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redeposit money withdrawn from the partnership firm’s accounts and restrained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
What if the Arbitral Tribunal constituted is not as per the Arbitration Clause in the Agreement, then does the Court have jurisdiction to declare that the Arbitral Tribunal constituted is null and void ??
ReplyDeleteWhen there exist a arbitration clause in a agreement, to appoint an arbitrator under section 11 of the Arbitration and Conciliation act the High court is empowered to appoint an arbitrator, hence at the time of appointment of Arbitrator the matter can be raised. for disqualifying of the Arbitrator separate provision is laid down in the Arbitration Act. The Act allows full freedom to the parties in the matter of appointment of arbitrators. However, if there
ReplyDeletefailure of the parties’ on the agreed mechanism for appointment of arbitrator, the Chief Justice of a High Court (in the domestic arbitration proceeding ) or the Chief Justice of the Supreme Court of India (in case of an
international commercial arbitration) having the jurisdiction to appoint the arbitrator.
sunil Kumar samant, Advocate Karnataka High Court, sunielsamant@gmail.com
With regard to the declaration of "Null and Void" of the Arbitration Proceedings, The courts have the power to declare , provided that :
ReplyDeleteThe Arbitration and conciliation Act
provides that the arbitral tribunal may rule on its own jurisdiction, including with respect to the
existence or validity of the arbitration agreement,In this juncture the arbitration clause shall be treated as
the independent of the underlying contract and a order or decision that the contract is null and void shall not entail ipso jure the invalidity of the arbitration clause. Where the arbitral tribunal rejects an objection to its own
jurisdiction, it shall continue with the arbitral proceedings and make the award. Any challenge to the
award would be available in the Court of Law or appeal, in contrary , the arbitral tribunal accepts the plea as to
its lack of jurisdiction, an appeal shall lie to a court of law. Hence the question of 'Null and void " can be determined by the appellate court.