Short Note section 16 of arbitration and conciliation act

I. Introduction
Section 16 of the Arbitration and Conciliation Act, 1996 ("A&C Act") has been framed in
accordance with Article 16 of the UNCITRAL Model law, which embodies elemental
jurisprudential doctrine i.e., "Kompetenze - Kompetenze". This doctrine empowers the court
or an arbitral tribunal to rule upon its 'own' jurisdiction, brought forth by one of the parties to
the dispute. Section 16 (1) of the A&C Act states that an arbitral tribunal may rule on its own
jurisdiction, including ruling on any objection with respect to the existence or validity of the
arbitration agreement.
However, Section 16 of A&C Act is silent on whether it is permissible for an arbitral tribunal
to determine other issues (of preliminary nature) at the threshold of an application filed under
Section 16 of the A&C Act. Curiously, several rulings of the Supreme Court of India ("SCI")
on the scope of jurisdiction under Section 16 of the A&C Act stands divided and appear to be
contradictory. This lack of clarity has created much dubiety around the true scope of
determination under Section 16 of the A&C Act.
II. Scope of 'jurisdiction' under Section 16
Though Section 16 of the A&C Act has not undergone any amendment since its enactment,
the revisions introduced by Arbitration and Conciliation (Amendment) Act, 2015 ("2015
Amendment") and the Arbitration and Conciliation (Amendment) Act, 2019 ("2019
Amendment") in respect to Section 11, has significant importance in truly understanding and
correctly interpreting the scope of Section 16(1) of the A&C Act. Few relevant cases are set
out below:
Pre 2015 Amendment
The SCI (constitution bench) in the case of SBP & Co. vs. Patel Engineering Ltd.1 ("SBP
Case") held that all the preliminary/threshold issues with respect to jurisdiction of the arbitral
tribunal should be examined by the Court under Section 11 of the A&C Act. This ruling
chipped away the inherent importance of the Kompetenze-Kompetenze principle incorporated
in Section 16 of the A&C Act. Consequently, the 2015 Amendment inserted Section 11(6A)
in order to restrict the powers of the courts to merely examining the existing of an arbitration
agreement (and nothing more). The insertion of Section 11(6A) and the principle of
'Kompetenze-Kompetenze' was subsequently upheld by the SCI in the case of Duro Felguera
S.A vs. Gangavaram Port Limited.2 Accordingly, the SBP Case stood legislatively overruled.
Post 2015 Amendment
The SCI (division bench), in the case of Indian Farmers Fertilizers Cooperative Limited vs.
Bhadra Products3 ("IFFCO Case"), interpreted the contours of Section 16 of A&C Act
elaborately and in detail.
The issues involved in the IFFCO Case were: a) whether an award on the issue of limitation
can be said to be an interim award and can be set aside under Section 34 of the A&C Act
("First Issue"); and b) whether a decision on a point of limitation would go to jurisdiction
and, therefore, be covered by Section 16 of the A&C Act ("Second Issue").
The SCI, on the First Issue, answered in the affirmative, and on the Second Issue, made the
following observations:
1. a) that Section 16(1) to 16(4) of the A&C Act are based on Article 16 of the
UNCITRAL Model Law and the 'Kompetenze-Kompetenze' principle deals with the
arbitral tribunal's jurisdiction in the narrow sense of ruling on objections with respect
to the existence or validity of the arbitration agreement; and
2. b) that the language of Section 16(1) states that Arbitral Tribunal may rule on its own
jurisdiction, which makes it clear that it refers to whether the arbitral tribunal may
embark upon an enquiry into the issues brought forth by the parties.
The SCI further placed reliance on the Section 30 and 31 of the English Arbitration Act, 1996
(which is also based on 'Kompetenze-Kompetenze' principle) and held that the issue of
limitation is not a matter of tribunal's jurisdiction under Section 16 of A&C Act. It also held
that the term 'jurisdiction' mentioned in Section 16 of the A&C Act means reference to a
three part test only: a) whether there is existence of a valid arbitration agreement; b) whether
the arbitral tribunal is properly constituted; and c) whether the matters submitted for
arbitration are in accordance with the arbitration agreement ("Three Determinatives").
