Judgments and Awards

Narayan Prasad Lohia Vs Nikunj Kumar Lohia

A contention arose in this case that u/s 16 a party cannot challenge the composition of the arbitral tribunal before the arbitral tribunal itself. The permissibility and scope of such an action was looked into and the court held that this contention was not tenable.

It was held that Section 16 enables the arbitral tribunal to rule on its own jurisdiction, on any objection with respect to the existence or validity of the arbitration agreement and the tribunal's authority is not limited to the width of its jurisdiction but also goes to the root of its jurisdiction. Section 16(2) makes it clear that such a challenge can be taken even though the party may have participated in the appointed of the arbitrator and/or may have himself appointed the arbitrator. The party would be free, if he so chose, not to raise such a challenge.

A conjoint reading of Sections 10 & 16 shows that an objection to the composition of the arbitral tribunal is a matter which is derogable, because the party is free not to object within the time prescribed in Section 16(2). If a party chooses not to object, there will be a deemed waiver u/s 4.

Lexicon Finance Limited Unit No II Mumbai Vs Union of India

In this matter, the contract was held void. The scope of the arbitral tribunal to rule on its own jurisdiction under the effect of a void contract was examined in this case.

It was held that in view of the provision of section 16(1), an arbitration clause in an agreement is to be treated as an agreement independent of other clauses and terms in the contract. Even if the arbitral tribunal were told to hold that the contract is null and void, it shall not entail ipso jure the invalidity of the arbitration clause. In other words, even if the contract is held to be void, the clause regarding arbitration found in a void contract would not become void. It exists independently and is enforceable.

Unik Accurates Pvt Ltd Vs Sumedha Fiscal Services Ltd

The petitioner had filed an application u/s 16 challenging the validity of the agreement and jurisdiction of the tribunal, which was rejected by the tribunal. Thereafter the petitioner filed an application under Article 227 of the Constitution and the issue of its maintainability was in question in this matter.

It was held that it is established that an arbitral tribunal is subject to the supervision of a principal Civil Court of original jurisdiction in a District or High Court in exercise of ordinary original jurisdiction and it would be preposterous to contend that such tribunal will not come within the purview of Article 227 of the Constitution. An arbitral tribunal under the Act is a tribunal within the meaning of Article 227 of the Constitution as the Act has conferred upon such tribunal inherent judicial power of the State.

Tamil Nadu Water Supply and Drainage Board, Chennai Vs Aban Constructions

The respondent contractor entered into contract with the petitioner wherein the contract was signed by the respondent's project manager who held a power of attorney in this behalf. It was contended by the petitioner that the agreement was invalid, null and void. The arbitrator rejected the contention and continued with the proceedings. Thereafter the petitioner filed a petition u/s 34 challenging the rejection order.

While dismissing the petition, it was held that the aggrieved party has no right to challenge the order passed by the tribunal in respect of the jurisdiction u/s 34. on the contrary, if the objection raised by one of the parties is accepted, the aggrieved party can file an appeal u/s 37(2). The intention of the Parliament is that if the arbitral tribunal has come to the conclusion that it is not vested with the jurisdiction, then nothing remains with them and the aggrieved party has to necessarily rush to the court of law. Whereas, if the arbitral tribunal finds that it has the jurisdiction, the aggrieved party can agitate the said finding as well as the final award u/s 34.

The intention of the Parliament not to allow any party to have any recourse against the decision of the arbitral tribunal rejecting a challenge, is clear u/s 16(5). The Parliament also left out Article 13(3) and 16(3) of the UCNITRAL Model Law in order to support the theory of non interference by Courts in arbitral proceedings. Thus the Parliament has decided not to provide any appeal or recourse against the order of the arbitral tribunal rejecting the challenge to its jurisdiction.

Arati Dhar Vs SK Dutta

The petitioner raised a plea of jurisdiction of the arbitrator before the submission of statement of defense, when the arbitrator first entered upon reference. The said submission was also repeated in the counter statement of defense by the petitioner. The arbitrator, without deciding the plea, proceeded with the arbitration and made an award.

While setting aside the award, it was held that it is clear from a conjoint reading of section 16(2), (3) and (5) that the arbitrator is under an obligation to decide the plea of jurisdiction and his authority to continue the arbitration depends on his decision regarding the plea about his jurisdiction. ie. Section 16(5) envisages that the arbitrator may reject the plea about his jurisdiction and then continue with the proceeding and make an award. In the instant case, the arbitrator proceeded with making an award without rejecting the question as to his jurisdiction first, and as such committed a grave error of law.

