of existence of jurisdiction to pass the very interim order itself. Would such an investigation not be relevant to decide whether the interim order is null and void? The Court would possibly be out of bounds if it annulled the arbitration under S. 37(2)(b) on the ground of the interim order being wholly without jurisdiction. However would it be out of bounds if it decided that the interim order needed to be vacated for lack of jurisdiction? While the natural outcome of such a decision would mean that for all practical purposes the arbitration is infructuous as the Court has already passed opinion on the lack of jurisdiction of the arbitral tribunal, nonetheless in our opinion the Court would be well within its right to examine whether the interim order was passed wholly without jurisdiction as the same goes to the root of the interim order.

Conclusion
A halfway house solution seems to be the best approach to this issue. A Court under S. 37(2)(b) should not be barred from looking into whether the arbitral tribunal had jurisdiction to pass the interim order. However the Court must not decide finally on the point of jurisdiction but only make a prima facie observation as to the question of jurisdiction in the course of deciding whether the interim order ought to be granted or refused. The same would also uphold the principle of kompetenz kompetenz leaving the final decision of jurisdiction to the tribunal itself (such decision being capable of being challenged under S. 34) and not interrupting the arbitral process in any manner. It seems that the learned judge of the Bombay High Court has endeavoured to steer his decision towards this very end.


[1] Authored by Mr. Vikram Nankani and Mr. Alok N. Jain. Copyright Economic Laws Practice.
[2] Arbitration Appeal No. 12 of 2012 decided on 9th April 2012