Certain contradictory court rulings have been discussed in the subsequent Section III of this
piece.
Post 2019 Amendment
The 2019 Amendment omitted Section 11(6A) (though yet to be notified)4 of the A&C Act
and the implications of this omission was addressed by the SCI in the case of Mayavti
Trading Pvt. Ltd. vs Pradyuat Deb Burman5, wherein it was held that 11(6A) was not
deleted in order to resuscitate the law that was in place prior to 2015 Amendment, but to
enable the appointment of arbitrator(s) by arbitral institutions(s) appointed by the SCI in case
of international commercial arbitrations or by the High Courts in case of all other arbitrations.
III. The unsettled position
The IFFCO Case clarified that the scope of enquiry under Section 16 of A&C Act is limited
to the Three Determinatives only. As a result, issues (of preliminary nature) such as an issue
of limitation or non-joinder of necessary or proper parties could not be raised under Section
16 of A&C Act and remained a subject for determination as part of the merits of the case.
However, the SCI (also a division bench), subsequently in Uttarakhand Purv Sainak Kalyan
Nigam Limited vs. Northern Coal Field Limited6 ("UPSKNL Case") while dealing with the
issue whether the court is entitled to reject an application under Section 11 of the A&C Act,
on the ground that it was barred by limitation, held that the issue of limitation alongwith all
other preliminary jurisdictional issues cannot be determined by the court under Section 11 of
the A&C Act. In UPSKNL Case, the SCI after incorrectly relying on the IFFCO Case,
observed that the arbitral tribunal (as and when constituted) shall be empowered to determine
the issue of limitation under the Section 16 of the A&C Act.
Relying on the UPSKNL Case, the High Court of Bombay ("BHC") recently in C.
Shamsuddin vs. Now Realty Ventures LLP and others7 ("RVL Case") also gave a similar
finding and held that the question of limitation will be kept open for decision by the arbitral
tribunal under Section 16 of A&C Act. Interestingly, similar to UPSKNL Case, RVL Case
was also concerned with an application under Section 11 of the A&C Act.
In view of the divided findings of the SCI in the IFFCO and UPSKNL judgment (both
division benches) and of the BHC in RVL Case, the scope of jurisdiction under Section 16 of
the A&C Act remains unclear.
IV. Conclusion & Analysis
As mentioned above, the interesting facet is the absurdity of conclusions arrived at by both
UPSKNL Case and RVL Case by incorrectly interpreting and applying the IFFCO Case and
has left the scope of 'jurisdiction' under Section 16 in dubiety. Therefore, a decision of the
SCI clarifying on the issue of scope of 'jurisdiction' under Section 16 is much awaited, as the
existing dubiety might put the Arbitral Tribunals in a dilemma in interpreting the scope of
jurisdiction under Section 16 of the A&C Act.
However, in such a scenario, recourse to the position of law in relation to conflicting
judgments of co-equal benches can be analysed. It is a settled proposition of law that if there
are conflicting judgments of co-equal benches of the Apex Court then the sub-ordinate courts
must follow the judgment which appears to state law more elaborately and more accurately.8
In view of the aforesaid position, it can be argued that the reliance in respect to the law on the
scope of jurisdiction under Section 16 of the A&C Act shall be placed upon the IFFCO
judgment and not on UPSKNL judgment, as the IFFCO judgment has specifically dealt with
the issue of scope of jurisdiction under Section 16 of the A&C Act and has stated the law in
relation to its scope more elaborately and accurately.
In any case, the UPSKNL Case was limited to examining whether the courts were
empowered to determine the issue of limitation as part of an application filed under Section
11 of the A&C Act. Thus, the observation of the SCI in UPSKNL Case that all the
preliminary issues including limitation will be kept open for decision by the arbitral tribunal
under Section 16 of the A&C Act, was clearly an obiter dictum, and thus not binding as a
precedent.