Reading section 16(1) with section 16(2) makes it clear that the plea relating to the jurisdiction of the arbitral tribunal should be raised not later than the submission of the statement of defense. In the instant case, the plea was raised even before the submission of the statement of defense. Section 16(2) clearly provides that a party shall not be precluded from raising the said plea merely because either (i) he has appointed or (ii) participated in the appointment of the arbitrator. Therefore, the order passed for appointment at the stage of section 11 cannot preclude the petitioner from raising the plea of jurisdiction.

Since the question of jurisdiction goes to the root of the matter, other questions raised by the parties were not considered and the court held that the arbitrator had no jurisdiction to pass the award which it had passed.

Prem Laxmi & Co Vs Tata Engineering ad Locomotive Co Ltd

The respondents made some modifications in the General Conditions of Sale of Goods, whereby removing the arbitration clause. However, the heading 'Arbitration' remained in the said clause but the contents of the clause reflected jurisdiction of Bombay courts in case of disputes. The question of jurisdiction of the arbitrator came up and the arbitrator held that he had no jurisdiction.

The court upheld the arbitrator's decision and stated that a perusal of the contents of the said clause did not suggest that the same can be construed as an arbitration clause as the same refers to the fact that the contract has been entered into at Bombay and that disputes or differences arising from the contract shall be decided by the court in Bombay.

Lexicon Finance Ltd Unit No II, Mumbai Vs Union of India

A plea was put forward in this case that section 16(5) of the Act is ultra vires the Constitution as an aggrieved party is left without any effective remedy except to go through the entire trial.

It was held that a bare reading of the section reveals that if the objection regarding jurisdiction is rejected by the tribunal, the tribunal shall continue with the proceedings and make an award. If the party is aggrieved by such an award, he has been provided with a remedy by way of application u/s 34 for setting aside such award. Therefore, an arbitral award could be challenged u/s 34 not only on the grounds set out in section 34(2), but also on the ground that the tribunal has no jurisdiction or that the tribunal exceeded its authority as contemplated u/s 16(2) and (3). If a plea u/s 16(2) or (3) is accepted by the tribunal then u/s 37(2) an appeal is provided against such finding.

Therefore the Legislature in its wisdom has provided for appropriate statutory remedies both when the plea regarding jurisdiction is accepted and rejected by the Tribunal. Merely because after the plea is rejected the person raising the said objection is made to contest the proceedings on merits and only when an award is passed is he permitted to challenge the said award, both on the question of jurisdiction and on merits u/s 34, would not render section 16(5) inequitable and violative of the principles of natural justice and ultra vires of the Constitution.

GAIL (India) Ltd Vs Nagarjuna Cerachem Pvt Ltd.

There was a government contract for supply of gas which had an arbitration clause. However, the petitioner filed a writ petition under Article 226 of the Constitution of India, the maintainability of which was questioned in this case.

The court held that the writ was not maintainable as there was an arbitration clause in the agreement under which all the disputes, if not settled mutually, will have to be referred for arbitration where the arbitrator would decide the dispute and grant appropriate relief. It is not permissible to invoke Article 226 because there is an existing effective remedy available in the contract itself. Availability of an alternative remedy is a good ground for the court to decline to exercise its extraordinary jurisdiction under Article 226.

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2004(3) RAJ 43 (Del)
Tulip IT Services Limited Vs Punjab National Bank

The petitioner had placed a tender bid with the respondent which was rejected. The petitioner filed an application u/s 9 on the basis of the arbitration clause contained in the tender. The respondent contended that since it did not accept the response to the tender as submitted by the petitioner, the arbitration agreement was not signed by the unsuccessful tenderer and therefore there was no contract or arbitration agreement between the parties.

It was held that since the response to the tender by the petitioner was not accepted, it had not transformed into a contract and no arbitration agreement could be said to exist between the parties permitting the petitioner to resort to arbitration as per terms of the tender. It was also held that floating of a tender and response thereto cannot constitute an agreement as contemplated u/s 7 and 11. No party inviting tenders for execution of a work can contemplate or visualize a situation where several unsuccessful bidders for a given contract, even before the award of the contract, can all enter into separate arbitration proceedings.

Raj & Associates Vs Videsh Sanchar Nigam Ltd & Ors

In this matter, respondent no 2 was the agent of respondent no.1 who applied that the suit filed by the plaintiff for recovery of money against respondent no.1, be referred to arbitration.

It was held that the agent cannot enforce any term of the contract in the presence of its principal, thus respondent no. 2 is not a necessary party. In the absence of any contract, an agent personally cannot enforce the contract. If the agent has not disclosed his principal or the principal is not learnt of during the performance of the contract, the agent may be proceeded against independently.