Also, it is a settled law that if an issue is not raised before the court, no arguments are
addressed on that issue and no reasons on an issue is recorded by the court, then such a
judgment cannot be treated as a precedent.9 Further, according to the well-settled theory of
precedents, the essence in a decision is its ratio and not every observation found therein or
what logically follows from the various observations made in the judgment. The enunciation
of the reason or principle on which a question before a court has been decided is alone
binding as a precedent10. As a result, the UPSKNL Case, as far as its observation on the scope
of jurisdiction under Section 16 of A&C Act is concerned, cannot be treated as a valid
precedent, as the issue before the SCI in this case was rather with respect to Section 11 of the
A&C Act.
Resultantly, till the time an issue arises before the SCI driving it to deliver a more focused
judgment on the scope of Section 16 of the A & C Act, the position as laid down under the
IFFCO Case should be held to be the predominant position.
LATEST CASE LAWS ON SECTION 16
Surender Kumar Singhal & Ors. v. Arun Kumar Bhalothia
Arbitration- Tribunals Should Decide Objections On Its Jurisdiction As Preliminary Issue;
High Courts Have Limited Power To Interfere In Proceedings :Delhi HC
The Delhi High Court recently made significant observations with regard to the power of an
Arbitral Tribunal to rule on its own jurisdiction and the manner of deciding the same.
A Single Bench of Justice Prathiba M. Singh also addressed the issue of jurisdiction of
High Courts over arbitral tribunals and the scope of such interference.
Law governing applications under Section 16 of the Arbitration & Conciliation Act, 1996
and manner of consideration by arbitral tribunals.
With respect to the first aspect, the High Court has held that following the principle
of kompetenze-kompetenze, an Arbitral Tribunal has the power to rule on its own jurisdiction.
However, depending on each case, the Tribunal ought to decide Section 16 applications—
raising objection as to its jurisdiction— as soon as possible or with a sense of urgency as a
preliminary ground.
The order stated,
"Section 16 of the Arbitration and Conciliation Act, 1996 deals with the competence of a
Tribunal. Following the principle of kompetenze-kompetenze, an Arbitral Tribunal has the
power to rule on its own jurisdiction. However, Section 16(5) requires that the Tribunal
ought to decide the plea.
…The objection has to be decided at the earliest. However, there cannot be a hard and fast
rule. 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."
Reliance was placed on McDermott International Inc. v. Burn Standard Co. Ltd. & Ors.,
(2006) 11 SCC 181, where the Supreme Court held that under Section 16 of the Act, the party
questioning the jurisdiction of the arbitrator has an obligation to raise the said question before
the arbitrator. Further, the jurisdictional question is required to be determined as a
preliminary ground.
Similarly, in Raj International v. Tripura Jute Mills Ltd 2008 SCC Online Gau 333, the
Gauhati High Court had observed that without giving decision on the question of jurisdiction,
the arbitrator has no right to proceed for making an arbitral award.
In her order, Justice Singh observed that the following factors can be borne in mind when
objections are raised under Section 16 of the Act:
• 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;
• 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.
 • 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.
• 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.
Whether arbitral tribunals are tribunals over which jurisdiction under Art. 226/227 is
exercisable by High Courts and what is the scope of interference?
The Single Bench observed that the law on this issue 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.
It noted that the Supreme Court has, in a plethora of judgments, held that arbitral tribunals are
private tribunals unlike those tribunals set up under the statute or specialized tribunals under
the Constitution of India. Thus, a Petition under Article 227 challenging orders of an Arbitral
Tribunal would be maintainable.
Scope of interference in arbitral proceedings under Art. 227 of the Constitution
The Bench observed that while there is no doubt that the arbitral tribunal is a tribunal over
which writ jurisdiction can be exercised, the said interference by a writ court is limited in
nature.
It referred to the case of Deep Industries Ltd. v. ONGC and Ors,, whereby the Supreme Court
had categorically held that the jurisdiction of the writ court under Article 227 would not be
barred. However, the High Court would be extremely circumspect in interfering and the
jurisdiction would be exercised only where the Arbitrator patently lacks inherent jurisdiction.
The Supreme Court had said,
"there is no doubt whatsoever that if petitions were to be filed Under Articles 226/227 of the
Constitution against orders passed in appeals Under Section 37, the entire arbitral process
would be derailed and would not come to fruition for many years. At the same time, we
cannot forget that Article 227 is a constitutional provision which remains untouched by the
non-obstante Clause of Section 5 of the Act. In these circumstances, what is important to note
is that though petitions can be filed Under Article 227 against judgments allowing or
dismissing first appeals Under Section 37 of the Act, yet the High Court would be extremely
circumspect in interfering with the same."
In this backdrop, Justice Singh noted that 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:
• An arbitral tribunal is a tribunal against which a petition under Article 226/227 would
be maintainable;
• 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;
 • For interference under Article 226/227, there have to be `exceptional circumstances';
• 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;
• Interference is permissible only if the order is completely perverse i.e., that the
perversity must stare in the face;
• High Courts ought to discourage litigation which necessarily interfere with the arbitral
process;
• Excessive judicial interference in the arbitral process is not encouraged;
• It is prudent not to exercise jurisdiction under Article 226/227;
• The power should be exercised in `exceptional rarity' or if there is `bad faith' which is
shown;
• Efficiency of the arbitral process ought not to be allowed to diminish and hence
interdicting the arbitral process should be completely avoided.
SURENDER KUMAR SINGHAL & ORS VS ARUN KUMAR BHALOTIA & ORS.
Jurisdictional Objection Under Sec. 16 of Arbitration And Conciliation Act Has To Be Raised
At Inception With Sense Of Alacrity: Delhi High Court
The Delhi High Court on Thursday observed that a jurisdictional objection under sec. 16 of
the Arbitration and Conciliation Act by its very nature would be one which has to be raised at
inception, at the earliest stage. The Court also observed that under the scheme of the Act,
such an objection has to be raised with a "sense of alacrity" which must be decided by the
Arbitral Tribunal with a "sense of urgency".
A single judge bench comprising of Justice Pratibha M Singh observed thus:
"A jurisdictional objection by its very nature would be one which has to be raised at the
inception itself. The statute contemplates that the party raising the objection has to raise it
with alacrity and hence by an overall reading of Section 16 and especially Section 16(5) of
the Act, there is no doubt that the Tribunal also ought to decide the objection with a sense of
urgency. Such dispensation would be favoured especially in order to ensure that parties to
whom the arbitral proceedings may not even be applicable are not entangled to long drawn
arbitral proceedings with substantial costs being incurred."
Background of the Case
A single judge of the High Court vide order dated 9th January 2018 referred the dispute
between 2 branches of one family in relation to a family settlement/partition dated
15.07.2009 to arbitration by a sole arbitrator. This was done on an application filed by
Respondent No. 5 under sec. 8 of the Arbitration and Conciliation Act. In view of this, a
claim petition and a counter claim was raised before the Arbitrator.
During the course of Arbitral proceedings, the petitioners were arrayed as Respondents 5 to
10 and notice was issued vide order dated 11th April 2019 to appear before the Arbitrator.
Subsequently, the petitioners filed an application under sec. 16 of the Act raising objection on
the jurisdiction of the Tribunal by submitting that the said Tribunal does not have a
jurisdiction to adjudicate claims against them.
One of the grounds raised in the application was that the Petitioners were bonafide purchasers
of one of the properties and have valid title to the same and that the arbitration clause does
not bind them.
The Arbitrator vide order dated 8th July 2019 held that the objection as to jurisdiction would
be decided along with the final award.
An application for recall of the order was rejected on 7th August 2019. Therefore, orders
dated 8th July 2019 and 7th August 2019 were challenged before the Court under Art. 227.
Issues before the Court
1. Whether arbitral tribunals are tribunals over which jurisdiction under Art. 226/227 is
exercisable by High Courts and what is the scope of interference?
2. Law governing applications under Section 16 of the Arbitration & Conciliation Act, 1996
and manner of consideration by arbitral tribunals.
3. Whether on the facts of the present case, interference is warranted challenging the orders
passed by the arbitral tribunal?
Maintainability and Scope of Interference
While the Court observed that there was no doubt that the arbitral tribunal is a tribunal over
which writ jurisdiction can be exercised, it was also observed that the said interference by a
writ court is limited in nature.
The Court also referred to a bunch of landmark judgments and therefore held that for
interference under Art. 226 and 227, there have to be `exceptional circumstances'. The Court
also observed that such an interference is permissible only if the order is completely perverse
i.e., that the perversity must stare in the face.
Sec. 16 and Consideration by Arbitral Tribunal
The Court after analysing sec. 16 of the Act observed that the provision envisages that issues
of jurisdiction ought to be raised before the Arbitral Tribunal at the earliest, before the
submission of the statement of defence.
Noting that no fast rule can be adopted by the Court in such matters, the Court observed that
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 sec. 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 Court went ahead to observe that in order to maintain the efficiency of the arbitral
system, it is necessary that only those parties to whom the arbitral Clause is applicable
contractually are obliged to arbitrate.
Observing that the Arbitrator had fully applied his mind and gave reasons to the petitioner as
to why the application could not be adjudicated at the stage, the Court held that:
"Thus, the question of jurisdiction raised by the Petitioners would have to be adjudicated
first, prior to the passing of the final award. The present petition is disposed of in the above
terms. The ld. Arbitrator would proceed to adjudicate the disputes expeditiously and pass an
award, preferably within a period of six months. Parties to appear before the arbitrator on
April 5th, 2021."
National Aluminium Company Limited vs. Subhash Infra Engineers Pvt. Ltd.
Civil Suit Objecting Jurisdiction Of Arbitrator Not Maintainable, Reiterates SC
The Supreme Court has reiterated that a suit for injunction and declaration challenging the
jurisdiction of arbitrator is not maintainable.
The bench comprising Justice Abhay Manohar Sapre and Justice R. Subhash
Reddy observed that any objection with respect to existence or validity of the arbitration
agreement can be raised only by way of an application under Section 16 of the Arbitration
and Conciliation Act.
In this case [National Aluminium Company Limited vs. Subhash Infra Engineers Pvt.
Ltd.], the company appointed an arbitrator who initiated proceedings by issuing notice to
both the parties. On receiving the notice, the other party filed a civil suit seeking relief of
declaration that the appointment of the arbitrator is null and void. Application seeking interim
injunction was dismissed by the Trial Judge, but was allowed by the District Court. The High
Court affirmed the order of District Court.
In appeal, the company, placing reliance on the judgment in Kvaerner Cementation India
Limited V. Bajranglal Agarwal, contended that even if the other party disputes the
jurisdiction of the arbitrator, it is open for it to move an application before the arbitrator
under Section 16 of the Act, but at the same time, the suit filed for declaration and injunction
is not maintainable.
Agreeing with this contention, the bench observed:
In the Judgment of this Court, in the case of Kvaerner Cementation India Limited V.
Bajranglal Agarwal and Another1, this Court has examined the similar issue and held that
any objection with respect to existence or validity of the arbitration agreement, can be raised
only by way of an application under Section 16 of the Act and Civil Court cannot have
jurisdiction to go into such question.
Having regard to aforesaid judgment of this Court and various communications between the
parties, we are in agreement with the submission made by the learned senior counsel for the
appellant that, if the first respondent wants to raise an objection with regard to existence or
validity of the arbitration agreement, it is open for the first respondent to move an
application before the arbitrator, but with such plea, he cannot maintain a suit for
declaration and injunction.
The court, however, noted that the company had appointed its own Chairman-cum-Managing
Director as an arbitrator. Having regard to the Fifth Schedule, he cannot be continued as an
arbitrator, to adjudicate the lis between the parties, the bench said.